-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, VB4vlVY2lI/5rzmEuLHDwcsCC+z9VEMLLYIHJdyKw0NcDkib0Wq2PcStZuRLEhiU JNzRAJo7uMMNNGAIY2W9ww== 0000950130-95-001466.txt : 19950804 0000950130-95-001466.hdr.sgml : 19950804 ACCESSION NUMBER: 0000950130-95-001466 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 19950802 SROS: AMEX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIME WARNER CAPITAL I CENTRAL INDEX KEY: 0000948745 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-61523 FILM NUMBER: 95558557 BUSINESS ADDRESS: STREET 1: 75 ROCKEFELLER PLAZA STREET 2: 75 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10019 MAIL ADDRESS: STREET 2: 75 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10019 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-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-61523-01 FILM NUMBER: 95558558 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIME WARNER CAPITAL II CENTRAL INDEX KEY: 0000948746 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-61523-02 FILM NUMBER: 95558559 BUSINESS ADDRESS: STREET 1: 75 ROCKEFELLER PLAZA STREET 2: 75 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10019 MAIL ADDRESS: STREET 2: 75 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10019 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIME WARNER CAPITAL III CENTRAL INDEX KEY: 0000948747 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-61523-03 FILM NUMBER: 95558560 BUSINESS ADDRESS: STREET 1: 75 ROCKEFELLER PLAZA STREET 2: 75 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10019 MAIL ADDRESS: STREET 2: 75 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10019 S-3 1 REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1995 REGISTRATION NO. 33- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- TIME WARNER INC. TIME WARNER CAPITAL I (EXACT NAME OF REGISTRANT AS SPECIFIED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) IN ITS CHARTER) 13-1388520 TO BE APPLIED FOR (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.) DELAWARE DELAWARE (STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION) TIME WARNER CAPITAL II TIME WARNER CAPITAL III (EXACT NAME OF REGISTRANT AS SPECIFIED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) IN ITS CHARTER) TO BE APPLIED FOR TO BE APPLIED FOR (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.) DELAWARE DELAWARE (STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION) 75 ROCKEFELLER PLAZA NEW YORK, N.Y. 10019 (212) 484-8000 (ADDRESS, INCLUDING EACH ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- PETER R. HAJE EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL TIME WARNER INC. 75 ROCKEFELLER PLAZA NEW YORK, N.Y. 10019 (212) 484-8000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: WILLIAM P. ROGERS, JR. FAITH D. GROSSNICKLE CRAVATH, SWAINE & MOORE SHEARMAN & STERLING WORLDWIDE PLAZA 599 LEXINGTON AVENUE 825 EIGHTH AVENUE NEW YORK, N.Y. 10022 NEW YORK, N.Y. 10019-7415 (212) 848-8015 (212) 474-1270 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of the registration statement, as determined by market conditions. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please 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] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check thefollowing box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] --------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION OF SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT (1)(2)(3) PRICE (1)(2)(3) FEE (2) - ------------------------------------------------------------------------------------------------- Preferred Trust Securi- ties of the Trusts..... - ------------------------------------------------------------------------------------------------- Subordinated Debentures of Time Warner Inc..... - ------------------------------------------------------------------------------------------------- Guarantees of Preferred Securities of the Trusts by Time Warner Inc.(4)......... - ------------------------------------------------------------------------------------------------- Total................... $500,000,000 100% $500,000,000 $172,414
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Such indeterminate number of Preferred Trust Securities of Time Warner Capital I, Time Warner Capital II and Time Warner Capital III (each a "Trust") and such indeterminate principal amount of Subordinated Debentures of Time Warner Inc. as may from time to time be issued at indeterminate prices. Subordinated Debentures may be issued and sold to any Trust, in which event such Subordinated Debentures may later be distributed to the holders of Preferred Securities upon a dissolution of such Trust and the distribution of the assets thereof. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. The aggregate public offering price of the Preferred Securities of the Trusts and the Subordinated Debentures of Time Warner Inc. registered hereby will not exceed $500,000,000. (3) Exclusive of accrued interest and distributions, if any. (4) No separate consideration will be received for any Guarantees. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN 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 NOR 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. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED , 1995 PROSPECTUS SUPPLEMENT - --------------------- (TO PROSPECTUS DATED , 1995) PREFERRED TRUST SECURITIES TIME WARNER CAPITAL I % PREFERRED TRUST SECURITIES (LIQUIDATION AMOUNT $25 PER PREFERRED TRUST SECURITY) GUARANTEED TO THE EXTENT SET FORTH HEREIN BY TIME WARNER INC. ----------- The % Preferred Trust Securities (the "Preferred Securities") offered hereby represent preferred undivided beneficial interests in the assets of Time Warner Capital I, a statutory business trust formed under the laws of the State of Delaware ("Time Warner Capital"). Time Warner Inc., a Delaware corporation ("Time Warner"), will directly or indirectly own all the common securities (the "Common Securities" and, together with the Preferred Securities, the "Trust Securities") representing undivided beneficial interests in the assets of Time Warner Capital. Time Warner Capital exists for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in an equivalent amount of % Subordinated Debentures Due , 2025 (the "Subordinated Debentures") of Time Warner. Upon an event of a default under the Declaration (as defined herein), the holders of Preferred Securities will have a preference over the holders of the Common Securities with respect to payments in respect of distributions and payments upon redemption, liquidation and otherwise. (continued on next page) SEE "RISK FACTORS" ON PAGE S-7 FOR CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES. Application will be made to list the Preferred Securities on the New York Stock Exchange under the symbol " ". Trading of the Preferred Securities on the New York Stock Exchange is expected to commence within a 30-day period after the initial delivery of the Preferred Securities. See "Underwriting". ----------- THESE SECURITIES 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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PRICE $25 PER PREFERRED SECURITY PLUS ACCRUED DISTRIBUTIONS, IF ANY. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PROCEEDS TO INITIAL PUBLIC UNDERWRITING TIME WARNER OFFERING PRICE(1) COMMISSIONS(2) CAPITAL(3)(4) - -------------------------------------------------------------------------------- Per Preferred Security.......... $ (3) $ - -------------------------------------------------------------------------------- Total........................... $ (3) $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Plus accrued distributions, if any, from , 1995. (2) Time Warner Capital and Time Warner have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting". (3) Because the gross proceeds of the sale of the Preferred Securities will be invested in the Subordinated Debentures, Time Warner has agreed to pay to the Underwriters a commission of $ per Preferred Security (or $ in the aggregate); provided that such compensation for sales to certain institutions will be $ per Preferred Security. See "Underwriting". (4) Expenses of the offering which are payable by Time Warner are estimated to be $ . ----------- The Preferred Securities offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of the Preferred Securities will be made on or about , 1995 through the book-entry facilities of The Depository Trust Company, against payment therefor in immediately available funds. ----------- MERRILL LYNCH & CO. MORGAN STANLEY & CO. BEAR, STEARNS & CO. INC. INCORPORATED ----------- The date of this Prospectus Supplement is , 1995. (continued from previous page) Holders of the Preferred Securities are entitled to receive cumulative cash distributions at an annual rate of % of the liquidation amount of $25 per Preferred Security, accruing from , 1995 (the "Issue Date") and payable quarterly in arrears on , , and of each year. The payment of distributions out of moneys held by Time Warner Capital and payments on liquidation of Time Warner Capital or the redemption of Preferred Securities, as set forth below, are guaranteed by Time Warner (the "Guarantee") to the extent Time Warner has made payments under the Subordinated Debentures as described under "Description of the Guarantee". The obligations of Time Warner under the Guarantee are subordinate and junior in right of payment to all other liabilities of Time Warner and pari passu with the most senior preferred stock issued, from time to time, if any, by Time Warner. The obligations of Time Warner under the Subordinated Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined herein to include Time Warner's outstanding indebtedness (including its 8 3/4% Convertible Subordinated Debentures due 2015), guarantees, letters of credit and certain other obligations) of Time Warner, which aggregated approximately $10.1 billion at March 31, 1995. In addition to such Senior Indebtedness, Time Warner's obligations under the Guarantee and the Subordinated Debentures are effectively subordinated to all liabilities (including indebtedness) of its consolidated and unconsolidated subsidiaries, which aggregated approximately $13.9 billion at March 31, 1995. Certain capitalized terms used in this Prospectus Supplement have the meaning ascribed to them under "Glossary of Terms" in Annex I hereto. The distribution rate and the distribution and other payment dates for the Preferred Securities will correspond to the interest rate and interest and other payment dates on the Subordinated Debentures. As a result, if principal or interest is not paid on the Subordinated Debentures, no amounts will be paid on the Preferred Securities. If Time Warner does not make principal or interest payments on the Subordinated Debentures, Time Warner Capital will not have sufficient funds to make distributions on the Preferred Securities, in which event, the Guarantee will not apply to such distributions until Time Warner Capital has sufficient funds available therefor. Time Warner has the right to defer payments of interest on the Subordinated Debentures by extending the interest payment period on the Subordinated Debentures at any time for up to 20 consecutive quarters (each an "Extension Period"). If such interest payments are so deferred, distributions on the Preferred Securities will also be deferred. During such Extension Period, distributions will continue to accrue with interest thereon and holders of Preferred Securities will be required to include deferred interest income in their gross income for United States Federal income tax purposes in advance of receipt of the cash distributions with respect to such deferred interest payments. There could be multiple Extension Periods of varying lengths throughout the term of the Subordinated Debentures. See "Risk Factors--Option to Extend Interest Payment Period", "Description of the Subordinated Debentures--Option To Extend Interest Payment Period" and "United States Federal Income Taxation--Original Issue Discount". The maturity date of the Subordinated Debentures is , 2025 (the "Maturity Date") at which time Time Warner Capital must redeem the Trust Securities in whole at a redemption price equal to (a) $25 per Trust Security plus (b) accrued and unpaid distributions to but excluding the date of redemption (the "Preferred Redemption Price"). The Subordinated Debentures are redeemable by Time Warner in whole or in part, from time to time, on or after , 2000, or at any time in certain circumstances upon the occurrence of a Special Event (as defined herein). If Time Warner redeems Subordinated Debentures prior to the Maturity Date, Time Warner Capital must redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so redeemed at the Preferred Redemption Price. See "Description of the Preferred Securities--Redemption of the Preferred Securities at Maturity or Upon Optional Redemption of the Subordinated Debentures". In addition, upon the occurrence of a Special Event, unless the Subordinated Debentures are redeemed in the limited circumstances described herein, Time Warner Capital shall be dissolved, with the result that the Subordinated Debentures will be distributed to the holders of the Trust Securities as described herein, in lieu of any cash distribution. See "Description of the Preferred Securities--Special Event Redemption or Distribution". IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The following information concerning Time Warner, Time Warner Capital, the Preferred Securities, the Guarantee and the Subordinated Debentures supplements, and should be read in conjunction with, the information contained in the accompanying Prospectus. Capitalized terms used in this Prospectus Supplement have the same meanings as in the accompanying Prospectus. S-2 SUMMARY OF THE OFFERING The following summary of provisions relating to the Preferred Securities is qualified in its entirety by the more detailed information contained elsewhere or incorporated by reference in this Prospectus Supplement and the Prospectus of which this Prospectus Supplement constitutes a part. Prospective purchasers of Preferred Securities should carefully review such information. GENERAL The Preferred Securities represent preferred undivided beneficial interests in Time Warner Capital's assets, which will consist of the Subordinated Debentures. The Subordinated Debentures, in which the proceeds of the Preferred Securities offered hereby are invested, mature on , 2025 (which is the Maturity Date), are redeemable by Time Warner in whole or in part, from time to time, on or after , 2000, or at any time in certain circumstances upon the occurrence of a Special Event. The Preferred Securities will be redeemed upon the Maturity Date of the Subordinated Debentures at the Preferred Redemption Price, which is equal to the sum of (a) $25 per Preferred Security plus (b) accrued and unpaid distributions thereon to but excluding the date of redemption. In addition, if Time Warner redeems Subordinated Debentures prior to the Maturity Date, Time Warner Capital must redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so redeemed at the Preferred Redemption Price. See "Description of the Preferred Securities--Redemption of the Preferred Securities at Maturity or Upon Optional Redemption of the Subordinated Debentures". In addition, upon the occurrence of a Special Event, unless the Subordinated Debentures are redeemed in the limited circumstances described below, Time Warner Capital shall be dissolved, with the result that the Subordinated Debentures will be distributed to the holders of the Preferred Securities, on a Pro Rata Basis (determined without regard to the proviso in the definition of such term), in lieu of any cash distribution. See "Description of the Preferred Securities--Special Event Redemption or Distribution". DISTRIBUTIONS The holders of the Preferred Securities are entitled to receive cumulative cash distributions at the rate of % per annum on the $25 liquidation amount per Preferred Securities, accruing from the Issue Date, and payable quarterly in arrears on , , and of each year, commencing , 1995, or, if any such date is not a Business Day (as defined herein), the next succeeding Business Day (and 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, 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, except as otherwise described below. Distributions in arrears for more than one quarter will bear interest thereon at a rate per annum of % thereof compounding quarterly. See "Description of the Preferred Securities-- Distributions". OPTION TO EXTEND INTEREST PAYMENT PERIOD Time Warner has the right under the Indenture (as defined herein) to defer payments of interest on the Subordinated Debentures by extending the interest payment period at any time, and from time to time, on the Subordinated Debentures. As a consequence of such an extension, distributions on the Preferred Securities would be deferred (but despite such deferral would continue to accrue with interest thereon compounded quarterly) by Time Warner Capital during any such extended interest payment period. Such right to extend the interest payment period for the Subordinated Debentures is limited to a period not exceeding 20 consecutive quarters. Prior to the termination of any such Extension Period, Time Warner may further extend the interest payment period; provided that such Extension Period, together with all such previous and further extensions thereof, may not exceed 20 consecutive quarters. Upon the termination of any Extension Period and the payment of all amounts then due, Time Warner may commence a new Extension Period for up to S-3 20 consecutive quarters, subject to the above requirements. See "Description of the Preferred Securities--Distributions" and "Description of the Subordinated Debentures--Option To Extend Interest Payment Period". Should Time Warner exercise its right to commence an Extension Period, each holder of Preferred Securities will continue to accrue income (as original issue discount) in respect of the deferred interest allocable to its Preferred Securities for United States Federal income tax purposes, which will be allocated but not distributed, to holders of record of Preferred Securities. As a result, each such holder of Preferred Securities will recognize income for United States Federal income tax purposes in advance of the receipt of cash and will not receive the cash from Time Warner Capital related to such income if such holder disposes of its Preferred Securities prior to the record date for the date on which distributions of such amounts are made. Time Warner has no current intention to exercise its option to defer interest payments on the Subordinated Debentures. MANDATORY REDEMPTION OF PREFERRED SECURITIES Unless previously redeemed pursuant to the optional or special redemption provisions described below, each of the outstanding Trust Securities, including the Preferred Securities, will be redeemed by Time Warner Capital, in cash, on , 2025, which is the Maturity Date of the Subordinated Debentures, at the Preferred Redemption Price, which is equal to (a) $25 per Trust Securities plus (b) accrued and unpaid distributions thereon to but excluding the date of redemption. See "Description of the Preferred Securities--Redemption of the Preferred Securities at Maturity or Upon Optional Redemption of the Subordinated Debentures". OPTIONAL REDEMPTION The Subordinated Debentures, in which the proceeds of the Preferred Securities offered hereby will be invested by Time Warner Capital, are redeemable by Time Warner in whole or in part, from time to time, on or after , 2000 ("Optional Redemption"), or at any time in certain circumstances upon the occurrence of a Special Event ("Special Redemption"), in each case at a price equal to (a) 100% of the principal amount of Subordinated Debentures to be redeemed plus (b) accrued and unpaid interest thereon to but excluding the date of redemption (the "Debenture Redemption Price"). If Time Warner redeems Subordinated Debentures, Time Warner Capital must redeem Trust Securities, including the Preferred Securities, having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so redeemed at the Preferred Redemption Price. See "Description of the Preferred Securities--Redemption of the Preferred Securities at Maturity or Upon Optional Redemption of the Subordinated Debentures". On any date of redemption (and on the Maturity Date), the Preferred Redemption Price will be the same per Trust Security as the Debenture Redemption Price per $25 in principal amount of Subordinated Debentures. SPECIAL EVENT DISTRIBUTION OR REDEMPTION Upon the occurrence and during the continuation of a Tax Event or an Investment Company Event (each as defined below), Time Warner may dissolve Time Warner Capital with the result that the Subordinated Debentures will be distributed to the holders of the Trust Securities on a Pro Rata Basis (determined without regard to the proviso in the definition of such term), in lieu of any cash distribution. In certain limited circumstances Time Warner also will have the right to redeem the Subordinated Debentures for cash, with the result that Time Warner Capital will redeem the Trust Securities on a Pro Rata Basis for cash at the Redemption Price, or, in the case of a Tax Event, allow the Subordinated Debentures and the Trust Securities to remain outstanding and indemnify Time Warner Capital for all taxes payable by it as a result of such Tax Event. If the Subordinated Debentures are distributed to the holders of the Preferred S-4 Securities, Time Warner will use its reasonable best efforts to have the Subordinated Debentures listed on the New York Stock Exchange. See "Description of the Preferred Securities--Special Event Distribution or Redemption". THE GUARANTEE The Guarantee guarantees to the holders of the Preferred Securities the payment of (i)(A) any accrued and unpaid distributions that are required to be paid on the Preferred Securities and (B) the Preferred Redemption Price, but if and only if to the extent that, in each case, Time Warner has made payment of interest or principal on the Subordinated Debentures, as the case may be, and (ii) upon a Liquidation Event (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities or a redemption of all the Preferred Securities upon maturity or redemption of Subordinated Debentures), the lesser of (A) the aggregate of the liquidation amount and all accrued and unpaid distributions on the Preferred Securities to the date of the payment to the extent Time Warner Capital has funds available therefor and (B) the amount of assets of Time Warner Capital remaining available for distribution to holders of the Preferred Securities upon such Liquidation Event. Time Warner's obligations under the Guarantee will be subordinated and junior in right of payment to all liabilities of Time Warner, pari passu with the most senior preferred stock issued, from time to time, if any, by Time Warner and senior to the common stock of Time Warner. The Guarantee will also rank pari passu with the guarantee to be delivered by Time Warner in connection with the offering of the $ Preferred Exchangeable Redeemable Cumulative Securities (the "PERCS"). See "Recent Developments--PERCS Offering". Time Warner and Time Warner Capital believe that the mechanisms and obligations relating to the Guarantee and the Subordinated Debentures, taken together, are equivalent to a full and unconditional subordinated guarantee by Time Warner of payments due on the Preferred Securities. See "Risk Factors-- Ranking of Subordinated Obligations Under the Guarantee and the Subordinated Debentures", "Description of the Guarantee", "Description of the Subordinated Debentures" and "Effect of Obligations Under the Subordinated Debentures and the Guarantee". SUBORDINATED DEBENTURES The Subordinated Debentures will be issued as unsecured, subordinated obligations of Time Warner, limited in aggregate principal amount to approximately $ , such amount being the sum of (i) the aggregate stated liquidation amount of the Preferred Securities and (ii) the proceeds received by Time Warner Capital upon the issuance to Time Warner of the Common Securities. The Subordinated Debentures will mature on the Maturity Date, and will bear interest at an annual rate of % (which is equivalent to the annual distribution rate with respect to the Preferred Securities), payable quarterly in arrears on , , and , commencing on , 1995. The amount payable upon maturity for each Subordinated Debenture will be the Debenture Redemption Price. Time Warner shall have the right to redeem the Subordinated Debentures, in whole or in part, on or after , 2000, upon not less than 20 nor more than 45 Business Days' notice, at the Debenture Redemption Price. Time Warner may also, under certain limited circumstances, redeem the Subordinated Debentures in whole upon the occurrence of a Tax Event or an Investment Company Event at the Debenture Redemption Price. In each of the above cases, upon any such redemption, Time Warner Capital shall redeem an equal amount of Preferred Securities at the Preferred Redemption Price. See "Description of the Subordinated Debentures--Special Event Redemption or Distribution". The obligations of Time Warner under the Subordinated Debentures will be subordinated and junior in right of payment to all present and future Senior Indebtedness (as defined below to include Time Warner's outstanding indebtedness (including its 8 3/4% Convertible Subordinated Debentures due 2015), guarantees, S-5 letters of credit and certain other obligations), which aggregated $10.1 billion at March 31, 1995. The Subordinated Debentures rank pari passu with the Subordinated Notes to be issued by Time Warner in connection with the offering of the PERCS. In addition to such Senior Indebtedness, Time Warner's obligations under the Guarantee and the Subordinated Debentures are effectively subordinated to all liabilities (including indebtedness) of its consolidated and unconsolidated subsidiaries, which aggregated approximately $13.9 billion at March 31, 1995. VOTING RIGHTS Holders of Preferred Securities will have limited voting rights and, except for the rights of holders of Preferred Securities to appoint a Special Regular Trustee upon the occurrence of certain events described herein, will not be entitled to vote to appoint, remove or replace, or to increase or decrease the number of, Time Warner Trustees, which voting rights are vested exclusively in the holder of the Common Securities. See "Description of the Preferred Securities--Voting Rights" and "--Modification of the Declaration". USE OF PROCEEDS Time Warner Capital will invest the proceeds from the sale of the Preferred Securities offered hereby in the Subordinated Debentures, the proceeds of which will be used by Time Warner to repurchase, redeem or otherwise repay outstanding indebtedness. The weighted average interest rate on Time Warner's outstanding indebtedness as of March 31, 1995, was approximately 8.3%. The weighted average maturity of Time Warner's outstanding indebtedness as of March 31, 1995, was approximately 15 years. See "Use of Proceeds". LISTING Application will be made to list the Preferred Securities on the New York Stock Exchange under the symbol " ". Trading of the Preferred Securities on the New York Stock Exchange is expected to commence within a 30-day period after the date of this Prospectus Supplement. S-6 RISK FACTORS Prospective purchasers of Preferred Securities should carefully review the information contained elsewhere in this Prospectus Supplement and in the accompanying Prospectus and should particularly consider the following matters. RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND SUBORDINATED DEBENTURES Time Warner's obligations under the Guarantee will be subordinated and junior in right of payment to all liabilities of Time Warner, pari passu with the most senior preferred stock issued, from time to time, if any, by Time Warner and senior to the common stock of Time Warner. The Guarantee will also rank pari passu with the guarantee to be delivered by Time Warner in connection with the offering of the PERCS. The obligations of Time Warner under the Subordinated Debentures will be subordinated and junior in right of payment to all present and future Senior Indebtedness (as defined herein to include Time Warner's outstanding indebtedness (including its 8 3/4% Convertible Subordinated Debentures due 2015), guarantees, letters of credit and certain other obligations), which aggregated $10.1 billion at March 31, 1995. The Subordinated Debentures rank pari passu with the Subordinated Notes to be issued by Time Warner in connection with the offering of the PERCS. See "Recent Developments--PERCS Offering". Time Warner's obligations under the Guarantee and the Subordinated Debentures are also effectively subordinated to all liabilities (including indebtedness) of its consolidated and unconsolidated subsidiaries, which aggregated approximately $13.9 billion at March 31, 1995. Time Warner's ability to service its indebtedness, including the Subordinated Debentures, is dependent primarily on the earnings of its consolidated subsidiaries and certain affiliates, and the distribution of such earnings to Time Warner. Certain agreements between Time Warner and certain of its subsidiaries, affiliates, partners or creditors limit distributions and other transfers of funds to Time Warner. In addition, as a result of the acquisition by subsidiaries of Time Warner of certain cable systems, certain subsidiaries of Time Warner expect to have outstanding indebtedness and bank credit facilities that contain limitations on the ability of such subsidiaries to make distributions or other payments to Time Warner. See "Description of the Guarantee--Status of the Guarantee" and "Description of the Subordinated Debentures--Subordination". OPTION TO EXTEND INTEREST PAYMENT PERIOD Time Warner has the right under the Indenture to defer payments of interest on the Subordinated Debentures by extending the interest payment period at any time, and from time to time, on the Subordinated Debentures. As a consequence of such an extension, distributions on the Preferred Securities would be deferred (but despite such deferral would continue to accrue with interest thereon compounded quarterly) by Time Warner Capital during any such extended interest payment period. Such right to extend the interest payment period for the Subordinated Debentures is limited to a period not exceeding 20 consecutive quarters. Upon the termination of any Extension Period and the payment of all amounts then due, Time Warner may commence a new Extension Period for up to 20 consecutive quarters, subject to certain requirements. In the event that Time Warner exercises its right to commence an Extension Period, then (a) Time Warner shall not declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock and (b) Time Warner shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Time Warner that rank pari passu with or junior to the Subordinated Debentures; provided, however, that the foregoing restrictions do not apply to any interest or dividend payment by Time Warner where the interest or dividend is paid by way of the issuance of securities that rank junior to the Subordinated Debentures. Prior to the termination of any such Extension Period, Time Warner may further extend the interest payment period; provided that such Extension Period, together with all such previous and further extensions thereof, may not exceed 20 consecutive quarters. See "Description of the Preferred Securities--Distributions" and "Description of the Subordinated Debentures--Option To Extend Interest Payment Period". S-7 Should Time Warner exercise its right to commence an Extension Period, each holder of Preferred Securities will continue to accrue income (as original issue discount) in respect of the deferred interest allocable to its Preferred Securities for United States Federal income tax purposes, which will be allocated but not distributed, to holders of record of Preferred Securities. As a result, each such holder of Preferred Securities will recognize income for United States Federal income tax purposes in advance of the receipt of cash and will not receive the cash from Time Warner Capital related to such income if such holder disposes of its Preferred Securities prior to the record date for the date on which distributions of such amounts are made. Time Warner has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. However, should Time Warner determine to exercise such right in the future, the market price of the Preferred Securities is likely to be adversely affected. A holder that disposes of its Preferred Securities during an Extension Period, therefore, might not receive the same return on its investment as a holder that continues to hold its Preferred Securities. In addition, as a result of the existence of Time Warner's right to defer interest payments, the market price of the Preferred Securities (which represent an undivided beneficial interest in the Subordinated Debentures) may be more volatile than other securities on which original issue discount accrues that do not have such rights. See "United States Federal Income Taxation--Original Issue Discount". SPECIAL EVENT REDEMPTION OR DISTRIBUTION Upon the occurrence of a Special Event, Time Warner Capital shall be dissolved, except in the limited circumstance described below, with the result that the Subordinated Debentures would be distributed to the holders of the Trust Securities in connection with the liquidation of Time Warner Capital. In certain circumstances, Time Warner shall have the right to redeem the Subordinated Debentures, in whole or in part, in lieu of a distribution of the Subordinated Debentures by Time Warner Capital; in which event Time Warner Capital will redeem the Trust Securities on a Pro Rata Basis to the same extent as the Subordinated Debentures are redeemed by Time Warner. As described in more detail below, a Special Event includes (i) a Tax Event (as defined below) and (ii) an Investment Company Event. See "Description of the Preferred Securities--Special Event Redemption or Distribution". There can be no assurance as to the market prices for the Preferred Securities or the Subordinated Debentures that may be distributed in exchange for Preferred Securities if a dissolution or liquidation of Time Warner Capital were to occur as a result of a Special Event. Accordingly, the Preferred Securities that an investor may purchase, whether pursuant to the offer made hereby or in the secondary market, or the Subordinated Debentures that a holder of Preferred Securities may receive on dissolution and liquidation of Time Warner Capital, may trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. Because holders of Preferred Securities may receive Subordinated Debentures upon the occurrence of a Special Event, prospective purchasers of Preferred Securities are also making an investment decision with regard to the Subordinated Debentures and should carefully review all the information regarding the Subordinated Debentures contained herein and in the accompanying Prospectus. See "Description of the Preferred Securities--Special Event Redemption or Distribution" and "Description of the Subordinated Debentures". LIMITED VOTING RIGHTS Holders of Preferred Securities will have limited voting rights and, except for the rights of holders of Preferred Securities to appoint a Special Regular Trustee upon the occurrence of certain events described herein, will not be entitled to vote to appoint, remove or replace, or to increase or decrease the number of, Time Warner Trustees, which voting rights are vested exclusively in the holder of the Common Securities. See "Description of the Preferred Securities--Voting Rights" and "--Modification of the Declaration". S-8 TRADING PRICE Application will be made to list the Preferred Securities as equity securities on the New York Stock Exchange under the Symbol " ". Accordingly, the Preferred Securities are expected to trade at a price that takes into account the value, if any, of accrued and unpaid distributions; thus, purchasers will not pay and sellers will not receive any accrued and unpaid interest with respect to their undivided interests in the Subordinated Debentures owned through the Preferred Securities that is not included in the trading price of the Preferred Securities. However, interest on the Subordinated Debentures will be included in the gross income of holders of Preferred Securities as it accrues, rather than when it is paid. See "United States Federal Income Taxation--Original Issue Discount" and "Sales of Preferred Securities". HOLDING COMPANY STRUCTURE Time Warner is a holding company and its assets consist primarily of investments in its subsidiaries and affiliates, some of which have substantial indebtedness and are not consolidated with Time Warner for financial reporting purposes. A substantial portion of the consolidated liabilities of Time Warner have been incurred by its subsidiaries and affiliates. Time Warner's rights and the rights of its creditors, including holders of Subordinated Debentures, to participate in the distribution of assets of any person in which Time Warner owns an equity interest (including subsidiaries and affiliates) upon such person's liquidation or reorganization will be subject to prior claims of the person's creditors, including trade creditors, except to the extent that Time Warner may itself be a creditor with recognized claims against such person (in which case the claims of Time Warner 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 Time Warner). Accordingly, the holders of Subordinated Debentures may be deemed to be effectively subordinated to such claims. Time Warner's ability to service its indebtedness, including the Subordinated Debentures, and perform its obligations under the Guarantee is dependent primarily upon the earnings of its subsidiaries and affiliates and the distribution or other payment of such earnings to Time Warner. Certain agreements between Time Warner and certain of its subsidiaries, affiliates, partners or creditors limit distributions and other transfers of funds to Time Warner. Generally, distributions other than tax distributions are subject to restricted payments limitations and availability under certain financial ratios applicable to Time Warner Entertainment Company, L.P. ("TWE") contained in certain bank credit facilities. As a result of the acquisition by subsidiaries of Time Warner of certain cable systems, certain subsidiaries of Time Warner have or expect to have outstanding indebtedness and bank credit facilities that contain limitations on the ability of such subsidiaries or affiliates to make distributions or other payments to Time Warner. See "Recent Developments". TIME WARNER INC. Time Warner is the largest media and entertainment company in the world. Its businesses are conducted in five principal areas: Publishing, Music, Filmed Entertainment, Programming-HBO and Cable. Publishing consists principally of the publication and distribution of magazines and books; Music consists principally of the production and distribution of recorded music and the ownership and administration of music copyrights; Filmed Entertainment consists principally of the production and distribution of motion pictures and television programming, the distribution of video cassettes and the ownership and operation of retail stores and theme parks; Programming-HBO consists principally of the production and distribution of pay television and cable programming; and Cable consists principally of the operation of cable television systems. Time Warner was incorporated in the State of Delaware in August 1983 and is the successor to a New York corporation that was originally organized in 1922. Time Warner changed its name from Time Incorporated to Time Warner Inc. 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 Time Warner in January 1990 upon the completion of the merger of WCI and a subsidiary of Time Warner. S-9 TWE was formed as a Delaware limited partnership in 1992 to own and operate substantially all of the Filmed Entertainment, Programming-HBO and Cable businesses owned and operated by Time Warner prior to such date. Certain wholly owned subsidiaries of Time Warner (the "Time Warner General Partners") collectively own 63.27% of the pro rata priority capital and residual equity interests in TWE and wholly owned subsidiaries of ITOCHU Corporation, Toshiba Corporation and U S West Inc. ("U S West") own pro rata priority capital and residual equity interests in TWE of 5.61%, 5.61% and 25.51%, respectively. In addition, the Time Warner General Partners own priority capital interests senior and junior to the pro rata priority capital interests. TWE is the principal component of Time Warner's Entertainment Group, which is not consolidated with Time Warner for financial reporting purposes. Certain cable systems acquired or to be acquired as a result of the Transactions referred to in "Recent Developments" are or will be owned by consolidated subsidiaries of Time Warner. The balance of Time Warner's cable systems are owned by TWE or the TWE-A/N Partnership (as defined herein), in which TWE owns a two-thirds interest. Accordingly, although TWE will manage substantially all the cable systems owned by Time Warner, TWE and the TWE-A/N Partnership, the results of operations of the cable systems owned by Time Warner's consolidated subsidiaries will be included in Time Warner's consolidated results, while the results of operations of the cable systems owned by TWE and the TWE-A/N Partnership will be included in the consolidated results of the Entertainment Group. See "Selected Historical and Pro Forma Financial Information". Time Warner is a holding company and its assets consist primarily of investments in its consolidated and unconsolidated subsidiaries, including TWE. Time Warner's ability to service its indebtedness, including the Subordinated Debentures, is dependent primarily upon the earnings of its consolidated and unconsolidated subsidiaries, including TWE, and the distribution or other payment of such earnings to Time Warner. See "Risk Factors--Holding Company Structure". As used in this Prospectus Supplement, unless the context otherwise requires, the term "Time Warner" refers to Time Warner Inc. and its consolidated and unconsolidated subsidiaries and includes TWE. Time Warner's principal executive offices are located at 75 Rockefeller Plaza, New York, NY 10019, and its telephone number is (212) 484-8000. S-10 TIME WARNER CAPITAL Time Warner Capital is a statutory business trust formed under Delaware law pursuant to (i) a declaration of trust, dated as of August 2, 1995, executed by Time Warner, as sponsor (the "Sponsor"), and the trustees of Time Warner Capital (the "Time Warner Trustees") and (ii) the filing of a certificate of trust with the Secretary of State of the State of Delaware on August 2, 1995. Such declaration will be amended and restated in its entirety (as so amended and restated, the "Declaration") substantially in the form filed as an exhibit to the Registration Statement of which this Prospectus Supplement and the accompanying Prospectus form a part. The Declaration will be qualified as an indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred Securities, the purchasers thereof will own all of the Preferred Securities. See "Description of the Preferred Securities--Book-Entry Only Issuance--The Depository Trust Company". Time Warner will directly or indirectly acquire Common Securities in an aggregate liquidation amount equal to 3% of the total capital of Time Warner Capital. Time Warner Capital exists for the exclusive purposes of (i) issuing the Trust Securities representing undivided beneficial interests in the assets of the Trust, (ii) investing the gross proceeds of the Trust Securities in the Subordinated Debentures and (iii) engaging in only those other activities necessary or incidental thereto. Pursuant to the Declaration, the number of Time Warner Trustees will initially be five. Three of the Time Warner Trustees (the "Regular Trustees") will be persons who are employees or officers of or who are affiliated with Time Warner. The fourth trustee will be a financial institution that is unaffiliated with Time Warner, which trustee will serve as property trustee under the Declaration and as indenture trustee for the purposes of the Trust Indenture Act (the "Property Trustee"). The fifth Time Warner Trustee will be a financial institution or an affiliate thereof that maintains a principal place of business or residence in the State of Delaware, meeting the requirements of the Trust Act (the "Delaware Trustee"). Initially, The First National Bank of Chicago, a Delaware banking corporation, will be the Property Trustee until removed or replaced by the holder of the Common Securities. The First National Bank of Chicago will also act as indenture trustee under the Guarantee (the "Guarantee Trustee"). See "Description of the Guarantee". In certain circumstances, the holders of a majority of the Preferred Securities will be entitled to appoint one Regular Trustee (a "Special Regular Trustee"), who need not be an officer or employee of or otherwise affiliated with Time Warner. See "Description of the Preferred Securities--Voting Rights". The Property Trustee will hold title to the Subordinated Debentures for the benefit of the holders of the Trust Securities and the Property Trustee will have the power to exercise all rights, power, and privileges under the Indenture as the holder of the Subordinated Debentures. In addition, the Property Trustee will maintain exclusive control of a segregated noninterest- bearing bank account (the "Property Account") to hold all payments made in respect of the Subordinated Debentures for the benefit of the holders of the Trust Securities. The Property Trustee will make payments of distributions and payments on liquidation, redemption and otherwise to the holders of the Trust Securities out of funds from the Property Account. The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Preferred Securities. Subject to the right of the holders of the Preferred Securities to appoint a Special Regular Trustee, Time Warner, as the direct or indirect holder of all the Common Securities, will have the right to appoint, remove or replace any Time Warner Trustee and to increase or decrease the number of Time Warner Trustees; provided that (i) the number of Time Warner Trustees shall be at least three and (ii) a majority shall be Regular Trustees. The Declaration provides that Time Warner will pay for all debts and obligations (other than with respect to the Trust Securities) and all costs and expenses of Time Warner Capital, including any taxes and all costs and expenses with respect thereto, to which Time Warner Capital may become subject, except for United States withholding taxes. Time Warner has agreed that any person to whom such debts, obligations, costs and expenses are owed and the Property Trustee will have the right to enforce Time Warner's obligations in respect of such debts, obligations, costs and expenses directly against Time Warner without first proceeding against Time Warner Capital. S-11 The rights of the holders of the Preferred Securities, including economic rights, rights to information and voting rights, are set forth in the Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust Indenture Act. See "Description of the Preferred Securities". RECENT DEVELOPMENTS CERTAIN TRANSACTIONS As summarized below and more fully described in Time Warner's Current Report on Form 8-K dated May 30, 1995, Time Warner has recently entered into or consummated a number of transactions to acquire, operate or dispose of cable television systems and certain other assets. These transactions will, among other things, result in the acquisition of cable systems by subsidiaries of Time Warner serving approximately 2.2 million subscribers and a 50% interest in Paragon Communications ("Paragon"), which serves 972,000 subscribers (the other 50% interest in Paragon is already owned by TWE). Time Warner (i) closed on May 2, 1995, its acquisition of Summit Communications Group, Inc. ("Summit"); (ii) closed on July 6, 1995, its acquisition of KBLCOM Incorporated ("KBLCOM"), a subsidiary of Houston Industries Incorporated; and (iii) agreed on February 6, 1995, to acquire Cablevision Industries Corporation ("CVI") and certain related companies (collectively, the "Acquisitions"). To acquire Summit, Time Warner issued approximately 1.55 million shares of its common stock, and approximately 3.26 million shares of a new convertible preferred stock ("Series C Preferred Stock") and assumed or incurred $146 million of indebtedness. To acquire KBLCOM, Time Warner issued one million shares of its common stock and 11 million shares of a new convertible preferred stock ("Series D Preferred Stock") and assumed or incurred approximately $1.2 billion of indebtedness, including $113 million of Time Warner's allocable share of Paragon's indebtedness. To acquire CVI and certain related companies, Time Warner will issue 2.5 million shares of its common stock and 6.5 million shares of new convertible preferred stock (3.25 million shares of Series E Preferred Stock and 3.25 million shares of Series F Preferred Stock) and assume or incur approximately $2 billion of debt of CVI and its related companies. On April 1, 1995, TWE and the Advance/Newhouse Partnership ("Advance/Newhouse"), a New York general partnership between Newhouse Broadcasting Corporation and a wholly-owned subsidiary of Advance Publications, Inc., formed a New York general partnership known as the Time Warner Entertainment-Advance/Newhouse Partnership (the "TWE-A/N Partnership"), in which TWE owns a two-thirds equity interest and is the managing partner. The TWE-A/N Partnership was formed to own and operate cable television systems (or interests therein) serving approximately 4.5 million subscribers and certain foreign cable investments and programming investments (the "TWE-A/N Transaction"). TWE (i) on June 23, 1995, recapitalized Six Flags Entertainment Corporation ("Six Flags"), sold 51% of its interest therein and granted certain licenses to Six Flags and (ii) on May 18, 1995, announced the sale of 15 of its unclustered cable television systems serving approximately 144,000 subscribers (the "Asset Sale Transactions"). The net proceeds from the Asset Sale Transactions will be used to reduce outstanding indebtedness of TWE. On June 30, 1995, Time Warner and TWE executed a five-year revolving credit facility (the "New Credit Agreement"), pursuant to which TWE, the TWE-A/N Partnership and a wholly owned subsidiary of Time Warner are the borrowers. The New Credit Agreement enables such entities to refinance certain indebtedness assumed from the companies acquired or to be acquired in the Acquisitions, to refinance existing indebtedness of TWE and to finance the ongoing working capital, capital expenditure and other corporate needs of each borrower (the "1995 Debt Refinancing"). The Acquisitions, TWE-A/N Transaction, Asset Sale Transactions and 1995 Debt Refinancing are collectively referred to herein as the "Transactions". For a further discussion of the Transactions, reference is made to Time Warner's Current Report on Form 8-K dated May 30, 1995, which is incorporated herein by reference. S-12 PERCS OFFERING On June 14, 1995, Time Warner filed a registration statement with the Securities and Exchange Commission (the "Commission") for the offering of 12,057,561 PERCS of Time Warner Financing Trust. The PERCS will be subject to mandatory redemption on December 23, 1997, for an amount per PERCS equal to the lesser of $54.41 and the then market value of a share of common stock of Hasbro, Inc. ("Hasbro"), payable in cash or, at Time Warner's option, Hasbro common stock. The net proceeds to Time Warner of the PERCS offering, which will be based on the price of the Hasbro common stock at the time of the offering, are estimated to be approximately $400 million and will be used to reduce outstanding indebtedness. There can be no assurance, however, that the PERCS offering will be completed. REDEMPTION OF RESET NOTES On July 31, 1995, Time Warner announced the redemption on August 15, 1995, of all of its $1.828 billion principal amount of outstanding Redeemable Reset Notes Due August 15, 2002 (the "Reset Notes") in exchange for new securities. The Reset Notes will be redeemed in exchange for approximately $457 million aggregate principal amount of Floating Rate Notes Due August 15, 2000, approximately $274 million aggregate principal amount of 7.975% Notes Due August 15, 2004, approximately $548 million aggregate principal amount of 8.11% Debentures Due August 15, 2006, and approximately $549 million aggregate principal amount of 8.18% Debentures Due August 15, 2007 (collectively the "Exchange Securities"). The Exchange Securities will be issued under Time Warner's senior indenture dated January 15, 1993 and will rank pari passu with all other senior indebtedness of Time Warner. RECENT FINANCIAL PERFORMANCE Set forth below are unaudited summarized operating results of Time Warner and the Entertainment Group for the three and six month periods ended June 30, 1995 and 1994. Summarized operating results of the Entertainment Group reflect the consolidation by TWE of the TWE-Advance/Newhouse Partnership effective as of April 1, 1995. TIME WARNER
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ---------------- ---------------- 1995 1994 1995 1994 ------- ------- ------- ------- (MILLIONS) Revenues................................... $ 1,907 $ 1,667 $ 3,724 $ 3,225 Depreciation and amortization.............. 119 105 231 210 Business segment operating income.......... 184 170 322 282 Equity in pretax income of Entertainment Group..................................... 84 66 106 111 Interest and other, net.................... 201 179 356 337 Net loss................................... (8) (20) (55) (71) Net loss applicable to common shares (after preferred dividends)...................... (13) (23) (63) (77) Net loss per common share.................. $ (.03) $ (.06) $ (.17) $ (.20) Average common shares...................... 381.4 378.8 380.5 378.7 ENTERTAINMENT GROUP THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ---------------- ---------------- 1995 1994 1995 1994 ------- ------- ------- ------- (MILLIONS) Revenues................................... $ 2,435 $ 2,063 $ 4,508 $ 3,990 Depreciation and amortization.............. 283 242 513 458 Business segment operating income.......... 274 231 475 437 Interest and other, net.................... 175 150 339 296 Net income................................. 59 54 70 95
S-13 SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION TIME WARNER SELECTED HISTORICAL FINANCIAL INFORMATION The selected historical financial information of Time Warner set forth below has been derived from and should be read in conjunction with the consolidated financial statements and other financial information of Time Warner contained in Time Warner's Annual Report on Form 10-K for the year ended December 31, 1994, as amended, and with the unaudited consolidated condensed financial statements contained in Time Warner's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, 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. The selected historical financial information for 1992 and periods prior to such date have not been changed; however, selected financial information for 1992 retroactively reflecting the deconsolidation is presented as supplementary information under the column heading "restated" to facilitate comparative analysis. Capitalized terms are as defined and described in such historical financial statements, or elsewhere herein. 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 in 1993 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 YEARS ENDED DECEMBER 31, MARCH 31, ------------------------------------------------------- --------------- RESTATED 1995 1994 1994 1993 1992 1992 1991 1990 ------------------------ ------- ------- -------- -------- -------- (UNAUDITED) (MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS) OPERATING STATEMENT INFORMATION Revenues................. $ 1,817 $1,558 $ 7,396 $ 6,581 $ 6,309 $ 13,070 $ 12,021 $ 11,517 Depreciation and amortization............ 112 105 437 424 384 1,172 1,109 1,138 Business segment operating income........ 138 112 713 591 529 1,343 1,154 1,114 Equity in pretax income of Entertainment Group.. 22 45 176 281 226 -- -- -- Interest and other, net.. 155 158 724 718 351 882 966 1,133 Net income (loss)(a)(b).. (47) (51) (91) (221) 86 86 (99) (227) Net loss applicable to common shares (after preferred dividends).... (50) (54) (104) (339) (542) (542) (692) (786) Per share of common stock: Net loss(a)(b)......... $ (.13) $ (.14) $ (.27) $ (.90) $ (1.46) $ (1.46) $ (2.40) $ (3.42) Dividends.............. $ .09 .08 $ .35 $ .31 $ .265 $ .265 $ .25 .25 Average common shares(b). 379.5 $378.6 378.9 374.7 371.0 371.0 288.2 229.9 Ratio of earnings to fixed charges (deficiency in the coverage of fixed charges by earnings before fixed charges)(c)............. 1.0x 1.0x 1.1x 1.1x 1.4x 1.4x 1.1x $ (101) 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)(c)........... $ (3) 1.0x 1.1x $ (91) $ (506) $ (509) $ (1,240) $ (1,335)
S-14
DECEMBER 31, ----------------------------------------------- MARCH 31, RESTATED 1995 1994 1993 1992 1992 1991 1990 ----------- ------- ------- ------- ------- ------- ------- (UNAUDITED) (MILLIONS) BALANCE SHEET INFORMATION Investments in and amounts due to and from Entertainment Group.... $ 5,443 $ 5,350 $ 5,627 $ 5,392 $ -- $ -- $ -- Total assets............ 16,608 16,716 16,892 17,043 27,366 24,889 25,337 Long-term debt.......... 9,001 8,839 9,291 2,897 10,068 8,716 11,184 Shareholders' equity: Preferred stock liquidation preference............ 140 140 140 6,532 6,532 6,256 5,954 Equity applicable to common stock.......... 973 1,008 1,230 1,635 1,635 2,242 360 Total shareholders' equity................ 1,113 1,148 1,370 8,167 8,167 8,498 6,314
- -------- (a) 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 Time Warner's deferred income tax liability. The net loss for the year ended December 31, 1991 includes a $36 million after- tax charge ($.12 per common share) relating to the restructuring of the Publishing division. (b) In August 1991, Time Warner 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 Time Warner'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. (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 pretax income, interest expense, previously capitalized interest amortized to expense, the portion of rents representative of an interest factor, Time Warner's proportionate share of such items for its partially-owned subsidiaries and50%-owned companies, and undistributed losses of less-than-50%-owned companies. Fixed charges consist of interest expense, interest capitalized, the portion of rents representative of an interest factor and Time Warner's proportionate share of such items for partially-owned subsidiaries and 50%-owned companies. Combined fixed charges and preferred stock dividends also include the amount of pretax income necessary to cover preferred stock dividend requirements. 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 three months ended March 31, 1995 and 1994 and the year ended December 31, 1994 include noncash interest expense of $57 million, $52 million and $219 million, respectively, relating to the Reset Notes and Time Warner's Liquid Yield Option Notes due 2012 and 2013. 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 Time Warner and TWE contained in Time Warner's Annual Report on Form 10-K for the year ended December 31, 1994, as amended, and with the unaudited consolidated condensed financial statements and other financial information of Time Warner and TWE contained in Time Warner's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, which are incorporated herein by reference. The selected historical financial information for all periods after 1992 give effect to TWE's consolidation of Six Flags effective as of January 1, 1993, as a result of the 1993 Six Flags acquisition. The selected historical financial information for periods prior to such date has not been changed; however, selected financial information for 1992 retroactively reflecting the consolidation is presented as supplementary information S-15 under the column heading "restated" to facilitate comparative analysis. For periods prior to January 1, 1993, the Entertainment Group is consolidated with Time Warner for financial reporting purposes and, accordingly, is also reflected in Time Warner's summary historical financial data. The selected historical financial information for 1993 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 the TWE 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 Time Warner's acquisition of the ATC minority interest as of June 30, 1992, using the purchase method of accounting and reflected in the consolidated financial statements of TWE under the pushdown method of accounting.
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ---------------------------------------------- -------------------- RESTATED 1995 1994 1994 1993 1992 1992 1991 1990 --------- --------- ------ ------ ------ ------ ------ ------ (UNAUDITED) (MILLIONS, EXCEPT RATIOS) OPERATING STATEMENT INFORMATION Revenues................ $ 2,073 $ 1,927 $8,509 $7,963 $7,251 $6,761 $6,068 $5,671 Depreciation and amortization........... 230 216 959 909 857 788 733 775 Business segment operating income....... 201 206 852 905 855 814 724 549 Interest and other, net. 164 146 616 564 569 531 526 648 Net income (loss)(a).... 11 41 136 207 173 173 103 (180) TWE ratio of earnings to fixed charges (deficiency in the coverage of fixed charges by earnings before fixed charges)(b)............ 1.1x 1.4x 1.4x 1.4x 1.4x 1.4x 1.4x $ (138)
DECEMBER 31, ----------------------------------------------- MARCH 31, RESTATED 1995 1994 1993 1992 1992 1991 1990 ----------- ------- ------- ------- ------- ------- ------- (UNAUDITED) (MILLIONS) BALANCE SHEET INFORMATION Total assets............ $19,043 $18,992 $18,202 $16,733 $15,886 $14,230 $14,415 Long-term debt.......... 7,162 7,160 7,125 7,684 7,171 4,571 6,516 Time Warner General Partners' senior capital................ 1,696 1,663 1,536 -- -- -- -- Partners' capital....... 6,463 6,491 6,228 6,483 6,483 6,717 5,809
- -------- (a) Net income for the year ended December 31, 1993 includes an extraordinary loss on the retirement of debt of $10 million. (b) For purposes of the ratio of earnings to fixed charges, earnings were calculated by adding pretax income, interest expense, previously capitalized interest amortized to expense, the portion of rents representative of an interest factor, TWE's proportionate share of such items for its partially-owned subsidiaries and 50%-owned companies, and undistributed losses of less-than-50%-owned companies. Fixed charges consist of interest expense, interest capitalized, the portion of rents representative of an interest factor and TWE's proportionate share of such items for partially-owned subsidiaries and 50%-owned companies. For periods in which earnings before fixed charges were insufficient to cover fixed charges, the dollar amount of coverage deficiency, instead of the ratio, is disclosed. Earnings as defined include significant noncash charges for depreciation and amortization. TIME WARNER AND ENTERTAINMENT GROUP SELECTED PRO FORMA FINANCIAL INFORMATION The unaudited selected pro forma balance sheet information of Time Warner and the Entertainment Group at March 31, 1995 set forth below gives effect to the Asset Sale Transactions, the TWE-A/N S-16 Transaction and the 1995 Debt Refinancing and, with respect to Time Warner only, also gives effect to the Acquisitions in each case as if such transactions occurred at such date. The unaudited selected pro forma operating statement information of Time Warner and the Entertainment Group for the three months ended March 31, 1995 and the year ended December 31, 1994 set forth below gives effect to each applicable transaction as if it had occurred at the beginning of such periods. No pro forma effect has been given in the information set forth below to (i)(A) the issuance of the Preferred Securities offered hereby, (B) the issuance of the PERCS and (C) the issuance by Time Warner on June 19, 1995 of its $500 million 7.75% Notes due 2005 (the "7.75% Notes") and the use of the net proceeds therefrom to repurchase, redeem or otherwise repay outstanding indebtedness and (ii) the redemption of the Reset Notes in exchange for the Exchange Securities, because such transactions will not have a material effect on Time Warner (see "Consolidated Capitalization"). The selected pro forma financial information should be read in conjunction with the "Time Warner Inc. and the Entertainment Group Pro Forma Consolidated Condensed Financial Statements" included in Time Warner's Current Report on Form 8-K dated May 30, 1995, which is incorporated herein by reference. 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 YEAR ENDED ENDED MARCH 31, 1995 DECEMBER 31, 1994 ---------------------------- ---------------------------- TIME ENTERTAINMENT TIME ENTERTAINMENT WARNER GROUP WARNER GROUP ----------- --------------- ----------- --------------- (MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS) PRO FORMA OPERATING STATEMENT INFORMATION Revenues................ $ 2,025 $ 2,264 $ 8,217 $ 8,790 Depreciation and amortization........... 232 270 918 1,040 Business segment operating income....... 149 239 645 928 Equity in pretax income of Entertainment Group. 56 -- 217 -- Interest and other, net. 220 168 938 651 Net income (loss)....... (59) 41 (263) 183 Net loss applicable to common shares (after preferred dividends)... (81) -- (353) -- Per share of common stock: Net loss.............. (.21) -- (.92) -- Dividends............. (.09) -- (.35) -- Average common shares... 384.6 -- 384.0 -- Time Warner and TWE ratio of earnings to fixed charges (deficiency in the coverage of fixed charges by earnings before fixed charges)(a)............ $ (18) 1.6x $ (73) 1.7x Time Warner deficiency in the coverage of combined fixed charges and preferred stock dividends by earnings before fixed charges and preferred stock dividends(a)........... $ (55) -- $ (209) --
- -------- (a) 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 pretax income, interest expense, previously capitalized interest amortized to expense, the portion of rents representative of an interest factor, the proportionate share for each of Time Warner and TWE, respectively, of such items for its partially-owned subsidiaries and 50%-owned companies, and undistributed losses of less- than-50%-owned companies. Fixed charges consist of interest expense, interest capitalized, the portion of rents representative of an interest factor and the proportionate share for each of Time Warner and TWE, respectively, of such items for partially-owned subsidiaries and 50%-owned companies. Combined fixed S-17 charges and preferred stock dividends also include the amount of pretax income necessary to cover preferred stock dividend requirements. 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 Time Warner for the three months ended March 31, 1995 and the year ended December 31, 1994 included noncash interest expense of $57 million and $219 million, respectively, relating to the Reset Notes and Time Warner's Liquid Yield Option Notes due 2012 and 2013.
MARCH 31, 1995 --------------------- TIME ENTERTAINMENT WARNER GROUP ------- ------------- (MILLIONS) PRO FORMA BALANCE SHEET INFORMATION Investments in and amounts due to and from Entertainment Group................................................... $ 5,401 $ -- Total assets............................................. 24,566 18,916 Long-term debt........................................... 12,374 6,268 Shareholders' equity: Preferred stock liquidation preference.................. 2,240 -- Equity applicable to common stock....................... 1,200 -- Total shareholders' equity.............................. 3,440 -- Time Warner General Partners' senior capital............. -- 1,696 Partners' capital........................................ -- 6,421
S-18 CONSOLIDATED CAPITALIZATION The consolidated historical and pro forma capitalization of Time Warner and Time Warner's Entertainment Group, consisting principally of TWE, at March 31, 1995, is set forth below. The Entertainment Group is not consolidated with Time Warner for financial reporting purposes. The consolidated pro forma capitalization of Time Warner and the Entertainment Group gives effect to the Asset Sale Transactions, the TWE-A/N Transaction and the 1995 Debt Refinancing and, with respect to Time Warner only, also gives effect to the Acquisitions, in each case as if such transactions occurred at such date. The consolidated pro forma as adjusted capitalization of Time Warner gives effect to (i) the Transactions, (ii) the issuance of (A) the Preferred Securities offered hereby, (B) the PERCS (see "Recent Developments--PERCS Offering") and (C) the 7.75% Notes and (iii) the redemption of the Reset Notes in exchange for the Exchange Securities, as if such transactions occurred at such date. Although the proceeds to Time Warner of the issuance of the Preferred Securities offered hereby, the PERCS and the 7.75% Notes will be used to reduce outstanding indebtedness of Time Warner, Time Warner has not yet determined which indebtedness it will repurchase, redeem or otherwise repay. See "Use of Proceeds". The pro forma capitalization is presented for informational purposes only and is not necessarily indicative of the future capitalization of Time Warner and the Entertainment Group.
TIME WARNER INC. ENTERTAINMENT GROUP ------------------------------- --------------------- PRO PRO FORMA PRO HISTORICAL FORMA AS ADJUSTED HISTORICAL FORMA ---------- ------- ----------- --------------------- (MILLIONS) Long-term debt: 7.45% and 7.95% notes.. $ 1,000 $ 1,000 $ 1,000 -- -- Reset Notes (8.7% yield)................ 1,755 1,755 -- -- -- Exchange Securities.... -- -- 1,755 (a) Zero coupon liquid yield option notes due 2012 (6.25% yield).... 555 555 555 -- -- Zero coupon convertible notes (5% yield)...... 982 982 982 -- -- 8.75%, 9.125% and 9.15% Debentures............ 2,248 2,248 2,248 -- -- 8.75% Convertible subordinated debentures............ 2,226 2,226 2,226 -- -- 7.75% Notes............ -- -- 497 (b) -- -- Debt due to TWE (7.13% interest rate)(c)..... 400 400 400 -- -- CVI 10 3/4% Senior notes................. -- 300 300 -- -- CVI 9 1/4% Senior debentures............ -- 200 200 -- -- Summit 10 1/2% Senior subordinated debentures............ -- 140 140 -- -- New credit agreement(d).......... -- 2,733 2,733 -- 1,682 TWE credit agreement (weighted average interest rate of 6.8%)(e)(f)........... -- -- -- 2,450 -- TWE commercial paper (weighted average interest rate of 6.5%)(f).............. -- -- -- 748 748 Six Flags 9.25% zero coupon notes(g)....... -- -- -- 126 -- TWE 8 7/8%, 9 5/8% and 10.15% Notes(f)....... -- -- -- 1,197 1,197 TWE 7 1/4%, 8 3/8% and 8 3/8% Debentures(f).. -- -- -- 2,583 2,583 Other.................. 235 235 235 58 58 Reduction of debt with proceeds from the issuance of the PERCS, the 7.75% Notes and the Preferred Securities offered hereby................ -- -- (b) -- -- ------- ------- ------- --------- --------- Subtotal............... 9,401 12,774 7,162 6,268 Reclassification of debt due to TWE to investments in and amounts due to the Entertainment Group(c).............. (400) (400) (400) -- -- ------- ------- ------- --------- --------- Total long-term debt............... 9,001 12,374 7,162 6,268 Company obligated mandatorily redeemable preferred securities of subsidiaries (*)....... -- -- (b) -- -- Shareholders' equity: Preferred stock liquidation preference............ 140 2,240 2,240 -- -- Equity applicable to common stock.......... 973 1,200 1,200 -- -- ------- ------- ------- --------- --------- Total shareholders' equity................ 1,113 3,440 3,440 -- -- Time Warner General Partners' senior capital................ -- -- -- 1,696 1,696 Partners' capital....... -- -- -- 6,463 6,421 ------- ------- ------- --------- --------- Total capitalization.... $10,114 $15,814 $ $ 15,321 $ 14,385 ======= ======= ======= ========= =========
- ------- (*) The sole assets of each subsidiary that is an obligor on an issue of preferred securities are subordinated notes or subordinated debentures of Time Warner. S-19 (a) Reflects the accreted value of the Reset Notes on March 31, 1995. The accreted value of the Reset Notes on the redemption date, August 15, 1995, will be $1,827,948,000; and the aggregate principal amount of the Exchange Securities issued on that date will be equal to $1,827,948,000. (b) Although the proceeds to Time Warner of the issuance of the Preferred Securities offered hereby, the PERCS and the 7.75% Notes will be used to reduce outstanding indebtedness of Time Warner, Time Warner has not yet determined which indebtedness it will repurchase, redeem or otherwise repay. (c) Time Warner and TWE entered into a credit agreement in 1994 that allows Time Warner to borrow up to $400 million from TWE through September 15, 2000. Outstanding borrowings from TWE bear interest at LIBOR plus 1% per annum. Under TWE's bank credit agreement, TWE is permitted (effective July 1, 1995) to loan to Time Warner up to $1.5 billion. For financial reporting purposes, the $400 million of currently outstanding loans from TWE to Time Warner have been reclassified and shown as a reduction in Time Warner's investments in and amounts due to the Entertainment Group. (d) The New Credit Agreement permits borrowings in an aggregate amount of up to $8.3 billion. 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 will bear interest at different rates for each of the three borrowers, generally equal to LIBOR plus a margin ranging from 50 to 87.5 basis points based on the credit rating or financial leverage of the applicable borrower. The New 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. See "Recent Developments" and Time Warner's Current Report on Form 8-K dated May 30, 1995, incorporated by reference herein for a description of the New Credit Agreement. (e) As of March 31, 1995, the TWE bank credit agreement provided for up to $5.2 billion of borrowings and consisted of a $4.2 billion revolving credit facility with available credit reducing at June 30, 1995 and thereafter by $200 million per quarter through June 30, 1996, by $125 million per quarter from September 30, 1996 through September 30, 1999, and by $1.575 billion at final maturity on December 31, 1999; and a $986 million term loan with repayments of $66 million on June 30, 1995, $98 million per quarter beginning September 30, 1995 through March 31, 1996, $27 million per quarter beginning June 30, 1996 through June 30, 1999, $20 million on September 30, 1999 and a final repayment of $255 million on December 31, 1999. Unused credit is available for general business purposes and to support commercial paper borrowings. Outstanding borrowings under the credit agreement generally bear interest at LIBOR plus 5/8% per annum. (f) Guaranteed by certain subsidiaries of Time Warner which are the general partners of TWE. (g) Guaranteed by TWE. S-20 USE OF PROCEEDS Time Warner Capital will invest the proceeds from the sale of the Preferred Securities offered hereby in Subordinated Debentures of Time Warner, the proceeds of which will be used by Time Warner to repurchase, redeem or otherwise repay outstanding indebtedness. The weighted average interest rate on Time Warner's outstanding indebtedness as of March 31, 1995, was 8.3%. The weighted average maturity of Time Warner's outstanding indebtedness as of March 31, 1995, was approximately 15 years. DESCRIPTION OF THE PREFERRED SECURITIES The Preferred Securities will be issued pursuant to the terms of the Declaration. The Declaration will be qualified as an indenture under the Trust Indenture Act. The Property Trustee, The First National Bank of Chicago, will act as the indenture trustee for purposes of compliance with the provisions of the Trust Indenture Act. The terms of the Preferred Securities will include those stated in the Declaration and those made part of the Declaration by the Trust Indenture Act. The following summary of the principal terms and provisions of the Preferred Securities does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Declaration, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus Supplement is a part, the Trust Act and the Trust Indenture Act. GENERAL The Declaration authorizes the Regular Trustees to issue on behalf of Time Warner Capital the Trust Securities, which represent undivided beneficial interests in the assets of Time Warner Capital. All of the Common Securities will be owned, directly or indirectly, by Time Warner. The Common Securities rank pari passu, and payments will be made thereon on a Pro Rata Basis, with the Preferred Securities, except that upon the occurrence of a Declaration Event of Default, the rights of the holders of the Common Securities to receive payment of periodic distributions and payments upon liquidation, redemption or otherwise will be subordinated to the rights of the holders of the Preferred Securities. The Declaration does not permit the issuance by Time Warner Capital of any securities other than the Trust Securities or the incurrence of any indebtedness by Time Warner Capital. Pursuant to the Declaration, the Property Trustee will own the Subordinated Debentures purchased by Time Warner Capital for the benefit of the holders of the Trust Securities. The payment of distributions out of money held by Time Warner Capital, and payments upon redemption of the Preferred Securities or liquidation of Time Warner Capital, are guaranteed by Time Warner to the extent described under "Description of the Guarantee". The Guarantee will be held by The First National Bank of Chicago, the Guarantee Trustee, for the benefit of the holders of the Preferred Securities. The Guarantee does not cover payment of distributions when Time Warner has not made payment of principal or interest, as applicable, on the Subordinated Debentures. In such event, the remedy of a holder of Preferred Securities is to vote to appoint a Special Regular Trustee and to direct the Property Trustee to enforce the Property Trustee's rights under the Subordinated Debentures. See "--Voting Rights" and "Effect of Obligations Under the Subordinated Debentures and the Guarantee". The term "Pro Rata Basis" shall mean, with respect to any payment, pro rata to each holder of Trust Securities according to the aggregate amount of the Trust Securities held by such holder in relation to the aggregate amount of all Trust Securities outstanding; provided, however, that if the assets of the Trust are insufficient to make such payment in full as a result of a default with respect to the Subordinated Debentures, any funds available to make such payment shall be paid (i) first to each holder of Preferred Securities pro rata according to the aggregate amount of the Preferred Securities held by such holder in relation to the aggregate amount of all the Preferred Securities outstanding up to an aggregate amount equal to the amount then owed to the holders of the Preferred Securities and (ii) only after satisfaction of all amounts owed to the holders of the Preferred Securities, to each holder of Common Securities pro rata according to the aggregate S-21 amount of the Common Securities held by such holder in relation to the aggregate amount of all the Common Securities outstanding. DISTRIBUTIONS Distributions on the Preferred Securities will be fixed at a rate per annum of % of the liquidation amount of $25 per Preferred Security. Distributions in arrears for more than one quarter will bear interest thereon at the rate per annum of % thereof compounded quarterly. The term "distribution" as used herein includes any such interest payable unless otherwise stated. The amount of distributions payable for any period will be computed on the basis of a 360- day year of twelve 30-day months and will include the first day but exclude the last day of such period. Distributions on the Preferred Securities will be cumulative, will accrue from and including , 1995, and will be payable quarterly in arrears on , , and of each year, commencing , 1995, when, as and if available for payment, subject to the existence of any Extension Period. Distributions on the Preferred Securities will be payable to the holders thereof as they appear on the books and records of Time Warner Capital on the relevant record dates, which, as long as the Preferred Securities remain in book-entry only form, will be one Business Day prior to the relevant payment dates. Such distributions will be paid through the Property Trustee who will hold amounts received in respect of the Subordinated Debentures in the Property Account for the benefit of the holders of the Trust Securities. Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment will be made as described under "Book-Entry Only Issuance--The Depository Trust Company" below. In the event that the Preferred Securities do not continue to remain in book- entry only form, the Regular Trustees shall have the right to select relevant record dates, which shall be more than one Business Day prior to the relevant payment dates. In the event that any date on which distributions are to be made on the Preferred Securities is not a Business Day, then payment of the distributions payable on such date will be made on the next succeeding day which is a Business Day (and 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, 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. A "Business Day" shall mean any day other than Saturday, Sunday or any other day on which banking institutions in New York, New York are permitted or required by any applicable law to close. The payment of distributions on the Preferred Securities out of moneys held by Time Warner Capital is guaranteed by Time Warner on a subordinated basis as and to the extent set forth under "Description of the Guarantee". The Guarantee is a full and unconditional guarantee from the time of issuance of the Preferred Securities, but the Guarantee covers distributions and other payments on the Preferred Securities only if and to the extent that Time Warner has made a payment to the Property Trustee of interest or principal on the Subordinated Debentures, as the case may be. OPTION TO EXTEND INTEREST PAYMENT PERIOD Time Warner has the right under the Indenture to defer payments of interest on the Subordinated Debentures by extending the interest payment period from time to time thereon, which, if exercised, would defer distributions on the Preferred Securities (though such distributions would continue to accrue with interest) during any Extension Period. Such right to extend the interest payment period for the Subordinated Debentures is limited to a period not exceeding 20 consecutive quarters for any particular Extension Period. In the event that Time Warner exercises this right, then (a) Time Warner shall not declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock and (b) Time Warner shall not make any payment of interest, principal or S-22 premium, if any, on or repay, repurchase or redeem any debt securities issued by Time Warner that rank pari passu with or junior to the Subordinated Debentures; provided, however, that the foregoing restrictions do not apply to any interest or dividend payment by Time Warner where the interest or dividend is paid by way of the issuance of securities that rank junior to the Subordinated Debentures. Prior to the termination of any such Extension Period, Time Warner may further extend the interest payment period; provided that such Extension Period, together with all such previous and further extensions thereof, may not exceed 20 consecutive quarters. Upon the termination of any Extension Period and the payment of all amounts then due, Time Warner may select a new Extension Period, subject to the above requirements. Time Warner Capital will provide notice of any extension of the interest period on a date not less than 20 nor more than 45 Business Days prior to such extension to all holders of the Subordinated Debentures stating, among other things, the date such Extension Period shall commence. Such notice shall be provided by mail to the holders of record of the Preferred Securities to the address appearing for such holder in the books and records of Time Warner Capital. See "Description of the Subordinated Debentures--Interest" and "--Option To Extend Interest Payment Period". If distributions are deferred, the deferred distributions and accrued interest thereon shall be paid to holders of record of the Preferred Securities as they appear on the books and records of Time Warner Capital on the record date next following the termination of such deferral period. REDEMPTION OF THE PREFERRED SECURITIES AT MATURITY OR UPON OPTIONAL REDEMPTION OF THE SUBORDINATED DEBENTURES The Subordinated Debentures will mature on the Maturity Date. In addition, the Subordinated Debentures are subject to optional redemption, in whole or in part, at any time on or after , 2000 or at any time in certain circumstances upon the occurrence of a Special Event. Upon the repayment of the Subordinated Debentures, whether at maturity or upon redemption, the proceeds from such repayment or payment shall simultaneously be applied to redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so repaid or redeemed at the Preferred Redemption Price; provided that holders of Trust Securities shall be given not less than 20 nor more than 45 Business Days' notice of such redemption. See "Description of the Subordinated Debentures--Optional Redemption". In the event that fewer than all of the outstanding Trust Securities are to be redeemed, the Trust Securities will be redeemed on a Pro Rata Basis. SPECIAL EVENT REDEMPTION OR DISTRIBUTION "Tax Event" means that the Regular Trustees shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of such laws or regulations, by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after the date of this Prospectus Supplement, there is more than an insubstantial risk that at such time or within 90 days of the date thereof (i) Time Warner Capital is or would be subject to United States Federal income tax with respect to income accrued or received on the Subordinated Debentures, (ii) the interest payable on the Subordinated Debentures is not or would not be deductible by Time Warner for United States Federal income tax purposes or (iii) Time Warner Capital is or would be subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. "Investment Company Event" means that the Regular Trustees shall have received an opinion of a nationally recognized independent counsel experienced in such matters to the effect that, as a result of the S-23 occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk that Time Warner Capital is or will be considered an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended (the "1940 Act"), which Change in 1940 Act Law becomes effective on or after the date of this Prospectus Supplement. If, at any time a Tax Event or an Investment Company Event (each a "Special Event") shall occur and be continuing, the Regular Trustees shall notify Time Warner thereof and Time Warner shall elect to either: (a) direct the Regular Trustees to dissolve Time Warner Capital and cause the Subordinated Debentures with an aggregate principal amount equal to the aggregate liquidation amount of, and accrued and unpaid interest equal to accrued and unpaid distributions on, and having the same record date for payment as, the Trust Securities outstanding at such time to be distributed to the holders of Trust Securities on a Pro Rata Basis (determined without regard to the proviso in the definition of such term), in liquidation of such holders' interests in the Trust, within 90 days following the occurrence of such Special Event; provided, however, that in the case of the occurrence of a Tax Event, as a condition of any such dissolution and distribution, the Regular Trustees shall have received an opinion of nationally recognized independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on any then applicable published revenue rulings of the Internal Revenue Service, to the effect that the holders of the Trust Securities will not recognize any gain or loss for United States Federal income tax purposes as a result of such dissolution of Time Warner Capital and distribution of the Subordinated Debentures; (b) redeem the Subordinated Debentures in whole (and not in part), upon not less than 20 nor more than 45 Business Days' notice, within 90 days following the occurrence of such Special Event, in which case Time Warner Capital shall redeem in cash on a Pro Rata Basis Trust Securities having an aggregate amount equal to the principal amount of, and accrued and unpaid distributions equal to the accrued and unpaid interest on, the Subordinated Debentures so redeemed, at a price per Trust Security of $25, plus an amount equal to all accrued and unpaid distributions on such Trust Security to but excluding the date of such redemption (the "Special Redemption Date"); or (c) in the case of a Tax Event, allow the Subordinated Debentures and the Trust Securities to remain outstanding and indemnify Time Warner Capital for all taxes payable by it as a result of such Tax Event; provided, that, if at the time there is available to Time Warner Capital the opportunity to eliminate, within such 90-day period, the Special Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure, that has no adverse effect on Time Warner Capital, Time Warner or the holders of Trust Securities and will involve no material cost, Time Warner Capital will pursue such measure in lieu of dissolution or redemption; provided further, that Time Warner shall have no right to redeem the Subordinated Debentures or to direct the Regular Trustees to dissolve Time Warner Capital while the Regular Trustees are pursuing any such ministerial action or reasonable measure unless the Special Event shall not have been so eliminated by the 85th day following the occurrence thereof, in which case Time Warner shall be permitted to so direct the Regular Trustees or to provide notice to the holders of the redemption of the Subordinated Debentures; and provided further, that if dissolution of Time Warner Capital and distribution of the Subordinated Debentures to the holders of Trust Securities would eliminate the condition causing the Special Event and all other conditions to such dissolution and distribution have been satisfied, Time Warner will not be permitted to redeem the Subordinated Debentures. If Subordinated Debentures are distributed to the holders of the Preferred Securities, Time Warner will use its reasonable best efforts to have the Subordinated Debentures listed on the New York Stock Exchange or on such exchange as the Preferred Securities are then listed. S-24 On the date of any distribution of Subordinated Debentures, upon dissolution of Time Warner Capital, (i) the Preferred Securities will no longer be deemed to be outstanding, (ii) neither Time Warner Capital nor Time Warner shall have any further obligation to the holders of the Preferred Securities with respect to the Preferred Securities or under the Guarantee, (iii) the Depositary or its nominee, as the record holder of the Preferred Securities, will receive a registered global certificate or certificates representing the Subordinated Debentures to be delivered upon such distribution and (iv) any certificates representing Preferred Securities not held by the Depositary or its nominee will be deemed to represent Subordinated Debentures having an aggregate principal amount equal to the aggregate liquidation amount of, and accrued and unpaid interest equal to accrued and unpaid distributions on, such Preferred Securities, until such certificates are presented to Time Warner or its agent for transfer or reissuance. Holders of Subordinated Debentures received as a result of any such dissolution and distribution shall be entitled to receive on the next regularly scheduled Interest Payment Date (as defined herein) interest accrued on the Subordinated Debentures from and including the last date as of which distributions were paid in respect of the Preferred Securities formerly held by such holders to but excluding such Interest Payment Date. Any such distribution shall constitute satisfaction of all the Trust's obligations with respect to the Preferred Securities, including any obligation to pay accrued and unpaid distributions thereon. Under current United Stated Federal income tax law, a distribution of Subordinated Debentures upon the dissolution of Time Warner Capital would not be a taxable event to holders of the Preferred Securities. Upon occurrence of a Special Event, however, a dissolution of Time Warner Capital in which holders of the Preferred Securities receive cash would be a taxable event to such holders. See "United States Federal Income Taxation". There can be no assurance as to the market prices for the Preferred Securities or the Subordinated Debentures that may be distributed in exchange for Preferred Securities if a dissolution or liquidation of Time Warner Capital were to occur. Accordingly, the Preferred Securities that an investor may purchase, whether pursuant to the offer made hereby or in the secondary market, or the Subordinated Debentures that a holder of Preferred Securities may receive on dissolution and liquidation of Time Warner Capital, may trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. Because holders of Preferred Securities may receive Subordinated Debentures upon the occurrence of a Special Event, prospective purchasers of Preferred Securities are also making an investment decision with regard to the Subordinated Debentures and should carefully review all the information regarding the Subordinated Debentures contained herein and in the Prospectus. See "Risk Factors--Special Event Redemption or Distribution", "Description of the Subordinated Debentures" below and in the Prospectus. REDEMPTION AND DISTRIBUTION PROCEDURES Time Warner Capital will provide notice of any redemption (excluding the mandatory redemption) of, or any distribution of the Subordinated Debentures in exchange for, the Preferred Securities on a date not less than 20 Business Days nor more than 45 Business Days prior to such redemption or distribution, as the case may be, to all holders of Preferred Securities to be redeemed or exchanged stating, among other things, the date of such redemption or of such distribution, as the case may be. Such notice shall be provided by mail to the holders of record of Preferred Securities to be redeemed or exchanged to the address appearing for such holder in the books and records of Time Warner Capital. Each holder of Preferred Securities to be redeemed or exchanged shall surrender the certificates evidencing such Preferred Securities to Time Warner Capital at the place designated in such notice and shall be entitled to receive cash in respect of the applicable redemption payment amount or Subordinated Debentures, as the case may be. The Common Securities will be redeemed on a Pro Rata Basis with the Preferred Securities in the case of any redemption. Subject to the foregoing, if fewer than all outstanding Trust Securities are to be redeemed, Trust Securities will be redeemed on a Pro Rata Basis. Preferred Securities registered in the name of and held by DTC (as defined herein) or its nominee will be redeemed pro rata as described under "--Book-Entry Only Issuance--The Depository Trust Company" below. S-25 Payment of the Preferred Redemption Price of each Preferred Securities is conditioned upon delivery or book-entry transfer of such Preferred Securities (together with necessary endorsements) to the Property Trustee at any time (whether prior to, on or after the relevant Redemption Date) after the required notice is given (to the extent such notice is required). See "--Book-Entry Only Issuance--The Depository Trust Company" below. Payment of the Preferred Redemption Price for such Preferred Securities will be made by the delivery of cash no later than the applicable Redemption Date with respect to such Preferred Securities or, if later, the time of delivery or transfer of such Preferred Securities. If the Property Trustee holds, in accordance with the terms of the Declaration, money sufficient to pay the Preferred Redemption Price of the Preferred Securities, on the applicable Redemption Date, then immediately at the close of business on such Redemption Date, the Preferred Securities will cease to be outstanding and distributions with respect to such Preferred Securities will cease to accrue, whether or not such Preferred Securities are delivered to the Property Trustee, and all rights of the holder of such Preferred Securities shall terminate and lapse, other than the right to receive the Preferred Redemption Price upon delivery of the Preferred Securities. Provided that Time Warner has paid to the Property Trustee the required amount of cash due upon any redemption or at the maturity of the Subordinated Debentures, Time Warner Capital will irrevocably deposit with the Depositary no later than the close of business on the applicable Redemption Date funds sufficient to pay the Preferred Redemption Price payable with respect to Trust Securities on such date and will give the Depositary irrevocable instructions and authority to pay such amount to the holders of Trust Securities entitled thereto. See "--Book-Entry Only Issuance--The Depository Trust Company" below. In the event that any date fixed for redemption of Trust Securities is not a Business Day, then payment of the Preferred Redemption Price payable on such date will be made on the next succeeding Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year such payment will be made on the immediately preceding Business Day. In the event that payment of the Preferred Redemption Price is improperly withheld or refused and not paid by the Property Trustee or by Time Warner pursuant to the Guarantee, distributions on such Preferred Securities will continue to accrue from the original Redemption Date to the actual date of payment. Upon the date of dissolution of Time Warner Capital and distribution of Subordinated Debentures as a result of the occurrence of a Special Event, certificates representing the Preferred Securities (or book-entry interests) shall be deemed to represent beneficial interests in the Subordinated Debentures so distributed, and the Preferred Securities will no longer be deemed outstanding and may be canceled by the Regular Trustees. The Subordinated Debentures so distributed shall have an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities in respect of which the Subordinated Debentures shall have been so distributed. Time Warner Capital may not redeem fewer than all of the outstanding Preferred Securities on any Redemption Date unless all accrued and unpaid distributions have been or are concurrently being paid on all Preferred Securities for all quarterly distribution periods terminating on or prior to the applicable Redemption Date. If a partial redemption would result in the delisting of the Preferred Securities by any national securities exchange (or automated inter-dealer quotation system, including The Nasdaq Stock Market ("Nasdaq")) on which the Preferred Securities are then listed, Time Warner pursuant to the Indenture will only redeem Subordinated Debentures in whole and, as a result, Time Warner Capital may only redeem the Preferred Securities in whole. Subject to the foregoing and to applicable law (including, without limitation, United States Federal securities laws), Time Warner or its affiliates may, at any time and from time to time, purchase outstanding Preferred Securities by tender, in the open market or by private agreement. S-26 LIQUIDATION DISTRIBUTION UPON DISSOLUTION In the event of any liquidation, dissolution, winding-up or termination of Time Warner Capital (each a "Liquidation Event"), whether voluntary or involuntary, the holders of Trust Securities on the date of such Liquidation Event will be entitled to be paid on a Pro Rata Basis out of the assets of Time Warner Capital the Liquidation Distribution unless, in connection with such Liquidation Event, Subordinated Debentures in an aggregate principal amount equal to the aggregate amount of, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid distributions on, Trust Securities have been distributed on a Pro Rata Basis (determined without regard to the proviso in the definition of such term) to the holders of Trust Securities in exchange therefor. The "Liquidation Distribution" will be equal to (a) $25 plus (b) the amount of accrued and unpaid distributions on Trust Securities to but excluding the date of payment. In addition, in the event that the assets of Time Warner Capital exceed the amount necessary to pay to all holders of Trust Securities the full amount of the Liquidation Distribution, such excess will be paid to the holders of Trust Securities on a Pro Rata Basis. Pursuant to the Declaration, Time Warner Capital shall terminate on the earliest of (i) the Maturity Date, (ii) when all of the Trust Securities shall have been called for redemption and the Preferred Redemption Price shall have been paid to the holders of Trust Securities in accordance with the terms of the Trust Securities or (iii) when all of the Subordinated Debentures shall have been distributed to the holders of the Trust Securities. DECLARATION EVENTS OF DEFAULT An event of default under the Indenture for the Subordinated Debentures (an "Indenture Event of Default") will constitute an event of default under the Declaration with respect to Trust Securities (a "Declaration Event of Default"); provided that pursuant to the Declaration, the holder of the Common Securities will be deemed to have waived any Declaration Event of Default with respect to the Common Securities until all Declaration Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until all such Declaration Events of Default with respect to the Preferred Securities have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the holders of the Preferred Securities, and only the holders of the Preferred Securities will have the right to direct the Property Trustee with respect to certain matters under the Declaration and, consequently, the Indenture. In the event that any Declaration Event of Default with respect to the Preferred Securities is waived by the holders of the Preferred Securities as provided in the Declaration, the holders of Common Securities pursuant to the Declaration have agreed that such waiver also constitutes a waiver of such Declaration Event of Default with respect to the Common Securities for all purposes under the Declaration without any further act, vote or consent of the holders of the Common Securities. See "--Voting Rights". Upon the occurrence of a Declaration Event of Default, the Property Trustee, as the sole holder of the Subordinated Debentures, will have the right under the Indenture to declare the Subordinated Debentures to be immediately due and payable. In addition, the Property Trustee will have the power to exercise all rights, powers and privileges of a holder of Subordinated Debentures under the Indenture. See "Description of the Subordinated Debentures". VOTING RIGHTS Except as described herein, under the Trust Act, the Trust Indenture Act and under "--Modification of the Declaration", and as otherwise required by law and the Declaration, the holders of the Preferred Securities will have no voting rights. If (i) Time Warner Capital fails to pay distributions in full on the Preferred Securities for six (6) consecutive quarterly distribution periods or (ii) a Declaration Event of Default occurs and is continuing S-27 (each an "Appointment Event"), then the holders of the Preferred Securities, acting as a single class, will be entitled by the majority vote of such holders to appoint a Special Regular Trustee. For purposes of determining whether Time Warner Capital has failed to pay distributions in full for six (6) consecutive quarterly distribution periods, distributions shall be deemed to remain in arrears, notwithstanding any payments in respect thereof, until full cumulative distributions have been or contemporaneously are paid with respect to all quarterly distribution periods terminating on or prior to the date of payment of such cumulative distributions. Any holder of Preferred Securities (other than Time Warner or any of its affiliates) shall be entitled to nominate any person to be appointed as Special Regular Trustee. Not later than 30 days after such right to appoint a Special Regular Trustee arises, the Regular Trustees shall convene a meeting of the holders of Preferred Securities for the purpose of appointing a Special Regular Trustee. If the Regular Trustees fail to convene such meeting within such 30-day period, the holders of not less than 10% of the aggregate liquidation amount of the outstanding Preferred Securities will be entitled to convene such meeting. The provisions of the Declaration relating to the convening and conduct of the meetings of the holders will apply with respect to any such meeting. Any Special Regular Trustee so appointed shall cease to be a Special Regular Trustee if the Appointment Event pursuant to which the Special Regular Trustee was appointed and all other Appointment Events cease to be continuing. Notwithstanding the appointment of any such Special Regular Trustee, Time Warner shall retain all rights under the Indenture, including the right to defer payments of interest by extending the interest payment period as provided under "Description of the Subordinated Debentures--Option to Extend Interest Payment Period". If such an extension occurs, there will be no Indenture Event of Default and, consequently, no Declaration Event of Default for failure to make any scheduled interest payment on the Subordinated Debentures during the Extension Period on the date originally scheduled. Subject to the requirement of the Property Trustee obtaining a tax opinion in certain circumstances set forth in the last sentence of this paragraph, the holders of a majority in aggregate liquidation amount of the Trust Securities, have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee or direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee, as holder of the Subordinated Debentures, to (i) exercise the remedies available under the Indenture with respect to the Subordinated Debentures, (ii) waive any past Indenture Event of Default that is waivable under the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable; provided, however, that, where a consent or action under the Indenture would require the consent or act of more than a majority of the holders (a "Super Majority") affected thereby, only the holders of at least such Super Majority of the Trust Securities may direct the Property Trustee to give such consent or take such action. If the Property Trustee fails to enforce its rights under the Subordinated Debentures, a record holder of Trust Securities may, after a period of 30 days has elapsed from such holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against Time Warner to enforce the Property Trustee's rights under the Subordinated Debentures without first instituting any legal proceeding against the Property Trustee or any other person or entity. The Property Trustee shall notify all holders of the Trust Securities of any notice of default received from the Indenture Trustee with respect to the Subordinated Debentures. Such notice shall state that such Indenture Event of Default also constitutes a Declaration Event of Default. Except with respect to directing the time, method and place of conducting a proceeding for a remedy, the Property Trustee shall not take any of the actions described in clauses (i), (ii) or (iii) above unless the Property Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, Time Warner Capital will not fail to be classified as a grantor trust for United States Federal income tax purposes. In the event the consent of the Property Trustee, as the holder of the Subordinated Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture, the Property Trustee shall request the direction of the holders of the Trust Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a majority in liquidation amount of the Trust Securities voting together as a single S-28 class; provided, however, that, where a consent under the Indenture would require the consent of a Super Majority, the Property Trustee may only give such consent at the direction of the holders of at least the proportion in liquidation amount of the Trust Securities which the relevant Super Majority represents of the aggregate principal amount of the Subordinated Debentures outstanding. The Property Trustee shall not take any such action in accordance with the directions of the holders of the Trust Securities unless the Property Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, Time Warner Capital will not fail to be classified as a grantor trust for United States Federal income tax purposes. A waiver of an Indenture Event of Default will constitute a waiver of the corresponding Declaration Event of Default. Any required approval or direction of holders of Preferred Securities may be given at a separate meeting of holders of Preferred Securities convened for such purpose, at a meeting of all of the holders of Trust Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be mailed to each holder of record of Preferred Securities. Each such notice will include a statement setting forth the following information: (i) the date of such meeting or the date by which such action is to be taken; (ii) a description of any resolution proposed for adoption at such meeting on which such holders are entitled to vote or of such matter upon which written consent is sought; and (iii) instructions for the delivery of proxies or consents. No vote or consent of the holders of Preferred Securities will be required for Time Warner Capital to redeem and cancel Preferred Securities or distribute Subordinated Debentures in accordance with the Declaration. Notwithstanding that holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned at such time by Time Warner or any entity directly or indirectly controlling or controlled by, or under direct or indirect common control with, Time Warner, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if such Preferred Securities were not outstanding. The procedures by which holders of Preferred Securities may exercise their voting rights are described below. See "--Book-Entry Only Issuance--The Depository Trust Company" below. Except in the limited circumstances described above, in connection with the appointment of a Special Regular Trustee, holders of the Preferred Securities will have no rights to appoint or remove the Time Warner Trustees, who may be appointed, removed or replaced solely by Time Warner as the indirect or direct holder of all of the Common Securities. MODIFICATION OF THE DECLARATION The Declaration may be amended or modified if approved by a written instrument executed by a majority of the Regular Trustees (and in certain circumstances the Property Trustee), provided that, if any proposed amendment provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up or termination of Time Warner Capital other than pursuant to the terms of the Declaration, then the holders of the outstanding Trust Securities voting together as a single class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of holders of not less than a majority in liquidation amount of the Trust Securities affected thereby; provided further that, if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of holders of not less than a majority in liquidation amount of such class of Trust Securities. S-29 Notwithstanding the foregoing, (i) no amendment or modification may be made to the Declaration unless the Regular Trustees shall have obtained (A) either a ruling from the Internal Revenue Service or a written unqualified opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such amendment will not result in Time Warner Capital failing to be classified as a grantor trust for United States Federal income tax purposes and that, following such action, each holder of Trust Securities will be treated as owning, for United States Federal income tax purposes, an undivided beneficial interest in the Subordinated Debentures and (B) a written unqualified opinion of nationally recognized independent counsel experienced in such matters to the effect that such amendment will not cause the Trust to be an "investment company" that is required to be registered under the 1940 Act; (ii) certain specified provisions of the Declaration may not be amended without the consent of all of the holders of the Trust Securities, (iii) no amendment which adversely affects the rights, powers and privileges of the Property Trustee shall be made without the consent of the Property Trustee, (iv) Article IV of the Declaration relating to the obligation of Time Warner to purchase the Common Securities and to pay certain obligations and expenses of the Trust as described under "Time Warner Capital" may not be amended without the consent of Time Warner, (v) the rights of holders of Common Securities under Article V of the Declaration to increase or decrease the number of, and to appoint, replace or remove, Trustees (other than a Special Regular Trustee) shall not be amended without the consent of each holder of Common Securities and (vi) the rights of holders of the Preferred Securities under the Declaration to appoint or remove a Special Regular Trustee shall not be amended without the consent of each holder of Preferred Securities. The Declaration further provides that it may be amended without the consent of the holders of the Trust Securities to (i) cure any ambiguity, (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration, (iii) to add to the covenants, restrictions or obligations of Time Warner and (iv) to conform to changes in, or a change in interpretation or application of, certain requirements of the 1940 Act by the Commission, which amendment does not adversely affect the rights, preferences or privileges of the holders of the Preferred Securities. LISTING Application will be made to list the Preferred Securities as equity securities on the New York Stock Exchange under the symbol " ". Trading of the Preferred Securities on the New York Stock Exchange is expected to commence within a 30-day period after the date of this Prospectus Supplement. ACCOUNTING TREATMENT The financial statements of Time Warner Capital will be consolidated with Time Warner's financial statements, with the Preferred Securities shown on the face of the balance sheet as Company obligated mandatorily redeemable preferred securities of a subsidiary. Such presentation will also include on the face of the balance sheet the footnote relating to the PERCS and the Preferred Securities set forth on the capitalization table included herein. MERGERS, CONSOLIDATIONS OR AMALGAMATIONS Time Warner Capital may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other entity. In addition, so long as any Preferred Securities are outstanding and are not held entirely by Time Warner, Time Warner Capital may not voluntarily liquidate, dissolve, wind-up or terminate on or prior to the Maturity Date, except as described above under "--Special Event Distribution or Redemption". BOOK-ENTRY ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY The Depository Trust Company ("DTC") will act as securities depositary for the Preferred Securities. The Preferred Securities will be issued only as fully-registered securities registered in the name of Cede & Co. (DTC's nominee). One or more fully-registered global Preferred Securities certificates, representing the total aggregate number of Preferred Securities, will be issued and will be deposited with DTC. S-30 DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations ("Direct Participants"). DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others, such as securities brokers and dealers, banks and trust companies that clear transactions through or maintain a direct or indirect custodial relationship with a Direct Participant either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Preferred Securities within the DTC system must be made by or through Direct Participants, which will receive a credit for the Preferred Securities on DTC's records. The ownership interest of each actual purchaser of each Preferred Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased Preferred Securities. Transfers of ownership interests in the Preferred Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Preferred Securities, except in the event that use of the book-entry system for the Preferred Securities is discontinued. To facilitate subsequent transfers, all the Preferred Securities deposited by Participants with DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of Preferred Securities with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Preferred Securities. DTC's records reflect only the identity of the Direct Participants to whose accounts such Preferred Securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements that may be in effect from time to time. Redemption notices shall be sent to Cede & Co. If less than all of the Preferred Securities are being redeemed, DTC will reduce the amount of the interest of each Direct Participant in such Preferred Securities in accordance with its procedures. Although voting with respect to the Preferred Securities is limited, in those cases where a vote is required, neither DTC nor Cede & Co. will itself consent or vote with respect to Preferred Securities. Under its usual procedures, DTC would mail an Omnibus Proxy to Time Warner Capital as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. consenting or voting rights to those Direct Participants to whose accounts the Preferred Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Time Warner and Time Warner Capital believe that the arrangements S-31 among DTC, Direct and Indirect Participants and Beneficial Owners will enable the Beneficial Owners to exercise rights equivalent in substance to the rights that can be directly exercised by a holder of a beneficial interest in Time Warner Capital. Distribution payments on the Preferred Securities will be made to DTC. DTC's practice is to credit Direct Participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the account of customers in bearer form or registered in "street name", and such payments will be the responsibility of such Participant and not of DTC, Time Warner Capital or Time Warner, subject to any statutory or regulatory requirements to the contrary that may be in effect from time to time. Payment of distributions to DTC is the responsibility of Time Warner Capital, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depositary with respect to the Preferred Securities at any time by giving reasonable notice to Time Warner Capital. Under such circumstances, in the event that a successor securities depositary is not obtained, Preferred Securities certificates are required to be printed and delivered. Additionally, the Regular Trustees (with the consent of Time Warner) may decide to discontinue use of the system of book-entry transfers through DTC (or any successor depositary) with respect to the Preferred Securities. In that event, certificates for the Preferred Securities will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Time Warner and Time Warner Capital believe to be reliable, but neither Time Warner nor Time Warner Capital takes responsibility for the accuracy thereof. INFORMATION CONCERNING THE PROPERTY TRUSTEE The Property Trustee, prior to the occurrence of a default with respect to the Trust Securities, will undertake to perform only such duties as are specifically set forth in the Declaration 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 provisions, the Property Trustee is under no obligation to exercise any of the powers vested in it by the Declaration at the request of any holder of Preferred Securities, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The holders of Preferred Securities will not be required to offer such indemnity in the event such holders, by exercising their voting rights, direct the Property Trustee to take any action following a Declaration Event of Default. GOVERNING LAW The Declaration and the Preferred Securities will be governed by, and construed in accordance with, the internal laws of the State of Delaware. DESCRIPTION OF THE GUARANTEE Set forth below is a summary of information concerning the Guarantee that will be delivered by Time Warner for the benefit of the holders of Preferred Securities. The Guarantee will be qualified as an indenture under the Trust Indenture Act. The First National Bank of Chicago will act as the Guarantee Trustee. The terms of the Guarantee will be those set forth in the Guarantee and those made part of the Guarantee by the Trust Indenture Act. The summary does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the form of Guarantee, which is filed as an exhibit to the Registration Statement of which this Prospectus Supplement forms a part, and the Trust Indenture Act. The Guarantee will be held by the Guarantee Trustee for the benefit of the holders of the Preferred Securities. S-32 GENERAL Pursuant to the Guarantee, Time Warner irrevocably and unconditionally agrees to pay in full to the holders of the Preferred Securities, the Guarantee Payments (as defined below) (except to the extent paid by Time Warner Capital), as and when due, regardless of any defense, right of set-off or counterclaim that Time Warner Capital may have or assert. The following payments with respect to Preferred Securities issued by Time Warner Capital (the "Guarantee Payments"), to the extent not paid by Time Warner Capital, will be subject to the Guarantee (without duplication): (i)(A) any accrued and unpaid distributions that are required to be paid on the Preferred Securities and (B) the Preferred Redemption Price, but if and only if to the extent that, in each case, Time Warner has made payment of interest or principal on the Subordinated Debentures, as the case may be, and (ii) upon a Liquidation Event (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities or the redemption of all of the Preferred Securities upon maturity or redemption of the Subordinated Debentures) the lesser of (A) the aggregate of the liquidation amount and all accrued and unpaid distributions on the Preferred Securities to the date of payment to the extent Time Warner Capital has funds available therefor and (B) the amount of assets of Time Warner Capital remaining available for distribution to holders of the Preferred Securities upon such liquidation, dissolution, winding up or termination of Time Warner Capital. Time Warner's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by Time Warner to the holders of Preferred Securities or by causing Time Warner Capital to pay such amounts to such holders. The Guarantee will be a full and unconditional guarantee with respect to the Preferred Securities from the time of issuance of the Preferred Securities to the extent Time Warner has made payments under the Subordinated Debentures. If Time Warner does not make payments on the Subordinated Debentures, Time Warner Capital will not pay distributions on the Preferred Securities issued and will not have funds available therefor. See "Description of the Subordinated Debentures". CERTAIN COVENANTS OF TIME WARNER In the Guarantee, Time Warner will covenant that, so long as any Preferred Securities remain outstanding, if there shall have occurred any event that would constitute an event of default under the Guarantee or the Declaration, then (a) Time Warner shall not declare or pay any dividend on, or make any distribution with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock and (b) Time Warner shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Time Warner which rank pari passu with or junior to the Subordinated Debentures. However, the Guarantee will except from the foregoing any interest or dividend payments by Time Warner, where the interest or dividend is paid by way of the issuance of securities that rank pari passu with, or junior to, the securities on which such interest or dividend is being paid . MODIFICATION OF THE GUARANTEE; ASSIGNMENT Except with respect to any changes that do not adversely affect the rights of holders of Preferred Securities (in which case no vote will be required), the Guarantee may be amended only with the prior approval of the holders of not less than a majority in liquidation amount of the outstanding Preferred Securities and only if the Guarantee Trustee shall have obtained either a ruling from the Internal Revenue Service or a written unqualified opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such action will not result in Time Warner Capital being treated as an association taxable as a corporation or a partnership for United States Federal income tax purposes and that, following such action, each holder of Trust Securities will be treated as owning an undivided beneficial interest in the Subordinated Debentures. All guarantees and agreements contained in a Guarantee shall bind the successors, assignees, receivers, trustees and representatives of Time Warner and shall inure to the benefit of the holders of the Preferred Securities. S-33 EVENTS OF DEFAULT An Event of Default under the Guarantee will occur upon the failure of Time Warner to perform any of its payments or other obligations thereunder. The holders of a majority in liquidation amount of the Preferred Securities to which the Guarantee relates have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce the Guarantee, any holder of Preferred Securities relating to the Guarantee may, after a period of 30 days has elapsed from such holder's written request to the Guarantee Trustee to enforce the Guarantee, institute a legal proceeding directly against Time Warner to enforce the Guarantee Trustee's rights under the Guarantee without first instituting a legal proceeding against Time Warner Capital, the Guarantee Trustee or any other person or entity. Subject to the award by a court of competent jurisdiction of legal fees in connection with any such legal proceeding, each holder will be required to bear its own costs in connection with instituting a legal proceeding directly against Time Warner, which cost may be significant. Time Warner is required to file annually with the Guarantee Trustee an officer's certificate as to Time Warner's compliance with all conditions and covenants under the Guarantee. INFORMATION CONCERNING THE GUARANTEE TRUSTEE The Guarantee Trustee, prior to the occurrence of a default, undertakes to perform only such duties as are specifically set forth in the Guarantee and, after default with respect to the Guarantee, 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 Guarantee Trustee is under no obligation to exercise any of the powers vested in it by the Guarantee at the request of any holder of Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. TERMINATION OF THE GUARANTEE The Guarantee will terminate upon full payment of the Redemption Price of the Preferred Securities, upon distribution of the Subordinated Debentures to the holders of the Preferred Securities or upon full payment of the amounts payable in accordance with the Declaration upon liquidation of Time Warner Capital. Each Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of Preferred Securities must restore payment of any sums paid under such Preferred Securities or the Guarantee. STATUS OF THE GUARANTEE The Guarantee will constitute an unsecured obligation of Time Warner and will rank (i) subordinate and junior in right of payment to all other liabilities of Time Warner, (ii) pari passu with the guarantee to be delivered by Time Warner in connection with the PERCS; (iii) pari passu with the most senior preferred or preference stock now or hereafter issued by Time Warner and with any guarantee now or hereafter entered into by Time Warner in respect of any preferred or preference stock of any affiliate of Time Warner and (iv) senior to Time Warner's common stock. The terms of the Preferred Securities provide that each holder of Preferred Securities by acceptance thereof agrees to the subordination provisions and other terms of the Guarantee. The Guarantee will constitute a guarantee of payment and not of collection (that is, the guaranteed party may institute a legal proceeding directly against the guarantor to enforce its rights under the Guarantee without instituting a legal proceeding against any other person or entity). GOVERNING LAW The Guarantee will be governed by and construed in accordance with the internal laws of the State of New York. S-34 DESCRIPTION OF THE SUBORDINATED DEBENTURES Set forth below is a summary of the terms of the Subordinated Debentures in which Time Warner Capital will invest the proceeds from the issuance and sale of the Trust Securities. The following description does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Subordinated Debentures Indenture, dated as of , 1995 (the "Indenture"), between Time Warner and Chemical Bank, as Trustee (the "Indenture Trustee"), the form of which is filed as an exhibit to the Registration Statement of which this Prospectus Supplement is a part, and to the Trust Indenture Act. The terms of the Subordinated Debentures include those set forth in the Trust Indenture Act. Certain capitalized terms are used herein as defined in the Indenture. Under certain circumstances involving the dissolution of Time Warner Capital following the occurrence of a Special Event, Subordinated Debentures may be distributed to the holders of the Trust Securities in liquidation of Time Warner Capital. See "Description of the Preferred Securities--Special Event Redemption or Distribution". If the Subordinated Debentures are distributed to the holders of the Preferred Securities, Time Warner will use its best efforts to have the Subordinated Debentures listed on the New York Stock Exchange or on such other national securities exchange or similar organization on which the Preferred Securities are then listed or quoted. GENERAL The Subordinated Debentures will be issued as unsecured, subordinated obligations of Time Warner, limited in aggregate principal amount to approximately $ such amount being the sum of (i) the aggregate Price to Public shown on the cover page hereof for the Preferred Securities and (ii) the proceeds received by Time Warner Capital upon issuance of the Common Securities to Time Warner. The Subordinated Debentures are not subject to a sinking fund provision. The entire principal amount of the Subordinated Debentures will mature and become due and payable, together with any accrued and unpaid interest thereon, if any, on the Maturity Date, subject to the election of Time Warner to redeem the Subordinated Debentures in whole or in part, from time to time, on or after , 2000, or at any time in certain circumstances upon the occurrence of a Special Event. If Time Warner redeems Subordinated Debentures, Time Warner Capital must redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so redeemed at the Preferred Redemption Price. See "Description of the Preferred Securities--Optional Redemption" and "--Special Event Redemption or Distribution". If Subordinated Debentures are distributed to holders of Preferred Securities in liquidation of such holders' interests in Time Warner Capital, such Subordinated Debentures will initially be issued as one or more Global Securities (as defined below). As described herein, under certain limited circumstances, Subordinated Debentures may be issued in certificated form in exchange for a Global Security. See "--Book-Entry and Settlement" below. In the event that Subordinated Debentures are issued in certificated form, such Subordinated Debentures will be in denominations of $25 and integral multiples thereof and may be transferred or exchanged at the offices described below. Payments on Subordinated Debentures issued as a Global Security will be made to DTC, a successor depositary or, in the event that no depositary is used, to a Paying Agent for the Subordinated Debentures. In the event Subordinated Debentures are issued in certificated form, principal and interest will be payable, the transfer of the Subordinated Debentures will be registrable and Subordinated Debentures will be exchangeable for Subordinated Debentures of other denominations of a like aggregate principal amount at the corporate trust office of the Indenture Trustee in New York, New York; provided that, payment of interest may be made at the option of Time Warner by check mailed to the address of the persons entitled thereto. S-35 SUBORDINATION The payment of the principal of and interest on the Subordinated Debentures will be subordinated in right of payment to the extent set forth in the Indenture to the prior payment in full in cash or cash equivalents of all of Time Warner's present and future Senior Indebtedness (including Time Warner's outstanding 8 3/4% Convertible Subordinated Debentures due 2015), which aggregated approximately $10.1 billion at March 31, 1995. In addition to such Senior Indebtedness, Time Warner's obligations under the Guarantee and the Subordinated Debentures are effectively subordinated to all liabilities (including indebtedness) of its consolidated and unconsolidated subsidiaries, which aggregated approximately $13.9 billion at March 31, 1995. The indebtedness of Time Warner's consolidated and unconsolidated subsidiaries is expected to increase by approximately $2.5 billion as a result of the Transactions referred to under "Recent Developments--Certain Transactions". The Indenture does not limit the amount of Senior Indebtedness which Time Warner may incur. Moreover, Time Warner'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 Time Warner's subsidiaries will be superior to those of Time Warner as a stockholder, and, therefore, the Subordinated Debentures may be deemed to be effectively subordinated to the claims of such third parties. The Subordinated Debentures will rank pari passu with the Subordinated Notes to be issued by Time Warner in connection with the offering of the PERCS (see "Recent Developments--PERCS Offering"). Upon any payment or distribution of all or substantially all of the assets of Time Warner or in the event of any insolvency, bankruptcy, receivership, liquidation, dissolution, reorganization or other similar proceeding whether voluntary or involuntary relative to Time Warner 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 Subordinated Debentures will be entitled to receive any distribution on account thereof. No payments on account of the Subordinated Debentures, including by way of any Claim (as defined below) 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. Time Warner is obligated, upon the occurrence of any such default or event of default, to provide written notice to the Indenture Trustee of such default or event of default. By reason of such subordination, in the event of insolvency, under certain circumstances the holders of Subordinated Debentures may receive less, ratably, than Time Warner's general creditors. As used herein, "Claim" means any claim against Time Warner or any of its subsidiaries for rescission of the Subordinated Debentures or for monetary damages from the purchase or receipt of the Subordinated Debentures. As used in the Indenture, the term "Senior Indebtedness" means all indebtedness or obligations, whether outstanding at the date of execution of the Indenture or thereafter incurred, assumed, guaranteed or otherwise created, unless the terms of the instrument or instruments by which Time Warner 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 Time Warner or that such indebtedness or obligation is not superior in right of payment to the Subordinated Debentures with respect to any of the following (including, without limitation, interest accruing on or after a bankruptcy or other similar event, whether or not an allowed claim therein): (i) any indebtedness incurred by Time Warner or assumed or guaranteed, directly or indirectly, by Time Warner (a) for money borrowed (including Time Warner's outstanding 8 3/4% Convertible Subordinated Debentures due 2015), (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 Time Warner (or of a subsidiary which is guaranteed by Time Warner) as lessee under a lease of real or personal property; (iii) any obligation of Time Warner to purchase property at a future date in connection with a financing by Time S-36 Warner or a subsidiary of Time Warner; (iv) letters of credit; (v) currency swaps and interest rate hedges; and (vi) any deferral, renewal, extension or refunding of any of the foregoing. The Subordinated Debentures will be subordinated to Time Warner's outstanding 8 3/4% Convertible Subordinated Debentures due 2015 and will rank pari passu with the Subordinated Notes to be issued in connection with the PERCS offering. INTEREST Each Subordinated Debenture shall bear interest at the rate of % per annum from the original date of issuance, payable quarterly in arrears on , , and of each year (each, an "Interest Payment Date"), commencing , 1995, (subject to the existence of any Extension Period, as discussed below) to the person in whose name such 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 Subordinated Debentures shall not continue to remain in book-entry only form, Time Warner shall have the right to select record dates, which shall be more than one Business Day prior to the Interest Payment Date. 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 quarterly 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 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. OPTION TO EXTEND INTEREST PAYMENT PERIOD Time Warner shall have the right at any time, and from time to time, during the term of the Subordinated Debentures to defer payments of interest by extending the interest payment period for a period not exceeding 20 consecutive quarters, at the end of which Extension Period, Time Warner shall pay all interest then accrued and unpaid together with interest thereon compounded quarterly at the rate specified for the Subordinated Debentures to the extent permitted by applicable law ("Compound Interest"); provided that, during any such Extension Period, (a) Time Warner 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 (b) Time Warner shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Time Warner that rank pari passu with or junior to the Subordinated Debentures; provided, however, that, the foregoing restrictions do not apply to any interest or dividend payment by Time Warner, where the interest or dividend is paid by way of the issuance of securities that rank pari passu with, or junior to, the securities on which such interest or dividend is being paid . Prior to the termination of any such Extension Period, Time Warner may further defer payments of interest by extending the interest payment period; provided, however, that such Extension Period, including all such previous and further extensions, may not exceed 20 consecutive quarters. Upon the termination of any Extension Period and the payment of all amounts then due, Time Warner may commence a new Extension Period for up to 20 consecutive quarters, subject to the terms set forth in this section. No interest shall be due and payable during an Extension Period, except at the end thereof. Time Warner has no present intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. If the Property Trustee shall be the sole holder of the Subordinated Debentures, Time Warner shall give the Regular Trustees and the Property Trustee notice of its selection of such Extension Period one Business Day prior to the earlier of (i) the date distributions on the Preferred Securities are payable or (ii) the date the Regular Trustees are required to give notice to the New York Stock Exchange (or other applicable self-regulatory organization) or to holders of the Preferred Securities of the record date or the date such distribution is payable. The Regular Trustees shall give notice of Time Warner's S-37 selection of such Extension Period to the holders of the Preferred Securities. If the Property Trustee shall not be the sole holder of the Subordinated Debentures, Time Warner shall give the holders of the Subordinated Debentures notice of its selection of such Extension Period ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii) the date upon which Time Warner is required to give notice to the New York Stock Exchange (or other applicable self-regulatory organization) or to holders of the Subordinated Debentures of the record or payment date of such related interest payment. OPTIONAL REDEMPTION Time Warner shall have the right to redeem the Subordinated Debentures, in whole or in part, from time to time, on or after , 2000 (the "Optional Redemption Date"), or at any time in certain circumstances upon the occurrence of a Special Event as described under "--Special Event Redemption or Distribution", upon neither less than 20 nor more than 45 Business Days' notice, at the Debenture Redemption Price. If a partial redemption of the Preferred Securities resulting from a partial redemption of the Subordinated Debentures would result in the delisting of the Preferred Securities, Time Warner may only redeem the Subordinated Debentures in whole. SPECIAL EVENT REDEMPTION OR DISTRIBUTION Upon the occurrence of a Special Event, Time Warner will have the right to elect to, under certain circumstances (a) dissolve Time Warner Capital (if it has not previously been terminated) and cause the Subordinated Debentures to be distributed on a Pro Rata Basis (determined without regard to the proviso in the definition of such term) to the holders of the Trust Securities, (b) redeem the Subordinated Debentures at the Redemption Price plus accrued and unpaid interest thereon or (c) in the case of a Tax Event, allow the Subordinated Debentures to remain outstanding and indemnify Time Warner Capital for any taxes payable by it as a result of such Tax Event. See "Description of the Preferred Securities--Special Event Distribution or Redemption". DEFEASANCE The Indenture provides that Time Warner, at its option, (i) will be discharged from any and all obligations in respect of the Subordinated Debentures and (ii) need not comply with certain covenants contained herein if certain requirements are met. See "Description of the Subordinated Debentures-- Defeasance" in the Prospectus of which this Prospectus Supplement constitutes a part. INDENTURE EVENTS OF DEFAULT The Indenture Events of Default are described in "Description of the Subordinated Debentures--Indenture Events of Default" in the Prospectus of which this Prospectus Supplement constitutes a part. MODIFICATION OF THE INDENTURE The Indenture contains provisions permitting Time Warner and the Indenture Trustee, with the consent of the holders of the not less than a majority in principal amount of the outstanding Subordinated Debentures, to modify the Indenture, subject to certain exceptions. See "Description of the Subordinated Debentures--Modification of the Indenture" in the Prospectus of which this Prospectus Supplement constitutes a part. CONSOLIDATION, MERGER AND SALE The Indenture provides that Time Warner may, without the consent of the holders of the 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; provided that in any such case (i) the successor person (if other than Time Warner) (a) is an entity organized and existing under the laws of the United States of America or any political subdivision thereof and (b) assumes by a supplemental indenture Time Warner's obligations under the Indenture, (ii) immediately after giving effect to such transaction, no Indenture Event of Default shall have occurred and be continuing and (iii) Time Warner shall have delivered to the Indenture S-38 Trustee an officer's certificate and opinion of counsel stating that such consolidation, merger or transfer and such supplemental indenture comply with the Indenture. BOOK-ENTRY AND SETTLEMENT If distributed to holders of Preferred Securities in connection with the involuntary or voluntary dissolution, winding-up or liquidation of Time Warner Capital as a result of the occurrence of a Special Event, the Subordinated Debentures will be issued in the form of one or more global certificates (each, a "Global Security") registered in the name of the depositary or its nominee. Except under the limited circumstances described below, Subordinated Debentures represented by the Global Security will not be exchangeable for, and will not otherwise be issuable as, Subordinated Debentures in definitive form. The Global Securities described above may not be transferred except by the depositary to a nominee of the depositary or by a nominee of the depositary to the depositary or another nominee of the depositary or to a successor depositary or its nominee. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability to transfer beneficial interests in such a Global Security. Except as provided below under "--Discontinuance of the Depositary's Services" owners of beneficial interests in such a Global Security will not be entitled to receive physical delivery of Subordinated Debentures in definitive form and will not be considered the holders (as defined in the Indenture) thereof for any purpose under the Indenture, and no Global Security representing Subordinated Debentures shall be exchangeable, except for another Global Security of like denomination and tenor to be registered in the name of the Depositary or its nominee or to a successor depositary or its nominee. Accordingly, each beneficial owner must rely on the procedures of the Depositary and, if such person is not a Participant, on the procedures of the Participant through which such person owns its interest to exercise any rights of a holder under the Indenture. THE DEPOSITARY If Subordinated Debentures are distributed to holders of Preferred Securities in liquidation of such holders' interests in Time Warner Capital, DTC will act as securities depositary for the Subordinated Debentures. For a description of DTC and the specific terms of the depositary arrangements, see "Description of the Preferred Securities--Book-Entry Only Issuance--The Depository Trust Company". As of the date of this Prospectus Supplement, the description therein of DTC's book-entry system and DTC's practices as they relate to purchases, transfers, notices and payments with respect to the Preferred Securities apply in all material respects to any debt obligations represented by one or more Global Securities held by DTC. Time Warner may appoint a successor to DTC or any successor depositary in the event DTC or such successor depositary is unable or unwilling to continue as a depository for the Global Securities. None of Time Warner, Time Warner Capital, the Indenture Trustee, any paying agent and any other agent of Time Warner or the Indenture Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security for such Subordinated Debentures or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. DISCONTINUANCE OF THE DEPOSITARY'S SERVICES A Global Security shall be exchangeable for Subordinated Debentures registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary notifies Time Warner that it is unwilling or unable to continue as a depositary for such Global Security and no successor depositary shall have been appointed, (ii) the Depositary, at any time, ceases to be a clearing agency registered under the Exchange Act at which time the Depositary is required to be so registered to act as such depositary and no successor S-39 depositary shall have been appointed, (iii) Time Warner, in its sole discretion, determines that such Global Security shall be so exchangeable or (iv) there shall have occurred an Event of Default with respect to such Subordinated Debentures. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Subordinated Debentures registered in such names as the Depositary shall direct. It is expected that such instructions will be based upon directions received by the Depositary from its Participants with respect to ownership of beneficial interests in such Global Security. GOVERNING LAW The Indenture and the Subordinated Debentures will be governed by, and construed in accordance with, the laws of the State of New York. INFORMATION CONCERNING THE INDENTURE TRUSTEE The Indenture Trustee, prior to default, undertakes to perform only such duties as are specifically set forth in the 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 Indenture Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Subordinated Debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities that might be incurred thereby. The Indenture 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 Indenture Trustee is one of a number of banks with which Time Warner and its subsidiaries maintain ordinary banking and trust relationships. MISCELLANEOUS Time Warner will have the right at all times to assign any of its rights or obligations under the Indenture to a direct or indirect wholly-owned subsidiary of Time Warner; provided that, in the event of any such assignment, Time Warner will remain jointly and severally liable for all such obligations. Subject to the foregoing, the Indenture will be binding upon and inure to the benefit of the parties thereto and their respective successors and assigns. EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBENTURES AND THE GUARANTEE As set forth in the Declaration, the sole purpose of Time Warner Capital is to issue the Trust Securities evidencing undivided beneficial interests in the assets of Time Warner Capital, and to invest the proceeds from such issuance and sale in the Subordinated Debentures. As long as payments of interest and other payments are made when due on the Subordinated Debentures, such payments will be sufficient to cover distributions and payments due on the Trust Securities because of the following factors: (i) the aggregate principal amount of Subordinated Debentures will be equal to the sum of the aggregate liquidation amount of the Trust Securities; (ii) the interest rate and the interest and other payment dates on the Subordinated Debentures will match the distribution rate and distribution and other payment dates for the Preferred Securities; (iii) Time Warner shall pay all, and Time Warner Capital shall not be obligated to pay, directly or indirectly, any, costs and expenses of Time Warner Capital; and (iv) the Declaration further provides that the Time Warner Trustees shall not cause or permit Time Warner Capital to, among other things, engage in any activity that is not consistent with the purposes of Time Warner Capital. Payments of distributions (to the extent Time Warner had made payments of interest on the Subordinated Debentures) and other payments due on the Preferred Securities (to the extent Time Warner had made payment of principal and other amounts on the Subordinated Debentures) are guaranteed by Time Warner as and to the extent set forth under "Description of the Guarantee" and in the accompanying Prospectus. If Time Warner does not make interest payments on the Subordinated Debentures purchased by S-40 Time Warner Capital, it is expected that Time Warner Capital will not have sufficient funds to pay distributions on the Preferred Securities. The Guarantee is a full and unconditional guarantee from the time of its issuance but does not apply to any payment of distributions unless and until Time Warner has made payment of interest on the Subordinated Debentures. If Time Warner fails to make interest or other payments on the Subordinated Debentures when due (taking account of any Extension Period), the Declaration provides a mechanism whereby the holders of the Preferred Securities, using the procedures described in "Description of the Preferred Securities--Book-Entry Only Issuance--The Depository Trust Company" and "--Voting Rights", may (i) appoint a Special Regular Trustee and (ii) direct the Property Trustee to enforce its rights under the Subordinated Debentures. If the Property Trustee fails to enforce its rights under the Subordinated Debentures, a holder of Preferred Securities may, after a period of 30 days has elapsed from such holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding against Time Warner to enforce the Property Trustee's rights under the Subordinated Debentures without first instituting any legal proceeding against the Property Trustee or any other person or entity. Time Warner, under the Guarantee, acknowledges that the Guarantee Trustee shall enforce the Guarantee on behalf of the holders of the Preferred Securities. If Time Warner fails to make payments under the Guarantee, the Guarantee provides a mechanism whereby the holders of the Preferred Securities may direct the Guarantee Trustee to enforce its rights thereunder. If the Guarantee Trustee fails to enforce the Guarantee, any holder of Preferred Securities may, after a period of 30 days has elapsed from such holder's written request to the Guarantee Trustee to enforce the Guarantee, institute a legal proceeding directly against Time Warner to enforce the Guarantee Trustee's rights under the Guarantee without first instituting a legal proceeding against Time Warner Capital, the Guarantee Trustee, or any other person or entity. Time Warner and Time Warner Capital believe that the above mechanisms and obligations, taken together, are equivalent to a full and unconditional guarantee by Time Warner of payments due on the Preferred Securities. See "Description of the Guarantee--General" in the accompanying Prospectus. If a Special Event shall occur and be continuing, Time Warner Capital shall be dissolved unless the Subordinated Debentures are redeemed or left outstanding in the limited circumstances described herein, with the result that the Subordinated Debentures held by Time Warner Capital having an aggregate principal amount equal to the aggregate liquidation amount of the Trust Securities will be distributed on a Pro Rata Basis in exchange for the outstanding Trust Securities, subject in the case of a Tax Event to Time Warner's right to allow the Subordinated Debentures to remain outstanding and indemnify Time Warner Capital for any taxes payable by it as a result of such Tax Event. See "Description of the Preferred Securities--Special Event Redemption or Distribution". Upon any voluntary or involuntary liquidation, dissolution, winding-up or termination of Time Warner Capital, the holders of Trust Securities will be entitled to receive Subordinated Debentures or, on a Pro Rata Basis, the Liquidation Distribution. Holders of Preferred Securities will be entitled to the benefits of the Guarantee with respect to the Liquidation Distribution. See "Description of the Preferred Securities--Liquidation Distribution Upon Dissolution". Upon any voluntary or involuntary liquidation or bankruptcy of Time Warner, the holder of Subordinated Debentures would be subordinated to creditors of Time Warner, subordinated in right of payment to all Senior Indebtedness, but entitled to receive payment in full of principal, premium, if any, and interest, before any stockholders of Time Warner receive payments of distributions. A default or event of default under any Senior Indebtedness would not constitute a default or event of default under the Subordinated Debentures. However, in the event of payment defaults under, or acceleration of, Senior Indebtedness, the subordination provisions of the Subordinated Debentures provide that no payments may be made in respect of the Subordinated Debentures. Failure to make required payments on the Subordinated Debentures would constitute an Indenture Event of Default. S-41 UNITED STATES FEDERAL INCOME TAXATION GENERAL The following is a summary of certain of the material United States Federal income tax consequences of the purchase, ownership and disposition of Preferred Securities. Unless otherwise stated, this summary deals only with Preferred Securities held as capital assets by holders who purchase the Preferred Securities upon original issuance ("Initial Holders"). It is directed solely to holders that are either (i) citizens or residents of the United States (or any State thereof), (iii) trusts, the income of which is subject to United States Federal income tax regardless of its source, or (iv) otherwise subject to United States Federal income tax on a net income basis. It does not deal with special classes of holders such as banks, thrifts, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt investors, or persons that will hold the Preferred Securities as a position in a "straddle" (within the meaning of Section 1092 of the Internal Revenue Code of 1986, as amended (the "Code")), or as part of a "conversion transaction" (within the meaning of Section 1258 of the Code) or "synthetic security" or other integrated investment comprised of Preferred Securities and one or more other investments, or as other than a capital asset. This summary also does not address the tax consequences to persons that have a functional currency other than the U.S. Dollar or the tax consequences to shareholders, partners or beneficiaries of a holder of Preferred Securities. Further, it does not include any description of any alternative minimum tax consequences or the tax laws of any state or local government or of any foreign government that may be applicable to the Preferred Securities. This summary is based on the Code, Treasury regulations thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change, possibly on a retroactive basis. CLASSIFICATION OF THE SUBORDINATED DEBENTURES In connection with the issuance of the Subordinated Debentures, Cravath, Swaine & Moore, counsel to Time Warner and Time Warner Capital, will render its opinion to the effect that, although not entirely free from doubt, under then current law and assuming full compliance with the terms of the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, the Subordinated Debentures held by Time Warner Capital would be classified for United States Federal income tax purposes as indebtedness of Time Warner. CLASSIFICATION OF TIME WARNER CAPITAL In connection with the issuance of the Preferred Securities, Cravath, Swaine & Moore, counsel to Time Warner and Time Warner Capital, will render its opinion to the effect that, under then current law and assuming full compliance with the terms of the Declaration and the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, Time Warner Capital will be classified for United States Federal income tax purposes as a grantor trust and not as an association taxable as a corporation. Accordingly, for United States Federal income tax purposes, each holder of Preferred Securities will be considered the owner of an undivided interest in the Subordinated Debentures, and each holder will be required to include in its gross income any original issue discount ("OID") accrued with respect to its allocable share of those Subordinated Debentures. ORIGINAL ISSUE DISCOUNT Because Time Warner has the option, under the terms of the Subordinated Debentures, to defer payments of interest by extending interest payment periods for up to 20 quarters, all of the stated interest payments on the Subordinated Debentures will be treated as "original issue discount". Holders of debt instruments issued with OID must include that discount in income on an economic accrual basis before the receipt of cash attributable to the interest, regardless of their method of tax accounting. Generally, all of a holder's taxable interest income with respect to the Subordinated Debentures will be accounted for as OID. Actual payments and distributions of stated interest will not, however, be separately reported as taxable income. The amount of OID that accrues in any month will approximately equal the amount of the interest S-42 that accrues on the Subordinated Debentures in that month at the stated interest rate. In the event that the interest payment period is extended, holders will continue to accrue OID approximately equal to the amount of the interest payment due at the end of the extended interest payment period on an economic accrual basis over the length of the extended interest period. Because income on the Preferred Securities will constitute OID, corporate holders of Preferred Securities will not be entitled to a dividends-received deduction with respect to any income recognized with respect to the Preferred Securities. MARKET DISCOUNT AND BOND PREMIUM Holders of Preferred Securities other than Initial Holders may be considered to have acquired their undivided interests in the Subordinated Debentures with market discount or acquisition premium as such phrases are defined for United States Federal income tax purposes. Such holders are advised to consult their tax advisors as to the income tax consequences of the acquisition, ownership and disposition of the Preferred Securities. RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF TIME WARNER CAPITAL Under certain circumstances, as described under the caption "Description of the Preferred Securities--Special Event Redemption or Distribution," Subordinated Debentures may be distributed to holders in exchange for the Preferred Securities and in liquidation of Time Warner Capital. Under current law, such a distribution, for United States Federal income tax purposes, would be treated as a non-taxable event to each holder, and each holder would receive an aggregate tax basis in the Subordinated Debentures equal to such holder's aggregate tax basis in its Preferred Securities. A holder's holding period in the Subordinated Debentures so received in liquidation of Time Warner Capital would include the period during which the Preferred Securities were held by such holder. Under certain circumstances described herein (see "Description of the Preferred Securities"), the Subordinated Debentures may be redeemed for cash and the proceeds of such redemption distributed to holders in redemption of their Preferred Securities. Under current law, such a redemption would, for United States Federal income tax purposes, constitute a taxable disposition of the redeemed Preferred Securities, and a holder could recognize gain or loss as if it sold such redeemed Preferred Securities for cash. See "--Sales of Preferred Securities." SALES OF PREFERRED SECURITIES A holder that sells Preferred Securities will recognize gain or loss equal to the difference between its adjusted tax basis in the Preferred Securities and the amount realized on the sale of such Preferred Securities. A holder's adjusted tax basis in the Preferred Securities generally will be its initial purchase price increased by OID previously includible in such holder's gross income to the date of disposition and decreased by payments received on the Preferred Securities. Such gain or loss generally will be a capital gain or loss and generally will be a long-term capital gain or loss if the Preferred Securities have been held for more than one year. The Preferred Securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest with respect to the underlying Subordinated Debentures. A holder who disposes of his Preferred Securities between record dates for payments of distributions thereon will be required to include accrued but unpaid interest on the Subordinated Debentures through the date of disposition in income as ordinary income, and to add such amount to his adjusted tax basis in his Preferred Securities. To the extent the selling price is less than the holder's adjusted tax basis (which will include, in the form of OID, all accrued but unpaid interest) a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States Federal income tax purposes. S-43 INFORMATION REPORTING TO HOLDERS Subject to the qualifications discussed below, income on the Preferred Securities will be reported to holders on Forms 1099, which forms should be mailed to holders of Preferred Securities by January 31 following each calendar year. Time Warner Capital will be obligated to report annually to Cede & Co., as holder of record of the Preferred Securities, the OID related to the Subordinated Debentures that accrued during the year. Time Warner Capital currently intends to report such information on Form 1099 prior to January 31 following each calendar year even though Time Warner Capital is not legally required to report to record holders until April 15 following each calendar year. The Underwriters have indicated to Time Warner Capital that, to the extent that they hold Preferred Securities as nominees for beneficial holders, they currently expect to report to such beneficial holders on Forms 1099 by January 31 following each calendar year. Under current law, holders of Preferred Securities who hold as nominees for beneficial holders will not have any obligation to report information regarding the beneficial holders to Time Warner Capital. Time Warner Capital, moreover, will not have any obligation to report to beneficial holders who are not also record holders. Thus, beneficial holders of Preferred Securities who hold their Preferred Securities through the Underwriters will receive Forms 1099 reflecting the income on their Preferred Securities from such nominee holders rather than Time Warner Capital. BACKUP WITHHOLDING Payments made on, and proceeds from the sale of, the Preferred Securities may be subject to a "backup" withholding tax of 31% unless the holder complies with certain identification requirements. Any withheld amounts will be allowed as a credit against the holder's United States Federal income tax, provided that the required information is provided to the Service. THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. ERISA CONSIDERATIONS Generally, employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), or Section 4975 of the Code ("Plans"), may purchase Preferred Securities, subject to the investing fiduciary's determination that the investment in Preferred Securities satisfies ERISA's fiduciary standards and other requirements applicable to investments by the Plan. In any case, Time Warner and/or any of its affiliates may be considered a "party in interest" (within the meaning of ERISA) or a "disqualified person" (within the meaning of Section 4975 of the Code) with respect to certain plans (generally, Plans maintained or sponsored by, or contributed to by, any such persons). The acquisition and ownership of Preferred Securities by a Plan (or by an individual retirement arrangement or other Plans described in Section 4975(e)(i) of the Code) with respect to which Time Warner or any of its affiliates is considered a party in interest or a disqualified person, may constitute or result in a prohibited transaction under ERISA or Section 4975 of the Code, unless such Preferred Securities are acquired pursuant to and in accordance with an applicable exemption. As a result, Plans with respect to which Time Warner or any of its affiliates is a party in interest or a disqualified person should not acquire Preferred Securities. Any other Plans or other entities whose assets include Plan assets subject to ERISA proposing to acquire Preferred Securities should consult with their own ERISA counsel. S-44 UNDERWRITING Subject to the terms and conditions set forth in an underwriting agreement (the "Underwriting Agreement"), Time Warner Capital has agreed to sell to each of the Underwriters named below, and each of the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Bear, Stearns & Co. Inc. are acting as representatives (the "Representatives"), has severally agreed to purchase the number of Preferred Securities set forth opposite its name below. In the Underwriting Agreement, the several Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all the Preferred Securities offered hereby if any of the Preferred Securities are purchased. In the event of default by an Underwriter, the Underwriting Agreement provides that, in certain circumstances, the purchase commitments of the nondefaulting Underwriters may be increased or the Underwriting Agreement may be terminated.
NUMBER OF UNDERWRITER PREFERRED SECURITIES ----------- -------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated..................................... Morgan Stanley & Co. Incorporated......................... Bear, Stearns & Co. Inc................................... ----- Total................................................ =====
The Underwriters propose to offer the Preferred Securities, in part, directly to the public at the initial public offering price set forth on the cover page of this Prospectus Supplement, and, in part, to certain securities dealers at such price less a concession of $ per Preferred Security. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per Preferred Security to certain brokers and dealers. After the Preferred Securities are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Representatives. In view of the fact that the proceeds of the sale of the Preferred Securities will ultimately be used to purchase the Subordinated Debentures of Time Warner, the Underwriting Agreement provides that Time Warner will pay as compensation ("Underwriters' Compensation") to the Underwriters an amount in New York Clearing House (next day) funds of $ per Preferred Security (or $ in the aggregate) for the accounts of the several Underwriters; provided that such compensation for sales of Preferred Securities to certain institutions will be $ per Preferred Security. Therefore, to the extent of such sales, the actual amount of Underwriters Compensation will be less than the aggregate amount specified in the preceding sentence. The Company has agreed that, for a period of days from the date hereof it will not, and will cause the Trust not to, offer to sell or sell additional Preferred Securities or securities convertible into, exchangeable for or similar to Preferred Securities, other than the PERCS, without the consent of the Representatives. Application will be made to list the Preferred Securities as equity securities on the New York Stock Exchange. Trading of the Preferred Securities on the New York Stock Exchange is expected to commence within a 30-day period after the initial delivery of the Preferred Securities. The Representatives have advised Time Warner Capital that they intend to make a market in the Preferred Securities prior to the commencement of trading on the New York Stock Exchange. The Representatives will have no obligation to make a market in the Preferred Securities, however, and may cease market making activities, if commenced, at any time. Time Warner Capital and Time Warner have agreed to indemnify the Underwriters against, or contribute to payments that the Underwriters may be required to make in respect of, certain liabilities, including liabilities under the Securities Act of 1933, as amended. Certain of the Underwriters engage in transactions with, and, from time to time, have performed services for, Time Warner and its subsidiaries in the ordinary course of business for which they have received customary compensation. S-45 LEGAL MATTERS The validity of the Preferred Securities under Delaware law will be passed upon by Richards, Layton & Finger, Wilmington, Delaware, special Delaware counsel to Time Warner and Time Warner Capital. The validity of the Subordinated Debentures and the Guarantee and certain Federal income tax matters will be passed upon for Time Warner and Time Warner Capital by Cravath, Swaine & Moore, New York, New York, and for the Underwriters by Shearman & Sterling, New York, New York. Time Warner and Time Warner Capital are also being advised as to certain matters of Delaware law by Richards, Layton & Finger, Wilmington, Delaware. EXPERTS The consolidated financial statements of Time Warner and TWE appearing in Time Warner's Annual Report on Form 10-K for the year ended December 31, 1994, as amended, and the combined financial statements of the Time Warner Service Partnerships incorporated by reference therein, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon set forth therein and incorporated herein by reference. Such financial statements have been 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 Summit Communications Group, Inc. as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. The financial statements of Newhouse Broadcasting Cable Division of Newhouse Broadcasting Corporation and subsidiaries as of July 31, 1993 and 1994, and for the three years ended July 31, 1994, incorporated by reference in this Prospectus, have been audited by Paul Scherer & Company LLP, independent auditors, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. The financial statements of Vision Cable Division of Vision Cable Communications, Inc. and subsidiaries as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Paul Scherer & Company LLP, independent auditors, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. The financial statements of Cablevision Industries Corporation as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Arthur Andersen LLP, independent public accounts, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. The financial statements of Cablevision Industries Limited Partnership as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. S-46 The financial statements of KBLCOM Incorporated as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. The financial statements of Paragon Communications as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Price Waterhouse LLP, independent accountants, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. S-47 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN 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 NOR 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. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS (SUBJECT TO COMPLETION) $500,000,000 TIME WARNER INC. SUBORDINATED DEBENTURES ----------- TIME WARNER CAPITAL I TIME WARNER CAPITAL II TIME WARNER CAPITAL III PREFERRED TRUST SECURITIES GUARANTEED TO THE EXTENT SET FORTH HEREIN BY TIME WARNER INC. ----------- Time Warner Inc. ("Time Warner"), a Delaware corporation, may offer, from time to time, unsecured junior subordinated debentures (the "Subordinated Debentures"), in one or more series and in amounts, at prices and on terms to be determined at or prior to the time of any such offering. The Subordinated Debentures when issued will be unsecured obligations of Time Warner. Time Warner's obligations under the Subordinated Debentures will be subordinate and junior in right of payment to certain other indebtedness of Time Warner as may be described in an accompanying Prospectus Supplement (the "Prospectus Supplement"). ----------- Each of Time Warner Capital I, Time Warner Capital II and Time Warner Capital III (each a "Trust"), a statutory business trust formed under the laws of the State of Delaware, may offer, from time to time, trust preferred capital securities, representing undivided beneficial interests in the assets of the respective Trust ("Preferred Securities"). The payment of periodic cash distributions ("distributions") with respect to Preferred Securities of each of the Trusts out of moneys held by each of the Trusts and payments on liquidation, redemption or otherwise with respect to such Preferred Securities, will be guaranteed by Time Warner to the extent described herein (each a "Guarantee"). See "Description of the Guarantees". Time Warner's obligations under the Guarantees are subordinate and junior in right of payment to all other liabilities of Time Warner and rank pari passu with the most senior preferred stock, if any, issued from time to time by Time Warner. Subordinated Debentures may be issued and sold from time to time in one or more series by Time Warner to a Trust, or a trustee of such trust, in connection with the investment of the proceeds from the offering of Preferred Securities and Common Securities (as defined herein) of such Trust. The Subordinated Debentures purchased by a Trust may be subsequently distributed pro rata to holders of Preferred Securities and Common Securities in connection with the dissolution of such Trust, upon the occurrence of certain events as may be described in an accompanying Prospectus Supplement. ----------- Specific terms of the Subordinated Debentures of any series or the Preferred Securities of any Trust in respect of which this Prospectus is being delivered (the "Offered Securities") will be set forth in a Prospectus Supplement with respect to such Offered Securities, which will describe, without limitation and where applicable, the following: (i) in the case of Subordinated Debentures, the specific designation, aggregate principal amount, denomination, maturity, premium, if any, any exchange, conversion, redemption or sinking fund provisions, if any, interest rate (which may be fixed or variable), if any, the time and method of calculating interest payments, if any, dates on which premium, if any, and interest, if any, will be payable, the right of Time Warner, if any, to defer payment of interest on the Subordinated Debentures and the maximum length of such deferral period, the initial public offering price, subordination terms, and any listing on a securities exchange and other specific terms of the offering; and (ii) in the case of Preferred Securities, the designation, number of securities, liquidation preference per security, initial public offering price, any listing on a securities exchange, distribution rate (or method of calculation thereof), dates on which distributions shall be payable and dates from which distributions shall accrue, any voting rights, terms for any conversion or exchange into other securities, any redemption, exchange or sinking fund provisions, any other rights, preferences, privileges, limitations or restrictions relating to the Preferred Securities and the terms upon which the proceeds of the sale of the Preferred Securities shall be used to purchase a specific series of Subordinated Debentures of Time Warner. ----------- The Offered Securities may be offered in amounts, at prices and on terms to be determined at the time of offering; provided, however, that, the aggregate initial public offering price of all Offered Securities shall not exceed $500,000,000. Any Prospectus Supplement relating to any series of Offered Securities will contain information concerning certain United States federal income tax considerations, if applicable, to the Offered Securities. ----------- Time Warner or each Trust may sell the Offered Securities directly, through agents designated from time to time or through underwriters or dealers. See "Plan of Distribution" below. If any agents of Time Warner, any Trust or any underwriters or dealers are involved in the sale of the Offered Securities, the names of such agents, underwriters or dealers and any applicable commissions and discounts will be set forth in any related Prospectus Supplement. ----------- THESE SECURITIES 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. THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT. The date of this Prospectus Supplement is , 1995. NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED BY TIME WARNER OR ANY OF THE TRUSTS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TIME WARNER OR ANY OF THE TRUSTS SINCE THE DATE HEREOF. ---------------- AVAILABLE INFORMATION This Prospectus constitutes a part of a Registration Statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement") filed by Time Warner and the Trusts with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Offered Securities. This Prospectus does not contain all of the information set forth in such Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. Reference is made to such Registration Statement and to the exhibits relating thereto for further information with respect to Time Warner, the Trusts and the Offered Securities. Any statements contained herein concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the SEC or incorporated by reference herein are not necessarily complete, and, in each instance, reference is made to the copy of such document so filed for a more complete description of the matter involved. Each such statement is qualified in its entirety by such reference. Time Warner 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 SEC. Reports, proxy statements and other information concerning Time Warner can be inspected and copied at prescribed rates at the SEC's Public Reference Room, Judiciary Plaza, 450 Fifth Street, Northwest, Washington, D.C. 20549, as well as the following Regional Offices of the SEC: 7 World Trade Center, New York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Such reports, proxy statements and other information may also be inspected at the offices of the New York Stock Exchange, on which Time Warner common stock is traded, at 20 Broad Street, New York, New York 10005. No separate financial statements of any of the Trusts have been included herein. Time Warner does not consider that such financial statements would be material to holders of the Preferred Securities because (i) all of the voting securities of each of the Trusts will be owned, directly or indirectly, by Time Warner, a reporting company under the Exchange Act, (ii) the Trusts have no independent operations and exist for the sole purpose of issuing securities representing undivided beneficial interests in the assets of such Trusts and investing the proceeds thereof in Subordinated Debentures issued by Time Warner, and (iii) the obligations of the Trusts under the Trust Securities (as defined herein) that may be issued from time to time are fully and unconditionally guaranteed by Time Warner to the extent that such Trust has funds available to meet such obligations. See "Description of the Subordinated Debentures" and "Description of the Guarantees". DOCUMENTS INCORPORATED BY REFERENCE The following documents filed by Time Warner with the Commission pursuant to Section 13 of the Exchange Act (File No. 1-8637) are incorporated herein by reference: (i) Time Warner's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as amended by Amendment No. 1 hereto dated June 28, 1995; (ii) Time Warner's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995; (iii) Time Warner's Current Report on Form 8-K dated January 26, 1995; (iv) Time Warner's Current Report 2 on Form 8-K dated February 6, 1995; (v) Time Warner's Current Report on Form 8- K dated April 1, 1995; (vi) Time Warner's Current Report on Form 8-K dated May 30, 1995; (vii) Time Warner's Current Report on Form 8-K dated June 15, 1995 and (viii) Time Warner's Current Report on Form 8-K dated July 6, 1995. All documents and reports subsequently filed by Time Warner pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Preferred Securities shall be deemed to be incorporated by reference and to be a part hereof from the date of filing of such documents. 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 subsequently filed document that also 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. Time Warner will provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, upon the written or oral request of such person, a copy of any or all documents incorporated herein by reference, other than exhibits to such documents unless such exhibits are specifically incorporated by reference in such documents, and any other documents specifically identified herein as incorporated reference into the Registration Statement to which this Prospectus relates or into such other documents. Requests should be directed to Shareholder Relations, Time Warner Inc., 75 Rockefeller Plaza, New York, New York 10019; telephone number (212) 484-6971. TIME WARNER INC. Time Warner is the largest media and entertainment company in the world. Its businesses are conducted in five principal areas: Publishing, Music, Filmed Entertainment, Programming-HBO and Cable. Publishing consists principally of the publication and distribution of magazines and books; Music consists principally of the production and distribution of recorded music and the ownership and administration of music copyrights; Filmed Entertainment consists principally of the production and distribution of motion pictures and television programming, the distribution of video cassettes and the ownership and operation of retail stores and theme parks; Programming-HBO consists principally of the production and distribution of pay television and cable programming; and Cable consists principally of the operation of cable television systems. Time Warner was incorporated in the State of Delaware in August 1983 and is the successor to a New York corporation that was originally organized in 1922. Time Warner changed its name from Time Incorporated to Time Warner Inc. 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 Time Warner in January 1990 upon the completion of the merger of WCI and a subsidiary of Time Warner. Time Warner Entertainment Company, L.P. ("TWE") was formed as a Delaware limited partnership in 1992 to own and operate substantially all of the Filmed Entertainment, Programming-HBO and Cable businesses owned and operated by Time Warner prior to such date. Certain wholly owned subsidiaries of Time Warner (the "Time Warner General Partners") collectively own 63.27% of the pro rata priority capital and residual equity interest in TWE and wholly owned subsidiaries of ITOCHU Corporation, Toshiba Corporation and U S WEST Inc. ("U S WEST") own pro rata priority capital and residual equity interests in TWE of 5.61%, 5.61% and 25.51%, respectively. In addition, the Time Warner General Partners own priority capital interests senior and junior to the pro rata priority capital interests. TWE is the principal component of Time Warner's Entertainment Group, which is not consolidated with Time Warner for financial reporting purposes. Certain cable systems acquired or to be acquired as a result of the Transactions referred to in "Recent Developments" will be owned by consolidated subsidiaries 3 of Time Warner. The balance of Time Warner's cable systems are owned by TWE or the TWE-A/N Partnership (as defined herein), in which TWE owns a two-thirds interest. Accordingly, although TWE will manage substantially all the cable systems owned by Time Warner, TWE and the TWE-A/N Partnership, the results of operations of the cable systems owned by Time Warner's consolidated subsidiaries will be included in Time Warner's consolidated results, while the results of operations of the cable systems owned by TWE and the TWE-A/N Partnership will be included in the consolidated results of the Entertainment Group. Time Warner is a holding company and its assets consist primarily of investments in its consolidated and unconsolidated subsidiaries, including TWE. Time Warner's ability to service its indebtedness, including the Subordinated Debentures, is dependent primarily upon the earnings of its consolidated and unconsolidated subsidiaries, including TWE, and the distribution or other payment of such earnings to Time Warner. As used in this Prospectus, unless the context otherwise requires, the terms "Company" and "Time Warner" refer to Time Warner Inc. and its consolidated and unconsolidated subsidiaries and includes TWE. Time Warner's principal executive offices are located at 75 Rockefeller Plaza, New York, NY 10019, and its telephone number is (212) 484-8000. THE TRUSTS Each of Time Warner Capital I, Time Warner Capital II and Time Warner Capital III is a statutory business trust formed under Delaware law pursuant to (i) a declaration of trust, dated as of August 2, 1995, executed by Time Warner, as sponsor (the "Sponsor"), and the trustees of such Trust (the "Time Warner Trustees") and (ii) the filing of a certificate of trust with the Secretary of State of the State of Delaware on August 2, 1995. Each such declaration will be amended and restated in its entirety (as so amended and restated, each a "Declaration"), and is substantially in the form filed as an exhibit to the Registration Statement of which this Prospectus Supplement and the accompanying Prospectus form a part. Each Declaration will be qualified as an indenture under the Trust Indenture Act of 1939 as amended (the "Trust Indenture Act"). Upon issuance of the Preferred Securities, the purchasers thereof will own all of the Preferred Securities of the relevant Trust. See "Description of the Preferred Securities". Time Warner will directly or indirectly acquire Common Securities in an aggregate liquidation amount equal to 3% of the total capital of each of the Trusts. The Trusts exist for the exclusive purposes of (i) issuing the Trust Securities representing undivided beneficial interests in the assets of each such Trust, (ii) investing the gross proceeds of the Trust Securities in the Subordinated Debentures and (iii) engaging in only those other activities necessary or incidental thereto. Pursuant to each Declaration, the number of Time Warner Trustees of each of the Trusts will initially be five. Three of the Time Warner Trustees of each of the Trusts (the "Regular Trustees") will be persons who are employees or officers of or who are affiliated with Time Warner. The fourth trustee of each of the Trusts will be a financial institution that unaffiliated with Time Warner, which trustee will serve as property trustee under the relevant Declaration and as indenture trustee for the purposes of the Trust Indenture Act (the "Property Trustee"). The fifth trustee of each of the Trusts will be a financial institution or an affiliate thereof that maintains a principal place of business or resident in the State of Delaware, meeting the requirements of the Trust Act (the "Delaware Trustee"). Initially, The First National Bank of Chicago, a Delaware banking corporation, will be the Property Trustee for each of the Trusts until removed or replaced by the holder of the Common Securities of each of the Trusts. The First National Bank of Chicago will also act as indenture trustee under the Guarantees (the "Guarantee Trustee"). See "Description of the Guarantees". In certain circumstances, the holders of a majority of the Preferred Securities of each of the Trusts will be entitled to appoint one Regular Trustee of such Trust (a "Special Regular Trustee"), who need not be an officer or employee of or otherwise affiliated with Time Warner. 4 The Property Trustee will hold title to the Subordinated Debentures for the benefit of the holders of the Trust Securities and the Property Trustee will have the power to exercise all rights, power, and privileges under the Indenture (as defined herein) as the holder of the Subordinated Debentures. In addition, the Property Trustee will maintain exclusive control of segregated noninterest-bearing bank accounts (each a "Property Account") to hold all payments made in respect of the Subordinated Debentures for the benefit of the holders of the Trust Securities of the relevant Trust. The Property Trustee will make payments of distributions and payments on liquidation, redemption and otherwise to the holders of the Trust Securities out of funds from the Property Account. The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Preferred Securities of the relevant Trust. Subject to the right of the holders of the Preferred Securities to appoint a Special Regular Trustee, Time Warner, as the direct or indirect holder of all the Common Securities of each of the Trusts, will have the right to appoint, remove or replace any Time Warner Trustee of such Trust and to increase or decrease the number of Time Warner Trustees of such Trust; provided that (i) the number of Time Warner Trustees of each of the Trusts shall be at least three and (ii) a majority of the Time Warner Trustees of each of the Trusts shall be Regular Trustees. The Declarations provide that Time Warner will pay for all debts and obligations (other than with respect to the Trust Securities) and all costs and expenses of the Trusts, including any taxes and all costs and expenses with respect thereto, to which the Trusts may become subject, except for United States withholding taxes. Time Warner has agreed that any person to whom such debts, obligations, costs and expenses are owed and the Property Trustee will have the right to enforce Time Warner's obligations in respect of such debts, obligations, costs and expenses directly against Time Warner without first proceeding against the Trusts. The rights of the holders of the Preferred Securities of the Trusts, including economic rights, rights to information and voting rights, are set forth in the applicable Prospectus Supplement, this Prospectus, the applicable Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust Indenture Act. See "Description of the Preferred Securities". USE OF PROCEEDS The proceeds to the Trusts from the sale of the Preferred Securities offered from time to time hereby will be invested in one or more series of Subordinated Debentures of Time Warner, the proceeds of which will be used by Time Warner to repurchase, redeem or otherwise repay outstanding indebtedness. RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS The ratio of earnings to fixed charges and ratio of earnings to combined fixed charges and preferred stock dividends for Time Warner are set forth below for the periods indicated. 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. The historical ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred stock dividends for all periods after 1992 reflect the deconsolidation of the Entertainment Group, principally TWE, effective January 1, 1993. The historical ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred stock dividends for 1992 and periods prior to such date have not been changed; however, a ratio of earnings to fixed charges and a ratio of earnings to combined fixed charges and preferred stock dividends for 1992 retroactively reflecting the deconsolidation is presented as supplementary information under the column heading "restated" to facilitate comparative analysis. The historical ratio of earnings to fixed charges and ratio of earnings to combined fixed charges and preferred stock dividends for 1993 reflects the issuance of $6.1 billion of long-term debt and the use of $500 million of cash and equivalents in 1993 for the exchange or redemption of preferred stock having an aggregate liquidation preference of $6.4 billion. The historical ratio of earnings to fixed charges and ratio of earnings to combined fixed charges and preferred stock dividends 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 as of June 30, 1992, using the purchase method of accounting for business combinations. 5 The pro forma coverage deficiencies for the three months ended March 31, 1995 and the year ended December 31, 1994 give effect to the Acquisitions, TWE-A/N Transaction, 1995 Debt Refinancing and Asset Sale Transactions as if such transactions had occurred at the beginning of such periods. Such pro forma information should be read in conjunction with the pro forma consolidated condensed financial statements contained in Time Warner's Current Report on Form 8-K dated May 30, 1995 and incorporated herein by reference. Such pro forma amounts are presented for informational purposes only and are not necessarily indicative of the actual ratio or coverage deficiency that would have occurred if such transactions had been consummated as of the dates indicated, nor are they necessarily indicative of future results.
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, -------------------- ------------------------------------------------------------------------- PRO FORMA HISTORICAL PRO FORMA HISTORICAL HISTORICAL RESTATED HISTORICAL HISTORICAL HISTORICAL 1995 1995 1994 1994 1993 1992 1992 1991 1990 --------- ---------- --------- ---------- ---------- -------- ---------- ---------- ---------- (MILLIONS, EXCEPT RATIOS) Ratio of earnings to fixed charges (deficiency in the coverage of fixed charges by earnings before fixed charges). $(18) 1.0x $(73) 1.1x 1.1x 1.4x 1.4x 1.1x $ (101) 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)............ (55) (3) (209) 1.1x $(91) $(506) $(509) $(1,240) $(1,335)
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 pretax income, interest expense, previously capitalized interest amortized to expense, the portion of rents representative of an interest factor, Time Warner's proportionate share of such items for its partially-owned subsidiaries and 50%-owned companies, and undistributed losses of less-than-50%-owned companies. Fixed charges consist of interest expense, interest capitalized, the portion of rents representative of an interest factor and Time Warner's proportionate share of such items for partially-owned subsidiaries and 50%-owned companies. Combined fixed charges and preferred stock dividends also include the amount of pretax income necessary to cover preferred stock dividend requirements. 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 ratio, is disclosed. Earnings as defined include significant noncash charges for depreciation and amortization. Fixed charges for the three months ended March 31, 1995 and 1994 and the year ended December 31, 1994 include noncash interest expense of $57 million, $52 million and $219 million, respectively, relating to Time Warner's Redeemable Reset Notes due 2002 and its Liquid Yield Option Notes due 2012 and 2013. 6 DESCRIPTION OF SUBORDINATED DEBENTURES The Subordinated Debentures may be issued, from time to time, in one or more series under an Indenture dated as of , 1995 (the "Indenture"), between Time Warner and Chemical Bank, as trustee (the "Indenture Trustee"), the form of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following description sets forth certain general terms and provisions of the Subordinated Debentures to which any Prospectus Supplement may relate. The particular terms of the Subordinated Debentures offered by any Prospectus Supplement and the extent, if any, to which such general provisions may apply to the Subordinated Debentures so offered will be described in the Prospectus Supplement relating to such Subordinated Debentures. The following description does not purport to be complete and is subject to, and is qualified in its entirety by reference to, any Prospectus Supplement relating to the issuance of Subordinated Debentures, the Indenture, the Trust Indenture Act and the other documents incorporated by reference herein. The terms of the Subordinated Debentures include those set forth in the Trust Indenture Act. Certain capitalized terms are used herein as defined in the Indenture. GENERAL The Subordinated Debentures will be direct, unsecured obligations of Time Warner. The Indenture does not limit the aggregate principal amount of Subordinated Debentures that may be issued thereunder and provides that Subordinated Debentures may be issued thereunder from time to time in one or more series. The financial terms of the Subordinated Debentures, including, among other things, the principal of, interest on and any premium on any series of Subordinated Debentures shall be set forth in the Prospectus Supplement related thereto. References made herein to the Subordinated Debentures refer to each series of Subordinated Debentures that may be issued from time to time. The Subordinated Debentures may be issued under the Indenture as Original Issue Discount Securities to be offered and sold at a substantial discount below their principal amount. Special United States federal income tax, accounting and other considerations applicable to any such Original Issue Discount Securities will be described in any Prospectus Supplement relating thereto. "Original Issue Discount Security" means any security that provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof as a result of the occurrence of an Event of Default and the continuation thereof. In addition, the Subordinated Debentures may, for United States federal income tax purposes, be deemed to have been issued with "original issue discount" ("OID") even if such securities are offered and sold at an amount equal to their principal amount. The United States federal income tax consequences of Subordinated Debentures deemed to be issued with OID will be described in any Prospectus Supplement relating thereto. The Indenture does not contain any provisions that would limit the ability of Time Warner to incur indebtedness. Reference is made to any Prospectus Supplement relating to the Subordinated Debentures offered thereby for information with respect to any deletions from, modifications of or additions to the Events of Default or covenants of Time Warner applicable to the Subordinated Debentures that are referred to herein. Under the Indenture, Time Warner will have the ability to issue Subordinated Debentures with terms different from those of Subordinated Debentures previously issued, without the consent of the holders of previously issued series of Subordinated Debentures, in an aggregate principal amount determined by Time Warner. SUBORDINATION The Subordinated Debentures will be subordinated and junior in right of payment of certain other indebtedness of Time Warner to the extent set forth in the Prospectus Supplement that will accompany this Prospectus. 7 DEFEASANCE The Indenture provides that Time Warner, at its option, (a) will be Discharged (as defined in the Indenture) from any and all obligations in respect any series of the Subordinated Debentures (except in each case for certain obligations to register the transfer or exchange of the Subordinated Debentures, replace stolen, lost or mutilated Subordinated Debentures, maintain paying agencies and hold moneys for payment in trust) or (b) need not comply with any restrictive covenant described in a Prospectus Supplement, and certain Events of Default (other than those arising out of the failure to pay interest or principal on the relevant series Subordinated Debentures of a particular series and certain events of bankruptcy, insolvency and reorganization) will no longer constitute Events of Default with respect to such series of Subordinated Debentures, in each case if Time Warner deposits with the applicable Trustee, in trust, money or the equivalent in securities of the government which issued the currency in which the Subordinated Debentures are denominated or government agencies backed by the full faith and credit of such government, 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 (including any mandatory sinking fund payments) of, and interest on, such series on the dates such payments are due in accordance with the terms of such series. To exercise any such option, Time Warner is required, among other things, to deliver to the Indenture Trustee an opinion of counsel to the effect that (i) 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), accompanied by a ruling to such effect received from or published by the United States Internal Revenue Service and (ii) the creation of the defeasance trust will not violate the Investment Company Act of 1940. In addition, the Company is required to deliver to the Indenture Trustee an Officers' Certificate stating that such deposit was not made by Time Warner with the intent of preferring the holders over other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding creditors of Time Warner or others. INDENTURE EVENTS OF DEFAULT If any Indenture Event of Default shall occur with respect to any series of Subordinated Debentures and be continuing, the Property Trustee, as the holder of the Subordinated Debentures, will have the right to declare the principal of and the interest on such series of Subordinated Debentures and any other amounts payable under the Indenture to be forthwith due and payable and to enforce its other rights as a creditor with respect to the Subordinated Debentures. An "Indenture Event of Default" is defined as: (i) default for 30 days in the payment of interest on the Subordinated Debentures of a particular series (subject, however, to any right of Time Warner to defer interest payments specified for a particular series); (ii) default in payment of the principal amount at maturity or the amount payable upon redemption of the Subordinated Debentures of such series; (iii) failure by Time Warner for 90 days after receipt of notice to it by the Indenture Trustee (or the holders of at least 25% in principal amount of the Subordinated Debentures then outstanding) to comply with any of its covenants or agreements contained in the Indenture and applicable to a particular series; and (iv) certain events of bankruptcy, insolvency, receivership or reorganization involving Time Warner. If any Indenture Event of Default described in clause (i), (ii) or (iii) above occurs and is continuing, the Indenture Trustee by notice to Time Warner, or the holders of not less than 25% in aggregate principal amount of the Subordinated Debentures of such series outstanding by notice to the Indenture Trustee and Time Warner, may declare the Subordinated Debentures to be due and payable and, upon any such declaration, the Subordinated Debentures shall become immediately due and payable along with any accrued and unpaid interest. If any Indenture Event of Default described in clause (iv) above occurs and is continuing, the Subordinated Debentures of all series 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 Subordinated Debentures of each series then outstanding may waive certain past defaults and their consequences with respect to such series, other than a default in the payment of principal or interest, 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 Indenture Trustee. An Indenture Event of Default also constitutes a Declaration Event of Default (as defined in the applicable Declaration). The holders of Preferred Securities 8 in certain circumstances have the right to direct the Property Trustee to exercise its rights as the holder of the relevant series of Subordinated Debentures. GLOBAL SECURITIES The Subordinated Debentures of a series may be issued in whole or in part in the form of one or more Global Securities (as such term is defined below), which will be deposited with, or on behalf of, a depositary ("Depositary") or its nominee identified in the applicable Prospectus Supplement. In such case, one or more Global Securities will be issued in a denomination or aggregate denomination equal to the portion of the aggregate principal amount of outstanding Subordinated Debentures of the series to be represented by such Global Security or Global Securities. Unless and until it is exchanged in whole or in part for Subordinated Debentures in registered form, a Global Security may not be registered for transfer or exchange except as (i) a whole by the Depositary for such Global Security to a nominee of such Depositary, by a nominee of such Depositary to such Depositary or another nominee of such Depositary, or by any nominee to a successor Depositary or a nominee of such successor Depositary, and (ii) in the circumstances described in the applicable Prospectus Supplement. The term "Global Security", when used with respect to any series of Subordinated Debentures, means a Debt Security that is executed by Time Warner and authenticated and delivered by the Indenture Trustee to the Depositary or pursuant to the Depositary's instruction, which shall be registered in the name of the Depositary or its nominee and which shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all of the outstanding Subordinated Debentures of such series or any portion thereof, in either case having the same terms, including, without limitation, the same original issue date, date or dates on which principal is due, and interest rate or method of determining interest. The specific terms of the depositary arrangement with respect to any portion of a series of Subordinated Debentures to be represented by a Global Security will be described in the applicable Prospectus Supplement. Time Warner expects that the following provisions will apply to depositary arrangements. Unless otherwise specified in the applicable Prospectus Supplement, Subordinated Debentures that are to be represented by a Global Security to be deposited with or on behalf of a Depositary will be represented by a Global Security registered in the name of such Depositary or its nominee. Upon the issuance of such Global Security, and the deposit of such Global Security with or on behalf of the Depositary for such Global Security, the Depositary will credit on its book-entry registration and transfer system the respective principal amounts of the Subordinated Debentures represented by such Global Security to the accounts of institutions that have accounts with such Depositary or its nominee ("participants"). The accounts to be credited will be designated by the underwriters or agents of such Subordinated Debentures or, if such Subordinated Debentures are offered and sold directly by Time Warner, by Time Warner. Ownership of beneficial interests in such Global Security will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interests by participants in such Global Security will be shown on, and the transfer of that ownership interest will be effected only through, records maintained by the Depositary or its nominee for such Global Security. Ownership of beneficial interests in such Global Security by persons that hold through participants will be shown on, and the transfer of that ownership interest within such participant will be effected only through, records maintained by such participant. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in certificated form. The foregoing limitations and such laws may impair the ability to transfer beneficial interests in such Global Securities. So long as the Depositary for a Global Security, or its nominee, is the registered owner of such Global Security, such Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Subordinated Debentures represented by such Global Security for all purposes under the Indenture. Unless otherwise specified in the applicable Prospectus Supplement, owners of beneficial interests in such Global Security will not be entitled to have Subordinated Debentures of the series represented by such Global Security registered in their names, will not receive or be entitled to receive physical delivery of Subordinated Debentures of such series in certificated form and will not be considered the holders thereof for any purposes 9 under the Indenture. Accordingly, each person owning a beneficial interest in such Global Security must rely on the procedures of the Depositary and, if such person is not a participant, on the procedures of the participant through which such person owns its interest to exercise any rights of a holder under the Indenture. Time Warner understands that under existing industry practices, if Time Warner requests any action of holders or an owner of a beneficial interest in such Global Security desires to give any notice or take any action a holder is entitled to give or take under the Indenture, then the Depositary would authorize the participants to give such notice or take such action, and participants would authorize beneficial owners owning through such participants to give such notice or take such action or would otherwise act upon the instructions of beneficial owners owning through them. Principal of and any premium and interest on a Global Security will be payable in the manner described in the applicable Prospectus Supplement. MODIFICATION OF THE INDENTURE Time Warner and the Indenture Trustee may, without the consent of the holders of the Subordinated Debentures, enter into indentures supplemental to the Indenture for, among others, one or more of the following purposes: (i) to evidence the succession of another person to Time Warner, and the assumption by such successor of Time Warner's obligations under the Indenture and the Subordinated Debentures of any series; (ii) to add covenants of Time Warner, or surrender any rights of Time Warner, for the benefit of the holders of Subordinated Debentures of any or all series; (iii) to cure any ambiguity, or correct any inconsistency in the Indenture; (iv) to evidence and provide for the acceptance of any successor Trustee with respect to one or more series of Subordinated Debentures or to facilitate the administration of the trusts thereunder by one or more trustees in accordance with the Indenture; (v) to establish the form or terms of any series of Subordinated Debentures; and (vi) to provide any additional Events of Default. The Indenture contains provisions permitting Time Warner and the Indenture Trustee, with the consent of the holders of the not less than a majority in principal amount of the outstanding Subordinated Debentures of each series, to modify the Indenture; provided that no such modification may, without the consent of the holders of each outstanding Subordinated Debenture of such series affected thereby, (i) reduce the amount of Subordinated Debentures of such series the holders of which must consent to any amendment, supplement or waiver of the Indenture; (ii) reduce the rate of or extend the time for the payment of interest on any Subordinated Debenture; (iii) alter the method of calculation of, or reduce, the amount paid at maturity or extend the fixed maturity of any Subordinated Debenture; (iv) make any Subordinated Debenture payable in money or property other than that stated in the Subordinated Debenture; (v) make any change to the subordination terms that adversely affects the rights of any holder of the Subordinated Debentures; or (vi) make any change to the provisions relating to waivers of past defaults or the rights of holders of the Subordinated Debentures to receive payments or reduce the percentage of Subordinated Debentures the holders of which are required to consent to any such modification. Each Declaration provides that in the event that the consent of the Property Trustee, as holder of the Subordinated Debentures of such series, is required in connection with any modification of the Indenture or the Subordinated Debentures of such series, the Property Trustee will request the written direction of the holders of a majority in principal amount (or to the extent that the vote of a greater percentage or of all the holders of the Subordinated Debentures shall be required, such greater percentage in stated liquidation amount or all) of the Trust Securities of each of the Trusts with respect to any such modification. GOVERNING LAW The Indenture and the Subordinated Debentures will be governed by, and construed in accordance with, the laws of the State of New York. INFORMATION CONCERNING THE INDENTURE TRUSTEE The Indenture Trustee, prior to default, undertakes to perform only such duties as are specifically set forth in the Indenture and, after default, shall exercise the same degree of care as a prudent individual would 10 exercise in the conduct of his or her own affairs. Subject to such provision, the Indenture Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Subordinated Debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities that might be incurred thereby. The Indenture 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 Indenture Trustee is one of a number of banks with which Time Warner and its subsidiaries maintain ordinary banking and trust relationships. DESCRIPTION OF THE PREFERRED SECURITIES Each Trust is authorized by the applicable Declaration to issue, from time to time, one series of Preferred Securities having terms described in the Prospectus Supplement relating thereto. Each Declaration will be qualified as an indenture under the Trust Indenture Act. Each series of Preferred Securities will have such terms, including distributions, redemption, voting, liquidation rights and such other preferred, deferred or other special rights or such restrictions as shall be set forth in the relevant Declaration or made part of the relevant Declaration by the Trust Indenture Act. Reference is made to any Prospectus Supplement relating to the Preferred Securities of a Trust for specific terms, including (i) the distinctive designation of such Preferred Securities, (ii) the number of Preferred Securities issued by such Trust, (iii) the annual distribution rate (or method of determining such rate) for such Preferred Securities and the date or dates upon which such distributions shall be payable, (iv) whether distributions on such Preferred Securities shall be cumulative, and, in the case of Preferred Securities having such cumulative distribution rights, the date or dates or method of determining the date or dates from which distributions on such Preferred Securities shall be cumulative, (v) the amount or amounts which shall be paid out of the assets of such Trust to the holders of such Preferred Securities upon voluntary or involuntary dissolution, winding-up or termination of such Trust, (vi) the obligation, if any, of such Trust to purchase or redeem Preferred Securities issued by such Trust and the price or prices at which, the period or periods within which and the terms and conditions upon which such Preferred Securities shall be purchased or redeemed, in whole or in part, pursuant to such obligation,(vii) the voting rights, if any, of such Preferred Securities in addition to those required by law, including the number of votes per Preferred Security and any requirement for the approval by the holders of Preferred Securities, or of Preferred Securities issued by one or more Trust, or of both, as a condition to specified action or amendments to the relevant Declaration, and (viii) any other relevant rights, preferences, privileges, limitations or restrictions of Preferred Securities issued by such Trust consistent with the relevant Declaration or with applicable law. All Preferred Securities offered hereby will be guaranteed by Time Warner to the extent set forth below under "Description of the Guarantees". Certain United States federal income tax considerations applicable to any offering of Preferred Securities will be described in the Prospectus Supplement relating thereto. In connection with the issuance from time to time of Preferred Securities, each Trust will issue Common Securities. Each Declaration authorizes the relevant Trust to issue on behalf of such Trust only one series of Common Securities having such terms including distributions, redemption, voting, liquidation rights or such restrictions as shall be set forth therein. The terms of the Common Securities issued by a Trust will be substantially identical to the terms of the Preferred Securities issued by such Trust and the Common Securities will rank pari passu, and payments will be made thereon pro rata with the Preferred Securities except that, upon an event of default under the relevant Declaration, the rights of the holders of the Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise will be subordinated to the rights of the holders of the Preferred Securities. Except in certain limited circumstances, the Common Securities will also carry the right to vote and to appoint, remove or replace any of the Time Warner Trustees of the relevant Trust. All of the Common Securities of the Trusts will be directly or indirectly owned by Time Warner. 11 DESCRIPTION OF THE GUARANTEES Set forth below is a summary of information concerning the Guarantees that will be executed and delivered by Time Warner for the benefit of the holders, from time to time, of Preferred Securities. Each Guarantee will be qualified as an indenture under the Trust Indenture Act. The First National Bank of Chicago will act as indenture trustee under each Guarantee (the "Guarantee Trustee"). The terms of each Guarantee will be those set forth in such Guarantee and those made part of such Guarantee by the Trust Indenture Act. The summary set forth herein does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the form of Guarantee, which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part, and the Trust Indenture Act. Each Guarantee will be held by the Guarantee Trustee for the benefit of the holders of the Preferred Securities of the applicable Trust. GENERAL Pursuant to each Guarantee, Time Warner will irrevocably and unconditionally agree, to the extent set forth therein, to pay in full to the holders of the Preferred Securities issued by each Trust, the Guarantee Payments (as defined below), without duplication of amounts paid by the relevant Trust, as and when due, regardless of any defense, right of set-off or counterclaim that such Trust may have or assert. The following payments with respect to Preferred Securities issued by a Trust (the "Guarantee Payments"), to the extent not paid by such Trust, will be subject to the Guarantee (without duplication): (i)(A) any accrued and unpaid distributions that are required to be paid on such Preferred Securities and (B) any redemption price, including all accrued and unpaid distributions, but if and only if to the extent that, in each case, Time Warner has made payment to the Property Trustee of interest or principal on the Subordinated Debentures, and (ii) upon a voluntary or involuntary dissolution, winding-up or termination of such Trust (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities or the redemption of all of the Preferred Securities upon maturity or redemption of the Subordinated Debentures) the lesser of(A) the aggregate of the liquidation amount and all accrued and unpaid distributions on such Preferred Securities to the date of payment to the extent such Trust has funds available therefor and (B) the amount of assets of such Trust remaining available for distribution to holders of such Preferred Securities upon such liquidation, dissolution, winding-up or termination of such Trust. Time Warner's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by Time Warner to the holders of Preferred Securities or by causing the applicable Trust to pay such amounts to such holders. Each Guarantee will be a full and unconditional guarantee with respect to the Preferred Securities issued by the applicable Trust from the time of issuance of such Preferred Securities but will not apply to any payment of distributions except to the extent such Trust shall have funds available therefor. If Time Warner does not make interest payments on the Subordinated Debentures purchased by a Trust, such Trust will not pay distributions on the Preferred Securities issued by such Trust and will not have funds available therefor. See "Description of the Subordinated Debentures". CERTAIN COVENANTS OF TIME WARNER In each Guarantee, Time Warner will covenant that, so long as any Preferred Securities issued by the applicable Trust remain outstanding, if there shall have occurred any event that would constitute an event of default under such Guarantee or the Declaration of such Trust, then (a) Time Warner shall not declare or pay dividends on, or make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock and (b) Time Warner shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Time Warner which rank pari passu with or junior to such Subordinated Debentures. However, each Guarantee will except from the foregoing any interest or dividend payments by Time Warner, where the interest or dividend is paid by way of the issuance of securities that rank pari passu with, or junior to, the securities on which such interest or dividend is being paid. 12 MODIFICATION OF THE GUARANTEES; ASSIGNMENT Except with respect to any changes that do not adversely affect the rights of holders of Preferred Securities (in which case no vote will be required), each Guarantee may be amended only with the prior approval of the holders of not less than a majority in liquidation amount of the outstanding Preferred Securities issued by the applicable Trust and only if the Guarantee Trustee shall have obtained either a ruling from the Internal Revenue Service or a written unqualified opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such action will not result in the relevant Trust being treated as an association taxable as a corporation or a partnership for United States Federal income tax purposes and that, following such action, each holder of Trust Securities will be treated as owning an undivided beneficial interest in the Subordinated Debentures. The manner of obtaining any such approval of holders of such Preferred Securities will be set forth in an accompanying Prospectus Supplement. All guarantees and agreements contained in a Guarantee shall bind the successors, assignees, receivers, trustees and representatives of Time Warner and shall inure to the benefit of the holders of the Preferred Securities of the applicable Trust then outstanding. EVENTS OF DEFAULT An Event of Default under the Guarantees will occur upon the failure of Time Warner to perform any of its payments or other obligations thereunder. The holders of a majority in liquidation amount of the Preferred Securities to which a Guarantee relates have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of such Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under such Guarantee. If the Guarantee Trustee fails to enforce a Guarantee, any holder of Preferred Securities relating to such Guarantee may, after a period of 30 days has elapsed from such holder's written request to the Guarantee Trustee to enforce such Guarantee, institute a legal proceeding directly against Time Warner to enforce the Guarantee Trustee's rights under such Guarantee without first instituting a legal proceeding against the relevant Trust, the Guarantee Trustee or any other person or entity. Subject to the award by a court of competent jurisdiction of legal fees in connection with any such legal proceeding, each holder will be required to bear its own costs in connection with instituting a legal proceeding directly against Time Warner, which cost may be significant. Time Warner is required to file annually with the Guarantee Trustee an officer's certificate as to Time Warner's compliance with all conditions and covenants under each of the Guarantees. INFORMATION CONCERNING THE GUARANTEE TRUSTEE The Guarantee Trustee, prior to the occurrence of a default, undertakes to perform only such duties as are specifically set forth in the relevant Guarantee and, after default with respect to such Guarantee, 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 Guarantee Trustee is under no obligation to exercise any of the powers vested in it by a Guarantee at the request of any holder of Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. TERMINATION OF THE GUARANTEES Each Guarantee will terminate as to the Preferred Securities issued by the applicable Trust upon full payment of the Redemption Price of all Preferred Securities of such Trust, upon distribution of the Subordinated Debentures held by such Trust to the holders of the Preferred Securities of such Trust or upon full payment of the amounts payable in accordance with the relevant Declaration upon liquidation of such Trust. Each Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of Preferred Securities issued by the applicable Trust must restore payment of any sums paid under such Preferred Securities or such Guarantee. 13 STATUS OF THE GUARANTEES Each Guarantee will constitute an unsecured obligation of Time Warner and will rank (i) subordinate and junior in right of payment to all other liabilities of Time Warner, (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by Time Warner and with any guarantee now or hereafter entered into by Time Warner in respect of any preferred or preference stock of any affiliate of Time Warner and (iii) senior to Time Warner's common stock. The terms of the Preferred Securities provide that each holder of Preferred Securities issued by a Trust by acceptance thereof agrees to the subordination provisions and other terms of the applicable Guarantee. Each Guarantee will constitute a guarantee of payment and not of collection (that is, the guaranteed party may institute a legal proceeding directly against the guarantor to enforce its rights under a Guarantee without instituting a legal proceeding against any other person or entity). GOVERNING LAW The Guarantees will be governed by and construed in accordance with the internal laws of the State of New York. PLAN OF DISTRIBUTION Time Warner may sell any series of the Subordinated Debentures and the Trusts may sell the Preferred Securities in one or more of the following ways from time to time (i) to or through underwriters or dealers, (ii) directly to purchasers, or (iii) through agents. The Prospectus Supplement with respect to any Offered Securities will set forth (i) the terms of the offering of the Offered Securities, including the name or names of any underwriters, dealers or agents, (ii) the purchase price of the Offered Securities and the proceeds to Time Warner or the applicable Trust as the case may be from such sale, (iii) any underwriting discounts and commissions or agency fees and other items constituting underwriters' or agents' compensation, (iv) any initial public offering prices, (v) any discounts or concessions allowed or reallowed or paid to dealers, and (vi) any securities exchange on which such Offered Securities may be listed. Any initial public offering price, discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. If underwriters are used in the sale, the Offered Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The Offered Securities may be offered to the public either through underwriting syndicates represented by one or more managing underwriters or directly by one or more firms acting as underwriters. The underwriter or underwriters with respect to a particular underwritten offering of Offered Securities will be named in the Prospectus Supplement relating to such offering and, if an underwriting syndicate is used, the managing underwriter or underwriters will be set forth on the cover of such Prospectus Supplement. Unless otherwise set forth in the Prospectus Supplement relating thereto, the obligations of the underwriters to purchase the Offered Securities will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all the Offered Securities if any are purchased. If dealers are utilized in the sale of Offered Securities, Time Warner or the applicable Trust will sell such Offered Securities to the dealers as principals. The dealers may then resell such Offered Securities to the public at varying prices to be determined by such dealers at the time of resale. The names of the dealers and the terms of the transaction will be set forth in the Prospectus Supplement relating thereto. Any series of Subordinated Debentures may be sold from time to time either directly by Time Warner or through agents designated by Time Warner. Any series of Preferred Securities may be sold from time to time either directly by the applicable Trust or by agents of the applicable Trust designated by such Trust. Any agent involved in the offer or sale of the Offered Securities in respect to which this Prospectus is delivered 14 will be named, and any commissions payable to Time Warner or the applicable Trust to such agent will be set forth, in the Prospectus Supplement relating thereto. Unless otherwise indicated in the Prospectus Supplement, any such agent will be acting on a best efforts basis for the period of its appointment. The Subordinated Debentures may be sold directly by Time Warner and the Preferred Securities may be sold directly by the applicable Trust to institutional investors or others who may be deemed to be underwriters within the meaning of the Securities Act with respect to any resale thereof. The terms of any such sales will be described in the Prospectus Supplement relating thereto. If so indicated in the Prospectus Supplement, Time Warner or the applicable Trust will authorize agents, underwriters or dealers to solicit offers from certain types of institutions to purchase Offered Securities from Time Warner or such Trust at the public offering price set forth in the Prospectus Supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. Such contracts will be subject only to those conditions set forth in the Prospectus Supplement, and the Prospectus Supplement will set forth the commission payable for solicitation of such contracts. Agents, dealers and underwriters may be entitled under agreements with Time Warner or the applicable Trust to indemnification by Time Warner or such Trust against certain civil liabilities, including liabilities under the Securities Act, or to contribution with respect to payments that such agents, dealers or underwriters may be required to make in respect thereof. Agents, dealers and underwriters may be customers of, engage in transactions with, or perform services for Time Warner or the applicable Trust in the ordinary course of business. Each series of Offered Securities will be a new issue of securities and will have no established trading market. Any underwriters to whom Offered Securities are sold for public offering and sale may make a market in such Offered Securities, but such underwriters will not be obligated to do so and may discontinue any market making at any time without notice. The Offered Securities may or may not be listed on a national securities exchange. No assurance can be given that there will be a market for the Offered Securities. LEGAL MATTERS The validity of the Preferred Securities under Delaware law will be passed upon for the Trusts by Richards, Layton & Finger, Wilmington, Delaware, special Delaware counsel to Time Warner and the Trusts. The validity of the Subordinated Debentures and the Guarantees and certain Federal income tax matters will be passed upon for Time Warner and the Trusts by Cravath, Swaine & Moore, New York, New York, and for the Underwriters by Shearman & Sterling, New York, New York. Time Warner and the Trusts are also being advised as to certain matters of Delaware law by Richards, Layton & Finger, Wilmington, Delaware. EXPERTS The consolidated financial statements of Time Warner and TWE appearing in Time Warner's Annual Report on Form 10-K for the year ended December 31, 1994, as amended, and the combined financial statements of the Time Warner Service Partnerships incorporated by reference therein, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon set forth therein and incorporated herein by reference. Such financial statements have been 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 Summit Communications Group, Inc. as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. 15 The financial statements of Newhouse Broadcasting Cable Division of Newhouse Broadcasting Corporation and subsidiaries as of July 31, 1993 and 1994, and for the three years ended July 31, 1994, incorporated by reference in this Prospectus, have been audited by Paul Scherer & Company LLP, independent auditors, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. The financial statements of Vision Cable Division of Vision Cable Communications, Inc. and subsidiaries as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Paul Scherer & Company LLP, independent auditors, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. The financial statements of Cablevision Industries Corporation as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Arthur Andersen LLP, independent public accounts, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. The financial statements of Cablevision Industries Limited Partnership as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. The financial statements of KBLCOM Incorporated as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. The financial statements of Paragon Communications as of December 31, 1993 and 1994, and for the three years ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Price Waterhouse LLP, independent accountants, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report and upon the authority of such firm as experts in accounting and auditing. 16 ANNEX I GLOSSARY OF TERMS The following is an abbreviated definition of certain capitalized terms used in this Prospectus Supplement. The Declaration, the Guarantee and the Indenture may contain a more complete definition of certain of the terms defined herein and reference should be made to the Declaration, the Guarantee or the Indenture, as applicable, for a more complete definition of all such terms. APPOINTMENT EVENT.................. the occurrence and continuation of (i) the failure by Time Warner Capital to pay distributions in full on the Preferred Securities for six (6) consecutive quar- terly distribution periods or (ii) a Dec- laration Event of Default. BUSINESS DAY....................... any day other than a Saturday or Sunday or any other day on which banking insti- tutions in New York, New York, are autho- rized or required by law to close. CODE............................... the Internal Revenue Code of 1986, as amended. COMMISSION......................... the Securities and Exchange Commission. COMMON SECURITIES.................. the common securities of the Trust repre- senting undivided beneficial interests in the assets of the Trust, directly or in- directly owned initially by Time Warner. DEBENTURE REDEMPTION PRICE......... on any date of redemption (including the Maturity Date), an amount equal to (a) 100% of the principal amount of Subordi- nated Debentures to be redeemed plus (b) accrued and unpaid interest thereon to but excluding the date of redemption. DECLARATION........................ the Amended and Restated Declaration of Trust dated as of , 1995 by the trustees, Time Warner, as sponsor, and the holders of undivided beneficial in- terests in the assets of the Trust. DECLARATION EVENT OF DEFAULT....... in respect of the Trust Securities, an Indenture Event of Default that has oc- curred and is continuing in respect of the Subordinated Debentures, provided that pursuant to the Declaration, the holder of the Common Securities will be deemed to have waived any Declaration Event of Default with respect to the Com- mon Securities until all Declaration Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. DISTRIBUTIONS...................... cumulative cash distributions payable to holders of Preferred Securities in an amount per annum equal to % of the stated liquidation amount of $25 per Pre- ferred Security, accruing from and in- cluding the Issue Date and payable quar- terly in arrears on , , and of each year, commencing , 1995, except as described herein. DTC................................ the Depository Trust Company. ERISA.............................. the Employee Retirement Income Security Act of 1974. A-1 EXCHANGE ACT....................... the Securities Exchange Act of 1934, as amended. EXTENSION PERIOD................... any period of up to 20 consecutive quar- ters during which Time Warner has elected to exercise its right to defer interest payments on the Subordinated Debentures; distributions on Preferred Securities would also be deferred during any such period but would continue to accrue with interest thereon compounded quarterly. GLOBAL SECURITY.................... issued in the form of one or more global certificates distributed to holders of Preferred Securities in connection with the involuntary or voluntary dissolution, winding-up or liquidation of Time Warner Capital as a result of the occurrence of a Special Event. GUARANTEE.......................... the Guarantee Agreement dated as of , 1995, executed by Time Warner on behalf of the holders of Preferred Securities. GUARANTEE PAYMENTS................. (i)(A) any accrued and unpaid distribu- tions that are required to be paid on the Preferred Securities and (B) the Pre- ferred Redemption Price with respect to the Preferred Securities subject to man- datory redemption or called for redemp- tion by Time Warner Capital, but if and only to the extent that, in each of cases (A) and (B), Time Warner has made a pay- ment to the Property Trustee of interest or principal on the Subordinated Deben- tures, and (ii) upon a Liquidation Event (other than in connection with the dis- tribution of the Subordinated Debentures to the holders of Preferred Securities or the redemption of all the Preferred Secu- rities upon the maturity or redemption of the Subordinated Debentures), the lesser of (x) the Liquidation Distribution, to the extent the Trust has funds available therefor, and (y) the amount of assets of Time Warner Capital remaining available for distribution to holders of the Pre- ferred Securities in liquidation of the Trust. GUARANTEE TRUSTEE.................. The First National Bank of Chicago. INDENTURE.......................... the Indenture dated as of , 1995, be- tween Time Warner and the Indenture Trustee. INDENTURE EVENT OF DEFAULT......... (i) default for 30 days in the payment of interest on the Subordinated Debentures; (subject to Time Warner's right to defer interest during any Extension Period); (ii) default in payment at the Maturity Date or any amount payable upon optional or special redemption of the Subordinated Debentures; (iii) failure by Time Warner for 90 days after receipt of notice to it to comply with any of its covenants or agreements contained in the Indenture; (iv) failure by the Property Trustee or any Regular Trustee to comply with the terms of the Declaration; and (v) certain events of bankruptcy, insolvency, receiv- ership or reorganization involving Time Warner. A-2 INDENTURE TRUSTEE.................. Chemical Bank. INTEREST PAYMENT DATE.............. with respect to the Subordinated Deben- tures, , , and of each year. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months and will include the first day but ex- clude the last day of such period. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed, will be com- puted 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 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 de- lay), 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. INVESTMENT COMPANY EVENT........... the receipt by the Regular Trustees of an opinion of a nationally recognized inde- pendent counsel experienced in such mat- ters to the effect that, as a result of the occurrence of a change in law or reg- ulation or a written change in interpre- tation or application of law or regula- tion by any legislative body, court, gov- ernmental agency or regulatory authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk that Time Warner Capital is or will be considered an "investment company" that is required to be registered under the 1940 Act, which Change in 1940 Act Law becomes ef- fective on or after the date of this Pro- spectus. IRS................................ Internal Revenue Service ISSUE DATE......................... , 1995 LIQUIDATION DISTRIBUTION........... in respect of any Liquidation Event, the sum of (a) $25 per Trust Security plus (b) the amount of accrued and unpaid dis- tributions on such Trust Security to but excluding the date of payment. LIQUIDATION EVENT.................. any liquidation, dissolution, winding-up or termination of the Trust, whether vol- untary or involuntary. MANDATORY REDEMPTION DATE.......... , 2025 MATURITY DATE...................... , 2025 MINIMUM DENOMINATION............... with respect to the Subordinated Deben- tures, $25 per Subordinate Debenture. NASDAQ............................. The Nasdaq Stock Market. 1940 ACT........................... the Investment Company Act of 1940, as amended. NO RECOGNITION OPINION............. opinion of nationally recognized indepen- dent tax counsel, to the effect that the holders of the Preferred Securities will not recognize any gain or loss for United States A-3 Federal income tax purposes as a result of the dissolution of Time Warner Capital and distribution of the Subordinated De- bentures. OPTIONAL REDEMPTION DATE........... any date in respect of which, upon the call for redemption prior to maturity by Time Warner of the Subordinated Deben- tures, Time Warner Capital shall have called for redemption outstanding Trust Securities having an aggregate stated amount equal to the aggregate principal amount of the Subordinated Debentures to be so redeemed. PREFERRED REDEMPTION PRICE......... On any date of redemption, an amount equal to (i) $25 per Trust Security plus (ii) accrued and unpaid distributions to but excluding the date of redemption. PREFERRED SECURITIES............... Time Warner Capital's % Preferred Trust Securities. PRINCIPAL AMOUNT................... with respect to each Subordinated Debenture, the Minimum Denomination thereof. PRO RATA BASIS..................... with respect to any payment, pro rata to each holder of Trust Securities according to the aggregate stated amount of the Trust Securities held by such holder in relation to the aggregate stated amount of all Trust Securities outstanding; provided, however, that if the assets of the Trust are insufficient to make such payment in full as a result of a default with respect to the Subordinated Debentures, any funds available to make such payment shall be paid (i) first to each holder of Preferred Securities pro rata according to the aggregate stated amount of all the Preferred Securities outstanding up to an aggregate amount equal to the amount then owed to the holders of the Preferred Securities and (ii) only after satisfaction of all amounts owed to the holders of the Preferred Securities, to each holder of Common Securities pro rata according to the aggregate stated amount of the Common Securities held by such holder in relation to the aggregate stated amount of all the Common Securities outstanding. PROPERTY TRUSTEE................... The First National Bank of Chicago. REDEMPTION/DISTRIBUTION NOTICE..... notice provided by Time Warner Capital of any redemption (other than mandatory re- demption) of, or any distribution of the Subordinated Notes in exchange for, the Preferred Securities to all holders of Preferred Securities to be redeemed or exchanged stating, among other things, (i) the date of such redemption or of such distribution, as the case may be, and (ii) in the case of any early or spe- cial redemption, the applicable Call Price or Special Redemption Price, as the case may be. REDEMPTION DATE.................... any of a Mandatory Redemption Date, Op- tional Redemption Date or Special Redemp- tion Date. REGULAR TRUSTEES................... the three Time Warner Trustees who are employees or officers of, or affiliated with, Time Warner. SECURITIES ACT..................... the Securities Act of 1933. A-4 SENIOR INDEBTEDNESS................ with respect to Time Warner, all indebt- edness or obligations, whether outstand- ing at the date of execution of the In- denture or thereafter incurred, assumed, guaranteed or otherwise created, unless the terms of the instrument or instru- ments by which Time Warner incurred, as- sumed, guaranteed or otherwise created any such indebtedness or obligation ex- pressly provide that such indebtedness or obligation is subordinate to all other indebtedness of Time Warner or that such indebtedness or obligation is not supe- rior in right of payment to the Subordi- nated Debentures with respect to any of the following (including, without limita- tion, interest accruing on or after a bankruptcy or other similar event, whether or not an allowed claim therein): (i) any indebtedness incurred by Time Warner or assumed or guaranteed, directly or indirectly, by Time Warner (a) for money borrowed (including Time Warner's outstanding 8 3/4% Convertible Subordi- nated Debentures due 2015), (b) in con- nection with the acquisition of any busi- ness, property or other assets (other than trade payables incurred in the ordi- nary course of business) or (c) for ad- vances 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 Time Warner (or of a subsidiary which is guaranteed by Time Warner) as lessee under a lease of real or personal property; (iii) any obligation of Time Warner to purchase property at a future date in connection with a financing by Time Warner or a sub- sidiary of Time Warner; (iv) letters of credit; (v) currency swaps and interest rate hedges; and (vi) any deferral, re- newal, extension or refunding of any of the foregoing. 7.75% NOTES........................ Time Warner's $500,000,000 7.75% Notes due 2005. SPECIAL EVENT...................... either a Tax Event or an Investment Com- pany Event. SPECIAL REDEMPTION DATE............ any date in respect of which upon the oc- currence and continuation of a Tax Event or an Investment Company Event, Time Warner shall have called for redemption in whole the Subordinated Debentures, and Time Warner Capital shall have called for redemption the Preferred Securities. SPECIAL REGULAR TRUSTEE............ a special trustee appointed by the major- ity vote of the holders of the Preferred Securities if an Appointment Event shall have occurred and shall be continuing. SUBORDINATED DEBENTURES............ Time Warner's % Subordinated Debentures due , 2025. TAX EVENT.......................... the receipt by the Regular Trustees of an opinion of nationally recognized indepen- dent tax counsel experienced in such mat- ters (a "Dissolution Tax Opinion") to the effect that, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws A-5 (or any regulations thereunder) of the United States or any political subdivi- sion or taxing authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of such laws or regulations, by any legisla- tive body, court, governmental agency or regulatory authority (including the en- actment of any legislation and the publi- cation of any judicial decision or regu- latory determination), (c) any interpre- tation or pronouncement that provides for a position with respect to such laws or regulations that differs from the there- tofore generally accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promul- gated, issued or announced or which in- terpretation or pronouncement is issued or announced or which action is taken, in each case on or after the date of this Prospectus Supplement, that there is more than an insubstantial risk that at such time or within 90 days of the date thereof (i) Time Warner Capital is or would be subject to United States Federal income tax with respect to income accrued or received on the Subordinated Deben- tures, (ii) the interest payable on the Subordinated Debentures is not or would not be deductible by Time Warner for United States Federal income tax purposes or (iii) Time Warner Capital is or would be subject to more than a de minimis amount of other taxes, duties or other governmental charges. TIME WARNER........................ Time Warner Inc., a Delaware corporation. TIME WARNER CAPITAL................ Time Warner Capital I, a statutory busi- ness trust formed under the laws of the State of Delaware. TIME WARNER TRUSTEES............... the Trustees that conduct Time Warner Capital business and affairs as appointed by Time Warner, the direct or indirect holder of all the Common Securities. TRUST ACT.......................... the Delaware Business Trust Act. TRUST INDENTURE ACT................ the Trust Indenture Act of 1939, as amended. TRUST SECURITIES................... the Common Securities and the Preferred Securities. TWE................................ Time Warner Entertainment Company, L.P., a Delaware limited partnership. UNDERWRITING AGREEMENT............. the underwriting agreement dated , 1995, among Time Warner, the Trust and each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Bear, Stearns & Co. and as representative of the several under- writers named therein, with respect to, among other things, the Preferred Securi- ties. A-6 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY TIME WARNER INC., TIME WARNER CAPITAL OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TIME WARNER INC. OR TIME WARNER CAPITAL SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE 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 ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. --------------- TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE ---- Summary of the Offering................................................... S-3 Risk Factors.............................................................. S-7 Time Warner Inc........................................................... S-9 Time Warner Capital....................................................... S-11 Recent Developments....................................................... S-12 Selected Historical and Pro Forma Financial Information................... S-14 Consolidated Capitalization............................................... S-19 Use of Proceeds........................................................... S-21 Description of the Preferred Securities................................... S-21 Description of the Guarantee.............................................. S-32 Description of the Subordinated Debentures................................ S-35 Effect of Subordinated Obligations Under the Subordinated Debentures and the Guarantee............................................................ S-40 United States Federal Income Taxation..................................... S-42 Erisa Considerations...................................................... S-44 Underwriting.............................................................. S-45 Legal Matters............................................................. S-46 Experts................................................................... S-46 PROSPECTUS Available Information..................................................... 2 Documents Incorporated by Reference....................................... 2 Time Warner Inc........................................................... 3 The Trusts................................................................ 4 Use of Proceeds........................................................... 5 Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.................................... 5 Description of the Subordinated Debentures................................ 7 Description of the Preferred Securities................................... 11 Description of the Guarantees............................................. 12 Plan of Distribution...................................................... 14 Legal Matters............................................................. 15 Experts................................................................... 15 ANNEX I Glossary of Terms......................................................... A-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PREFERRED TRUST SECURITIES TIME WARNER CAPITAL I % PREFERRED TRUST SECURITIES GUARANTEED TO THE EXTENT SET FORTH HEREIN BY TIME WARNER INC. ---------------------- PROSPECTUS SUPPLEMENT ---------------------- MERRILL LYNCH & CO. MORGAN STANLEY & CO. INCORPORATED BEAR, STEARNS & CO. INC. , 1995 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.* Securities and Exchange Commission Filing Fee...................... $172,414 Rating Agency Fees................................................. Blue Sky Fees and Expenses......................................... Trustee's Expenses................................................. Printing Fees and Expenses......................................... Accounting Fees and Expenses....................................... NYSE Listing Fee................................................... Legal Fees and Expenses............................................ 250,000 Miscellaneous...................................................... -------- Total............................................................ ========
- -------- * All fees and expenses other than SEC Registration Fee are estimated. To be completed by amendment. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law (the "DGCL") provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation (a "derivative action"), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation's charter, by-laws, disinterested director vote, stockholder vote, agreement or otherwise. Article VI of Time Warner's By-Laws requires indemnification to the fullest extent permitted under Delaware law of any person who is or was a director or officer of Time Warner who is or was involved or threatened to be made so involved in any action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person is or was serving as a director, officer or employee of the Registrant or any predecessor of Time Warner or was serving at the request of Time Warner as a director, officer or employee of any other enterprise. Section 102(b)(7) of the DGCL permits a provision in the certificate of incorporation of each corporation organized thereunder, such as Time Warner, eliminating or limiting, with certain exceptions, the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Section 1, Article X of the Certificate of Incorporation of Time Warner eliminates the liability of directors to the extent permitted by Section 102(b)(7). The foregoing statements are subject to the detailed provisions of Section 145 and 102(b)(7) of the DGCL, Article VI of such By-laws and Section 1, Article X of such Certificate of Incorporation, as applicable. Time Warner's Directors' and Officers' Liability and Reimbursement Insurance Policy is designed to reimburse the Registrant for any payments made by it pursuant to the foregoing indemnification. Such policy has coverage of $50,000,000. II-1 The Declaration provides that no Trustee, affiliate of any Trustee or any officers, directors, shareholders, members, partners, employees, representatives or agents of any Trustee or any employee or agent of the Trust or its Affiliates (each, an "Indemnified Person") shall be liable, responsible or accountable in damages or otherwise to any employee or agent of the Trust or its affiliates, or any officers, directors, shareholders, employees, representatives or agents of Time Warner or its affiliates or to any holders of Trust Securities of the Trust for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by the Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omission. The Declaration also provides that, to the fullest extent permitted by applicable law, Time Warner shall indemnify and hold harmless each Indemnified Person from and against any loss, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by the Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. The Declaration further provides that to the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by Time Warner prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by Time Warner of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified pursuant to the Declaration. ITEM 16. EXHIBITS. Exhibits identified in parentheses below are on file with the SEC and are incorporated herein by reference to such previous filings. All other exhibits are provided as part of this electronic transmission. 1.1 --Form of Underwriting Agreement 4.1 --Certificate of Trust of Time Warner Capital I 4.2 --Certificate of Trust of Time Warner Capital II 4.3 --Certificate of Trust of Time Warner Capital III 4.4 --Declaration of Trust of Time Warner Capital I 4.5 --Declaration of Trust of Time Warner Capital II 4.6 --Declaration of Trust of Time Warner Capital III 4.7 --Form of Amended and Restated Declaration of Trust for each of Time Warner Capital I, II and III 4.8 --Form of Subordinated Notes Indenture between Time Warner Inc. and Chemical Bank, as Trustee 4.9 --Form of First Supplemental Indenture to Subordinated Notes Indenture between Time Warner Inc. and Chemical Bank, as Trustee 4.10 --Form of Preferred Security (included in Exhibit 4.7) 4.11 --Form of Common Security (included in Exhibit 4.7) 4.12 --Form of Guarantee with respect to Preferred Securities 4.13 --Form of Subordinated Debentures (included in Exhibit 4.8) 5.1 --Opinion of Cravath, Swaine & Moore* 5.2 --Opinion of Richards, Layton & Finger* 12.1 --Computation of Ratio of Earnings to Fixed Charges of Time Warner Inc. 12.2 --Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends of Time Warner Inc. 12.3 --Computation of Ratio of Earnings to Fixed Charges of Time Warner Entertainment Company, L.P.
II-2 23.1 --Consent of Ernst & Young LLP, Independent Auditors 23.2 --Consent of Cravath, Swaine & Moore (to be included in Exhibit 5.1)* 23.3 --Consent of Deloitte & Touche LLP, Independent Auditors 23.4 --Consent of Paul Scherer & Company, LLP, Independent Auditors 23.5 --Consent of Arthur Andersen LLP, Independent Public Accountants 23.6 --Consent of Deloitte & Touche LLP Independent Auditors 23.7 --Consent of Price Waterhouse LLP, Independent Accountants 24.1 --Powers of Attorney for Time Warner Inc. 24.2 --Powers of Attorney for Time Warner Inc., as sponsor, to sign this Registration Statement on behalf of each of Time Warner Capital I, II and III (included in Exhibits 4.4 to 4.6) 25.1 --Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of Chemical Bank, as Trustee under the Subordinated Debentures Indenture 25.2 --Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of Chicago, as Property Trustee under the Declaration of Trust of Time Warner Capital I 25.3 --Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of Chicago, as Property Trustee under the Declaration of Trust of Time Warner Capital II 25.4 --Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of Chicago, as Property Trustee under the Declaration of Trust of Time Warner Capital III 25.5 --Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of Chicago, as Guarantee Trustee under the Guarantee of Time Warner Inc. for the benefit of the holders of Preferred Securities
- -------- * To be filed by amendment. ITEM 17. UNDERTAKING. The Registrants hereby undertake that, for purposes of determining any liability under the Securities Act, each filing of Southern Union's Annual Report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (and where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement 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. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrants pursuant to the provisions referred to in Item 15 (other than the insurance policies referred to therein), or otherwise, the Registrants have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the 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 Registrants will, unless in the opinion of their 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 Registrants hereby undertake: (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; (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) that, individually or II-3 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; provided, however, that the undertakings set forth in paragraphs (i) and (ii) above do not apply if the information required to be included in a post- effective amendment by those paragraphs is contained in periodic reports filed by Southern Union pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, 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 Registrants hereby undertake that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)-(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (2) For the purposes of determining any liability under the Securities Act each post-effective amendment that contains a form of prospectus 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. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, TIME WARNER INC. HEREBY CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS THE REQUIREMENTS FOR FILING ON FORM S-3 AND 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 THE 2ND DAY OF AUGUST, 1995. Time Warner Inc. /s/ Richard J. Bressler By __________________________________ RICHARD J. BRESSLER SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE * Director, Chairman August 2, 1995 - ------------------------------------- of the Board and (GERALD M. LEVIN) Chief Executive Officer (principal executive officer) * Director, President August 2, 1995 - ------------------------------------- (RICHARD D. PARSONS) * Senior Vice August 2, 1995 - ------------------------------------- President and Chief (RICHARD J. BRESSLER) Financial Officer (principal financial officer) * Vice President and August 2, 1995 - ------------------------------------- Controller (JOHN A. LABARCA) (principal accounting officer) * Director August 2, 1995 - ------------------------------------- (MERV ADELSON) * Director August 2, 1995 - ------------------------------------- (LAWRENCE B. BUTTENWIESER) II-5 SIGNATURE TITLE DATE * Director August 2, 1995 - ------------------------------------- (EDWARD S. FINKELSTEIN) * Director August 2, 1995 - ------------------------------------- (BEVERLY SILLS GREENOUGH) * Director August 2, 1995 - ------------------------------------- (CARLA A. HILLS) * Director August 2, 1995 - ------------------------------------- (DAVID T. KEARNS) * Director August 2, 1995 - ------------------------------------- (HENRY LUCE III) * Director August 2, 1995 - ------------------------------------- (REUBEN MARK) * Director August 2, 1995 - ------------------------------------- (MICHAEL A. MILES) * Director August 2, 1995 - ------------------------------------- (J. RICHARD MUNRO) * Director August 2, 1995 - ------------------------------------- (DONALD S. PERKINS) * Director August 2, 1995 - ------------------------------------- (RAYMOND S. TROUBH) * Director August 2, 1995 - ------------------------------------- (FRANCIS T. VINCENT) /s/ Richard J. Bressler *By: ________________________________ ATTORNEY-IN-FACT II-6 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, TIME WARNER CAPITAL I, TIME WARNER CAPITAL II AND TIME WARNER CAPITAL III EACH HEREBY CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-3 AND 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 THE 2ND DAY OF AUGUST, 1995. Time Warner Capital I By: Time Warner Inc., as Sponsor /s/ Thomas W. McEnerney By __________________________________ THOMAS W. MCENERNEY VICE PRESIDENT Time Warner Capital II By: Time Warner Inc., as Sponsor /s/ Thomas W. McEnerney By __________________________________ THOMAS W. MCENERNEY VICE PRESIDENT Time Warner Capital III By: Time Warner Inc., as Sponsor /s/ Thomas W. McEnerney By __________________________________ THOMAS W. MCENERNEY VICE PRESIDENT II-7 EXHIBIT INDEX
PAGE NO. EXHIBITS ---- 1.1 --Form of Underwriting Agreement 4.1 --Certificate of Trust of Time Warner Capital I 4.2 --Certificate of Trust of Time Warner Capital II 4.3 --Certificate of Trust of Time Warner Capital III 4.4 --Declaration of Trust of Time Warner Capital I 4.5 --Declaration of Trust of Time Warner Capital II 4.6 --Declaration of Trust of Time Warner Capital III 4.7 --Form of Amended and Restated Declaration of Trust for each of Time Warner Capital I, II and III 4.8 --Form of Subordinated Notes Indenture between Time Warner Inc. and Chemical Bank, as Trustee 4.9 --Form of First Supplemental Indenture to Subordinated Notes Indenture between Time Warner Inc. and Chemical Bank, as Trustee 4.10 --Form of Preferred Security (included in Exhibit 4.7) 4.11 --Form of Common Security (included in Exhibit 4.7) 4.12 --Form of Guarantee with respect to Preferred Securities 4.13 --Form of Subordinated Debentures (included in Exhibit 4.8) 5.1 --Opinion of Cravath, Swaine & Moore* 5.2 --Opinion of Richards, Layton & Finger* 12.1 --Computation of Ratio of Earnings to Fixed Charges of Time Warner Inc. 12.2 --Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends of Time Warner Inc. 12.3 --Computation of Ratio of Earnings to Fixed Charges of Time Warner Entertainment Company, L.P. 23.1 --Consent of Ernst & Young LLP, Independent Auditors 23.2 --Consent of Cravath, Swaine & Moore (to be included in Exhibit 5.1)* 23.3 --Consent of Deloitte & Touche LLP, Independent Auditors 23.4 --Consent of Paul Scherer & Company, LLP, Independent Auditors 23.5 --Consent of Arthur Andersen LLP, Independent Public Accountants 23.6 --Consent of Deloitte & Touche LLP Independent Auditors 23.7 --Consent of Price Waterhouse LLP, Independent Accountants 24.1 --Powers of Attorney for Time Warner Inc. 24.2 --Powers of Attorney for Time Warner Inc., as sponsor, to sign this Registration Statement on behalf of each of Time Warner Capital I, II and III (included in Exhibits 4.4 to 4.6) 25.1 --Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of Chemical Bank, as Trustee under the Subordinated Debentures Indenture 25.2 --Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of Chicago, as Property Trustee under the Declaration of Trust of Time Warner Capital I 25.3 --Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of Chicago, as Property Trustee under the Declaration of Trust of Time Warner Capital II 25.4 --Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of Chicago, as Property Trustee under the Declaration of Trust of Time Warner Capital III 25.5 --Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of Chicago, as Guarantee Trustee under the Guarantee of Time Warner Inc. for the benefit of the holders of Preferred Securities
- -------- * To be filed by amendment. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT EXHIBIT 1.1 TIME WARNER FINANCING TRUST and TIME WARNER INC. Underwriting Agreement New York, New York August __, 1995 Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated Bear, Stearns & Co. Inc. c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1201 Dear Sirs: Time Warner Capital I (the "Trust"), a statutory business trust organized under the Business Trust Act (the "Delaware Act") of the State of Delaware (Chapter 38, Title 12, of the Delaware Code, 12 Del. C. SECTION 3801 et -- seq.), proposes to sell to the underwriters named in Schedule I hereto (the - ---- "Underwriters"), for whom you (the "Representative") are acting as representative, [ ] [____]% Preferred Trust Securities (the "Preferred Securities") to be specified in Schedule II hereto. The Preferred Securities and the Common Securities (as defined herein) are to be issued pursuant to the terms of a declaration of trust, dated as of __________, 1995, as amended and restated (the "Declaration"), among Time Warner Inc., a Delaware corporation (the "Company" and, together with the Trust, the "Offerors"), as sponsor, the trustees named therein (the "Time Warner Trustees") and the holders from time to time of undivided beneficial interests in the assets of the Trust. The Declaration is qualified as an indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Pursuant to the Declaration, the number of Time Warner Trustees will initially be five. Three of the Time Warner Trustees (the "Regular Trustees") will be persons who are employees or officers of, or affiliated with, the Company. The fourth trustee will be a financial institution unaffiliated with the Company that will serve as property trustee under the Declaration and as indenture trustee with respect to the Preferred Securities for purposes of the Trust Indenture Act (the "Property Trustee"). The fifth Time Warner Trustee will be a financial institution or an affiliate thereof which maintains a principal place of business or residence in the State of Delaware (the "Delaware Trustee"). The First National Bank of Chicago will act as the Property Trustee and its affiliate will act as the Delaware Trustee until removed or replaced by the holder of the Common Securities. The Preferred Securities will be guaranteed by the Company on a 2 subordinated basis with respect to distributions and payments upon liquidation, redemption or otherwise (the "Guarantee") pursuant to the Guarantee Agreement dated as of __________, 1995 (the "Guarantee Agreement") between the Company and The First National Bank of Chicago, as Trustee (the "Guarantee Trustee"). The assets of the Trust will consist of, among other things, ___% Subordinated Debentures due 2025 (the "Subordinated Debentures") of the Company which will be issued under an indenture, dated as of [ ], 1995 (the "Indenture"), between the Company and Chemical Bank, as Trustee (the "Indenture Trustee"). Under certain circumstances, the Subordinated Debentures will be distributable to the holders of undivided beneficial interests in the assets of the Trust. The Preferred Securities, the related Guarantee and the Subordinated Debentures are referred to herein as the "Securities". The Offerors understand that the Underwriters propose to make a public offering of the Preferred Securities as soon as the Underwriters deem advisable after this Agreement has been executed and delivered, and the Declaration, the Preferred Securities Guarantee Agreement and the Indenture have been qualified under the Trust Indenture Act. The entire proceeds from the sale of the Securities will be combined with the entire proceeds from the sale by the Trust to the Company of its common securities (the "Common Securities"), and will be used by the Trust to purchase an equivalent amount of the Subordinated Debentures. 1. Representations and Warranties. The Offerors jointly and ------------------------------ severally represent and warrant to, and agree with, each Underwriter as set forth below in this Section 1. Certain terms used in this Section 1 are defined in paragraph (bb) hereof. (a) Each of the Offerors meets the requirements for the use of Form S-3 under the Securities Act of 1933 (the "Act") and has filed with the Securities and Exchange Commission (the "Commission") a registration statement (File No. 33-_____) on such Form, including a prospectus, for registration under the Act of the Preferred Securities, the Guarantee and the Subordinated Debentures. (b) On the Effective Date, the Registration Statement did and on the Closing Date, the Prospectus will, comply in all material respects with the applicable requirements of the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Trust Indenture Act and the respective rules thereunder; on the Effective Date, the Registration Statement did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; on the Effective Date and on the Closing Date, each of the Declaration, the Indenture and the Guarantee Agreement did and will comply in all material respects with the requirements of the Trust Indenture Act and the rules thereunder; and, on the date hereof, the Prospectus does not, and on the Closing Date, the Prospectus will not, include any untrue statement of a material fact or omit to state a material fact 3 necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, -------- however, that the Company makes no representations or warranties as to (i) ------- those parts of the Registration Statement which shall constitute the Statements of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of the Property Trustee, the Guarantee Trustee and the Indenture Trustee or (ii) the information contained in or omitted from the Registration Statement or the Prospectus in reliance upon and in conformity with information furnished in writing to the Offerors by or on behalf of any Underwriter through the Representative specifically for inclusion in the Registration Statement or the Prospectus. (c) The Company is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority under such laws to own its properties and conduct its business as described in the Prospectus, to enter into and perform its obligations under this Agreement, the Declaration, the Indenture and the Guarantee Agreement and to purchase, own and hold the Common Securities issued by the Trust; and the Company is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and its subsidiaries, considered as one enterprise. (d) Each of the Company's significant subsidiaries, as such term is defined in Rule 1-02(v) of Regulation S-X under the Act, is validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with full power and authority under such laws to own its properties and conduct its business as described in the Prospectus and is duly qualified to transact business as a foreign corporation or partnership and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and its subsidiaries, considered as one enterprise. (e) The Company's authorized equity capitalization and pro forma equity capitalization is as set forth in the Prospectus. (f) The Trust has been duly created and is validly existing and in good standing as a business trust under the Delaware Act with the power and authority to own property and to conduct its business as described in the Registration Statement and Prospectus and to enter into and perform its obligations under this Agreement, the Preferred Securities, the Common Securities and the Declaration and is not required to 4 be authorized to do business in any other jurisdiction; the Trust is not a party to or otherwise bound by any agreement other than those described in the Prospectus; the Trust is not and will not be classified as an association taxable as a corporation for United States federal income tax purposes; and the Trust is and will be treated as a consolidated subsidiary of the Company pursuant to generally accepted accounting principles. (g) This Agreement has been duly authorized, executed and delivered by each of the Offerors. (h) The Preferred Securities have been duly authorized by the Declaration and, when issued and delivered pursuant to this Agreement against payment of the consideration set forth in Schedule II hereto, will be validly issued and (subject to the terms of the Declaration) fully paid and non-assessable preferred undivided beneficial interests in the assets of the Trust, will be entitled to the benefits of the Declaration and will conform to all statements relating thereto contained in the Prospectus; the issuance of the Preferred Securities is not subject to preemptive or other similar rights; holders of Preferred Securities will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit; the Offerors have filed a preliminary listing application and all required supporting documents with respect to the Preferred Securities with the New York Stock Exchange and the Offerors have no reason to believe that the Preferred Securities will not be authorized for listing, subject to official notice of issuance and evidence of satisfactory distribution. (i) The Declaration has been duly authorized by the Company and, at the Closing Date, will have been duly executed and delivered by the Company and the Time Warner Trustees, and assuming due authorization, execution and delivery of the Declaration by the Property Trustee, the Declaration will, at the Closing Date, be a valid and binding obligation of the Company and the Time Warner Trustees, enforceable against the Company and the Time Warner Trustees in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other laws affecting creditors' rights generally from time to time in effect and subject as to enforceability to general principles of equity, regardless of whether considered in a proceeding in equity or at law); and the Declaration will conform to all statements relating thereto contained in the Prospectus. (j) The Guarantee Agreement has been duly authorized by the Company and, when validly executed and delivered by the Company, will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms and the Guarantee and the Guarantee Agreement will conform to all 5 statements relating thereto contained in the Prospectus; and the Guarantee Agreement, at the Closing Date, will have been duly qualified under the Trust Indenture Act. (k) The Indenture has been duly authorized, executed and delivered by the Company, has been duly qualified under the Trust Indenture Act and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other laws affecting creditors' rights generally from time to time in effect and subject as to enforceability to general principles of equity, regardless of whether considered in a proceeding in equity or at law); and the Indenture will conform to all statements relating thereto contained in the Prospectus. (l) The Subordinated Debentures have been duly authorized by the Company and, at the Closing Date, will have been duly executed by the Company and, when authenticated in the manner provided for in the Indenture and delivered against payment therefor as described in the Prospectus, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, will be in the form contemplated by, and entitled to the benefits of, the Indenture and will conform to all statements relating thereto in the Prospectus. (m) The Company's obligations under the Guarantee are subordinate and junior in right of payment to all other liabilities of the Company and pari passu with the most senior preferred stock issued from time to time, if any, by the Company. (n) The Subordinated Debentures are subordinated and junior in right of payment to all present and future senior indebtedness (as defined in the Indenture) of the Company and rank pari passu with the Company's [other general unsecured creditors]. (o) There is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Trust, the Company or any of its subsidiaries of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Prospectus and there is no franchise, contract or other document of a character required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit, which is not described or filed as required. (p) No authorization, approval, consent, order or license of any government, governmental instrumentality, agency or body or court (other than under the Act and the securities or blue sky laws of various jurisdictions) is required for the authorization, issuance, sale and delivery of the Preferred Securities, the Subordinated Debentures or the Guarantee, the consummation by the Trust and the Company of the 6 transactions contemplated by this Agreement or the delivery of shares of Hasbro Common Stock upon the exchange of the Preferred Securities. (q) Neither the Company nor any of its subsidiaries is in violation of its certificate of incorporation or by-laws; the Trust is not in violation of the Declaration or its Certificate of Trust filed with the State of Delaware on July __, 1995 (the "Certificate of Trust"); and the execution, delivery and performance of this Agreement, the Declaration, the Preferred Securities, the Indenture, the Subordinated Debentures, the Guarantee Agreement and the Guarantee and the consummation of the transactions contemplated herein and therein and compliance by the Offerors with their respective obligations hereunder and thereunder have been duly authorized by all necessary action (corporate or otherwise) on the part of the Offerors and do not and will not result in any violation of the certificate of incorporation or by-laws of the Company or the Declaration or Certificate of Trust of the Trust and do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Trust or the Company under (i) that certain Amended and Restated Credit Agreement (the "TWE Credit Agreement"), dated as of June 23, 1992, among Time Warner Entertainment Company, L.P., a Delaware limited partnership ("TWE"), Bankers Trust Company and Chemical Bank, as Managing Agents, the Agents and the Co-Agents named therein and the Banks named therein, that certain revolving credit facility (the "New Credit Agreement"), dated as of June __, 1995, among TWE, the Time Warner Entertainment-Advance/Newhouse Partnership, a New York general partnership, TWI Cable, a wholly owned subsidiary of the Company and __________, as Managing Agent, the Agents and the Co-Agents named therein and the Banks named therein or any indenture, mortgage or loan agreement, or any other agreement or instrument, to which the Trust or the Company is a party or by which the Trust or the Company may be bound or to which any of the Trust's or the Company's properties may be subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings, business prospects of the Trust or of the Company and its subsidiaries, considered as one enterprise), (ii) any existing applicable law, rule or regulation (except for such conflicts, breaches, liens, charges or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings, business affairs or business prospects of the Trust or of the Company and its subsidiaries, considered as one enterprise, and other than the securities or blue sky laws of various jurisdictions), or (iii) any judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over the Trust, the Company or any of their respective properties. 7 (r) The documents incorporated by reference in the Prospectus, as of the dates they were filed with the Commission, complied as to form in all material respects with the requirements of the Exchange Act. (s) John A. LaBarca, Philip R. Lochner, Jr. and Thomas W. McEnerney (the "Regular Trustees") of the Trust are employees of the Company and have been duly authorized by the Company to execute and deliver the Declaration; the Declaration has been duly executed and delivered by the Regular Trustees and is a valid and binding obligation of each Regular Trustee, enforceable against such Regular Trustee in accordance with its terms. (t) The Trust is not an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (u) Each of Ernst & Young LLP, Deloitte & Touche LLP, Paul Scherer & Company LLP and Arthur Andersen LLP, which is reporting upon the audited financial statements and schedules included or incorporated by reference in the Registration Statement, are independent accountants in accordance with the provisions of the Exchange Act and the rules and regulations thereunder. (v) The consolidated financial statements and the related notes of the Company, TWE and the Trust included or incorporated by reference in the Registration Statement present fairly in accordance with generally accepted accounting principles the consolidated financial position of the Company, TWE and the Trust, as the case may be, as of the dates indicated and the consolidated results of operations and cash flows of the Company, TWE and the Trust, as the case may be, for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as otherwise noted therein and subject, in the case of interim statements, to normal year-end audit adjustments. The financial statement schedules included or incorporated by reference in the Registration Statement present fairly in accordance with generally accepted accounting principles the information required to be stated therein. Any pro forma financial statements of the Company and other pro forma financial information included or incorporated by reference in the Registration Statement present fairly the information shown therein. Such pro forma financial statements and other pro forma financial information, to the extent required, have been prepared in accordance with applicable rules and guidelines of the Commission, if any, with respect thereto, have been properly compiled on the pro forma basis described therein, and, in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. 8 (w) The terms which follow, when used in this Agreement, shall have the meanings indicated. The term the "Effective Date" shall mean each date that the Registration Statement and any post-effective amendment or amendments thereto became or become effective and each date after the date hereof on which a document incorporated by reference in the Registration Statement is filed. "Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto. The registration statement referred to in paragraph (a) above (as amended, if applicable) and the prospectus constituting a part thereof (including, in each case, all documents incorporated or deemed to be incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act and the information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the rules and regulations of the Commission under the 1933 Act (the "Regulations")), as from time to time amended or supplemented pursuant to the Act, the Exchange Act or otherwise, are herein after referred to as the "Registration Statement" and the "Prospectus", respectively, except that if any revised prospectus shall be provided to the Underwriters by the Offerors for use in connection with the offering of the Preferred Securities, which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether or nor such revised prospectus is required to be filed by the Offerors pursuant to Rule 424(b) of the Regulations), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriters for such use. All references in this Agreement to financial statements and schedules and other information that is "contained", "included" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information that are or are deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the Act that is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. 2. Purchase and Sale. (a) Subject to the terms and conditions and ----------------- in reliance upon the representations and warranties herein set forth, the Trust agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Trust, at the purchase price set forth in Schedule II hereto, the Preferred Securities set forth opposite such Underwriter's name in Schedule I hereto. (b) The initial public offering price of the Preferred Securities, the purchase price to be paid by the Underwriters for the Preferred Securities and the other information called for in Schedule II hereto have each been determined and set forth in Schedule II hereto. 9 3. Delivery and Payment. (a) The Company will deliver the Preferred -------------------- Securities to you for the respective accounts of the several Underwriters at the office of Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, against payment of the purchase price by certified or official bank check or checks in funds available the next succeeding business day drawn to the order of the Trust on the third business day after the date hereof, or at such other time not later than five full business days thereafter that you and the Company determine (such time being herein referred to as the "Closing Date"). Certificates for the Preferred Securities shall be registered in such names and in such denominations as the Representative may request not less than [two] full business days in advance of the Closing Date. The Company agrees to have the Preferred Securities available for inspection, checking and packaging by the Representative in New York, New York, not later than 1:00 P.M. on the business day prior to the Closing Date. 4. Agreements. The Offerors agree with the several Underwriters that: ---------- (a) The Company will use its best efforts to cause the Registration Statement, if not effective at the Execution Time, and any amendment thereto, to become effective. Prior to the termination of the offering of the Securities, the Offerors will not file any amendment to the Registration Statement or supplement to the Prospectus unless the Offerors have furnished you a copy for your review prior to filing and will not file any such proposed amendment or supplement to which you reasonably object on a timely basis. Subject to the foregoing sentence, the Offerors will cause the Prospectus, properly completed, to be filed with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Representative of such timely filing. The Offerors will promptly advise the Representative (i) when the Registration Statement, if not effective at the Execution Time, and any amendment thereto, shall have become effective, (ii) when the Prospectus shall have been filed with the Commission pursuant to Rule 424(b), (iii) when, prior to termination of the offering of the Preferred Securities, any amendment to the Registration Statement shall have been filed or become effective, (iv) of any request by the Commission for any amendment or supplement to the Registration Statement or the Prospectus or for any additional information relating to the offering of the Preferred Securities, (v) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (vi) of the receipt by the Offerors of any notification with respect to the suspension of the qualification of the Preferred Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Offerors will use their efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof. 10 (b) If, at any time when a prospectus relating to the Preferred Securities is required to be delivered under the Act, any event occurs as a result of which the Prospectus would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or if it shall be necessary, in the opinion of counsel for you or counsel for the Offerors, to amend or supplement the Registration Statement or the Prospectus to comply with the Act or the Exchange Act or the respective rules thereunder, the Offerors promptly will prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 4, an amendment or supplement which will correct such statement or omission or effect such compliance. (c) As soon as practicable, the Trust will make generally available to its security holders and to the Representative an earnings statement or statements of the Company and its subsidiaries which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act. (d) The Offerors will use their best efforts to cause the Preferred Securities to be duly authorized for listing on the New York Stock Exchange and to be registered under the Exchange Act. (e) For a period of three years after the Closing Date, the Company will furnish to you and, upon request, to each Underwriter, copies of all annual reports, quarterly reports and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission, and such other documents, reports and information as shall be furnished by the Company to its stockholders generally. (f) The proceeds of the offering of the Preferred Securities will be applied as set forth in the Prospectus. (g) The Offerors will furnish to the Representative and counsel for the Underwriters, without charge, copies of the Registration Statement (including exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act, as many copies of any preliminary prospectus and the Prospectus as the Representative may reasonably request. (h) The Company will pay and bear all costs and expenses incident to the performance of each Offeror's obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits), as originally filed and as amended, any preliminary prospectus and the Prospectus and any amendments or supplements thereto, and the 11 cost of furnishing copies thereof to the Underwriters, (ii) the preparation, printing and distribution of this Agreement, the Declaration, the Indenture, the Guarantee Agreement, the Preferred Securities, the Blue Sky Survey and the Legal Investment Survey, (iii) the delivery of the Preferred Securities to the Underwriters, (iv) the fees and disbursements of the Trust's and the Company's counsel and accountants required hereby to provide comfort letters, (v) the qualification of the Preferred Securities and the Subordinated Debentures under the applicable securities laws in accordance with Section 4(i) and any filing for review of the offering with the National Association of Securities Dealers, Inc., including filing fees and fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the Blue Sky Survey and the Legal Investment Survey, (vi) any fees charged by rating agencies for rating the Preferred Securities and the Subordinated Debentures, (vii) the fees and expenses of the Indenture Trustee, including the fees and disbursements of counsel for the Indenture Trustee, in connection with the Indenture and the Subordinated Debentures, (viii) the fees and expenses of the Property Trustee, including the fees and disbursements of counsel for the Property Trustee and Delaware Trustee in connection with the Declaration and the Certificate of Trust, (ix) any expenses and listing fees in connection with the listing of the Preferred Securities and, if applicable, the Subordinated Debentures on the New York Stock Exchange, (x) the cost and charges of any transfer agent or registrar and (xi) the costs of qualifying the Preferred Securities with The Depository Trust Company. (i) The Offerors will arrange for the qualification of the Preferred Securities and the Subordinated Debentures for distribution, offering and sale under the laws of such jurisdictions as the Representative may designate, will maintain such qualifications in effect so long as required for the distribution of the Preferred Securities and the Subordinated Debentures and will arrange for the determination of the legality of the Preferred Securities and the Subordinated Debentures for purchase by institutional investors; provided, however, that the Trust or -------- ------- the Company, as the case may be, shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 4(i), (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. (j) Until the business day following the Closing Date, neither of the Offerors will, without the consent of Merrill Lynch & Co., offer, sell or contract to sell, or announce the offering of, any debt securities designed or intended to be traded or distributed in the public or private securities markets; provided, however, that the foregoing shall not -------- ------- prohibit (i) the Company or TWE from issuing long-term debt as all or part of the consideration in any merger or acquisition or in connection with the settlement of any litigation, (ii) the Company or TWE from filing with the Commission a "shelf" registration statement for the offering of securities under 12 Rule 415 of the Act (or any similar rule that may be adopted by the Commission) or amending any existing shelf registration statement provided that (subject to clause (iii) below) such securities are not issued until the business day following the Closing Date or such other date as may be specified in Schedule I or (iii) the Company from issuing debt securities as part of any redemption or repurchase of the Company's outstanding Redeemable Reset Notes due August 15, 2005. (k) Each of the Offerors confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba, --------------------------------------------------------- and each of the Offerors further agrees that if the information reported in the Prospectus concerning its business with Cuba or with any person or affiliate located in Cuba changes in any material way, such Offeror will provide the Florida Department of Banking and Finance (the "Department") notice of such business or change, as appropriate, in a form acceptable to the Department. 5. Conditions to the Obligations of the Underwriters. The ------------------------------------------------- obligations of the Underwriters to purchase the Securities shall be subject to the accuracy in all material respects of the representations and warranties on the part of the Offerors contained herein as of the Execution Time and the Closing Date, to the accuracy in all material respects of the statements of the Trust and the Company made in any certificates pursuant to the provisions hereof, to the performance by the Trust and the Company of their obligations hereunder, to the due execution and delivery of the Declaration, the Indenture and the Guarantee Agreements, to the absence of any event or condition which would give you the right to terminate this Agreement and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M. on the date hereof, or with your consent, at a later time and date, not later, however, than 5:30 P.M. on the first business day following the date hereof; and at the Closing Date no stop order suspending the effectiveness of the Registration Statement shall have been issued under the Act or proceedings therefor initiated or threatened by the Commission. The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by Rule 424(b). (b) At the Closing Date, the Offerors shall have furnished to you the opinion of Peter R. Haje, General Counsel to the Offerors, dated the Closing Date, substantially in the form of Exhibit A hereto. (c) At the Closing Date, the Offerors shall have furnished to you the opinion of Cravath, Swaine & Moore, counsel to the Offerors, dated the Closing Date, substantially in the form of Exhibit B hereto. 13 (d) At the Closing Date, the Offerors shall have furnished to you the opinion of Richards, Layton & Finger, special counsel to the Offerors, dated the Closing Date, substantially in the form of Exhibit C hereto. (e) At the Closing Date, you shall have received from The Law Department, The First National Bank of Chicago, counsel of The First National Bank of Chicago, as Property Trustee under the Declaration and Guarantee Trustee under the Guarantee Agreements, dated the Closing Date, substantially in the form of Exhibit D hereto. (f) The Representative shall have received from Shearman & Sterling, counsel for the Underwriters, such opinion or opinions, dated the Closing Date, with respect to the legal existence of the Trust, the Preferred Securities, the Indenture, the Preferred Securities Guarantee Agreement, this Agreement, the Registration Statement, the Prospectus and other related matters as you may reasonably require, and the Offerors shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (g) The Representative shall have received from Davis, Polk & Wardwell, counsel for the Underwriters, such opinion or opinions, dated the Closing Date, with respect to the 1940 Act and other related matters as you may reasonably require, and the Offerors shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (h) Each of the Trust and the Company shall have furnished to you a certificate of the Trust and the Company, respectively, signed by any two of the Time Warner Trustees for the Trust and by any two officers who are an Executive or Senior Vice President of the Company for the Company, respectively, dated the Closing Date, to the effect that the signers of such certificates have carefully examined the Registration Statement, the Prospectus and this Agreement and that: (i) the representations and warranties of the Trust and the Company, as the case may be, in this Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date and the Trust and the Company, as the case may be, has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Trust's or the Company's, as the case may be, knowledge, threatened; and 14 (iii) since the date of the most recent financial statements included in the Prospectus, there has been no material adverse change in the condition (financial or otherwise), earnings, or business prospects of the Company and its subsidiaries, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus. (i) At the Closing Date and at the Execution Time, Ernst & Young shall have furnished to you a letter or letters, dated as of the Closing Date and the Execution Time, respectively, in form and substance satisfactory to you, confirming that they are independent auditors with respect to the Company and TWE within the meaning of the Act and the Exchange Act and the respective applicable published rules and regulations thereunder and stating in effect that: (i) in their opinion the audited financial statements and financial statement schedules of the Company and TWE included or incorporated in the Registration Statement and the Prospectus comply in form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations; (ii) on the basis of a reading of the latest unaudited financial statements (including the notes thereto) made available by the Company and TWE and their respective consolidated subsidiaries; carrying out certain specified procedures (but not an examination in accordance with generally accepted auditing standards) which would not necessarily reveal matters of significance with respect to the comments set forth in such letter; a reading of the minutes of the meetings of the stockholders, directors and executive, finance and audit committees of the Company and TWE and their respective consolidated subsidiaries; and inquiries of certain officials of the Company and TWE who have responsibility for financial and accounting matters of the Company and TWE and their respective consolidated subsidiaries as to transactions and events subsequent to the date of the most recent audited financial statements in or incorporated in the Prospectus, and such other inquiries and procedures as may be specified in such letter, nothing came to their attention which caused them to believe that: (A) any of such unaudited financial statements included or incorporated in the Registration Statement and the Prospectus do not comply in form in all material respects with applicable accounting requirements of the Act and the Exchange Act and with the published rules and regulations of the Commission with respect to financial statements included or incorporated in quarterly reports on Form 10-Q under the Exchange Act; or said unaudited financial statements are not 15 in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included or incorporated in the Registration Statement and the Prospectus; or (B) with respect to the period subsequent to the date of the most recent unaudited financial statements in or incorporated in the Registration Statement and the Prospectus, there were any increases, at a specified date not more than five business days prior to the date of the letter, in the long-term debt of the Company, TWE and the Entertainment Group and their respective consolidated subsidiaries or any decreases in stockholders' equity or the consolidated capital stock of the Company, TWE and the Entertainment Group as compared with the amounts shown on the most recent consolidated balance sheet included or incorporated in the Registration Statement and the Prospectus, or for the period from the date of the most recent unaudited financial statements included or incorporated in the Registration Statement and the Prospectus for such entities to such specified date there were any decreases, as compared with the corresponding period in the preceding year, in revenues, income before income taxes (or any increase in the loss before income taxes) or net income (or any increase in net loss), except in all instances for decreases or increases disclosed in the Prospectus; (iii) they are unable to and do not express any opinion on the pro forma adjustments to the financial statements included or incorporated by reference in the Registration Statement and the Prospectus or on the pro forma adjustments applied to the historical amounts included or incorporated by reference in the Registration Statement and the Prospectus; however, for purposes of such letter they have: (A) read the pro forma adjustments to such financial statements; (B) made inquiries of certain officials of the Company who have responsibility for financial and accounting matters about the basis for their determination of the pro forma adjustments to such financial statements and whether such pro forma adjustments comply as to form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X; and 16 (C) proved the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts included or incorporated by reference in the Registration Statement and the Prospectus; and on the basis of such procedures, and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that the pro forma adjustments to the financial statements included or incorporated by reference in the Registration Statement and the Prospectus do not comply as to form in all material respects with the applicable requirements of Rule 11-02 of Regulation S-X and that such pro forma adjustments have not been properly applied to the historical amounts in the compilation of such financial statements; and (iv) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company and its subsidiaries) set forth in the Registration Statement and the Prospectus and in Exhibit 12 to the Registration Statement agrees with the accounting records of the Company and its subsidiaries, excluding any questions of legal interpretation. (j) At the Closing Date and at the Execution Time, each of (i) Paul Scherer & Company LLP, (ii) Deloitte & Touche LLP and (iii) Arthur Andersen LLP shall have furnished to you a letter or letters, dated respectively as of the Closing Date and the Execution Time, in form and substance satisfactory to you, confirming that they are independent auditors with respect to (i) Vision Cable Division of Vision Cable Communications, Inc. and Subsidiaries and Newhouse Broadcasting Cable Division of Newhouse Broadcasting Corporation and Subsidiaries, (ii) KBLCOM Incorporated, and (iii) Cablevision Industries Limited Partnership and Combined Entities and Cablevision Industries Corporation and Subsidiaries, respectively, within the meaning of the Act and the Exchange Act and the respective applicable published rules and regulations thereunder and to the same effect as the letter or letters of Ernst & Young LLP as described in Section 5(j)(i) and 5(j)(ii)(l) hereto. (k) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectus, there shall not have been (i) any decrease or increase specified in the letter or letters referred to in paragraph (h) of this Section 5 or (ii) any change, or any development involving a prospective change, in or affecting the business (including the results of operations or management) or properties of the Trust 17 or the Company and its subsidiaries or of Hasbro and its subsidiaries the effect of which, in any case referred to in clause (i) or (ii) above, is, in the reasonable judgment of the Representative, so material and adverse as to make it impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Registration Statement (exclusive of any amendment thereof) and the Prospectus. (l) Subsequent to the Execution Time, there shall not have been any downgrade in the credit ratings of the Company's debt securities by Moody's Investor Services, Inc. or Standard & Poor's Ratings Group, nor shall the Company have been placed under special surveillance, with negative implications, by Moody's Investor Service, Inc. (m) At the Closing Date, the Preferred Securities shall have been approved for listing on the New York Stock Exchange upon notice of issuance. (n) Prior to the Closing Date, the Offerors shall have furnished to the Representative such further information, certificates and documents as the Representative may reasonably request. If any of the conditions specified in this Section 5 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Representative and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at any time prior to, the Closing Date by you and such cancellation shall be without liability of any party to any other party, except to the extent provided in Sections 4 and 6. Notice of such cancellation shall be given to the Offerors in writing or by telephone or telegraph confirmed in writing. 6. Reimbursement of Underwriter's Expenses. If the sale of the --------------------------------------- Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 5 hereof is not satisfied or because of any refusal, inability or failure on the part of the Trust or the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Underwriters, the Company will reimburse the Underwriters upon demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities. 7. Indemnification and Contribution. (a) The Offerors agree to -------------------------------- jointly and severally indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person who controls any Underwriter 18 within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) (A) any failure to register the Hasbro Common Stock under the Act in connection with the initial offering of the Preferred Securities or the exchange of Preferred Securities for Hasbro Common Stock pursuant to the terms of the Preferred Securities, (B) any untrue statement or alleged untrue statement of a material fact contained in the reports and other documents filed by Hasbro under the Exchange Act or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (C) any untrue statement or omission or alleged untrue statement or alleged omission made or alleged to have been made by or on behalf of Hasbro regarding Hasbro or the market value of the Hasbro Common Stock and which statements or omissions, in the case of the foregoing clauses (B) or (C), adversely affect or allegedly adversely affect a holder of Securities, (ii) any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Securities as originally filed or in any amendment thereof, or in any preliminary prospectus or the Prospectus, or in any amendment thereof or supplement thereto or (iii) the omission or alleged omission to state in the documents referred to in clause (ii) above a material fact required to be stated therein or necessary to make the statements therein not misleading, and in each case agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that -------- ------- the Trust and the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) any such untrue statement or alleged untrue statement or omission or alleged omission made in the documents referred to in clause (ii) above in reliance upon and in conformity with written information furnished to the Trust and the Company by or on behalf of the Underwriters specifically for inclusion therein or (ii) those parts of the Registration Statement which shall constitute the Statement of Eligibility (Form T-1) under the Trust Indenture Act of the Property Trustee, the Guarantee Trustee and the Indenture Trustee. This indemnity agreement will be in addition to any liability which the Trust or the Company may otherwise have. (b) The Company agrees to indemnify the Trust against all loss, liability, claim, damage and expense whatsoever, as due from the Trust under 7(a) hereunder. (c) Each Underwriter agrees to indemnify and hold harmless the Offerors, their directors, trustees, each of their officers who signs the Registration Statement, and each person who controls the Offerors within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Offerors to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Offerors by 19 or on behalf of such Underwriter specifically for inclusion in the documents referred to in clause (ii) in 7(a). This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. The Offerors acknowledge that the statements set forth in the last paragraph of the cover page and the first, third and ninth paragraphs under the heading "Underwriting" constitute the only information furnished in writing by or on behalf of the several Underwriters for inclusion in the documents referred to in the foregoing indemnity, and you, as the Representative, confirm that such statements are correct. (d) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, -------- however, that such counsel shall be reasonably satisfactory to the ------- indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party (it being understood, however, that in connection with such action, the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, representing the indemnified parties who are parties to such action or actions), (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or 20 threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (e) In the event that the indemnity provided in paragraph (a), (b) or (c) of this Section 7 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Offerors and the Underwriters agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Offerors and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Offerors and by the Underwriters from the offering of the Securities; provided, however, that in no case shall any Underwriter -------- ------- (except as may be provided in any agreement among underwriters relating to the offering of the Securities) be responsible for any amount in excess of the underwriting discount or commission applicable to the Securities purchased by such Underwriter hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Offerors and the Underwriters shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Offerors, on the one hand, and of the Underwriters, on the other hand, in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Offerors shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses), and benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Prospectus. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by or concerning the Trust, the Company or Hasbro on the one hand or provided by the Underwriters on the other. The Offerors and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (e), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Trust or the Company within the meaning of either the Act or the Exchange Act, each trustee of the Trust or officer of the Company who shall have signed the Registration Statement and each trustee of the Trust or director of the Company shall have the same rights to contribution as the Offerors, subject in each case to the applicable terms and conditions of this paragraph (e). 21 8. Default by an Underwriter. If any one or more Underwriters ------------------------- shall fail to purchase and pay for any one of the Securities agreed to be purchased by such Underwriter or Underwriters hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Underwriters shall be obligated severally to take up and pay for (in the respective proportions which the amount of Securities set forth opposite their names in Schedule I hereto bears to the aggregate amount of Securities set forth opposite the names of all the remaining Underwriters) the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase; provided, however, that in the event that the aggregate amount of -------- ------- Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of the aggregate amount of Securities set forth in Schedule I hereto, the remaining Underwriters shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Underwriters do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Underwriter or the Company. In the event of a default by any Underwriter as set forth in this Section 8, the Closing Date shall be postponed for such period, not exceeding seven days, as the Representative shall determine in order that the required changes in the Registration Statement and the Prospectus or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Underwriter of its liability, if any, to the Trust and the Company and any nondefaulting Underwriter for damages occasioned by its default hereunder. 9. Termination. This Agreement shall be subject to termination ----------- in the absolute discretion of the Representative, by notice given to the Offerors prior to delivery of and payment for the Securities, if prior to such time (i) trading in the Company's Common Stock shall have been suspended by the Commission or the New York Stock Exchange or the Pacific Stock Exchange or trading in Hasbro Common Stock shall have been suspended by the Commission or the American Stock Exchange or trading in securities generally on either of such Exchanges shall have been suspended or limited or minimum or maximum prices shall have been established on either of such Exchanges, or maximum ranges for prices for securities have been required, by such Exchanges or by order of the Commission or any other governmental authority, (ii) a banking moratorium shall have been declared either by Federal or New York State authorities or (iii) there shall have occurred any new outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets of the United States is such as to make it, in the judgment of the Representative, impracticable or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Prospectus. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party, except to the extent provided in Sections 4 and 6. 10. Representations and Indemnities to Survive. The respective ------------------------------------------ agreements, representations, warranties, indemnities and other statements of the Trust or the Time Warner Trustees, the Company or its officers and of the Underwriters set forth in or 22 made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter, the Trust or the Time Warner Trustees or the Company or any of the officers, directors, trustees or controlling persons referred to in Section 7 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 6 and 7 hereof shall survive the termination or cancellation of this Agreement. 11. Notices. All communications hereunder will be in writing and ------- effective only on receipt, and, if sent to the Representative, will be mailed, delivered or telegraphed and confirmed to it, at the address set forth on page 1 hereof, or, if sent to the Offerors, will be mailed, delivered or telegraphed and confirmed to the Company, or the Trust in care of the Company, at 75 Rockefeller Plaza, New York, New York 10019, attention of General Counsel. 12. Successors. This Agreement will inure to the benefit of and ---------- be binding upon the parties hereto and their respective successors and the officers, directors, trustees and controlling persons referred to in Section 7 hereof, and no other person will have any right or obligation hereunder. 13. Applicable Law. This Agreement will be governed by and -------------- construed in accordance with the laws of the State of New York. 14. Business Day. For purposes of this Agreement, "business day" ------------ means any day on which the New York Stock Exchange is open for trading. 15. Counterparts. This Agreement may be signed in any number of ------------ counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 23 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Trust, the Company and the several Underwriters. Very truly yours, TIME WARNER FINANCING TRUST By: Time Warner Inc., as Sponsor By: --------------------------------- Name: Peter J. Haje Title: Executive Vice President TIME WARNER INC. By: --------------------------------- Name: Peter J. Haje Title: Executive Vice President The foregoing Agreement is hereby confirmed and accepted. MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED MORGAN STANLEY & CO. INCORPORATED BEAR STEARNS & CO. INC. By: --------------------------------- Name: Title: For themselves and the other several Underwriters, if any, named in Schedule I to the foregoing Agreement. SCHEDULE I ---------- Number of Preferred Securities to Be Underwriter Purchased - ----------- ------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated Bear Stearns & Co. Inc. SCHEDULE II TIME WARNER CAPITAL I and TIME WARNER INC. Underwriting Agreement: dated August __, 1995 Registration Statement: No. 33- Representative: Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated Bear Stearns & Co. Inc. Title, Purchase Price and Description of Securities: [ ] [ ]% Preferred Trust Securities: ---------------------------------------------- Title: Preferred Trust Securities Securities issued: Distribution rate: ____% per annum Distribution dates: Mandatory redemption date: , 2025 Purchase price (include accrued interest or amortization, if any): _____% Closing Date, Time and Location: August __, 1995 at 10 A.M. at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019-7475. Type of funds payable at Closing: Next day funds Listing requirements: New York Stock Exchange EXHIBIT A FORM OF OPINION OF PETER R. HAJE, ESQ. (i) the Company is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority under such laws to own its properties and conduct its business as described in the Prospectus, and the Company is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and its subsidiaries, considered as one enterprise; (ii) each of the Company's significant subsidiaries, as such term is defined in Rule 1-02(v) of Regulation S-X under the Act, is validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with full power and authority under such laws to own its properties and conduct its business as described in the Prospectus and is duly qualified to transact business as a foreign corporation or partnership and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and its subsidiaries, considered as one enterprise; (iii) the Company's authorized equity capitalization and pro forma equity capitalization is as set forth in the Prospectus; (iv) the Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Act; and the Trust is and will be treated as a consolidated subsidiary of the Company pursuant to generally accepted accounting principles; (v) to the best knowledge of such counsel, there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Trust, the Company or any of its subsidiaries of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Prospectus, and there is no franchise, contract or other document of a character required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit, which is not described or filed as required; A-2 (vi) no authorization, approval, consent or license of any government, governmental instrumentality, agency or body or court (other than under the Act and the securities or blue sky laws of various jurisdictions) is required for the authorization, issuance, sale and delivery of the Preferred Securities or the offering of the Common Securities, the Subordinated Debentures or the Guarantee or the consummation by the Trust and the Company of the transactions contemplated by the Underwriting Agreement; (vii) the Declaration, the Underwriting Agreement, the Indenture and the Guarantee Agreement have been duly authorized, executed and delivered by the Company; (viii) the execution, delivery and performance of this Agreement, the Declaration, the Indenture, the Subordinated Debentures and the Guarantee Agreement and the consummation of the transactions contemplated herein and therein and compliance by the Company with its obligations hereunder and thereunder have been duly authorized by all necessary action (corporate or otherwise) on the part of the Company and do not and will not result in any violation of the Restated Certificate of Incorporation, as amended, or By-laws, as amended, of the Company and do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company under (i) the TWE Credit Agreement, the New Credit Agreement or any indenture, mortgage or loan agreement, or any other agreement or instrument known to such counsel, to which the Company is a party or by which the Company may be bound or to which any of the Company's properties may be subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings or business prospects of the Trust or the Company and its subsidiaries, considered as one enterprise), (ii) any existing applicable law, rule or regulation (except for such conflicts, breaches, liens, charges or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings or business prospects of the Trust or the Company and its subsidiaries, considered as one enterprise, and other than the securities or blue sky laws of various jurisdictions), or (iii) any judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over the Company or any of its properties; (ix) the documents incorporated by reference in the Prospectus (except for the financial statements and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), as of the dates they were filed with the Commission, complied as to form in all material respects with the requirements of the Exchange Act; and A-3 (x) the Regular Trustees are employees of the Company and have been duly authorized by the Company to execute and deliver the Declaration; the Declaration has been duly executed and delivered by the Regular Trustees and is a valid and binding obligation of each Regular Trustee, enforceable against such Regular Trustee in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other laws affecting creditors' rights generally from time to time in effect and subject as to enforceability to general principles of equity regardless of whether considered in a proceeding in equity or at law. In addition, such counsel shall also state as follows: As General Counsel, I have reviewed and participated in the preparation of the Registration Statement and the Prospectus, including the documents incorporated by reference therein. In examining the Registration Statement and Prospectus, I have necessarily assumed the correctness and completeness of the statements made or included therein by the Trust and the Company, as the case may be, and take no responsibility therefor. However, in the course of the preparation by the Trust and the Company of the Registration Statement and the Prospectus, I have participated in conferences with the Time Warner Trustees and certain officers of, and accountants for, the Company with respect thereto, and my examination of the Registration Statement and Prospectus and my discussions in the above- mentioned conferences did not disclose any information which gave me reason to believe that the Registration Statement (except for the financial statements and other financial or statistical data included therein or omitted therefrom, as to which I express no opinion) at the time it became effective included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or that the Prospectus (except as aforesaid), at its issue date or on the date of this opinion, included or includes any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such counsel shall also state that he has reviewed the opinion of Paul, Weiss, Rifkind, Wharton & Garrison delivered to you on the date hereof and that he believes you are justified in relying thereon. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the United States, the State of New York, the Delaware Act and the General Corporation Law of the State of Delaware, to the extent such counsel deems proper and specified in such opinion, upon the opinion of other counsel of good standing whom such counsel believes to be reliable and who are satisfactory to counsel for the Underwriters and (B) as to matters of fact, to the extent such counsel deems proper, on certificates of the Trustees and responsible officers of the Company and public officials. EXHIBIT B FORM OF OPINION OF CRAVATH, SWAINE & MOORE (i) the Company is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority under such laws to own its properties and conduct its business as described in the Prospectus; (ii) the Declaration has been duly authorized, executed and delivered by the Company and each of the Time Warner Trustees, has been duly qualified under the Trust Indenture Act, and constitutes a legal, valid and binding instrument enforceable against the Company and each of the Time Warner Trustees in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other laws affecting creditors' rights generally from time to time in effect and subject as to enforceability to general principles of equity, regardless of whether considered in a proceeding in equity or at law); (iii) the Trust is not and will not be classified as an association taxable as a corporation for United States income tax purposes; (iv) the Trust is not an "investment company" or an entity "controlled" by an "investment company" and is exempt from the relevant provisions of the 1940 Act; (v) the Preferred Securities have been approved for listing on the New York Stock Exchange upon notice of issuance; (vi) the Guarantee Agreement has been duly authorized, executed and delivered by the Company and, assuming it is duly authorized, executed and delivered by the Guarantee Trustee, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other laws affecting creditors' rights generally from time to time in effect and subject as to enforceability to general principles of equity, regardless of whether considered in a proceeding in equity or at law); and the Guarantee Agreement has been duly qualified under the Trust Indenture Act; (vii) the Indenture has been duly authorized, executed and delivered by the Company, has been duly qualified under the Trust Indenture Act and constitutes a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other laws affecting creditors' rights generally B-2 from time to time in effect and subject as to enforceability to general principles of equity, regardless of whether considered in a proceeding in equity or at law); (viii) the Subordinated Debentures have been duly authorized, executed and delivered by the Company and, when authenticated in the manner provided for in the Indenture and delivered against payment therefor as described in the Prospectus, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms; (ix) the Preferred Securities, the Subordinated Debentures, the Declaration, the Indenture and the Guarantee Agreement conform to all statements relating thereto contained in the Prospectus; (x) the Registration Statement has become effective under the Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued, no proceedings for that purpose have been instituted or threatened; the Registration Statement and the Prospectus (other than the financial statements and other financial and statistical information contained therein as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the Act and the Exchange Act and the respective rules thereunder; (xi) the Underwriting Agreement has been duly authorized, executed and delivered by the Trust and the Company; and (xii) the statements made in the Prospectus under "Description of the Preferred Securities", "Description of the Guarantees", "Description of Subordinated Debentures", "Effect of Obligations Under the Subordinated Debentures and the Guarantee" and "United States Federal Income Tax Consequences", to the extent that they constitute matters of law or legal conclusions, have been reviewed by us and fairly present the information discussed therein in all material respects. In addition, such counsel shall also state as follows: We have necessarily assumed the correctness and completeness of the statements made or included in the Registration Statement and the Prospectus by the Trust and the Company, as the case may be, and take no responsibility therefor, except insofar as such statements relate to the description of the Securities or relate to us. However, in the course of the preparation by the Trust and the Company of the Registration Statement and the Prospectus (the documents incorporated by reference in the Prospectus having been prepared and filed by the Trust and the Company, as the case may be, without our participation), we participated in conferences with the Trustees of the Trust and certain officers of, and accountants for, the Company with respect B-3 thereto, and our examination of the Registration Statement and the Prospectus and our discussions in the above-mentioned conferences did not disclose any information which gave us reason to believe that (i) the Registration Statement (except for the financial statements and other financial or statistical data included therein or omitted therefrom, as to which we express no opinion), at the time the Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the Prospectus (except as aforesaid), at its issue date or on the date of this opinion, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the United States, the State of New York and the General Corporation Law of the State of Delaware, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriter and (B) as to matters of fact, to the extent they deem proper, on certificates of the Trustees and responsible officers of the Company and public officials. EXHIBIT C FORM OF OPINION OF RICHARDS, LAYTON AND FINGER (i) the Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Act with the power and authority to own property and to conduct its business as described in the Registration Statement and Prospectus and to enter into and perform its obligations under the Underwriting Agreement, the Preferred Securities, the Common Securities and the Declaration and is not required to be authorized to do business in any other jurisdiction; the Trust is not a party to or otherwise bound by any agreement other than those described in the Prospectus; and the Trust is and will be treated as a consolidated subsidiary of the Company pursuant to generally accepted accounting principles; (ii) to the best knowledge of such counsel, there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Trust or any of its subsidiaries of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Prospectus, and there is no franchise, contract or other document of a character required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit, which is not described or filed as required; (iii) no authorization, approval, consent or license of any government, governmental instrumentality, agency or body or court (other than under the Act and the securities or blue sky laws of various jurisdictions) is required for the authorization, issuance, sale and delivery of the Preferred Securities or the consummation by the Trust of the transactions contemplated by the Underwriting Agreement; (iv) the Underwriting Agreement has been duly authorized, executed and delivered by the Trust; (v) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and compliance by the Trust with its obligations hereunder have been duly authorized by all necessary action (corporate or otherwise) on the part of the Trust and do not and will not result in any violation of the Declaration and do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company under (i) any indenture, mortgage or loan agreement, or any other agreement or instrument known to such counsel, to which the Trust is a party or by C-2 which the Trust may be bound or to which any of the Trust's properties may be subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings or business prospects of the Trust and its subsidiaries, considered as one enterprise), (ii) any existing applicable law, rule or regulation (except for such conflicts, breaches, liens, charges or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings or business prospects of the Trust and other than the securities or blue sky laws of various jurisdictions), or (iii) any judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over the Trust or any of its properties; and (vi) the Preferred Securities have been duly authorized by the Trust and are validly issued and (subject to the terms of the Declaration) when delivered to and paid for by the Underwriters pursuant to the Underwriting Agreement will be fully paid and non-assessable preferred undivided beneficial interests in the assets of the Trust and will be entitled to the benefits of the Declaration; the issuance of the Preferred Securities is not subject to preemptive or other similar rights; and the holders of Preferred Securities will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit. In addition, such counsel shall also state as follows: We have reviewed and participated in the preparation of the Registration Statement and the Prospectus, including the documents incorporated by reference therein. In examining the Registration Statement and Prospectus, we have necessarily assumed the correctness and completeness of the statements made or included therein by the Trust and take no responsibility therefor. However, in the course of the preparation by the Trust of the Registration Statement and the Prospectus, we have participated in conferences with the Time Warner Trustees of the Trust and certain officers of, and accountants for, the Company with respect thereto, and our examination of the Registration Statement and Prospectus and our discussions in the above-mentioned conferences did not disclose any information which gave us reason to believe that the Registration Statement (except for the financial statements and other financial or statistical data included therein or omitted therefrom, as to which we express no opinion) at the time it became effective included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or that the Prospectus (except as aforesaid), at its issue date or on the date of this opinion, included or includes any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. EXHIBIT D FORM OF OPINION OF THE LAW DEPARTMENT OF THE FIRST NATIONAL BANK OF CHICAGO ___________, 1995 (i) The Property Trustee is a national banking association with trust powers, duly organized, validly existing and in good standing under the laws of the United States of America, with all necessary power and authority to execute and deliver, and to carry out and perform its obligations under the Declaration. (ii) The execution, delivery and performance by the Property Trustee of the Declaration has been duly authorized by all necessary corporate action on the part of the Property Trustee and the Declaration has been duly executed and delivered by the Property Trustee. The Declaration and the Guarantee Agreement have been duly executed and delivered by the Property Trustee, and constitute the legal, valid and binding obligation of the Property Trustee, enforceable against the Property Trustee in accordance with their terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other laws affecting creditors' rights generally from time to time in effect and subject as to enforceability to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (iii) To the best of our knowledge, there are no actions, proceedings or investigations pending or threatened against or affecting the Property Trustee before any court, arbitrator, administrative agency or other governmental authority which, if adversely decided, would materially and adversely affect the Property Trustee's ability to carry out the transactions contemplated in the Declaration. (iv) The execution, delivery and performance of the Declaration and the Guarantee Agreement by the Property Trustee does not conflict with or constitute a breach of the Articles of Association or By-Laws of the Property Trustee. (iv) No consent, approval or authorization of, or registration with or notice to, any Illinois or federal banking authority, other than such as have been obtained or accomplished, is required for the execution, delivery or performance by the Property Trustee of the Declaration. D-2 (v) The Property Trustee is the record holder of the Subordinated Debentures and the Guarantee and no security interest, mortgage, pledge, lien, encumbrance, claim or equity is noted thereon or on the register. EX-4.1 3 CERTIFICATE OF TRUST OF TIME WARNER CAPITAL I EXHIBIT 4.1 CERTIFICATE OF TRUST OF TIME WARNER CAPITAL I This Certificate of Trust of Time Warner Capital I (the "Trust"), dated August 2, 1995, is being duly executed and filed by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. Section 3801 et seq.). -- ---- 1. Name. The name of the business trust formed hereby is Time Warner ----- Capital I. 2. Delaware Trustee. The name and business address of the trustee of ----------------- the Trust with a principal place of business in the State of Delaware is First Chicago Delaware Inc., 1201 Market Street, Suite 1401, Wilmington, Delaware 19801. 3. Effective Date. This Certificate of Trust shall be effective as of --------------- its filing. IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, have executed this Certificate of Trust as of the date first above written. THE FIRST NATIONAL BANK OF CHICAGO, as trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President FIRST CHICAGO DELAWARE INC., as Delaware Trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President 2 by ------------------------- John A. LaBarca, as trustee by ------------------------- Philip R. Lochner, Jr. as trustee by ------------------------- Thomas W. McEnerney, as trustee EX-4.2 4 CERTIFICATE OF TRUST OF TIME WARNER CAPITAL II EXHIBIT 4.2 CERTIFICATE OF TRUST OF TIME WARNER CAPITAL II This Certificate of Trust of Time Warner Capital II (the "Trust"), dated August 2, 1995, is being duly executed and filed by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. Section 3801 et seq.). -- ---- 1. Name. The name of the business trust formed hereby is Time Warner ----- Capital II. 2. Delaware Trustee. The name and business address of the trustee of ----------------- the Trust with a principal place of business in the State of Delaware is First Chicago Delaware Inc., 1201 Market Street, Suite 1401, Wilmington, Delaware 19801. 3. Effective Date. This Certificate of Trust shall be effective as of --------------- its filing. IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, have executed this Certificate of Trust as of the date first above written. THE FIRST NATIONAL BANK OF CHICAGO, as trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President FIRST CHICAGO DELAWARE INC., as Delaware Trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President 2 by ------------------------- John A. LaBarca, as trustee by ------------------------- Philip R. Lochner, Jr., as trustee by ------------------------- Thomas W. McEnerney, as trustee EX-4.3 5 CERTIFICATE OF TRUST OF TIME WARNER CAPITAL III EXHIBIT 4.3 CERTIFICATE OF TRUST OF TIME WARNER CAPITAL III This Certificate of Trust of Time Warner Capital III (the "Trust"), dated August 2, 1995, is being duly executed and filed by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. Section 3801 et seq.). -- ---- 1. Name. The name of the business trust formed hereby is Time Warner ----- Capital III. 2. Delaware Trustee. The name and business address of the trustee of ----------------- the Trust with a principal place of business in the State of Delaware is First Chicago Delaware Inc., 1201 Market Street, Suite 1401, Wilmington, Delaware 19801. 3. Effective Date. This Certificate of Trust shall be effective as of --------------- its filing. IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, have executed this Certificate of Trust as of the date first above written. THE FIRST NATIONAL BANK OF CHICAGO, as trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President FIRST CHICAGO DELAWARE INC., as Delaware Trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President 2 by ------------------------- John A. LaBarca, as trustee by ------------------------- Philip R. Lochner, Jr., as trustee by ------------------------- Thomas W. McEnerney, as trustee EX-4.4 6 DECLARATION OF TRUST OF TIME WARNER CAPITAL I EXHIBIT 4.4 DECLARATION OF TRUST, dated as of August 2, 1995, between Time Warner Inc., a Delaware corporation, as sponsor (the "Sponsor"), and The First National Bank of Chicago, a national banking association, as property trustee (the "Property Trustee"), First Chicago Delaware Inc., as Delaware trustee (the "Delaware Trustee"), John A. LaBarca, Philip R. Lochner, Jr. and Thomas W. McEnerney, not in their individual capacities but solely as regular trustees (the "Regular Trustees") (the Property Trustee, Delaware Trustee and Regular Trustees referred to herein as the "Trustees"). The Sponsor and the Trustees hereby agree as follows: 1. The trust created hereby (the "Trust") shall be known as "Time Warner Capital I", in which name the Trustees, or the Sponsor to the extent provided herein, may conduct the business of the Trust, make and execute contracts, and sue and be sued. 2. The Sponsor hereby assigns, transfers, conveys and sets over to the Trust the sum of $10. The Trustees hereby acknowledge receipt of such amount from the Sponsor, which amount shall constitute the initial trust estate. It is the intention of the parties hereto that the Trust created hereby constitute a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801 et seq. (the "Business Trust Act"), and that this -- --- document constitute the governing instrument of the Trust. The Trustees are hereby authorized and directed to execute and file a certificate of trust with the Delaware Secretary of State in the form attached as Exhibit A hereto. 3. The Sponsor and the Trustees will enter into an amended and restated Declaration of Trust, satisfactory to each such party, to provide for the contemplated operation of the Trust created hereby and the issuance of preferred securities and common securities of the Trust. Prior to the execution and delivery of such amended and restated Declaration of Trust, the Trustees shall not have any duty or obligation hereunder or with respect to the trust estate, except as otherwise required by applicable law or as may be necessary to obtain prior to such execution and delivery any licenses, consents or approvals required by applicable law or otherwise. 2 4. The Sponsor and the Trustees hereby authorize and direct the Sponsor, as the sponsor of the Trust, (a) to execute and file with the Securities and Exchange Commission (the "Commission"), on behalf of the Trust, (i) a Registration Statement on Form S-3 (the "1933 Act Registration Statement"), including any pre-effective or post-effective amendments to such Registration Statement or, relating to the registration under the Securities Act of 1933 of the Preferred Securities of the Trust and (ii) a Registration Statement on Form 8-A (the "1934 Act Registration Statement"), including any pre-effective and post-effective amendments thereto, relating to the registration of the Preferred Securities of the Trust under Section 12(b) of the Securities Exchange Act of 1934, as amended; (b) to execute on behalf of the Trust and file with the New York Stock Exchange or any other national stock exchange a listing application and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Preferred Securities to be listed on the New York Stock Exchange or such other national stock exchange; (c) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents as shall be necessary or desirable to register the Preferred Securities under the securities or "Blue Sky" laws of such jurisdictions as the Sponsor, on behalf of the Trust, may deem necessary or desirable and (d) to execute on behalf of the Trust an Underwriting Agreement among the Trust, the Sponsor and Merrill Lynch, Pierce, Feiner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Bear, Stearns & Co. Inc. as co-representatives of the several underwriters, relating to the offer and sale of the Preferred Securities, satisfactory to each such party. In the event that any filing referred to in clauses (a) through (c) above is required by the rules and regulations of the Commission, the New York Stock Exchange or any other national stock exchange or state securities or blue sky laws, to be executed on behalf of the Trust by the Trustees, John A. LaBarca, Philip R. Lochner, Jr. and Thomas W. McEnerney, in their capacities as Trustees of the Trust, are hereby authorized and directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing, it being understood that The First National Bank of Chicago and First Chicago Delaware Inc., in their capacities as Trustees of the Trust, shall not be required to join in any such filing or execute on behalf of the Trust any such document unless required by the rules and 3 regulations of the Commission, the New York Stock Exchange or any other national stock exchange or state securities or blue sky laws. In connection with all of the foregoing, the Sponsor and each Trustee, solely in its capacity as Trustee of the Trust, hereby constitutes and appoints Gerald M. Levin, Richard D. Parsons, Richard J. Bressler, Peter R. Haje and Philip R. Lochner, and each of them, as his, her or its, as the case may be, true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the Sponsor or such Trustee or in the Sponsor's or such Trustee's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, granting unto said attorneys-in- fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be, done in connection therewith, as fully to all intents and purposes as the Sponsor or such Trustee might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, shall do or cause to be done by virtue hereof. 5. This Declaration of Trust may be executed in one or more counterparts. 6. The number of Trustees initially shall be five and thereafter the number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by the Sponsor which may increase or decrease the number of Trustees; provided, however, that the number of Trustees shall in no -------- ------- event be less than five; and provided further that to the extent required by the ---------------- Business Trust Act, one Trustee shall either be a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware. Subject to the foregoing, the 4 Sponsor is entitled to appoint or remove without cause any Trustee at any time. The Trustees may resign upon thirty days' prior notice to the Sponsor. IN WITNESS WHEREOF, the parties hereto have caused this Declaration of Trust to be duly executed as of the day and year first above written. TIME WARNER INC., as Sponsor, by ---------------------------- Name: Thomas W. McEnerney Title: V.P. and Associate General Counsel THE FIRST NATIONAL BANK OF CHICAGO, not in its individual capacity but solely as Property Trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President FIRST CHICAGO DELAWARE INC., not in its individual capacity but solely as Delaware Trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President 5 by -------------------------- John A. LaBarca, not in his individual capacity but solely as Regular Trustee by -------------------------- Philip R. Lochner, Jr., not in his individual capacity but solely as Regular Trustee by -------------------------- Thomas W. McEnerney, not in his individual capacity but solely as Regular Trustee EX-4.5 7 DECLARATION OF TRUST OF TIME WARNER CAPITAL II EXHIBIT 4.5 DECLARATION OF TRUST, dated as of August 2, 1995, between Time Warner Inc., a Delaware corporation, as sponsor (the "Sponsor"), and The First National Bank of Chicago, a national banking association, as property trustee (the "Property Trustee"), First Chicago Delaware Inc., as Delaware trustee (the "Delaware Trustee"), John A. LaBarca, Philip R. Lochner, Jr. and Thomas W. McEnerney, not in their individual capacities but solely as regular trustees (the "Regular Trustees") (the Property Trustee, Delaware Trustee and Regular Trustees referred to herein as the "Trustees"). The Sponsor and the Trustees hereby agree as follows: 1. The trust created hereby (the "Trust") shall be known as "Time Warner Capital II", in which name the Trustees, or the Sponsor to the extent provided herein, may conduct the business of the Trust, make and execute contracts, and sue and be sued. 2. The Sponsor hereby assigns, transfers, conveys and sets over to the Trust the sum of $10. The Trustees hereby acknowledge receipt of such amount from the Sponsor, which amount shall constitute the initial trust estate. It is the intention of the parties hereto that the Trust created hereby constitute a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801 et seq. (the "Business Trust Act"), and that this -- --- document constitute the governing instrument of the Trust. The Trustees are hereby authorized and directed to execute and file a certificate of trust with the Delaware Secretary of State in the form attached as Exhibit A hereto. 3. The Sponsor and the Trustees will enter into an amended and restated Declaration of Trust, satisfactory to each such party, to provide for the contemplated operation of the Trust created hereby and the issuance of preferred securities and common securities of the Trust. Prior to the execution and delivery of such amended and restated Declaration of Trust, the Trustees shall not have any duty or obligation hereunder or with respect to the trust estate, except as otherwise required by applicable law or as may be necessary to obtain prior to such execution and delivery any licenses, consents or approvals required by applicable law or otherwise. 2 4. The Sponsor and the Trustees hereby authorize and direct the Sponsor, as the sponsor of the Trust, (a) to execute and file with the Securities and Exchange Commission (the "Commission"), on behalf of the Trust, (i) a Registration Statement on Form S-3 (the "1933 Act Registration Statement"), including any pre-effective or post-effective amendments to such Registration Statement or, relating to the registration under the Securities Act of 1933 of the Preferred Securities of the Trust and (ii) a Registration Statement on Form 8-A (the "1934 Act Registration Statement"), including any pre-effective and post-effective amendments thereto, relating to the registration of the Preferred Securities of the Trust under Section 12(b) of the Securities Exchange Act of 1934, as amended; (b) to execute on behalf of the Trust and file with the New York Stock Exchange or any other national stock exchange a listing application and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Preferred Securities to be listed on the New York Stock Exchange or such other national stock exchange; (c) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents as shall be necessary or desirable to register the Preferred Securities under the securities or "Blue Sky" laws of such jurisdictions as the Sponsor, on behalf of the Trust, may deem necessary or desirable and (d) to execute on behalf of the Trust an Underwriting Agreement among the Trust, the Sponsor and Merrill Lynch, Pierce, Feiner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Bear, Stearns & Co. Inc. as co-representatives of the several underwriters, relating to the offer and sale of the Preferred Securities, satisfactory to each such party. In the event that any filing referred to in clauses (a) through (c) above is required by the rules and regulations of the Commission, the New York Stock Exchange or any other national stock exchange or state securities or blue sky laws, to be executed on behalf of the Trust by the Trustees, John A. LaBarca, Philip R. Lochner, Jr. and Thomas W. McEnerney, in their capacities as Trustees of the Trust, are hereby authorized and directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing, it being understood that The First National Bank of Chicago and First Chicago Delaware Inc., in their capacities as Trustees of the Trust, shall not be required to join in any such filing or execute on behalf of the Trust any such document unless required by the rules and 3 regulations of the Commission, the New York Stock Exchange or any other national stock exchange or state securities or blue sky laws. In connection with all of the foregoing, the Sponsor and each Trustee, solely in its capacity as Trustee of the Trust, hereby constitutes and appoints Gerald M. Levin, Richard D. Parsons, Richard J. Bressler, Peter R. Haje and Philip R. Lochner, and each of them, as his, her or its, as the case may be, true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the Sponsor or such Trustee or in the Sponsor's or such Trustee's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, granting unto said attorneys-in- fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be, done in connection therewith, as fully to all intents and purposes as the Sponsor or such Trustee might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, shall do or cause to be done by virtue hereof. 5. This Declaration of Trust may be executed in one or more counterparts. 6. The number of Trustees initially shall be five and thereafter the number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by the Sponsor which may increase or decrease the number of Trustees; provided, however, that the number of Trustees shall in no -------- ------- event be less than five; and provided further that to the extent required by the ---------------- Business Trust Act, one Trustee shall either be a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware. Subject to the foregoing, the 4 Sponsor is entitled to appoint or remove without cause any Trustee at any time. The Trustees may resign upon thirty days' prior notice to the Sponsor. IN WITNESS WHEREOF, the parties hereto have caused this Declaration of Trust to be duly executed as of the day and year first above written. TIME WARNER INC., as Sponsor, by -------------------------- Name: Thomas W. McEnerney Title: V.P. and Associate General Counsel THE FIRST NATIONAL BANK OF CHICAGO, not in its individual capacity but solely as Property Trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President FIRST CHICAGO DELAWARE INC., not in its individual capacity but solely as Delaware Trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President 5 by -------------------------- John A. LaBarca, not in his individual capacity but solely as Regular Trustee by -------------------------- Philip R. Lochner, Jr., not in his individual capacity but solely as Regular Trustee by -------------------------- Thomas W. McEnerney, not in his individual capacity but solely as Regular Trustee EX-4.6 8 DECLARATION OF TRUST OF TIME WARNER CAPITAL III EXHIBIT 4.6 DECLARATION OF TRUST, dated as of August 2, 1995, between Time Warner Inc., a Delaware corporation, as sponsor (the "Sponsor"), and The First National Bank of Chicago, a national banking association, as property trustee (the "Property Trustee"), First Chicago Delaware Inc., as Delaware trustee (the "Delaware Trustee"), John A. LaBarca, Philip R. Lochner, Jr. and Thomas W. McEnerney, not in their individual capacities but solely as regular trustees (the "Regular Trustees") (the Property Trustee, Delaware Trustee and Regular Trustees referred to herein as the "Trustees"). The Sponsor and the Trustees hereby agree as follows: 1. The trust created hereby (the "Trust") shall be known as "Time Warner Capital III", in which name the Trustees, or the Sponsor to the extent provided herein, may conduct the business of the Trust, make and execute contracts, and sue and be sued. 2. The Sponsor hereby assigns, transfers, conveys and sets over to the Trust the sum of $10. The Trustees hereby acknowledge receipt of such amount from the Sponsor, which amount shall constitute the initial trust estate. It is the intention of the parties hereto that the Trust created hereby constitute a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801 et seq. (the "Business Trust Act"), and that this -- --- document constitute the governing instrument of the Trust. The Trustees are hereby authorized and directed to execute and file a certificate of trust with the Delaware Secretary of State in the form attached as Exhibit A hereto. 3. The Sponsor and the Trustees will enter into an amended and restated Declaration of Trust, satisfactory to each such party, to provide for the contemplated operation of the Trust created hereby and the issuance of preferred securities and common securities of the Trust. Prior to the execution and delivery of such amended and restated Declaration of Trust, the Trustees shall not have any duty or obligation hereunder or with respect to the trust estate, except as otherwise required by applicable law or as may be necessary to obtain prior to such execution and delivery any licenses, consents or approvals required by applicable law or otherwise. 2 4. The Sponsor and the Trustees hereby authorize and direct the Sponsor, as the sponsor of the Trust, (a) to execute and file with the Securities and Exchange Commission (the "Commission"), on behalf of the Trust, (i) a Registration Statement on Form S-3 (the "1933 Act Registration Statement"), including any pre-effective or post-effective amendments to such Registration Statement or, relating to the registration under the Securities Act of 1933 of the Preferred Securities of the Trust and (ii) a Registration Statement on Form 8-A (the "1934 Act Registration Statement"), including any pre-effective and post-effective amendments thereto, relating to the registration of the Preferred Securities of the Trust under Section 12(b) of the Securities Exchange Act of 1934, as amended; (b) to execute on behalf of the Trust and file with the New York Stock Exchange or any other national stock exchange a listing application and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Preferred Securities to be listed on the New York Stock Exchange or such other national stock exchange; (c) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents as shall be necessary or desirable to register the Preferred Securities under the securities or "Blue Sky" laws of such jurisdictions as the Sponsor, on behalf of the Trust, may deem necessary or desirable and (d) to execute on behalf of the Trust an Underwriting Agreement among the Trust, the Sponsor and Merrill Lynch, Pierce, Feiner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Bear, Stearns & Co. Inc. as co-representatives of the several underwriters, relating to the offer and sale of the Preferred Securities, satisfactory to each such party. In the event that any filing referred to in clauses (a) through (c) above is required by the rules and regulations of the Commission, the New York Stock Exchange or any other national stock exchange or state securities or blue sky laws, to be executed on behalf of the Trust by the Trustees, John A. LaBarca, Philip R. Lochner, Jr. and Thomas W. McEnerney, in their capacities as Trustees of the Trust, are hereby authorized and directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing, it being understood that The First National Bank of Chicago and First Chicago Delaware Inc., in their capacities as Trustees of the Trust, shall not be required to join in any such filing or execute on behalf of the Trust any such document unless required by the rules and 3 regulations of the Commission, the New York Stock Exchange or any other national stock exchange or state securities or blue sky laws. In connection with all of the foregoing, the Sponsor and each Trustee, solely in its capacity as Trustee of the Trust, hereby constitutes and appoints Gerald M. Levin, Richard D. Parsons, Richard J. Bressler, Peter R. Haje and Philip R. Lochner, and each of them, as his, her or its, as the case may be, true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the Sponsor or such Trustee or in the Sponsor's or such Trustee's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, granting unto said attorneys-in- fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be, done in connection therewith, as fully to all intents and purposes as the Sponsor or such Trustee might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, shall do or cause to be done by virtue hereof. 5. This Declaration of Trust may be executed in one or more counterparts. 6. The number of Trustees initially shall be five and thereafter the number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by the Sponsor which may increase or decrease the number of Trustees; provided, however, that the number of Trustees shall in no -------- ------- event be less than five; and provided further that to the extent required by the ---------------- Business Trust Act, one Trustee shall either be a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware. Subject to the foregoing, the 4 Sponsor is entitled to appoint or remove without cause any Trustee at any time. The Trustees may resign upon thirty days' prior notice to the Sponsor. IN WITNESS WHEREOF, the parties hereto have caused this Declaration of Trust to be duly executed as of the day and year first above written. TIME WARNER INC., as Sponsor, by -------------------------- Name: Thomas W. McEnerney Title: V.P. and Associate General Counsel THE FIRST NATIONAL BANK OF CHICAGO, not in its individual capacity but solely as Property Trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President FIRST CHICAGO DELAWARE INC., not in its individual capacity but solely as Delaware Trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President 5 by -------------------------- John A. LaBarca, not in his individual capacity but solely as Regular Trustee by -------------------------- Philip R. Lochner, Jr., not in his individual capacity but solely as Regular Trustee by -------------------------- Thomas W. McEnerney, not in his individual capacity but solely as Regular Trustee EX-4.7 9 AMENDED AND RESTATED DECLARATIONS OF TRUST EXHIBIT 4.7 AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration"), dated as of [ ], 1995, by the undersigned trustees (together with all other Persons from time to time duly appointed and serving as trustees in accordance with the provisions of this Declaration, the "Trustees"), Time Warner Inc., a Delaware corporation, as trust sponsor ("Time Warner" or the "Sponsor"), and by the holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to this Declaration. WHEREAS the Sponsor and the Trustees entered into a Declaration of Trust dated as of August 2, 1995 (the "Original Declaration") in order to establish a statutory business trust (the "Trust") under the Business Trust Act (as hereinafter defined); WHEREAS the Certificate of Trust (the "Certificate of Trust") of the Trust was filed with the office of the Secretary of State of the State of Delaware on August 2, 1995; WHEREAS the Trustees and the Sponsor desire to continue the Trust pursuant to the Business Trust Act for the sole purpose of, as described more fully in Section 3.03 hereof, issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in certain Subordinated Debentures (as defined herein) of Time Warner issued under the Indenture (as defined herein) and to engage pursuant to the terms hereof in only those other activities necessary or incidental thereto; and WHEREAS, as of the date hereof, no interests in the Trust have been issued; and WHEREAS all of the Trustees and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration. NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Business Trust Act, that the Original Declaration 2 be amended and restated in its entirety as provided herein and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all assets contributed to or purchased by the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE I Definitions ----------- SECTION 1.01. Terms Generally. (a) The definitions in Section 1.02 ---------------- shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Articles, Sections, Exhibits and Annexes shall be deemed references to Articles and Sections of, and Exhibits and Annexes to, this Declaration unless the context shall otherwise require. Except as otherwise expressly provided herein, any reference in this Declaration to any other document shall mean such document as amended, restated, supplemented or otherwise modified from time to time. (b) Capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in Section 1.02. (c) A term defined anywhere in this Declaration has the same meaning throughout. SECTION 1.02. Definitions. As used in this Declaration, the ------------ following terms have the meanings specified below: "Affiliate" has the same meaning as given to that term in Rule 405 of the Trust Indenture Act or any successor rule thereunder. "Appointment Event" means an event defined in the terms of the Preferred Securities set forth in Exhibit B which entitles the Holders of a Majority in aggregate 3 liquidation amount of the Preferred Securities to appoint a Special Regular Trustee. "Book Entry Interest" means a beneficial interest in a Certificate registered in the name of a Clearing Agency or a nominee thereof, ownership and transfers of which shall be maintained and made through book entries by such Clearing Agency as described in Section 9.04. "Business Day" means any day other than a Saturday or Sunday or any other day on which banking institutions in New York, New York, are authorized or required by law to close. "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. (S)(S) 3801 et seq., as it may be amended from time to time. -- ---- -- -- ---- "Certificate" means a Common Security Certificate or a Preferred Security Certificate. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary for the Preferred Securities and in whose name or in the name of a nominee of that organization shall be registered a Global Certificate and which shall undertake to effect book entry transfers and pledges of the Preferred Securities. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" means [ ], 1995. "Code" means the Internal Revenue Code of 1986, as amended from time to time or any successor legislation. A reference to a specific section ((Sec.)) of the Code refers not only to such specific section but also to any corresponding provision of any federal tax statute enacted after the date of this Declaration, as such specific section or corresponding provision is in effect on the date of application of the provisions of this Declaration containing such reference. 4 "Commission" means the Securities and Exchange Commission. "Common Security" has the meaning specified in Section 7.01(b). "Common Security Certificate" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Annex I to Exhibit C. "Covered Person" means (i) any officer, director, shareholder, partner, member, representative, employee or agent of the Trust or its Affiliates, (ii) any officer, director, shareholder, employee, representative or agent of Time Warner or its Affiliates and (iii) the Holders from time to time of the Trust Securities. "Delaware Trustee" has the meaning set forth in Section 5.01(a)(C). "Distribution" means a distribution payable to Holders of Trust Securities in accordance with Section 6.01. "DTC" means The Depository Trust Company, the initial Clearing Agency. "Event of Default" in respect of the Trust Securities means an Indenture Event of Default that has occurred and is continuing in respect of the Subordinated Debentures. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time or any successor legislation. "Fiscal Year" has the meaning specified in Section 11.01. "Global Certificate", when used with respect to any Preferred Security, means a Preferred Security executed by the Trust and delivered to the Depositary or pursuant to the Depositary's instruction, all in accordance with this Declaration, which shall be registered in the name of the Depositary or its nominee and which shall represent all of the outstanding Preferred Securities. 5 "Guarantee" means the Guarantee Agreement to be dated as of [ ], 1995, of Time Warner in respect of the Preferred Securities. "Holder" means a Person in whose name a Certificate representing a Trust Security is registered, such Person being a beneficial owner within the meaning of the Business Trust Act. "Indemnified Person" means any Trustee, any Affiliate of any Trustee, any officer, director, shareholder, member, partner, employee, representative or agent of any Trustee, or any employee or agent of the Trust or its Affiliates. "Indenture" means the Indenture dated as of [ ], 1995, between Time Warner and the Indenture Trustee and any indenture supplemental thereto pursuant to which the Subordinated Debentures are to be issued. "Indenture Event of Default" means any event or condition defined as an "Event of Default" with respect to the Subordinated Debentures under Section 5.01 of the Indenture that has occurred and is continuing. "Indenture Trustee" means [Chemical Bank] as trustee under the Indenture until a successor is appointed thereunder and thereafter means such successor trustee. "Investment Company" means an investment company as defined in the Investment Company Act. "Investment Company Act" means the Investment Company Act of 1940, as amended from time to time or any successor legislation. "Legal Action" has the meaning specified in Section 3.06(e). "Liquidation Distribution" has the meaning set forth in Exhibits B and C hereto establishing the terms of the Trust Securities. "Majority in aggregate liquidation amount of the Trust Securities" means, except as otherwise required by the Trust Indenture Act and except as provided in the penultimate paragraph of Section 5 of Exhibit B hereto, Holder(s) of outstanding Trust Securities voting together as 6 a single class or, as the context may require, Holder(s) of outstanding Preferred Securities or Common Securities voting separately as a class, who are the record owners of a relevant class of Trust Securities whose aggregate liquidation amount represents more than 50% of the aggregate liquidation amount of all outstanding Trust Securities of such class. "Ministerial Action" has the meaning set forth in the terms of the Trust Securities as set forth in Exhibits B and C hereto. "Paying Agent" has the meaning specified in Section 3.08(i). "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Security" has the meaning specified in Section 7.01(b). "Preferred Security Beneficial Owner" means, with respect to a Book Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Preferred Security Certificate" means a definitive certificate in fully registered form representing a Preferred Security substantially in the form of Annex I to Exhibit B. "Property Trustee" means the Trustee meeting the eligibility requirements set forth in Section 5.01(c) and having the duties set forth for the Property Trustee herein. "Property Account" has the meaning specified in Section 3.08(c)(i). 7 "Quorum" means a majority of the Regular Trustees or, if there are only two Regular Trustees, both such Regular Trustees. "Regular Trustee" means any Trustee other than the Property Trustee and the Delaware Trustee. "Related Party" means any direct or indirect wholly owned subsidiary of Time Warner or any other Person which owns, directly or indirectly, 100% of the outstanding voting securities of Time Warner. "Resignation Request" has the meaning specified in Section 5.02(d). "Responsible Officer" means, with respect to the Property Trustee, the chairman of the board of directors, any vice chairman, the president, any executive vice president, any senior vice president, any vice-president, any assistant vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or assistant trust officer or any other officer of the Property Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Rule 3a-5" means Rule 3a-5 under the Investment Company Act or any successor rule thereunder. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "Special Event" has the meaning set forth in the terms of the Trust Securities as set forth in Exhibits B and C hereto. "Special Redemption Date" has the meaning set forth in the terms of the Trust Securities as set forth in Exhibits B and C hereto. "Special Redemption Price" has the meaning set forth in the terms of the Trust Securities as set forth in Exhibits B and C hereto. 8 "Special Regular Trustee" means a Regular Trustee appointed by the Holders of a Majority in aggregate liquidation amount of the Preferred Securities in accordance with Section 5.02(a)(ii)(B). "Sponsor" or "Time Warner" means Time Warner Inc., a Delaware corporation, or any successor entity, in its capacity as sponsor of the Trust. "Subordinated Debentures" means the series of Subordinated Debentures issued by Time Warner under the Indenture to the Property Trustee and entitled the [ ]% Subordinated Debentures due 2025. "Successor Delaware Trustee" has the meaning specified in Section 5.02(b)(ii). "Successor Property Trustee" means a successor Trustee possessing the qualifications to act as Property Trustee set forth in Section 5.01(c). "10% in aggregate liquidation amount of the Trust Securities" means, except as otherwise required by the Trust Indenture Act and except as provided in the penultimate paragraph of paragraph 5 of Exhibit B hereto, Holder(s) of outstanding Trust Securities voting together as a single class or, as the context may require, Holder(s) of outstanding Preferred Securities or Common Securities, voting separately as a class, who are the record owners of a relevant class of Trust Securities whose aggregate liquidation amount represents 10% or more of the aggregate liquidation amount of all outstanding Trust Securities of such class. "Treasury Regulations" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Trustee" or "Trustees" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. 9 "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. "Trust Securities" means the Common Securities and the Preferred Securities. "Underwriting Agreement" means the underwriting agreement dated [ ], 1995, among Time Warner, the Trust and Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as co- representatives of the several underwriters named therein, with respect to, among other things, the Preferred Securities. ARTICLE II Trust Indenture Act ------------------- SECTION 2.01. Trust Indenture Act; Application. --------------------------------- (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions; (b) if and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by (S)(S) 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control; (c) the Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act; and (d) the application of the Trust Indenture Act to this Declaration shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Trust. SECTION 2.02. Lists of Holders of Preferred Securities. (a) Each of ----------------------------------------- the Sponsor and the Regular Trustees on behalf of the Trust shall provide the Property Trustee with such information as is required under (S) 312(a) of the Trust Indenture Act at the times and in the manner provided in (S) 312(a). 10 (b) The Property Trustee shall comply with its obligations under (S)(S) 310(b), 311 and 312(b) of the Trust Indenture Act. SECTION 2.03. Reports by the Property Trustee. Within 60 days after -------------------------------- May 15 of each year, the Property Trustee shall provide to the Holders of the Trust Securities such reports as are required by (S) 313 of the Trust Indenture Act, if any, in the form, in the manner and at the times provided by (S) 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of (S) 313(d) of the Trust Indenture Act. SECTION 2.04. Periodic Reports to Property Trustee. Each of the ------------------------------------- Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee, the Commission and the Holders of the Trust Securities, as applicable, such documents, reports and information as required by (S) 314(a)(l)-(3), if any, of the Trust Indenture Act and the compliance certificates required by (S) 314(a)(4) and (c) of the Trust Indenture Act, any such certificates to be provided in the form, in the manner and at the times required by (S) 314(a)(4) and (c) of the Trust Indenture Act; provided that any -------- certificate to be provided pursuant to (S) 314(a)(4) of the Trust Indenture Act shall be provided within 120 days of the end of each Fiscal Year. SECTION 2.05. Evidence of Compliance with Conditions Precedent. Each ------------------------------------------------- of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration which relate to any of the matters set forth in (S) 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given pursuant to (S) 314(c) shall comply with (S) 314(e) of the Trust Indenture Act. SECTION 2.06. Events of Default; Waiver. (a) Subject to Section -------------------------- 2.06(c), Holders of Preferred Securities may by vote of at least a Majority in aggregate liquidation amount of the Preferred Securities (i) in accordance with the terms of the Preferred Securities direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee hereunder or (ii) on behalf of the Holders of all Preferred Securities waive any past Event of Default in respect of the 11 Preferred Securities and its consequences, provided that if the Event of Default arises out of an Indenture Event of Default: (A) which is not waivable under the Indenture, the Event of Default under this Declaration shall also be not waivable; or (B) which requires the consent or vote of (1) holders of Subordinated Debentures representing a specified percentage greater than a majority in principal amount of the Subordinated Debentures, or (2) each holder of Subordinated Debentures, the Event of Default under this Declaration may only be waived by, in the case of clause (1) above, the vote of Holders of Preferred Securities representing such specified percentage of the aggregate liquidation amount of the Preferred Securities, or, in the case of clause (2) above, each Holder of Preferred Securities. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Preferred Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Preferred Securities or impair any right consequent thereon. (b) Subject to Section 2.06(c), Holders of Common Securities may by vote of at least a Majority in aggregate liquidation amount of the Common Securities, (i) in accordance with the terms of the Common Securities, direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee or (ii) on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the Event of Default arises out of an Indenture Event of Default: (A) which is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below, the Event of Default under this Declaration shall also not be waivable; or 12 (B) which requires the consent or vote of (1) holders of Subordinated Debentures representing a specified percentage greater than a majority in principal amount of the Subordinated Debentures or (2) each holder of Subordinated Debentures, except where the holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below, the Event of Default under this Declaration may only be waived by, in the case of clause (1) above, the vote of Holders of Common Securities representing such specified percentage of the aggregate liquidation amount of the Common Securities, or, in the case of clause (2) above, each holder of Common Securities; and provided further that, each Holder of Common Securities will be deemed to have - ---------------- waived any Event of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Preferred Securities have been cured, waived by the Holders of Preferred Securities as provided in this Declaration or otherwise eliminated and until all Events of Default with respect to the Preferred Securities have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Preferred Securities and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of this Declaration or the Trust Securities. In the event that any Event of Default with respect to the Preferred Securities is waived by the Holders of Preferred Securities as provided in this Declaration, the Holders of Common Securities agree that such waiver shall also constitute the waiver of such Event of Default with respect to the Common Securities for all purposes under this Declaration without any further act, vote or consent of the Holders of the Common Securities. Subject to the foregoing provisions of this Section 2.06(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) The right of any Holder of Trust Securities to receive payment of Distributions on the Trust Securities in accordance with this Declaration and the terms of the 13 Trust Securities set forth in Exhibits B and C on or after the respective payment dates therefor, or to institute suit for the enforcement of any such payment on or after such payment dates, shall not be impaired without the consent of each such Holder. (d) As provided in the terms of the Trust Securities set forth in Exhibits B and C hereto, a waiver of an Indenture Event of Default by the Property Trustee at the written direction of the Holders of the Preferred Securities constitutes a waiver of the corresponding Event of Default under this Declaration in respect of the Trust Securities. SECTION 2.07. Disclosure of Information. The disclosure of -------------------------- information as to the names and addresses of the Holders of the Trust Securities in accordance with (S) 312 of the Trust Indenture Act, regardless of the source from which such information was derived, shall not be deemed to be a violation of any existing law, or any law hereafter enacted which does not specifically refer to (S) 312 of the Trust Indenture Act, nor shall the Property Trustee be held accountable by reason of mailing any material pursuant to a request made under (S) 312(b) of the Trust Indenture Act. ARTICLE III Organization ------------ SECTION 3.01. Name. The Trust is named "Time Warner Capital I" as ----- such name may be modified from time to time by the Regular Trustees following written notice to the Holders of Trust Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. SECTION 3.02. Office. The address of the principal office of the ------- Trust is c/o Time Warner Inc., 75 Rockefeller Plaza, New York, New York 10019. Upon ten days written notice to the Holders, the Regular Trustees may change the location of the Trust's principal office. SECTION 3.03. Purpose. The exclusive purposes and functions of the -------- Trust are: (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Subordinated Debentures and (b) except as otherwise limited herein, to engage in only those other activities necessary or incidental thereto. The Trust shall not borrow 14 money, issue debt or reinvest proceeds derived from investments, pledge any of its assets or at any time otherwise undertake (or permit to be undertaken) any activity that would result in or cause the Trust to be treated as an association taxable as a corporation or partnership for United States Federal income tax purposes or as anything other than a grantor trust for United States Federal income tax purposes. SECTION 3.04. Authority. Subject to the limitations provided in this ---------- Declaration and to the specific duties of the Property Trustee, the Regular Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. SECTION 3.05. Title to Property of the Trust. Except as provided in ------------------------------- Section 3.08 with respect to the Subordinated Debentures and the Property Account or unless otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders of Trust Securities shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. SECTION 3.06. Powers and Duties of the Regular Trustees. The Regular ------------------------------------------ Trustees shall have the exclusive power, authority and duty to cause the Trust, and shall cause the Trust, to engage in the following activities: (a) to issue and sell the Preferred Securities and the Common Securities, in each case in accordance with this Declaration; provided, -------- however, that the Trust may issue no more than one series of Preferred ------- Securities and no more than one series of Common Securities; and, provided -------- further, there shall be no interests in the Trust other than the Trust ------- Securities and the issuance of Trust Securities shall be limited to a one- time, simultaneous issuance of both Preferred Securities and Common Securities; 15 (b) to acquire the Subordinated Debentures with the proceeds of the sale of the Preferred Securities and the Common Securities; provided, -------- however, the Regular Trustees shall cause legal title to all of the ------- Subordinated Debentures to be vested in, and the Subordinated Debentures to be held of record in the name of, the Property Trustee for the benefit of the Holders of the Preferred Securities and the Common Securities; (c) to give the Sponsor and the Property Trustee prompt written notice of the occurrence of any Special Event and to take any Ministerial Actions in connection therewith; provided, that the Regular Trustees shall consult -------- with the Sponsor and the Property Trustee before taking or refraining to take any Ministerial Action in relation to a Special Event; (d) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including for the purposes of (S) 316(c) of the Trust Indenture Act and with respect to Distributions, voting rights, redemptions, and exchanges, and to issue relevant notices to Holders of the Preferred Securities and Common Securities as to such actions and applicable record dates; (e) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("Legal Action"), unless pursuant to Section 3.08(e), the Property Trustee has the exclusive power to bring such Legal Action; (f) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors, and consultants and pay reasonable compensation for such services; (g) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (h) to give the certificate to the Property Trustee required by (S) 314(a)(4) of the Trust Indenture Act, which certificate may be executed by any Regular Trustee; 16 (i) to incur expenses which are necessary or incidental to carrying out any of the purposes of the Trust; (j) to act as, or appoint another Person to act as, registrar and transfer agent for the Trust Securities, the Regular Trustees hereby initially appointing the Property Trustee for such purposes; (k) to take all actions and perform such duties as may be required of the Regular Trustees pursuant to the terms of the Trust Securities set forth in Exhibits B and C hereto; (l) to execute all documents or instruments, perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing; (m) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Trust Securities or to enable the Trust to effect the purposes for which the Trust has been created; (n) to take any action, not inconsistent with this Declaration or with applicable law, which the Regular Trustees determine in their discretion to be reasonable and necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.06, in order that: (i) the Trust will not be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) the Trust will not be classified for United States Federal income tax purposes as an association taxable as a corporation or a partnership and will be treated as a grantor trust for United States Federal income tax purposes; and (iii) the Trust comply with any requirements imposed by any taxing authority on holders of 17 instruments treated as indebtedness for United States Federal income tax purposes; provided that such action does not adversely affect the interests of -------- Holders; (o) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust; and (p) subject to the requirements of (S)317(b) of the Trust Indenture Act, to appoint one or more Paying Agents in addition to the Property Trustee. The Regular Trustees must exercise the powers set forth in this Section 3.06 in a manner which is consistent with the purposes and functions of the Trust set out in Section 3.03 and the Regular Trustees shall not take any action which is inconsistent with the purposes and functions of the Trust set forth in Section 3.03; and Subject to this Section 3.06, the Regular Trustees shall have none of the powers nor any of the authority of the Property Trustee set forth in Section 3.08. SECTION 3.07. Prohibition of Actions by Trust and Trustees. The --------------------------------------------- Trust shall not, and the Trustees (including the Property Trustee) shall cause the Trust not to, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not and the Trustees (including the Property Trustee) shall cause the Trust not to: (a) invest any proceeds received by the Trust from holding the Subordinated Debentures but shall promptly distribute all such proceeds to Holders of Trust Securities pursuant to the terms of this Declaration and of the Trust Securities; (b) acquire any assets other than as expressly provided herein; (c) possess Trust property for other than a Trust purpose; 18 (d) make any loans, other than loans represented by the Subordinated Debentures; (e) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Trust Securities in any way whatsoever; (f) issue any securities or other evidences of beneficial ownership of, or beneficial interests in, the Trust other than the Trust Securities; (g) incur any indebtedness for borrowed money; (h) except as contemplated by Section 2.06, (i) direct the time, method and place of exercising any trust or power conferred upon the Indenture Trustee with respect to the Subordinated Debentures, (ii) waive any past default that is waivable under Section 5.13 of the Indenture, (iii) exercise any right to rescind or annul any declaration that the Subordinated Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Subordinated Debentures, where such consent shall be required, unless the Property Trustee shall have received an unqualified opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such action will not result in the Trust being treated as an association taxable as a corporation or partnership for United States Federal income tax purposes and that, following such action, each holder of Trust Securities will be treated for United States Federal income tax purposes as owning an undivided beneficial interest in the Subordinated Debentures; or (i) consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets to, any corporation or other body. SECTION 3.08. Powers and Duties of the Property Trustee. (a) The ------------------------------------------ legal title to the Subordinated Debentures shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Trust and the Holders of the Trust Securities. The right, title and interest of the Property Trustee to the Subordinated Debentures shall vest automatically in each Person who may hereafter be appointed as Property Trustee in 19 accordance with Article V. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered. (b) The Property Trustee shall not transfer its right, title and interest in the Subordinated Debentures to the Regular Trustees or, if the Property Trustee does not also act as the Delaware Trustee, the Delaware Trustee. (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing bank account (the "Property Account") in the name of and under the exclusive control of the Property Trustee on behalf of the Trust and the Holders of the Trust Securities and on the receipt of payments of funds made in respect of the Subordinated Debentures held by the Property Trustee, deposit such funds into the Property Account and, without any further acts of the Property Trustee or the Regular Trustees, promptly make payments to the Holders of the Preferred Securities and Common Securities from the Property Account in accordance with Section 6.01. Funds in the Property Account shall be held uninvested, and without liability for interest thereon, until disbursed in accordance with this Declaration. The Property Account shall be an account which is maintained with a banking institution whose long term unsecured indebtedness is rated by a "nationally recognized statistical rating organization", as such term is defined for purposes of Rule 436(g)(2) under the Securities Act, at least equal to (but in no event less than "A" or the equivalent) the rating assigned to the Preferred Securities by a nationally recognized statistical rating organization; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect promptly the redemption of the Preferred Securities and the Common Securities to the extent the Subordinated Debentures are redeemed or mature; (iii) upon notice of distribution issued by the Regular Trustees in accordance with the terms of the Preferred Securities and the Common Securities, engage in such ministerial activities as shall be necessary or appropriate to effect promptly the distribution pursuant to terms of the Trust Securities of 20 Subordinated Debentures to Holders of Trust Securities upon the occurrence of a Special Event; and (iv) have the legal power to exercise all of the rights, powers and privileges of a holder of the Subordinated Debentures under the Indenture and, if an Event of Default occurs and is continuing, the Property Trustee, subject to Section 2.06, shall for the benefit of the Holders of the Trust Securities, enforce its rights as holder of the Subordinated Debentures under the Indenture, subject to the rights of the Holders of the Trust Securities pursuant to the terms of the Trust Securities, this Declaration, the Business Trust Act and the Trust Indenture Act. (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of the Trust Securities set forth in Exhibits B and C hereto. (e) Subject to Section 2.06, the Property Trustee shall take any Legal Action which arises out of or in connection with an Event of Default or the Property Trustee's duties and obligations under this Declaration, the Business Trust Act or the Trust Indenture Act. (f) All moneys deposited in the Property Account, and all Subordinated Debentures held by the Property Trustee for the benefit of the Trust and the Holders of the Trust Securities, will not be subject to any right, charge, security interest, lien or claim of any kind in favor of, or for the benefit of, the Property Trustee or its agents or their creditors. (g) The Property Trustee shall, within 90 days after the occurrence of a default with respect to the Trust Securities, transmit by mail, first class postage prepaid, to the holders of the Trust Securities, as their names and addresses appear upon the register, notice of all defaults with respect to the Trust Securities known to the Property Trustee, unless such defaults shall have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 3.08(g) being hereby defined to be an Indenture Event of Default, not including any periods of grace provided for in the Indenture and irrespective of the giving of any notice provided therein); provided, that, -------- except in the case of default in the payment of the principal amount or any redemption price or interest on any 21 of the Subordinated Debentures, the Property Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers, of the Property Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of the Trust Securities. The Property Trustee shall not be deemed to have knowledge of any default, except (i) a default in the payment of principal or any redemption price or interest on the Subordinated Debentures or (ii) any default as to which the Property Trustee shall have received written notice or a Responsible Officer charged with the administration of this Declaration shall have obtained written notice. (h) The Property Trustee shall continue to serve as Property Trustee unless either: (i) the Trust has been completely liquidated and the proceeds thereof distributed to the Holders of Trust Securities pursuant to the terms of the Trust Securities; or (ii) a Successor Property Trustee has been appointed and accepted that appointment in accordance with Article V. (i) The Property Trustee shall act as paying agent in respect of the Trust Securities and may authorize one or more Persons (each, a "Paying Agent") to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect to the Trust Securities. Any such Paying Agent shall comply with (S) 317(b) of the Trust Indenture Act. Any Paying Agent may be removed by the Property Trustee, after consultation with the Regular Trustees, at any time and a successor Paying Agent or additional Paying Agents may be appointed at any time by the Property Trustee. (j) Subject to this Section 3.08, the Property Trustee shall have none of the powers or the authority of the Regular Trustees set forth in Section 3.06. The Property Trustee shall exercise the powers, duties and rights set forth in this Section 3.08 and Section 3.10 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.03 and the Property Trustee shall not take any action which is inconsistent with the 22 purposes and functions of the Trust set forth in Section 3.03. SECTION 3.09. Delaware Trustee. Notwithstanding any other provision ----------------- of this Declaration other than Section 5.01(a)(C), the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Regular Trustees and the Property Trustee described in this Declaration. Except as set forth in Section 5.01(a)(C), the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of (S) 3807 of the Business Trust Act. SECTION 3.10. Certain Rights and Duties of the Property Trustee. (a) -------------------------------------------------- The Property Trustee, before the occurrence of an Event of Default and after the curing or waiver of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration, and no implied covenants shall be read into this Declaration against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06), the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration, and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Property Trustee; and 23 (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Declaration; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders as provided herein relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee hereunder or under the Indenture, or exercising any trust or power conferred upon the Property Trustee under this Declaration; and (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or adequate indemnity against such risk or liability is not reasonably assured to it. (c) Subject to the provisions of Section 3.10(a) and (b): (i) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established prior 24 to taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part request and rely upon a certificate, which shall comply with the provisions of (S) 314(e) of the Trust Indenture Act, signed by any two of the Regular Trustees or by an authorized officer of the Sponsor, as the case may be; (ii) the Property Trustee (A) may consult with counsel (which may be counsel to the Sponsor or any of its Affiliates and may include any of its employees) selected by it in good faith and with due care and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice and opinion and (B) shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (iii) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Property Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it in good faith and with due care; (iv) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holders, unless such Holders shall have offered to the Property Trustee reasonable security and indemnity against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction; provided that nothing contained in this clause (iv) shall relieve the -------- Property Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived) to exercise such of the rights and powers vested in it by this Declaration, and to use the same degree of care and skill in this exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; and 25 (v) any action taken by the Property Trustee or its agents hereunder shall bind the Trust and the Holders of the Trust Securities and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Property Trustee to so act, or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action. SECTION 3.11. Registration Statement and Related Matters. In ------------------------------------------- accordance with the Original Declaration, Time Warner and the Trustees have authorized and directed, and hereby confirm the authorization of, Time Warner, as the sponsor of the Trust, (a) to file with the Commission and execute, in each case on behalf of the Trust, (i) the Registration Statement on Form S-3 (File Nos. 33-[ ] and 33-[ ] )(the "1933 Act Registration Statement") including any pre-effective or post-effective amendments to such Registration Statement, relating to the registration under the Securities Act of the Preferred Securities of the Trust and (ii) a Registration Statement on Form 8-A or other appropriate form (the "1934 Act Registration Statement") (including all pre-effective and post-effective amendments thereto) relating to the registration of the Preferred Securities of the Trust under Section 12(b) of the Exchange Act; (b) to file with the New York Stock Exchange or any other national securities exchange and execute on behalf of the Trust a listing application and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Preferred Securities to be listed on the New York Stock Exchange or such other national securities exchange; (c) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents as shall be necessary or desirable to register the Preferred Securities under the securities or "Blue Sky" laws of such jurisdictions as Time Warner on behalf of the Trust may deem necessary or desirable and (d) to execute on behalf of the Trust the Underwriting Agreement relating to the issuance and sale of the Preferred Securities, substantially in the form included as Exhibit 1 to the 1933 Act Registration Statement with such changes thereto as may be approved by the authorized officer of the Sponsor executing the same, such approval to be evidenced by such officer's execution 26 thereof. In the event that any filing referred to in clauses (a)-(c) above is required by the rules and regulations of the Commission, the New York Stock Exchange or state securities or blue sky laws, to be executed on behalf of the Trust by the Trustees, the Regular Trustees, in their capacities as Trustees of the Trust, are hereby authorized and directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing, it being understood that the Property Trustee and the Delaware Trustee, in their capacities as Trustees of the Trust, shall not be required to join in any such filing or execute on behalf of the Trust any such document unless required by the rules and regulations of the Commission, the New York Stock Exchange or state securities or blue sky laws. In connection with all of the foregoing, Time Warner and each Trustee, solely in its capacity as Trustee of the Trust, have constituted and appointed, and hereby confirm the appointment of, Gerald M. Levin, Richard D. Parsons, Richard J. Bressler, Peter R. Haje and Philip R. Lochner, and each of them, as his, her or its, as the case may be, true and lawful attorneys-in-fact, and agents, with full power of substitution and resubstitution, for Time Warner or such Trustee or in Time Warner's or such Trustee's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, and to execute and file with the New York Stock Exchange or any other national securities exchange a listing application and all other applications and documents as shall be necessary or desirable in connection therewith, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as Time Warner or such Trustee might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, shall do or cause to be done by virtue hereof. SECTION 3.12. Filing of Amendments to Certificate of Trust. The --------------------------------------------- Certificate of Trust as filed with the Secretary of State of the State of Delaware on August 2, 1995 is attached hereto as Exhibit A. On or after the date of execution of this Declaration, the Trustees shall cause the filing with the Secretary of State of the State of Delaware 27 of such amendments to the Certificate of Trust as the Trustees shall deem necessary or desirable. SECTION 3.13. Execution of Documents by Regular Trustees. Unless ------------------------------------------- otherwise determined by the Regular Trustees and except as otherwise required by the Business Trust Act with respect to the Certificate of Trust or otherwise, a majority of, or if there are only two, both of, the Regular Trustees are authorized to execute and deliver on behalf of the Trust any documents which the Regular Trustees have the power and authority to execute or deliver pursuant to this Declaration; provided that any listing application prepared by the Sponsor -------- referred to in Section 3.11(b) may be executed by any Regular Trustee. SECTION 3.14. Trustees Not Responsible for Recitals or Issuance of ---------------------------------------------------- Trust Securities. The recitals contained in this Declaration and the Trust - ----------------- Securities shall be taken as the statements of the Sponsor and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Trust Securities. SECTION 3.15. Duration of Trust. The Trust, absent termination ------------------ pursuant to the provisions of Article VIII hereof, shall have existence for 55 years from the Closing Date. ARTICLE IV Sponsor ------- SECTION 4.01. Purchase of Common Securities by Sponsor. The Sponsor ----------------------------------------- will purchase all the Common Securities issued by the Trust at the same time as the Preferred Securities are sold, in an amount equal to 3% of the capital of the Trust after giving effect to such purchase. SECTION 4.02. Expenses. (a) The Sponsor, in its capacity as Sponsor --------- and not as a Holder, shall be responsible for and shall pay for all debts and obligations (other than with respect to the Trust Securities) and all costs and expenses of the Trust (including costs and expenses relating to the organization of the Trust, the 28 issuance of the Preferred Securities, the fees and expenses (including reasonable counsel fees and expenses) of the Trustees (including any amounts payable under Article X) and the costs and expenses relating to the operation of the Trust, including costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the disposition of Trust assets). (b) The Sponsor, in its capacity as Sponsor and not as a Holder, will pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. (c) The Sponsor's obligations under this Section 4.02 shall be for the benefit of, and shall be enforceable by, any Person to whom any such debts, obligations, costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor has received notice hereof. Any such Creditor may enforce the Sponsor's obligations under this Section 4.02 directly against the Sponsor and the Sponsor irrevocably waives any right or remedy to require that any such Creditor take any action against the Trust or any other Person before proceeding against the Sponsor. The Sponsor agrees to execute such additional agreements as may be necessary or desirable in order to give full effect to the provisions of this Section 4.02. ARTICLE V Trustees -------- SECTION 5.01. Number of Trustees; Qualifications. (a) The number of ----------------------------------- Trustees initially shall be [five]. At any time (i) before the issuance of the Trust Securities, the Sponsor may, by written instrument, increase or decrease the number of, and appoint, remove and replace the, Trustees, and (ii) after the issuance of the Trust Securities and except as provided in subsection (E) below and Section 5.02(a)(ii)(B) with respect to the Special Regular Trustee, the number of Trustees may be increased or decreased solely by, and Trustees may be appointed, removed 29 or replaced solely by, vote of Holders of Common Securities representing a Majority in aggregate liquidation amount of the Common Securities voting as a class; provided that in any case: -------- (A) the number of Trustees shall be at least [five] unless the Trustee that acts as the Property Trustee also acts as the Delaware Trustee, in which case the number of Trustees shall be at least [four]; (B) unless a Special Regular Trustee has been appointed (which appointment shall not impair the right of the Holders of Common Securities to increase or decrease the number of, or to appoint, remove or replace, Trustees (other than the Special Regular Trustee) as provided above), at least a majority of the Trustees shall at all times be officers, directors or employees of Time Warner; (C) if required by the Business Trust Act, one Trustee (the "Delaware Trustee") shall be either a natural person who is a resident of the State of Delaware or, if not a natural person, an entity that has its principal place of business in the State of Delaware and otherwise is permitted to act as a Delaware Trustee hereunder under the laws of the State of Delaware, except that if the Property Trustee has its principal place of business in the State of Delaware and otherwise is permitted to act as a Trustee hereunder under the laws of the State of Delaware, then the Property Trustee shall also be the Delaware Trustee and Section 3.09 shall have no application; (D) there shall at all times be a Property Trustee hereunder that shall satisfy the requirements of Section 5.01(c); and (E) the number of Trustees shall be increased automatically by one if an Appointment Event has occurred and is continuing and the Holders of a Majority in aggregate liquidation amount of the Preferred Securities appoint a Special Regular Trustee in accordance with Section 5.02(a)(ii)(B) and the terms of the Preferred Securities. Each Trustee shall be either a natural person at least 21 years of age or a legal entity which shall act through one or more duly appointed representatives. 30 (b) The initial Regular Trustees shall be: John A. LaBarca Philip R. Lochner, Jr. Thomas W. McEnerney c/o Time Warner Inc. 75 Rockefeller Plaza New York, NY 10019 (c) There shall at all times be one Trustee that shall act as Property Trustee. In order to act as Property Trustee hereunder, such Trustee shall: (i) not be an Affiliate of the Sponsor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.01(c)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee shall cease to satisfy any of the requirements of clauses (i) and (ii) above, the Property Trustee shall immediately resign in the manner and with the effect set out in Section 5.02(d). If the Property Trustee has or shall acquire any "conflicting interest" within the meaning of (S) 310(b) of the Trust Indenture Act, the Property Trustee and the Holders of the Common Securities (as if such Holders were the obligor referred to in (S) 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of (S) 310(b) of the Trust Indenture Act. The Guarantee shall be deemed to be specifically described in this Declaration for the purposes of clause (i) of the first proviso contained in (S) 310(b) of the Trust Indenture Act. 31 The initial Trustee that shall serve as the Property Trustee is The First National Bank of Chicago whose address is as set forth in Section 14.01(b). (d) The initial Trustee that shall serve as the Delaware Trustee is First Chicago Delaware Inc., whose address is as set forth in Section 14.01(c). (e) Any action taken by (i) Holders of Common Securities pursuant to this Article V or (ii) Holders of Preferred Securities pursuant to this Article V to appoint or remove a Special Regular Trustee upon the occurrence of an Appointment Event, shall be taken at a meeting of Holders of Common Securities or Preferred Securities, as the case may be, convened for such purpose or by written consent as provided in Section 12.02. (f) No amendment may be made to this Section 5.01 which would change any rights with respect to the number, existence or appointment and removal of Trustees (other than any Special Regular Trustee), except with the consent of each Holder of Common Securities. (g) No amendment may be made to this Section 5.01 or Section 5.02(a)(ii)(B), which would change the rights of Holders of Preferred Securities to appoint, remove or replace a Special Regular Trustee except with the consent of each Holder of Preferred Securities. SECTION 5.02. Appointment, Removal and Resignation of Trustees. (a) ------------------------------------------------- Subject to Section 5.02(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of the Trust Securities, by written instrument executed by the Sponsor; and (ii) after the issuance of the Trust Securities, (A) other than with respect to the Special Regular Trustee, by vote of the Holders of a Majority in aggregate liquidation amount of the Common Securities voting as a class; and (B) if an Appointment Event has occurred and is continuing, one additional Regular Trustee (the "Special Regular Trustee") may be appointed, who shall not be an Affiliate of the Sponsor, by vote 32 of the Holders of a Majority in aggregate liquidation amount of the Preferred Securities, voting as a class and such Special Regular Trustee may only be removed (otherwise than by the operation of Section 5.02(c)), by vote of the Holders of a Majority in aggregate liquidation amount of the Preferred Securities voting as a class. (b) (i) The Trustee that acts as Property Trustee shall not be removed in accordance with Section 5.02(a) until a Successor Property Trustee possessing the qualifications to act as Property Trustee under Section 5.01(c) has been appointed and has accepted such appointment by written instrument executed by such Successor Property Trustee and delivered to the Regular Trustees, the Sponsor and the Property Trustee being removed; and (ii) the Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 5.02(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Section 5.01(a)(C) (a "Successor Delaware Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Regular Trustees, the Sponsor and the Delaware Trustee being removed. (c) A Trustee appointed to office shall hold office until such Trustee's successor shall have been appointed or until such Trustee's death, removal or resignation, provided that a Special Regular Trustee shall only hold -------- office while an Appointment Event is continuing and shall cease to hold office immediately after the Appointment Event pursuant to which the Special Regular Trustee was appointed and all other Appointment Events cease to be continuing. (d) Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument (a "Resignation Request") in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation 33 shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: -------- ------- (i) no such resignation of the Trustee that acts as the Property Trustee shall be effective until a Successor Property Trustee possessing the qualifications to act as Property Trustee under Section 5.01(c) has been appointed and has accepted such appointment by instrument executed by such Successor Property Trustee and delivered to the Trust, the Sponsor and the resigning Property Trustee; (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee; and (iii) no such resignation of a Special Regular Trustee shall be effective until the 60th day following delivery of the Resignation Request to the Sponsor and the Trust or such later date specified in the Resignation Request during which period the Holders of the Preferred Securities shall have the right to appoint a successor Special Regular Trustee as provided in this Article V. (e) If no Successor Property Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.02 within 60 days after delivery to the Sponsor and the Trust of a Resignation Request, the resigning Property Trustee or Delaware Trustee may petition any court of competent jurisdiction for appointment of a Successor Property Trustee or Successor Delaware Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee, as the case may be. SECTION 5.03. Vacancies Among Trustees. If a Trustee ceases to hold ------------------------- office for any reason and the number of Trustees is not reduced pursuant to Section 5.01 or if the number of Trustees is increased pursuant to Section 5.01, a vacancy shall occur. A resolution certifying the existence of such vacancy by a majority of the Regular Trustees shall be conclusive evidence of the existence of 34 such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with the requirements of this Article V. SECTION 5.04. Effect of Vacancies. The death, resignation, -------------------- retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee, or any one of them, shall not operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur until such vacancy is filled as provided in this Article V, the Regular Trustees in office, regardless of their number, shall have all the powers granted to the Regular Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. SECTION 5.05. Meetings. Meetings of the Regular Trustees shall be --------- held from time to time upon the call of any Trustee. Regular meetings of the Regular Trustees may be held at a time and place fixed by resolution of the Regular Trustees. Notice of any in-person meeting of the Regular Trustees shall be hand-delivered or otherwise delivered in writing (including by facsimile) not less than 24 hours before such meeting. Notice of any telephonic meeting of the Regular Trustees or any committee thereof shall be hand-delivered or otherwise delivered in writing (including by facsimile) not less than 24 hours before such meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Regular Trustees. SECTION 5.06. Delegation of Power. (a) Any Regular Trustee may, by -------------------- power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 3.11, including any registration statement or amendment thereto or other 35 document or schedule filed with the Commission, or making any other governmental filing. (b) The Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. ARTICLE VI Distributions ------------- SECTION 6.01. Distributions. Holders shall receive periodic -------------- distributions, redemption payments and liquidation distributions in accordance with the applicable terms of the relevant Holder's Trust Securities ("Distributions"). Distributions shall be made to the Holders of Preferred Securities and Common Securities in accordance with the terms of the Trust Securities as set forth in Exhibits B and C hereto. If and to the extent that Time Warner makes a payment of interest or principal on the Subordinated Debentures held by the Property Trustee (the amount of any such payment being a "Payment Amount"), the Property Trustee shall and is directed to promptly make a Distribution of the Payment Amount to Holders in accordance with the terms of the Trust Securities as set forth in Exhibits B and C hereto. ARTICLE VII Issuance of Trust Securities ---------------------------- SECTION 7.01. General Provisions Regarding Trust Securities. (a) ---------------------------------------------- The Regular Trustees shall issue on behalf of the Trust securities in fully registered form representing undivided beneficial interests in the assets of the Trust in accordance with Section 7.01(b). (b) The Regular Trustees shall issue on behalf of the Trust one class of preferred securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit B (the 36 "Preferred Securities"), which terms are incorporated by reference in, and made a part of, this Declaration as if specifically set forth herein, and one class of common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit C (the "Common Securities"), which terms are incorporated by reference in, and made a part of, this Declaration as if specifically set forth herein. The Trust shall have no securities or other interests in the assets of the Trust other than the Preferred Securities and the Common Securities. (c) The Certificates shall be signed on behalf of the Trust by the Regular Trustees (or, if there are more than two Regular Trustees, by any two of the Regular Trustees). Such signatures may be the manual or facsimile signatures of the present or any future Regular Trustee. Typographical and other minor errors or defects in any such reproduction of any such signature shall not affect the validity of any Certificate. In case any Regular Trustee of the Trust who shall have signed any of the Certificates shall cease to be such Regular Trustee before the Certificate so signed shall be delivered by the Trust, such Certificate nevertheless may be delivered as though the person who signed such Certificate had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons as, at the actual date of the execution of such Certificate, shall be the Regular Trustees of the Trust, although at the date of the execution and delivery of the Declaration any such person was not such a Regular Trustee. Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Trust Securities may be listed or of any Clearing Agency in which the Trust Securities have been accepted for trading, or to conform to usage. (d) The consideration received by the Trust for the issuance of the Trust Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. 37 (e) Upon issuance of the Trust Securities as provided in this Declaration, the Trust Securities so issued shall be deemed to be validly issued, fully paid and nonassessable. (f) Every Person, by virtue of having become a Holder or a Preferred Security Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of and shall be bound by this Declaration. (g) Upon issuance of the Trust Securities as provided in this Declaration, the Regular Trustees on behalf of the Trust shall return to Time Warner the $10 constituting initial trust assets as set forth in the Original Declaration. ARTICLE VIII Termination of Trust -------------------- SECTION 8.01. Termination of Trust. This Declaration and the Trust --------------------- shall terminate and be of no further force or effect upon the earliest of: (a) when all the Trust Securities shall have been called for redemption and the amounts necessary for redemption thereof, including any accrued and unpaid Distributions thereon to the applicable date of redemption, shall have been paid to the Holders of the Trust Securities in accordance with the terms of the Trust Securities; (b) when all the Subordinated Debentures shall have been distributed to the Holders of Trust Securities in exchange for all the Trust Securities in accordance with the terms of the Trust Securities; (c) upon the expiration of the term of the Trust as set forth in Section 3.15; or (d) if Time Warner shall direct the Trustees to terminate the Trust, provided that Time Warner shall be the holder at such time of all the -------- outstanding Preferred Securities; 38 and a certificate of cancellation is filed by the Trustees with the Secretary of State of the State of Delaware. The Trustees shall so file such a certificate as soon as practicable after the occurrence of an event referred to in this Article VIII. The provisions of Sections 3.10 and Article X shall survive the termination of the Trust. ARTICLE IX Transfer of Interests --------------------- SECTION 9.01. Transfer of Trust Securities. (a) Trust Securities ---------------------------- may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration. Any transfer or purported transfer of any Trust Security not made in accordance with this Declaration shall be null and void. (b) Subject to this Article IX, Preferred Securities shall be freely transferable. (c) Subject to this Article IX, Time Warner and any Related Party may only transfer Common Securities to Time Warner or a Related Party; provided that -------- any such transfer shall be subject to the condition that the transferor shall have obtained (i) either a ruling from the Internal Revenue Service or an unqualified written opinion addressed to the Trust and delivered to the Trustees of nationally recognized independent tax counsel experienced in such matters to the effect that such transfer will not (A) cause the Trust to be treated as issuing a class of interests in the Trust differing from the class of interests represented by the Common Securities originally issued to Time Warner, (B) result in the Trust acquiring or disposing of, or being deemed to have acquired or disposed of, an asset or (C) result in or cause the Trust to be treated as an association taxable as a corporation or partnership for United States Federal income tax purposes or as anything other than a grantor trust for United States Federal income tax purposes and (ii) an unqualified written opinion addressed to the Trust and delivered to the Trustees of a nationally recognized independent counsel experienced in such matters that such transfer will not cause the Trust to be an Investment Company or controlled by an Investment Company. 39 SECTION 9.02. Transfer of Certificates. The Regular Trustees shall ------------------------- provide for the registration of Certificates and of transfers of Certificates, which will be effected without charge but only upon payment (with such indemnity as the Regular Trustees may require) in respect of any tax or other government charges which may be imposed in relation to such transfers. Upon surrender for registration of transfer of any Certificate, the Regular Trustees shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Regular Trustees duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Certificate surrendered for registration of transfer shall be canceled by the Regular Trustees. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration. SECTION 9.03. Deemed Security Holders. The Trustees may treat the ------------------------ Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Trust Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Trust Securities represented by such Certificate on the part of any Person, whether or not the Trustees shall have actual or other notice thereof. SECTION 9.04. Book-Entry Interests. The Preferred Securities --------------------- Certificates, on original issuance, will be issued in fully registered form. With respect to any Certificates registered on the books and records of the Trust in the name of a Clearing Agency or the nominee of a Clearing Agency: (a) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on such Certificates and receiving approvals, votes or consents hereunder) as the Preferred Security Holder and the sole holder of such Certificates and, except as set forth herein, shall 40 have no obligation to the Preferred Security Beneficial Owners; (b) to the extent that the provisions of this Section 9.04 conflict with any other provisions of this Declaration, the provisions of this Section 9.04 shall control; and (c) the rights of the Preferred Security Beneficial Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Preferred Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants. The Clearing Agency will make book-entry transfers among Clearing Agency Participants and receive and transmit payments of Distributions on such Certificates to such Clearing Agency Participants. SECTION 9.05. Notices to Holders of Certificates. Whenever a notice ----------------------------------- or other communication to the Holders is required to be given under this Declaration, the relevant Trustees shall give such notices and communications to the Holders and, with respect to any Preferred Security Certificate registered in the name of a Clearing Agency or the nominee of a Clearing Agency, the Trustees shall, except as set forth herein with respect to the Property Trustee, have no obligations to the Preferred Security Beneficial Owners. SECTION 9.06. Appointment of Successor Clearing Agency. If any ----------------------------------------- Clearing Agency elects to discontinue its services as securities depositary with respect to the Preferred Securities, the Regular Trustees may, in their sole discretion, appoint a successor Clearing Agency with respect to the Preferred Securities. SECTION 9.07. Definitive Preferred Securities Certificates. If (a) a --------------------------------------------- Clearing Agency elects to discontinue its services as securities depositary with respect to the Preferred Securities and a successor Clearing Agency is not appointed within 90 days after such discontinuance pursuant to Section 9.06 or (b) the Regular Trustees elect after consultation with the Sponsor to terminate the book-entry system through the Clearing Agency with respect to the Preferred Securities, then upon surrender of the Certificates representing the Book Entry Interests with respect to the Preferred Securities by the 41 Clearing Agency, accompanied by registration instructions, the Regular Trustees shall cause definitive Preferred Security Certificates to be delivered to Preferred Security Beneficial Owners in accordance with the instructions of the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any delay in delivery of such instructions and each of them may conclusively rely on, and shall be protected in relying on, such instructions. SECTION 9.08. Mutilated, Destroyed, Lost or Stolen Certificates. If -------------------------------------------------- (a) any mutilated Certificates should be surrendered to the Regular Trustees or if the Regular Trustees shall receive evidence to their satisfaction of the destruction, loss or theft of any Certificate and (b) there shall be delivered to the Regular Trustees such security or indemnity as may be required by them to keep each of them harmless, then in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, any two Regular Trustees on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.08, the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. ARTICLE X Limitation of Liability; Indemnification ---------------------------------------- SECTION 10.01. Liability. (a) Except as expressly set forth in this ---------- Declaration, the Guarantee and the terms of the Trust Securities the Sponsor: (i) shall not be personally liable for the return of any portion of the capital contributions of the Holders of the Trust Securities, which shall be made solely from assets of the Trust; and 42 (ii) shall not be required to pay to the Trust or to any Holder of Trust Securities any deficit upon dissolution of the Trust or otherwise. (b) Pursuant to Section 3803(a) of the Business Trust Act, the Holders of the Trust Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 10.02. Exculpation. (a) No Indemnified Person shall be ------------ liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence (or, in the case of the Property Trustee, except as otherwise set forth in Section 3.10 hereof) or wilful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Trust Securities might properly be paid. SECTION 10.03. Indemnification. (a) To the fullest extent permitted ---------------- by applicable law, the Sponsor shall indemnify and hold harmless each Indemnified Person from and against any loss, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the 43 scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence (or, in the case of the Property Trustee, except as otherwise set forth in Section 3.10 hereof) or wilful misconduct with respect to such acts or omissions. (b) To the fullest extent permitted by applicable law, expenses (including reasonable legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Sponsor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Sponsor of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 10.03(a). SECTION 10.04. Outside Businesses. Any Covered Person, the Sponsor, ------------------- the Delaware Trustee and the Property Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Trust Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee or the Property Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of securities or other obligations of the Sponsor or its Affiliates. 44 ARTICLE XI Accounting ---------- SECTION 11.01. Fiscal Year. The fiscal year ("Fiscal Year") of the ----------- Trust shall be the calendar year or such other year as is required by the Code. SECTION 11.02. Certain Accounting Matters. (a) At all times during -------------------------- the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States Federal income tax purposes. The books and records of the Trust, together with a copy of this Declaration and a certified copy of the Certificate of Trust, or any amendment thereto, shall at all times be maintained at the principal office of the Trust and shall be open for inspection for any examination by any Holder or its duly authorized representative for any purpose reasonably related to its interest in the Trust during normal business hours. (b) The Regular Trustees shall, as soon as available after the end of each Fiscal Year of the Trust, cause to be prepared and mailed to each Holder of Trust Securities unaudited financial statements of the Trust for such Fiscal Year, prepared in accordance with generally accepted accounting principles; provided that, if the Trust is required to comply with the periodic reporting - -------- requirements of Section 13(a) or 15(d) of the Exchange Act, such financial statements for such Fiscal Year shall be examined and reported on by a firm of independent certified public accountants selected by the Regular Trustees (which firm may be the firm used by the Sponsor). (c) The Regular Trustees shall cause to be prepared and mailed to each Holder of Trust Securities an annual United States federal income tax information statement, on such form as is required by the Code, containing such information with regard to the Trust Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Regular Trustees shall endeavor to deliver all 45 such statements within 30 days after the end of each Fiscal Year of the Trust. (d) The Regular Trustees shall cause to be prepared and filed with the appropriate taxing authority an annual United States federal income tax return, on such form as is required by the Code, and any other annual income tax returns required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority, such returns to be filed as soon as practicable after the end of each Fiscal Year of the Trust. SECTION 11.03. Banking. The Trust may maintain one or more bank -------- accounts in the name and for the sole benefit of the Trust; provided, however, -------- ------- that all payments of funds in respect of the Subordinated Debentures held by the Property Trustee shall be made directly to the Property Account and no other funds from the Trust shall be deposited in the Property Account. The sole signatories for such accounts shall be designated by the Regular Trustees; provided, however, that the Property Trustee shall designate the sole - -------- ------- signatories for the Property Account. SECTION 11.04. Withholding. The Trust and the Trustees shall comply ------------ with all withholding requirements under United States Federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Trust shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to the applicable jurisdiction. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Holder. In the event of any claimed overwithholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount to be withheld was not withheld from a Distribution, the Trust may reduce subsequent Distributions by the amount of such withholding. 46 ARTICLE XII Amendments and Meetings ----------------------- SECTION 12.01. Amendments. (a) Except as otherwise provided in this ----------- Declaration or by any applicable terms of the Trust Securities, this Declaration may be amended by, and only by, a written instrument executed by a majority of the Regular Trustees; provided, however, that (i) no amendment to this -------- ------- Declaration shall be made unless the Regular Trustees shall have obtained (A) either a ruling from the Internal Revenue Service or a written unqualified opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such amendment will not result in the Trust being treated as an association taxable as a corporation or a partnership for United States Federal income tax purposes and that, following such action, each holder of Trust Securities will be treated as owning an undivided beneficial interest in the Subordinated Debentures and (B) a written unqualified opinion of nationally recognized independent counsel experienced in such matters to the effect that such amendment will not cause the Trust to be an Investment Company that is required to be registered under the Investment Company Act, (ii) at such time after the Trust has issued any Trust Securities which remain outstanding, any amendment which would adversely affect the rights, privileges or preferences of any Holder of Trust Securities may be effected only with such additional requirements as may be set forth in the terms of such Trust Securities, (iii) Section 4.02, Section 9.01(c) and this Section 12.01 shall not be amended without the consent of all the Holders of the Trust Securities, (iv) no amendment which adversely affects the rights, powers and privileges of the Property Trustee shall be made without the consent of the Property Trustee, (v) Article IV shall not be amended without the consent of the Sponsor, (vi) the rights of Holders of Common Securities under Article V to increase or decrease the number of, and to appoint, replace or remove, Trustees (other than a Special Regular Trustee) shall not be amended without the consent of each Holder of Common Securities and (vii) the rights of Holders of Preferred Securities to appoint or remove a Special Regular Trustee shall not be amended without the consent of each Holder of Preferred Securities. 47 (b) Subject to Section 12.01(a)(i) and notwithstanding Section 12.01(a)(ii), this Declaration may be amended without the consent of the Holders of the Trust Securities to (i) cure any ambiguity, (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration, (iii) add to the covenants, restrictions or obligations of the Sponsor and (iv) conform to any changes in Rule 3a-5 or any change in interpretation or application of Rule 3a-5 by the Commission, which amendment does not adversely affect the rights, preferences or privileges of the Holders. SECTION 12.02. Meetings of the Holders of Trust Securities; Action by ------------------------------------------------------ Written Consent. (a) Meetings of the Holders of Preferred Securities and/or - ---------------- Common Securities may be called at any time by the Regular Trustees (or as provided in the terms of the Trust Securities) to consider and act on any matter on which Holders of such class of Trust Securities are entitled to act under the terms of this Declaration, the terms of the Trust Securities or the rules of any stock exchange or other self-regulatory organization (including the NASDAQ National Market System) on which the Preferred Securities are listed or admitted for trading. The Regular Trustees shall call a meeting of Holders of Preferred Securities or Common Securities, if directed to do so by Holders of at least 10% in aggregate liquidation amount of such class of Trust Securities. Such direction shall be given by delivering to the Regular Trustees one or more written notifications stating that the signing Holders of Trust Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Trust Securities calling a meeting shall specify in writing the Certificates held by the Holders of Trust Securities exercising the right to call a meeting and only those specified Certificates shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Trust Securities, the following provision shall apply to meetings of Holders of Trust Securities: (i) notice of any such meeting shall be given by mail to all the Holders of Trust Securities having a right to vote thereat not less than seven days nor more than 60 days prior to the date of such meeting. 48 Whenever a vote, consent or approval of the Holders of securities is permitted or required under this Declaration or the rules of any stock exchange or other self-regulatory organization (including the NASDAQ National Market System) on which the Preferred Securities are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders of Trust Securities. Any action that may be taken at a meeting of the Holders of Trust Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by Holders of Trust Securities owning not less than the minimum aggregeate liquidation amount of Trust Securities that would be necessary to authorize or take such action at a meeting at which all Holders of Trust Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Trust Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to the Holders of Trust Securities for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees; (ii) each Holder of a Trust Security may authorize any Person to act for it by proxy on all matters in which a Holder of a Trust Security is entitled to participate, including waiving notice of any meeting or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of the Trust Security executing it. Except as otherwise provided herein or in the terms of the Trust Securities, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Trust Securities were stockholders of a Delaware corporation; (iii) each meeting of the Holders of the Trust Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate; and 49 (iv) unless otherwise provided in the Business Trust Act, this Declaration or the rules of any stock exchange or other self-regulatory organization (including the NASDAQ National Market System) on which the Preferred Securities are then listed or admitted for trading, the Regular Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Trust Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Trust Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XIII Representations and Warranties of Property Trustee -------------------------------------------------- and Delaware Trustee -------------------- SECTION 13.01. Representations and Warranties of Property Trustee and ------------------------------------------------------ Delaware Trustee. (a) The Trustee that acts as initial Property Trustee - ----------------- represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Property Trustee's acceptance of its appointment as Property Trustee that: (i) The Property Trustee is a banking association with trust powers, duly organized, validly existing and in good standing under the laws of the United States, or any State therein, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration. (ii) The execution, delivery and performance by the Property Trustee of this Declaration has been duly authorized by all necessary corporate action on the part of the Property Trustee. The Declaration has been duly executed and delivered by the Property Trustee and constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors' rights 50 generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law). (iii) The execution, delivery and performance of this Declaration by the Property Trustee does not conflict with or constitute a breach of any of the terms or provisions of or constitute a default under (i) the Articles of Association or By-laws of the Property Trustee or any other agreement or instrument to which the Property Trustee is a party or by which it may be bound, (ii) any existing applicable law, rule or regulation or (iii) any judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over the Property Trustee. (iv) No consent, approval or authorization of, or registration with or notice to, any banking authority which supervises or regulates the Property Trustee is required for the execution, delivery or performance by the Property Trustee of this Declaration. (v) The Property Trustee satisfies the qualifications set forth in Section 5.01(c). (b) The Trustee which acts as initial Delaware Trustee represents and warrants to the Trust and the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee, that: (i) it satisfies the qualifications set forth in Section 5.01(a)(C); (ii) it has been authorized to perform its obligations under the Certificate of Trust and the Declaration; and (iii) the Declaration under Delaware law constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the 51 enforcement of such remedies is considered in a proceeding in equity or at law). ARTICLE XIV Miscellaneous ------------- SECTION 14.01. Notices. All notices provided for in this Declaration -------- shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Regular Trustees on behalf of the Trust may give notice of to the Holders of the Trust Securities): Time Warner Capital [I] In care of Time Warner Inc. 75 Rockefeller Plaza New York, NY 10019 Attention of John A. LaBarca Philip R. Lochner, Jr. and Thomas W. McEnerney, Trustees Facsimile No.: (212) 333-3987 (b) if given to the Property Trustee, at the mailing address of the Property Trustee set forth below (or such other address as the Property Trustee may give notice of to the Holders of the Trust Securities): The First National Bank of Chicago Corporate Trust Services Division One First National Plaza, Suite 0126 Chicago, Illinois 60670-0126 Attention of: Melissa G. Weisman Facsimile No.: [(212) 373-1383] (c) if given to the Delaware Trustee, at the mailing address of the Delaware Trustee set forth below 52 (or such other address as the Delaware Trustee may give notice of to the Holders of the Trust Securities): [First Chicago Delaware Inc., 1201 Market Street Wilmington, Delaware 19801] Facsimile No.: [(302) 594-8622] (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice of to the Trust): Time Warner Inc. 75 Rockefeller Center New York, NY 10019 Attention of General Counsel Facsimile No.: (212) 956-7281 (e) if given to any other Holder, at the address set forth on the books and records of the Trust. A copy of any notice to the Property Trustee or the Delaware Trustee shall also be sent to the Trust. Except as otherwise provided in the terms of the Trust Securities, all notices shall be deemed to have been given when received in person, telecopied with receipt confirmed or three Business Days after mailed by first class mail, postage prepaid, except that, if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 14.02. Undertaking for Costs. All parties to this ---------------------- Declaration agree, and each Holder of any Trust Securities by his or her acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Declaration or in any suit against the Property Trustee for any action taken or omitted by it as Property Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any 53 party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 14.02 shall not apply to any suit instituted by the Property Trustee, to any suit instituted by any Holder or group of Holders of Preferred Securities holding more than 10% in aggregate liquidation amount of the outstanding Preferred Securities, or to any suit instituted by any Holder of Preferred Securities for the enforcement of the payment of principal or any redemption price or interest on the Subordinated Debentures, on or after the respective due dates expressed in such Subordinated Debentures. SECTION 14.03. Governing Law. This Declaration and the rights of the -------------- parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. SECTION 14.04. Headings. Headings contained in this Declaration are --------- inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 14.05. Partial Enforceability. If any provision of this ----------------------- Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 14.06. Counterparts. This Declaration may contain more than ------------- one counterpart of the signature pages and this Declaration may be executed by the affixing of the signature of the Sponsor and each of the Trustees to one of such counterpart signature pages. All such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all the signers had signed a single signature page. SECTION 14.07. Intention of the Parties. (a) It is the intention of ------------------------ the parties hereto that the Trust not be classified for United States Federal income tax purposes as an association taxable as a corporation or partnership but that the Trust be treated as a grantor trust for United States Federal income tax purposes. The provisions of this 54 Declaration shall be interpreted to further this intention of the parties. (b) The Trust, the Trustees, Time Warner and each Holder of a Trust Security, by his or her acceptance thereof, agree to treat the Subordinated Debentures as debt instruments for United States Federal, state and local income and franchise tax purposes and shall not take any contrary position before any taxing authority or on any tax return. SECTION 14.08. Successors and Assigns. Whenever in this Declaration ----------------------- any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements 55 in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written. TIME WARNER INC., as Sponsor, by __________________________ Name: Title: by __________________________ John A. LaBarca as Trustee by __________________________ Philip R. Lochner, Jr. as Trustee by __________________________ Thomas W. McEnerney, as Trustee 56 THE FIRST NATIONAL BANK OF CHICAGO, as Trustee by __________________________ Name: Melissa G. Weisman Title: Assistant Vice President FIRST CHICAGO DELAWARE INC., as Delaware Trustee by __________________________ Name: Melisssa G. Weisman, Title: Assistant Vice President EXHIBIT A CERTIFICATE OF TRUST OF TIME WARNER CAPITAL I This Certificate of Trust of Time Warner Capital I (the "Trust"), dated August 2, 1995, is being duly executed and filed by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. Section 3801 et seq.). -- ---- 1. Name. The name of the business trust formed hereby is Time Warner ----- Capital I. 2. Delaware Trustee. The name and business address of the trustee of ----------------- the Trust with a principal place of business in the State of Delaware is First Chicago Delaware Inc., 1201 Market Street, Suite 1401, Wilmington, Delaware 19801. 3. Effective Date. This Certificate of Trust shall be effective as of --------------- its filing. IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, have executed this Certificate of Trust as of the date first above written. THE FIRST NATIONAL BANK OF CHICAGO, as trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President FIRST CHICAGO DELAWARE INC., as Delaware Trustee, by -------------------------- Name: Melissa G. Weisman Title: Assistant Vice President 2 by ------------------------- John A. LaBarca, as trustee by ------------------------- Philip R. Lochner, Jr. as trustee by ------------------------- Thomas W. McEnerney, as trustee EXHIBIT B TERMS OF PREFERRED SECURITIES Pursuant to Section 7.01 of the Amended and Restated Declaration of Trust of Time Warner Capital I (the "Trust") dated as of [ ], 1995 (as amended from time to time, the "Declaration"), the designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth below (each capitalized term used but not defined herein having the meaning set forth in the Declaration or, to the extent not defined therein, the Guarantee Agreement dated as of [ ], 1995 (as amended from time to time, the "Guarantee") executed by Time Warner on behalf of the holders of the Preferred Securities): 1. Designation and Number. Preferred Securities of the Trust with an ----------------------- aggregate liquidation amount in the assets of the Trust of ($ ) and a liquidation amount in the assets of the Trust of $[25] per Preferred Security, are hereby designated as "[ ]% Preferred Trust Securities". The Preferred Security Certificates evidencing the Preferred Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange on which the Preferred Securities are listed or to the rules of any Clearing Agency in which the Trust Securities have been accepted for trading. The Trust will invest the gross proceeds from the issuance of the Preferred Securities together with the gross proceeds from the sale to Time Warner Inc. ("Time Warner") of the Common Securities in Subordinated Debentures of Time Warner having an aggregate principal amount equal to $ , and bearing interest at an annual percentage rate of [ ]%, which will result in the payment of interest equal to the annual Distribution rate on the Preferred Securities and Common Securities and having payment and redemption provisions that correspond to the payment and redemption provisions of the Preferred Securities and Common Securities. 2. Distributions. (a) Periodic distributions payable on each -------------- Preferred Security will be fixed at an a rate per annum of %[ ] (the "Coupon Rate") of the aggregate liquidation amount of $[25] per Preferred Security, such rate being the rate of interest payable on 2 the Subordinated Debentures to be held by the Property Trustee. Distributions in arrears for more than one quarter will bear interest thereon at the Coupon Rate (to the extent permitted by law), compounded quarterly. The term "Distributions" as used in these terms means such periodic cash distributions and any such interest payable unless otherwise stated. A Distribution will be made by the Property Trustee only to the extent that interest payments are made in respect of the Subordinated Debentures held by the Property Trustee. The amount of Distributions (or amounts equal to accrued and unpaid Distributions) payable for any period will be computed (i) for any full quarterly Distribution period, on the basis of a 360-day year of twelve 30-day months, and (ii) for any period shorter than a full quarterly Distribution period, on the basis of a 360- day year of twelve 30-day months and on the basis of the actual number of days elapsed in any such 30-day month. (b) Distributions on the Preferred Securities will be cumulative, will accrue from and including [date of issue], 1995 and will be payable quarterly in arrears, on March 30, June 30, September 30 and December 30 of each year, commencing on, but excluding [ ], 1995, except as otherwise described below, but only if and to the extent that interest payments are made in respect of the Subordinated Debentures held by the Property Trustee. Time Warner, as issuer of the Subordinated Debentures, has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Subordinated Debentures for a period not exceeding 20 consecutive quarters (each an "Extension Period") and, during such Extension Period, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, Time Warner may further extend such Extension Period; provided that such -------- Extension Period. Upon the termination of any Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters. Payments of accrued Distributions will be payable to Holders as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, Time Warner may commence a new Extension Period, subject to the above requirements. 3 (c) Distributions on the Preferred Securities will be payable promptly by the Property Trustee (or other Paying Agent) upon receipt of immediately available funds to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. While the Preferred Securities remain in book-entry only form, the relevant record dates shall be one Business Day prior to the relevant payment dates which payment dates correspond to the interest payment dates on the Subordinated Debentures. Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment in respect of the Preferred Securities will be made as described under the heading "Description of the Preferred Securities-- Book-Entry Only Issuance--The Depository Trust Company" in the Prospectus Supplement dated ________, 1995, to the Prospectus dated ______, 1995 (together the "Prospectus"), of the Trust included in the Registration Statement on Form S-3 of the Sponsor, the Trust and certain other business trusts. If the Preferred Securities shall not continue to remain in book-entry only form, the relevant record dates for the Preferred Securities shall conform to the rules of any securities exchange on which the securities are listed and, if none, shall be selected by the Regular Trustees, which dates shall be at least one Business Day but less than 60 Business Days before the relevant payment dates, which payment dates correspond to the interest payment dates on the Debentures. Distributions payable on any Preferred Securities that are not punctually paid on any Distribution payment date as a result of Time Warner having failed to make the corresponding interest payment on the Subordinated Debentures will forthwith cease to be payable to the person in whose name such Preferred Security is registered on the relevant record date, and such defaulted Distribution will instead be payable to the person in whose name such Preferred Security is registered on the special record date established by the Regular Trustees, which record date shall correspond to the special record date or other specified date determined in accordance with the Indenture. Subject to any applicable laws and regulations and the provisions of the Declaration, each payment in respect of the Preferred Securities will be made as described in paragraph 9 hereof. If any date on which Distributions are payable on the Preferred Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), 4 except that if such Business Day is in the next succeeding calendar year, 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. (d) All Distributions paid with respect to the Preferred Securities and the Common Securities will be paid on a Pro Rata Basis (as defined herein) to the Holders thereof entitled thereto. (e) In the event that there is any money or other property held by or for the Trust that is not accounted for under the Declaration or these terms of the Preferred Securities or the terms of the Common Securities, such money or property shall be distributed on a Pro Rata Basis among the Holders of the Preferred Securities and Common Securities. 3. Liquidation Distribution Upon Dissolution. In the event of any ------------------------------------------ voluntary or involuntary liquidation, dissolution, winding-up or termination of the Trust (each a "Liquidation Event"), the Holders of the Trust Securities on the date of such Liquidation Event will be entitled to be paid on a Pro Rata Basis out of the assets of the Trust an amount equal to the liquidation amount per Trust Security plus accrued and unpaid Distributions thereon to, but excluding, the date of payment (such amount being the "Liquidation Distribution") in connection with such Liquidation Event, unless Subordinated Debentures in an aggregate principal amount equal to the aggregate liquidation amount of, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on, the Trust Securities have been distributed on a Pro Rata Basis (determined without regard to the proviso in the definition of such term) to the Holders of the Trust Securities in exchange for such Trust Securities. In the event that the assets of the Trust exceed the amount necessary to pay to all Holders of the Trust Securities the full amount of the Liquidation Distribution, such excess will be paid to the Holders of the Trust Securities on a Pro Rata Basis (determined without regard to the proviso in the definition of such term). 4. Redemption and Distribution of Subordinated Debentures. The Trust ------------------------------------------------------- Securities may be redeemed only if Subordinated Debentures having an aggregate principal amount equal to the aggregate liquidation amount and accrued and unpaid interest equal to accrued and unpaid Distributions on 5 the Trust Securities are repaid, redeemed or distributed as set forth below: (a) Upon the repayment of the Subordinated Debentures in whole or in part, whether at maturity or upon redemption, the proceeds from such repayment or payment shall be simultaneously applied to redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so repaid or redeemed at a redemption price equal to the liquidation amount per Trust Security (the "Redemption Price") plus an amount equal to all accrued and unpaid Distributions thereon at the date of the redemption, payable in cash. Holders will be given not less than 20 nor more than 45 days notice of such redemption. (b) If fewer than all the outstanding Trust Securities are to be so redeemed, the Trust Securities will be redeemed on a Pro Rata Basis and the Preferred Securities to be redeemed will be redeemed as described in para-graph 4(f)(ii) below. If a partial redemption would result in the delisting of the Preferred Securities by any national securities exchange or other self- regulatory organization (including the NASDAQ National Market System) on which the Preferred Securities are then listed, Time Warner pursuant to the Indenture will only redeem the Subordinated Debentures in whole and, as a result, the Trust may only redeem the Preferred Securities in whole. (c) (i) If, at any time, a Tax Event or an Investment Company Event (each as hereinafter defined, and each a "Special Event") shall occur and be continuing, the Regular Trustees shall notify Time Warner thereof and Time Warner shall elect to either (A) direct the Regular Trustees to dissolve the Trust and cause Subordinated Debentures having an aggregate principal amount equal to the aggregate liquidation amount of, and accrued and unpaid interest equal to accrued and unpaid Distributions on, and having the same record dates for payment as, the Trust Securities outstanding at such time, to be distributed to the Holders of the Trust Securities on a Pro Rata Basis in liquidation of such Holders' interests in the Trust, within 90 days following the occurrence of such Special Event, provided, however, that in the case of the occurrence of a Tax Event, as a -------- ------- condition of any such dissolution and distribution, the Regular Trustees shall have received an opinion of nationally recognized 6 independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on any then applicable published revenue ruling of the Internal Revenue Service, to the effect that the Holders of the Preferred Securities will not recognize any gain or loss for United States Federal income tax purposes as a result of the dissolution of the Trust and distribution of Subordinated Debentures; (B) to redeem the Subordinated Debentures in accordance with the Indenture and the Trust Securities as described under paragraph (ii) below or (C) in the case of a Tax Event, allow the Subordinated Debentures and the Trust Securities to remain outstanding and indemnify the Trust for all taxes payable by it as a result of such change in law or interpretation; provided that, if and as -------- long as at the time there is available to the Trust the opportunity to eliminate, within 90 days following the occurrence of such Special Event (the "90-Day Period"), the Special Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure that has no adverse effect on the Trust, Time Warner or the Holders of the Trust Securities (a "Ministerial Action"), the Trust will pursue such measure in lieu of dissolution or redemption; provided -------- further, that Time Warner shall have no right to redeem the Subordinated ------- Debentures or to direct the Regular Trustees to dissolve the Trust while the Regular Trustees are pursuing such Ministerial Action unless the Special Event shall not have been so eliminated by the 85th day following the occurrence thereof, in which case Time Warner shall be permitted to so direct the Regular Trustees or to provide notice to the holders of the redemption of the Subordinated Debentures; provided further, that if ---------------- dissolution of the Trust and distribution of the Subordinated Debentures to the holders of the Trust Securities would eliminate the condition causing the Tax Event or the Investment Company Event and all other conditions to such dissolution and distribution have been satisfied, Time Warner will not be permitted to redeem the Subordinated Debentures; and provided further, ---------------- that Time Warner shall not be permitted to direct the Regular Trustees to dissolve the Trust and distribute the Subordinated Debentures to the holders of the Trust Securities upon the occurrence of the condition described in clause (2) in the definition of "Tax Event" if, after giving effect to such dissolution and distribution, Time 7 Warner would not be permitted to deduct a greater percentage of the interest payable on the Subordinated Debentures than it had been permitted to deduct for United States Federal income tax purposes prior to the occurrence of such Tax Event. (ii) Upon the occurrence and continuation of a Tax Event or an Investment Company Event, Time Warner shall have the right to redeem the Subordinated Debentures in whole (but not in part), upon not less than 20 nor more than 45 Business Days' notice, within the 90-Day Period (such date of redemption a "Special Redemption Date"), in which case the Trust shall (unless the Trust shall have been dissolved) redeem in cash Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so redeemed, at a redemption price per Trust Security equal to the liquidation amount per Trust Security, plus an amount equal to all accrued and unpaid distributions on such Trust Security to but excluding the Special Redemption Date. The Common Securities and the Preferred Securities will be redeemed on a Pro Rata Basis. (iii) "Tax Event" means that the Regular Trustees shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after [ ], 1995, 1/ as a result of (A) any amendment to, or change (including any - announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (B) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (C) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (D) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or - --------------------- 1/ Insert date of prospectus. - 8 which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after [ ], 1995, 2/ there is more - than an insubstantial risk that at such time or within 90 days of the date thereof (1) the Trust is, or would be, subject to United States Federal income tax with respect to income accrued or received on the Subordinated Debentures, (2) less than 25% of the interest payable by Time Warner to the Trust on the Subordinated Debentures is, or would be, deductible by Time Warner for United States Federal income tax purposes or (3) the Trust is, or would be, subject to more than a de minimis amount of other taxes, -- ------- duties or other governmental charges. (iv) "Investment Company Event" means that the Regular Trustees shall have received an opinion of nationally recognized independent counsel experienced in such matters that, as a result of the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk that the Trust is or will be considered an Investment Company that is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after [ ], 1995. 3/ - (v) On the date fixed for any distribution of Subordinated Debentures, upon dissolution of the Trust, (i) the Preferred Securities will no longer be deemed to be outstanding, (ii) neither the Trust nor Time Warner shall have any further obligation to the Holders of the Preferred Securities with respect to the Preferred Securities or under the Guarantee, (iii) the Depositary or its nominee, as the record holder of the Preferred Securities, will receive a registered global certificate or certificates representing the Subordinated Debentures to be delivered upon such distribution and (iv) any certificates representing Preferred Securities not held by the Depositary or its nominee will be deemed to represent beneficial - ---------------------- 2/Insert date of prospectus. - 3/Insert date of prospectus. - 9 interests in the Subordinated Debentures having an aggregate principal amount equal to the aggregate liquidation amount of, and bearing accrued and unpaid interest equal to accrued and unpaid Distributions on, such Preferred Securities until such certificates are presented to Time Warner or its agent for transfer or reissuance. (d) The Trust may not redeem fewer than all the outstanding Preferred Securities unless all accrued and unpaid Distributions have been or are concurrently being paid on all Preferred Securities for all quarterly Distribution periods terminating on or prior to the date of redemption. (e) If Subordinated Debentures are distributed to Holders of the Preferred Securities, Time Warner, pursuant to the terms of the Indenture, will use its best efforts to have the Subordinated Debentures listed on the New York Stock Exchange or on such other exchange or self-regulatory organization (including the NASDAQ National Market System) as the Preferred Securities were listed immediately prior to the distribution of the Subordinated Debentures. (f) (i) Notice of any redemption (other than mandatory redemption) of, or notice of distribution of Subordinated Debentures in exchange for, the Preferred Securities and Common Securities (a "Redemption/ Distribution Notice") will be given by the Regular Trustees on behalf of the Trust by mail to each Holder of Preferred Securities and Common Securities to be redeemed or exchanged not less than 20 nor more than 45 Business Days prior to the date fixed for redemption or distribution thereof. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this paragraph (f)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of Preferred Securities and Common Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Preferred Securities and Common Securities at the address of each such Holder appearing in the books and records of the Trust. Such Redemption/Distribution Notice shall set forth the aggregate liquidation amount of Trust Securities to be redeemed, the date of such redemption or such distribution and in the case of a Special Event, a 10 brief description thereof. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Preferred Securities are to be redeemed, the Preferred Securities to be redeemed will be redeemed on a Pro Rata Basis from each Holder of Preferred Securities, and, in the event Preferred Securities are held in book-entry only form by the Depositary or its nominee (or any successor Clearing Agency or its nominee), the Depositary will reduce on a Pro Rata Basis the amount of the interest of each Clearing Agency Participant in the Preferred Securities to be redeemed; provided that if, as a result of such redemption, Clearing -------- Agency Participants would hold fractional interests in the Preferred Securities, the Depositary will adjust the amount of the interest of each clearing Agency Participant to be redeemed to avoid such fractional interests. (iii) Payment of the Redemption Price in respect of each Preferred Security, together with any accrued and unpaid Distributions thereon, is conditioned upon delivery or book-entry transfer of such Preferred Security (together with necessary endorsements) to the Property Trustee at any time (whether prior to, on or after the relevant date of redemption) after the Redemption/Distribution Notice is given (to the extent such notice is required). Payment of the Redemption Price, together with any accrued and unpaid distributions on each Preferred Security, will be made by the delivery of cash no later than the applicable date of redemption with respect to such Preferred Security or, if later, the time of delivery or transfer of such Preferred Security. (iv) If the Trust gives a Redemption/Distribution Notice in respect of a redemption of Preferred Securities as provided in this paragraph 4 (which notice will be irrevocable), then immediately prior to the close of business on the redemption date, so long as Time Warner has paid to the Property Trustee in immediately available funds a sufficient amount of cash in connection with the related redemption or maturity of the Subordinated Debentures, Distributions 11 will cease to accrue on the Preferred Securities called for redemption, such Preferred Securities will no longer be deemed to be outstanding and all rights of Holders of such Preferred Securities so called for redemption will cease, except the right of the Holders of such Preferred Securities to receive the Redemption Price, together with any accrued and unpaid Distributions on the Preferred Securities being redeemed, but without interest on such amount. Neither the Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Preferred Securities which have been so called for redemption. If any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date, together with any accrued and unpaid Distributions to such date, will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of Preferred Securities, together with any accrued and unpaid Distributions on such Preferred Securities, is improperly withheld or refused and not paid either by the Property Trustee or by Time Warner pursuant to the Guarantee, Distributions on such Preferred Securities will continue to accrue, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price and the amount of any such accrued and unpaid distributions. (v) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to the Holders of the Preferred Securities. (vi) Upon the date of dissolution of the Trust and distribution of Subordinated Debentures as a result of the occurrence of a Special Event, Preferred Security Certificates shall be deemed to represent beneficial interests in the Subordinated Debentures so distributed, and the Preferred Securities will no longer be deemed outstanding and may be canceled by the Regular Trustees. The Subordinated Debentures so 12 distributed shall have an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities so distributed. (vii) Subject to the foregoing and applicable law (including, without limitation, United States Federal securities laws), Time Warner or any of its affiliates may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. Any such Preferred Securities purchased by Time Warner shall be surrendered to the Trust for cancellation. 5. Voting Rights. (a) Except as provided under paragraph 5(b) below -------------- and as otherwise required by law and the Declaration, the Holders of the Preferred Securities will have no voting rights. (b) (i) If (A) the Trust (1) fails to pay Distributions in full on the Preferred Securities and such failure continues unremedied for 6 quarterly Distribution periods or (2) fails to pay the Redemption Price of any Preferred Securities to be redeemed on the applicable redemption date; or (B) an Event of Default occurs and is continuing (each an "Appointment Event"), then the Holders of the Preferred Securities, acting as a single class, will be entitled by the vote of Holders of Preferred Securities representing a Majority in aggregate liquidation amount of the Preferred Securities to appoint a Special Regular Trustee in accordance with Section 5.02(a)(ii)(B) of the Declaration. Any Holder of Preferred Securities (other than the Sponsor or any Affiliate of the Sponsor) will have the right to nominate any Person to be appointed as Special Regular Trustee. For purposes of determining whether the Trust has failed to make Distributions in full for 6 consecutive quarterly Distribution periods, Distributions shall be deemed to remain in arrears, notwithstanding any payments in respect thereof, until full cumulative Distributions have been or contemporaneously are paid with respect to all quarterly Distribution periods terminating on or prior to the date of payment of such cumulative Distributions. Not later than 30 days after such right to appoint a Special Regular Trustee arises, the Regular Trustees will convene a meeting of the Holders of the Preferred Securities for the purpose of appointing a Special Regular Trustee. If the Regular 13 Trustees fail to convene such meeting within such 30-day period, the Holders of Preferred Securities representing not less than 10% in aggregate liquidation amount of the outstanding Preferred Securities will be entitled to convene such meeting in accordance with Section 12.02 of the Declaration. The record date for such meeting will be the close of business on the Business Day next preceding the day on which notice of the meeting is sent to Holders of Preferred Securities. The provisions of the Declaration relating to the convening and conduct of the meetings of the Holders will apply with respect to any such meeting. If, at any such meeting, Holders of less than a Majority in aggregate liquidation amount of Preferred Securities entitled to vote for the appointment of a Special Regular Trustee vote for such appointment, no Special Regular Trustee shall be appointed. Any Special Regular Trustee may be removed without cause at any time by the Holders of Preferred Securities representing a Majority in aggregate liquidation amount of the Preferred Securities in accordance with Section 5.02(a)(ii)(B) of the Declaration. The Holders of 10% in aggregate liquidation amount of the Preferred Securities will be entitled to convene such a meeting to remove the Special Regular Trustee in accordance with Section 12.02 of the Declaration. The record date for such meeting will be the close of business on the Business Day next preceding the day on which notice of the meeting is sent to Holders of Preferred Securities. Any Special Regular Trustee appointed shall cease to be a Special Regular Trustee as provided in Section 5.02(c) of the Declaration. Notwithstanding the appointment of any such Special Regular Trustee, Time Warner shall retain all its rights under the Indenture, including the right to extend the interest payment period on the Subordinated Debentures. (ii) If any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect (A) any action that would adversely affect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to the Declaration or otherwise, or (B) the liquidation, dissolution, winding-up or termination of the Trust, other than in connection with the distribution of Subordinated Debentures held by the Property Trustee, 14 upon the occurrence of a Special Event or in connection with the redemption of Preferred Securities as a consequence of a redemption of Subordinated Debentures, then the Holders of outstanding Trust Securities will be entitled to vote on such amendment or proposal as a class and such amendment or proposal shall not be effective except with the approval of the Holders of Trust Securities representing a Majority in aggregate liquidation amount of Trust Securities affected thereby; provided, however, -------- ------- (1) if any amendment or proposal referred to in clause (A) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in aggregate liquidation amount of such class of Trust Securities, (2) the rights of Holders of Preferred Securities under Article V of the Declaration to appoint and remove a Special Regular Trustee shall not be amended without the consent of each Holder of Preferred Securities, and (3) amendments to the Declaration shall be subject to such further requirements as are set forth in Sections 12.01 and 12.02 of the Declaration. (iii) In the event the consent of the Property Trustee, as the holder of the Subordinated Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Subordinated Debentures, the Property Trustee shall request the written direction of the Holders of the Trust Securities with respect to such amendment, modification or termination. The Property Trustee shall vote with respect to such amendment, modification or termination as directed by a Majority in aggregate liquidation amount of the Trust Securities voting together as a single class; provided that where such amendment, -------- modification or termination of the Indenture or the Subordinated Debentures requires the consent or vote of (A) holders of Subordinated Debentures representing a specified percentage greater than a majority in principal amount of the Subordinated Debentures or (B) each holder of Subordinated Debentures, the Property Trustee may only vote with respect to that amendment, modification or termination as directed by, in the case of clause (A) above, the vote of Holders of Trust Securities representing such specified percentage of the aggregate liquidation 15 amount of the Trust Securities, or, in the case of clause (B) above, each Holder of Trust Securities; and provided further that the Property Trustee ---------------- shall not take any action in accordance with the directions of the Holders of Trust Securities unless the Property Trustee shall have received, at the expense of the Sponsor, an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such action will not result in the Trust being treated as an association taxable as a corporation or a partnership for United States Federal income tax purposes and that, following such action, each Holder of Trust Securities will be treated for United States Federal income tax purposes as owning an undivided beneficial interest in the Subordinated Debentures. (iv) Subject to Section 2.06 of the Declaration, and the provisions of this and the next succeeding paragraph, the Holders of a Majority in aggregate liquidation amount of the Preferred Securities, voting separately as a class, shall have the right to (A) on behalf of all Holders of Preferred Securities, waive any past default that is waivable under the Declaration (subject to, and in accordance with the Declaration) and (B) direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee, or to direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee, as the holder of the Subordinated Debentures, to (1) direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee, or exercising any trust or power conferred on the Indenture Trustee with respect to the Subordinated Debentures, (2) waive any past default that is waivable under Section 5.13 of the Indenture or (3) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable; provided that -------- where the taking of any action under the Indenture requires the consent or vote of (x) holders of Subordinated Debentures representing a specified percentage greater than a majority in principal amount of the Subordinated Debentures or (y) each holder of Subordinated Debentures, the Property Trustee may only take such action if directed by, in the case of clause (x) above, the vote of Holders of Preferred 16 Securities representing such specified percentage of the aggregate liquidation amount of the Preferred Securities, or, in the case of clause (y) above, each Holder of Preferred Securities. The Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Preferred Securities. The Property Trustee shall not take any of the foregoing actions at the direction of the Holders of Preferred Securities unless the Property Trustee shall have received, at the expense of the Sponsor, an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such action will not result in the Trust being treated for United States Federal income tax purposes as an association taxable as a corporation or a partnership and that, following such action, each Holder of Trust Securities will be treated for United States Federal income tax purposes as owning an undivided beneficial interest in the Subordinated Debentures. If the Property Trustee fails to enforce its rights under the Declaration (including its rights, powers and privileges as a holder of the Subordinated Debentures under the Indenture), any Holder of Preferred Securities may, after a period of 30 days has elapsed from such Holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against Time Warner to enforce the Property Trustee's rights under the Declaration, without first instituting a legal proceeding against the Property Trustee or any other Person. (v) A waiver of an Indenture Event of Default by the Property Trustee at the direction of the Holders of the Preferred Securities will constitute a waiver of the corresponding Event of Default under the Declaration in respect of the Trust Securities. (vi) Any required approval or direction of Holders of Preferred Securities may be given at a separate meeting of Holders of Preferred Securities convened for such purpose, at a meeting of all of the Holders of Trust Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Preferred Securities. Each such notice will include a statement setting forth (A) the date of such meeting or the 17 date by which such action is to be taken, (B) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (C) instructions for the delivery of proxies or consents. (vii) No vote or consent of the Holders of Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities in accordance with the Declaration. (viii) Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities at such time that are owned by Time Warner or by any entity directly or indirectly controlling or controlled by or under direct or indirect common control with Time Warner shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. (ix) Except as provided in this paragraph 5, Holders of the Preferred Securities will have no rights to increase or decrease the number of Trustees or to appoint, remove or replace a Trustee, which voting rights are vested solely in the Holders of the Common Securities. 6. Pro Rata Treatment. A reference in these terms of the Preferred ------------------- Securities to any payment, distribution or treatment as being made on a "Pro Rata Basis" shall mean, with respect to such payment, distribution or treatment, pro rata to each Holder of Trust Securities according to the aggregate liquidation amount of the Trust Securities held by such Holder in relation to the aggregate liquidation amount of all Trust Securities outstanding; provided, -------- however, that if the assets of the Trust are insufficient to make such payment - ------- in full as a result of a default with respect to the Subordinated Debentures, any funds available to make such payment shall be paid (i) first to each Holder of the Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by such Holder in relation to the aggregate liquidation amount of all Preferred Securities outstanding up to an aggregate amount equal to the amount then owed to the Holders of the Preferred Securities, and (ii) only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate 18 liquidation amount of Common Securities held by such Holder in relation to the aggregate liquidation amount of all Common Securities outstanding. 7. Ranking. The Preferred Securities rank pari passu, and payments -------- ---- ----- will be made thereon on a Pro Rata Basis, with the Common Securities, except that if, as a result of an Event of Default with respect to the Subordinated Debentures, the assets of the Trust are insufficient to make payments of Distributions or payments upon liquidation, redemption of the Trust Securities or otherwise, the rights of Holders of the Common Securities to receive such payments will be subordinated to the rights of the Holders of the Preferred Securities. 8. Mergers, Consolidations or Amalgamations. The Trust may not ----------------------------------------- consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets to, any corporation or other body. 9. Transfer, Exchange, Method of Payments. Payment of Distributions --------------------------------------- and payments on redemption of the Preferred Securities or on dissolution of the Trust will be payable, the transfer of the Preferred Securities will be registrable, and Preferred Securities will be exchangeable for Preferred Securities of other denominations of a like aggregate liquidation amount, at the principal corporate trust office of the Property Trustee in The City of New York; provided that payment of Distributions may be made at the option of the -------- Regular Trustees on behalf of the Trust by check mailed to the address of the persons entitled thereto and that the payment on redemption of any Preferred Security or on dissolution of the Trust will be made only upon surrender of such Preferred Security to the Property Trustee. 10. Acceptance of Indenture and Guarantee and Certain Other Matters. ---------------------------------------------------------------- Each Holder of Preferred Securities, by the acceptance thereof, agrees (a) to the provisions of (i) the Guarantee, including the subordination provisions therein and (ii) the Indenture and the Subordinated Debentures, including the subordination provisions of the Indenture and (b) to treat the Subordinated Debentures as debt instruments for United States Federal, state and local income and franchise tax purposes and not to take any contrary position before any taxing authority or on any tax return. 19 11. No Preemptive Rights. The Holders of Preferred Securities shall --------------------- have no preemptive rights to subscribe to any additional Preferred Securities or Common Securities. 12. Miscellaneous. These terms shall constitute a part of the -------------- Declaration. The Regular Trustees will provide a copy of the Declaration, the Guarantee and the Indenture to a Holder without charge on written request to the Trust at its principal place of business. [Draft--7/29/95] Annex I Certificate Number Number of Preferred Securities B-1 CUSIP NO. [ ] Certificate Evidencing Preferred Securities of Time Warner Capital I [ ]% Preferred Trust Securities Time Warner Financing Trust, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that (the "Holder") is the registered owner of ( ) preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the [ ]% Preferred Trust Securities (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Declaration of Trust of the Trust dated as of , 1995, as the same may be amended from time to time (the "Declaration") including the designation of the terms of Preferred Securities as set forth in Exhibit B thereto. The Preferred Securities and the Common Securities issued by the Trust pursuant to the Declaration represent undivided beneficial interests in the assets of the Trust, including the Subordinated Debentures (as defined in the Declaration) issued by Time Warner Inc., a Delaware corporation ("Time Warner"), to the Trust pursuant to the Indenture referred to in the Declaration. The Holder is entitled to the benefits of the Guarantee Agreement of Time Warner dated as of , 1995 (the "Guarantee") to the extent provided therein. The Regular Trustees will furnish a copy of the Declaration, the Guarantee and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business or registered office. 2 The Holder of this Certificate, by accepting this Certificate, is deemed to have (i) agreed to the terms of the Indenture and the Subordinated Debentures, including that the Subordinated Debentures are (a) subordinate and junior in right of payment to all Senior Indebtedness (as defined in the Indenture, which term includes Time Warner's outstanding 8-3/4% Convertible Subordinated Debentures due 2015) as and to the extent provided in the Indenture and (ii) agreed to the terms of the Guarantee, including that the Guarantee is (a) subordinate and junior in right of payment to all other liabilities of Time Warner, including the Subordinated Debentures, except those made pari passu or ---- ----- subordinate by their terms, (b) pari passu with the most senior preferred stock ---- ----- issued from time to time, by Time Warner and any guarantee now or hereafter entered into by Time Warner in respect of any such preferred stock and (c) senior to all common stock now or hereafter issued by Time Warner and to any guarantee now or hereafter entered into by Time Warner in respect of any of its common stock. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. IN WITNESS WHEREOF, Trustees of the Trust have executed this certificate this day of , 1995. TIME WARNER CAPITAL I, by ________________________, as trustee Name: Title: Trustee by ________________________, as trustee Name: Title: Trustee 3 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- agent to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ------------------------------- Signature: -------------------------- (Sign exactly as your name appears on the other side of this Preferred Security Certificate) EXHIBIT C TERMS OF COMMON SECURITIES Pursuant to Section 7.01 of the Amended and Restated Declaration of Trust of Time Warner Capital I (the "Trust") dated as of [ ], 1995 (as amended from time to time, the "Declaration"), the designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth below (each capitalized term used but not defined herein having the meaning set forth in the Declaration): SECTION 1. Designation and Number. Common Securities of the Trust ----------------------- with an aggregate liquidation amount in the assets of the Trust of ($ ) and a aggregate liquidation amount in the assets of the Trust of $[ ] per Common Security, are hereby designated as "[ ]% Common Securities". The Common Security Certificates evidencing the Common Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. The Common Securities are to be issued and sold to Time Warner Inc. ("Time Warner") in consideration of $[ ] in cash. The Trust will invest the gross proceeds from the issuance of the Common Securities together with the gross proceeds from the issuance of the Preferred Securities in Subordinated Debentures of Time Warner having an aggregate principal amount equal to $[ ], and bearing interest at an annual percentage rate equal to the annual distribution rate on the Preferred Securities and Common Securities and having payment and redemption provisions that correspond to the payment and redemption provisions of the Preferred Securities and Common Securities. SECTION 2. Distributions. (a) Periodic distributions payable on -------------- each Common Security will be fixed at a rate per annum of [ ]% (the "Coupon Rate") of the aggregate liquidation amount of $[25] per Common Security, such rate being the rate of interest payable on the Subordinated Debentures to be held by the Property Trustee. Distributions in arrears for more than one quarter will bear interest thereon at the Coupon Rate (to the extent permitted by applicable law), compounded quarterly. The term "Distributions" as used in these terms means such periodic cash distributions and any such interest payable unless otherwise stated. A Distribution will be made by the Property Trustee only to the extent that interest payments 2 are made in respect of the Subordinated Debentures held by the Property Trustee. The amount of Distributions (or amounts equal to accrued and unpaid Distributions) payable for any period will be computed (i) for any full quarterly Distribution period, on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period, on the basis of a 360-day year of twelve 30-day months and on the basis of the actual number of days elapsed in any such 30-day month. (b) Distributions on the Common Securities will be cumulative, will accrue from and including [date of issue], 1995, and will be payable quarterly in arrears, on March 30, June 30, September 30 and December 30 of each year, commencing on, but excluding [ ], 1995, except as otherwise described below, but only if and to the extent that interest payments are made in respect of the Subordinated Debentures held by the Property Trustee. Time Warner, as issuer of the Subordinated Debentures, has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Subordinated Debentures for a period not exceeding 20 consecutive quarters (each an "Extension Period") and, during such Extension Period, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, Time Warner may further extend such Extension Period; provided that such -------- Extension Period. Upon the termination of any Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters. Payments of accrued Distributions will be payable to Holders as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, Time Warner may commence a new Extension Period, subject to the above requirements. (c) Distributions on the Common Securities will be payable promptly by the Property Trustee (or other Paying Agent) upon receipt of immediately available funds to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. While the Preferred Securities remain in book-entry only form, the relevant record dates shall be one Business Day prior to the relevant payment dates which payment dates correspond to the interest 3 payment dates on the Subordinated Debentures. Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment in respect of the Preferred Securities will be made as described under the heading "Description of the Preferred Securities--Book-Entry Only Issuance--The Depository Trust Company" in the Prospectus Supplement dated ________, 1995, to the Prospectus dated ______, 1995 (together the "Prospectus"), of the Trust included in the Registration Statement on Form S-3 of the Sponsor, the Trust and certain other business trusts. If the Preferred Securities shall not continue to remain in book-entry only form, the relevant record dates for the Preferred Securities shall conform to the rules of any securities exchange on which the securities are listed and, if none, shall be selected by the Regular Trustees, which dates shall be at least one Business Day but less than 60 Business Days before the relevant payment dates, which payment dates correspond to the interest payment dates on the Debentures. Distributions payable on any Common Securities that are not punctually paid on any Distribution date as a result of Time Warner having failed to make the corresponding interest payment on the Subordinated Debentures will forthwith cease to be payable to the person in whose name such Common Security is registered on the relevant record date, and such defaulted Distribution will instead be payable to the person in whose name such Common Security is registered on the special record date established by the Regular Trustees, which record date shall correspond to the special record date or other specified date determined in accordance with the Indenture. Subject to any applicable laws and regulations and the provisions of the Declaration, each payment in respect of the Common Securities will be made as described in paragraph 9 hereof. If any date on which Distributions are payable on the Common Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and 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, 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. (d) All Distributions paid with respect to the Common Securities and the Preferred Securities will be paid 4 on a Pro Rata Basis to the Holders thereof entitled thereto. (e) In the event that there is any money or other property held by or for the Trust that is not accounted for under the Declaration or the terms of the Preferred Securities or these terms of the Common Securities, such money or property shall be distributed on a Pro Rata Basis among the Holders of the Preferred Securities and Common Securities. 3. Liquidation Distribution Upon Dissolution. In the event of any ------------------------------------------ voluntary or involuntary liquidation, dissolution, winding-up or termination of the Trust (each a "Liquidation Event"), the Holders of the Trust Securities on the date of such Liquidation Event will be entitled to be paid on a Pro Rata Basis out of the assets of the Trust an amount equal to the liquidation amount per Trust Security plus accrued and unpaid Distributions thereon to, but excluding, the date of payment (such amount being the "Liquidation Distribution") in connection with such Liquidation Event unless Subordinated Debentures in an aggregate principal amount equal to the aggregate liquidation amount of, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on, the Trust Securities have been distributed on a Pro Rata Basis (determined without regard to the proviso in the definition of such term) to the Holders of the Trust Securities in exchange for such Trust Securities. In addition, in the event that the assets of the Trust exceed the amount necessary to pay to all holders of the Trust Securities the full amount of the Liquidation Distribution, such excess will be paid to the holders of the Trust Securities on a Pro Rata Basis (determined without regard to the proviso in the definition of such term). SECTION 4. Redemption and Distribution of Subordinated Debentures. ------------------------------------------------------- The Trust Securities may only be redeemed if Subordinated Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Trust Securities are repaid, redeemed or distributed as set forth below: (a) Upon the repayment of the Subordinated Debentures in whole or in part, whether at maturity or upon redemption, the proceeds from such repayment or payment shall be simultaneously applied to redeem Trust Securities having an aggregate liquidation amount equal to the 5 aggregate principal amount of the Subordinated Debentures so repaid or redeemed at a redemption price equal to the liquidation amount per Security (the "Redemption Price") plus an amount equal to all accrued and unpaid Distributions thereon at the date of the redemption, payable in cash. Holders will be given not less than 20 nor more than 45 days notice of such redemption. (b) If fewer than all the outstanding Trust Securities are to be so redeemed, the Trust Securities will be redeemed on a Pro Rata Basis and the Common Securities to be redeemed will be redeemed as described in paragraph 4(e)(ii) below. If a partial redemption would result in the delisting of the Preferred Securities by any national securities exchange or other self- regulatory organization (including the NASDAQ National Market System) on which the Preferred Securities are then listed, Time Warner pursuant to the Indenture will only redeem the Subordinated Debentures in whole and, as a result, the Trust may only redeem the Common Securities in whole. (c)(i) If, at any time, a Tax Event or an Investment Company Event (each as hereinafter defined, and each a "Special Event") shall occur and be continuing, the Regular Trustees shall notify Time Warner thereof and Time Warner shall elect to either (A) direct the Regular Trustees to dissolve the Trust and cause Subordinated Debentures having an aggregate principal amount equal to the aggregate liquidation amount of, and accrued and unpaid interest equal to accrued and unpaid Distributions on, and having the same record dates for payment as, the Trust Securities outstanding at such time, to be distributed to the Holders of the Trust Securities on a Pro Rata Basis in liquidation of such Holders' interests in the Trust, within 90 days following the occurrence of such Special Event, provided, however, that in the case of the occurrence of a -------- ------- Tax Event, as a condition of any such dissolution and distribution, the Regular Trustees shall have received an opinion of nationally recognized independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on any then applicable published revenue ruling of the Internal Revenue Service, to the effect that the Holders of the Preferred Securities will not recognize any gain or loss for United States Federal income tax purposes as a result of the dissolution of the Trust and distribution of Subordinated Debentures; (B) to redeem the Subordinated Debentures in accordance with the Indenture and the Trust Securities as described under paragraph (ii) below or (C) in 6 the case of a Tax Event, allow the Subordinated Debentures and the Trust Securities to remain outstanding and indemnify the Trust for all taxes payable by it as a result of such change in law or interpretation; provided that, if and -------- as long as at the time there is available to the Trust the opportunity to eliminate, within 90 days following the occurrence of such Special Event (the "90-Day Period"), the Special Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure that has no adverse effect on the Trust, Time Warner or the Holders of the Trust Securities (a "Ministerial Action"), the Trust will pursue such measure in lieu of dissolution or redemption; provided further, that Time Warner ---------------- shall have no right to redeem the Subordinated Debentures or to direct the Regular Trustees to dissolve the Trust while the Regular Trustees are pursuing such Ministerial Action unless the Special Event shall not have been so eliminated by the 85th day following the occurrence thereof, in which case Time Warner shall be permitted to so direct the Regular Trustees or to provide notice to the holders of the redemption of the Subordinated Debentures; provided -------- further, that if dissolution of the Trust and distribution of the Subordinated - ------- Debentures to the holders of the Trust Securities would eliminate the condition causing the Tax Event or the Investment Company Event and all other conditions to such dissolution and distribution have been satisfied, Time Warner will not be permitted to redeem the Subordinated Debentures; and provided further, that ---------------- Time Warner shall not be permitted to direct the Regular Trustees to dissolve the Trust and distribute the Subordinated Debentures to the holders of the Trust Securities upon the occurrence of the condition described in clause (2) in the definition of "Tax Event" if, after giving effect to such dissolution and distribution, Time Warner would not be permitted to deduct a greater percentage of the interest payable on the Subordinated Debentures than it had been permitted to deduct for United States Federal income tax purposes prior to the occurrence of such Tax Event. (ii) Upon the occurrence and continuation of a Tax Event or an Investment Company Event, Time Warner shall have the right to redeem the Subordinated Debentures in whole (but not in part), upon not less than 20 nor more than 45 Business Days' notice, within the 90-Day Period (such date of redemption a "Special Redemption Date"), in which case the Trust shall (unless the Trust shall have been dissolved) redeem in cash Trust Securities having an aggregate liquidation 7 amount equal to the aggregate principal amount of the Subordinated Debentures so redeemed, at a redemption price per Trust Security equal to the liquidation amount per Trust Security, plus an amount equal to all accrued and unpaid distributions on such Trust Security to but excluding the Special Redemption Date. The Common Securities and the Preferred Securities will be redeemed on a Pro Rata Basis. (iii) "Tax Event" means that the Regular Trustees shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after July [ ], 1995, /1/as a result of (A) any amendment to, or change - (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (B) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (C) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (D) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after [ ], 1995, /2/ there is - more than an insubstantial risk that at such time or within 90 days of the date thereof (1) the Trust is, or would be, subject to United States Federal income tax with respect to income accrued or received on the Subordinated Debentures, (2) less than 25% of the interest payable by Time Warner to the Trust on the Subordinated Debentures is, or would be, deductible by Time Warner for United States Federal income tax purposes or (3) the Trust is, or would be, subject to - ------------------------ /1/ Insert date of prospectus. - /2/ Insert date of prospectus. - 8 more than a de minimis amount of other taxes, duties or other governmental -- ------- charges. (iv) "Investment Company Event" means that the Regular Trustees shall have received an opinion of nationally recognized independent counsel experienced in such matters that, as a result of the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk that the Trust is or will be considered an Investment Company that is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after July [ ], 1995./3/ (v) On the date fixed for any distribution of Subordinated Debentures, upon dissolution of the Trust, (i) the Common Securities will no longer be deemed to be outstanding, (ii) the Trust shall not have any further obligation to the holders of the Common Securities with respect to the Common Securities and (iii) certificates representing Common Securities will be deemed to represent beneficial interests in the Subordinated Debentures having an aggregate principal amount equal to the aggregate liquidation amount of, and bearing accrued and unpaid interest equal to accrued and unpaid Distributions on, such Common Securities until such certificates are presented to Time Warner or its agent for transfer or reissuance. (d) The Trust may not redeem fewer than all the outstanding Common Securities unless all accrued and unpaid Distributions have been or are concurrently being paid on all Common Securities for all quarterly Distribution periods terminating on or prior to the date of redemption. (e) (i) Notice of any redemption (other than a mandatory redemption) of, or notice of distribution of Subordinated Debentures in exchange for, the Preferred Securities and Common Securities (a "Redemption/Distribution Notice") will be given by the Regular Trustees on behalf of the Trust by mail to each Holder of Preferred Securities and Common Securities to - ------------------------- /3/ Insert date of prospectus. 9 be redeemed or exchanged not less than 20 nor more than 45 Business Days prior to the date fixed for redemption or distribution thereof. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this paragraph (e)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of Preferred Securities and Common Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Preferred Securities and Common Securities at the address of each such Holder appearing in the books and records of the Trust. Such Redemption/Distribution Notice shall set forth the aggregate liquidation amount of Trust Securities to be redeemed, the date of such redemption or such distribution and, in the case of a Special Event, a brief description thereof. No defect in the Redemption/ Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Common Securities are to be redeemed, the Common Securities to be redeemed will be redeemed on a Pro Rata Basis from each Holder of Common Securities, and, in the event Common Securities are held in book-entry only form by the Depositary or its nominee (or any successor Clearing Agency or its nominee), the Depositary will reduce on a Pro Rata Basis the amount of the interest of each Clearing Agency Participant in the Common Securities to be redeemed; provided that if, as a result of such redemption, Clearing Agency -------- Participants would hold fractional interests in the Preferred Securities, the Depositary will adjust the amount of the interest of each clearing Agency Participant to be redeemed to avoid such fractional interests. (iii) Payment of the Redemption Price in respect of each Common Security, together with any accrued and unpaid Distributions thereon, is conditioned upon delivery or book-entry transfer of such Common Security (together with necessary endorsements) to the Property Trustee at any time (whether prior to, on or after the relevant date of redemption) after the Redemption/Distribution Notice is given (to the extent 10 such notice is required). Payment of the Redemption Price, together with any accrued and unpaid Distributions on each Common Security, will be made by the delivery of cash no later than the applicable date of redemption with respect to such Common Security or, if later, the time of delivery or transfer of such Common Security. (iv) If the Trust gives a Redemption/Distribution Notice in respect of a redemption of Common Securities as provided in this paragraph 4 (which notice will be irrevocable) then immediately prior to the close of business on the redemption date, provided that Time Warner has paid to the -------- Property Trustee in immediately available funds a sufficient amount of cash in connection with the related redemption or maturity of the Subordinated Debentures, Distributions will cease to accrue on the Common Securities called for redemption, such Common Securities will no longer be deemed to be outstanding and all rights of Holders of such Common Securities so called for redemption will cease, except the right of the Holders of such Common Securities to receive the Redemption Price, together with any accrued and unpaid Distributions on the Common Securities being redeemed, but without interest on such amount. Neither the Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Common Securities which have been so called for redemption. If any date fixed for redemption of Common Securities is not a Business Day, then payment of the Redemption Price payable on such date, together with any accrued and unpaid Distributions to such date, will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of Common Securities, together with any accrued and unpaid Distributions on such Common Securities, is improperly withheld or refused and not paid by the Property Trustee, Distributions on such Common Securities will continue to accrue, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of 11 calculating the Redemption Price and the amount of any such accrued and unpaid Distributions. (v) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to the Holders of the Common Securities. (vi) Upon the date of dissolution of the Trust and distribution of Subordinated Debentures as a result of the occurrence of a Special Event, Common Security Certificates shall be deemed to represent beneficial interests in the Subordinated Debentures so distributed, and the Common Securities will no longer be deemed outstanding and may be canceled by the Regular Trustees. The Subordinated Debentures so distributed shall have an aggregate principal amount equal to the aggregate liquidation amount of the Common Securities so distributed. SECTION 5. Voting Rights. (a) Except as provided under paragraph -------------- 5(b) below and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. (b) (i) Except as provided in the Declaration with respect to a Special Regular Trustee, Holders of Common Securities have the sole right under the Declaration to increase or decrease the number of Trustees, and to appoint, remove or replace a Trustee, any such increase, decrease, appointment, removal or replacement to be approved by Holders of Common Securities representing a Majority in aggregate liquidation amount of the Common Securities. (ii) If any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect (A) any action that would adversely affect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to the Declaration or otherwise, or (B) the liquidation, dissolution, winding-up or termination of the Trust, other than in connection with the distribution of Subordinated Debentures held by the Property Trustee, upon the occurrence of a Special Event or in connection with the redemption of Common Securities as a consequence of a redemption of Subordinated Debentures, then the Holders of outstanding Trust Securities will be entitled to vote on such amendment or proposal as a class and such amendment or proposal shall not be effective except with the approval of the Holders of Trust Securities representing a 12 Majority in aggregate liquidation amount of such securities affected thereby; provided, however, (1) if any amendment or proposal referred to in clause (A) - -------- ------- above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in aggregate liquidation amount of such class of Trust Securities, (2) the rights of Holders of Common Securities under Article V of the Declaration to increase or decrease the number of, and to appoint, replace or remove, Trustees (other than a Special Regular Trustee) shall not be amended without the consent of each Holder of Common Securities and (3) amendments to the Declaration shall be subject to such further requirements as are set forth in Sections 12.01 and 12.02 of the Declaration. (iii) In the event the consent of the Property Trustee as the holder of the Subordinated Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Subordinated Debentures, the Property Trustee shall request the written direction of the Holders of the Trust Securities with respect to such amendment, modification or termination. The Property Trustee shall vote with respect to such amendment, modification or termination as directed by a Majority in aggregate liquidation amount of the Trust Securities voting together as a single class; provided that -------- where such amendment, modification or termination of the Indenture or the Subordinated Debentures requires the consent or vote of (1) holders of Subordinated Debentures representing a specified percentage greater than a majority in principal amount of the Subordinated Debentures or (2) each holder of Subordinated Debentures, the Property Trustee may only vote with respect to that amendment, modification or termination as directed by, in the case of clause (1) above, the vote of Holders of Trust Securities representing such specified percentage of the aggregate liquidation amount of the Trust Securities, or, in the case of clause (2) above, each Holder of Trust Securities; and provided further, that the Property Trustee shall not take any ---------------- action in accordance with the directions of the Holders of the Trust Securities unless the Property Trustee shall have received, at the expense of the Sponsor, an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such action will not result in the Trust being treated as an association taxable as a corporation or a partnership for United States Federal 13 income tax purposes and that, following such action, each holder of Trust Securities will be treated for United States Federal income tax purposes as owning an undivided beneficial interest in the Subordinated Debentures. (iv) Subject to Section 2.06 of the Declaration, and the provisions of this and the next succeeding paragraph, the Holders of a Majority in aggregate liquidation amount of the Common Securities, voting separately as a class, shall have the right to (A) on behalf of all Holders of Common Securities, waive any past default that is waivable under the Declaration (subject to, and in accordance with the Declaration) and (B) direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee, or to direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee, as holder of the Subordinated Debentures, to (1) direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee, or exercising any trust or power conferred on the Indenture Trustee with respect to the Subordinated Debentures, (2) waive any past default and its consequences that is waivable under Section 5.13 of the Indenture, or (3) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable; provided -------- that where the taking of any action under the Indenture requires the consent or vote of (x) holders of Subordinated Debentures representing a specified percentage greater than a majority in principal amount of the Subordinated Debentures or (y) each holder of Subordinated Debentures, the Property Trustee may only take such action if directed by, in the case of clause (x) above, the vote of Holders of Common Securities representing such specified percentage of the aggregate liquidation amount of the Common Securities, or, in the case of clause (y) above, each Holder of Common Securities. Pursuant to this paragraph, the Property Trustee shall not revoke, or take any action inconsistent with, any action previously authorized or approved by a vote of the Holders of the Preferred Securities, and shall not take any action in accordance with the direction of the Holders of the Common Securities under this paragraph if the action is prejudicial to the Holders of Preferred Securities. The Property Trustee shall not take any of the foregoing actions at the direction of the Holders of Common Securities unless the Property Trustee shall have received, at the expense of the Sponsor, an opinion of nationally 14 recognized independent tax counsel experienced in such matters to the effect that such action will not result in the Trust being treated as an association taxable as a corporation or a partnership for United States Federal income tax purposes and that, following such action, each Holder of Trust Securities will be treated for United States Federal income tax purposes as owning an undivided beneficial interest in the Subordinated Debentures. (c) (i) Notwithstanding any other provision of these terms, each Holder of Common Securities will be deemed to have waived any Event of Default with respect to the Common Securities and its consequences until Events of Default with respect to the Preferred Securities have been cured, waived by the Holders of Preferred Securities as provided in the Declaration or otherwise eliminated, and until all Events of Default with respect to the Preferred Securities have been so cured, waived by the Holders of Preferred Securities or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of Preferred Securities and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of the Declaration or of the Trust Securities. In the event that any Event of Default with respect to the Preferred Securities is waived by the Holders of Preferred Securities as provided in the Declaration, the Holders of Common Securities agree that such waiver shall also constitute the waiver of such Event of Default with respect to the Common Securities for all purposes under the Declaration without any further act, vote or consent of the Holders of the Common Securities. (ii) A waiver of an Indenture Event of Default by the Property Trustee at the direction of the Holders of the Preferred Securities will constitute a waiver of the corresponding Event of Default under the Declaration in respect of the Trust Securities. (d) Any required approval of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Trust Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Common Securities. Each such 15 notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. (e) No vote or consent of the Holders of Common Securities will be required for the Trust to redeem and cancel Common Securities in accordance with the Declaration. 6. Pro Rata Treatment. A reference in these terms of the Common ------------------- Securities to any payment, distribution or treatment as being made on a "Pro Rata Basis" shall mean, with respect to such payment, distribution or treatment, pro rata to each Holder of Trust Securities according to the aggregate liquidation amount of the Trust Securities held by such Holder in relation to the aggregate liquidation amount of all Trust Securities outstanding; provided, -------- however, that if the assets of the Trust are insufficient to make such payment - ------- in full as a result of a default with respect to the Subordinated Debentures, any funds available to make such payment shall be paid (a) first to each Holder of the Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by such Holder in relation to the aggregate liquidation amount of all Preferred Securities outstanding up to an aggregate amount equal to the amount then owed to the Holders of the Preferred Securities, and (b) only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by such Holder in relation to the aggregate liquidation amount of all Common Securities outstanding. 7. Ranking. The Common Securities rank pari passu, and payments will -------- ---- ----- be made thereon on a Pro Rata Basis with, the Preferred Securities, except that if, as a result of an Event of Default with respect to the Subordinated Debentures, the assets of the Trust are insufficient to make payments of Distributions or payments upon liquidation, redemption of the Trust Securities or otherwise, the rights of Holders of the Common Securities to receive such payments will be subordinated to the rights of the Holders of the Preferred Securities. 16 8. Mergers, Consolidations or Amalgamations. The Trust may not ----------------------------------------- consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets to, any corporation or other body. 9. Transfers, Exchanges, Method of Payments. Payment of ----------------------------------------- Distributions and payments on redemption of the Common Securities or on dissolution of the Trust will be payable, the transfer of the Common Securities will be registrable, and Common Securities will be exchangeable for Common Securities of other denominations of a like aggregate liquidation amount, at the principal corporate trust office of the Property Trustee in The City of New York; provided that payment of Distributions may be made at the option of the Regular Trustees on behalf of the Trust by check mailed to the address of the persons entitled thereto and that the payment on redemption of any Common Security or on dissolution of the Trust will be made only upon surrender of such Common Security to the Property Trustee. Notwithstanding the foregoing, transfers of Common Securities are subject to conditions set forth in Section 9.01(c) of the Declaration. 10. Acceptance of Indenture and Certain Other Matters. Each Holder -------------------------------------------------- of Common Securities, by the acceptance thereof, agrees (a) to the provisions of the Indenture and the Subordinated Debentures, including the subordination provisions thereof and (b) to treat the Subordinated Debentures as debt instruments for United States Federal, state and local income and franchise tax purposes and not to take any contrary position before any taxing authority or on any tax return. 11. No Preemptive Rights. The Holders of Common Securities shall --------------------- have no preemptive rights to subscribe to any additional Common Securities or Preferred Securities. 12. Miscellaneous. These terms shall constitute a part of the -------------- Declaration. The Regular Trustees will provide a copy of the Declaration and the Indenture to a Holder without charge on written request to the Trust at its principal place of business. Annex I TRANSFER OF THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SET FORTH IN THE DECLARATION REFERRED TO BELOW Certificate Number Number of Common Securities C-1 Certificate Evidencing Common Securities of Time Warner Capital [I] [ ]% Common Securities Time Warner Capital [I], a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that [ ] (the "Holder") is the registered owner of ( ) common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the [ ]% Common Securities (the "Common Securities"). The Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer and satisfaction of the other conditions set forth in the Declaration (as defined below) including, without limitation Section 9.01(c) thereof. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Declaration of Trust of the Trust dated as of [ ], 1995, as the same may be amended from time to time (the "Declaration") including the designation of the terms of Common Securities as set forth in Exhibit C thereto. The Common Securities and the Preferred Securities issued by the Trust pursuant to the Declaration represent undivided beneficial interests in the assets of the Trust, including the Subordinated Debentures (as defined in the Declaration) issued by Time Warner Inc., a Delaware corporation, to the Trust pursuant to the Indenture referred 2 to in the Declaration. The Regular Trustees will furnish a copy of the Declaration and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business or registered office. The Holder of this Certificate, by accepting this Certificate, is deemed to have agreed to the terms of the Indenture and the Subordinated Debentures, including that the Subordinated Debentures are subordinate and junior in right of payment to all Senior Indebtedness (as defined in the Indenture, which term includes Time Warner's outstanding 8-3/4% Convertible Subordinated Debentures due 2015) as and to the extent provided in the Indenture. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. IN WITNESS WHEREOF, Trustees of the Trust have executed this certificate this day of , 1995. TIME WARNER CAPITAL I, By ___________________, as trustee Name: Title: Trustee By ____________________, as trustee Name: Title: Trustee 3 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfer this Common Security Certificate to: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- agent to transfer this Common Security - --------------------------------------- Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ---------------------- Signature: ---------------------------- (Sign exactly as your name appears on the other side of this Common Security Certificate) EX-4.8 10 INDENTURE BETWEEN TIME WARNER INC. AND CHEMICAL EXHIBIT 4.8 =============================================================================== INDENTURE between TIME WARNER INC. and CHEMICAL BANK Trustee Dated as of [ ], 1995 Providing for Issuance of Subordinated Securities in Series =============================================================================== TABLE OF CONTENTS
Page ---- ARTICLE I Definitions and Other Provisions of General Application ------------------------------------------------------- SECTION 1.01. Definitions......................................... 1 SECTION 1.02. Compliance Certificates and Opinions.......................................... 14 SECTION 1.03. Form of Documents Delivered to Trustee............................................ 15 SECTION 1.04. Acts of Securityholders.............................. 16 SECTION 1.05. Notices, etc., to Trustee and Company............................................ 18 SECTION 1.06. Notices to Securityholders; Waiver............................................. 18 SECTION 1.07. Conflict with Trust Indenture Act.................... 19 SECTION 1.08. Effect of Headings and Table of Contents........................................... 19 SECTION 1.09. Successors and Assigns............................... 19 SECTION 1.10. Separability Clause.................................. 19 SECTION 1.11. Benefits of Indenture................................ 20 SECTION 1.12. Governing Law........................................ 20 SECITON 1.13. Counterparts......................................... 20 SECTION 1.14. Judgment Currency.................................... 20 ARTICLE II Security Forms -------------- SECTION 2.01. Forms Generally...................................... 20 SECTION 2.02. Forms of Securities.................................. 21 SECTION 2.03. Form of Trustee's Certificate of Authentication..................................... 21 SECTION 2.04. Securities Issuable in the Form of a Global Security.................................... 22 ARTICLE III The Securities -------------- SECTION 3.01. General Title; General Limitations; Issuable in Series; Terms of Paricular Series.................................. 25
Contents, p. 2
Page ---- SECTION 3.02. Denominations........................................ 28 SECTION 3.03. Execution, Authentication and Delivery and Dating................................ 29 SECTION 3.04. Temporary Securities................................. 31 SECTION 3.05. Registration, Transfer and Exchange.................. 31 SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities.................................. 33 SECTION 3.07. Payment of Interest; Interest Rights Preserved.......................................... 34 SECTION 3.08. Persons Deemed Owners................................ 36 SECTION 3.09. Cancellation......................................... 36 SECITON 3.10. Computation of Interest.............................. 36 SECTION 3.11. Delayed Issuance of Securities....................... 37 ARTICLE IV Satisfaction and Discharge -------------------------- SECTION 4.01. Satisfaction and Discharge of Indenture.......................................... 37 SECTION 4.02. Application of Trust Money........................... 39 SECTION 4.03. Defeasance upon Deposit of Funds or Government Obligations............................. 40 SECTION 4.04. Reinstatement........................................ 42 SECTION 4.05. Subordination Provisions Inapplicable....................................... 42 ARTICLE V Remedies -------- SECTION 5.01. Events of Default.................................... 43 SECTION 5.02. Acceleration of Maturity; Rescission and Annulment...................................... 45 SECTION 5.03. Collection of Indebtedness and Suits 47 for Enforcement by Trustee......................... SECTION 5.04. Trustee May File Proofs of Claim..................... 48 SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities........................... 49 SECTION 5.06. Application of Money Collected....................... 49 SECTION 5.07. Limitation on Suits.................................. 50 SECTION 5.08. Unconditional Right of Securityholders To Receive Principal, Premium and Interest.................... 51 SECTION 5.09. Restoration of Rights and Remedies................... 51 SECTION 5.10. Rights and Remedies Cumulative....................... 51
Contents, p. 3
Page ---- SECTION 5.11. Delay or Omission Not Waiver......................... 51 SECTION 5.12. Control by Securityholders........................... 52 SECTION 5.13. Waiver of Past Defaults.............................. 52 SECTION 5.14. Undertaking for Costs................................ 53 SECTION 5.15. Waiver of Stay or Extension Laws..................... 53 ARTICLE VI The Trustee ----------- SECTION 6.01. Certain Duties and Responsibilities.................. 54 SECTION 6.02. Notice of Defaults................................... 55 SECTION 6.03. Certain Rights of Trustee............................ 56 SECTION 6.04. Not Responsible for Recitals or Issuance of Securities............................. 57 SECTION 6.05. May Hold Securities.................................. 57 SECTION 6.06. Money Held in Trust.................................. 58 SECTION 6.07. Compensation and Reimbursement....................... 58 SECTION 6.08. Disqualification; Conflicting Interests.......................................... 59 SECTION 6.09. Corporate Trustee Required; Eligibility........................................ 59 SECTION 6.10. Resignation and Removal; Appointment of Successor....................................... 60 SECTION 6.11. Acceptance of Appointment by Successor.......................................... 62 SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business............................. 63 SECTION 6.13. Preferential Collection of Claims Against Company.................................... 64 SECTION 6.14. Appointment of Authenticating Agent.................. 69 ARTICLE VII Securityholders' Lists and Reports by Trustee and Company --------------------------------------------------------- SECTION 7.01. Company To Furnish Trustee Names and Addresses of Securityholders....................... 72 SECTION 7.02. Preservation of Information; Communications to Securityholders.................. 72 SECTION 7.03. Reports by Trustee................................... 74 SECTION 7.04. Reports by Company................................... 76
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Page ---- ARTICLE VIII Consolidation, Merger, Conveyance or Transfer --------------------------------------------- SECTION 8.01. Company May Consolidate, etc., only on Certain Terms................................... 76 SECTION 8.02. Successor Person Substituted......................... 77 ARTICLE IX Supplemental Indentures ----------------------- SECTION 9.01. Supplemental Indentures without Consent of Securityholders......................... 77 SECTION 9.02. Supplemental Indentures with Consent of Securityholders................................. 79 SECTION 9.03. Execution of Supplemental Indentures......................................... 80 SECTION 9.04. Effect of Supplemental Indentures.................... 81 SECTION 9.05. Conformity with Trust Indenture Act.................. 81 SECTION 9.06. Reference in Securities to Supplemental Indentures............................ 81 SECTION 9.07. Subordination Unimpaired............................. 81 ARTICLE X Covenants --------- SECTION 10.01. Payment of Principal, Premium and Interest........................................... 82 SECTION 10.02. Maintenance of Office or Agency...................... 82 SECTION 10.03. Money for Security Payments To Be Held in Trust...................................... 82 SECTION 10.04. Statement as to Compliance........................... 84 SECTION 10.05. Legal Existence...................................... 84 SECTION 10.06. Waiver of Certain Covenants.......................... 85 ARTICLE XI Redemption of Securities ------------------------ SECTION 11.01. Applicability of Article............................. 85 SECTION 11.02. Election To Redeem; Notice to Trustee............................................ 86
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Page ---- SECTION 11.03. Selection by Trustee of Securities To Be Redeemed..................................... 86 SECTION 11.04. Notice of Redemption................................. 87 SECTION 11.05. Deposit of Redemption Price.......................... 88 SECTION 11.06. Securities Payable on Redemption Date............................................... 89 SECTION 11.07. Securities Redeemed in Part.......................... 89 SECTION 11.08. Provisions with Respect to Any Sinking Funds...................................... 90 SECTION 11.09. Rescission of Redemption............................. 91 ARTICLE XII Conversion ---------- SECTION 12.01. Conversion Privilege................................. 93 SECTION 12.02. Conversion Procedure; Rescission of Conversion; Conversion Price; Fractional Shares.................................. 93 SECTION 12.03. Adjustment of Conversion Price for 96 Common Stock or Other Marketable Securities......................................... SECTION 12.04. Consolidation or Merger of the 101 Company............................................ SECTION 12.05. Notice of Adjustment................................. 102 SECTION 12.06. Notice in Certain Events............................. 102 SECTION 12.07. Company To Reserve Stock or Other Marketable Securities; Registration; Listing.............................. 103 SECTION 12.08. Taxes on Conversion.................................. 104 SECTION 12.09. Conversion After Record Date......................... 105 SECTION 12.10. Corporate Action Regarding Par Value of Common Stock.................................... 105 SECTION 12.11. Company Determination Final.......................... 105 SECTION 12.12. Trustee's Disclaimer................................. 105 ARTICLE XIII Subordination ------------- SECTION 13.01. Agreement To Subordinate............................. 106 SECTION 13.02. Liquidation, Dissolution, Bankruptcy................. 106 SECTION 13.03. Default on Senior Indebtedness....................... 108 SECTION 13.04. Dispute with Holders of Certain Senior Indebtedness................................ 109 SECTION 13.05. Acceleration of Notes................................ 110
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Page ---- SECTION 13.06. When Distribution Must be Paid Over.................. 110 SECTION 13.07. Relative Rights...................................... 110 SECTION 13.08. Subordination May Not Be Impaired by Company......................................... 111 SECTION 13.09. Distribution or Notice to Representative..................................... 111 SECTION 13.10. Rights of Trustee and Paying Agent................... 111 SECTION 13.11. Notice to Trustee.................................... 111 SECTION 13.12. Trustee Not a Fiduciary.............................. 112 SECTION 13.13. Effectuation of Subordination by Trustee............................................ 112 SECTION 13.14. Article Applicable to Paying Agents.................. 112 SECTION 13.15. Trustee; Compensation Not Prejudiced................. 112
[Draft--7/29/95] INDENTURE between TIME WARNER INC., a Delaware corporation (hereinafter called the "Company") having its principal office at 75 Rockefeller Plaza, New York, New York 10019, and CHEMICAL BANK, a New York banking corporation, trustee (hereinafter called the "Trustee"), made and entered into as of the [ ]th day of [ ] 1995. The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of its subordinated debentures, notes, bonds or other evidences of indebtedness, to be issued in one or more fully registered series. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. To set forth or to provide for the establishment, of the terms and conditions upon which the Securities are and are to be authenticated, issued and delivered, and in consideration of the premises and the purchase of Securities by the Holders thereof, it is mutually covenanted and agreed as follows, for the equal and proportionate benefit of all Holders of the Securities or of a series thereof, as the case may be: ARTICLE I Definitions and Other Provisions -------------------------------- of General Application ---------------------- SECTION 1.01. Definitions. For all purposes of this Indenture and of ------------ any indenture supplemental hereto, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act or by Commission rule under the Trust Indenture Act, either directly or by 2 reference therein, have the meanings assigned to them therein; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles and any accounting rules or interpretations promulgated by the commission as are generally in effect in the United States of America as of the date of this Indenture; and (d) all references in this instrument to designated "Articles", "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this instrument as originally executed. The words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article VI, are defined in that Article. "Act", when used with respect to any Securityholder, has the meaning specified in Section 1.04. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" means any Person authorized by the Trustee to authenticate Securities under Section 614. "Board of Directors" means (a) the board of directors of the Company, (b) any duly authorized committee of such board, (c) any committee of officers of the Company or (d) any officer of the Company acting, in the case of (c) 3 or (d), pursuant to authority granted by the board of directors of the Company or any committee of such board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means, with respect to any series of Securities, unless otherwise specified in a Board Resolution or an Officer's Certificate with respect to a particular series of Securities, any day other than a Saturday or Sunday or any other day on which banking institutions in the pertinent Place or Places of Payment or the city in which the Corporate Trust Office is located are authorized or required by law or executive order to be closed. "Closing Price" of the Common Stock or other Marketable Security, as the case may be, shall mean the last reported sale price of such stock or other Marketable Security (regular way) as shown on the Composite Tape of the NYSE (or, if such stock or other Marketable Security is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which such stock or other Marketable Security is listed or admitted to trading), or, in case no such sale takes place on such day, the average of the closing bid and asked prices on the NYSE (or, if such stock or other Marketable Security is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which such stock or other Marketable Security is listed or admitted to trading), or, if it is not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ), or if such stock or other Marketable Security is not so reported, the average of the closing bid and asked prices as furnished by any member of the National Association of Securities Dealers, Inc., selected from time to time by the Company for that purpose. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it 4 under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" shall mean the class of Common Stock, par value $1.00 per share, of the Company authorized at the date of this Indenture as originally signed, or any other class of stock resulting from successive changes or reclassifications of such Common Stock, and in any such case including any shares thereof authorized after the date of this Indenture, and any other shares of stock of the Company which do not have any priority in the payment of dividends or upon liquidation over any other class of stock. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor. "Company Request", "Company Order" and "Company Consent" mean a written request, order or consent, respectively, signed in the name of the Company by its Chairman of the Board, President or a Vice President, and by its Treasurer, an Assistant Treasurer, Controller, an Assistant Controller, Secretary or an Assistant Secretary, and delivered to the Trustee. "Conversion Agent" means any Person authorized by the Company to receive Securities to be converted into Common Stock or other Marketable Securities on behalf of the Company. The Company initially authorizes the Trustee to act as Conversion Agent for the Securities on its behalf. The Company may at any time and from time to time authorize one or more Persons to act as Conversion Agent in addition to or in place of the Trustee with respect to any series of Securities issued under this Indenture. "Conversion Price" means, with respect to any series of Securities which are convertible into Common Stock or other Marketable Securities, the price per share of Common Stock or the price per designated unit of other Marketable Security at which the Securities of such series are so convertible as set forth in the Board Resolution with respect to such series (or in any supplemental indenture entered into pursuant to Section 9.01(ix) with respect to such series), as the same may be adjusted from time to time in accordance with Section 12.03 (or such supplemental indenture). 5 "Converting Holder" shall have the meaning specified in Section 12.02(c) of this Indenture. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at 450 West 33rd Street, 15th Floor, New York, New York 10001. "Current Market Price" on any date shall mean the average of the daily Closing Prices per share of Common Stock or of such other Marketable Securities for any 30 consecutive Trading Days selected by the Company prior to the day in question, which 30 consecutive Trading Day period shall not commence more than 45 Trading Days prior to the day in question; provided that, with respect to Section 12.03(c), the "Current Market Price" of the Common Stock or of such other Marketable Securities shall mean the average of the daily Closing Prices per share of Common Stock or of such other Marketable Securities for the five consecutive Trading Days ending on the date of the distribution referred to in Section 12.03(c) (or if such date shall not be a Trading Day, on the Trading Day immediately preceding such date). "Defaulted Interest" has the meaning specified in Section 3.07. "Depository" means, unless otherwise specified by the Company pursuant to either Section 2.04 or 3.01, with respect to Securities of any series issuable or issued as a Global Security, The Depository Trust Company, New York, New York, or any successor thereto registered as a clearing agency under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation. "Event of Default" has the meaning specified in Article Five. "GAAP" means generally accepted accounting principles as such principles are in effect as of the date of this Indenture. "Global Security", when used with respect to any series of Securities issued hereunder, means a Security which is executed by the Company and authenticated and delivered by the Trustee to the Depository or pursuant to the Depository's instruction, all in accordance with this 6 Indenture and an indenture supplemental hereto, if any, or Board Resolution and pursuant to a Company Request, which shall be registered in the name of the Depository or its nominee and which shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all of the Outstanding Securities of such series or any portion thereof, in either case having the same terms, including, without limitation, the same original issue date, date or dates on which principal is due, and interest rate or method of determining interest. "Holder", when used with respect to any Security, means a Securityholder. "Indenture" or "this Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 3.01. "Interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "Interest Payment Date", when used with respect to any series of Securities, means the Stated Maturity of any installment of interest on those Securities. "Marketable Security" means any common stock, debt security or other security of a Person which is (or will, upon distribution thereof, be) listed on the NYSE, the American Stock Exchange or any national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended, or approved for quotation in the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System or any similar system of automated dissemination of quotations of securities prices in the United States or for which there is a recognized market maker or trading market. "Material U.S. Subsidiary" means any Person that is a Subsidiary if (a) if such Person is organized under the laws of the United States of America or any political subdivision thereof (including any state thereof or the District of Columbia) and (b) at the end of the most recent fiscal quarter of the Company, the aggregate amount, 7 determined in accordance with GAAP consistently applied, of securities of, loans and advances to, and other investments in, such Person held by the Company and its other Subsidiaries exceeded 10% of the Company's Consolidated Net Worth. For purposes of the foregoing, "Consolidated Net Worth" means the consolidated stockholders' or owners' equity of the holders of capital stock or partnership interests of such Person and its Subsidiaries, determined on a consolidated basis in accordance with GAAP consistently applied; provided that to the extent -------- the Company's 8-3/4% Convertible Subordinated Debentures due 2015 or 11% Convertible Subordinated Debentures due 2015 have been issued in exchange for the Company's outstanding Series C 8-3/4% Convertible Exchangeable Preferred Stock or Series D 11% Convertible Exchangeable Preferred Stock, respectively, such Debentures that are then outstanding shall be considered equity for the purposes of the computation of the Company's Consolidated Net Worth. "Maturity", when used with respect to any Securities, means the date on which the principal of any such Security becomes due and payable as therein or herein provided, whether on a Repayment Date, at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "NYSE" shall mean the New York Stock Exchange, Inc. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or an Assistant Secretary of the Company and delivered to the Trustee. Wherever this Indenture requires that an Officers' Certificate be signed also by an engineer or an accountant or other expert, such engineer, accountant or other expert (except as otherwise expressly provided in this Indenture) may be in the employ of the Company, and shall be acceptable to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may (except as otherwise expressly provided in this Indenture) be an employee of or of counsel to the Company, which is delivered to the Trustee. Such counsel shall be acceptable to the Trustee, whose acceptance shall not be unreasonably withheld. 8 "Original Issue Discount Security" means (a) any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof, and (b) any other Security which is issued with "original issue discount" within the meaning of Section 1273(a) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Outstanding", when used with respect to Securities or Securities of any series, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except: (a) such Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) such Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (c) such Securities in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, or which shall have been paid pursuant to the terms of Section 306 (except with respect to any such Security as to which proof satisfactory to the Trustee is presented that such Security is held by a Person in whose hands such Security is a legal, valid and binding obligation of the Company). In determining whether the Holders of the requisite principal amount of such Securities Outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (i) the principal amount of any Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of the taking of such action upon a declaration of acceleration of the Maturity thereof and (ii) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding. In determining whether 9 the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer assigned to the Corporate Trust Department of the Trustee knows to be owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right to act as owner with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. "pari passu", as applied to the ranking of any indebtedness or other ---- ----- obligation of a Person in relation to other indebtedness or other obligation of such Person, means that each such indebtedness or other obligation either (a) is not subordinated in right of payment to any indebtedness or other obligation or (b) is subordinate in right of payment to the same indebtedness or other obligation as is the other, and is so subordinate to the same extent, and is not subordinate in right of payment to each other or to any indebtedness or other obligation as to which the other is not so subordinate. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. The Company initially authorizes the Trustee to act as Paying Agent for the Securities on its behalf. The Company may at any time and from time to time authorize one or more Persons to act as Paying Agent in addition to or in place of the Trustee with respect to any series of Securities issued under this Indenture. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment" means with respect to any series of Securities issued hereunder the city or political subdivision so designated with respect to the series of Securities in question in accordance with the provisions of Section 3.01. 10 "Predecessor Securities" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price specified in the Security at which it is to be redeemed pursuant to this Indenture. "Redemption Rescission Event" shall mean the occurrence of (a) any general suspension of trading in, or limitation on prices for, securities on the principal national securities exchange on which shares of Common Stock or Marketable Securities are registered and listed for trading (or, if shares of Common Stock or Marketable Securities are not registered and listed for trading on any such exchange, in the over-the-counter market) for more than 6-1/2 consecutive trading hours, (b) any decline in either the Dow Jones Industrial Average or the Standard & Poor's Index of 400 Industrial Companies (or any successor index published by Dow Jones & Company, Inc., or Standard & Poor's Corporation) by either (i) an amount in excess of 10%, measured from the close of business on any Trading Day to the close of business on the next succeeding Trading Day during the period commencing on the Trading Day preceding the day notice of any redemption of Securities is given (or, if such notice is given after the close of business on a Trading Day, commencing on such Trading Day) and ending at the time and date fixed for redemption in such notice or (ii) an amount in excess of 15% (or if the time and date fixed for redemption is more than 15 days following the date on which such notice of redemption is given, 20%), measured from the close of business on the Trading Day preceding the day notice of such redemption is given (or, if such notice is given after the close of business on a Trading Day, from such Trading Day) to the close of business on any Trading Day at or prior to the time and date fixed for redemption, (c) a declaration of a banking moratorium or any suspension of payments in respect of banks by Federal or state 11 authorities in the United States or (d) the commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States which in the reasonable judgment of the Company could have a material adverse effect on the market for the Common Stock or Marketable Securities. "Regular Record Date" for the interest payable on any Security on any Interest Payment Date means the date specified in such Security as the Regular Record Date. "Repayment Date", when used with respect to any Security to be repaid, means the date fixed for such repayment pursuant to such Security. "Repayment Price", when used with respect to any Security to be repaid, means the price at which it is to be repaid pursuant to such Security. "Representative" means any Person whom the Company has, by written notice to the Trustee, identified as the indenture trustee or other trustee, agent or representative for an issue of Senior Indebtedness. "Required Currency", when used with respect to any Security, has the meaning set forth in Section 1.14. "Responsible Officer", when used with respect to the Trustee, means any other officer of the Trustee with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Security" or "Securities" means any note or notes, bond or bonds, debenture or debentures, or any other evidences of indebtedness, as the case may be, of any series authenticated and delivered from time to time under this Indenture. "Securityholder" means a Person in whose name a Security is registered in the Security Register. "Security Register" shall have the meaning specified in Section 3.05. 12 "Security Registrar" means the Person who keeps the Security Register specified in Section 3.05. The Company initially appoints the Trustee to act as Security Registrar for the Securities on its behalf. The Company may at any time and from time to time authorize any Person to act as Security Registrar in place of the Trustee with respect to any series of Securities issued under this Indenture. "Senior Indebtedness" means all indebtedness or obligations of the Company, whether outstanding at the date of execution of this 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 obligation or obligations is subordinated to all other indebtedness of the Company or that such indebtedness is not superior or is subordinated in right of payment to the Securities, with respect to any of the following (including, without limitation, interest accruing on or after a bankruptcy or other similar event, whether or not an allowed claim therein): (a) any indebtedness incurred by the Company or assumed or guaranteed, directly or indirectly, by the Company (i) for money borrowed, including the Company's outstanding 8-3/4% Convertible Subordinated Debentures due 2015, (ii) in connection with the acquisition of any business, property or other assets (other than trade payables incurred in the ordinary course of business) or (iii) 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; (b) 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; (c) any obligation of the Company to purchase property at a future date in connection with a financing by the Company or a Subsidiary; (d) letters of credit; (e) currency swaps and interest rate hedges; and (f) a deferral, renewal, extension or refunding of any of the foregoing. "Senior Subordinated Indenture" means the Indenture dated as of October 15, 1992, between the Company and Chemical Bank, as trustee. "Special Record Date" for the payment of any Defaulted Interest (as defined in Section 3.07) means a date fixed by the Trustee pursuant to Section 3.07. 13 "Stated Maturity" when used with respect to any Security or any installment of principal thereof or interest thereon means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" means, with respect to any Person, any corporation more than 50% of the voting stock of which is owned directly or indirectly by such Person, and any partnership, association, joint venture or other entity in which such Person owns more than 50% of the equity interests or has the power to elect a majority of the board of directors or other governing body. "Trading Day" shall mean with respect to the Common Stock or a Marketable Security, so long as the Common Stock or such Marketable Security, as the case may be, is listed or admitted to trading on the NYSE, a day on which the NYSE is open for the transaction of business, or, if the Common Stock or such Marketable Security, as the case may be, is not listed or admitted to trading on the NYSE, a day on which the principal national securities exchange on which the Common Stock or such Marketable Security, as the case may be, is listed is open for the transaction of business, or, if the Common Stock or such Marketable Security, as the case may be, is not so listed or admitted for trading on any national securities exchange, a day on which NASDAQ is open for the transaction of business. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, -------- however, that, in the event the Trust Indenture Act of 1939 is amended after - ------- such date, "Trust Indenture Act" or "TIA" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the Trustee in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee", shall mean and include each Person who is then a Trustee hereunder. If at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. 14 "Vice President" when used with respect to the Company or the Trustee means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president", including, without limitation, an assistant vice president. "Voting Stock", as applied to the stock of any corporation, means stock of any class or classes (however designated) having by the terms thereof ordinary voting power to elect a majority of the members of the board of directors (or other governing body) of such corporation other than stock having such power only by reason of the happening of a contingency. "WCI" means Warner Communications Inc., a Delaware corporation. "Yield to Maturity" means t he yield to maturity on a series of Securities, calculated by the Company at the time of issuance of such series of Securities, or, if applicable, at the most recent redetermination of interest on such series, in accordance with accepted financial practice. SECTION 1.02. Compliance Certificates and Opinions. Upon any ------------------------------------- application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any (including any covenants compliance with which constitutes a condition precedent), provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such Counsel all such conditions precedent, if any (including any covenants compliance with which constitutes a condition precedent), have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than annual statements of compliance provided pursuant to Section 10.04) shall include 15 (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been compiled with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. Form of Documents Delivered to Trustee. In any case --------------------------------------- where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons may certify or give an opinion as to the other matters, and any such Person may certify or give an opinion and to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such Counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. 16 Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. Acts of Securityholders. (a) Any request, demand, ------------------------ authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Securityholders or Securityholders of any series may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee, and, where it is hereby expressly required, to the Company. If any Securities are denominated in coin or currency other than that of the United States, then for the purposes of determining whether the Holders of the requisite principal amount of Securities have taken any action as herein described, the principal amount of such Securities shall be deemed to be that amount of United States dollars that could be obtained for such principal amount on the basis of the spot rate of exchange into United States dollars for the currency in which such Securities are denominated (as evidenced to the Trustee by an Officers' Certificate) as of the date the taking of such action by the Holders of such requisite principal amount is evidenced to the Trustee as provided in the immediately preceding sentence. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness to such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate 17 or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership of Securities shall be proved by the Security Register. (d) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, by Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so. Such record date shall be the later of 10 days prior to the first solicitation of such action or the date of the most recent list of Holders furnished to the Trustee pursuant to Section 7.01. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Holders of record at the close of business on the record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Securities Outstanding have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the Securities Outstanding shall be computed as of the record date; provided that no such authorization, agreement or consent by the Holders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date, and that no such authorization, agreement or consent may be amended, withdrawn or revoked once given by a Holder, unless the Company shall provide for such amendment, withdrawal or revocation in conjunction with such solicitation of authorizations, agreements or consents or unless and to the extent required by applicable law. (e) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the 18 Company in reliance thereon whether or not notation of such action is made upon such Security. SECTION 1.05. Notices, etc., to Trustee and Company. Any request, -------------------------------------- demand, authorization, direction, notice, consent, waiver or Act of Securityholders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (a) the Trustee by any Securityholder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention of Corporate Trust Department; or (b) the Company by the Trustee or by any securityholder shall be sufficient for every purpose hereunder (except as provided in Section 5.01(d) or, in the case of a request for repayment, as specified in the Security carrying the right to repayment) if in writing and mailed, first- class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument, Attention of Treasurer, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.06. Notices to Securityholders; Waiver. Where this ----------------------------------- Indenture or any Security provides for notice to Securityholders of any event, such notice shall be sufficiently given (unless otherwise herein or in such Security expressly provided) if in writing and mailed, first-class postage prepaid, to each Securityholder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Securityholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Securityholder shall affect the sufficiency of such notice with respect to other Securityholders. Where this Indenture or any Security provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Securityholders shall be filed with the Trustee, but such filing shall not be a condition precedent 19 to the validity of any action taken in reliance upon such waiver. In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or otherwise, it shall be impractical to mail notice of any event to any Securityholder when such notice is required to be given pursuant to any provision of this Indenture, then any method of notification as shall be satisfactory to the Trustee and the Company shall be deemed to be a sufficient giving of such notice. SECTION 1.07. Conflict with Trust Indenture Act. If and to the ---------------------------------- extent that any provision hereof limits, qualifies or conflicts with the duties imposed by, or with another provision (an "incorporated provision") included in this Indenture by operation of, any of Sections 3.10 to 3.18, inclusive, of the Trust Indenture Act, such imposed duties or incorporated provision shall control. SECTION 1.08. Effect of Headings and Table of Contents. The Article ----------------------------------------- and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.09. Successors and Assigns. All covenants and agreements in ----------------------- this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. Separability Clause. In case any provision in this -------------------- Indenture or in the Securities 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. SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or ---------------------- in any Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Authenticating Agent or Paying Agent, the Security Registrar, the holders of Senior Indebtedness and the Holders of Securities (or such of them as may be affected thereby), any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. Governing Law. This Indenture shall be construed in -------------- accordance with and governed by the laws of the State of New York. 20 SECTION 1.13. Counterparts. This instrument may be executed in any ------------- number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 1.14. Judgment Currency. The Company agrees, to the fullest ------------------ extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of, or premium or interest, if any, on the Securities of any series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in the City of New York the Required Currency with the Judgment Currency on the New York Banking Day preceding that on which a final unappealable judgment is given and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency, expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a legal holiday in the City of New York or a day on which banking institutions in the City of New York are authorized or required by law or executive order to close. ARTICLE II Security Forms -------------- SECTION 2.01. Forms Generally. The Securities shall have such ---------------- appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, 21 numbers or other marks of identification and such legends or endorsements placed thereon, as may be required to comply with the rules of any securities exchange, or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities, subject, with respect to the Securities of any series, to the rules of any securities exchange on which such Securities are listed. SECTION 2.02. Forms of Securities. Each Security shall be in one of -------------------- the forms approved from time to time by or pursuant to a Board Resolution, or established in one or more indentures supplemental hereto. Prior to the delivery of a Security to the Trustee for authentication in any form approved by or pursuant to a Board Resolution, the Company shall deliver to the Trustee the Board Resolution by or pursuant to which such form of Security has been approved, which Board Resolution shall have attached thereto a true and correct copy of the form of Security which has been approved thereby or, if a Board Resolution authorizes a specific officer or officers to approve a form of Security, a certificate of such officer or officers approving the form of Security attached thereto. Any form of Security approved by or pursuant to a Board Resolution must be acceptable as to form to the Trustee, such acceptance to be evidenced by the Trustee's authentication of Securities in that form or a certificate signed by a Responsible Officer of the Trustee and delivered to the Company. SECTION 2.03. Form of Trustee's Certificate of Authentication. The -------------------------------- --------------- form of Trustee's Certificate of 22 Authentication for any Security issued pursuant to this Indenture shall be substantially as follows: "TRUSTEE'S CERTIFICATE OF AUTHENTICATION "This is one of the Securities of the series designated therein referred to in the within mentioned Indenture. CHEMICAL BANK, as Trustee, by ------------------------ Authorized Officer" SECTION 2.04. Securities Issuable in the Form of a Global Security. ----------------------------------------------------- (a) If the Company shall establish pursuant to Sections 2.02 and 3.01 that the Securities of a particular series are to be issued in whole or in part in the form of one or more Global Securities, then the Company shall execute and the Trustee or its agent shall in accordance with Section 3.03 and the Company Order delivered to the Trustee or its agent thereunder, authenticate and deliver, such Global Security or Securities, which (i) shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, the Outstanding Securities of such series to be represented by such Global Security or Securities, or such portion thereof as the Company shall specify in a Company Order, (ii) shall be registered in the name of the Depository for such Global Security or Securities or its nominee, (iii) shall be delivered by the Trustee or its agent to the Depository or pursuant to the Depository's instruction and (iv) shall bear a legend substantially to the following effect: "Unless this certificate is presented by an authorized representative of the Depository to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of the nominee of the Depository or in such other name as is requested by an authorized representative of the Depository (and any payment is made to the nominee of the Depository or to such other entity as is requested 23 by an authorized representative of the Depository), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, the nominee of the Depository, has an interest herein." (b) Notwithstanding any other provision of this Section 2.04 or of Section 3.05, and subject to the provisions of paragraph (c) below, unless the terms of a Global Security expressly permit such Global Security to be exchanged in whole or in part for individual Securities, a Global Security may be transferred, in whole but not in part and in the manner provided in Section 305, only to a nominee of the Depository for such Global Security, or to the Depository, or a successor Depository for such Global Security selected or approved by the Company, or to a nominee of such successor Depository. (c) (i) If at any time the Depository for a Global Security notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time the Depository for the Securities for such series shall no longer be eligible or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation, the Company shall appoint a successor Depository with respect to such Global Security. If a successor Depository for such Global Security is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company will execute, and the Trustee or its agent, upon receipt of a Company Request for the authentication and delivery of individual Securities of such series in exchange for such Global Security, will authenticate and deliver, individual Securities of such series of like tenor and terms in an aggregate principal amount equal to the principal amount of the Global Security in exchange for such Global Security. (ii) The Company may at any time and in its sole discretion determine that the Securities of any series or portion thereof issued or issuable in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of a Company Request for the authentication and delivery of individual Securities of such series in exchange in whole or in part for such Global Security, will authenticate and deliver individual Securities of such series of like tenor 24 and terms in definitive form in an aggregate principal amount equal to the principal amount of such Global Security or Securities representing such series or portion thereof in exchange for such Global Security or Securities. (iii) If specified by the Company pursuant to Sections 2.02 and 3.01 with respect to Securities issued or issuable in the form of a Global Security, the Depository for such Global Security may surrender such Global Security in exchange in whole or in part for individual Securities of such series of like tenor and terms in definitive form on such terms as are acceptable to the Company and such Depository. Thereupon the Company shall execute, and the Trustee or its agent shall authenticate and deliver, without service charge, (A) to each Person specified by such Depository a new Security or Securities of the same series of like tenor and terms and of any authorized denomination as requested by such Person in aggregate principal amount equal to and in exchange for such Person's beneficial interest as specified by such Depository in the Global Security; and (B) to such Depository a new Global Security of like tenor and terms and in an authorized denomination equal to the difference, if any, between the principal amount of the surrendered Global Security and the aggregate principal amount of Securities delivered to Holders thereof. (iv) In any exchange provided for in any of the preceding three paragraphs, the Company will execute and the Trustee or its agent will authenticate and deliver individual Securities in definitive registered form in authorized denominations. Upon the exchange of the entire principal amount of a Global Security for individual Securities, such Global Security shall be canceled by the Trustee or its agent. Except as provided in the preceding paragraph, Securities issued in exchange for a Global Security pursuant to this Section shall be registered in such names and in such authorized denominations as the Depository for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee or the Security Registrar. The Trustee or the Security Registrar shall deliver at its Corporate Trust Office such Securities to the Persons in whose names such Securities are so registered. 25 ARTICLE III The Securities -------------- SECTION 3.01. General Title; General Limitations; Issuable in Series; ------------------------------------------------------- Terms of Particular Series. The aggregate principal amount of Securities which - --------------------------- may be authenticated and delivered and outstanding under this Indenture is not limited. The Securities may be issued in one or more series as from time to time may be authorized by the Board of Directors. There shall be established in or pursuant to a Board Resolution or in a supplemental indenture, subject to Section 3.11, prior to the issuance of Securities of any such series: (a) the title of the Securities of such series (which shall distinguish the Securities of such series from Securities of any other series); (b) the Person to whom any interest on a Security of such series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; (c) the date or dates on which the principal of the Securities of such series is payable; (d) the rate or rates at which the Securities of such series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable and the Regular Record Date for any interest payable on any Interest Payment Date; (e) the place or places where the principal of and any premium and interest on Securities of such series shall be payable; (f) the period or periods within which, the Redemption Price or Prices or the Repayment Price or Prices, as the case may be, at which and the terms and conditions upon which Securities of such series may be redeemed or repaid (including the applicability of Section 11.09), as the case may be, in whole or in part, at the option of the Company or the Holder; 26 (g) the obligation, if any, of the Company to purchase Securities of such series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of such series shall be purchased, in whole or in part, pursuant to such obligation; (h) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of such series shall be issuable; (i) provisions, if any, with regard to the conversion or exchange of the Securities of such series, at the option of the Holders thereof or the Company, as the case may be, for or into new Securities of a different series, Common Stock or other securities and, if the Securities of such series are convertible into Common Stock or other Marketable Securities, the Conversion Price therefor; (j) if other than U.S. dollars, the currency or currencies or units based on or related to currencies in which the Securities of such series shall be denominated and in which payments of principal of, and any premium and interest on, such Securities shall or may be payable; (k) if the principal of (and premium, if any) or interest, if any, on the Securities of such series are to be payable, at the election of the Company or a Holder thereof, in a coin or currency (including a composite currency) other than that in which the Securities are stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made; (l) if the amount of payments of principal of (and premium, if any) or interest, if any, on the Securities of such series may be determined with reference to an index based on a coin or currency (including a composite currency) other than that in which the Securities are stated to be payable, the manner in which such amounts shall be determined; (m) any limit upon the aggregate principal amount of the Securities of such series which may be 27 authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.04, 3.05, 3.06, 9.06, 11.07, 12.02 and except for any Securities which, pursuant to Section 3.03, are deemed never to have been authenticated and delivered hereunder); (n) provisions, if any, with regard to the exchange of Securities of such series, at the option of the Holders thereof, for other Securities of the same series of the same aggregate principal amount of a different authorized kind or different authorized denomination or denominations, or both; (o) provisions, if any, with regard to the appointment by the Trustee of an Authenticating Agent in one or more places other than the location of the office of the Trustee with power to act on behalf of the Trustee and subject to its direction in the authentication and delivery of the Securities of any one or more series in connection with such transactions as shall be specified in the provisions of this Indenture or in or pursuant to such Board Resolution or supplemental indenture; (p) the portion of the principal amount of Securities of the series, if other than the principal amount thereof, which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.02 or provable in bankruptcy pursuant to Section 5.04; (q) any Event of Default with respect to the Securities of such series, if not set forth herein, and any additions, deletions or other changes to the Events of Default set forth herein that shall be applicable to the Securities of such series; (r) any covenant solely for the benefit of the Securities of such series and any additions, deletions or other changes to Article X or Section 1.01 or any definitions otherwise applicable to the Securities of that series; (s) if Section 4.03 of this Indenture shall not be applicable to the Securities of such series and if 28 Section 4.03 shall be applicable to any covenant or Event of Default established in or pursuant to a Board Resolution or in a supplemental indenture as described above that has not already been established herein; (t) if the Securities of such series shall be issued in whole or in part in the form of a Global Security or Securities, the terms and conditions, if any, upon which such Global Security or Securities may be exchanged in whole or in part for other individual Securities; and the Depository for such Global Security or Securities; and (u) any other terms of such series, all upon such terms as may be determined in or pursuant to such Board Resolution or supplemental indenture with respect to such series. The form of the Securities of each series shall be established pursuant to the provisions of this Indenture in or pursuant to the Board Resolution or in the supplemental indenture creating such series. The Securities of each series shall be distinguished from the Securities of each other series in such manner, reasonably satisfactory to the Trustee, as the Board of Directors may determine. Unless otherwise provided with respect to Securities of a particular series, the Securities of any series may only be issuable in registered form, without coupons. Any terms or provisions in respect of the Securities of any series issued under this Indenture may be determined pursuant to this Section by providing for the method by which such terms or provisions shall be determined. SECTION 3.02. Denominations. The Securities of each series shall be -------------- issuable in such denominations and currency as shall be provided the provisions of this Indenture or in or pursuant to the Board Resolution or the supplemental indenture creating such series. In the absence of any such provisions with respect to the Securities of any series, the Securities of that series shall be issuable only in fully registered form in denominations of $1,000 and any integral multiple thereof. 29 SECTION 3.03. Execution, Authentication and Delivery and Dating. The -------------------------------------------------- Securities shall be executed on behalf of the Company by its Chairman of the Board, its President, one of its Vice Presidents or its Treasurer under its corporate seal reproduced thereon and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication; and the Trustee shall, upon Company Order, authenticate and deliver such Securities as in this Indenture provided and not otherwise. Prior to any such authentication and delivery, the Trustee shall be entitled to receive, in addition to any Officers' Certificate and Opinion of Counsel required to be furnished to the Trustee pursuant to Section 1.02, and the Board Resolution and any certificate relating to the issuance of the series of Securities required to be furnished pursuant to Section 2.02, an Opinion of Counsel stating that: (a) all instruments furnished to the Trustee conform to the requirements of the Indenture and constitute sufficient authority hereunder for the Trustee to authenticate and deliver such Securities; (b) the form and terms of such Securities have been established in conformity with the provisions of this Indenture; (c) all laws and requirements with respect to the execution and delivery by the Company of such Securities have been complied with, the Company has the corporate power to issue such Securities and such Securities have been duly authorized and delivered by the Company and, assuming due authentication and 30 delivery by the Trustee, constitute legal, valid and binding obligations of the Company enforceable in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors' rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity) and entitled to the benefits of this Indenture, equally and ratably with all other Securities, if any, of such series Outstanding; (d) the Indenture is qualified under the Trust Indenture Act; and (e) such other matters as the Trustee may reasonably request; and, if the authentication and delivery relates to a new series of Securities created by an indenture supplemental hereto, also stating that all laws and requirements with respect to the form and execution by the Company of the supplemental indenture with respect to that series of Securities have been complied with, the Company has corporate power to execute and deliver any such supplemental indenture and has taken all necessary corporate action for those purposes and any such supplemental indenture has been executed and delivered and constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors' rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity). The Trustee shall not be required to authenticate such Securities if the issue thereof will adversely affect the Trustee's own rights, duties or immunities under the Securities and this Indenture. Unless otherwise provided in the form of Security for any series, all Securities shall be dated the date of their authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of 31 authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.09, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. SECTION 3.04. Temporary Securities. Pending the preparation of --------------------- definitive Securities of any series, the Company may execute, and, upon receipt of the documents required by Section 3.03, together with a Company Order, the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment, without charge to the Holder; and upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of such series of authorized denominations and of like tenor and terms. Until so exchanged the temporary Securities of such series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. SECTION 3.05. Registration, Transfer and Exchange. The Company shall ------------------------------------ keep or cause to be kept a register or registers (herein sometimes referred to as the "Security Register") in which, subject to such reasonable 32 regulations as it may prescribe, the Company shall provide for the registration of Securities, or of Securities of a particular series, and of transfers of Securities or of Securities of such series. Any such register shall be in written form or in any other form capable of being converted into written form within a reasonable time. At all reasonable times the information contained in such register or registers shall be available for inspection by the Trustee at the office or agency to be maintained by the Company as provided in Section 10.02. There shall be only one Security Register per series of Securities. Subject to Section 2.04, upon surrender for registration of transfer of any Security of any series at the office or agency of the Company maintained for such purpose in a Place of Payment, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of such series of any authorized denominations, of a like aggregate principal amount and Stated Maturity and of like tenor and terms. Subject to Section 2.04, at the option of the Holder, Securities of any series may be exchanged for other Securities of such series of any authorized denominations, of a like aggregate principal amount and Stated Maturity and like tenor and terms, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Securityholder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed, by the Holder thereof or his attorney duly authorized in writing. 33 Unless otherwise provided in the Security to be registered for transfer or exchanged, no service charge shall be made on any Securityholder for any registration of transfer or exchange of Securities, but the Company may (unless otherwise provided in such Security) require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer. The Company shall not be required (a) to issue, register the transfer of or exchange any Security of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of such series selected for redemption under Section 11.03 and ending at the close of business on the date of such mailing or (b) to register the transfer of or exchange any Security so selected for redemption in whole or in part. None of the Company, the Trustee, any agent of the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities. If ------------------------------------------------- (a) any mutilated Security is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security and(b) there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Security, a new Security of like tenor, series, Stated Maturity and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and 34 payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of the same series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.07. Payment of Interest; Interest Rights Preserved. Unless ----------------------------------------------- otherwise provided with respect to such security pursuant to Section 3.01, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of his having been such Holder; and, except as hereinafter provided, such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (a) or clause (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names any such Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be 35 fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class postage prepaid, to the Holder of each such Security at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Securities (or their respective Predecessor Securities) are registered on such Special Record Date and shall no longer be payable pursuant to the following clause (b). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. If any installment of interest the Stated Maturity of which is on or prior to the Redemption Date for any Security called for redemption pursuant to Article Eleven is not paid or duly provided for on or prior to the Redemption Date in accordance with the foregoing provisions of this Section, such interest shall be payable as part of the Redemption Price of such Securities. 36 Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.08. Persons Deemed Owners. The Company, the Trustee and ---------------------- any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any), and (subject to Section 3.07) interest on, such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 3.09. Cancellation. All Securities surrendered for payment, ------------- redemption, conversion, registration of transfer, or exchange or credit against a sinking fund shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and, if not already cancelled, shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Security shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. The Trustee shall dispose of all cancelled Securities in accordance with its standard procedures and deliver a certificate of such disposition to the Company. SECTION 3.10. Computation of Interest. Unless otherwise provided as ------------------------ contemplated in Section 3.01, interest on the Securities shall be calculated on the basis of a 360-day year of twelve 30-day months. 37 SECTION 3.11. Delayed Issuance of Securities. Notwithstanding any ------------------------------- contrary provision herein, if all Securities of a series are not to be originally issued at one time, it shall not be necessary for the Company to deliver to the Trustee an Officers' Certificate, Board Resolution, supplemental indenture, Opinion of Counsel or Company Order otherwise required pursuant to Sections 1.02, 2.02, 3.01 and 3.03 at or prior to the time of authentication of each Security of such series if such documents are delivered to the Trustee or its agent at or prior to the authentication upon original issuance of the first Security of such series to be issued; provided that any subsequent request by the Company to the Trustee to authenticate Securities of such series upon original issuance shall constitute a representation and warranty by the Company that as of the date of such request, the statements made in the Officers' Certificate or other certificates delivered pursuant to Sections 1.02 and 2.02 shall be true and correct as if made on such date. A Company Order, Officers', Certificate or Board Resolution or supplemental indenture delivered by the Company to the Trustee in the circumstances set forth in the preceding paragraph may provide that Securities which are the subject thereof will be authenticated and delivered by the Trustee or its agent on original issue from time to time in the aggregate principal amount, if any, established for such series pursuant to such procedures acceptable to the Trustee as may be specified from time to time by Company Order upon the telephonic, electronic or written order of Persons designated in such Company Order, Officers' Certificate, supplemental indenture or Board Resolution (any such telephonic or electronic instructions to be promptly confirmed in writing by such Persons) and that such Persons are authorized to determine, consistent with such Company Order, Officers' Certificate, supplemental indenture or Board Resolution, such terms and conditions of said Securities as are specified in such Company Order, Officers' Certificate, supplemental indenture or Board Resolution. ARTICLE IV Satisfaction and Discharge -------------------------- SECTION 4.01. Satisfaction and Discharge of Indenture. This ----------------------------- ---------- Indenture shall cease to be of further effect with respect to any series of Securities (except as 38 to any surviving rights of conversion or transfer or exchange of Securities of such series expressly provided for herein or in the form of Security for such series), and the Trustee, on receipt of a Company Request and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series, when: (a) either: (i) all Securities of that series theretofore authenticated and delivered (other than (A) Securities of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (B) Securities of such series for whose payment money in the Required Currency has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee canceled or for cancellation; or (ii) all such Securities of that series not theretofore delivered to the Trustee canceled or for cancellation: (A) have become due and payable, (B) will become due and payable at their Stated Maturity within one year, or (C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (a), (B) or (C) above, has irrevocably deposited or caused to be deposited (which deposit is not prohibited by Article XIII) with the Trustee as trust funds in trust for the purpose an amount in the Required Currency sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee canceled or for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in 39 the case of Securities which have become due and payable), or to the Stated Maturity or Redemption Date, as the case may be; (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the Securities of such series; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Securities of such series have been complied with. Notwithstanding the satisfaction and discharge of this Indenture with respect to any series of Securities, the obligations of the Company to the Trustee with respect to that series under Section 6.07 shall survive and the obligations of the Company and the Trustee under Sections 3.05, 3.06, 4.02, 10.02 and 10.03 shall survive. SECTION 4.02. Application of Trust Money. Subject to the provisions --------------------------- of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 or Section 4.03 shall be held in trust and applied by it, in accordance with the provisions of the series of Securities in respect of which it was deposited and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. Anything herein to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or securities deposited with and held by it as provided in Section 4.03 and this Section 4.02 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent satisfaction and discharge, Discharge or covenant defeasance; provided that the Trustee shall not be required 40 to liquidate any securities in order to comply with the provisions of this paragraph. SECTION 4.03. Defeasance upon Deposit of Funds or Government ---------------------------------------------- Obligations. Unless pursuant to Section 3.01 provision is made that this - ------------ Section shall not be applicable to the Securities of any series, at the Company's option, either (a) the Company shall be deemed to have been Discharged (as defined below) from its obligations with respect to any series of Securities after the applicable conditions set forth below have been satisfied or (b) the Company shall cease to be under any obligation to comply with any term, provision or condition set forth in Sections 10.05 and 10.07 and Article Eight (and any other Sections or covenants applicable to such Securities that are determined pursuant to Section 3.01 to be subject to this provision), and clause (d) of Section 5.01 of this Indenture (and any other Events of Default applicable to such Securities that are determined pursuant to Section 3.01 to be subject to this provision) shall be deemed not to be an Event of Default, with respect to any series of Securities at any time after the applicable conditions set forth below have been satisfied: (i) the Company shall have deposited or caused to be deposited (which deposit is not prohibited by Article Thirteen) irrevocably with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities of such series (A) money in an amount, (B) the equivalent in securities of the government which issued the currency in which the Securities are denominated or government agencies backed by the full faith and credit of such government which through the payment of interest and principal in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount or (C) a combination of (A) and (B), sufficient, in the opinion (with respect to (B) and (C)) of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge each installment of principal (including mandatory sinking fund payments) and any premium of, interest on and any repurchase or redemption obligations with respect to the outstanding Securities of such series on the dates such installments of interest or principal or repurchase or redemption obligations are due (before 41 such a deposit, if the Securities of such series are then redeemable or may be redeemed in the future pursuant to the terms thereof, in either case at the option of the Company, the Company may give to the Trustee, in accordance with Section 11.02, a notice of its election to redeem all of the Securities of such series at a future date in accordance with Article Eleven); (ii) no Event of Default or event (including such deposit) which with notice or lapse of time would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit; (iii) the Company shall have delivered to the Trustee (A) an Opinion of Counsel to the effect that Holders of the Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of the Company's exercise of its option under this Section 4.03 and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised, and, in the case of Securities being Discharged, accompanied by a ruling to that effect from the Internal Revenue Service, unless, as set forth in such Opinion of Counsel, there has been a change in the applicable federal income tax law since the date of this Indenture such that a ruling from the Internal Revenue Service is no longer required and (B) an Opinion of Counsel, subject to such qualifications, exceptions, assumptions and limitations as are reasonably deemed necessary by such counsel and are reasonably satisfactory to counsel for the Trustee, to the effect that the trust resulting from the deposit referred to in paragraph (i) above does not violate the Investment Company Act of 1940; and (iv) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit referred to in paragraph (i) above was not made by the Company with the intent of preferring the Holders over other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others. 42 "Discharged" means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Securities of such series and to have satisfied all the obligations under this Indenture relating to the Securities of such series (and the Trustee, upon receipt of a Company Request and at the expense of the Company, shall execute proper instruments acknowledging the same), except (a) the rights of Holders of Securities to receive, from the trust fund described in paragraph (i) above, payment of the principal and any premium of and any interest on such Securities when such payments are due; (B) the Company's obligations with respect to such Securities under Sections 3.05, 3.06, 4.02, 6.07, 10.02 and 10.03; (c) the Company's right of redemption, if any, with respect to any Securities of such series pursuant to Article XI, in which case the Company may redeem the Securities of such series in accordance with Article XI by complying with such Article and depositing with the Trustee, in accordance with Section 11.05, an amount of money sufficient, together with all amounts held in trust pursuant to Section 4.02 with respect to Securities of such series, to pay the Redemption Price of all the Securities of such series to be so redeemed; and (d) the rights, powers, trusts, duties and immunities of the Trustee hereunder. SECTION 4.04. Reinstatement. If the Trustee or paying Agent is -------------- unable to apply any money or securities in accordance with Section 4.02 of this Indenture by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 4.01 or 4.03 of this Indenture, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money or securities in accordance with Section 4.02 of this Indenture; provided that, if the Company has made any payment of principal of or -------- interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or securities held by the Trustee or paying Agent. SECTION 4.05. Subordination Provisions Inapplicable. Notwithstanding -------------------------------------- anything contained herein to the contrary, any money that shall have been deposited by the Company with the Trustee pursuant to Section 4.01 or 43 Section 4.03 shall not be subject to the provisions of Article Thirteen of this Indenture respecting subordination of the Securities; provided, however, that -------- ------- said provisions respecting subordination shall continue to apply to such money, if any, that has been returned to the Company or its legal representative pursuant to any legal proceeding or an order or judgment of a court or governmental authority. ARTICLE V Remedies -------- SECTION 5.01. Events of Default. "Event of Default", wherever used ------------------ herein, means with respect to any series of Securities any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is either inapplicable to a particular series or it is specifically deleted or modified in or pursuant to the supplemental indenture or Board Resolution creating such series of Securities or in the form of Security for such series: (a) default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or (b) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or (c) default in the payment of any sinking or purchase fund or analogous obligation when the same becomes due by the terms of the Securities of such series; or (d) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture in respect of the Securities of such series (other than a covenant or warranty in respect of the Securities of such series a default in the performance of which or the breach of which is elsewhere in this Section specifically dealt with), all of such covenants 44 and warranties in the Indenture which are not expressly stated to be for the benefit of a particular series of Securities being deemed in respect of the Securities of all series for this purpose, and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (e) the entry of an order for relief against the Company under Title 11, United States Code (the "Federal Bankruptcy Act") by a court having jurisdiction in the premises or a decree or order by a court having jurisdiction in the premises adjudging the Company or any Material U.S. Subsidiary a bankrupt or insolvent under any other applicable Federal or State law, or the entry of a decree or order approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or such Material U.S. Subsidiary under the Federal Bankruptcy Act or any other applicable Federal or State law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or such Material U.S. Subsidiary 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 unstayed and in effect for a period of 90 consecutive days; or (f) the consent by the Company or any Material U.S. Subsidiary to the institution of bankruptcy or insolvency proceedings against it, or-the filing by it of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Act or any other applicable Federal or State law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or such Material U.S. Subsidiary or of any substantial part of its property, or the making by it of an 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 taking of 45 corporate action by the Company or such Material U.S. Subsidiary in furtherance of any such action; or (g) any other Event of Default provided in the supplemental indenture or Board Resolution under which such series of Securities is issued or in the form of Security for such series. SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If --------------------------------------------------- an Event of Default described in paragraph (a), (b), (c), (d) or (g) (if the Event of Default under paragraph (d) or (g) is with respect to less than all series of Securities then Outstanding) of Section 5.01 occurs and is continuing with respect to any series, then and in each and every such case, unless the principal of all the Securities of such series shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities of such series then Outstanding hereunder (each such series acting as a separate class), by notice in writing to the Company (and to the Trustee if given by Holders), may declare the principal amount (or, if the Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all the Securities of such series and all accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Securities of such series contained to the contrary notwithstanding. If an Event of Default described in paragraph (d) or (g) (if the Event of Default under paragraph (d) or (g) is with respect to all series of Securities then Outstanding), of Section 5.01 occurs and is continuing, then and in each and every such case; unless the principal of all the Securities shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Securities then outstanding hereunder (treated as one class), by notice in writing to the Company (and to the Trustee if given by Holders), may declare the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms thereof) of all the Securities then Outstanding and all accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Securities contained to the contrary notwithstanding. 46 If an Event of Default of the type set forth in clause (e) or clause (f) of Section 5.01 occurs and is continuing, the principal of and any interest on the Securities then Outstanding shall become immediately due and payable. At any time after such a declaration of acceleration has been made with respect to the Securities of any or all series, as the case may be, and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of such series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all overdue installments of interest on the Securities of such series; (ii) the principal of (and premium, if any, on) any Securities of such series which have become due otherwise than by such declaration of acceleration, and interest thereon at the rate or rates prescribed therefor by the terms of the Securities of such series, to the extent that payment of such interest is lawful; (iii) interest upon overdue installments of interest at the rate or rates prescribed therefor by the terms of the Securities of such series to the extent that payment of such interest is lawful, and (iv) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 6.07; and (b) all Events of Default with respect to such series of Securities, other than the nonpayment of the principal of the Securities of such series which have become due solely by such acceleration, have been cured or waived as provided in Section 5.13. 47 No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by ------------------------------------------------------- Trustee. The Company covenants that if - -------- (a) default is made in the payment of any installment of interest on any Security of any series when such interest becomes due and payable; (b) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof; or (c) default is made in the payment of any sinking or purchase fund or analogous obligation when the same becomes due by the terms of the Securities of any series; and any such default continues for any period of grace provided with respect to the Securities of such series, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holder of any such Security (or the Holders of any such series in the case of Clause (c) above), the whole amount then due and payable on any such Security (or on the Securities of any such series in the case of Clause (c) above) for principal (and premium, if any) and interest, with interest, to the extent that payment of such interest shall be legally enforceable, upon the overdue principal (and premium, if any) and upon overdue installments of interest, at such rate or rates as may be prescribed therefor by the terms of any such Security (or of securities of any such series in the case of Clause (c) above); and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 6.07. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities of such series and collect 48 the money adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated. If an Event of Default with respect to any series of securities occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.04. Trustee May File Proofs of Claim. In case of the --------------------------------- pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceedings or otherwise, (a) to file and prove a claim for the whole amount of principal (or portion thereof determined pursuant to Section 3.01(16) to be provable in bankruptcy) (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary and advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 6.07) and of the Securityholders allowed in such judicial proceeding; and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each 49 Securityholder to make such payment to the Trustee and in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. SECTION 5.05. Trustee May Enforce Claims Without Possession of ------------------------------------------------ Securities. All rights of action and claims under this Indenture or the - ----------- Securities of any series may be prosecuted and enforced by the Trustee without the possession of any of the Securities of such series or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel and any other amounts due the Trustee under Section 6.07, be for the ratable benefit of the Holders of the Securities of the series in respect of which such judgment has been recovered. SECTION 5.06. Application of Money Collected. Any money collected by ------------------------------- the Trustee with respect to a series of Securities pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities of such series and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: (a) to the payment of all amounts due the Trustee under Section 6.07; (b) subject to Article XIII, to the payment of the amounts then due and unpaid upon the Securities of that series for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has 50 been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively. SECTION 5.07. Limitation on Suits. No Holder of any Security of any -------------------- series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to Securities of such series; (b) the Holders of not less than 25% in principal amount of the Outstanding Securities of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of such series; it being understood and intended that no one or more Holders of Securities of such series shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities of such series, or to obtain or to seek to obtain priority or preference over any other such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and proportionate benefit of all the Holders of all Securities of such series. 51 SECTION 5.08. Unconditional Right of Securityholders To Receive ------------------------------------------------- Principal, Premium and Interest. Notwithstanding any other provisions in this - -------------------------------- Indenture except for the provisions of Article XIII, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.07) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repayment, on the Redemption Date or Repayment Date, as the case may be) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or ----------------------------------- any Securityholder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, then and in every such case the Company, the Trustee and the Securityholders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Securityholders shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative. No right or remedy ------------------------------- herein conferred upon or reserved to the Trustee or to the Securityholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy give hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of ----------------------------- the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Securityholders, as the case may be. 52 SECTION 5.12. Control by Securityholders. The Holders of a majority --------------------------- in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series, provided that: (a) the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, determines that the action so directed may not lawfully be taken or would conflict with this Indenture or if the Trustee in good faith shall, by a Responsible Officer, determine that the proceedings so directed would involve it in personal liability or be unjustly prejudicial to the Holders not taking part in such direction; and (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.13. Waiver of Past Defaults. The Holders of not less than ------------------------ a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default not theretofore cured: (a) in the payment of the principal of (or premium, if any) or interest on any Security of such series, or in the payment of any sinking or purchase fund or analogous obligation with respect to the Securities of such series; or (b) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. 53 SECTION 5.14. Undertaking for Costs. All parties to this Indenture ---------------------- agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series to which the suit relates, or to any suit instituted by and Securityholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption or repayment, on or after the Redemption Date or Repayment Date, as the case may be). SECTION 5.15. Waiver of Stay or Extension Laws. The Company --------------------------------- covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 54 ARTICLE IV The Trustee ----------- SECTION 6.01. Certain Duties and Responsibilities. (a) Except during ------------------------------------ the continuance of an Event of Default with respect to any series of Securities: (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture with respect to the Securities of such series, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may, with respect to Securities of such series, conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (b) In case an Event of Default with respect to any series of Securities has occurred and is continuing, the Trustee shall exercise with respect to the Securities of such series such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own wilful misconduct, except that: (i) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; 55 (iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities of any series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; and (iv) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 6.02. Notice of Defaults. Within 90 days after the ------------------- occurrence of any default hereunder with respect to Securities of any series, the Trustee shall transmit by mail to all Securityholders of such series, as their names and addresses appear in the Security Register, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the -------- ------- payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking or purchase fund installment or analogous obligation with respect to Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Securityholders of such series; and provided further that in the case of any default of the character specified in - -------- ------- Section 5.01(4) with respect to Securities of such series no such notice to Securityholders of such series shall be given until at least 90 days after the occurrence thereof. For the purpose of this Section, the term "default", with respect to Securities 56 of any series, means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. SECTION 6.03. Certain Rights of Trustee. Except as otherwise -------------------------- provided in Section 6.01: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Securityholders pursuant to this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, 57 opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (h) the Trustee shall not be charged with knowledge of any default (as defined in Section 6.02) or Event of Default with respect to the Securities of any series for which it is acting as Trustee unless either (1) a Responsible Officer of the Trustee assigned to the Corporation Trust Department of the Trustee (or any successor division or department of the Trustee) shall have actual knowledge of such default or Event of Default or (2) written notice of such default or Event of Default shall have been given to the Trustee by the Company or any other obligor on such Securities or by any Holder of such Securities; and (i) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. SECTION 6.04. Not Responsible for Recitals or Issuance of Securities. ------------------------------------------------------- The recitals contained herein and in the Securities, except the certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.05. May Hold Securities. The Trustee, any Authenticating -------------------- Agent, any Paying Agent, the Security 58 Registrar, any Conversion Agent or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar, Conversion Agent or such other agent. SECTION 6.06. Money Held in Trust. Subject to the provisions of -------------------- Section 10.03 hereof, all moneys in any currency or currency received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 6.07. Compensation and Reimbursement. The Company agrees: ------------------------------- (a) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. As security for the performance of the obligations of the Company under this Section the Trustee shall have a 59 lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Securities. When the Trustee incur expenses or renders services in connection with an Event of Default specified in Section 5.01(e) or (f), the expenses and the compensation for the services are intended to constitute expenses of administration under any bankruptcy law. The Company's obligations under this Section 6.07 and any lien arising hereunder shall survive the resignation or removal of any Trustee, the discharge of the Company's obligations pursuant to Article IV of this Indenture and/or the termination of this Indenture. SECTION 6.08. Disqualification; Conflicting Interests. The Trustee ---------------------------------------- for the Securities of any series issued hereunder shall be subject to the provisions of Section 3.10(b) of the Trust Indenture Act during the period of time provided for therein. In determining whether the Trustee has a conflicting interest as defined in Section 3.10(b) of the Trust Indenture Act with respect to the Securities of any series, there shall be excluded this Indenture with respect to Securities of any particular series of Securities other than that series. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 3.10(b) of the Trust Indenture Act. SECTION 6.09. Corporate Trustee Required; Eligibility. There shall ---------------------------------------- at all times be a Trustee hereunder with respect to each series of Securities, which shall be either: (a) a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal or State authority; or (b) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of 60 such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees, in either case having a combined capital and surplus of at least $50 million. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither the Company nor any Person directly or indirectly controlling, controlled by, or under common control with the Company shall serve as trustee for the Securities of any series issued hereunder. If at any time the Trustee with respect to any series of Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in Section 6.10. SECTION 6.10. Resignation and Removal; Appointment of Successor. (a) -------------------------------------------------- No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign with respect to any series of Securities at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed with respect to any series of Securities at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities of that series, delivered to the Trustee and to the Company. 61 (d) If at any time: (i) the Trustee shall fail to comply with Section 3.10(b) of the Trust Indenture Act pursuant to Section 6.08 with respect to any series of Securities after written request therefor by the Company or by any Securityholder who has been a bona fide Holder of a Security of that series for at least six months, unless the Trustee's duty to resign is stayed in accordance with the provisions of Section 3.10(b) of the Trust Indenture Act; or (ii) the Trustee shall cease to be eligible under Section 6.09 with respect to any series of Securities and shall fail to resign after written request therefor by the Company or by any such Securityholder; or (iii) the Trustee shall become incapable of acting with respect to any series of Securities; or (iv) the Trustee shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, (A) the Company by a Board Resolution may remove the Trustee, with respect to the series, or in the case of Clause (iv), with respect to all series, or (B) subject to Section 5.14, any Securityholder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee with respect to the series, or, in the case of Clause (iv), with respect to all series. (e) If the Trustee shall resign, be removed or become incapable of acting with respect to any series of Securities, or if a vacancy shall occur in the office of the Trustee with respect to any series of Securities for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee for that series of Securities. If, within one year after such resignation, removal or incapacity, or the occurrence of such vacancy, a successor Trustee with respect to such series of Securities shall be 62 appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to such series and supersede the successor Trustee appointed by the Company with respect to such series. If no successor Trustee with respect to such series shall have been so appointed by the Company or the Securityholders of such series and accepted appointment in the manner hereinafter provided, subject to Section 5.14, any Securityholder who has been a bona fide Holder of a Security of that series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to any series and each appointment of a successor Trustee with respect to any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities of that series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee and the address of its principal Corporate Trust Office. SECTION 6.11. Acceptance of Appointment by Successor. Every --------------------------------------- successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the predecessor Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the predecessor Trustee shall become effective with respect to any series as to which it is resigning or being removed as Trustee, and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the predecessor Trustee with respect to any such series; but, on request of the Company or the successor Trustee, such predecessor Trustee shall, upon payment of its reasonable charges, if any, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the predecessor Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such predecessor Trustee hereunder with respect to all or any such series, subject nevertheless to its lien, if any, provided for in Section 6.07. Upon request of any such successor Trustee, the Company shall execute any and all 63 instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the predecessor Trustee and each successor Trustee with respect to the Securities of any applicable series shall execute and deliver an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the predecessor Trustee with respect to the Securities of any series as to which the predecessor Trustee is not being succeeded shall continue to be vested in the predecessor Trustee, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be Trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee. No successor Trustee with respect to any series of Securities shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible with respect to that series under this Article. SECTION 6.12. Merger, Conversion, Consolidation or Succession to -------------------------------------------------- Business. Any corporation into which the Trustee may be merged or converted or - --------- with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. 64 SECTION 6.13. Preferential Collection of Claims Against Company. (a) -------------------------------------------------- Subject to Subsection (b) of this Section, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within three months prior to a default, as defined in Subsection (c) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the Holders of the Securities and the holders of other indenture securities (as defined in Subsection (c) of this Section): (i) an amount equal to any and all reduction in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such three-month period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (ii) of this Subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and (ii) all property received by the Trustee in respect of any claim as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such three-month period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds. Nothing herein contained, however, shall affect the right of the Trustee (A) to retain for its own account (I) payments made on account of any such claim by any Person (other than the Company) who is liable thereon, and (II) the proceeds of the bona fide sale of any such claim by the Trustee to a third Person, and (III) distributions made in cash, securities or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law; 65 (B) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such three-month period; (C) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such three-month period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default as defined in Subsection (c) of this Section would occur within three months; or (D) to receive payment on any claim referred to in paragraph (B) or (C) or against the release of any property held as security for such claim as provided in paragraph (B) or (C), as the case may be, to the extent of the fair value of such property. For the purposes of paragraphs (B), (C) and (D), property substituted after the beginning of such three-month period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim. If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned between the Trustee, the Securityholders and the holders of other indenture securities in such manner that the Trustee, the Securityholders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from the Company of the funds and property in such special 66 account and before crediting to the respective claims of the Trustee and the Securityholders and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceedings for reorganization is pending shall have jurisdiction (i) to apportion between the Trustee and the Securityholders and the holders of other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee and the Securityholders and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula. Any Trustee which has resigned or been removed after the beginning of such three-month period shall be subject to the provisions of this Subsection as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such three-month period, it shall be subject to the provisions of 67 this Subsection if and only if the following conditions exist: (i) the receipt of property or reduction of claim, which would have given rise to the obligation to account, if such Trustee had continued as Trustee, occurred after the beginning of such three-month period; and (ii) such receipt of property or reduction of claim occurred within three months after such resignation or removal. (b) There shall be excluded from the operation of Subsection (a) of this Section a creditor relationship arising from (i) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee; (ii) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon), if notice of such advances and of the circumstances surrounding the making thereof is given to the Securityholders at the time and in the manner provided in this Indenture; (iii) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depository, or other similar capacity; (iv) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction as defined in Subsection (c) of this Section; (v) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; or 68 (vi) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper as defined in Subsection (c) of this Section. (c) For the purposes of this Section only: (i) The term "default" means any failure to make payment in full of the principal of or interest on any of the Securities or upon the other indenture securities when and as such principal or interest becomes due and payable. (ii) The term "other indenture securities" means securities upon which the Company is an obligor outstanding under any other indenture (A) under which the Trustee is also trustee, (B) which contains provisions substantially similar to the provisions of this Section, and (C) under which a default exists at the time of the apportionment of the funds and property held in such special account. (iii) The term "cash transaction" means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand. (iv) The term "self-liquidating paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation. (v) The term "Company" means any obligor upon the securities. 69 SECTION 6.14. Appointment of Authenticating Agent. At any time when ------------------------------------ any of the Securities remain Outstanding the Trustee, with the approval of the Company, may appoint an authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issuance, exchange, registration of transfer or partial redemption thereof or pursuant to Section 3.06, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as an Authenticating Agent, having a combined capital and surplus of not less than $50 Million and, if other than the Company itself, subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any 70 paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and, if other than the Company, to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and, if other than the Company, to the company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee, with the approval of the Company, may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.07. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the 71 Trustee's certificate of authentication, an alternate certificate of authentication in the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned indenture. CHEMICAL BANK, as Trustee by________________________ As Authenticating Agent by________________________ Authorized Agent 72 ARTICLE VII Securityholders' Lists and Reports by ------------------------------------- Trustee and Company ------------------- SECTION 7.01. Company To Furnish Trustee Names and Addresses of ------------------------------------ ------------ Securityholders. The Company will furnish or cause to be furnished to the - ---------------- Trustee: (a) semi-annually, not more than 15 days after December 15 and June 15 in each year in such form as the Trustee may reasonably require, a list of the names and addresses of the Holders of Securities of each series as of such December 15 and June 15, as applicable, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that if and so long as the Trustee shall be the Security - -------- ------- Registrar for Securities of a series, no such list need be furnished with respect to such series of Securities. SECTION 7.02. Preservation of Information; Communications to ---------------------------------------------- Securityholders. (a) The Trustee shall preserve, in as current a term as is - ---------------- reasonably practicable, the names and addresses of Holders of Securities contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders of Securities received by the Trustee in its capacity as Security Registrar, it so acting. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. (b) If three or more Holders of Securities of any series (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security of such series for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Securities of such series or with the Holders of all 73 Securities with respect to their rights under this Indenture or under such Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 7.02(a), or (ii) inform such applicants as to the approximate number of Holders of Securities of such series or all Securities, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a), and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder of a Security of such series or to all Securityholders, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless, within five days after such tender, the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders of Securities of such series or all Securityholders, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to 74 all Securityholders of such series or all Securityholders, as the case may be, with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Securities in accordance with Section 7.02(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 7.02(b). SECTION 7.03. Reports by Trustee. (a) The term to "reporting date" ------------------- as used in this Section means May 15. Within 60 days after the reporting date in each year, beginning in 1993, the Trustee shall transmit by mail to all Securityholders, as their names and addresses appear in the Security Register, a brief report dated as of such reporting date with respect to any of the following events which may have occurred during the 12 months preceding the date of such report (but if no such event has occurred within such period, no report need be transmitted): (i) any change to its eligibility under Section 6.09 and its qualifications under Section 6.08; (ii) the creation of or any material change to a relationship specified in Section 3.10(b)(1) through Section 3.10(b)(10) of the Trust Indenture Act; (iii) the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of Securities of any series, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remaining unpaid aggregate not more than one-half of 1% of the principal amount of the Securities of such series Outstanding on the date of such report; 75 (iv) any change to the amount, interest rate and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Securities) to the Trustee in its individual capacity, on the date of such report, with a brief description of any property held as collateral security therefor, except an indebtedness based upon a creditor relation- ship arising in any manner described in Section 613(b)(ii), (iii), (iv), or (vi); (v) any change to the property and funds, if any, physically in the possession of the Trustee as such on the date of such report; (vi) any additional issue of Securities for which the Trustee so acts and which the Trustee has not previously reported; and (vii) any action taken by the Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Securities, except action in respect of a default, notice of which has been or is to be withheld by the Trustee in accordance with Section 6.02. (b) The Trustee shall transmit by mail to all Securityholders, as their names and addresses appear in the Security Register, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to Subsection (a) of this Section (or if no such report has yet been so transmitted, since the date of execution of this instrument) for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities of any series, on property or funds held or collected by it as Trustee, and which it has not previously reported pursuant to this Subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the Securities outstanding of such series at such time, such report to be transmitted within 90 days after such time. (c) A copy of each such report shall, at the time of such transmission to Securityholders, be furnished to the Company and be filed by the Trustee with each stock exchange 76 upon which the Securities are listed, and also with the Commission. The Company will notify the Trustee when the Securities are listed on any stock exchange. SECTION 7.04. Reports by Company. The Company shall file with the ------------------- Trustee, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that -------- any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. The Company also shall comply with the other provisions of Trust Indenture Act Section 3.14(a). ARTICLE VIII Consolidation, Merger, Conveyance or Transfer --------------------------------------------- SECTION 8.01. Company May Consolidate, etc., only on Certain Terms. ----------------------------------- ----------------- The Company shall not consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (a) the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer the properties and assets of the Company substantially as an entirety shall be organized and existing under the laws of the United States of America or any political subdivision thereof, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (b) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and 77 (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 8.02. Successor Person Substituted. Upon any consolidation ----------------------------- or merger, or any conveyance or transfer of the properties and assets of the Company substantially as an entirety in accordance with Section 8.01, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company herein. In the event of any such conveyance or transfer, the Company as the predecessor shall be discharged from all obligations and covenants under this Indenture and the Securities and may be dissolved, wound up or liquidated at any time thereafter. ARTICLE IX Supplemental Indentures ----------------------- SECTION 9.01. Supplemental Indentures Without Consent of ------------------------------- ---------- Securityholders. Without the consent of the Holders of any Securities, the - ---------------- Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another corporation or Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; (b) to add to the covenants of the Company, or to surrender any right or power herein conferred upon the Company, for the benefit of the Holders of the Securities of any or all series (and if such covenants or the surrender of such right or power are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being 78 included or such surrenders are expressly being made solely for the benefit of one or more specified series); (c) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; (d) to add to this Indenture such provisions as may be expressly permitted by the TIA, excluding, however, the provisions referred to in Section 3.16(a)(2) of the TIA as in effect at the date as of which this instrument was executed or any corresponding provision in any similar Federal statute hereafter enacted; (e) to establish any form of Security, as provided in Article II, and to provide for the issuance of any series of Securities as provided in Article III and to set forth the terms thereof, and/or to add to the rights of the Holders of the Securities of any series; (f) to evidence and provide for the acceptance of appointment by another corporation as a successor Trustee hereunder with respect to one or more series of Securities and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to Section 6.11; (g) to add any additional Events of Default in respect of the Securities of any or all series (and if such additional Events of Default are to be in respect of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of one or more specified series); (h) to provide for the issuance of Securities in coupon as well as fully registered form; (i) to provide for the terms and conditions of conversion into Common Stock or other Marketable Securities of the Securities of any series which are convertible into Common Stock or other Marketable 79 Securities, if different from those set forth in Article XII; or (j) to secure the Securities of any series pursuant to Section 10.06 or otherwise. No supplemental indenture for the purposes identified in Clauses (b), (c), (e) or (g) above may be entered into if to do so would adversely affect the interest of the Holders of Securities of any series in any material respect. SECTION 9.02. Supplemental Indentures with Consent of --------------------------------------- Securityholders. With the consent of the Holders of not less than a majority in - ---------------- principal amount of the Outstanding Securities of each series affected by such supplemental indenture or indentures, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Securities of each such series under this Indenture; provided, however, that no such supplemental indenture shall, without the - -------- ------- consent of the Holder of each Outstanding Security affected thereby: (a) change the Maturity of the principal of, or the Stated Maturity of any premium on, or any installment of interest on, any Security, or reduce the principal amount thereof or the interest or any premium thereon, or change the method of computing the amount of principal thereof or interest thereon on any date or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Maturity or the Stated Maturity, as the case may be, thereof (or, in the case of redemption or repayment, on or after the Redemption Date or the Repayment Date, as the case may be), or alter the provisions of this Indenture so as to affect adversely the terms, if any, of conversion of any Securities into Common Stock or other securities, or alter the provisions of Article XIII or the definition of Senior Indebtedness so as to affect adversely the rights of any Holder of Securities; 80 (b) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences, provided for in this Indenture; (c) modify any of the provisions of this Section, Section 5.13 or Section 10.06, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; or (d) impair or adversely affect the right of any Holder to institute suit for the enforcement of any payment on, or with respect to, the Securities of any series on or after the Stated Maturity of such Securities (or in the case of redemption, on or after the Redemption Date). A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Securityholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03. Execution of Supplemental Indentures. In executing, or ------------------------------------- accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own 81 rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. Effect of Supplemental Indentures. Upon the execution ---------------------------------- of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby to the extent provided therein. SECTION 9.05. Conformity with Trust Indenture Act. Every ------------------------------------ supplemental indenture executed pursuant to this Article shall conform to the requirements of TIA as then in effect. SECTION 9.06. Reference in Securities to Supplemental Indentures. --------------------------------------------------- Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 9.07. Subordination Unimpaired. No supplemental indenture ------------------------- entered into under this Article shall modify, directly or indirectly, the provisions of Article XIII or the definition of Senior Indebtedness in Section 1.01 in any manner that adversely affects the rights of the holders of Senior Indebtedness then outstanding under Article XIII unless written consents are obtained from holders of such Senior Indebtedness; provided, however, that in -------- ------- any case where the instrument or agreement governing Senior Indebtedness contains express provisions pertaining to the giving of consent in such circumstances, such consents shall only be required to the extent they are required under the terms of such instrument or agreement. 82 ARTICLE X Covenants --------- SECTION 10.01. Payment of Principal, Premium and Interest. With ------------------------------------------- respect to each series of Securities, the Company will duly and punctually pay the principal of (and premium, if any) and interest on such Securities in accordance with their terms and this Indenture, and will duly comply with all the other terms, agreements and conditions contained in, or made in the Indenture for the benefit of, the Securities of such series. SECTION 10.02. Maintenance of Office or Agency. The Company will -------------------------------- maintain an office or agency in each Place of Payment where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served and where any Securities with conversion privileges may be presented and surrendered for conversion. The Company will give prompt written notice to the Trustee of the location, and of any change in the location, of such office or agency. If at any time the Company shall fail to maintain such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands. Unless otherwise set forth in, or pursuant to, a Board Resolution or Indenture supplemental hereto with respect to a series of Securities, the Company hereby initially designates as the Place of Payment for each series of Securities, the Borough of Manhattan, the City and State of New York, and initially appoints the Trustee at its Corporate Trust office as the Company's office or agency for each such purpose in such city. SECTION 10.03. Money for Security Payments To Be Held in Trust. If ------------------------------------------------ the Companies shall at any time act as its own Paying Agent for any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on, any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the 83 principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, on or prior to each due date of the principal of (and premium, if any) or interest on, any Securities of such series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal (and premium, if any) or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee for any series of Securities to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all sums held by it for the payment of principal of (and premium, if any) or interest on Securities of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of such series) in the making of any such payment of principal (and premium, if any) or interest on the Securities of such series; and (c) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture with respect to any series of Securities or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent in respect of each and every series of Securities as to which it seeks to discharge this Indenture 84 or, if for any other purpose, all sums so held in trust by the Company in respect of all Securities, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease. The Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company mail to the Holders of the Securities as to which the money to be repaid was held in trust, as their names and addresses appear in the Security Register, a notice that such moneys remain unclaimed and that, after a date specified in the notice, which shall not be less than 30 days from the date on which the notice was first mailed to the Holders of the Securities as to which the money to be repaid was held in trust, any unclaimed balance of such moneys then remaining will be paid to the Company free of the trust formerly impressed upon it. SECTION 10.04. Statement as to Compliance. The Company will deliver --------------------------- to the Trustee, within 120 days after the end of each fiscal year, a written statement signed by the principal executive officer, principal financial officer or principal accounting officer of the Company stating that: (a) a review of the activities of the Company during such year and of performance under this Indenture and under the terms of the Securities has been made under his supervision; and (b) to the best of his knowledge, based on such review, the Company has fulfilled all its obligations under this Indenture and has complied with all conditions and covenants on its part contained in this 85 Indenture through such year, or, if there has been a default in the fulfillment of any such obligation, covenant or condition, specifying each such default known to him and the nature and status thereof. For the purpose of this Section 10.04, default and compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture. SECTION 10.05. Legal Existence. Subject to Article VIII the Company ---------------- will do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence. SECTION 10.06. Waiver of Certain Covenants. The Company may omit in ---------------------------- respect of any series of Securities, in any particular instance, to comply with any covenant or condition set forth in a Board Resolution or supplemental indenture with respect to the Securities of such series, unless otherwise specified in such Board Resolution or supplemental indenture, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Securities at the time Outstanding of such series shall, by Act of such Securityholders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. Nothing in this Section 10.06 shall permit the waiver of compliance with any covenant or condition set forth in such Board Resolution or supplemental indenture which, if in the form of an indenture supplemental hereto, would not be permitted by Section 9.02 without the consent of the Holder of each outstanding Security affected thereby. ARTICLE XI Redemption of Securities ------------------------ SECTION 11.01. Applicability of Article. The Company may reserve the ------------------------- right to redeem and pay before Stated Maturity all or any part of the Securities of any series, either by optional redemption, sinking or purchase 86 fund or analogous obligation or otherwise, by provision therefor in the form of Security for such series established and approved pursuant to Section 2.02 and on such terms as are specified in such form or in the indenture supplemental hereto with respect to Securities of such series as provided in Section 3.01. Redemption of Securities of any series shall be made, subject to the provisions of Section 13.03 hereof, in accordance with the terms of such Securities and, to the extent that this Article does not conflict with such terms, the succeeding Sections of this Article. Notwith-standing anything to the contrary in this Indenture, except in the case of redemption pursuant to a sinking fund, the Trustee shall not make any payment in connection with the redemption of Securities until the close of business on the Redemption Date. SECTION 11.02. Election To Redeem; Notice to Trustee. The election -------------------------------------- of the Company to redeem any Securities redeemable at the election of the Company shall be evidenced by, or pursuant to authority granted by, a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series and the Tranche (as defined in Section 11.03) to be redeemed. In the case of any redemption of Securities (a) prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, or (b) pursuant to an election of the Company which is subject to a condition specified in the terms of such Securities, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction or condition. SECTION 11.03. Selection by Trustee of Securities To Be Redeemed. If -------------------------------------------------- less than all the Securities of like tenor and terms of any series (a "Tranche") are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such Tranche not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may include provision for the selection for redemption of portions of the principal of Securities of such Tranche of a 87 denomination larger than the minimum authorized denomination for Securities of that series. Unless otherwise provided in the terms of a particular series of Securities, the portions of the principal of Securities so selected for partial redemption shall be equal to the minimum authorized denomination of the Securities of such series, or an integral multiple thereof, and the principal amount which remains outstanding shall not be less than the minimum authorized denomination for Securities of such series. If less than all the Securities of unlike tenor and terms of series are to be redeemed, the particular Tranche of Securities to be redeemed shall be selected by the Company. If any convertible Security selected for partial redemption is converted in part before the termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Upon any redemption of fewer than all the Securities of a Series or Tranche, the Company and the Trustee may treat as Outstanding any Securities surrendered for conversion during the period of 15 days next preceding the mailing of a notice of redemption, and need not treat as Outstanding any Security authenticated and delivered during such period in exchange for the unconverted portion of any Security converted in part during such period. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal of such Security which has been or is to be redeemed. SECTION 11.04. Notice of Redemption. Notice of redemption shall be --------------------- given by first-class mail, postage prepaid, mailed not less than 20 (or 15, if so provided in the Board Resolution establishing the relevant series) nor more than 45 days prior to the Redemption Date, to each holder of Securities to be redeemed, at his address appearing in the Security Register. 88 All notices of redemption shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Securities to be redeemed, from the Holder to whom the notice is given; (d) that on the Redemption Date the Redemption Price will become due and payable upon each such Security, and that interest, if any, thereon shall cease to accrue from and after said date; (e) the place where such Securities are to be surrendered for payment of the Redemption Price, which shall be the office or agency of the Company in the Place of Payment; (f) that the redemption is on account of a sinking or purchase fund, or other analogous obligation, if that be the case; (g) if such Securities are convertible into Common Stock or other securities, the Conversion Price or other conversion price and the date on which the right to convert such Securities into Common Stock or other securities will terminate; and (h) that the redemption may be rescinded by the Company, at its sole option, pursuant to Section 11.09 of this Indenture upon the occurrence of a Redemption Rescission Event, except in the case of any redemption on account of a sinking fund. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 11.05. Deposit of Redemption Price. On or prior to any ---------------------------- Redemption Date and subject to Section 11.09, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in 89 Section 10.03) an amount of money sufficient to pay the Redemption Price of all the Securities which are to be redeemed on that date. If any Security to be redeemed is converted into Common Stock or other securities, any money so deposited with the Trustee or a Paying Agent shall be paid to the Company upon Company Request or, if then so segregated and held in trust by the Company, shall be discharged from such trust. SECTION 11.06. Securities Payable on Redemption Date. Notice of -------------------------------------- Redemption having been given as aforesaid, the Securities so to be redeemed shall, subject to Section 11.09, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price) such Securities shall cease to bear interest and any rights to convert such Securities shall terminate. Upon surrender of such Securities for redemption in accordance with the notice and subject to Section 11.09, such Securities shall be paid by the Company at the Redemption Price. Unless otherwise provided with respect to such Securities pursuant to Section 3.01, installments of interest the Stated Maturity of which is on or prior to the Redemption Date shall be payable to the Holders of such Securities registered as such on the relevant Regular Record Dates according to their terms and the provisions of Section 3.07. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate borne by the Security, or as otherwise provided in such Security. SECTION 11.07. Securities Redeemed in Part. Any Security which is to ---------------------------- be redeemed only in part shall be surrendered at the office or agency of the Company in the Place of Payment with respect to that series (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and Stated Maturity and of like tenor and terms, of any authorized denomination as requested by such Holder in aggregate principal 90 amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. SECTION 11.08. Provisions with Respect to Any Sinking Funds. Unless --------------------------------------------- the form or terms of any series of Securities shall provide otherwise, in lieu of making all or any part of any mandatory sinking fund payment with respect to such series of Securities in cash, the Company may at its option (a) deliver to the Trustee for cancellation any Securities of such series theretofore acquired by the Company or converted by the Holder thereof into Common Stock or other securities, or (b) receive credit for any Securities of such series (not previously so credited) acquired by the Company (including by way of optional redemption (pursuant to the sinking fund or otherwise but not by way of mandatory sinking fund redemption) or converted by the Holder thereof into Common Stock or other securities and theretofore delivered to the Trustee for cancellation, and if it does so (i) Securities so delivered or credited shall be credited at the applicable sinking fund Redemption Price with respect to Securities of such series and (ii) on or before the 60th day next preceding each sinking fund Redemption Date with respect to such series of Securities, the Company will deliver to the Trustee (A) an Officers' Certificate specifying the portions of such sinking fund payment to be satisfied by payment of cash and by delivery or credit of Securities of such series acquired by the Company or converted by the Holder thereof and (B) such Securities, to the extent not previously surrendered. Such Officers' Certificate shall also state the basis for such credit and that the Securities for which the Company elects to receive credit have not been previously so credited and were not acquired by the Company through operation of the mandatory sinking fund, if any, provided with respect to such Securities and shall also state that no Event of Default with respect to Securities of such series has occurred and is continuing. All Securities so delivered to the Trustee shall be canceled by the Trustee and no Securities shall be authenticated in lieu thereof. If the sinking fund payment or payments (mandatory or optional) with respect to any series of Securities made in cash plus any unused balance of any preceding sinking fund payments with respect to Securities of such series made in cash shall exceed $50,000 (or a lesser, sum if the Company shall so request), unless otherwise provided by the terms of such series of Securities, that cash shall be applied by the Trustee on the sinking fund Redemption Date 91 with respect to Securities of such series next following the date of such payment to the redemption of Securities of such series at the applicable sinking fund Redemption Price with respect to Securities of such series, together with accrued interest, if any, to the date fixed for redemption, with the effect provided in Section 11.06. The Trustee shall select, in the manner provided in Section 11.03, for redemption on such sinking fund Redemption Date a sufficient principal amount of Securities of such series to utilize that cash and shall thereupon cause notice of redemption of the Securities of such series for the sinking fund to be given in the manner provided in Section 11.04 (and with the effect provided in Section 11.06) for the redemption of Securities in part at the option of the Company. Any sinking fund moneys not so applied or allocated by the Trustee to the redemption of Securities of such series shall be added to the next cash sinking fund payment with respect to Securities of such series received by the Trustee and, together with such payment, shall be applied in accordance with the provisions of this Section 11.08. Any and all sinking fund moneys with respect to Securities of any series held by the Trustee at the Maturity of Securities of such series, and not held for the payment or redemption of particular Securities of such series, shall be applied by the Trustee, together with other moneys, if necessary, to be deposited sufficient for the purpose, to the payment of the principal of the Securities of such series at Maturity. On or before each sinking fund Redemption Date provided with respect to Securities of any series, the Company shall pay to the Trustee in cash a sum equal to all accrued interest, if any, to the date fixed for redemption on Securities to be redeemed on such sinking fund Redemption Date pursuant to this Section 11.08. SECTION 11.09. Rescission of Redemption. In the event that this ------------------------- Section 11.09 is specified to be applicable to a series of Securities pursuant to Section 3.01 and a Redemption Rescission Event shall occur following any day on which a notice of redemption shall have been given pursuant to Section 11.04 hereof but at or prior to the time and date fixed for redemption as set forth in such notice of redemption, the Company may, at its sole option, at any time prior to the earlier of (a) the close of business on that day which is two Trading Days following such Redemption Rescission Event and (b) the time and date fixed for redemption as set forth in such notice, rescind the redemption to which such notice of redemption shall have 92 related by making a public announcement of such rescission (the date on which such public announcement shall have been made being hereinafter referred to as the "Rescission Date"). The Company shall be deemed to have made such announcement if it shall issue a release to the Dow Jones News Service, Reuters Information Services or any successor news wire service. From and after the making of such announcement, the Company shall have no obligation to redeem Securities called for redemption pursuant to such notice of redemption or to pay the Redemption Price therefor and all rights of Holders of Securities shall be restored as if such notice of redemption had not been given. As promptly as practicable following the making of such announcement, the company shall telephonically notify the Trustee and the paying Agent of such rescission. The Company shall give notice of any such rescission by first-class mail, postage prepaid, mailed as promptly as practicable but in no event later than the close of business on that day which is five Trading Days following the Rescission Date to each Holder of Securities at the close of business on the Rescission Date, to any other Person that was a Holder of Securities and that shall have surrendered Securities for conversion following the giving of notice of the subsequently rescinded redemption and to the Trustee and the Paying Agent. Each notice of rescission shall (i) state that the redemption described in the notice of redemption has been rescinded, (ii) state that any Converting Holder shall be entitled to rescind the conversion of Securities surrendered for conversion following the day on which notice of redemption was given but on or prior to the date of the mailing of the Company's notice of rescission, (iii) be accompanied by a form prescribed by the Company to be used by any Converting Holder rescinding the conversion of Securities so surrendered for conversion (and instructions for the completion and delivery of such form, including instructions with respect to any payment that may be required to accompany such delivery) and (iv) state that such form must be properly completed and received by the Company no later than the close of business on a date that shall be 15 Trading Days following the date of the mailing of such notice of rescission. 93 ARTICLE XII Conversion ---------- SECTION 12.01. Conversion Privilege. If so provided in a Board --------------------- Resolution with respect to the Securities of any series, the Holder of a Security of such series shall have the right, at such Holder's option, to convert, in accordance with the terms of such series of Securities and this Article XII, all or any part (in a denomination of, unless otherwise specified in a Board Resolution or supplemental indenture with respect to Securities of such series, $1,000 in principal amount or any integral multiple thereof) of such Security into shares of Common Stock or other Marketable Securities specified in such Board Resolution at any time or, as to any Securities called for redemption, at any time prior to the time and date fixed for such redemption (unless the Company shall default in the payment of the Redemption Price, in which case such right shall not terminate at such time and date). The provisions of this Article XII shall not be applicable to the Securities of a series unless otherwise specified in a Board Resolution with respect to the Securities of such series. SECTION 12.02. Conversion Procedure; Rescission of Conversion; ----------------------------------------------- Conversion Price; Fractional Shares. (a) Each Security to which this Article - ------------------------------------ is applicable shall be convertible at the office of the Conversion Agent, and at such other place or places, if any, specified in a Board Resolution with respect to the Securities of such series, into fully paid and nonassessable shares (calculated to the nearest one-hundredth of a share) of Common Stock or other Marketable Securities. The Securities will be converted into shares of Common Stock or such other Marketable Securities at the Conversion Price therefor. No payment or adjustment shall be made in respect of dividends on the Common Stock or such other Marketable Securities or accrued interest on a converted Security except as described in Section 12.09. The Company may, but shall not be required to, in connection with any conversion of Securities, issue a fraction of a share of Common Stock or of such other Marketable Security, and, if the Company shall determine not to issue any such fraction, the Company shall, subject to Section 12.03(d), make a cash payment (calculated to the nearest cent) equal to such fraction multiplied by the Closing Price of the Common Stock or such other Marketable Security on the last Trading Day prior to the date of conversion. 94 (b) Before any Holder of a Security shall be entitled to convert the same into Common Stock or other Marketable Securities, such Holder shall surrender such Security duly endorsed to the Company or in blank, at the office of the Conversion Agent or at such other place or places, if any, specified in a Board Resolution with respect to the Securities of such series, and shall give written notice to the Company at said office or place that he elects to convert the same and shall state in writing therein the principal amount of Securities to be converted and the name or names (with addresses) in which he wishes the certificate or certificates for Common Stock or for such other marketable Securities to be issued; provided, however, that no Security or portion thereof -------- ------- shall be accepted for conversion unless the principal amount of such Security or such portion, when added to the principal amount of all other Securities or portions thereof then being surrendered by the Holder thereof for conversion, exceeds the then effective Conversion Price with respect thereto. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock or such other Marketable Securities which shall be deliverable upon conversion shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof to the extent permitted thereby) so surrendered. Subject to the next succeeding sentence, the Company will, as soon as practicable thereafter, issue and deliver at said office or place to such Holder of a Security, or to his nominee or nominees, certificates for the number of full shares of Common Stock or other Marketable Securities to which he shall be entitled as aforesaid, together, subject to the last sentence of paragraph (a) above, with cash in lieu of any fraction of a share to which he would otherwise be entitled. The Company shall not be required to deliver certificates for shares of Common Stock or other Marketable Securities while the stock transfer books for such stock or the transfer books for such Marketable Securities, as the case may be, or the Security Register are duly closed for any purpose, but certificates for shares of Common Stock or other Marketable Securities shall be issued and delivered as soon as practicable after the opening of such books or Security Register. A Security shall be deemed to have been converted as of the close of business on the date of the surrender of such Security for conversion as provided above, and the person or persons entitled to receive the Common Stock or other Marketable Securities issuable upon such conversion shall be treated for all purposes as the record Holder or Holders of such 95 Common Stock or other Marketable Securities as of the close of business on such date. In case any Security shall be surrendered for partial conversion, the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the Holder of the Securities so surrendered, without charge to such Holder (subject to the provisions of Section 12.08), a new Security or Securities in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Security. (c) Notwithstanding anything to the contrary contained herein, in the event the Company shall have rescinded a redemption of Securities Pursuant to Section 11.09 hereof, any Holder of Securities that shall have surrendered Securities for conversion following the day on which notice of the subsequently rescinded redemption shall have been given but prior to the later of (i) the close of business on the Trading Day next succeeding the date on which public announcement of the rescission of such redemption shall have been made and (ii) the date of the mailing of the notice of rescission required by Section 11.09 hereof (a "Converting Holder") may rescind the conversion of such Securities surrendered for conversion by (A) properly completing a form prescribed by the Company and mailed to Holders of Securities (including Converting Holders) with the Company's notice of rescission, which form shall provide for the certification by any Converting Holder rescinding a conversion on behalf of any beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of Securities that the beneficial ownership (within the meaning of such Rule) of such Securities shall not have changed from the date on which such Securities were surrendered for conversion to the date of such certification, and (B) delivering such form to the Company no later than the close of business on the date which is 15 Trading Days following the date of the mailing of the Company's notice of rescission. The delivery of such form by a Converting Holder shall be accompanied by (I) any certificates representing shares Of Common Stock or other securities issued to such Converting Holder upon a conversion of Securities that shall be rescinded by the proper delivery of such form (the "Surrendered Securities"),(II) any securities, evidences of indebtedness or assets (other than cash) distributed by the Company to such Converting Holder by reason of such Converting Holder being a record holder of Surrendered Securities and (III) payment in New York Clearing House funds or other 96 funds acceptable to the Company of an amount equal to the sum of (1) any cash such Converting Holder may have received in lieu of the issuance of fractional Surrendered Securities and (2) any cash paid or payable by the Company to such Converting Holder by reason of such Converting Holder being a record holder of Surrendered Securities. Upon receipt by the Company of any such form properly completed by a Converting Holder and any certificates, securities, evidences of indebtedness, assets or cash payments required to be returned by such Converting Holder to the Company as set forth above, the Company shall instruct the transfer agent or agents for shares of Common Stock or other securities to cancel any certificates representing Surrendered Securities (which Surrendered Securities shall be deposited in the treasury of the Company) and shall instruct the Registrar to reissue certificates representing Securities to such Converting Holder (which Securities shall be deemed to have been Outstanding at all times during the period following their surrender for conversion). The Company shall, as promptly as practicable, and in no event more than five Trading Days following the receipt of any such properly completed form and any such certificates, securities, evidences of indebtedness, assets or cash payments required to be so returned, pay to the Holder of Securities surrendered to the Company pursuant to a rescinded conversion or as otherwise directed by such Holder any interest paid or other payment made to Holders of Securities during the period from the time such Securities shall have been surrendered for conversion to the rescission of such conversion. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any form submitted to the Company to rescind the conversion of Securities, including questions as to the proper completion or execution of any such form or any certification contained therein, shall be resolved by the Company, whose determination shall be final and binding. SECTION 12.03. Adjustment of Conversion Price for Common Stock or ---------------------------------- --------------- Other Marketable Securities. The Conversion Price with respect to any Security - ---------------------------- which is convertible into Common Stock or other Marketable Securities shall be adjusted from time to time as follows: (a) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, (i) pay a dividend in shares of its Common Stock or other Marketable Securities, (ii) combine its outstanding shares of Common Stock or other Marketable 97 Securities into a smaller number of shares or securities, (iii) subdivide its outstanding shares of Common Stock or other Marketable Securities or (iv) issue by reclassification of its shares of Common stock or other Marketable Securities any shares of stock or other Marketable Securities of the Company, the Conversion Price in effect immediately before such action shall be adjusted so that the Holders of such Securities, upon conversion thereof into Common Stock or other Marketable Securities immediately following such event, shall be entitled to receive the kind and amount of shares of capital stock of the Company or other Marketable Securities which they would have owned or been entitled to receive upon or by reason of such event if such Securities had been converted immediately before the record date (or, if no record date, the effective date) for such event. An adjustment made pursuant to this Section 12.03(a) shall become effective retroactively immediately after the record date in the case of a dividend or distribution and shall become effective retroactively immediately after the effective date in the case of a subdivision, combination or reclassification. For the purposes of this Section 12.03(a), each Holder of Securities shall be deemed to have failed to exercise any right to elect the kind or amount of securities receivable upon the payment of any such dividend, subdivision, combination or reclassification (provided that, if the kind or amount of securities receivable upon such dividend, subdivision, combination or reclassification is not the same for each nonelecting share, the kind and amount of securities or other property receivable upon such dividend, subdivision, combination or reclassification for each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares). (b) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, issue rights or warrants to all holders of shares of its Common Stock or other Marketable Securities entitling them (for a period expiring within 45 days after the record date for such issuance) to subscribe for or purchase shares of Common Stock or other Marketable Securities (or securities convertible into shares of Common Stock or other Marketable Securities) at a price per share less than the Current Market Price of the Common Stock or other Marketable 98 Securities at such record date (treating the price per share of the securities convertible into Common Stock or other Marketable Securities as equal to (i) the sum of (A) the price for a unit of the security convertible into Common Stock or other Marketable Securities plus (B) any additional consideration initially payable upon the conversion of such security into Common Stock or other Marketable Securities divided by (ii) the number of shares of Common Stock or other Marketable Securities initially underlying such convertible security), the Conversion Price with respect to such Securities shall be adjusted so that it shall equal the price determined by dividing the Conversion Price in effect immediately prior to the date of issuance of such rights or warrants by a fraction, the numerator of which shall be the number of shares of Common Stock or other Marketable Securities outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock or other Marketable securities offered for subscription or purchase (or into which the convertible securities so offered are initially convertible) and the denominator of which shall be the number of shares of Common Stock or other Marketable Securities outstanding on the date of issuance of such rights or warrants plus the number of shares or securities which the aggregate offering price of the total number of shares or securities so offered for subscription or purchase (or the aggregate purchase price of the convertible securities so offered plus the aggregate amount of any additional consideration initially payable upon conversion of such Securities into Common Stock or other Marketable Securities) would purchase at such Current Market Price of the Common Stock or other Marketable Securities. Such adjustment shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. (c) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, distribute to all holders of shares of its Common Stock or other Marketable Securities (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation and the Common Stock or other Marketable Securities are not changed or exchanged) cash, evidences of its indebtedness, securities or assets (excluding (i) regular periodic cash dividends 99 in amounts, if any, determined from time to time by the Board of Directors, (ii) dividends payable in shares of Common Stock or other Marketable Securities for which adjustment is made under Section 12.03(a) or (iii) rights or warrants to subscribe for or purchase securities of the Company (excluding those referred to in Section 12.03(b)), the Conversion Price with respect to such Securities shall be adjusted so that it shall equal the price determined by dividing the Conversion Price in effect immediately prior to the date of such distribution by a fraction, the numerator of which shall be the Current Market Price of the Common Stock or other Marketable securities on the record date referred to below and the denominator of which shall be such Current Market Price of the Common Stock or other Marketable Securities less the then fair market value (as determined by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the cash or assets or evidences of indebtedness or securities so distributed or of such subscription rights or warrants applicable to one share of Common Stock or one other Marketable Security (provided that such denominator shall never be less than one); provided, however, that no adjustment shall be made with respect to any -------- ------- distribution of rights to purchase securities of the Company if a Holder of Securities would otherwise be entitled to receive such rights upon conversion at any time of such Securities into Common Stock or other Marketable Securities unless such rights are subsequently redeemed by the Company, in which case such redemption shall be treated for purposes of this Section as a dividend on the Common Stock or other Marketable Securities. Such adjustment shall become effective retroactively immediately after the record date for the determination of stockholders or holders of Marketable Securities entitled to receive such distribution; and, in the event that such distribution is not so made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such record date had not been fixed. (d) The Company shall be entitled to make such additional adjustments in the Conversion Price, in addition to those required by Sections 12.03(a), 12.03(b) and 12.03(c), as shall be necessary in order that any dividend or distribution of Common Stock or other Marketable Securities, any subdivision, reclassi- 100 fication or combination of shares of Common Stock or other Marketable Securities or any issuance of rights or warrants referred to above shall not be taxable to the holders of Common Stock or other Marketable Securities for United States Federal income tax purposes. (e) In any case in which this Section 12.03 shall require that any adjustment be made effective as of or retroactively immediately following a record date, the Company may elect to defer (but only for five Trading Days following the filing of the statement referred to in Section 12.05) issuing to the Holder of any Securities converted after such record date the shares of Common Stock or other Marketable Securities and other capital stock of the Company issuable upon such conversion over and above the shares of Common Stock or other Marketable Securities and other capital stock of the Company issuable upon such conversion on the basis of the Conversion Price prior to adjustment; provided, however, that the Company shall deliver to -------- ------- such Holder a due bill or other appropriate instrument evidencing such Holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (f) All calculations under this Section 12.03 shall be made to the nearest cent or one-hundredth of a share or security, with one-half cent and .005 of a share, respectively, being rounded upward. Notwithstanding any other provision of this Section 12.03, the Company shall not be required to make any adjustment of the Conversion Price unless such adjustment would require an increase or decrease of at least 1% of such price. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% in such price. Any adjustments under this Section 12.03 shall be made successively whenever an event requiring such an adjustment occurs. (g) In the event that at any time, as a result of an adjustment made pursuant to this Section 12.03, the Holder of any Security thereafter surrendered for conversion shall become entitled to receive any shares of stock of or other Marketable Securities of the Company other than shares of Common Stock or Marketable 101 Securities into which the Securities originally were convertible, the Conversion Price of such other shares or Marketable Securities so receivable upon conversion of any such Security shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock and Marketable Securities contained in subparagraphs (a) through (f) of this Section 12.03, and the provisions of Sections 12.01, 12.02 and 12.04 through 12.09 with respect to the Common Stock or other Marketable Securities shall apply on like or similar terms to any such other shares or Marketable Securities and the determination of the Board of Directors as to any such adjustment shall be conclusive. (h) No adjustment shall be made pursuant to this Section (i) if the effect thereof would be to reduce the Conversion Price below the par value (if any) of the Common Stock or other Marketable Security, if any, or (ii) subject to Section 12.03(e) hereof, with respect to any Security that is converted prior to the time such adjustment otherwise would be made. SECTION 12.04. Consolidation or Merger of the Company. In case of --------------------------------------- either (a) any consolidation or merger to which the Company is a party, other than a merger or consolidation in which the Company is the surviving or continuing corporation and which does not result in a reclassification of, or change (other than a change in par value or from par value to no par value or from no par value to par value, as a result of a subdivision or combination) in, outstanding shares of Common Stock or other Marketable Securities or (b) any sale or conveyance of all or substantially all the property and assets of the Company to another Person, each Security then Outstanding shall be convertible from and after such merger, consolidation, sale or conveyance of property and assets into the kind and amount of shares of stock or other securities and property (including cash) receivable upon such consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock or other Marketable Securities into which such Securities would have been converted immediately prior to such consolidation, merger, sale or conveyance, subject to adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article XII (and assuming such holder of Common Stock or other Marketable Securities failed to exercise his rights of 102 election, if any, as to the kind or amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance (provided that, if the kind or amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance is not the same for each nonelecting share, the kind and amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance for each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares or securities)). The Company shall not enter into any of the transactions referred to in clause (a) or (b) of the preceding sentence unless effective provision shall be made so as to give effect to the provisions set forth in this Section 12.04. The provisions of this Section 12.04 shall apply similarly to successive consolidations, mergers, sales or conveyances. SECTION 12.05. Notice of Adjustment. Whenever an adjustment in the --------------------- Conversion Price with respect to a series of Securities is required: (a) the Company shall forthwith place on file with the Trustee and any Conversion Agent for such Securities a certificate of the Treasurer of the Company, stating the adjusted Conversion Price determined as provided herein and setting forth in reasonable detail such facts as shall be necessary to show the reason for and the manner of computing such adjustment, such certificate to be conclusive evidence that the adjustment is correct; and (b) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be mailed, first-class postage prepaid, by the Company to the Holders of record of such Outstanding Securities. SECTION 12.06. Notice in Certain Events. In case: ------------------------- (a) of a consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required or of the sale or conveyance to another person or entity or group of persons or entities acting in concert as a partnership, limited partnership, syndicate or other group (within 103 the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of all or substantially all the property and assets of the Company; (b) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (c) of any action triggering an adjustment of the Conversion Price pursuant to this Article XII; the Company shall cause to be filed with the Trustee and the Conversion Agent for the applicable securities, and shall cause to be mailed, first-class postage prepaid, to the Holders of record of applicable Securities, at least 15 days prior to the applicable date hereinafter specified, a notice stating (i) the date on which a record is to be taken for the purpose of any distribution or grant of rights or warrants triggering an adjustment to the Conversion Price pursuant to this Article XII or, if a record is not to be taken, the date as of which the holders of record of Common Stock or other Marketable Securities entitled to such distribution, rights or warrants are to be determined or (ii) the date on which any reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up triggering an adjustment to the Conversion Price pursuant to this Article XII is expected to become effective, and the date as of which it is expected that holders of Common Stock or other Marketable Securities of record shall be entitled to exchange their Common Stock or other Marketable Securities for securities or other property deliverable upon such reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up. Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in clause (a), (b) or (c) of this Section. SECTION 12.07. Company To Reserve Stock or Other Marketable -------------------------------------------- Securities; Registration; Listing. (a) The Company shall at all times reserve - ---------------------------------- and keep available, free from preemptive rights, out of its authorized but unissued shares of Common Stock or other Marketable Securities, for the purpose of effecting the conversion of the Securities, such number of its duly authorized shares of Common Stock or number or principal amount of other Marketable Securities as shall from time to time be sufficient to effect the conversion of all applicable outstanding Securities into such 104 Common Stock or other Marketable Securities at any time (assuming that, at the time of the computation of such number of shares or securities, all such Securities would be held by a single Holder); provided, however, that nothing -------- ------- contained herein shall preclude the Company from satisfying its obligations in respect of the conversion of the Securities by delivery of purchased shares of Common Stock or other Marketable Securities which are held in the treasury of the Company. The Company shall from time to time, in accordance with the laws of the State of Delaware, use its best efforts to cause the authorized amount of the Common Stock or other Marketable Securities to be increased if the aggregate of the authorized amount of the Common Stock or other Marketable Securities remaining unissued and the issued shares of such Common Stock or other Marketable Securities in its treasury (other than any such shares reserved for issuance in any other connection) shall not be sufficient to permit the conversion of all Securities. (b) If any shares of Common Stock or other Marketable Securities which would be issuable upon conversion of Securities hereunder require registration with or approval of any governmental authority before such shares or securities may be issued upon such conversion, the Company will in good faith and as expeditiously as possible endeavor to cause such shares or securities to be duly registered or approved, as the case may be. The Company will endeavor to list the shares of Common Stock or other Marketable Securities required to be delivered upon conversion of the Securities prior to such delivery upon the principal national securities exchange upon which the outstanding Common Stock or other Marketable Securities are listed at the time of such delivery. SECTION 12.08. Taxes on Conversion. The Company shall pay any and -------------------- all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of shares of Common Stock or other Marketable Securities on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock or other Marketable Securities or the portion, if any, of the Securities which is not so converted in a name other than that in which the Securities so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the 105 amount of such tax or has established to the satisfaction of the Company that such tax has been paid. SECTION 12.09. Conversion After Record Date. If any Securities are ----------------------------- surrendered for conversion subsequent to the record date preceding an Interest Payment Date but on or prior to such Interest Payment Date (except Securities called for redemption on a Redemption Date between such record date and Interest Payment Date), the Holder of such Securities at the close of business on such record date shall be entitled to receive the interest payable on such Securities on such Interest Payment Date notwithstanding the conversion thereof. Securities surrendered for conversion during the period from the close of business on any record date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall (except in the case of Securities which have been called for redemption on a Redemption Date within such period) be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the Securities being surrendered for conversion. Except as provided in this Section 12.09, no adjustments in respect of payments of interest on Securities surrendered for conversion or any dividends or distributions or interest on the Common Stock or other Marketable Securities issued upon conversion shall be made upon the conversion of any Securities. SECTION 12.10. Corporate Action Regarding Par Value of Common Stock. ----------------------------------------------------- Before taking any action which would cause an adjustment reducing the applicable Conversion Price below the then par value (if any) of the shares of Common Stock or other Marketable Securities deliverable upon conversion of the Securities, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock or other Marketable Securities at such adjusted Conversion Price. SECTION 12.11. Company Determination Final. Any determination that ---------------------------- the Company or the Board of Directors must make pursuant to this Article is conclusive. SECTION 12.12. Trustee's Disclaimer. The Trustee has no duty to --------------------- determine when an adjustment under this Article should be made, how it should be made or what it should be. The Trustee makes no representation as to the 106 validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for the Company's failure to comply with this Article. Each Conversion Agent other than the Company shall have the same protection under this Section as the Trustee. ARTICLE XIII Subordination ------------- SECTION 13.01. Agreement To Subordinate. The Company agrees, and ------------------------- each Securityholder by accepting a Security agrees, that the indebtedness evidenced by the Securities and the payment of the principal of (and premium, if any) and interest on each and all of the Securities is hereby expressly subordinated in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full in cash or cash equivalents of all Senior Indebtedness and that such subordination is for the benefit of the holders of Senior Indebtedness. SECTION 13.02. Liquidation, Dissolution, Bankruptcy. Upon any ------------------------------------- payment or distribution of all or substantially all the assets of the Company, whether voluntary or involuntary, or upon any reorganization, readjustment, arrangement or similar proceeding relating to the Company or its property, whether or not the Company is a party thereto and whether in bankruptcy, insolvency, receivership or similar proceedings, or upon any assignment by the Company for the benefit of creditors or upon any other marshaling of the assets and liabilities of the Company: (a) all Senior Indebtedness shall first be paid in full in cash or cash equivalents, or provisions made for such payment by deposit thereof in trust with a bank or banks (either theretofore acting as trustees under indentures pursuant to which Senior Indebtedness shall have been issued or duly appointed paying agents for the purpose), before any payment or distribution, whether in cash, property or securities (other than securities of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinate, at least to the extent provided in this Article with respect to the Securities, to the payment of all indebtedness of the 107 nature of Senior Indebtedness, so long as the rights of the holders of the Senior Indebtedness are not altered adversely by such reorganization or readjustment ("Equivalent Securities")), is made on account of the principal of or interest on the indebtedness evidenced by the Securities; (b) any payment or distribution of any kind or character in respect of the principal of or interest on the Securities, whether in cash, property or securities (other than Equivalent Securities), to which the Holders of the Securities would be entitled except for the provisions of this Article shall be paid or delivered by the Company or the liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or other trustee or agent, directly and ratably to the holders of Senior Indebtedness or their Representatives (subject to any subordination of any class of Senior Indebtedness, by the provisions thereof, to any other class or classes of Senior Indebtedness), ratably according to the aggregate amounts remaining unpaid on account of the principal of, and the premium, if any, and interest on, the Senior Indebtedness held or represented by each, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution, or provision therefor, to the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing, any payment or distribution of any kind or character in respect of the principal of or interest on the Securities, whether in cash, property or securities (other than Equivalent Securities), shall be received by the Trustee or the holders of the Securities before all Senior Indebtedness is paid in full, or provision made as aforesaid for its payment, such payment or distribution shall be held in trust for the ratable benefit of and shall be ratably paid over or delivered to the holders of Senior Indebtedness remaining unpaid or unprovided for or their Representatives, as provided in the foregoing subparagraph (b), for application to the payment of all principal of, and premium, if any, and interest on, such Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full, after giving effect to any concur- 108 rent payment or distribution, or provision therefor, to the holders of such Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness or provisions being made as aforesaid for its payment, the Holders of the Securities shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company payable or distributable to the holders of the Senior Indebtedness, until the principal of and interest on the Securities shall be paid in full. No payment or distribution to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Securities would be entitled except for the provisions of this Article, and no payment over or delivery pursuant to the provisions of this Article to the holders of the Senior Indebtedness or their Representatives by the Trustee or the Holders of the Securities, shall, as between the Company, its creditors other than the holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment by the Company to or on account of the Senior Indebtedness. Upon any distribution of assets or securities of the Company referred to in this Article, the Trustee, subject to the provisions of Article VI, and the Holders of the Securities shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending or a certificate of the liquidating trustee or agent or other person making any payment or distribution to the Trustee or to the Holders of the Securities for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 13.03. Default on Senior Indebtedness. Subject to the ------------------------------- provisions of Section 13.04 hereof, in the event and during the continuation of any default in the payment of principal of, or premium, if any, or interest on, or other monetary obligation with respect to, any Senior indebtedness beyond any applicable period of grace, or in the event that any event of default with respect to any Senior Indebtedness shall have occurred and be continuing, unless and until such default or event of default shall have been cured or waived or shall have ceased to exist, no payment of principal or interest shall be made by the 109 Company on the Securities. Nothing contained in this Article or elsewhere in this Indenture, or in any of the Securities, shall, however, (a) prevent the Company from setting aside in trust as provided in Section 10.03 or depositing with the Trustee, at any time, except during the pendency of any of the proceedings or upon the happening of any of the events referred to in the first paragraph of Section 13.02 or during the continuation of any such default or event of default (not cured or waived), moneys for the payment of principal of or interest on the Securities or (b) prevent the application by the Trustee of any moneys deposited with it hereunder by the Company to the payment of or on account of the principal of or interest on the Securities, if, at the time of such deposit, the Trustee did not have written notice of any event prohibiting the making of such deposit by the Company. The Company shall give prompt written notice to the Trustee of any facts which would prohibit the making of any payment of moneys to or by the Trustee, including any dissolution, winding up, liquidation or reorganization of the Company within the meaning of this Article. Anything in this Article or elsewhere in this Indenture contained to the contrary notwithstanding, the Trustee shall not be charged with knowledge of the existence of any Senior Indebtedness or of any default or event of default with respect to any Senior Indebtedness or of any other facts which would prohibit the making of any payment of moneys to or by the Trustee, unless and until the Trustee shall have received notice in writing to that effect signed by an officer of the Company or by a holder of Senior Indebtedness who shall have been certified by the Company or otherwise established to the reasonable satisfaction of the Trustee to be such holder or by a Representative of Senior Indebtedness. SECTION 13.04. Disputes with Holders of Certain Senior Indebtedness. ----------------------------------------------------- Any failure by the Company to make any payment on or perform any other obligation under Senior Indebtedness, other than any indebtedness incurred by the Company or assumed or guaranteed, directly or indirectly, by the Company for money borrowed (or any deferral, renewal, extension or refunding thereof) or any indebtedness or obligation in which the provisions of this Section shall have been waived by the Company in the instrument or instruments by which the Company incurred, assumed, guaranteed or otherwise created such indebtedness or obligation, shall not be deemed a default or event of default under Section 13.03 hereof for so long as (a) the 110 Company shall be disputing its obligation to make such payment or perform such obligation and (b) either (i) such dispute shall not have resulted in a judgment against the Company or the applicable Subsidiary that shall have remained undischarged or unbonded and have remained in force for more than the applicable appeal period or (ii) in the event of such a judgment, the Company or the applicable Subsidiary shall in good faith be prosecuting an appeal or other proceeding for review and which a stay of execution shall have been obtained pending such appeal or review. SECTION 13.05. Acceleration of Notes. If an Event of Default, other ---------------------- than an Event of Default under paragraph (e) or (f) of Section 5.01, shall have occurred and be continuing, the Trustee or the Holder of Securities electing to accelerate the Securities pursuant to Section 5.02 shall give the Representatives of the Senior Indebtedness five days' prior written notice before accelerating the Securities, which notice shall state that it is a "Notice of Intent to Accelerate"; provided, however, that the Trustee or such -------- ------- Holders may so accelerate the Securities immediately without such notice if at such time payment of any Senior Indebtedness shall have been accelerated. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness (or their Representatives) of the acceleration. SECTION 13.06. When Distribution Must Be Paid Over. If a ------------------------------------ distribution is made to Securityholders that because of this Article should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Senior Indebtedness and pay it over to them as their interests may appear. SECTION 13.07. Relative Rights. This Article defines the relative ---------------- rights of Securityholders and holders of Senior Indebtedness. Nothing in this Indenture shall: (a) impair, as between the Company and Securityholders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; (b) affect the relative rights of Securityholders and creditors of the Company other than holders of Senior Indebtedness; or 111 (c) prevent the Trustee or any Securityholder from exercising its available remedies upon an Event of Default, subject to the rights of holders of Senior Indebtedness to receive distributions otherwise payable to Securityholders. If the Company fails because of this Article to pay principal of or interest on a Security on the due date, the failure is still an Event of Default. SECTION 13.08. Subordination May Not Be Impaired by Company. No --------------------------------------------- right of any holder of Senior Indebtedness to enforce the subordination of the indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. SECTION 13.09. Distribution or Notice to Representative. Whenever a ----------------------------------------- distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative. SECTION 13.10. Rights of Trustee and Paying Agent. The Trustee or ----------------------------------- Paying Agent may continue to make payments on the Securities until it receives notice satisfactory to it that payments may not be made under this Article. The Company, a Representative or a holder of Senior Indebtedness who shall have been certified by the Company or otherwise established to the reasonable satisfaction of the Trustee to be such holder may give the notice; provided, however, that if -------- ------- an issue of Senior Indebtedness has a Representative, only the Representative may give the notice on behalf of the holders of Senior Indebtedness. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not Trustee. The Security Registrar, the Paying Agent and the Conversion Agent may do the same with like rights. SECTION 13.11. Notice to Trustee. The Company shall give prompt ------------------ written notice to a Trust Officer at the address of the Trustee determined pursuant to Section 1.05 of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. 112 SECTION 13.12. Trustee Not a Fiduciary. The Trustee shall not be ------------------------ deemed to owe any fiduciary duty to the holders of Senior Indebtedness, but shall have only such obligations to such holders as are expressly set forth in this Article XIII. SECTION 13.13. Effectuation of Subordination by Trustee. Each holder ----------------------------------------- of Securities, by his acceptance hereof, authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 13.14. Article Applicable to Paying Agents. In case at any ------------------------------------ time any Paying Agent other than the Trustee and the Company shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context shall require otherwise) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee. SECTION 13.15. Trustee; Compensation Not Prejudiced. Nothing in this ------------------------------------- Article shall apply to claims of, or payments to, the Trustee pursuant to Section 6.07. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. TIME WARNER INC., by _________________________ Name: Title: Attest: _______________________ Name: Title: 113 CHEMICAL BANK, as Trustee, by _________________________ Name: Title: Attest: _______________________ Name: Title: EX-4.9 11 FIRST SUPPLEMENTAL INDENTURE TO SUBORDINATED EXHIBIT 4.9 ================================================================================ TIME WARNER INC. $[ ] Subordinated Debentures due [ ], 2025 FIRST SUPPLEMENTAL INDENTURE Dated as of [ ], 1995 Chemical Bank, a New York banking corporation, Trustee ================================================================================ FIRST SUPPLEMENTAL INDENTURE dated as of [ ], 1995, between TIME WARNER INC., a Delaware corporation (the "Company"), and Chemical Bank, a New York banking corporation, as trustee (the "Trustee") under the Indenture dated as of [ ], 1995 between the Company and the Trustee (the "Indenture"). WHEREAS, the Company executed and delivered the Indenture to the Trustee to provide for the future issuance of the Company's unsecured subordinated debt securities to be issued from time to time in one or more series as might be determined by the Company under the Indenture, in an unlimited aggregate principal amount which may be authenticated and delivered as provided in the Indenture; WHEREAS, pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of its Securities to be known as its __% Subordinated Debentures due 2025 (the "Debentures"), the form and substance of such Debentures and the terms, provisions and conditions thereof to be set forth as provided in the Indenture and this First Supplemental Indenture; WHEREAS, Time Warner Capital [ ], a Delaware statutory business trust (the "Trust"), has offered to the public $[ ] aggregate liquidation amount of its ___% Preferred Trust Securities (the "Preferred Securities"), representing undivided beneficial interests in the assets of the Trust and proposes to invest the proceeds from such offering in $[ ] aggregate principal amount of the Debentures; and WHEREAS, the Company has requested that the Trustee execute and deliver this First Supplemental Indenture and all requirements necessary to make this First Supplemental Indenture a valid instrument in accordance with its terms and to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company have been performed, and the execution and delivery of this First Supplemental Indenture has been duly authorized in all respects; 2 NOW THEREFORE, in consideration of the purchase and acceptance of the Debentures by the Holders thereof, and for the purpose of setting forth, as provided in the Indenture, the form and substance of the Debentures and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee as follows: ARTICLE I Definitions and Incorporation by Reference ------------------------------------------ SECTION 1.01. Definitions. Capitalized terms used but not defined ------------ herein have the meanings assigned to them in the Indenture. The following terms have the following meanings. "Common Securities" means the securities issued by the Trust representing undivided beneficial interests in the assets of the Trust, having the terms set forth in Exhibit C to the Declaration. "Company" means the party named as such in this First Supplemental Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture, and thereafter means the successor. "Debentures" means the Debentures issued under this First Supplemental Indenture substantially in the form of Exhibit A hereto as amended or supplemented from time to time. "Declaration" means the Amended and Restated Declaration of Trust, dated as of [ ], 1995, among the trustees of the Trust named therein, the Company as Sponsor, and the holders from time to time of the Preferred Securities. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holder" or "Debentureholder" means the Person in whose name a Debenture is registered on the Registrar's books. All references to Holders of a particular Principal Amount of the Debentures mean Holders of the relevant Principal Amount of the Debentures at the time outstanding. "Nasdaq" means The Nasdaq Stock Market. 3 "NYSE" means the New York Stock Exchange, Inc. "Officer" means the Chairman of the Board or any Co-Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any Co- Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, any Assistant Controller, the Secretary or any Assistant Secretary of the Company. "Trust Officer" means any officer or assistant officer of the Trustee with direct responsibility for the administration of this First Supplemental Indenture and the Indenture. "Trust Securities" means the Common Securities and the Preferred Securities. "Underwriting Agreement" means the underwriting agreement entered into among the Company, the Trust, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and [ ], as co-representatives, with respect to, among other things, the Preferred Securities. SECTION 1.02. Other Definitions. The following terms have the ------------------ meanings given to them in the Declaration (including the Exhibits thereto) as in effect on the date hereof: (i) Clearing Agency; (ii) Delaware Trustee; (iii) Distribution; (iv) Guarantee; (v) No Recognition Opinion; (vi) Property Trustee; (vii) Preferred Security Certificate; (viii) Regular Trustees; (ix) Special Event; (x) Tax Event; and (xi) Trust. The following terms are defined in the relevant Section of this First Supplemental Indenture as set forth below.
Defined in Term Section ---- ---------- "Additional Interest"............... 2.05 "Compounded Interest"............... 4.01 "Coupon Rate"....................... 2.05 "Deferred Interest"................. 4.01 "Extended Interest Payment Period".. 4.01 "Global Debenture".................. 2.04 "Interest Payment Date"............. 2.05
4 "Ministerial Action"................ 3.02 "Non-Book-Entry Preferred Securities"......................... 2.04 "No Recognition Opinion"............ 3.02 "Optional Redemption Date".......... 3.01 "90-day Period"..................... 3.02
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. --------------------------------------------------- Whenever this First Supplemental Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this First Supplemental Indenture. The following TIA terms used in this First Supplemental Indenture have the following meanings: "indenture securities" means the Debentures. "indenture security holder" means a Noteholder. "indenture to be qualified" means this First Supplemental Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company. All other TIA terms used in this First Supplemental Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule have the meanings assigned to them. SECTION 1.04. Rules of Construction. Unless the context otherwise ---------------------- requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and 5 (5) provisions apply to successive events and transactions. (6) a reference to a Section or Article is to a Section or Article of this First Supplemental Indenture. ARTICLE II General Terms and Conditions of the Debentures ---------------------------------------------- SECTION 2.01. Designation and Principal Amount. There is hereby --------------------------------- authorized a series of Securities designated as "[ ]% Subordinated Debentures due 2025". The Debentures shall be limited to an aggregate principal amount for all Debentures equal to $[ ], such amount being the sum of (i) the aggregate liquidation amount of the Preferred Securities and (ii) the proceeds received by the Trust upon issuance of the Common Securities to the Company. The aggregate principal amount of Debentures outstanding at any time may not exceed that amount except as provided in Section 3.06 of the Indenture. SECTION 2.02. Maturity. The Debentures shall mature on [ ], --------- 2025 (the "Maturity Date"). SECTION 2.03. Form and Payment. Except as provided in Section 2.04, ----------------- the Debentures shall be issued in fully registered certificated form without interest coupons. Principal and interest on the Debentures issued in certificated form will be payable, the transfer of such Debentures will be registrable and such Debentures will be exchangeable for Debentures bearing identical terms and provisions at the office or agency of the Trustee; provided, -------- however, that payment of interest may be made at the option of the Company by - ------- check mailed to the Holder at such address as shall appear in the Security Register. Notwithstanding the foregoing, so long as the Holder of any Debentures is the Property Trustee, the payment of the principal of and interest (including Compounded Interest [and Additional Interest], if any) on such Debentures held by the Property Trustee will be made at such place and to such account as may be designated by the Property Trustee. 6 SECTION 2.04. Global Debenture. (a) In the event the Company ----------------- causes, pursuant to Section 3.03 or otherwise, the Debentures held by the Property Trustee to be distributed to holders of the Trust Securities; (i) except as provided in paragraph (ii) of this Section 2.04, the Debentures in certificated form shall be presented to the Trustee by the Property Trustee in exchange for one or more global Debentures in an aggregate principal amount equal to the aggregate principal amount of the outstanding Debentures (each, a "Global Debenture"), to be registered in the name of the Depositary, or its nominee, and delivered by the Trustee to the Depositary for crediting to the accounts of its participants pursuant to the instructions of the Regular Trustees. The Company upon any such presentation shall execute a Global Debenture in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with the Indenture and this First Supplemental Indenture. Payments on the Debentures issued as a Global Debenture will be made to the Depositary; and (ii) to the extent any Preferred Securities are held in non-book-entry certificated form, any Preferred Security Certificate which represents Preferred Securities other than Preferred Securities held by the Clearing Agency or its nominee ("Non-Book-Entry Preferred Securities") will be deemed to represent beneficial interests in Debentures presented to the Trustee by the Property Trustee having an aggregate principal amount equal to the aggregate liquidation amount of the Non-Book-Entry Preferred Securities until such Preferred Security Certificate is presented to the Regular Trustees for transfer or reissuance at which time such Preferred Security Certificate will be canceled and a Debenture registered in the name of the holder (or the transferee thereof) of such Preferred Security Certificate with an aggregate principal amount equal to the aggregate liquidation 7 amount of the Preferred Security Certificate canceled will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with the Indenture and this First Supplemental Indenture. On issue of such Debentures, Debentures with an equivalent aggregate principal amount that were presented by the Property Trustee to the Trustee will be deemed to have been canceled. (b) A Global Debenture shall be exchangeable for Debentures registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary notifies the Company that it is unwilling or unable to continue as a depositary for such Global Debenture and no successor depositary shall have been appointed, (ii) the Depositary, at any time, ceases to be a clearing agency registered under the Exchange Act at which time the Depositary is required to be so registered to act as such Depositary and no successor depositary shall have been appointed, or (iii) the Company in its sole discretion determines that such Global Debenture shall be so exchangeable. Any Global Debenture that is exchangeable pursuant to the preceding sentence shall be exchangeable for Debentures registered in such names as the Depositary shall direct. SECTION 2.05. Interest. (a) Each Debenture will bear interest at --------- the rate of __% per annum (the "Coupon Rate") from the original date of issuance until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Coupon Rate, compounded quarterly, payable (subject to the provisions of Article 4) quarterly in arrears on [March 30, June 30, September 30 and December 30] of each year (each, an "Interest Payment Date"), commencing on ____________, 1995 to the Person in whose name such Debenture or any predecessor Debenture is registered, at the close of business on the regular record date for such interest installment, which, in respect of any Debenture of which the Property Trustee is the Holder or a Global Debenture, shall be the close of business on the March 15, June 15, September 15 and December 15, as the case may be, next preceding that Interest Payment Date. Notwithstanding the foregoing sentence, if the Preferred Securities are no longer in book-entry only form or if pursuant to the Indenture and this First Supplemental 8 Indenture the Debentures are not represented by a Global Debenture, the Company may select a regular record date for such interest installment which shall be any date at least one Business Day before an Interest Payment Date. (b) The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed, will be computed on the basis of the actual number of days elapsed in such 30-day month. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which 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, 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. [(c) If at any time while the Property Trustee is the Holder of any Debentures, the Trust or the Property Trustee is required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any case, the Company will pay as additional interest ("Additional Interest") on the Debentures held by the Property Trustee, such additional amounts as shall be required so that the net amounts received and retained by the Trust and the Property Trustee after paying such taxes, duties, assessments or other governmental charges will be equal to the amounts the Trust and the Property Trustee would have received had no such taxes, duties, assessments or other government charges been imposed. ARTICLE III Redemption; Distribution ------------------------ SECTION 3.01. Optional Redemption. The Company, subject to the -------------------- provisions of Article 13 of the Indenture, shall have the right to redeem the Debentures, in whole or in part, from time to time, on or after [ ], 2000, upon not less than 20 nor more than 45 Business Days' written notice to the Holders (such date of redemption an 9 "Optional Redemption Date"), at a redemption price equal to 100% of the principal amount of Debentures to be redeemed, plus cash in an amount equal to all accrued and unpaid interest, if any, to but excluding the Optional Redemption Date. If a partial redemption of the Debentures would result in the delisting of the Preferred Securities from any national securities exchange or other self-regulatory organization (including Nasdaq) on which the Preferred Securities are then listed, the Company shall not effect such partial redemption and may only redeem the Debentures in whole. SECTION 3.02. Special Event Redemption or Distribution. (a) (i) If, ----------------------------------------- at any time, a Special Event shall occur and be continuing, the Company shall elect to either: (A) direct the Regular Trustees to dissolve the Trust and cause Debentures having an aggregate principal amount equal to the aggregate liquidation amount of, and accrued and unpaid interest equal to accrued and unpaid Distributions on, and having the same record date for payment as, the Trust Securities outstanding at such time, to be distributed by the Regular Trustee to the holders of the Trust Securities pro rata according to the aggregate liquidation amount of the Trust Securities held by such holder in relation to the aggregate liquidation amount of all Trust Securities outstanding in liquidation of such holders' interests in the Trust, within 90 days following the occurrence of such Special Event, provided, however, that in the case of the occurrence of a Tax Event, as a -------- ------- condition of any such dissolution and distribution, the Regular Trustees shall have received an opinion of nationally recognized independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on any then applicable published revenue ruling of the Internal Revenue Service, to the effect that the holders of the Preferred Securities will not recognize any gain or loss for United States Federal income tax purposes as a result of the dissolution of the Trust and distribution of Debentures; 10 (B) to redeem the Debentures in accordance with the Indenture and this First Supplemental Indenture; or (C) in the case of a Tax Event, allow the Debentures and the Trust Securities to remain outstanding and indemnify the Trust for all taxes payable by it as a result of such change in law or interpretation; provided that, if and as long as at the time there is available to the Trust the - -------- opportunity to eliminate, within 90 days following the occurrence of such Special Event (the "90-Day Period"), the Special Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure that has no adverse effect on the Trust, the Company or the holders of the Trust Securities (a "Ministerial Action"), the Company shall not be permitted to redeem the Debentures; provided further, that ---------------- the Company shall have no right to redeem the Debentures or direct the Regular Trustees to dissolve the Trust while the Regular Trustees are pursuing such Ministerial Action unless the Special Event shall not have been so eliminated by the 85th day following the occurrence thereof, in which case the Company shall be permitted to direct the Regular Trustees or to provide notice to the holders of the redemption of the Debentures; provided further, that if dissolution of ---------------- the Trust and distribution of the Debentures to the holders of the Trust Securities would eliminate the condition causing the Special Event and all other conditions to such dissolution and distribution have been satisfied, the Company will not be permitted to redeem the Debentures at the Special Redemption Price; and provided further, that the Company shall not be permitted to direct the ---------------- Regular Trustees to dissolve the Trust and distribute the Debentures to the holders of the Trust Securities upon the occurrence of the condition described in clause (2) in the definition of "Tax Event" if, after giving effect to such dissolution and distribution, the Company would not be permitted to deduct a greater percentage of the interest payable on the Debentures than it had been permitted to deduct for United States Federal income tax purposes prior to the occurrence of such Tax Event. (ii) In the event the Company shall elect to redeem the Debentures in accordance with (and subject to) paragraph (i) above upon the occurrence and continuation of a Special Event, the Company shall be entitled to so redeem 11 the Debentures in whole (but not in part), upon not less than 20 nor more than 45 Business Days' written notice to the Holders, within the 90-Day Period (such date of redemption a "Special Redemption Date") at a redemption price equal to 100% of the principal amount of Debentures to be redeemed, plus cash in an amount equal to all accrued and unpaid interest on the Debentures to but excluding the Special Redemption Date. References herein and in the Indenture to "Redemption Date" shall refer to the Optional Redemption Date or the Special Redemption Date, as the case may be. (b) Upon the distribution of Debentures to holders of Preferred Securities as a result of the occurrence of a Special Event, subject to applicable law (including, without limitation, United States Federal securities laws), the Company or any of its Affiliates may at any time and from time to time purchase outstanding Debentures by tender, in the open market or by private agreement. SECTION 3.03. No Sinking Fund. The Debentures are not entitled to ---------------- the benefits of any sinking fund. ARTICLE IV Extension of Interest Payment Period ------------------------------------ SECTION 4.01. Extension of Interest Payment Period. The Company ------------------------------------- shall have the right, at any time during the term of the Debentures, from time to time to defer payments of interest by extending the interest payment period of such Debentures for up to 20 consecutive quarters (the "Extended Interest Payment Period"). To the extent permitted by applicable law, interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 4.01, will bear interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extended Interest Payment Period ("Compounded Interest"). At the end of the Extended Interest Payment Period the Company shall pay all interest accrued and unpaid on the Debentures, including any [Additional Interest and] Compounded Interest ("Deferred Interest") that shall be payable, to the Holders of the Debentures in whose names the Debentures are registered in the Security Register on the first record date after the end of the Extended Interest Payment Period. Before the 12 termination of any Extended Interest Payment Period, the Company may further extend such period, provided that such period together with all such further -------- extensions thereof shall not exceed 20 consecutive quarters. Upon the termination of any Extended Interest Payment Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof. SECTION 4.02. Notice of Extension. (a) If the Property Trustee is -------------------- the only registered Holder of the Debentures at the time the Company selects an Extended Interest Payment Period, the Company shall give written notice to the Regular Trustees, the Property Trustee and the Trustee of its selection of such Extended Interest Payment Period one Business Day before the earlier of (a) the next succeeding date on which Distributions on the Trust Securities issued by the Trust are payable, or (b) the date the Trust is required to give notice of the record date of the date such Distributions are payable to the NYSE or other applicable self-regulatory organization or to holders of the Preferred Securities issued by the Trust, but in any event at least one Business Day before such record date. (b) If the Property Trustee is not the only Holder of the Debentures at the time the Company selects an Extended Interest Payment Period, the Company shall give the Holders of the Debentures and the Trustee written notice of its selection of such Extended Interest Payment Period 10 Business Days before the earlier of (i) the next succeeding Interest Payment Date, or (ii) the date the Company is required to give notice of the record or payment date of such interest payment to the NYSE or other applicable self-regulatory organization or to Holders of the Debentures. (c) The quarter in which any notice is given pursuant to paragraphs (a) or (b) of this Section 4.02 shall be counted as one of the 20 quarters permitted in the maximum Extended Interest Payment Period permitted under Section 4.01. ARTICLE V Expenses -------- 13 SECTION 5.01. Payment of Expenses. In connection with the offering, -------------------- sale and issuance of the Debentures to the Property Trustee in connection with the sale of the Trust Securities by the Trust, the Company shall: (a) pay for all costs and expenses relating to the offering, sale and issuance of the Debentures, including commissions to the underwriters payable pursuant to the Underwriting Agreement [and the Pricing Agreement] and compensation of the Trustee under the Indenture in accordance with the provisions of Section 6.07 of the Indenture; (b) pay for all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization of the Trust, the offering, sale and issuance of the Trust Securities (including commissions to the underwriters in connection therewith), the fees and expenses of the Property Trustee and the Delaware Trustee, the costs and expenses relating to the operation, maintenance and dissolution of the Trust and the enforcement by the Property Trustee of the rights of the holders of Preferred Securities, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing and disposition of Trust assets); and (c) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. ARTICLE VI Covenants --------- SECTION 6.01. Listing on an Exchange. If the Debentures are to be ----------------------- issued as a Global Debenture in connection with the distribution of the Debentures to the holders of the Preferred Securities issued by the Trust upon a Special Event, the Company will use its best efforts to 14 list such Debentures on the NYSE or on such other exchange as the Preferred Securities are then listed. SECTION 6.02. Limitation on Dividends; Transactions with Affiliates. ----------------------------------------------------- (a) If (i) there shall have occurred any event that would constitute an Event of Default or (ii) the Company shall be in default with respect of its payment or any other obligations under the Guarantee, then (A) the Company shall not, and shall cause any subsidiary of the Company that is not a wholly-owned subsidiary of the Company not to, 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 or the capital stock of any such subsidiary, and (B) 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 such Securities, provided that the foregoing restriction in paragraph (A) does not apply to any [interest or] dividends paid by the Company or any of its subsidiaries where the [interest or] dividend is [paid by way of the issuance of securities that rank pari passu with, or junior to, the securities on which such interest or dividend is being paid]. (b) If the Company shall have given notice of its election to defer payments of interest on such Securities by extending the interest payment period as provided in this First Supplemental Indenture and such period, or any extension thereof, shall be continuing, then (A) the Company shall not and shall cause any subsidiary of the Company not to, declare or pay any dividend or, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or the capital stock of any such subsidiary, and (B) 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 such Securities, provided that the foregoing restriction in paragraph (A) does -------- not apply to any [interest or] dividends paid by the Company or any of its subsidiaries where the [interest or] dividend is [paid by way of the issuance of securities that rank pari passu with, or junior to, the securities on which such interest or dividend is being paid]. SECTION 6.03. Covenants as to Trust. For so long as the Preferred --------------------- Securities remain outstanding, the Company 15 will (i) maintain 100% direct or indirect ownership of the Common Securities; provided, however, that any permitted successor of the Company under the - -------- ------- Indenture may succeed to the Company's ownership of the Common Securities, and (ii) use its reasonable efforts to cause the Trust (a) to remain a statutory business trust, except in connection with a distribution of Securities as provided in the Declaration, the redemption of all of the Trust Securities and in connection with certain mergers, consolidations or amalgamation permitted by the Declaration, and (b) otherwise continue to be treated as a grantor trust for United States Federal income tax purposes. ARTICLE VII Original Issue of Debentures ---------------------------- SECTION 7.01. Original Issue of Debentures. Debentures in the ----------------------------- aggregate principal amount of $________ may, upon execution of this First Supplemental Indenture, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Debentures to or upon the written order of the Company, signed by its Chairman, its President, or any Vice President and its Treasurer or an Assistant Treasurer, without any further action by the Company. ARTICLE VIII Miscellaneous ------------- SECTION 8.01. Ratification of Indenture. The Indenture, as -------------------------- supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed, and this First Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. SECTION 8.02. Trustee Not Responsible for Recitals. The recitals ------------------------------------- herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this First Supplemental Indenture. 16 SECTION 8.03. Governing Law. This First Supplemental Indenture and -------------- each Debenture shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State. SECTION 8.04. Separability. In case any one or more of the ------------- provisions contained in this First Supplemental Indenture or in the Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this First Supplemental Indenture or of the Debentures, but this First Supplemental Indenture and the Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. SECTION 8.05. Counterparts. This First Supplemental Indenture may be ------------- executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. SECTION 8.06. Successors. All agreements of the Company in this ----------- First Supplemental Indenture and the Debentures shall bind its successor. All agreements of the Trustee in this First Supplemental Indenture shall bind its successor. SECTION 8.07. Assignment. The Company will have the right at all ----------- times to assign any of its rights or obligations under this First Supplemental Indenture and the Debentures 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, this First Supplemental Indenture will be binding upon and inure to the benefit of the parties thereto and their respective successors and assigns. This First Supplemental Indenture may not otherwise be assigned by the parties hereto. SECTION 8.08. Tax Characterization. The Company, the Trustee and --------------------- each Holder of a Debenture (by acceptance thereof) agrees to treat the Debentures as debt instruments for United States Federal, state and local income and franchise tax purposes and agrees not to take any contrary position before any taxing authority or on any tax return. 17 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written. TIME WARNER INC., by ------------------------------------ Name: Title: [Seal] Attest: - ---------------------------- Title: Assistant Secretary CHEMICAL BANK, by ------------------------------------ Name: Title: [Seal] Attest: - ---------------------------- Title: [ ] 18 STATE OF ) ) ss.: COUNTY OF ) On the ___ day of ____, 1995, before me personally came _______ to be known, who, being by me duly sworn, did depose and say that he is the ________ of Time Warner Inc., one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to the said instrument is such corporation seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. -------------------------------- Notary Public [Notarial Seal] Commission Expires 19 STATE OF ) ) ss.: COUNTY OF ) On the ___ day of _______________, 1995, before me personally came __________ to be known, who, being by me duly sworn, did depose and say that he is the ________ of [Chemical Bank], one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to the said instrument is such corporation seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. ---------------------------------- Notary Public [Notarial Seal] Commission Expires EXHIBIT A (FORM OF FACE OF DEBENTURE) [IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT - This Debenture is a Global Debenture within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depository or a nominee of a Depository. This Debenture is exchangeable for Debentures registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Indenture, and no transfer of this Debenture (other than a transfer of this Debenture as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository) may be registered except in limited circumstances. Unless this Debenture is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any Debenture issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] Registered $ _____________ No. ___________ CUSIP No. ______ TIME WARNER INC. ___% SUBORDINATED DEBENTURE DUE 2025 TIME WARNER INC., a Delaware corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ________, or registered assigns, the principal sum of _______________ DOLLARS on ____________, 2025, and to pay interest on said principal sum from _____, 1995, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on [March 31, June 30, September 30 and December 31] of each year commencing ____________, 1995, at the rate of ___ % per 2 annum until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded quarterly. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Debenture is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and 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, 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. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Debenture (or one or more Predecessor Debentures, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, which shall be the close of business on the business day next preceding such Interest Payment Date. [IF PURSUANT TO THE PROVISIONS OF THE INDENTURE OR THIS FIRST SUPPLEMENTAL INDENTURE THE DEBENTURES ARE NO LONGER REPRESENTED BY A GLOBAL DEBENTURE--which shall be the close of business on the ____th business day next preceding such Interest Payment Date.] Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such regular record date and may be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders of this series of Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) and the interest on this Debenture shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at -------- ------- 3 the option of the Company by check mailed to the registered Holder at such address as shall appear in the Security Register. Notwithstanding the foregoing, so long as the Holder of this Debenture is the Property Trustee, the payment of the principal of (and premium, if any) and interest on this Debenture will be made at such place and to such account as may be designated by the Property Trustee. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such actions as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in- fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. Unless the Certificate of Authentication hereon has been executed by the Trustee referred to on the reverse side hereof, this Debenture shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. The provisions of this Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. 4 IN WITNESS WHEREOF, the Company has caused this instrument to be executed. Dated____________________ TIME WARNER INC. by_____________________ Name: Title: Asset: By____________________ Secretary 5 (FORM OF CERTIFICATE OF AUTHENTICATION) CERTIFICATE OF AUTHENTICATION This is one of the Debentures of the series of Debentures described in the within-mentioned Indenture. [CHEMICAL BANK] _______________________ ______________________ as Trustee or as Authentication Agent By_____________________ By______________________ Authorized Signatory Authorized Signatory (FORM OF REVERSE OF DEBENTURE) This Debenture is one of a duly authorized series of Debentures of the Company (herein sometimes referred to as the "Debentures"), specified in the Indenture, all issued or to be issued in one or more series under and pursuant to an Indenture dated as of ________, 1995, duly executed and delivered between the Company and Chemical Bank, as Trustee (the "Trustee"), as supplemented by the First Supplemental Indenture dated as of ________, 1995, between the Company and the Trustee (the Indenture as so supplemented, the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Debentures. By the terms of the Indenture, the Debentures are issuable in series that may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Indenture. This series of Debentures is limited in aggregate principal amount as specified in said First Supplemental Indenture. Upon the occurrence and continuation of a Special Event in certain circumstances, the Company will have the right to elect to (a) dissolve the Trust and cause the Subordinated Debentures to be distributed to holders of the Preferred Securities, (b) redeem the Debentures at a 6 redemption price equal to 100% of their principal amount together with any interest accrued thereon (the "Redemption Price") or (c) in the case of a Tax Event, allow the Subordinated Debentures to remain outstanding and indemnify the Trust for any taxes payable by it as a result of such Tax Event. The Redemption Price shall be paid on the date of such redemption or at such earlier date as the Company determines. The Company shall have the right to redeem this Debenture at the option of the Company, without premium or penalty, in whole or in part of any time or after _____, 2000 (an "Optional Redemption"), at a redemption price equal to 100% of the principal amount plus any accrued but unpaid interest, to the date of such redemption (the "Optional Redemption Price"). Any redemption pursuant to this paragraph will be made upon not less than 20 nor more than 45 days' notice, at the Optional Redemption Price. If the Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee, provided that if, at the time of redemption, the Debentures are registered as a Global Debenture, the Depository shall determine by lot the principal amount of such Debentures held by each Debentureholder to be redeemed. In the event of redemption of this Debenture in part only, a new Debenture or Debentures of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancelation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Debentures of each series affected at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Debentures; provided, -------- however, that no such supplemental indenture shall (i) extend the fixed maturity - ------- of any Debentures of any series, or reduce the principal 7 amount thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the Holder of each Debenture so affected, or (ii) reduce the aforesaid percentage of Debentures, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holders of each Debenture then outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Debentures of any series at the time outstanding affected thereby, on behalf of all of the Holders of the Debentures of such series, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture with respect to such series, and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any of the Debentures of such series. Any such consent or waiver by the registered Holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future Holders and owners of this Debenture and of any Debenture issued in exchange hereof or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debenture. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. The Company shall have the right at any time during the term of the Debentures from time to time to extend the interest payment period of such Debentures to up to 20 consecutive quarters (an "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Debentures to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that such Extended Interest Payment Period together with all such further extensions thereof shall not exceed 20 consecutive quarters. At the termination of any such Extended Interest Payment Period and upon the payment of all accrued and 8 unpaid interest and any additional amounts then due, the Company may commence a new Extended Interest Payment Period. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered Holder hereof on the Security Register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Company in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and any Security Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Debenture Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. The debentures of this series are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. This Global Debenture is 9 exchangeable for Debentures in definitive form only under certain limited circumstances set forth in the Indenture. Debentures of this series so issued are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Debentures of this series are exchangeable for a like aggregate principal amount of Debentures of this series of a different authorized denomination, as requested by the Holder surrendering the same. All terms used in this Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. EX-4.12 12 GUARANTEE AGREEMENT (PREFERRED SECURITIES) EXHIBIT 4.12 This GUARANTEE AGREEMENT dated as of [ ], 1995, executed and delivered by TIME WARNER INC., a Delaware corporation ("Time Warner" or the "Guarantor"), and [ ], as the initial Guarantee Trustee (as defined herein for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of Time Warner Capital I, a Delaware statutory business trust (the "Trust"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration"), dated as of [ ], 1995, among the trustees of the Trust named therein, Time Warner Inc., as Sponsor, and the Holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust is issuing as of the date hereof $[ ] aggregate liquidation amount of its %[ ] Preferred Trust Securities (the "Preferred Securities") representing undivided beneficial interests in the assets of the Trust, having the terms set forth in Exhibit B to the Declaration; WHEREAS the Preferred Securities will be issued by the Trust upon deposit of the Guarantor's Subordinated Debentures (as defined herein) with the Trust as trust assets; and WHEREAS, as incentive for the Holders to purchase the Preferred Securities, the Guarantor desires to irrevocably and unconditionally agree, to the extent set forth herein, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders from time to time of the Preferred Securities. 2 ARTICLE I Definitions ----------- SECTION 1.01. Terms Generally. (a) The definitions in Section 1.02 --------------- shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Guarantee Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, any reference in this Guarantee Agreement to this Guarantee Agreement, the Indenture or any other document shall mean such document as amended, restated, supplemented or otherwise modified from time to time. (b) Capitalized terms used in this Guarantee Agreement but not defined in the preamble above have the respective meanings assigned to them in Section 1.02. (c) A term defined anywhere in this Guarantee Agreement has the same meaning throughout. (d) A term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires. SECTION 1.02. Definitions. As used in this Guarantee Agreement, the ----------- following terms shall have the meanings specified below: "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder. "Board of Directors" means (i) the board of directors of Time Warner, (ii) any duly authorized committee of such board, (iii) any committee of officers of Time Warner or (iv) any officer of Time Warner acting, in the case of (iii) or (iv), pursuant to authority granted by the board of directors of Time Warner or any committee of such board. 3 "Commission" means the Securities and Exchange Commission. "Common Securities" means the securities representing undivided beneficial interests in the assets of the Trust, having the terms set forth in Exhibit C to the Declaration. "Covered Person" means any Holder of Preferred Securities. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Guarantee Agreement. "Guarantee Payments" shall mean the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Trust: (i)(a) any accrued and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Preferred Securities and (b) the redemption price, including all accrued and unpaid distributions to the date of redemption (the "Redemption Price") with respect to any Preferred Securities subject to mandatory redemption or called for redemption by the Trust, but if and only if to the extent that in each case the Guarantor has made a payment to the Property Trustee of interest or principal on the Subordinated Debentures, as the case may be, and (ii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the distribution of Subordinated Debentures to the Holders in exchange for Preferred Securities upon the maturity or redemption of the Subordinated Debentures as provided in the Declaration), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Preferred Securities to the date of payment to the extent the Trust has funds available therefor, and (b) the amount of assets of the Trust remaining available for distribution to Holders upon such liquidation, dissolution, winding-up or termination of the Trust (in either case, the "Liquidation Distribution"). "Guarantee Trustee" means The First National Bank of Chicago until a Successor Guarantee Trustee has been appointed and accepted such appointment pursuant to the terms of this Guarantee Agreement and thereafter means each such Successor Guarantee Trustee. 4 "Holder" shall mean any holder, as registered on the books and records of the Trust, of any Preferred Securities; provided, however, that, in -------- ------- determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any entity directly or indirectly controlling or controlled by or under direct or indirect common control with the Guarantor. "Indemnified Person" means the Guarantee Trustee, any Affiliate of the Guarantee Trustee, and any officers, directors, shareholders, members, partners, employees, representatives or agents of the Guarantee Trustee. "Indenture" means the Indenture dated as of [ ], 1995 between the Guarantor and Chemical Bank, as trustee, and any indenture supplemental thereto pursuant to which the Subordinated Debentures are to be issued. "Majority in aggregate liquidation amount of the Preferred Securities" means, except as otherwise required by the Trust Indenture Act, Holder(s) of outstanding Preferred Securities voting together as a single class, who are the record owners of Preferred Securities whose aggregate liquidation amount represents more than 50% of the aggregate liquidation amount of all outstanding Preferred Securities. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association or government or any agency or political subdivision thereof or any other entity of whatever nature. "Property Trustee" means the Person acting as Property Trustee under the Declaration. "Resignation Request" has the meaning assigned to such term in Section 4.02(d). "Responsible Officer" means, with respect to the Guarantee Trustee, the chairman of the Board of Directors, the President, any Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, any Trust Officer or Assistant Trust Officer or any other Officer of the Guarantee Trustee customarily performing functions similar 5 to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Subordinated Debentures" means the series of Subordinated Debentures issued by the Guarantor under the Indenture to the Property Trustee and entitled the " % Subordinated Debentures due 2025". "Successor Guarantee Trustee" means a successor Guarantee Trustee possessing the qualifications to act as a Guarantee Trustee under Section 4.01. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. ARTICLE II Trust Indenture Act ------------------- SECTION 2.01. Trust Indenture Act; Application. (a) This Guarantee --------------------------------- Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions. (b) If and to the extent that any provision of this Guarantee Agreement limits, qualifies or conflicts with the duties imposed by (S)(S) 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. (c) The application of the Trust Indenture Act to this Guarantee Agreement shall not affect the nature of the Preferred Securities as equity securities representing undivided beneficial interests in the assets of the Trust. SECTION 2.02. Lists of Holders of Preferred Securities. (a) The ----------------------------------------- Guarantor shall provide the Guarantee Trustee with such information as is required under (S) 312(a) of the Trust Indenture Act at the times and in the manner provided in (S) 312(a). (b) The Guarantee Trustee shall comply with its obligations under (S)(S) 310(b), 311 and 312(b) of the Trust Indenture Act. 6 SECTION 2.03. Reports by the Guarantee Trustee. Within 60 days after --------------------------------- May 15 of each year, the Guarantee Trustee shall provide to the Holders of the Preferred Securities such reports as are required by (S) 313 of the Trust Indenture Act, if any, in the form, in the manner and at the times provided by (S) 313 of the Trust Indenture Act. The Guarantee Trustee shall also comply with the requirements of (S) 313(d) of the Trust Indenture Act. SECTION 2.04. Periodic Reports to Guarantee Trustee. The Guarantor -------------------------------------- shall provide to the Guarantee Trustee, the Commission and the Holders of the Preferred Securities, as applicable, such documents, reports and information as required by (S) 314(a)(l)-(3), if any, of the Trust Indenture Act and the compliance certificates required by (S) 314(a)(4) and (c) of the Trust Indenture Act, any such certificates to be provided in the form, in the manner and at the times required by (S) 314(a)(4) and (c) of the Trust Indenture Act, provided that any certificate to be provided pursuant to (S) 314(a)(4) of the Trust Indenture Act shall be provided within 120 days of the end of each fiscal year of the Trust. SECTION 2.05. Evidence of Compliance with Conditions Precedent. The ------------------------------------------------- Guarantor shall provide to the Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Guarantee Agreement which relate to any of the matters set forth in (S) 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given pursuant to (S) 314(c) shall comply with (S) 314(e) of the Trust Indenture Act. SECTION 2.06. Events of Default; Waiver. (a) Subject to Section -------------------------- 2.06(b), Holders of Preferred Securities may by vote of at least a Majority in aggregate liquidation amount of the Preferred Securities, (i) direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee or (ii) on behalf of the Holders of all Preferred Securities waive any past Event of Default and its consequences. Upon such waiver, any such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. 7 (b) The right of any Holder of Preferred Securities to receive payment of the Guarantee Payments in accordance with this Guarantee Agreement, or to institute suit for the enforcement of any such payment, shall not be impaired without the consent of each such Holder. SECTION 2.07. Disclosure of Information. The disclosure of -------------------------- information as to the names and addresses of the Holders of the Preferred Securities in accordance with (S) 312 of the Trust Indenture Act, regardless of the source from which such information was derived, shall not be deemed to be a violation of any existing law, or any law hereafter enacted which does not specifically refer to (S) 312 of the Trust Indenture Act, nor shall the Guarantee Trustee be held accountable by reason of mailing any material pursuant to a request made under (S) 312(b) of the Trust Indenture Act. SECTION 2.08. Conflicting Interest. The Declaration shall be deemed --------------------- to be specifically described in this Guarantee Agreement for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III Powers, Duties and Rights of Guarantee Trustee ---------------------------------------------- SECTION 3.01. Powers and Duties of the Guarantee Trustee. (a) This ------------------------------------------- Guarantee Agreement shall be held by the Guarantee Trustee in trust for the benefit of the Holders of the Preferred Securities. The Guarantee Trustee shall not transfer its right, title and interest in the Guarantee Agreement to any Person except a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Guarantee Trustee or to a Holder of Preferred Securities exercising his or her rights pursuant to Section 5.04. The right, title and interest of the Guarantee Trustee to the Guarantee Agreement shall vest automatically in each Person who may hereafter be appointed as Guarantee Trustee in accordance with Article IV. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered. (b) If an Event of Default occurs and is continuing, the Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the Holders of the Preferred Securities. 8 (c) This Guarantee Agreement and all moneys received by the Property Trustee hereunder in respect of the Guarantee Payments will not be subject to any right, charge, security interest, lien or claim of any kind in favor of, or for the benefit of the Guarantee Trustee or its agents or their creditors. (d) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the holders of the Preferred Securities, as their names and addresses appear upon the register, notice of all Events of Default known to the Guarantee Trustee, unless such defaults shall have been cured before the giving of such notice; provided, that the Guarantee Trustee shall be protected in withholding such - -------- notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Guarantee Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of the Preferred Securities. The Guarantee Trustee shall not be deemed to have knowledge of any default except any default as to which the Guarantee Trustee shall have received written notice or a Responsible Officer charged with the administration of this Guarantee Agreement shall have obtained written notice. (e) The Guarantee Trustee shall continue to serve until, a Successor Guarantee Trustee has been appointed and that appointment is in accordance with Article IV. SECTION 3.02. Certain Rights and Duties of the Guarantee Trustee. (a) --------------------------------------------------- The Guarantee Trustee, before the occurrence of an Event of Default and after the curing or waiver of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenants shall be read into this Guarantee Agreement against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06(a)), the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Guarantee Agreement shall be construed to relieve the Guarantee Trustee from 9 liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement, and no implied covenants or obligations shall be read into this Guarantee Agreement against the Guarantee Trustee; and (B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement; (ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of Preferred Securities as provided herein relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and 10 (iv) no provision of this Guarantee Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. (c) Subject to the provisions of Sections 3.02(a) and (b): (i) Whenever in the administration of this Guarantee Agreement, the Guarantee Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon a certificate, which shall comply with the provisions of (S) 314(e) of the Trust Indenture Act, signed by any authorized officer of the Guarantor; (ii) the Guarantee Trustee (A) may consult with counsel (which may be counsel to the Guarantor or any of its Affiliates and may include any of its employees) selected by it in good faith and with due care and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice and opinion and (B) shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction; (iii) the Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it in good faith and with due care; 11 (iv) the Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holders of Preferred Securities, unless such Holders shall have offered to the Guarantee Trustee reasonable security and indemnity against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction; provided that nothing contained in this clause (iv) shall relieve the Guarantee Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived) to exercise such of the rights and powers vested in it by this Guarantee Agreement, and to use the same degree of care and skill in this exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; and (v) any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders of the Preferred Securities and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Guarantee Trustee so to act, or as to its compliance with any of the terms and provisions of this Guarantee Agreement, both of which shall be conclusively evidenced by the Guarantee Trustee's or its agent's taking such action. SECTION 3.03. Not Responsible for Recitals or Issuance of Guarantee. ------------------------------------------------------ The recitals contained in this Guarantee shall be taken as the statements of the Guarantor and the Guarantee Trustee does not assume any responsibility for their correctness. The Guarantee Trustee makes no representations as to the validity or sufficiency of this Guarantee Agreement. ARTICLE IV Guarantee Trustee ----------------- SECTION 4.01. Qualifications. (a) There shall at all times be a --------------- Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and 12 (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50 million and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 4.01(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Guarantee Trustee shall cease to satisfy the requirements of clauses (i) and (ii) above, the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.02. If the Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of (S) 310(b) of the Trust Indenture Act, the Guarantee Trustee and the Guarantor shall in all respects comply with the provisions of (S) 310(b) of the Trust Indenture Act. SECTION 4.02. Appointment, Removal and Resignation of Guarantee ------------------------------------------------- Trustee. (a) Subject to Section 4.02(b), the Guarantee Trustee may be - -------- appointed or removed without cause at any time by the Guarantor. (b) The Guarantee Trustee shall not be removed in accordance with Section 4.02(a) until a Successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.01(a) has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor and the Guarantee Trustee being removed. (c) The Guarantee Trustee appointed to office shall hold office until his successor shall have been appointed or until its removal or resignation. (d) The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an 13 instrument (a "Resignation Request") in writing signed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, -------- ------- that no such resignation of the Guarantee Trustee shall be effective until a Successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.1(a) has been appointed and has accepted such appointment by instrument executed by such Successor Guarantee Trustee and delivered to Guarantor and the resigning Guarantee Trustee. (e) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.02 within 60 days after delivery to the Guarantor of a Resignation Request, the resigning Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a Successor Guarantee Trustee. ARTICLE V Guarantee --------- SECTION 5.01. Guarantee. The Guarantor irrevocably and ---------- unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust) regardless of any defense, right of set-off or counterclaim which the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders. SECTION 5.02. Waiver of Notice. The Guarantor hereby waives notice ----------------- of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.03. Obligations Not Affected. The obligations, covenants, ------------------------- agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be 14 affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust; (b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.03 that the obligations of the 15 Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.04. Enforcement of Guarantee. The Guarantor and the ------------------------- Guarantee Trustee expressly acknowledge that (i) this Guarantee Agreement will be deposited with the Guarantee Trustee to be held for the benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee Agreement on behalf of the Holders; (iii) Holders representing not less than a Majority in aggregate liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available in respect of this Guarantee Agreement including the giving of directions to the Guarantee Trustee, or exercising any trust or other power conferred upon the Guarantee Trustee under this Guarantee Agreement; provided, -------- however, that, except for directing the time, method and place of conducting any - ------- proceeding for any remedy available to the Guarantee Trustee, the Guarantee Trustee shall not take any of the foregoing actions at the direction of the Holders unless the Guarantee Trustee shall have received, at the expense of Time Warner, an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such action will not result in the Trust being treated as an association taxable as a corporation or a partnership for United States Federal income tax purposes and that, following such action, each holder of Trust Securities will be treated for United States Federal income tax purposes as owning an undivided beneficial interest in the Subordinated Debentures; and (iv) if the Guarantee Trustee fails to enforce this Guarantee Agreement for any reason, any Holder of Preferred Securities may, at its own expense, after a period of 30 days has elapsed from such Holder's written request to the Guarantee Trustee to enforce this Guarantee Agreement, institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Trust, the Guarantee Trustee, or any other Person. SECTION 5.05. Guarantee of Payment. This Guarantee Agreement creates --------------------- a guarantee of payment and not merely of collection. 16 SECTION 5.06. Subrogation. The Guarantor shall be subrogated to all ------------ (if any) rights of the Holders against the Trust in respect of any amounts paid to the Holders by the Guarantor under this Guarantee Agreement; provided, -------- however, that the Guarantor shall not (except to the extent required by - ------- mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.07. Independent Obligations. The Guarantor acknowledges ------------------------ that its obligations hereunder are independent of the obligations of the Trust with respect to the Preferred Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.03 hereof. ARTICLE VI Limitation of Transactions; Subordination ----------------------------------------- SECTION 6.01. Limitation of Transactions. So long as any Preferred --------------------------- Securities remain outstanding, if there shall have occurred any Event of Default or an event of default under the Declaration, (a) the Guarantor shall not declare or pay any dividend on, or make any distribution with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock and (b) the Guarantor shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by the Guarantor which rank pari passu with or junior to the Subordinated Debentures; provided, however, that the foregoing restriction shall -------- ------- not apply to any [interest or] dividend payments by the Guarantor where the [interest or] dividend is [paid by way of the issuance of securities that rank pari passu with, or junior to, the securities on which such interest or dividend is being paid]. 17 SECTION 6.02. Subordination. This Guarantee Agreement will -------------- constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, including the Subordinated Debentures, except those made pari passu ---- ----- or subordinate by their terms, (ii) pari passu with the most senior preferred or ---- ----- preference stock outstanding on the date of this Guarantee Agreement or hereafter issued and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any affiliate of the Guarantor and (iii) senior to the Guarantor's common stock. ARTICLE VII Termination ----------- SECTION 7.01. Termination. This Guarantee Agreement shall terminate ------------ and be of no further force and effect upon (i) full payment of the Redemption Price of all Securities, (ii) upon the distribution of the Subordinated Debentures to the Holders of all of the Preferred Securities or (iii) upon full payment of the amounts payable in accordance with the Declaration upon liquidation of the Trust. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Preferred Securities must restore payment of any sums paid under the Preferred Securities or under this Guarantee. ARTICLE VIII Limitation of Liability; Indemnification ---------------------------------------- SECTION 8.01. Exculpation. (a) No Indemnified Person shall be ------------ liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee Agreement or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence (or, in the case of the Guarantee Trustee, except as otherwise set 18 forth in Section 3.02 hereof) or wilful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Preferred Securities might properly be paid. SECTION 8.02. Indemnification. (a) To the fullest extent permitted ---------------- by applicable law, the Guarantor shall indemnify and hold harmless each Indemnified Person from and against any loss, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Guarantee Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence (or, in the case of the Guarantee Trustee, except as otherwise set forth in Section 3.02 hereof) or wilful misconduct with respect to such acts or omissions. (b) To the fullest extent permitted by applicable law, expenses (including reasonable legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Guarantor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Guarantor of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 8.02(a). ARTICLE IX Miscellaneous ------------- 19 SECTION 9.01. Successors and Assigns. All guarantees and agreements ----------------------- contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor, including any successors permitted under Article Five of the Indenture, and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. Except in connection with a consolidation, merger or sale involving the Guarantor that is permitted under Article Five of the Indenture, the Guarantor shall not assign its obligations hereunder. SECTION 9.02. Amendments. Except with respect to any changes which ----------- do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Guarantee Agreement may be amended only with the prior approval of the Holders of not less than a Majority in aggregate liquidation amount of the Preferred Securities and in either case only if the Guarantee Trustee shall have obtained either a ruling from the Internal Revenue Service or a written unqualified opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such action will not result in the Trust being treated as an association taxable as a corporation or a partnership for United States Federal income tax purposes and that, following such action, each holder of Common Securities and Preferred Securities will be treated as owning an undivided beneficial interest in the Subordinated Debentures. The provisions of Section 12.2 of the Declaration concerning meetings of Holders shall apply to the giving of such approval. SECTION 9.03. Notices. Any notice, request or other communication -------- required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and delivered, telecopied or mailed by first class mail as follows: (a) if given to the Guarantor, to the address set forth below or such other address as the Guarantor may give notice of to the Holders: Time Warner Inc. 75 Rockefeller Plaza New York, New York 10019 Facsimile No.: (212) 956-7281 Attention: General Counsel 20 (b) if given to the Guarantee Trustee, to the address set forth below or such other address as the Guarantee Trustee may give notice of to the Holders: Corporate Trust Securities Division The First National Bank of Chicago One First National Plaza, Suite 0126 Chicago, Illinois 60670-0126 Facsimile No.: (312) 407-1708 Attention: Trust #19-[ ] (c) if given to any Holder of Preferred Securities, at the address set forth on the books and records of the Trust. All notices hereunder shall be deemed to have been given when received in person, telecopied with receipt confirmed, or three Business Days after mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.04. Benefit. This Guarantee Agreement is solely for the -------- benefit of the Holders and subject to Section 3.01(a) is not separately transferable from the Preferred securities. 21 SECTION 9.05. Governing Law. THIS GUARANTEE AGREEMENT SHALL BE -------------- GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. TIME WARNER INC., By ___________________________ Name: Title: THE FIRST NATIONAL BANK OF CHICAGO, as Guarantee Trustee, By _______________________________ Name: Title: EX-12.1 13 TIME WARNER RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 TIME WARNER RATIO OF EARNINGS TO FIXED CHARGES
Pro Forma Historical --------------------------- ---------------------------------------------------- Three Months Three Months Year Ended Years Ended December 31, Ended Ended March 31, --------------------------------------- March 31, December 31, ----------- 1995 1994 1995 1994 1994 1993 1992 1992 1991 1990 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- (in millions, except ratios ) Earnings: Net income (loss) before income taxes and extraordinary item............. $(35) $ (152) $(15) $(19) $ 89 $ 81 $ 323 $ 320 $ 52 $ (145) Interest expense..................... 275 983 210 182 769 698 287 729 912 1,096 Amortization of capitalized interest............................ -- 2 -- -- 2 -- 1 19 23 22 Portion of rents representative of an interest factor.................... 13 52 13 13 52 54 52 85 78 74 Adjustment for partially owned subsidiaries and 50% owned companies........................... 158 603 180 159 665 663 590 97 73 57 Undistributed losses of less than 50% owned companies................. 17 82 17 25 82 47 56 56 56 17 ---- ------ ---- ---- ------ ------ ------ ------ ------ ------ Total earnings..................... $428 $1,570 $405 $360 $1,659 $1,543 $1,309 $1,306 $1,194 $1,121 ==== ====== ==== ==== ====== ====== ====== ====== ====== ====== Fixed Charges: Interest expense..................... $275 $ 983 $210 $182 $ 769 $ 698 $ 287 $ 729 $ 912 $1,096 Capitalized interest................. -- 2 -- -- 2 -- -- 15 17 19 Portion of rents representative of an interest factor.................. 13 52 13 13 52 54 52 85 78 74 Adjustment for partially owned subsidiaries and 50% owned companies........................... 158 606 180 159 668 664 571 81 45 33 ---- ------ ---- ---- ------ ------ ------ ----- ------ ------ Total combined fixed charges ...... $446 $1,643 $403 $354 $1,491 $1,416 $ 910 $ 910 $1,052 $1,222 ==== ====== ==== ==== ====== ====== ====== ===== ====== ====== Ratio of earnings to fixed charges (deficiency in the coverage of fixed charges by earnings before fixed charges)................................ $(18) $ (73) 1.0x 1.0x 1.1x 1.1x 1.4x 1.4x 1.1x $ (101) ==== ====== ==== ==== ====== ====== ====== ===== ====== ======
EX-12.2 14 RATIO OF EARNINGS TO COMBINED FIXED CHARGES EXHIBIT 12.2 TIME WARNER RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Pro Forma Historical --------------------------- ---------------------------------------------------- Three Months Three Months Year Ended Years Ended December 31, Ended Ended March 31, --------------------------------------- March 31, December 31, ----------- 1995 1994 1995 1994 1994 1993 1992 1992 1991 1990 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- (in millions, except ratios) Earnings: Net income (loss) before income taxes and extraordinary item.......... $(35) $(152) $(15) $(19) $ 89 $ 81 $323 $320 $ 52 $ (145) Interest expense............. 275 983 210 182 769 698 287 729 912 1,096 Amortization of capitalized interest.................... -- 2 -- -- 2 -- 1 19 23 22 Portion of rents representat- tive of an interest factor.. 13 52 13 13 52 54 52 85 78 74 Adjustment for partially owned subsidiaries and 50% owned companies......... 158 603 180 159 665 663 590 97 73 57 Undistributed losses of less than 50% owned companies.... 17 82 17 25 82 47 56 56 56 17 ---- ------ ---- ---- ------ ------ ------ ------ ------ ------ Total earnings............ $428 $1,570 $405 $360 $1,659 $1,543 $1,309 $1,306 $1,194 $1,121 ==== ====== ==== ==== ====== ====== ====== ====== ====== ====== Combined Fixed Charges and Preferred Stock Dividends: Interest expense............ $275 $ 983 $210 $182 $ 769 $ 698 $ 287 $ 729 $ 912 $1,096 Capitalized interest......... -- 2 -- -- 2 -- -- 15 17 19 Portion of rents represent- ative of an interest factor...................... 13 52 13 13 52 54 52 85 78 74 Adjustment for partially owned subsidiaries and 50% owned companies............. 158 606 180 159 668 664 571 81 45 33 Pretax income necessary to cover preferred stock dividend requirements....... 37 136 5 5 20 218 905 905 1,382 1,234 ---- ------ ---- ---- ------ ------ ------ ------ ------ ------ Total combined fixed charges and preferred stock dividends.......... $483 $1,779 $408 $359 $1,511 $1,634 $1,815 $1,815 $2,434 $2,456 ==== ====== ===== ==== ====== ====== ====== ====== ====== ====== 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).................... $(55) $(209) $ (3) 1.0x 1.1x $(91) $(506) $(509) $(1,240) $(1,335) ==== ====== ==== ==== ==== ==== ===== ===== ======= =======
EX-12.3 15 TWE RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.3 TWE RATIO OF EARNINGS TO FIXED CHARGES
Pro Forma Historical ------------------------------ --------------------------------------------------------------- Three Months Three Months Year Ended Year Ended December 31, Ended Ended March 31, -------------------------------------------- March 31, December 31, ------------- Restated 1995 1994 1995 1994 1994 1993 1992 1992 1991 1990 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- (In millions, except ratios) Earnings: Net income (loss) before income taxes and extraordinary item.......... $ 49 $242 $ 15 $ 52 $201 $272 $210 $210 $132 $(159) Interest expense............. 127 499 150 135 563 573 486 436 479 630 Amortization of capitalized interest.................... 7 25 7 6 25 19 18 18 22 22 Portion of rents representat- tive of an interest factor.. 13 47 13 10 47 39 36 33 27 30 Adjustment for partially owned subsidiaries and 50% owned companies......... 32 115 7 5 24 22 27 80 30 31 Undistributed losses of less than 50% owned companies.... 8 89 8 5 58 14 40 40 58 19 ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- Total earnings............ $236 $998 $200 $213 $918 $939 $817 $817 $748 $ 582 ==== ==== ==== ==== ==== ==== ==== ==== ==== ===== Fixed Charges: Interest expense............. $127 $499 $150 $135 $563 $573 $486 $436 $479 $ 639 Capitalized interest......... 7 25 7 6 25 20 15 15 17 19 Portion of rents represent- ative of an interest factor...................... 13 47 13 10 47 39 36 33 27 30 Adjustment for partially owned subsidiaries and 50% owned companies............. 5 17 7 5 24 22 27 80 31 32 ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- Total fixed charges........ $152 $588 $177 $156 $659 $654 $564 $564 $554 $ 720 ==== ==== ==== ==== ==== ==== ==== ==== ==== ===== Ratio of earnings to fixed charges (deficiency in the coverage of fixed charges by earnings before fixed charges)....................... 1.6x 1.7x 1.1x 1.4x 1.4x 1.4x 1.4x 1.4x 1.4x $(138) ==== ==== ==== ==== ==== ==== ==== ==== ==== =====
EX-23.1 16 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement on Form S-3 and related Prospectus of Time Warner Inc. ("TWI") and Time Warner Capital I, Time Warner Capital II and Time Warner Capital III (each a "Trust") and related Prospectus Supplement of TWI and Time Warner Capital I for the registration of Preferred Trust Securities of the Trusts, Subordinated Debentures of TWI, and the guarantees of Preferred Securities of the Trusts by TWI, and to the incorporation by reference therein of our reports dated February 7, 1995, with respect to the consolidated financial statements and schedule of TWI and Time Warner Entertainment Company, L.P. included in TWI's Annual Report on Form 10-K for the year ended December 31, 1994, as amended by Amendment No. 1 thereto dated June 28, 1995 ("TWI's 1994 Form 10-K"), and our report dated March 3, 1995, with respect to the combined financial statements of the Time Warner Service Partnerships incorporated by reference in TWI's 1994 Form 10-K, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP ERNST & YOUNG LLP New York, New York August 1, 1995 EX-23.3 17 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Time Warner Inc., Time Warner Capital I, Time Warner Capital II and Time Warner Capital III on Form S-3 of our report dated March 10, 1995, with respect to the consolidated financial statements of Summit Communications Group, Inc. incorporated by reference in the Form 8-K of Time Warner Inc. dated May 30, 1995, and to the reference to us under the heading "Experts" in the Prospectus, which is part of such Registration Statement. DELOITTE & TOUCHE LLP Atlanta, Georgia August 2, 1995 EX-23.4 18 CONSENT OF PAUL SCHERER & COMPANY, LLP EXHIBIT 23.4 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement on Form S-3 and related Prospectus of Time Warner Inc. ("TWI") and Time Warner Capital I, Time Warner Capital II and Time Warner Capital III (each a "Trust") and related Prospectus Supplement of TWI and Time Warner Capital I for the registration of Preferred Trust Securities of the Trusts, Subordinated Debentures of TWI, and the guarantees of Preferred Securities of the Trusts by TWI, and to the incorporation by reference therein of (i) our report dated October 7, 1994, with respect to the financial statements of Newhouse Broadcasting Cable Division of Newhouse Broadcasting Corporation and Subsidiaries for each of the three years in the period ended July 31, 1994, and (ii) our report dated March 24, 1995, with respect to the financial statements of Vision Cable Division of Vision Cable Communications, Inc. and Subsidiaries for each of the three years in the period ended December 31, 1994, appearing in the Current Report on Form 8-K of TWI dated May 30, 1995, filed with the Securities and Exchange Commission. PAUL SCHERER & COMPANY LLP New York, New York August 1, 1995 EX-23.5 19 CONSENT OF ARTHUR ANDERSON LLP EXHIBIT 23.5 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-3. /s/ Arthur Andersen LLP Arthur Andersen LLP Stamford, Connecticut August 2, 1995 EX-23.6 20 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.6 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Time Warner Inc., Time Warner Capital I, Time Warner Capital II and Time Warner Capital III on Form S-3 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. date May 30, 1995, and to the reference to us under the heading "Experts" in the Prospectus, which is part of such Registration Statement. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Houston, Texas August 2, 1995 EX-23.7 21 CONSENT OF PRICE WATERHOUSE LLP Exhibit 23.7 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 of Time Warner Inc., Time Warner Capital I, Time Warner Capital II and Time Warner Capital III 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. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Denver, Colorado August 2, 1995 EX-24.1 22 POWERS OF ATTORNEY FOR TIME WARNER 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, 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-3 or other appropriate form and any and all amendments to any such Registration Statement (including post-effective amendments) and any subsequent Reqistration Statements filed by the Corporation pursuant to Rule 462(b) of the Securities Act of 1933, as amended (the "Securities Act"), to be filed with the Securities and Exchange Commission in connection with the registration under the Securities Act of (i) preferred trust securities (the "Preferred Securities"), from which up to $600,000,000 in aggregate proceeds will be received by certain trusts, each a statutory business trust formed under the laws of the State of Delaware, of which all of the common securities are to be held by the Corporation, (ii) unsecured subordinated debentures of the Corporation to be offered from time to time (the "Subordinated Debentures"), from which the Corporation will receive up to $600,000,000 in aggregate proceeds, and (iii) Guarantees by the Corporation of the payment of distributions out of moneys held by such trusts and payments on liquidation of such trusts or the redemption of such Preferred Securities, with power where appropriate to affix thereto the corporate seal of the Corporation and to attest said seal, and to file such Registration Statements, including a form of prospectus, and any and all supplements, amendments and post-effective amendments to such Registration Statement, and any subsequent Registration Statement filed by the Corporation pursuant to Rule 462(b) of the Securities Act, 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 2 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. IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her name as of the day of , 1995. (i) Principal Executive Officers: - --------------------------------- --------------------------------- Gerald M. Levin Richard D. Parsons Director, Chairman of the Board Director and President and Chief Executive Officer (ii) Principal Financial (iii) Principal Accounting Officer: Officer: - --------------------------------- --------------------------------- Richard J. Bressler, John A. LaBarca, Senior Vice President and Vice President and Chief Financial Officer Controller (iv) Directors: - --------------------------------- --------------------------------- Merv Adelson, Carla A. Hills, Director Director - --------------------------------- --------------------------------- Lawrence B. Buttenwieser, David T. Kearns, Director Director - --------------------------------- --------------------------------- Edward S. Finkelstein, Henry Luce III, Director Director - --------------------------------- --------------------------------- Beverly Sills Greenough, Reuben Mark, Director Director 3 - --------------------------------- Michael A. Miles, Director - --------------------------------- J. Richard Munro, Director - --------------------------------- Donald S. Perkins, Director - --------------------------------- Raymond S. Troubh, Director - --------------------------------- Francis T. Vincent, Jr., Director EX-25.1 23 STATEMENT OF ELIGIBILITY OF CHEMICAL BANK EXHIBIT 25.1 ___________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 _________________________ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ___________________________________________ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________ ________________________________________ CHEMICAL BANK (Exact name of trustee as specified in its charter) NEW YORK 13-4994650 (State of incorporation (I.R.S. employer if not a national bank) identification No.) 270 PARK AVENUE NEW YORK, NEW YORK 10017 (Address of principal executive offices) (Zip Code) William H. McDavid General Counsel 270 Park Avenue New York, New York 10017 Tel: (212) 270-2611 (Name, address and telephone number of agent for service) _____________________________________________ TIME WARNER INC. (Exact name of obligor as specified in its charter) DELAWARE 13-1388520 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 75 ROCKEFELLER PLAZA NEW YORK, NEW YORK 10019 (Address of principal executive offices) (Zip Code) ___________________________________________ SUBORDINATED DEBENTURES DUE 2025 (Title of the indenture securities) _____________________________________________________ GENERAL Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department, State House, Albany, New York 12110. Board of Governors of the Federal Reserve System, Washington, D.C., 20551 Federal Reserve Bank of New York, District No. 2, 33 Liberty Street, New York, N.Y. Federal Deposit Insurance Corporation, Washington, D.C., 20429. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. - 2 - Item 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Articles of Association of the Trustee as now in effect, including the Organization Certificate and the Certificates of Amendment dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982, February 28, 1985 and December 2, 1991 (see Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). 2. A copy of the Certificate of Authority of the Trustee to Commence Business (see Exhibit 2 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). 3. None, authorization to exercise corporate trust powers being contained in the documents identified above as Exhibits 1 and 2. 4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form T-1 filed in connection with Registration Statement No. 33-84460, which is incorporated by reference). 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Act (see Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). 7. A copy of the latest report of condition of the Trustee, published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, Chemical Bank, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York, on the 31ST day of JULY, 1995. CHEMICAL BANK By /s/ R. Lorenzen -------------------------------------- R. Lorenzen Senior Trust Officer - 3 - Exhibit 7 to Form T-1 Bank Call Notice RESERVE DISTRICT NO. 2 CONSOLIDATED REPORT OF CONDITION OF Chemical Bank of 270 Park Avenue, New York, New York 10017 and Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business March 31, 1995, in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. DOLLAR AMOUNTS ASSETS IN MILLIONS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ................................ $ 5,797 Interest-bearing balances ........................ 2,523 Securities: .......... ............................ Held to maturity securities......................... 6,195 Available for sale securities....................... 17,785 Federal Funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's: Federal funds sold................................ 2,493 Securities purchased under agreements to resell... 50 Loans and lease financing receivables: Loans and leases, net of unearned income $ 68,937 Less: Allowance for loan and lease losses 1,898 Less: Allocated transfer risk reserve...... 113 -------- Loans and leases, net of unearned income, allowance, and reserve............................ 66,926 Trading Assets...................................... 37,294 Premises and fixed assets (including capitalized leases)........................................... 1,402 Other real estate owned............................. 99 Investments in unconsolidated subsidiaries and associated companies.............................. 148 Customer's liability to this bank on acceptances outstanding....................................... 1,051 Intangible assets................................... 512 Other assets........................................ 6,759 -------- TOTAL ASSETS........................................ $149,034 ======== - 4 - LIABILITIES Deposits In domestic offices..................................... $ 44,882 Noninterest-bearing ......................... $14,690 Interest-bearing ............................ 30,192 ------- In foreign offices, Edge and Agreement subsidiaries, and IBF's............................................... 32,537 Noninterest-bearing ......................... $ 146 Interest-bearing ............................ 32,391 ------- Federal funds purchased and securities sold under agree- ments to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's Federal funds purchased................................. 10,587 Securities sold under agreements to repurchase.......... 3,083 Demand notes issued to the U.S. Treasury.................. 464 Trading liabilities....................................... 31,358 Other Borrowed money: With original maturity of one year or less.............. 7,527 With original maturity of more than one year............ 914 Mortgage indebtedness and obligations under capitalized leases.................................................. 20 Bank's liability on acceptances executed and outstanding.. 1,054 Subordinated notes and debentures......................... 3,410 Other liabilities......................................... 5,986 TOTAL LIABILITIES......................................... 141,822 -------- EQUITY CAPITAL Common stock......................................... 620 Surplus.............................................. 4,501 Undivided profits and capital reserves............... 2,558 Net unrealized holding gains (Losses) on available-for-sale securities..................... (476) Cumulative foreign currency translation adjustments.. 9 TOTAL EQUITY CAPITAL................................. 7,212 -------- TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK AND EQUITY CAPITAL............................ $149,034 ======== I, Joseph L. Sclafani, S.V.P. & Controller of the above-named bank, do hereby declare that this Report of Condition has been prepared in conformance with the in- structions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief. JOSEPH L. SCLAFANI We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the in- structions issued by the appropriate Federal regulatory authority and is true and correct. WALTER V. SHIPLEY ) EDWARD D. MILLER )DIRECTORS WILLIAM B. HARRISON ) - 5 - EX-25.2 24 STATEMENT OF ELIGIBILITY OF 1ST NAT'L BANK OF CHI - TWC I EXHIBIT 25.2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)_____ ----------------------- THE FIRST NATIONAL BANK OF CHICAGO (Exact name of trustee as specified in its charter) A National Banking Association 36-0899825 (I.R.S. employer identification number) One First National Plaza, Chicago, Illinois 60670-0126 (Address of principal executive offices) (Zip Code) The First National Bank of Chicago One First National Plaza, Suite 0286 Chicago, Illinois 60670-0286 Attn: Lynn A. Goldstein, Law Department (312) 732-6919 (Name, address and telephone number of agent for service) --------------------- TIME WARNER CAPITAL I (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of To be applied for incorporation or organization) (IRS Employer Identification No.) 75 Rockefeller Plaza New York, New York 10019 (Address of Principal Executive Offices) (Zip Code) Preferred Trust Securities (Title of the indenture securities) Item 1. General Information. Furnish the following information as to the ------------------- trustee: (a) Name and address of each examining or supervision authority to which it is subject. Comptroller of Currency, Washington, D. C., Federal Deposit Insurance Corporation, Washington, D. C., The Board of Governors of the Federal Reserve System, Washington, D. C.. (b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE ----------------------------- TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS ---------------- STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. * EXHIBIT 1,2,3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 12 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 26 TO THE REGISTRATION STATEMENT ON FORM S-3 OF THE CIT GROUP HOLDINGS, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 1993 (REGISTRATION NO. 33-58418). Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York in the State of New York, on the 1st day of August, 1995. The First National Bank of Chicago, Trustee, By: /s/ Melissa G. Weisman ---------------------------------- Melissa G. Weisman Assistant Vice President EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT August 1, 1995 Securities and Exchange Commission Washington, D. C. 20549 Gentlemen: In connection with the qualification of an Amended and Restated Declaration of Trust of Time Warner Capital I, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State Authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Melissa G. Weisman ---------------------------------- Melissa G. Weisman Assistant Vice President EXHIBIT 7 A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority.
Legal Title of Bank: The First National Bank of Chicago Call Date: 3/31/95 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Suite 0460 Page RC-1 City, State Zip: Chicago, IL 60670-0460 FDIC Certificate No.: 0/3/6/1/8 --------- Consolidated Report of Condition for Insured Commercial and State-Chartered Savings Banks for March 31, 1995 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. Schedule RC--Balance Sheet C400 Dollar Amounts in ------------ Thousands RCFD BIL MIL THOU ----------------- ---- ------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1).............. 0081 2,948,128 1.a. b. Interest-bearing balances(2)....................................... 0071 8,482,108 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A).......... 1754 167,911 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)....... 1773 540,011 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold................................................. 0276 2,508,883 3.a. b. Securities purchased under agreements to resell.................... 0277 1,422,695 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C)................................................................. RCFD 2122 16,238,310 4.a. b. LESS: Allowance for loan and lease losses.......................... RCFD 3123 358,207 4.b. c. LESS: Allocated transfer risk reserve................... RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)............................... 2125 15,880,103 4.d. 5. Assets held in trading accounts....................................... 3545 13,257,798 5. 6. Premises and fixed assets (including capitalized leases).............. 2145 516,827 6. 7. Other real estate owned (from Schedule RC-M).......................... 2150 13,166 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)........................................ 2130 10,363 8. 9. Customers' liability to this bank on acceptances outstanding.......... 2155 463,961 9. 10.Intangible assets (from Schedule RC-M)................................ 2143 119,715 10. 11.Other assets (from Schedule RC-F)..................................... 2160 1,346,941 11. 12.Total assets (sum of items 1 through 11).............................. 2170 47,678,610 12.
- ---------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held in trading accounts.
Legal Title of Bank: The First National Bank of Chicago Call Date: 3/31/95 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Suite 0460 Page RC-2 City, State Zip: Chicago, IL 60670-0460 FDIC Certificate No.: 0/3/6/1/8 Schedule RC-Continued Dollar Amounts in Thousands Bil Mil Thou ----------------- ------------ LIABILITIES 13.Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)........................... RCON 2200 14,675,401 13.a. (1) Noninterest-bearing(1)............................ RCON 6631 5,498,690 13.a.(1) (2) Interest-bearing.................................. RCON 6636 9,176,711 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)................ RCFN 2200 11,809,645 13.b. (1) Noninterest bearing............................... RCFN 6631 304,669 13.b.(1) (2) Interest-bearing.................................. RCFN 6636 11,504,976 13.b.(2) 14.Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased............................... RCFD 0278 2,072,830 14.a. b. Securities sold under agreements to repurchase........ RCFD 0279 1,484,164 14.b. 15.a. Demand notes issued to the U.S. Treasury.............. RCON 2840 103,138 15.a. b. Trading Liabilities................................... RCFD 3548 9,101,186 15.b. 16.Other borrowed money: a. With original maturity of one year or less............ RCFD 2332 2,307,860 16.a. b. With original maturity of more than one year......... RCFD 2333 506,476 16.b. 17. Mortgage indebtedness and obligations under capitalized leases....................................... RCFD 2910 278,108 17. 18.Bank's liability on acceptance executed and outstanding.. RCFD 2920 463,961 18. 19.Subordinated notes and debentures........................ RCFD 3200 1,225,000 19. 20.Other liabilities (from Schedule RC-G)................... RCFD 2930 699,375 20. 21.Total liabilities (sum of items 13 through 20)........... RCFD 2948 44,727,144 21. 22.Limited-Life preferred stock and related surplus......... RCFD 3282 0 22. EQUITY CAPITAL 23.Perpetual preferred stock and related surplus............ RCFD 3838 0 23. 24.Common stock............................................. RCFD 3230 200,858 24. 25.Surplus (exclude all surplus related to preferred stock). RCFD 3839 2,304,657 25. 26. a. Undivided profits and capital reserves............... RCFD 3632 447,916 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities......................... RCFD 8434 [ 2,165) 26.b. 27.Cumulative foreign currency translation adjustments...... RCFD 3284 200 27. 28.Total equity capital (sum of items 23 through 27)........ RCFD 3210 2,951,466 28. 29.Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28).................... RCFD 3300 47,678,610 29. Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external..................................... NUMBER auditors as of any date during 1993...................... RCFD 6724 N/A M.1.
1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank 2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on the bank separately) 3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) 4.= Directors' examination of the bank performed by other external auditors (may be required by state chartering authority) 5 = Review of the bank's financial statements by external auditors 6 = Compilation of the bank's financial statements by external auditors. 7 = Other audit procedures (excluding tax preparation work) 8 = No external audit work - ---------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits. EX-25.3 25 STATEMENT OF ELIGIBILITY OF 1ST NAT'L BANK OF CHI - TWC II EXHIBIT 25.3 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)_____ ----------------------- THE FIRST NATIONAL BANK OF CHICAGO (Exact name of trustee as specified in its charter) A National Banking Association 36-0899825 (I.R.S. employer identification number) One First National Plaza, Chicago, Illinois 60670-0126 (Address of principal executive offices) (Zip Code) The First National Bank of Chicago One First National Plaza, Suite 0286 Chicago, Illinois 60670-0286 Attn: Lynn A. Goldstein, Law Department (312) 732-6919 (Name, address and telephone number of agent for service) --------------------- TIME WARNER CAPITAL II (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of To be applied for incorporation or organization) (IRS Employer Identification No.) 75 Rockefeller Plaza New York, New York 10019 (Address of Principal Executive Offices) (Zip Code) Preferred Trust Securities (Title of the indenture securities) Item 1. General Information. Furnish the following information as to the ------------------- trustee: (a) Name and address of each examining or supervision authority to which it is subject. Comptroller of Currency, Washington, D. C., Federal Deposit Insurance Corporation, Washington, D. C., The Board of Governors of the Federal Reserve System, Washington, D. C.. (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE ----------------------------- TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS ---------------- STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. * EXHIBIT 1,2,3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 12 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 26 TO THE REGISTRATION STATEMENT ON FORM S-3 OF THE CIT GROUP HOLDINGS, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 1993 (REGISTRATION NO. 33-58418). Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York in the State of New York, on the 1st day of August, 1995. The First National Bank of Chicago, Trustee, MELISSA G. WEISMAN By:__________________________________________________ Melissa G. Weisman Assistant Vice President EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT August 1, 1995 Securities and Exchange Commission Washington, D. C. 20549 Gentlemen: In connection with the qualification of an Amended and Restated Declaration of Trust of Time Warner Capital II, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State Authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By: MELISSA G. WEISMAN ________________________________ Melissa G. Weisman Assistant Vice President EXHIBIT 7 A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority.
Legal Title of Bank: The First National Bank of Chicago Call Date: 3/31/95 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Suite 0460 Page RC-1 City, State Zip: Chicago, IL 60670-0460 FDIC Certificate No.: 0/3/6/1/8 --------- CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1995 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET C400 DOLLAR AMOUNTS IN ----------- THOUSANDS RCFD BIL MIL THOU ----------------- ---- ------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1) ................. 0081 2,948,128 1.a. b. Interest-bearing balances(2)........................................... 0071 8,482,108 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A).............. 1754 167,911 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)........... 1773 540,011 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold..................................................... 0276 2,508,883 3.a. b. Securities purchased under agreements to resell 0277 1,422,695 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C).......... RCFD 2122 16,238,310 4.a. b. LESS: Allowance for loan and lease losses.............................. RCFD 3123 358,207 4.b. c. LESS: Allocated transfer risk reserve....................... RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)................................... 2125 15,880,103 4.d. 5. Assets held in trading accounts........................................... 3545 13,257,798 5. 6. Premises and fixed assets (including capitalized leases).................. 2145 516,827 6. 7. Other real estate owned (from Schedule RC-M).............................. 2150 13,166 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)............................................ 2130 10,363 8. 9. Customers' liability to this bank on acceptances outstanding.............. 2155 463,961 9. 10.Intangible assets (from Schedule RC-M).................................... 2143 119,715 10. 11.Other assets (from Schedule RC-F)......................................... 2160 1,346,941 11. 12.Total assets (sum of items 1 through 11).................................. 2170 47,678,610 12.
- -------------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held in trading accounts.
Legal Title of Bank: The First National Bank of Chicago Call Date: 3/31/95 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Suite 0460 Page RC-2 City, State Zip: Chicago, IL 60670-0460 FDIC Certificate No.: 0/3/6/1/8 --------- SCHEDULE RC-CONTINUED DOLLAR AMOUNTS IN THOUSANDS BIL MIL THOU ----------------- ------------ LIABILITIES 13.Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)............................... RCON 2200 14,675,401 13.a. (1) Noninterest-bearing(1)................................ RCON 6631 5,498,690 13.a.(1) (2) Interest-bearing...................................... RCON 6636 9,176,711 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)........................ RCFN 2200 11,809,645 13.b. (1) Noninterest bearing................................... RCFN 6631 304,669 13.b.(1) (2) Interest-bearing...................................... RCFN 6636 11,504,976 13.b.(2) 14.Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased................................... RCFD 0278 2,072,830 14.a. b. Securities sold under agreements to repurchase............ RCFD 0279 1,484,164 14.b. 15.a. Demand notes issued to the U.S. Treasury.................. RCON 2840 103,138 15.a. b. Trading Liabilities....................................... RCFD 3548 9,101,186 15.b. 16.Other borrowed money: a. With original maturity of one year or less................ RCFD 2332 2,307,860 16.a. b. With original maturity of more than one year............. RCFD 2333 506,476 16.b. 17. Mortgage indebtedness and obligations under capitalized leases....................................................... RCFD 2910 278,108 17. 18.Bank's liability on acceptance executed and outstanding...... RCFD 2920 463,961 18. 19.Subordinated notes and debentures............................ RCFD 3200 1,225,000 19. 20.Other liabilities (from Schedule RC-G)....................... RCFD 2930 699,375 20. 21.Total liabilities (sum of items 13 through 20)............... RCFD 2948 44,727,144 21. 22.Limited-Life preferred stock and related surplus............. RCFD 3282 0 22. EQUITY CAPITAL 23.Perpetual preferred stock and related surplus................ RCFD 3838 0 23. 24.Common stock................................................. RCFD 3230 200,858 24. 25.Surplus (exclude all surplus related to preferred stock)..... RCFD 3839 2,304,657 25. 26. a. Undivided profits and capital reserves................... RCFD 3632 447,916 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities............................ RCFD 8434 [2,165) 26.b. 27.Cumulative foreign currency translation adjustments.......... RCFD 3284 200 27. 28.Total equity capital (sum of items 23 through 27)............ RCFD 3210 2,951,466 28. 29.Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28)........................ RCFD 3300 47,678,610 29. Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number auditors as of any date during 1993.......................... RCFD 6724 N/A M.1.
1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank 2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on the bank separately) 3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) 4.= Directors' examination of the bank performed by other external auditors (may be required by state chartering authority) 5 = Review of the bank's financial statements by external auditors 6 = Compilation of the bank's financial statements by external auditors 7 = Other audit procedures (excluding tax preparation work) 8 = No external audit work - ---------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits. EX-25.4 26 STATEMENT OF ELIGIBILITY OF 1ST NAT'L BANK OF CHI DECL - TWC III EXHIBIT 25.4 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)_____ ----------------------- THE FIRST NATIONAL BANK OF CHICAGO (Exact name of trustee as specified in its charter) A National Banking Association 36-0899825 (I.R.S. employer identification number) One First National Plaza, Chicago, Illinois 60670-0126 (Address of principal executive offices) (Zip Code) The First National Bank of Chicago One First National Plaza, Suite 0286 Chicago, Illinois 60670-0286 Attn: Lynn A. Goldstein, Law Department (312) 732-6919 (Name, address and telephone number of agent for service) --------------------- TIME WARNER CAPITAL III (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of To be applied for incorporation or organization) (IRS Employer Identification No.) 75 Rockefeller Plaza New York, New York 10019 (Address of Principal Executive Offices) (Zip Code) Preferred Trust Securities (Title of the indenture securities) Item 1. General Information. Furnish the following information as to the ------------------- trustee: (a) Name and address of each examining or supervision authority to which it is subject. Comptroller of Currency, Washington, D. C., Federal Deposit Insurance Corporation, Washington, D. C., The Board of Governors of the Federal Reserve System, Washington, D. C.. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE ----------------------------- TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS ---------------- STATEMENT OF ELIGIBILITY. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. * EXHIBIT 1,2,3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 12 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 26 TO THE REGISTRATION STATEMENT ON FORM S-3 OF THE CIT GROUP HOLDINGS, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 1993 (REGISTRATION NO. 33-58418). Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York in the State of New York, on the 1st day of August, 1995. The First National Bank of Chicago, Trustee, By: /s/ MELISSA G. WEISMAN _____________________________________ Melissa G. Weisman Assistant Vice President EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(B) OF THE ACT August 1, 1995 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In connection with the qualification of an Amended and Restated Declaration of Trust of Time Warner Capital III, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State Authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By: /s/ MELISSA G. WEISMAN _______________________________ Melissa G. Weisman Assistant Vice President EXHIBIT 7 A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority.
Legal Title of Bank: The First National Bank of Chicago Call Date: 3/31/95 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Suite 0460 Page RC-1 City, State Zip: Chicago, IL 60670-0460 FDIC Certificate No.: 0/3/6/1/8 --------- CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1995 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET Dollar Amounts in C400 Thousands RCFD BIL MIL THOU ----------------- ---- ------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1)............. 0081 2,948,128 1.a. b. Interest-bearing balances(2)...................................... 0071 8,482,108 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A)......... 1754 167,911 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)...... 1773 540,011 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold................................................ 0276 2,508,883 3.a. b. Securities purchased under agreements to resell................... 0277 1,422,695 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C)................................................................ RCFD 2122 16,238,310 4.a. b. LESS: Allowance for loan and lease losses......................... RCFD 3123 358,207 4.b. c. LESS: Allocated transfer risk reserve.................. RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c).............................. 2125 15,880,103 4.d. 5. Assets held in trading accounts...................................... 3545 13,257,798 5. 6. Premises and fixed assets (including capitalized leases)............. 2145 516,827 6. 7. Other real estate owned (from Schedule RC-M)......................... 2150 13,166 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)....................................... 2130 10,363 8. 9. Customers' liability to this bank on acceptances outstanding......... 2155 463,961 9. 10.Intangible assets (from Schedule RC-M)............................... 2143 119,715 10. 11.Other assets (from Schedule RC-F).................................... 2160 1,346,941 11. 12.Total assets (sum of items 1 through 11)............................. 2170 47,678,610 12.
(1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held in trading accounts.
Legal Title of Bank: The First National Bank of Chicago Call Date: 3/31/95 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Suite 0460 Page RC-2 City, State Zip: Chicago, IL 60670-0460 FDIC Certificate No.: 0/3/6/1/8 Schedule RC-Continued Dollar Amounts in Thousands Bil Mil Thou ----------------- ------------ LIABILITIES 13.Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)................................... RCON 2200 14,675,401 13.a. (1) Noninterest-bearing(1).................................... RCON 6631 5,498,690 13.a.(1) (2) Interest-bearing.......................................... RCON 6636 9,176,711 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)............................ RCFN 2200 11,809,645 13.b. (1) Noninterest bearing....................................... RCFN 6631 304,669 13.b.(1) (2) Interest-bearing.......................................... RCFN 6636 11,504,976 13.b.(2) 14.Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased....................................... RCFD 0278 2,072,830 14.a. b. Securities sold under agreements to repurchase................ RCFD 0279 1,484,164 14.b. 15.a. Demand notes issued to the U.S. Treasury...................... RCON 2840 103,138 15.a. b. Trading Liabilities................................................ RCFD 3548 9,101,186 15.b. 16.Other borrowed money: a. With original maturity of one year or less.................... RCFD 2332 2,307,860 16.a. b. With original maturity of more than one year................. RCFD 2333 506,476 16.b. 17. Mortgage indebtedness and obligations under capitalized leases........................................................... RCFD 2910 278,108 17. 18.Bank's liability on acceptance executed and outstanding.......... RCFD 2920 463,961 18. 19.Subordinated notes and debentures................................ RCFD 3200 1,225,000 19. 20.Other liabilities (from Schedule RC-G)........................... RCFD 2930 699,375 20. 21.Total liabilities (sum of items 13 through 20)................... RCFD 2948 44,727,144 21. 22.Limited-Life preferred stock and related surplus................. RCFD 3282 0 22. EQUITY CAPITAL 23.Perpetual preferred stock and related surplus.................... RCFD 3838 0 23. 24.Common stock..................................................... RCFD 3230 200,858 24. 25.Surplus (exclude all surplus related to preferred stock)......... RCFD 3839 2,304,657 25. 26. a. Undivided profits and capital reserves....................... RCFD 3632 447,916 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities.................................................... RCFD 8434 [ 2,165) 26.b. 27.Cumulative foreign currency translation adjustments.............. RCFD 3284 200 27. 28.Total equity capital (sum of items 23 through 27)................ RCFD 3210 2,951,466 28. 29.Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28)............................ RCFD 3300 47,678,610 29. Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number auditors as of any date during 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . .RCFD 6724 N/A M.1.
1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank 2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on the bank separately) 3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) 4. =Directors' examination of the bank performed by other external auditors (may be required by state chartering authority) 5 = Review of the bank's financial statements by external auditors 6 = Compilation of the bank's financial statements by external auditors 7 = Other audit procedures (excluding tax preparation work) 8 = No external audit work - -------------------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits. EX-25.5 27 STATEMENT OF ELIGIBILITY OF 1ST NAT'L BANK OF CHI - TWI EXHIBIT 25.5 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)___ ------------- THE FIRST NATIONAL BANK OF CHICAGO (Exact name of trustee as specified in its charter) A National Banking Association 36-0899825 (I.R.S. employer identification number) One First National Plaza, Chicago, Illinois 60670-0126 (Address of principal executive offices) (Zip Code) The First National Bank of Chicago One First National Plaza, Suite 0286 Chicago, Illinois 60670-0286 Attn: Lynn A. Goldstein, Law Department (312) 732-6919 (Name, address and telephone number of agent for service) ---------- TIME WARNER INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of 13-1388520 incorporation or organization) (IRS Employer Identification No.) 75 Rockefeller Plaza New York, New York 10019 (Address of Principal Executive Offices) (Zip Code) Guarantee by Time Warner Inc. of Preferred Trust Securities of Time Warner Capital I, Time Warner Capital II, and Time Warner Capital III (Title of the indenture securities) Item 1.General Information. Furnish the following information as to the ------------------- trustee: (a)Name and address of each examining or supervision authority to which it is subject. Comptroller of Currency, Washington, D. C., Federal Deposit Insurance Corporation, Washington, D. C., The Board of Governors of the Federal Reserve System, Washington, D. C.. (B)WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2.AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE ----------------------------- TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. No such affiliation exists with the trustee. ITEM 16.LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS ---------------- STATEMENT OF ELIGIBILITY. 1.A copy of the articles of association of the trustee now in effect.* 2.A copy of the certificates of authority of the trustee to commence business.* 3.A copy of the authorization of the trustee to exercise corporate trust powers.* 4.A copy of the existing by-laws of the trustee.* 5.Not applicable. 6.The consent of the trustee required by Section 321(b) of the Act. 7.A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 8.Not applicable. 9.Not applicable. * EXHIBIT 1,2,3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING IDENTICAL NUMBERS IN ITEM 12 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF CHICAGO, FILED AS EXHIBIT 26 TO THE REGISTRATION STATEMENT ON FORM S-3 OF THE CIT GROUP HOLDINGS, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 1993 (REGISTRATION NO. 33-58418). Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 1st day of August, 1995. The First National Bank of Chicago, Trustee, By: /s/ Melissa G. Weisman ------------------------------ Melissa G. Weisman Assistant Vice President EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT August 1, 1995 Securities and Exchange Commission Washington, D. C. 20549 Gentlemen: In connection with the qualification of a Guaratnee Agreement of Time Warner Inc., the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State Authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Melissa G. Weisman -------------------------------- Melissa G. Weisman Assistant Vice President EXHIBIT 7 A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority.
Legal Title of Bank: The First National Bank of Chicago Call Date: 3/31/95 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Suite 0460 Page RC-1 City, State Zip: Chicago, IL 60670-0460 FDIC Certificate No.: 0/3/6/1/8 --------- CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1995 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET Dollar Amounts in C400 Thousands RCFD BIL MIL THOU ----------------- ---- ------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1)............. 0081 2,948,128 1.a. b. Interest-bearing balances(2)...................................... 0071 8,482,108 1.b. 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A)......... 1754 167,911 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)...... 1773 540,011 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge and Agreement subsidiaries, and in IBFs: a. Federal Funds sold................................................ 0276 2,508,883 3.a. b. Securities purchased under agreements to resell................... 0277 1,422,695 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C)................................................................ RCFD 2122 16,238,310 4.a. b. LESS: Allowance for loan and lease losses......................... RCFD 3123 358,207 4.b. c. LESS: Allocated transfer risk reserve.................. RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c).............................. 2125 15,880,103 4.d. 5. Assets held in trading accounts...................................... 3545 13,257,798 5. 6. Premises and fixed assets (including capitalized leases)............. 2145 516,827 6. 7. Other real estate owned (from Schedule RC-M)......................... 2150 13,166 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)....................................... 2130 10,363 8. 9. Customers' liability to this bank on acceptances outstanding......... 2155 463,961 9. 10.Intangible assets (from Schedule RC-M)............................... 2143 119,715 10. 11.Other assets (from Schedule RC-F).................................... 2160 1,346,941 11. 12.Total assets (sum of items 1 through 11)............................. 2170 47,678,610 12.
(1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held in trading accounts.
Legal Title of Bank: The First National Bank of Chicago Call Date: 3/31/95 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Suite 0460 Page RC-2 City, State Zip: Chicago, IL 60670-0460 FDIC Certificate No.: 0/3/6/1/8 Schedule RC-Continued Dollar Amounts in Thousands Bil Mil Thou ----------------- ------------ LIABILITIES 13.Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)................................... RCON 2200 14,675,401 13.a. (1) Noninterest-bearing(1).................................... RCON 6631 5,498,690 13.a.(1) (2) Interest-bearing.......................................... RCON 6636 9,176,711 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)............................ RCFN 2200 11,809,645 13.b. (1) Noninterest bearing....................................... RCFN 6631 304,669 13.b.(1) (2) Interest-bearing.......................................... RCFN 6636 11,504,976 13.b.(2) 14.Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased....................................... RCFD 0278 2,072,830 14.a. b. Securities sold under agreements to repurchase................ RCFD 0279 1,484,164 14.b. 15.a. Demand notes issued to the U.S. Treasury...................... RCON 2840 103,138 15.a. b. Trading Liabilities................................................ RCFD 3548 9,101,186 15.b. 16.Other borrowed money: a. With original maturity of one year or less.................... RCFD 2332 2,307,860 16.a. b. With original maturity of more than one year................. RCFD 2333 506,476 16.b. 17. Mortgage indebtedness and obligations under capitalized leases........................................................... RCFD 2910 278,108 17. 18.Bank's liability on acceptance executed and outstanding.......... RCFD 2920 463,961 18. 19.Subordinated notes and debentures................................ RCFD 3200 1,225,000 19. 20.Other liabilities (from Schedule RC-G)........................... RCFD 2930 699,375 20. 21.Total liabilities (sum of items 13 through 20)................... RCFD 2948 44,727,144 21. 22.Limited-Life preferred stock and related surplus................. RCFD 3282 0 22. EQUITY CAPITAL 23.Perpetual preferred stock and related surplus.................... RCFD 3838 0 23. 24.Common stock..................................................... RCFD 3230 200,858 24. 25.Surplus (exclude all surplus related to preferred stock)......... RCFD 3839 2,304,657 25. 26. a. Undivided profits and capital reserves....................... RCFD 3632 447,916 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities.................................................... RCFD 8434 [ 2,165) 26.b. 27.Cumulative foreign currency translation adjustments.............. RCFD 3284 200 27. 28.Total equity capital (sum of items 23 through 27)................ RCFD 3210 2,951,466 28. 29.Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28)............................ RCFD 3300 47,678,610 29. Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number auditors as of any date during 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . .RCFD 6724 N/A M.1.
1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank 2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on the bank separately) 3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) 4. =Directors' examination of the bank performed by other external auditors (may be required by state chartering authority) 5 = Review of the bank's financial statements by external auditors 6 = Compilation of the bank's financial statements by external auditors 7 = Other audit procedures (excluding tax preparation work) 8 = No external audit work - -------------------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits. -----END PRIVACY-ENHANCED MESSAGE-----