<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 1996
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
TW INC.
(EXACT NAME OF EACH REGISTRANT AS SPECIFIED IN ITS CHARTER)
7812
DELAWARE (PRIMARY STANDARD 13-3527249
(STATE OR OTHER INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE IDENTIFICATION NO.)
INCORPORATION OR NUMBER)
ORGANIZATION)
75 ROCKEFELLER CENTER
NEW YORK, NEW YORK 10019
(212) 484-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
PETER R. HAJE
EXECUTIVE VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
TIME WARNER INC.
75 ROCKEFELLER CENTER
NEW YORK , NEW YORK 10019
(212) 484-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
COPIES TO:
RICHARD HALL THOMAS C. JANSON, JR.
CRAVATH, SWAINE & MOORE SKADDEN, ARPS, SLATE, MEAGHER & FLOM
WORLDWIDE PLAZA 300 SOUTH GRAND AVENUE
825 EIGHTH AVENUE SUITE 3400
NEW YORK, NEW YORK 10019 LOS ANGELES, CALIFORNIA 90071
(212) 474-1293 (213) 687-5221
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the transactions described herein.
--------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box.
--------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SHARE (2) OFFERING PRICE REGISTRATION FEE (3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share (4)...... 610,062,912 (5) $32.6875
Series D Convertible
Preferred Stock, par
value $.10 per share.... 11,000,000 $90
Series E Convertible
Preferred Stock, par
value $.10 per share.... 3,250,000 $90
Series F Convertible
Preferred Stock, par
value $.10 per share.... 3,080,202 $90
Series G Convertible
Preferred Stock, par
value $.10 per share.... 6,200,000 $90 $24,780,578,330 $2,363,548
Series H Convertible
Preferred Stock, par
value $.10 per share.... 1,800,000 $90
Series I Convertible
Preferred Stock, par
value $.10 per share.... 7,000,000 $90
Series J Convertible
Preferred Stock, par
value $.10 per share.... 3,264,508 $90
10 1/4% Series M
Exchangeable Preferred
Stock, par value $.10
per share............... 1,635,623 $1,000
</TABLE>
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(1) Based upon the maximum number of shares of each series of capital stock
expected to be issued in connection with the transactions described
herein.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f). Pursuant to Rule 457(f)(1), the proposed
maximum offering price per share of the Common Stock of the Registrant is
based upon the average of the high and low prices per share of the common
stock, par value $1.00 per share, of Time Warner Inc. on September 3, 1996
on the Consolidated Reporting System. Pursuant to Rule 457(f)(2), the
proposed maximum offering price per share of each series of preferred
stock of the Registrant is based on the book value of the corresponding
series of the preferred stock, par value $1.00 per share, of Time Warner
Inc. on the latest practicable date prior to the filing of this
Registration Statement.
(3) Pursuant to Rule 457(b), the registration fee payable has been reduced by
$6,181,479, the aggregate of the fee previously paid in connection with
the filing with the Commission of the preliminary proxy materials relating
to the transactions described herein on December 5, 1995 and on May 3,
1996.
(4) This Registration Statement also covers the associated preferred stock
purchase rights (the "Rights") which will be issued pursuant to a Rights
Agreement to be entered into between the Registrant and ChaseMellon
Shareholder Services L.L.C., as rights agent. Until the occurrence of
certain prescribed events, the Rights will not be exercisable, will be
evidenced by the certificates for the Common Stock of the Registrant and
will be transferred along with and only with such securities. Thereafter,
separate certificates will be issued representing one Right for each share
of the Common Stock of the Registrant, subject to adjustment for dilution.
(5) Plus an indeterminate number of shares of Common Stock as may be issued to
holders of common stock of Time Warner Inc. received upon conversion or
exchange of shares of certain series of preferred stock of Time Warner
Inc.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
TIME WARNER INC. TURNER BROADCASTING
SYSTEM, INC.
JOINT PROXY STATEMENT
FOR A SPECIAL MEETING OF
STOCKHOLDERS OF TIME WARNER INC.
TO BE HELD ON OCTOBER 10, 1996
AND
FOR A SPECIAL MEETING OF
SHAREHOLDERS OF TURNER BROADCASTING SYSTEM, INC.
TO BE HELD ON OCTOBER 10, 1996
---------------
TW INC.
(TO BE RENAMED "TIME WARNER INC." UPON CONSUMMATION OF THE TRANSACTIONS
DESCRIBED HEREIN)
PROSPECTUS
---------------
An index and glossary of capitalized terms used in this Joint Proxy
Statement/Prospectus is attached hereto as Schedule 1.
---------------
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Stock, par value $1.00 per share ("Time Warner Common Stock"), and
Preferred Stock, par value $1.00 per share ("Time Warner Preferred Stock" and,
together with the Time Warner Common Stock, "Time Warner Capital Stock"), of
Time Warner Inc., a Delaware corporation ("Time Warner"), in connection with
the solicitation of proxies by the Board of Directors of Time Warner (the
"Time Warner Board") for use at the Special Meeting of Stockholders of Time
Warner to be held on October 10, 1996, or any adjournment or postponement
thereof (the "Time Warner Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Class A Common Stock, par value $.0625 per share ("TBS Class A Common Stock"),
Class B Common Stock, par value $.0625 per share ("TBS Class B Common Stock"
and, together with the TBS Class A Common Stock, "TBS Common Stock"), and
Class C Convertible Preferred Stock, par value $.125 per share ("TBS Class C
Preferred Stock" and, together with the TBS Common Stock, "TBS Capital
Stock"), of Turner Broadcasting System, Inc., a Georgia corporation ("TBS"),
in connection with the solicitation of proxies by the Board of Directors of
TBS (the "TBS Board") for use at the Special Meeting of Shareholders of TBS to
be held on October 10, 1996, or any adjournment or postponement thereof (the
"TBS Meeting" and, together with the Time Warner Meeting, the "Special
Meetings").
The Time Warner Meeting has been called to consider and vote upon a proposal
(the "TW Merger Proposal") to approve and adopt an Amended and Restated
Agreement and Plan of Merger dated as of September 22, 1995, as amended as of
August 8, 1996 (as so amended, the "Merger Agreement"), among Time Warner,
TBS, TW Inc., a Delaware corporation and currently a wholly owned subsidiary
of Time Warner ("New Time Warner"), Time Warner Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of New Time Warner ("TW Merger
Corp."), and TW Acquisition Corp., a Georgia corporation and a wholly owned
subsidiary of New Time Warner ("TBS Merger Corp.").
The TBS Meeting has been called to consider and vote upon a proposal (the
"TBS Merger Proposal") to approve the Merger Agreement.
As a result of the transactions contemplated by the Merger Agreement, Time
Warner and TBS will each become a wholly owned subsidiary of New Time Warner.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS 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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINALOFFENSE.
This Joint Proxy Statement/Prospectus and accompanying forms of proxy and
voting instructions are first being mailed to the stockholders of Time Warner
and the shareholders of TBS on or about September 9, 1996.
The date of this Joint Proxy Statement/Prospectus is September 6, 1996.
<PAGE>
The Merger Agreement contemplates, among other things, that TW Merger Corp.
will be merged into Time Warner (the "Time Warner Merger") and TBS Merger
Corp. will be merged into TBS (the "TBS Merger" and, together with the Time
Warner Merger, the "Mergers"), with the result that (a) Time Warner and TBS
will each become a wholly owned subsidiary of New Time Warner, (b) each
outstanding share of Time Warner Common Stock, other than shares held directly
or indirectly by Time Warner, will be converted into one share of Common
Stock, par value $.01 per share, of New Time Warner ("New Time Warner Common
Stock"), (c) each outstanding share of each series of Time Warner Preferred
Stock, other than shares held directly or indirectly by Time Warner and shares
with respect to which appraisal rights are properly exercised, will be
converted into one share of a substantially identical series of Preferred
Stock, par value $.10 per share, of New Time Warner ("New Time Warner
Preferred Stock"), (d) each outstanding share of TBS Common Stock, other than
shares held directly or indirectly by Time Warner or New Time Warner or in the
treasury of TBS and shares with respect to which dissenters' rights are
properly exercised, will be converted into the right to receive 0.75 of a
share of New Time Warner Common Stock and (e) each outstanding share of TBS
Class C Preferred Stock, other than shares held directly or indirectly by Time
Warner or New Time Warner or in the treasury of TBS and shares with respect to
which dissenters' rights are properly exercised, will be converted into the
right to receive 4.80 shares of New Time Warner Common Stock. Following
consummation of the Mergers, New Time Warner will be renamed "Time Warner
Inc." The transactions contemplated by the Merger Agreement are referred to
herein as the "Transaction."
It is currently expected that prior to the consummation of the Mergers, New
Time Warner will adopt a stockholder rights agreement (the "New Time Warner
Rights Agreement"), which will be the same as Time Warner's existing
stockholder rights agreement (the "Existing Rights Agreement"), with the
exception of certain amendments as described herein. See "Certain Related
Agreements--Rights Amendment" and "Description of New Time Warner Capital
Stock--New Time Warner Rights Agreement; New Time Warner Series A Preferred
Stock." If New Time Warner adopts the New Time Warner Rights Agreement, each
share of New Time Warner Common Stock issued in connection with the Mergers
will be accompanied by one preferred stock purchase right (a "New Time Warner
Right").
This Joint Proxy Statement/Prospectus constitutes the prospectus of New Time
Warner with respect to (a) the shares of New Time Warner Common Stock (and any
New Time Warner Rights) that will be issued to (i) holders of outstanding
shares of Time Warner Common Stock upon consummation of the Time Warner Merger
and (ii) holders of outstanding shares of TBS Capital Stock upon consummation
of the TBS Merger, (b) the shares of New Time Warner Preferred Stock that will
be issued to holders of outstanding shares of Time Warner Preferred Stock upon
consummation of the Time Warner Merger and (c) the shares of New Time Warner
Common Stock (and any New Time Warner Rights) issuable upon conversion of
certain of such shares of New Time Warner Preferred Stock and conversion or
exercise of certain convertible debt securities and options. See "The Merger
Agreement--Conversion of Time Warner Capital Stock" and "--Conversion of TBS
Capital Stock." The capital stock of New Time Warner is referred to
collectively herein as "New Time Warner Capital Stock."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE INTO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS NOR THE SALE OF ANY SECURITIES HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF TIME WARNER OR TBS SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
2
<PAGE>
AVAILABLE INFORMATION
Time Warner and TBS are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and
at the following Regional Offices of the Commission: 7 World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. The
Time Warner Common Stock is listed on the New York Stock Exchange, Inc. (the
"NYSE") and the Pacific Stock Exchange, Inc. (the "PSE"), and such material
relating to Time Warner may also be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005, and at the offices of the PSE, 115
Sansome Street, 2nd Floor, San Francisco, California 94104. The TBS Common
Stock is listed on the American Stock Exchange, Inc. (the "AMEX"), and such
material relating to TBS may also be inspected at the offices of the AMEX, 86
Trinity Place, New York, New York 10006. After consummation of the
Transaction, Time Warner and TBS may no longer file reports, proxy statements
or other information with the Commission. Instead, such information would be
provided, to the extent required, in filings made by New Time Warner.
New Time Warner has filed with the Commission a registration statement on
Form S-4 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to (a) the shares of New Time Warner Common Stock
(and any New Time Warner Rights) that will be issued to holders of Time Warner
Common Stock and to holders of TBS Capital Stock in connection with the
Transaction, (b) the shares of New Time Warner Preferred Stock that will be
issued to holders of Time Warner Preferred Stock in connection with the
Transaction and (c) the shares of New Time Warner Common Stock (and any New
Time Warner Rights) issuable upon conversion of certain of such shares of New
Time Warner Preferred Stock and conversion or exercise of certain convertible
debt securities and options. See "The Merger Agreement--Conversion of Time
Warner Capital Stock" and "--Conversion of TBS Capital Stock." This Joint
Proxy Statement/Prospectus does not contain all of the information set forth
in the Registration Statement filed by New Time Warner with the Commission,
certain portions of which are omitted in accordance with the rules and
regulations of the Commission. Such additional information is available for
inspection and copying at the offices of the Commission. Statements contained
in this Joint Proxy Statement/Prospectus or in any document incorporated into
this Joint Proxy Statement/Prospectus by reference as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement or such
other document, each such statement being qualified in all respects by such
reference.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Time Warner with the Commission
under the Exchange Act are incorporated herein by reference:
(a) Time Warner's Annual Report on Form 10-K for the year ended December
31, 1995, as amended by Time Warner's Form 10-K/A, dated June 27, 1996 (the
"Time Warner Form 10-K");
(b) Time Warner's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996 (the "Time Warner Form 10-Qs"); and
(c) Time Warner's Current Reports on Form 8-K dated January 4, 1996,
March 22, 1996, March 25, 1996, April 2, 1996, April 4, 1996, April 11,
1996, May 15, 1996, August 6, 1996, August 14, 1996 and September 6, 1996
(the "Time Warner Form 8-Ks" and, collectively with the Time Warner
Form 10-K and the Time Warner Form 10-Qs, the "Time Warner Reports").
The following documents previously filed by TBS with the Commission under
the Exchange Act are incorporated herein by reference:
(a) TBS's Annual Report on Form 10-K for the year ended December 31, 1995
(the "TBS Form 10-K");
(b) TBS's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996 (the "TBS Form 10-Qs"); and
(c) TBS's Current Reports on Form 8-K dated January 3, 1996, June 26,
1996 and September 6, 1996 (the "TBS Form 8-Ks" and, collectively with the
TBS Form 10-K and the TBS Form 10-Qs, the "TBS Reports").
All documents filed by Time Warner or TBS pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the Special Meetings shall be deemed to be
incorporated by reference into this Joint Proxy Statement/Prospectus and to be
a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to Time Warner, New Time Warner, TW Merger Corp.
and TBS Merger Corp. has been supplied by Time Warner, and all such
information relating to TBS has been supplied by TBS.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR
WRITTEN REQUEST BY ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS
HAS BEEN DELIVERED, IN THE CASE OF DOCUMENTS RELATING TO TIME WARNER, FROM
TIME WARNER INC., 75 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10019, ATTENTION:
SHAREHOLDER RELATIONS DEPARTMENT; TELEPHONE NUMBER (212) 484-6971, AND IN THE
CASE OF DOCUMENTS RELATING TO TBS, FROM TURNER BROADCASTING SYSTEM, INC., ONE
CNN CENTER, ATLANTA, GEORGIA 30303, ATTENTION: INVESTOR RELATIONS; TELEPHONE
NUMBER (404) 827-1700. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY SUCH REQUEST SHOULD BE MADE BY OCTOBER 3, 1996.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 4
TABLE OF CONTENTS......................................................... 5
SUMMARY................................................................... 7
THE SPECIAL MEETINGS...................................................... 30
Times and Places; Purposes............................................... 30
Voting Rights; Votes Required for Approval............................... 30
Proxies.................................................................. 31
THE TRANSACTION........................................................... 33
Background............................................................... 33
Recommendation of the Time Warner Board; Time Warner's Reasons for the
Transaction............................................................. 41
Recommendation of the TBS Board; TBS's Reasons for the Transaction....... 44
Opinion of Time Warner's Financial Advisor............................... 48
Opinions of TBS's Financial Advisors..................................... 54
Opinion of CS First Boston............................................... 54
Opinion of Merrill Lynch................................................. 57
Purpose and Certain Effects of the Transaction........................... 65
Interests of Certain Persons in the Transaction.......................... 65
Federal Income Tax Consequences.......................................... 69
Accounting Treatment..................................................... 72
Certain Fees and Expenses................................................ 72
Regulatory Approvals..................................................... 74
Certain Litigation....................................................... 78
Stock Exchange Listing................................................... 81
Federal Securities Laws Consequences..................................... 81
Appraisal and Dissenters' Rights......................................... 81
Effect of Transaction on the
TBS LYONs .............................................................. 87
Effect of Transaction on Certain Outstanding Time Warner Convertible
Securities.............................................................. 87
THE MERGER AGREEMENT...................................................... 88
The Mergers.............................................................. 88
Conversion of Time Warner Capital Stock.................................. 88
Conversion of TBS Capital Stock.......................................... 89
Treatment of Options and Warrants........................................ 89
Representations and Warranties........................................... 89
Certain Covenants........................................................ 90
Conditions to the Mergers................................................ 93
</TABLE>
<TABLE>
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<S> <C>
Termination of the Merger Agreement...................................... 93
Effects of Termination................................................... 95
TCI ARRANGEMENTS.......................................................... 96
LMC Agreement............................................................ 96
SSSI Agreement and the Distribution Contract............................. 100
Program Agreement........................................................ 101
Contribution and Exchange Agreement...................................... 101
SportSouth Agreement..................................................... 101
Sunshine Option.......................................................... 102
PPV Output Agreement..................................................... 102
CERTAIN RELATED AGREEMENTS................................................ 103
Rights Amendment......................................................... 103
Support Agreement ....................................................... 104
Investors' Agreements.................................................... 105
Right of First Refusal Agreement......................................... 108
Registration Rights Agreements........................................... 108
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS........... 110
BUSINESS OF TIME WARNER................................................... 117
BUSINESS OF TBS........................................................... 119
BUSINESS OF NEW TIME WARNER............................................... 120
MANAGEMENT OF NEW TIME WARNER............................................. 120
Directors................................................................ 120
Compensation of Directors................................................ 123
Executive Officers....................................................... 123
Compensation of Executive Officers....................................... 124
DESCRIPTION OF NEW TIME WARNER CAPITAL STOCK.............................. 125
Authorized Capital Stock................................................. 125
New Time Warner Common Stock............................................. 125
LMC Series Common Stock.................................................. 126
New Time Warner Rights Agreement; New Time Warner Series A Preferred
Stock................................................................... 126
New Time Warner Series D Preferred Stock................................. 132
New Time Warner Series E Preferred Stock................................. 142
New Time Warner Series F Preferred Stock................................. 144
New Time Warner Series G Preferred Stock................................. 146
New Time Warner Series H Preferred Stock................................. 147
New Time Warner Series I Preferred Stock................................. 148
</TABLE>
5
<PAGE>
<TABLE>
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<S> <C>
New Time Warner Series J Preferred Stock................................ 149
New Time Warner Series M Preferred Stock................................ 158
New Time Warner Series L Preferred Stock................................ 167
OWNERSHIP OF TIME WARNER AND NEW TIME WARNER CAPITAL STOCK............... 168
Security Ownership of Directors and Executive Officers.................. 168
Security Ownership of Certain Beneficial Owners......................... 170
OWNERSHIP OF TBS CAPITAL STOCK........................................... 173
Security Ownership of Directors and Executive Officers.................. 173
Security Ownership of Certain Beneficial Owners......................... 174
COMPARISON OF RIGHTS OF STOCKHOLDERS OF NEW TIME WARNER AND TIME WARNER.. 176
COMPARISON OF RIGHTS OF STOCKHOLDERS OF NEW TIME WARNER AND SHAREHOLDERS
OF TBS.................................................................. 177
CERTAIN BUSINESS RELATIONSHIPS........................................... 186
</TABLE>
<TABLE>
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<S> <C>
SIGNIFICANT LEGISLATION AND REGULATION APPLICABLE TO BROADCASTING AND
CABLE TELEVISION SERVICES............................................... 187
LEGAL MATTERS............................................................ 189
EXPERTS.................................................................. 189
STOCKHOLDER PROPOSALS.................................................... 190
Schedule 1--Index and Glossary of Defined
Terms
Appendix A-1(a)--Merger Agreement
Appendix A-1(b)--Amendment No. 1 to Merger Agreement
Appendix A-2--LMC Agreement
Appendix A-3--Support Agreement
Appendix B-1--Certificate of Incorporation of New Time Warner
Appendix C-1--Opinion of Morgan Stanley & Co. Incorporated
Appendix C-2--Opinion of CS First Boston Corporation
Appendix C-3--Opinion of Merrill Lynch & Co.
Appendix D-1--Section 262 of the General Corporation Law of the State of
Delaware
Appendix D-2--Article 13 of the Georgia Business Corporation Code
</TABLE>
6
<PAGE>
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Joint Proxy Statement/Prospectus. This summary is
not intended to be complete and is qualified in its entirety by the more
detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated by
reference or otherwise referred to herein. Stockholders of Time Warner and
shareholders of TBS are urged to review this entire Joint Proxy
Statement/Prospectus carefully, including such Appendices and such other
documents.
An index and glossary of capitalized terms used in this Joint Proxy
Statement/Prospectus is attached hereto as Schedule 1. References herein to the
Merger Agreement prior to its amendment and restatement in November 1995, as
described herein, are references to the Merger Agreement as originally
executed, and references herein to the Merger Agreement following its amendment
and restatement in November 1995 but prior to its amendment in August 1996, are
to the Merger Agreement as amended and restated in November 1995.
INTRODUCTION AND OVERVIEW OF THE TRANSACTION
As a result of the Mergers, Time Warner and TBS will each become a wholly
owned subsidiary of New Time Warner, which will be renamed "Time Warner Inc."
Former stockholders of Time Warner and former shareholders of TBS will become
stockholders of New Time Warner. In the Mergers, (a) each outstanding share of
Time Warner Common Stock, other than shares held directly or indirectly by Time
Warner, will be converted into one share of New Time Warner Common Stock and
each share of each series of Time Warner Preferred Stock, other than shares
held directly or indirectly by Time Warner and shares with respect to which
appraisal rights are properly exercised, will be converted into one share of a
substantially identical series of New Time Warner Preferred Stock and (b) each
outstanding share of TBS Common Stock will be converted into the right to
receive 0.75 of a share of New Time Warner Common Stock and each outstanding
share of TBS Class C Preferred Stock will be converted into the right to
receive 4.80 shares of New Time Warner Common Stock (equal to 0.80 of a share
for each share of TBS Class B Common Stock into which the TBS Class C Preferred
Stock is convertible), in each case other than shares held directly or
indirectly by Time Warner or New Time Warner or in the treasury of TBS and
shares with respect to which dissenters' rights are properly exercised.
Under the Restated Articles of Incorporation of TBS (the "TBS Articles") and
the Georgia Business Corporation Code (the "GBCC"), in addition to the approval
of the TBS Merger by a majority of the voting power of the outstanding shares
of TBS Capital Stock, voting together as a single group, and a majority of the
voting power of the outstanding shares of TBS Common Stock, voting together as
a single group, the TBS Merger must be approved by a majority of the
outstanding shares of TBS Class C Preferred Stock, voting as a separate class.
Pursuant to a Shareholders' Agreement dated as of September 22, 1995 (the
"Support Agreement"), among R. E. Turner, the Chairman and President of TBS,
Turner Outdoor, Inc. ("Turner Outdoor" and, together with Mr. Turner, the
"Turner Shareholders") and Time Warner, the Turner Shareholders have agreed,
among other things, to vote all shares of TBS Capital Stock that they are
entitled to vote at the TBS Meeting in favor of the TBS Merger Proposal.
Pursuant to the Second Amended and Restated LMC Agreement dated as of September
22, 1995 (the "LMC Agreement"), among Time Warner, New Time Warner, Liberty
Media Corporation ("LMC"), a wholly owned subsidiary of Tele-Communications,
Inc. ("TCI"), and certain subsidiaries of LMC, LMC and such subsidiaries have
agreed, subject to the conditions specified in the LMC Agreement and described
herein, to vote all shares of TBS Capital Stock that they are entitled to vote
at the TBS Meeting in favor of the TBS Merger Proposal. As of June 30, 1996,
such shares represented, in the aggregate, 81.5% of the total combined voting
power of the TBS Capital Stock entitled to vote at the TBS Meeting, 80.8% of
the total combined voting power of the TBS Common Stock entitled to vote at the
TBS Meeting, and 88.5% of the shares of TBS Class C Preferred Stock entitled to
vote at the TBS Meeting. Accordingly (assuming the satisfaction or waiver by
LMC of the conditions contained in the LMC Agreement), approval of the TBS
Merger Proposal is assured, regardless of the vote of any other shareholder of
TBS.
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As of June 30, 1996, TCI and Time Warner were entitled to vote shares of TBS
Class C Preferred Stock representing approximately 49.1% and 39.4%,
respectively, of the total number of shares of TBS Class C Preferred Stock
outstanding as of such date. Although the shares of TBS Class C Preferred Stock
that TCI is entitled to vote constitute less than a majority of the outstanding
shares of TBS Class C Preferred Stock, under an agreement entered into in June
1987 between TCI and Time Warner (see "The Transaction--Background"), Time
Warner and TCI must consult and agree with each other as to the voting of all
TBS Capital Stock owned by them on all matters presented to a vote of holders
of shares of TBS Capital Stock (other than the election of directors, which is
separately addressed by such agreement), and Time Warner and TCI must vote
their shares of TBS Capital Stock in accordance with any such agreement.
However, if Time Warner and TCI are unable to reach agreement on any such
matter submitted to a shareholder vote, each of Time Warner and TCI must vote
all of their shares of TBS Capital Stock against the approval of such matter.
As a result of TCI's ownership of shares of TBS Class C Preferred Stock and the
terms of such agreement, the TBS Merger cannot be consummated without the
approval of TCI. In the course of negotiations among Time Warner, TBS and TCI
to secure such approval, Time Warner, New Time Warner, TBS and TCI entered into
or agreed to enter into a number of agreements with or for the benefit of TCI
and its affiliates. These agreements, as modified in light of the FTC Consent
Decree (as defined below), are referred to herein collectively as the "TCI
Arrangements."
The TCI Arrangements are:
(a) the LMC Agreement, a number of the provisions of which will survive the
consummation of the Mergers and continue for the benefit of LMC and certain of
its affiliates in their capacities as stockholders of New Time Warner,
including (i) provisions relating to the exchange by LMC and such LMC
affiliates of shares of New Time Warner Common Stock for shares of a new series
of New Time Warner Series Common Stock, par value $.01 per share ("New Time
Warner Series Common Stock"), exempt from the compulsory redemption provisions
of the Certificate of Incorporation of New Time Warner (the "New Time Warner
Charter"), such shares to be either Series LMCN-V Common Stock ("LMC Reduced
Voting Common Stock"), which will be entitled to one one-hundredth (1/100th) of
a vote per share with respect to the election of directors and will otherwise
only be entitled to vote on limited matters (see "Description of New Time
Warner Capital Stock--LMC Series Common Stock"), or, under very limited
circumstances, Series LMC Common Stock ("LMC Common Stock" and, together with
the LMC Reduced Voting Common Stock, "LMC Series Common Stock") and (ii)
provisions that would require New Time Warner to indemnify LMC and certain of
its affiliates against certain income tax liabilities that may be incurred in
the event that certain actions taken by New Time Warner after the consummation
of the Mergers (including certain actions amending the New Time Warner Rights
Agreement) require LMC or such LMC affiliates to dispose of their shares of New
Time Warner Capital Stock or have certain other adverse effects on LMC or such
LMC affiliates,
(b) an agreement (the "SSSI Agreement"), to be entered into upon consummation
of the Mergers, among New Time Warner, LMC and Southern Satellite Systems, Inc.
("SSSI"), a subsidiary of LMC that currently uplinks and distributes the signal
of WTBS, a broadcast television station owned by TBS, to cable systems and
other video distribution systems, pursuant to which (i) New Time Warner will
issue to SSSI 4,166,667 shares of LMC Reduced Voting Common Stock and SSSI will
grant to New Time Warner an option (the "SSSI Option") to cause to become
effective a distribution contract (the "Distribution Contract") pursuant to
which SSSI will undertake specified uplinking and distribution activities for
WTBS in the event WTBS acquires national broadcast rights to all of its
programming and becomes a copyright-paid cable television programming service,
enabling WTBS to charge a subscription fee to cable operators and to sell local
advertising time without any obligation on the part of the cable operators to
make cable compulsory license payments under the Copyright Act (the "WTBS
Conversion") and (ii) New Time Warner will issue to LMC 833,333 shares of LMC
Reduced Voting Common Stock and will pay to LMC approximately $67 million
(payable, at New Time Warner's option, in cash or additional shares of LMC
Reduced Voting Common Stock) and LMC and its affiliates will agree not to
compete in the business of uplinking and distributing the WTBS signal (the "LMC
Non-competition Covenant"),
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(c) a program services agreement (the "Program Agreement"), between TBS and a
subsidiary of TCI, relating to the mandatory carriage after the consummation of
the Mergers by TCI-affiliated cable systems of WTBS (once the WTBS Conversion
has occurred) and Headline News, conditional rebates available to TCI-
affiliated cable systems for carriage of TBS programming services and other
related matters,
(d) a stock purchase agreement dated as of September 22, 1995 (the
"SportSouth Agreement"), between TBS and a subsidiary of TCI, pursuant to
which, upon consummation of the Mergers, TBS will sell its interest in
SportSouth Network, Ltd. ("SportSouth"), a regional sports cable network, to
such TCI subsidiary for an amount (currently estimated at $65 million)
determined in accordance with a formula set forth in the SportSouth Agreement,
(e) an option agreement (the "Sunshine Option Agreement"), to be entered into
upon consummation of the Mergers, between a subsidiary of TCI and Time Warner
Entertainment Company, L.P. ("TWE"), pursuant to which TWE will grant to such
TCI subsidiary an option (the "Sunshine Option") to purchase the interests of
TWE and certain affiliates in the Sunshine Network, a Florida-based sports
cable network, for approximately $14 million, and
(f) the pay-per-view output agreements (collectively, the "PPV Output
Agreement") between certain TBS subsidiaries, on the one hand, and certain
affiliates of TCI, on the other hand, providing for the licensing of all motion
pictures theatrically released during the term of the agreement by New Line
Cinema Corporation ("New Line"), Castle Rock Entertainment ("Castle Rock") and
Turner Pictures Worldwide, Inc. ("Turner Pictures") for exhibition, on a non-
exclusive basis, on pay-per-view services owned by such TCI affiliates.
After an extensive review of the Transaction by the staff of the Federal
Trade Commission (the "FTC") and in order to eliminate concerns raised by the
staff of the FTC regarding possible competitive effects of the Transaction,
Time Warner, TBS, TCI and LMC have executed the Agreement Containing Consent
Order (including the related Interim Agreement, the "FTC Consent Decree") dated
August 14, 1996 and have submitted the FTC Consent Decree to the commissioners
of the FTC. The FTC commissioners have not yet initially accepted the FTC
Consent Decree, and the obligations of Time Warner, TBS and TCI to consummate
the Transaction are conditioned upon such initial acceptance. The FTC Consent
Decree contains provisions (a) restricting the amount and type of New Time
Warner securities that TCI and its affiliates may hold after the consummation
of the Mergers, (b) requiring that TCI, subject to receipt of a ruling from the
Internal Revenue Service to the effect that the distribution can be effected on
a tax-free basis, distribute (the "TCI Spin-off") the stock of SSSI, which will
hold, directly and indirectly, substantially all the New Time Warner Capital
Stock received by TCI and its affiliates pursuant to the Transaction, to
holders of the Liberty Media Group Common Stock issued by TCI, (c) limiting the
duration of agreements for mandatory analog carriage by TCI cable systems of
TBS programming services, (d) prohibiting New Time Warner from conditioning the
availability or terms of certain programming services to any multi-channel
video programming distributor ("MVPD") on whether that MVPD or any other MVPD
agrees to carry certain other programming services, (e) prohibiting New Time
Warner from discriminating in certain respects against MVPDs having
geographical overlap with New Time Warner's cable systems, in the terms upon
which TBS programming services are made available to such MVPD in the relevant
geographical overlap area, (f) prohibiting New Time Warner, in its capacity as
a cable operator, from improperly discriminating against programmers in its
purchase of programming based on their ownership and (g) requiring New Time
Warner's cable systems to carry by a specified date and at specified
penetration rates a non-affiliated advertiser-supported news and informational
video programming service.
If the FTC does not initially accept the FTC Consent Decree, the FTC may seek
to enjoin the consummation of the Transaction. If the FTC does initially accept
the FTC Consent Decree, the FTC will publish the FTC Consent Decree for public
comment for a period of 60 days. If the FTC does not finally accept the FTC
Consent Decree after the period for public comment, the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking divestiture of substantial assets of TBS or
its subsidiaries or of Time Warner or its subsidiaries. If the FTC does finally
accept the FTC Consent Decree, the
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FTC Consent Decree will terminate on the tenth anniversary of such final
acceptance. See "The Transaction--Regulatory Approvals--FTC Consent Decree" for
a further description of the FTC Consent Decree.
Pursuant to the LMC Agreement, and in order to ensure compliance by TCI with
the FTC Consent Decree, substantially all the shares of New Time Warner Common
Stock received by TCI and its affiliates pursuant to the Mergers will
immediately be exchanged on a one-for-one basis for shares of LMC Reduced
Voting Common Stock. See "Description of New Time Warner Capital Stock--LMC
Series Common Stock." In addition, if, as is currently contemplated, New Time
Warner adopts the New Time Warner Rights Agreement, the New Time Warner Rights
Agreement will be the same as the Existing Rights Agreement, with the exception
of certain specified amendments (collectively, the "Rights Amendment")
contemplated by the LMC Agreement. The principal effect of the Rights Amendment
is to increase the amount of stock that may be acquired by a single person
without resulting in such person becoming an "Acquiring Person" under the New
Time Warner Rights Agreement. Upon consummation of the Mergers, certain
subsidiaries of LMC, the Turner Shareholders and New Time Warner will enter
into a stockholders' agreement (the "Right of First Refusal Agreement"),
pursuant to which such LMC subsidiaries, on the one hand, and the Turner
Shareholders, on the other hand, grant first to the other group and then to New
Time Warner a right of first refusal with respect to dispositions of voting
securities of New Time Warner beneficially owned by them, subject, in the case
of purchases by such LMC subsidiaries, to the FTC Consent Decree. Upon
consummation of the Mergers, New Time Warner, LMC and certain of its
subsidiaries will enter into a registration rights agreement (the "LMC
Registration Rights Agreement"), pursuant to which New Time Warner will grant
to LMC, such LMC subsidiaries and specified transferees rights to require the
registration under the Securities Act of resales of certain New Time Warner
Common Stock held by LMC, such LMC subsidiaries and such transferees.
In addition, Time Warner, New Time Warner, LMC and two subsidiaries of LMC
have entered into a contribution and exchange agreement dated as of September
22, 1995 (the "Contribution and Exchange Agreement"), pursuant to which New
Time Warner has granted to LMC the right to require New Time Warner to acquire
approximately 5.8 million shares of TBS Class C Preferred Stock directly from
LMC simultaneously with consummation of the TBS Merger for the same
consideration payable for such shares in the TBS Merger.
Upon consummation of the Mergers and the exchange of all shares of New Time
Warner Common Stock received in the Mergers by TCI and its affiliates for LMC
Reduced Voting Common Stock, the Turner Shareholders and certain associated
holders are currently expected to own shares of New Time Warner Common Stock
representing approximately 11% of the aggregate voting power of the outstanding
New Time Warner Capital Stock (based on the holdings of such holders and the
number of outstanding shares of Time Warner Capital Stock and TBS Capital Stock
as of June 30, 1996). Upon consummation of the Mergers, New Time Warner, the
Turner Shareholders and Turner Partners, L.P. ("Turner Partners") will enter
into an investors' agreement ("Investors' Agreement (No. 1)"), pursuant to
which the Turner Shareholders and Turner Partners will agree to certain
restrictions on their activities as stockholders of New Time Warner and to
certain restrictions on dispositions by them of shares of New Time Warner
Capital Stock. In addition, New Time Warner will grant to Mr. Turner, subject
to certain conditions, the right to designate two candidates to be nominated
for election to the Board of Directors of New Time Warner (the "New Time Warner
Board"). New Time Warner will also grant to the Turner Shareholders and certain
associated holders of New Time Warner Common Stock rights to require the
registration under the Securities Act of resales of certain New Time Warner
Common Stock held by them (the "Turner Registration Rights Agreement").
In this Joint Proxy Statement/Prospectus, all the foregoing agreements,
including the Merger Agreement, are referred to collectively as the
"Transaction Agreements." STOCKHOLDERS OF TIME WARNER AND SHAREHOLDERS OF TBS
ARE URGED TO REVIEW CAREFULLY THE DESCRIPTIONS OF THE TRANSACTION AGREEMENTS
SET FORTH UNDER "THE MERGER AGREEMENT," "TCI ARRANGEMENTS" AND "CERTAIN RELATED
AGREEMENTS." Copies of the Merger Agreement, the LMC Agreement and the Support
Agreement are attached hereto as Appendices A-1(a) and A-1(b), A-2 and A-3,
respectively, and are incorporated herein by reference.
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The diagrams set forth below illustrate the ownership of New Time Warner,
Time Warner and TBS both prior to and following consummation of the Mergers.
[Set forth below is a narrative description of a diagram contained in the
Joint Proxy Statement/Prospectus that has been omitted from this electronically
filed version thereof because such diagram cannot be reproduced in such
electronic filing.
The diagram illustrates (i) the ownership of each of Time Warner, New Time
Warner, TW Merger Corp., TBS Merger Corp. and TBS prior to the consummation of
the Mergers, (ii) that, in the Mergers, TW Merger Corp. will be merged into Time
Warner and TBS Merger Corp. will be merged into TBS, (iii) the ratios for
conversion of Time Warner Common Stock, TBS Common Stock and TBS Class C
Preferred Stock into shares of New Time Warner Common Stock and for conversion
of Time Warner Preferred Stock into shares of New Time Warner Preferred Stock,
(iv) that, following consummation of the Merger, TCI and certain of its
affiliates will hold LMC Reduced Voting Common Stock and (v) that, as a result
of the Mergers, Time Warner and TBS will each become a wholly owned subsidiary
of New Time Warner.]
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THE COMPANIES
Time Warner Inc. .... Time Warner is the world's leading media company, and
75 Rockefeller Plaza has interests in three fundamental areas of
New York, New York 10019 business: Entertainment, consisting principally of
(212) 484-8000 interests in recorded music and music publishing,
filmed entertainment, broadcasting, theme parks and
cable television programming; News and Information,
consisting principally of interests in magazine
publishing, book publishing and direct marketing;
and Telecommunications, consisting principally of
interests in cable television systems.
TWE was formed as a Delaware limited partnership in
1992 and owns and operates substantially all of Time
Warner's interests in filmed entertainment,
broadcasting, theme parks, cable television
programming and a majority of its interests in cable
television systems. Time Warner and certain of its
wholly-owned subsidiaries (the "Time Warner General
Partners") collectively own general and limited
partnership interests in 74.49% of the pro rata
priority capital and residual equity capital of TWE,
and 100% of the senior priority capital and junior
priority capital of TWE. The remaining 25.51%
limited partnership interests in the Series A
Capital and Residual Capital of TWE are held by a
wholly-owned subsidiary of U S WEST, Inc. ("U S
WEST").
Turner Broadcasting
System, Inc. ...... TBS is a diversified information and entertainment
One CNN Center Atlanta, company. Through its subsidiaries, TBS owns and
Georgia 30303 (404) operates four domestic entertainment networks--WTBS
827-1700 (commonly known as the "TBS Superstation"), Turner
Network Television ("TNT"), the Cartoon Network and
Turner Classic Movies ("TCM"); four international
entertainment networks--TNT Latin America, Cartoon
Network Latin America, TNT & Cartoon Network Europe,
and TNT & Cartoon Network Asia; and four news
networks--Cable News Network ("CNN"), Headline News,
Cable News Network International ("CNNI") and CNN
Financial News Network ("CNNfn"). TBS produces and
distributes entertainment and news programming
worldwide, with operations in motion picture,
animation and television production, home video,
television syndication, licensing and merchandising,
and publishing.
TW Inc......... New Time Warner is currently a wholly owned
c/o Time Warner Inc. subsidiary of Time Warner that does not conduct any
75 Rockefeller Plaza substantial business activities. As a result of the
New York, New York 10019 Transaction, Time Warner and TBS will each become a
(212) 484-8000 wholly owned subsidiary of New Time Warner.
Accordingly, after consummation of the Mergers the
business of New Time Warner will be the businesses
currently conducted by Time Warner and TBS.
THE TIME WARNER MEETING
Time, Place and Date.... The Time Warner Meeting will be held at the Time &
Life Building, 1271 Avenue of the Americas, New
York, New York 10020 on October 10, 1996, starting
at 9:00 a.m., local time.
Record Date, Shares
Entitled to Vote....... Holders of record of shares of Time Warner Common
Stock and shares of Series D Convertible Preferred
Stock of Time Warner, par value $1.00
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per share ("Time Warner Series D Preferred Stock"),
Series E Convertible Preferred Stock of Time Warner,
par value $1.00 per share ("Time Warner Series E
Preferred Stock"), Series F Convertible Preferred
Stock of Time Warner, par value $1.00 per share
("Time Warner Series F Preferred Stock"), Series G
Convertible Preferred Stock of Time Warner, par
value $1.00 per share ("Time Warner Series G
Preferred Stock"), Series I Convertible Preferred
Stock of Time Warner, par value $1.00 per share
("Time Warner Series I Preferred Stock"), and Series
J Convertible Preferred Stock of Time Warner, par
value $1.00 per share ("Time Warner Series J
Preferred Stock" and, together with the foregoing
series of preferred stock, "Time Warner Voting
Preferred Stock"), at the close of business on
August 26, 1996 (the "Time Warner Record Date"), are
entitled to notice of and to vote at the Time Warner
Meeting. At the close of business on the Time Warner
Record Date, there were 384,737,911 shares of Time
Warner Common Stock and 33,794,710 shares of Time
Warner Voting Preferred Stock outstanding and
entitled to vote. Each share of Time Warner Common
Stock is entitled to one vote, and each share of
Time Warner Voting Preferred Stock is entitled to
two votes at the Time Warner Meeting.
Approval of the TW
Merger Proposal........ Under the Restated Certificate of Incorporation of
Time Warner, as amended (the "Time Warner Charter"),
and the General Corporation Law of the State of
Delaware (the "DGCL"), the affirmative vote, in
person or by proxy, of the holders of a majority in
voting power of all outstanding shares of Time
Warner Common Stock and Time Warner Voting Preferred
Stock, voting together as a single class, is
required to approve the TW Merger Proposal.
Recommendations of the
Time Warner Board...... The Time Warner Board has unanimously approved the
Merger Agreement, the LMC Agreement, the other
Transaction Agreements to be executed by Time Warner
and its subsidiaries and the FTC Consent Decree, and
unanimously approved the Transaction and determined
that the Transaction is in the best interests of the
stockholders of Time Warner. The Time Warner Board
unanimously recommends that holders of Time Warner
Capital Stock vote FOR the TW Merger Proposal. See
"The Transaction--Recommendation of the Time Warner
Board; Time Warner's Reasons for the Transaction."
Opinion of Financial
Advisor to Time
Warner................. Time Warner has received the written opinion of
Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), Time Warner's financial advisor, to the
effect that, as of August 8, 1996 and based upon and
subject to the matters stated therein, the ratio
contemplated by the Merger Agreement for the
exchange of New Time Warner Common Stock for TBS
Capital Stock and the consideration to be paid by
New Time Warner for the SSSI Option and the LMC Non-
competition Covenant, taken together,
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were fair to New Time Warner and its subsidiary,
Time Warner, from a financial point of view. The
full text of the opinion of Morgan Stanley, which
sets forth the assumptions made and matters
considered, is attached hereto as Appendix C-1. Each
Time Warner stockholder should read such opinion
carefully in its entirety. The opinion of Morgan
Stanley is directed only to the matters set forth
therein and does not constitute a recommendation to
any Time Warner stockholder or TBS shareholder as to
how such stockholder or shareholder should vote with
respect to the TW Merger Proposal or the TBS Merger
Proposal. See "The Transaction--Opinion of Time
Warner's Financial Advisor."
THE TBS MEETING
Time, Place and Date.... The TBS Meeting will be held at the Time & Life
Building, 1271 Avenue of the Americas, New York, New
York 10020 on October 10, 1996, starting at 2:00
p.m., local time.
Record Date, Shares
Entitled to Vote....... Holders of record of TBS Class A Common Stock, TBS
Class B Common Stock and TBS Class C Preferred Stock
at the close of business on August 26, 1996 (the
"TBS Record Date"), are entitled to notice of and to
vote at the TBS Meeting. At the close of business on
the TBS Record Date, there were 68,330,388 shares of
TBS Class A Common Stock, 140,379,236 shares of TBS
Class B Common Stock and 12,396,976 shares of TBS
Class C Preferred Stock outstanding and entitled to
vote. Each share of TBS Class A Common Stock is
entitled to two votes, each share of TBS Class B
Common Stock is entitled to one-fifth of a vote and
each share of TBS Class C Preferred Stock is
entitled to one and one-fifth votes at the TBS
Meeting.
Approval of the TBS
Merger Proposal........ Under the TBS Articles and the GBCC, the affirmative
vote of (a) a majority of the voting power of the
outstanding shares of TBS Capital Stock, voting
together as a single group, (b) a majority of the
voting power of the outstanding shares of TBS Common
Stock, voting together as a single group, and (c) a
majority of the outstanding shares of TBS Class C
Preferred Stock, voting as a separate class, is
required to approve and adopt the TBS Merger
Proposal. MR. TURNER, TIME WARNER AND LMC HAVE
AGREED, SUBJECT TO THE SATISFACTION OR WAIVER OF
CERTAIN CONDITIONS, TO VOTE OR CAUSE TO BE VOTED ALL
SHARES OF TBS CAPITAL STOCK OWNED BY THEM AND
CERTAIN OF THEIR AFFILIATES IN FAVOR OF THE TBS
MERGER PROPOSAL. ACCORDINGLY (ASSUMING THE
SATISFACTION OR WAIVER OF SUCH CONDITIONS), APPROVAL
OF THE TBS MERGER PROPOSAL IS ASSURED, REGARDLESS OF
THE VOTE OF ANY OTHER SHAREHOLDER OF TBS. SEE
"OWNERSHIP OF TBS CAPITAL STOCK," "TCI
ARRANGEMENTS--LMC AGREEMENT" AND "CERTAIN RELATED
AGREEMENTS--SUPPORT AGREEMENT."
Recommendations of the
TBS Board.............. The TBS Board, with nine directors either not present
or abstaining on the basis that they were
"interested directors" within the meaning of the
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<PAGE>
TBS By-Laws, has unanimously approved the Merger
Agreement, the other Transaction Agreements to be
executed by TBS or its subsidiaries and the FTC
Consent Decree and determined that the Transaction
is fair to and in the best interests of TBS and its
shareholders. The TBS Board unanimously (with such
nine directors either not present or abstaining)
recommends that shareholders of TBS vote FOR the TBS
Merger Proposal. Since such nine directors either
were not present or abstained on the basis that they
were interested directors, only six of the fifteen
TBS directors were eligible under the applicable
provisions of the TBS By-Laws to vote on the Merger
Agreement, the other Transaction Agreements and the
FTC Consent Decree. See "The Transaction--
Background" and "--Recommendation of the TBS Board;
TBS's Reasons for the Transaction."
Opinions of Financial
Advisors to TBS........ The TBS Board has received the written opinion of CS
First Boston Corporation ("CS First Boston"), a
financial advisor to TBS, to the effect that, as of
August 8, 1996 and based upon and subject to the
matters stated therein, the consideration to be
received by holders of TBS Capital Stock (other than
Time Warner and its affiliates) pursuant to the TBS
Merger was fair to such holders from a financial
point of view. The TBS Board has also received the
written opinion of Merrill Lynch & Co. ("Merrill
Lynch"), a financial advisor to TBS, to the effect
that, as of August 8, 1996 and based upon and
subject to the matters stated therein, (a) the
consideration to be received by holders of TBS
Capital Stock (other than TCI and its affiliates and
Time Warner) pursuant to the TBS Merger was fair to
such holders from a financial point of view and (b)
in the context of the governance arrangements
relating to TBS's ability to consummate the TBS
Merger, the financial terms of the TCI Arrangements
were fair from a financial point of view to TBS and
its shareholders (other than TCI and its affiliates
and Time Warner). The full texts of the opinions of
CS First Boston and Merrill Lynch, which set forth
the assumptions made, matters considered and limits
of the review undertaken by CS First Boston and
Merrill Lynch, are attached hereto as Appendices C-2
and C-3, respectively, and should be read carefully
in their entirety by TBS shareholders. The opinions
of CS First Boston and Merrill Lynch are directed
only to the matters set forth therein from a
financial point of view and do not constitute a
recommendation to any TBS shareholder or Time Warner
stockholder as to how such shareholder or
stockholder should vote with respect to the TBS
Merger Proposal or the TW Merger Proposal. See "The
Transaction--Opinions of TBS's Financial Advisors."
THE TRANSACTION
Purpose of the
Transaction............ The purpose of the Transaction is to combine Time
Warner and TBS.
Effect of the
Transaction Upon Time
Warner................. Upon consummation of the Mergers, (a) TW Merger Corp.
will be merged into Time Warner, (b) each
outstanding share of Time Warner Common Stock, other
than shares held directly or indirectly by Time
Warner, will
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<PAGE>
be converted into one share of New Time Warner
Common Stock, and upon such conversion all such
shares of Time Warner Common Stock will be canceled
and retired and will cease to exist, (c) each
outstanding share of each series of Time Warner
Preferred Stock, other than shares held directly or
indirectly by Time Warner and shares with respect to
which appraisal rights are properly exercised, will
be converted into one share of a substantially
identical series of New Time Warner Preferred Stock,
and upon such conversion all such shares of Time
Warner Preferred Stock will be canceled and retired
and will cease to exist, (d) all shares of Time
Warner Capital Stock held by Time Warner will be
canceled and retired and will cease to exist without
payment of any consideration therefor and (e) all
shares of Time Warner Capital Stock held by
subsidiaries of Time Warner will continue as shares
of Time Warner Capital Stock. As a result of the
Transaction, Time Warner will become a wholly owned
subsidiary of New Time Warner.
Effect of the
Transaction Upon TBS... Upon consummation of the Mergers, (a) TBS Merger
Corp. will be merged into TBS, (b) each outstanding
share of TBS Common Stock, other than shares held
directly or indirectly by Time Warner or New Time
Warner or in the treasury of TBS and shares with
respect to which dissenters' rights are properly
exercised, will be converted into the right to
receive 0.75 of a share of New Time Warner Common
Stock, and upon such conversion all such shares of
TBS Common Stock will be canceled and retired and
will cease to exist, (c) each outstanding share of
TBS Class C Preferred Stock, other than shares held
directly or indirectly by Time Warner or New Time
Warner or in the treasury of TBS and shares with
respect to which dissenters' rights are properly
exercised, will be converted into the right to
receive 4.80 shares of New Time Warner Common Stock,
and upon such conversion all such shares of TBS
Class C Preferred Stock will be canceled and retired
and will cease to exist, (d) all shares of TBS
Capital Stock held by TBS will be canceled and
retired and will cease to exist without payment of
any consideration therefor and (e) all shares of TBS
Capital Stock held directly or indirectly by Time
Warner or New Time Warner will continue as shares of
TBS Capital Stock. As a result of the Transaction,
TBS will become a wholly owned subsidiary of New
Time Warner.
Treatment of Options.... Upon consummation of the Mergers, each outstanding
option to purchase shares of TBS Common Stock will
be assumed by New Time Warner and converted into an
option to purchase shares of New Time Warner Common
Stock. Based on the number of such options
outstanding as of June 30, 1996, such options will
be exercisable in the aggregate for approximately 14
million shares of New Time Warner Common Stock.
Following the consummation of the Mergers, each such
option will continue to have, and will be subject
to, the same terms and conditions as in effect
immediately prior to the consummation of the
Mergers, except that each such option will be
exercisable for that number of shares of New Time
Warner Common Stock equal to the product of the
number of shares of TBS Common Stock for which such
option was exercisable immediately prior to the
consummation of the Mergers and
16
<PAGE>
0.75, and the exercise price per share subject to
such option will be equal to the aggregate exercise
price of such option immediately prior to the
consummation of the Mergers divided by the number of
shares of New Time Warner Common Stock for which
such option will be exercisable immediately after
the consummation of the Mergers. Upon consummation
of the Mergers, all such options will become vested.
In addition, upon consummation of the Mergers, each
option to purchase shares of Time Warner Common
Stock will be assumed by New Time Warner and
converted into an option to purchase shares of New
Time Warner Common Stock on the same terms and
conditions as in effect immediately prior to the
consummation of the Mergers. See "The Merger
Agreement--Treatment of Options and Warrants."
Treatment of
Convertible Debt and
Warrants............... Upon consummation of the Mergers, the outstanding
Time Warner zero coupon convertible notes due 2013
(the "TW LYONs") will become convertible into shares
of New Time Warner Common Stock at the rate of one
share of New Time Warner Common Stock for each share
of Time Warner Common Stock into which they were
convertible immediately prior to the consummation of
the Mergers. See "The Transaction--Effect of
Transaction on Certain Outstanding Time Warner
Convertible Securities."
Upon consummation of the Mergers, the outstanding TBS
zero coupon subordinated convertible notes due 2007
(the "TBS LYONs") will become convertible into
shares of New Time Warner Common Stock at the rate
of 0.75 of a share of New Time Warner Common Stock
for each share of TBS Common Stock into which the
TBS LYONs were convertible immediately prior to the
consummation of the Mergers. See "The Transaction--
Effect of Transaction on the TBS LYONs."
Upon consummation of the Mergers, each warrant to
purchase Time Warner Common Stock will become
exercisable for New Time Warner Common Stock at the
same rate, for the same price and on the same terms
as in effect immediately prior to the consummation
of the Mergers. See "The Merger Agreement--Treatment
of Options and Warrants."
Interests of Certain
Persons................ In considering the recommendations of the Time Warner
Board and the TBS Board with respect to the
Transaction, Time Warner stockholders and TBS
shareholders should be aware that certain directors
and executive officers of TBS have interests in the
Transaction that may be in addition to the interests
of other holders of TBS Capital Stock. See "The
Transaction--Interests of Certain Persons in the
Transaction."
Appraisal and
Dissenters' Rights..... Holders of Time Warner Common Stock are not entitled
to appraisal or dissenters' rights in connection
with the Time Warner Merger. Holders of record of
Time Warner Preferred Stock who do not vote in favor
of the TW Merger Proposal and who otherwise comply
with the applicable
17
<PAGE>
statutory procedures summarized herein will be
entitled to appraisal rights under Section 262 of
the DGCL.
Holders of shares of TBS Capital Stock who do not
vote in favor of the TBS Merger Proposal and who
otherwise comply with the applicable statutory
procedures summarized herein will be entitled to
assert dissenters' rights under Article 13 of the
GBCC. The Merger Agreement provides that Time Warner
is not obligated to consummate the Transaction if
dissenters' rights are asserted with respect to more
than 28 million TBS Common Stock equivalents.
See "The Transaction--Appraisal and Dissenters'
Rights" and "The Merger Agreement--Conditions to the
Mergers."
Federal Income Tax
Consequences........... It is a condition to the consummation of the Time
Warner Merger that Time Warner receive an opinion
from Cravath, Swaine & Moore, counsel to Time
Warner, reaffirming, as of the date of consummation
of the Mergers, the opinion described in this Joint
Proxy Statement/Prospectus to the effect that the
Time Warner Merger will be treated for U.S. Federal
income tax purposes as a transfer of property
governed by Section 351 of the Code. Accordingly,
except as set forth below and subject to the
qualifications set forth under "The Transaction--
Federal Income Tax Consequences--Time Warner
Merger," it is the opinion of Cravath, Swaine &
Moore that no gain or loss will be recognized
pursuant to the Time Warner Merger by (a) New Time
Warner, (b) Time Warner, (c) a holder of Time Warner
Common Stock whose shares of Time Warner Common
Stock are converted into shares of New Time Warner
Common Stock or (d) a holder of Time Warner
Preferred Stock whose shares of Time Warner
Preferred Stock are converted into shares of New
Time Warner Preferred Stock. Notwithstanding the
foregoing, a holder of Time Warner Preferred Stock
may recognize gain or loss by reason of cash
received upon the proper exercise of appraisal
rights. See "The Transaction--Federal Income Tax
Consequences--Time Warner Merger."
It is a condition to the consummation of the TBS
Merger that TBS receive an opinion from Skadden,
Arps, Slate, Meagher & Flom, counsel to TBS,
reaffirming, as of the date of consummation of the
Mergers, the opinion described in this Joint Proxy
Statement/Prospectus to the effect that the TBS
Merger will be treated for U.S. Federal income tax
purposes as a transfer of property governed by
Section 351 of the Code. Accordingly, except as
described below and subject to the qualifications
set forth under "The Transaction--Federal Income Tax
Consequences--TBS Merger," it is the opinion of
Skadden, Arps, Slate, Meagher & Flom that no gain or
loss will be recognized pursuant to the TBS Merger
by (a) New Time Warner, (b) TBS or (c) a holder of
TBS Capital Stock whose shares of TBS Capital Stock
are converted into the right to receive shares of
New Time Warner Common Stock. Notwithstanding the
foregoing, a holder of TBS Capital Stock may
18
<PAGE>
recognize gain or loss by reason of cash received in
lieu of fractional shares or upon the proper
exercise of dissenters' rights. See "The
Transaction--Federal Income Tax Consequences--TBS
Merger."
Accounting Treatment.... The Transaction will be accounted for by New
Time Warner under the purchase method of accounting
for business combinations. See "The Transaction--
Accounting Treatment."
Regulatory Approvals.... The consummation of the Mergers requires, among other
matters, (a) initial acceptance by the FTC of the
FTC Consent Decree, (b) the expiration of all
waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and (c) the approval of the Federal
Communications Commission (the "FCC"). See "The
Merger Agreement--Conditions to the Mergers."
The FTC staff has completed its review of the
parties' filings under the HSR Act. In order to
eliminate concerns raised by the FTC staff regarding
possible competitive effects of the Transaction,
Time Warner, TBS, TCI and LMC have executed the FTC
Consent Decree and have agreed to changes to the
terms of the Transaction Agreements to (a) reflect
limits on the amount and type of New Time Warner
securities that TCI and its affiliates may hold
after the consummation of the Mergers, (b) require
that the New Time Warner Common Stock to be received
by TCI and its affiliates in the TBS Merger be
exchanged for New Time Warner securities with
reduced voting rights, thus causing the parties to
agree to create the LMC Reduced Voting Common Stock
and eliminate those provisions that required TCI and
its affiliates to place the New Time Warner Common
Stock received in the TBS Merger in a voting trust
to be voted by Mr. Levin, (c) eliminate the
provisions that would have given New Time Warner an
option to purchase the outstanding stock of SSSI,
(d) eliminate Time Warner's option to purchase TCI's
interest in TBS prior to the consummation of the
Mergers and (e) reduce substantially the duration of
the agreements for mandatory analog carriage by TCI
cable systems of TBS programming services after the
consummation of the Mergers.
Time Warner, TBS, TCI and LMC have submitted the FTC
Consent Decree to the commissioners of the FTC for
initial acceptance, which has not yet occurred and
on which the obligations of Time Warner, TBS and TCI
to consummate the Transaction are conditioned. If
the FTC does not initially accept the FTC Consent
Decree, the FTC may seek to enjoin the Transaction.
If the FTC does initially accept the FTC Consent
Decree, the FTC will publish the FTC Consent Decree
for public comment for 60 days. If the FTC does not
finally accept the FTC Consent Decree after the
period for public comment, the FTC could take such
action under the antitrust laws as it deems
necessary or desirable in the public interest,
including seeking the divestiture of substantial
assets of TBS or its subsidiaries or of Time Warner
or its subsidiaries.
The FCC has not completed its review of the
Transaction. No assurance can be given that the FCC
will not impose conditions to the
19
<PAGE>
consummation of the Transaction or otherwise require
changes to the terms of the Transaction. Such
conditions or changes could result in conditions to
the obligations of Time Warner or TBS under the
Merger Agreement not being satisfied or give LMC the
right to require Time Warner to terminate the Merger
Agreement and abandon the Transaction. See "The
Transaction--Background" and "--Regulatory
Approvals" and "TCI Arrangements--LMC Agreement."
TCI ARRANGEMENTS
Class C Premium......... In the TBS Merger, all holders of shares of TBS Class
C Preferred Stock, including TCI but excluding Time
Warner, will receive 0.80 of a share of New Time
Warner Common Stock for each share of TBS Class B
Common Stock into which the TBS Class C Preferred
Stock is convertible. Holders of TBS Common Stock
will receive 0.75 of a share of New Time Warner
Common Stock for each share of TBS Common Stock. As
of June 30, 1996, TCI and its affiliates owned
shares of TBS Class C Preferred Stock representing
approximately 49.1% of the total number of shares of
TBS Class C Preferred Stock outstanding as of such
date. Based upon the closing sale price of Time
Warner Common Stock on August 7, 1996, the day prior
to the date on which the Time Warner Board and the
TBS Board approved the Merger Agreement, the
incremental value to be received by TCI as a holder
of shares of TBS Class C Preferred Stock as a result
of the difference between the consideration to be
paid for such shares and for the TBS Common Stock is
approximately $65.5 million.
LMC Agreement........... Following consummation of the Mergers, a number of
the provisions of the LMC Agreement will continue
for the benefit of LMC and certain of its affiliates
(and, following the TCI Spin-off, SSSI) in their
capacities as stockholders of New Time Warner,
including provisions (a) relating to the exchange by
LMC and such LMC affiliates of shares of New Time
Warner Common Stock for shares of a new series of
New Time Warner Series Common Stock exempt from the
compulsory redemption provisions of the New Time
Warner Charter, such shares to be either LMC Reduced
Voting Common Stock or, in very limited
circumstances, LMC Common Stock and (b) that would
require New Time Warner to indemnify LMC and certain
of its affiliates against certain income tax
liabilities that may be incurred in the event that
certain actions taken by New Time Warner after the
consummation of the Mergers (including certain
actions amending the New Time Warner Rights
Agreement) result in (i) the continued ownership of
shares of New Time Warner Capital Stock by LMC or
any such LMC affiliate becoming illegal, (ii) the
imposition on LMC or any such LMC affiliate of
damages or penalties by reason of such continued
ownership, (iii) the required divestiture by LMC or
any such LMC affiliate of any such shares of New
Time Warner Capital Stock or (iv) the requirement
that LMC or any such LMC affiliate discontinue any
business or divest of any business or assets or that
any license that such party holds or is required to
hold under the Communications Act of 1934, as
amended (the "Communications Act"), be modified in
any significant respect or
20
<PAGE>
not be renewed as a result of such continued
ownership. See "TCI Arrangements--LMC Agreement."
SSSI Agreement.......... Upon consummation of the Mergers, New Time Warner and
LMC will enter into the SSSI Agreement pursuant to
which (a) New Time Warner will issue to SSSI
4,166,667 shares of LMC Reduced Voting Common Stock
and SSSI will grant to New Time Warner the SSSI
Option and (b) New Time Warner will issue to LMC
833,333 shares of LMC Reduced Voting Common Stock
and will pay to LMC approximately $67 million
(payable, at New Time Warner's option, in cash or
additional shares of LMC Reduced Voting Common
Stock) and LMC will agree to the LMC Non-competition
Covenant. See "TCI Arrangements--SSSI Agreement and
the Distribution Contract."
Program Agreement....... TBS and a subsidiary of TCI have entered into the
Program Agreement relating to the mandatory carriage
after consummation of the Mergers by TCI-affiliated
cable systems of WTBS (once the WTBS Conversion has
occurred) and Headline News, conditional rebates
available to TCI-affiliated cable systems for
carriage of TBS programming services and other
related matters. See "TCI Arrangements--Program
Agreement."
SportSouth Agreement.... TBS and a subsidiary of TCI have entered into the
SportSouth Agreement pursuant to which, upon
consummation of the Mergers, TBS will sell its
interest in SportSouth, a regional sports cable
network, to such TCI subsidiary for an amount
(currently estimated at $65 million) determined in
accordance with the formula set forth in the
SportSouth Agreement. See "TCI Arrangements--
SportSouth Agreement."
Sunshine Option......... Upon consummation of the Mergers, a subsidiary of TCI
and TWE will enter into the Sunshine Option
Agreement pursuant to which TWE will grant to such
TCI subsidiary the Sunshine Option to purchase the
interests of TWE and certain affiliates in the
Sunshine Network, a Florida-based sports cable
network, for approximately $14 million. See "TCI
Arrangements--Sunshine Option."
PPV Output Agreement.... Certain TBS subsidiaries and certain affiliates of
TCI have entered into the PPV Output Agreement,
providing for the licensing of all motion pictures
theatrically released during the term of the
agreement by New Line, Castle Rock and Turner
Pictures for exhibition, on a non-exclusive basis,
on pay-per-view services owned by such TCI
affiliates. See "TCI Arrangements--PPV Output
Agreement."
21
<PAGE>
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 the Time Warner Form 10-K and with the unaudited consolidated condensed
financial statements and other financial information of Time Warner contained
in the Time Warner Form 10-Q for the quarter ended June 30, 1996, which are
incorporated herein by reference. The selected historical financial information
for all periods after 1992 reflects the deconsolidation of the Entertainment
Group, principally TWE, effective January 1, 1993.
The selected historical financial information for 1996 reflects (a) the
issuance of 1.6 million shares of 10 1/4% Series K Exchangeable Preferred
Stock, par value $1.00 per share, of Time Warner ("Time Warner Series K
Preferred Stock"), and the use of approximately $1.55 billion of net proceeds
therefrom to reduce debt and (b) (i) the issuance of 6.3 million shares of
convertible Time Warner Preferred Stock having an aggregate liquidation
preference of $633 million and 2.9 million shares of Time Warner Common Stock
and (ii) the assumption or incurrence of approximately $2 billion of
indebtedness in connection with the acquisition by Time Warner of Cablevision
Industries Corporation ("CVI") and related companies. The selected historical
financial information for 1995 reflects (a) the issuance of 29.3 million shares
of convertible Time Warner Preferred Stock having an aggregate liquidation
preference of $2.926 billion and 2.6 million shares of Time Warner Common Stock
and (b) the assumption or incurrence of approximately $1.3 billion of
indebtedness in connection with (x) the acquisitions by Time Warner of KBLCOM
Incorporated ("KBLCOM") and Summit Communications Group, Inc. ("Summit") and
(y) the exchange by Toshiba Corporation ("Toshiba") and ITOCHU Corporation
("ITOCHU") of their direct and indirect interests in TWE. See "Unaudited Pro
Forma Consolidated Condensed Financial Statements." The selected historical
financial information for 1993 reflects the issuance of $6.1 billion of long-
term debt and the use of $500 million of cash and equivalents for the exchange
or redemption of Time Warner 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 Time Warner Common Stock split that occurred on September 10,
1992.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------- ----------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------- -------
(MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT
INFORMATION
Revenues................ $4,207 $3,724 $8,067 $7,396 $6,581 $13,070 $12,021
Depreciation and
amortization........... 452 231 559 437 424 1,172 1,109
Business segment
operating income(a).... 325 322 697 713 591 1,343 1,154
Equity in pretax income
of Entertainment
Group.................. 209 106 256 176 281 -- --
Interest and other,
net.................... 578 356 877 724 718 882 966
Income (loss) before
extraordinary item..... (124) (55) (124) (91) (164) 86 (99)
Net income
(loss)(b)(c)........... (159) (55) (166) (91) (221) 86 (99)
Net loss applicable to
common shares (after
preferred dividends)... (263) (63) (218) (104) (339) (542) (692)
Per share of common
stock:
Loss before
extraordinary item.... $ (.58) $ (.17) $ (.46) $ (.27) $ (.75) $ (1.46) $ (2.40)
Net loss(b)(c)......... $ (.67) $ (.17) $ (.57) $ (.27) $ (.90) $ (1.46) $ (2.40)
Dividends.............. $ .18 $ .18 $ .36 $ .35 $ .31 $ .265 $ .25
Average common
shares(c).............. 390.6 380.5 383.8 378.9 374.7 371.0 288.2
Ratio of earnings to
fixed charges(d)....... 1.0x 1.1x 1.1x 1.1x 1.1x 1.4x 1.1x
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (deficiency
in the coverage of
combined fixed charges
and preferred stock
dividends by earnings
before fixed charges
and preferred stock
dividends)(d).......... $ (127) 1.1x 1.0x 1.1x $ (91) $ (509) $(1,240)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ---------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION
Investments in and amounts due
to and from Entertainment
Group........................ $ 5,945 $ 5,734 $ 5,350 $ 5,627 $ -- $ --
Total assets.................. 24,508 22,132 16,716 16,892 27,366 24,889
Long-term debt................ 9,928 9,907 8,839 9,291 10,068 8,716
Borrowings against future
stock option proceeds........ 225 -- -- -- -- --
Time Warner-obligated
mandatorily redeemable
preferred securities of
subsidiaries holding
solely subordinated notes and
debentures of
Time Warner(e)............... 949 949 -- -- -- --
Series K exchangeable
preferred stock.............. 1,586 -- -- -- -- --
Shareholders' equity:
Preferred stock liquidation
preference.................. 3,559 2,994 140 140 6,532 6,256
Equity applicable to common
stock....................... 284 673 1,008 1,230 1,635 2,242
Total shareholders' equity... 3,843 3,667 1,148 1,370 8,167 8,498
Total capitalization.......... 16,531 14,523 9,987 10,661 18,235 17,214
</TABLE>
- --------
(a) Business segment operating income for the year ended December 31, 1995
includes $85 million in losses relating to certain businesses and joint
ventures owned by the Music division which were restructured or closed.
Business segment operating income for the year ended December 31, 1991,
includes a $60 million charge relating to the restructuring of the
Publishing division.
(b) The net loss for the six months ended June 30, 1996 includes an
extraordinary loss on the retirement of debt of $35 million ($.09 per
common share). The net loss for the year ended December 31, 1995 includes
an extraordinary loss on the retirement of debt of $42 million ($.11 per
common share). The net loss for the year ended December 31, 1993 includes
an extraordinary loss on the retirement of debt of $57 million ($.15 per
common share) and an unusual charge of $70 million ($.19 per common share)
from the effect of the new income tax law on Time Warner's deferred income
tax liability.
(c) In August 1991, Time Warner completed the sale of 137.9 million shares of
Time Warner 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 Time Warner Common Stock outstanding during
the year.
(d) For purposes of the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends, earnings
were calculated by adding (i) pretax income, (ii) interest expense,
including previously capitalized interest amortized to expense and the
portion of rents representative of an interest factor for Time Warner and
its majority-owned subsidiaries, (iii) Time Warner's proportionate share of
the items included in (ii) above for its 50%-owned companies, (iv)
preferred stock dividend requirements of majority-owned subsidiaries, (v)
minority interest in the income of majority-owned subsidiaries that have
fixed charges and (vi) undistributed losses of its less-than-50%-owned
companies. Fixed charges consist of (i) interest expense, including
interest capitalized and the portion of rents representative of an interest
factor for Time Warner and its majority-owned subsidiaries, (ii) Time
Warner's proportionate share of such items for its 50%-owned companies and
(iii) preferred stock dividend requirements of majority-owned subsidiaries.
Combined fixed charges and preferred stock dividends also include the
amount of pretax income necessary to cover preferred stock dividend
requirements of Time Warner. 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. With respect to the
ratio of earnings to fixed charges, fixed charges for the six months ended
June 30, 1996 and 1995 and the years ended December 31, 1995 and 1994
include noncash interest expense of $46 million, $116 million, $176 million
and $219 million, respectively, relating to Time Warner's Zero Coupon
Convertible Notes due 2012 and 2013 and, in 1995 and 1994 only, Time
Warner's Redeemable Reset Notes due 2002. With respect to the ratio of
earnings to combined fixed charges and preferred stock dividends, fixed
charges similarly include noncash interest expense as noted above and, for
the six-month period ended June 30, 1996 only, noncash preferred stock
dividends of $36 million relating to the Time Warner Series K Preferred
Stock.
(e) Includes $374 million of preferred securities that are redeemable for cash
or, at Time Warner's option, approximately 12.1 million shares of Hasbro,
Inc. common stock owned by Time Warner.
23
<PAGE>
TIME WARNER 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 the Time Warner Form 10-K and with the unaudited
consolidated condensed financial statements and other financial information of
Time Warner and TWE contained in the Time Warner Form 10-Q for the quarter
ended June 30, 1996, which are incorporated herein by reference. 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 selected historical financial information.
The selected historical financial information for 1995 reflects the
consolidation by TWE of the TWE-Advance/Newhouse Partnership (as defined below)
resulting from the formation of such partnership, effective as of April 1,
1995, and the consolidation of Paragon Communications ("Paragon") effective as
of July 6, 1995. The selected historical financial information gives effect to
the consolidation of Six Flags Entertainment Corporation ("Six Flags")
effective as of January 1, 1993 as a result of an increase in TWE's ownership
of Six Flags from 50% to 100% in September 1993, and the subsequent
deconsolidation of Six Flags resulting from the disposition by TWE of a 51%
interest in Six Flags effective as of June 23, 1995. The selected historical
financial information for 1993 also gives effect to the admission of U S WEST
as an additional limited partner of TWE as of September 15, 1993 and the
issuance of $2.6 billion of TWE debentures during the year to reduce
indebtedness under the TWE credit agreement. For 1992, the selected financial
information 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. Time Warner's cost to acquire the ATC
minority interest is reflected in the consolidated financial statements of TWE
under the pushdown method of accounting.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ --------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- ------ ------ ------ ------ ------
(MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT
INFORMATION
Revenues................ $ 5,097 $ 4,508 $9,629 $8,509 $7,963 $6,761 $6,068
Depreciation and
amortization........... 585 513 1,060 959 909 788 733
Business segment
operating income....... 568 475 992 852 905 814 724
Interest and other,
net.................... 222 304 539 616 564 531 526
Income before
extraordinary item..... 170 70 170 136 217 173 103
Net income (a).......... 170 70 146 136 207 173 103
TWE ratio of earnings to
fixed charges(b)....... 2.0x 1.4x 1.6x 1.4x 1.4x 1.4x 1.4x
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ---------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION
Total assets................. $18,968 $18,960 $18,992 $18,202 $15,886 $14,230
Long-term debt............... 5,575 6,137 7,160 7,125 7,171 4,571
Time Warner General Partners'
Senior Capital.............. 1,483 1,426 1,663 1,536 -- --
Partners' capital............ 6,735 6,576 6,491 6,228 6,483 6,717
</TABLE>
- --------
(a) Net income for the years ended December 31, 1995 and 1993 includes an
extraordinary loss on the retirement of debt of $24 million and $10
million, respectively.
(b) For purposes of the ratio of earnings to fixed charges, earnings were
calculated by adding (i) pretax income, (ii) interest expense, including
previously capitalized interest amortized to expense and the portion of
rents representative of an interest factor for TWE and its majority-owned
subsidiaries, (iii) TWE's proportionate share of the items included in (ii)
above for its 50%-owned companies, (iv) minority interest in the income of
majority-owned subsidiaries that have fixed charges and (v) undistributed
losses of its less-than-50%-owned companies. Fixed charges consist of (i)
interest expense, including interest capitalized and the portion of rents
representative of an interest factor for TWE and its majority-owned
subsidiaries and (ii) TWE's proportionate share of such items for its 50%-
owned companies. Earnings as defined include significant noncash charges
for depreciation and amortization.
24
<PAGE>
TBS SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information of TBS set forth below has been
derived from and should be read in conjunction with the consolidated financial
statements and other financial information of TBS contained in the TBS Form 10-
K and with the unaudited consolidated condensed financial statements and other
financial information of TBS contained in the TBS Form 10-Q for the quarter
ended June 30, 1996, which are incorporated herein by reference.
The selected historical financial information reflects (a) the acquisition of
New Line on January 28, 1994, (b) the acquisition of Castle Rock on December
22, 1993 and (c) the acquisition on December 29, 1993 of the remaining 50%
interest in a joint venture (the "HB Joint Venture"), which principally owns
the Hanna-Barbera Film Library. TBS originally acquired a 50% interest in the
HB Joint Venture in December 1991. Such acquisitions were accounted for using
the purchase method of accounting for business combinations.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------- -------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------- ------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT
INFORMATION
Revenues.................. $1,675 $1,508 $3,437 $2,809 $1,922 $ 1,770 $1,480
Depreciation and
amortization(a).......... 92 85 189 153 115 113 100
Operating profit(b)....... 84 173 358 288 302 289 297
Interest and other, net... 81 97 185 208 182 190 196
Income before
extraordinary items and
the cumulative effect of
a change in accounting
for income taxes......... 1 44 103 46 72 34 43
Extraordinary items(c).... -- -- -- (25) (11) 44 43
Cumulative effect of a
change in accounting for
income taxes(d).......... -- -- -- -- (306) -- --
Net income (loss)......... 1 44 103 21 (244) 78 86
Net income (loss)
applicable to common
stock(e)................. 1 44 103 21 (244) 76 57
Net income (loss) per
common share and common
stock equivalent......... $ .01 $ .15 $ .36 $ .08 $ (.92) $ .30 $ .24
Cash dividends declared
per common share(f):
Class A Common Stock..... $.0350 $.0350 $.0700 $.0700 $.0700 $.04875 --
Class B Common Stock..... $.0350 $.0350 $.0700 $.0700 $.0700 $.05000 --
Weighted average Class A
and Class B common shares
outstanding(g)........... 287.3 287.3 284.4 281.3 264.4 255.5 238.2
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- -----------------------------------
1996 1995 1994 1993 1992 1991
-------- ------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION
Working capital................. $ 589 $ 554 $ 642 $ 661 $ 475 $ 379
Cash and cash equivalents....... 119 85 53 163 126 79
Total assets.................... 4,488 4,395 4,073 3,245 2,524 2,397
Long-term debt, less current
portion........................ 2,600 2,480 2,518 2,295 1,709 1,969
Redeemable preferred stock(h)... -- -- -- -- -- 5
Stockholders' equity (deficit).. 471 438 344 (1) 233 (38)
</TABLE>
- --------
(a) Principally includes depreciation, amortization of goodwill and other
intangibles, amortization of purchased programming and non-cash
amortization of certain acquisition purchase adjustments.
(b) Operating profit is defined as income before interest expense, interest
income, provision for income taxes, extraordinary items and the cumulative
effect of a change in accounting for income taxes. Operating profit
includes $16 million, $3 million and $24 million incurred in the six-month
periods ended June 30, 1996 and 1995 and the year ended December 31, 1995,
respectively, of non-recurring costs related to the Transaction and costs
related to TBS's accounts receivable securitization program which, when
taken together with depreciation and amortization, should be excluded for
purposes of determining the operating cash flow of TBS in such periods.
(c) Extraordinary items consist of (i) for the years ended December 31, 1994
and 1993 losses on early extinguishment of indebtedness of $25 million
($.08 per common share) and $11 million ($.03 per common share),
respectively, and (ii) for the years ended December 31, 1992 and 1991,
utilization of operating loss carryforwards.
(d) The year ended December 31, 1993 included a charge of $306 million ($1.16
per common share) from the cumulative effect of adopting Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
(e) Amounts represent net income (loss) less dividends and accretion on the TBS
Class B Cumulative Preferred Stock of approximately $1 million and $29
million for the years ended December 31, 1992 and 1991, respectively.
(f) Holders of TBS Class C Preferred Stock are entitled to a cash dividend for
each share held based on the number of underlying shares of TBS Class B
Common Stock.
(g) Amounts include common stock equivalents.
(h) Represents the accreted value of the TBS Class B Cumulative Preferred Stock
outstanding at December 31, 1991.
25
<PAGE>
NEW TIME WARNER SELECTED PRO FORMA FINANCIAL INFORMATION
The unaudited selected pro forma balance sheet information of New Time Warner
at June 30, 1996 set forth below gives effect to the Transaction and certain
other transactions that Time Warner and TWE have completed, or have entered
into, as if consummated on such date. The unaudited selected pro forma
operating statement information of New Time Warner for the six months ended
June 30, 1996 and the year ended December 31, 1995 set forth below gives effect
to the Transaction and certain transactions that Time Warner and TWE have
completed, or have entered into, in each case as if consummated at the
beginning of 1995. The selected pro forma information set forth below is
qualified in its entirety by, and should be read in conjunction with, the
Unaudited Pro Forma Consolidated Condensed Financial Statements included herein
and the historical financial information of Time Warner and TBS included or
incorporated by reference herein.
The selected pro forma 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. See "Unaudited
Pro Forma Consolidated Condensed Financial Statements."
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
(MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
PRO FORMA OPERATING STATEMENT INFORMATION
Revenues.............................................. $5,882 $12,179
Depreciation and amortization......................... 623 1,283
Business segment operating income..................... 328 832
Equity in pretax income of Entertainment Group........ 209 286
Interest and other, net............................... 627 1,142
Loss before extraordinary item........................ (182) (274)
Loss before extraordinary item applicable to common
shares (after preferred dividends)................... (337) (590)
Per share of common stock:
Loss before extraordinary item...................... $ (.59) $ (1.04)
Dividends........................................... $ .18 $ .36
Average common shares................................. 568.9 566.0
Deficiency in the coverage of fixed charges by
earnings before fixed charges (a).................... $ (19) $ (6)
Deficiency in the coverage of combined fixed charges
and preferred stock dividends by earnings before
fixed charges and preferred stock dividends(a)....... $ (268) $ (444)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1996
----------
(MILLIONS)
<S> <C>
PRO FORMA BALANCE SHEET INFORMATION
Investments in and amounts due to and from Entertainment Group..... $ 5,945
Total assets....................................................... 34,711
Long-term debt..................................................... 12,690
Borrowings against future options proceeds......................... 225
Time Warner-obligated mandatorily redeemable preferred securities
of subsidiaries holding solely subordinated notes and debentures
of Time Warner(b)................................................. 949
Series K exchangeable preferred stock.............................. 1,586
Shareholders' equity:
Preferred stock liquidation preference........................... 3,559
Equity applicable to common stock................................ 6,308
Total shareholders' equity....................................... 9,867
Total capitalization............................................... 25,317
</TABLE>
- --------
(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 (i) pretax income, (ii) interest expense,
including previously capitalized interest amortized to
26
<PAGE>
expense and the portion of rents representative of an interest factor for
New Time Warner and its majority-owned subsidiaries, (iii) New Time
Warner's proportionate share of the items included in (ii) above for its
50%-owned companies, (iv) preferred stock dividend requirements of
majority-owned subsidiaries, (v) minority interest in the income of
majority-owned subsidiaries that have fixed charges and (vi) undistributed
losses of its less-than-50%-owned companies. Fixed charges consist of (i)
interest expense, including interest capitalized and the portion of rents
representative of an interest factor for New Time Warner and its majority-
owned subsidiaries, (ii) New Time Warner's proportionate share of such
items for its 50%-owned companies and (iii) preferred stock dividend
requirements of majority-owned subsidiaries. Combined fixed charges and
preferred stock dividends also include the amount of pretax income
necessary to cover preferred stock dividend requirements of New Time
Warner. 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. With respect to the ratio of
earnings to fixed charges, fixed charges for New Time Warner for the six
months ended June 30, 1996 and the year ended December 31, 1995 include
noncash interest expense of $56 million and $101 million, respectively.
With respect to the ratio of earnings to combined fixed charges and
preferred stock dividends, fixed charges similarly include noncash interest
expense as noted above and, for the six-month period ended June 30, 1996
and the year ended December 31, 1995, noncash preferred stock dividends of
$87 million and $173 million, respectively, relating to the Time Warner
Series K Preferred Stock.
(b) Includes $374 million of preferred securities that are redeemable for cash
or, at Time Warner's option, approximately 12.1 million shares of Hasbro,
Inc. common stock owned by Time Warner.
27
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share, cash dividends per share
and book value per share data of Time Warner and TBS, equivalent pro forma per
common share data of TBS and pro forma combined per share data of New Time
Warner. TBS historical and equivalent pro forma information with respect to the
TBS Class C Preferred Stock has been computed on a TBS Class B Common Stock
equivalent basis based upon the assumed conversion of each share of TBS Class C
Preferred Stock into six shares of TBS Class B Common Stock. The data set forth
below should be read in conjunction with the Time Warner and TBS audited
consolidated financial statements and unaudited interim consolidated financial
statements, including the notes thereto, which are incorporated by reference in
this Joint Proxy Statement/Prospectus. The data should also be read in
conjunction with the unaudited pro forma consolidated condensed financial
information included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1996 1995
---------------- ------------
<S> <C> <C>
TIME WARNER--HISTORICAL
Loss before extraordinary item per share......... $ (.58) $ (.46)
Cash dividends per share......................... .18 .36
Book value per share(a).......................... 1.65 2.49
TBS PER COMMON SHARE EQUIVALENT--HISTORICAL
TBS Common Stock
Net income per share............................. $ 0.01 $ .36
Cash dividends per share......................... 0.035 .07
Book value per share(a).......................... 1.01 .86
TBS Class C Preferred Stock
Net income per share............................. $ 0.01 $ .36
Cash dividends per share......................... 0.035 .07
Book value per share(b).......................... 3.50 3.50
TBS PER COMMON SHARE EQUIVALENT--PRO FORMA
TBS Common Stock(c):
Loss before extraordinary item per share......... $ (.44) $ (.78)
Cash dividends per share......................... .14 .27
Book value per share............................. 8.84 9.44
TBS Class C Preferred Stock(d):
Loss before extraordinary item per share......... (.47) (.83)
Cash dividends per share......................... .14 .29
Book value per share............................. 9.43 10.07
NEW TIME WARNER--PRO FORMA
Loss before extraordinary item per share......... $ (.59) $ (1.04)
Cash dividends per share......................... .18 .36
Book value per share(e).......................... 11.79 12.59
</TABLE>
- --------
(a) Calculated by dividing the historical shareholders' equity less the
historical book value of non-mandatorily redeemable preferred stock by the
number of outstanding common shares. The outstanding common shares do not
include shares issuable upon exercise of stock options or conversion of
outstanding convertible securities.
(b) Calculated by dividing the historical book value of the TBS Class C
Preferred Stock by the number of shares of TBS Class B Common Stock into
which the outstanding shares of TBS Class C Preferred Stock are
convertible.
(c) Calculated based upon the exchange ratio of 0.75 of a share of New Time
Warner Common Stock per share of TBS Common Stock.
(d) Calculated based upon the exchange ratio of 0.80 of a share of New Time
Warner Common Stock per share of TBS Class B Common Stock into which the
outstanding shares of TBS Class C Preferred Stock are convertible.
(e) Calculated by dividing pro forma shareholders' equity less the book value
of non-mandatorily redeemable preferred stock by the expected number of
outstanding shares of New Time Warner Common Stock. The expected number of
outstanding shares of New Time Warner Common Stock does not include shares
issuable upon exercise of stock options or conversion of outstanding
convertible securities.
28
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The Time Warner Common Stock is listed on the NYSE and the PSE under the
symbol TWX and on the London Stock Exchange. The Time Warner Preferred Stock is
not listed on any securities exchange or publicly traded.
The TBS Class A Common Stock and the TBS Class B Common Stock are listed on
the AMEX under the symbols TBS.A and TBS.B, respectively. The TBS Class C
Preferred Stock is not listed on any securities exchange or publicly traded.
Each share of TBS Class C Preferred Stock currently is convertible into six
shares of TBS Class B Common Stock.
The table below sets forth, for the calendar quarters indicated, the reported
high and low sales prices of Time Warner Common Stock on the NYSE Composite
Tape and the TBS Class A Common Stock and TBS Class B Common Stock, in each
case based on published financial sources, and the dividends declared on such
stock. For each quarter indicated, the cash dividend per share of TBS Class C
Preferred Stock was six times the dividend per share of TBS Common Stock.
<TABLE>
<CAPTION>
TIME WARNER COMMON STOCK TBS CLASS A COMMON STOCK TBS CLASS B COMMON STOCK
-----------------------------------------------------------------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
--------- --------- ------------------- -------- ------------------- -------- -----------
(IN DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
First Quarter.......... 44.250 36.625 .08 27.750 19.500 .0175 27.750 19.875 .0175
Second Quarter......... 40.625 34.500 .09 20.375 17.000 .0175 20.250 17.000 .0175
Third Quarter.......... 38.750 34.000 .09 20.000 16.375 .0175 20.000 16.625 .0175
Fourth Quarter......... 37.750 31.500 .09 20.125 14.500 .0175 20.375 14.500 .0175
1995
First Quarter.......... 39.250 33.625 .09 18.750 16.000 .0175 19.125 16.125 .0175
Second Quarter......... 43.500 34.250 .09 20.750 16.500 .0175 21.250 16.625 .0175
Third Quarter.......... 45.625 38.875 .09 33.500 20.000 .0175 31.875 20.375 .0175
Fourth Quarter ........ 41.250 35.750 .09 27.625 24.625 .0175 28.000 24.750 .0175
1996
First Quarter.......... 45.250 37.250 .09 29.250 24.000 .0175 29.750 24.125 .0175
Second Quarter......... 42.875 38.125 .09 28.250 24.750 .0175 28.250 24.875 .0175
Third Quarter
(through September 4,
1996)................. 39.875 29.750 .09 27.875 22.500 .0175 28.125 22.500 .0175
</TABLE>
On August 29, 1995, the last full trading day preceding the joint public
announcement by Time Warner and TBS that they were in discussions regarding a
possible business combination, the closing price of Time Warner Common Stock on
the NYSE Composite Tape was $42.375 per share, and the closing prices of TBS
Class A Common Stock and TBS Class B Common Stock on the AMEX were $23.625 and
$24.000, respectively, in each case based on published financial sources. On
September 4, 1996, the most recent practicable date prior to the printing of
this Joint Proxy Statement/Prospectus, the closing price of Time Warner Common
Stock on the NYSE Composite Tape was $32.750 per share, and the closing prices
of TBS Class A Common Stock and TBS Class B Common Stock on the AMEX were
$24.375 and $24.125, respectively. HOLDERS OF TIME WARNER CAPITAL STOCK AND TBS
CAPITAL STOCK ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING ANY
DECISION WITH RESPECT TO THE TRANSACTION.
The Merger Agreement contemplates that the New Time Warner Common Stock will
be listed on the NYSE, and Time Warner currently expects that the New Time
Warner Common Stock will also be listed on the PSE. Time Warner does not expect
that any of the New Time Warner Preferred Stock will be listed on any
securities exchange or publicly traded.
The payment of future dividends on New Time Warner Common Stock will be a
business decision to be made by the New Time Warner Board from time to time
based upon the results of operations and financial condition of New Time Warner
and such other factors as the New Time Warner Board considers relevant.
29
<PAGE>
THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (a) from the holders of Time Warner Common Stock and
Time Warner Voting Preferred Stock by the Time Warner Board for use at the
Time Warner Meeting and (b) from the holders of TBS Capital Stock by the TBS
Board for use at the TBS Meeting.
TIMES AND PLACES; PURPOSES
The Time Warner Meeting is scheduled to be held at the Time & Life Building,
1271 Avenue of the Americas, New York, New York 10020, on October 10, 1996,
starting at 9:00 a.m., local time. At the Time Warner Meeting, the
stockholders of Time Warner will be asked to consider and vote on the TW
Merger Proposal and such other matters as may properly come before the Time
Warner Meeting.
The TBS Meeting is scheduled to be held at the Time & Life Building, 1271
Avenue of the Americas, New York, New York 10020, on October 10, 1996,
starting at 2:00 p.m., local time. At the TBS Meeting, the shareholders of TBS
will be asked to consider and vote on the TBS Merger Proposal and such other
matters as may properly come before the TBS Meeting.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
Time Warner
The Time Warner Board has fixed August 26, 1996, as the Time Warner Record
Date. Only holders of record of shares of Time Warner Common Stock and Time
Warner Voting Preferred Stock at the close of business on the Time Warner
Record Date are entitled to vote at the Time Warner Meeting. At the close of
business on the Time Warner Record Date, there were 384,737,911 shares of Time
Warner Common Stock and 33,794,710 shares of Time Warner Voting Preferred
Stock outstanding and entitled to vote at the Time Warner Meeting held by
approximately 25,000 stockholders of record of Time Warner Common Stock and 14
stockholders of record of Time Warner Voting Preferred Stock.
Each share of Time Warner Common Stock entitles the holder thereof on the
Time Warner Record Date to one vote, and each share of Time Warner Voting
Preferred Stock entitles the holder thereof on the Time Warner Record Date to
two votes. The presence, in person or by proxy, of the holders of a majority
of the votes entitled to be cast by the stockholders entitled to vote
generally is necessary to constitute a quorum at the Time Warner Meeting.
Approval of the TW Merger Proposal (the "TW Merger Approval") requires the
affirmative vote, in person or by proxy, of the holders of a majority in
voting power of all outstanding shares of Time Warner Common Stock and Time
Warner Voting Preferred Stock, voting together as a single class. Abstentions
and broker non-votes will have the effect of a vote against the TW Merger
Proposal. Shares represented by abstentions and broker non-votes will be
counted for purposes of determining whether there is a quorum at the Time
Warner Meeting.
Holders of Time Warner Common Stock are not entitled to appraisal or
dissenters' rights in connection with the Time Warner Merger. Holders of
record of Time Warner Preferred Stock who do not vote in favor of the TW
Merger Proposal and who otherwise comply with the applicable statutory
procedures summarized herein will be entitled to appraisal rights under
Section 262 of the DGCL. See "The Transaction--Appraisal and Dissenters'
Rights."
As of June 30, 1996, directors and executive officers of Time Warner and
their affiliates as a group beneficially owned 1,705,372 shares of Time Warner
Common Stock and no shares of Time Warner Voting Preferred Stock, or
approximately 0.4% of the total number of votes entitled to be cast at the
Time Warner Meeting.
TBS
The TBS Board has fixed August 26, 1996, as the TBS Record Date. Only
holders of record of shares of TBS Capital Stock at the close of business on
the TBS Record Date will be entitled to notice of and to vote at the TBS
Meeting. At the close of business on the TBS Record Date, there were
outstanding and entitled to vote
30
<PAGE>
68,330,388 shares of TBS Class A Common Stock, 140,379,236 shares of TBS Class
B Common Stock and 12,396,976 shares of TBS Class C Preferred Stock. Each
share of TBS Class A Common Stock entitles the holder thereof to two votes,
each share of TBS Class B Common Stock entitles the holder thereof to one-
fifth of a vote and each share of TBS Class C Preferred Stock entitles the
holder thereof to vote as though such holder held the six shares of the TBS
Class B Common Stock into which each share of TBS Class C Preferred Stock is
currently convertible (i.e., one and one-fifth votes per share of TBS Class C
Preferred Stock). At the TBS Meeting, the presence, in person or by proxy, of
a majority of the votes entitled to be cast by the holders of (a) TBS Capital
Stock is necessary to constitute a quorum of the TBS Capital Stock, (b) TBS
Common Stock is necessary to constitute a quorum of the TBS Common Stock and
(c) TBS Class C Preferred Stock is necessary to constitute a quorum of the TBS
Class C Preferred Stock.
Approval of the TBS Merger Proposal by holders of TBS Capital Stock requires
the affirmative vote of (a) a majority of the voting power of the outstanding
shares of TBS Capital Stock, voting together as a single group, (b) a majority
of the voting power of the outstanding shares of TBS Common Stock, voting
together as a single group, and (c) a majority of the outstanding shares of
TBS Class C Preferred Stock, voting as a separate class (collectively, the
"TBS Merger Approval"). Abstentions and broker non-votes will have the effect
of votes against the TBS Merger Proposal.
Holders of TBS Class A Common Stock, TBS Class B Common Stock and TBS Class
C Preferred Stock who do not vote in favor of the TBS Merger Proposal and who
otherwise comply with the applicable statutory procedures summarized herein
will be entitled to assert dissenters' rights with respect to the TBS Merger
under and in accordance with Article 13 of the GBCC. See "The Transaction--
Appraisal and Dissenters' Rights."
As of June 30, 1996, TBS's directors, executive officers and their
affiliates (other than TCI and Time Warner), as a group, were entitled to vote
57,737,225 shares of TBS Class A Common Stock, 25,544,196 shares of TBS Class
B Common Stock and no shares of TBS Class C Preferred Stock. Such shares
represent 67.2% of the total combined voting power of the TBS Capital Stock
entitled to vote at the TBS Meeting and 73.2% of the total combined voting
power of the TBS Common Stock entitled to vote at the TBS Meeting.
Pursuant to the Support Agreement, the Turner Shareholders have agreed to
vote all shares of TBS Capital Stock that they are entitled to vote at the TBS
Meeting in favor of the approval of the TBS Merger Proposal. See "Certain
Related Agreements--Support Agreement." In addition, pursuant to the LMC
Agreement, LMC and certain of its subsidiaries have agreed, subject to the
conditions set forth in the LMC Agreement, to vote all shares of TBS Capital
Stock that they are entitled to vote at the TBS Meeting in favor of the
approval of the TBS Merger Proposal. See "TCI Arrangements--LMC Agreement."
Pursuant to the Merger Agreement, Time Warner has agreed to vote or cause to
be voted all shares of TBS Capital Stock owned of record by Time Warner or any
of its subsidiaries in favor of the approval of the TBS Merger Proposal. As of
June 30, 1996, the shares of TBS Capital Stock that the Turner Shareholders,
LMC and such subsidiaries of LMC and Time Warner and its subsidiaries are
entitled to vote at the TBS Meeting represented, in the aggregate, 81.5% of
the total combined voting power of the TBS Capital Stock entitled to vote at
the TBS Meeting, 80.8% of the total combined voting power of the TBS Common
Stock entitled to vote at the TBS Meeting, and 88.5% of the shares of TBS
Class C Preferred Stock entitled to vote at the TBS Meeting. ACCORDINGLY
(ASSUMING THE SATISFACTION OR WAIVER BY LMC OF THE CONDITIONS CONTAINED IN THE
LMC AGREEMENT), APPROVAL OF THE TBS MERGER PROPOSAL IS ASSURED, REGARDLESS OF
THE VOTE OF ANY OTHER SHAREHOLDER OF TBS.
PROXIES
Time Warner
All shares of Time Warner Common Stock and Time Warner Voting Preferred
Stock represented at the Time Warner Meeting by properly executed proxies
received prior to or at the Time Warner Meeting, and not revoked, will be
voted in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted FOR the TW Merger
Proposal. No stockholder of record may appoint more than three persons to act
as his or her proxy at the Time Warner Meeting.
31
<PAGE>
If any other matters are properly presented for consideration at the Time
Warner Meeting, the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on those matters in accordance with
their best judgment to the same extent as the person signing the proxy would
be entitled to vote, except that any proxy marked AGAINST the TW Merger
Proposal will not be voted on any proposal to adjourn the Time Warner Meeting.
In accordance with the Time Warner By-laws, the Time Warner Meeting may be
adjourned, including by the Chairman, in order to permit the solicitation of
additional proxies with respect to the TW Merger Proposal. Time Warner does
not currently anticipate that any other matters will be raised at the Time
Warner Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (a) filing
with the Secretary of Time Warner, at or before the taking of the vote at the
Time Warner Meeting, a written notice of revocation bearing a later date than
the proxy, (b) duly executing a later dated proxy relating to the same shares
and delivering it to the Secretary of Time Warner before the taking of the
vote at the Time Warner Meeting or (c) attending the Time Warner Meeting and
voting in person (although attendance at the Time Warner Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice of
revocation or subsequent proxy should be sent and delivered to Time Warner
Inc., 75 Rockefeller Plaza, New York, New York 10019, Attention: Secretary, or
hand delivered to the Secretary of Time Warner at or before the taking of the
vote at the Time Warner Meeting.
All expenses of solicitation of proxies from Time Warner stockholders will
be borne by Time Warner. Time Warner will solicit proxies by mail, and Time
Warner's directors, officers and employees may also solicit proxies by
telephone, telegram, facsimile or personal interview. These persons will
receive no additional compensation for these services but may be reimbursed
for reasonable out-of-pocket expenses in connection with such solicitation. In
addition, Time Warner has retained D.F. King & Co., Inc., at an estimated cost
of $40,000, plus reimbursement of expenses, to assist in Time Warner's
solicitation of proxies from brokers, nominees, institutions and individuals.
Continuing arrangements also will be made with custodians, nominees and
fiduciaries for the forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such custodians, nominees and fiduciaries,
and Time Warner will reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith.
HOLDERS OF TIME WARNER CAPITAL STOCK SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING SHARES OF TIME WARNER CAPITAL STOCK WITH THE ENCLOSED PROXY CARD.
IF THE TIME WARNER MERGER IS CONSUMMATED, CERTIFICATES THAT, PRIOR TO
CONSUMMATION OF THE TIME WARNER MERGER, REPRESENTED SHARES OF TIME WARNER
CAPITAL STOCK WILL, FOLLOWING CONSUMMATION OF THE TIME WARNER MERGER,
REPRESENT SHARES OF NEW TIME WARNER CAPITAL STOCK WITH NO ACTION REQUIRED ON
THE PART OF THE HOLDERS OF TIME WARNER CAPITAL STOCK.
TBS
Shares of TBS Capital Stock entitled to vote at the TBS Meeting (including
any adjournment or postponement thereof) and which are represented by properly
executed proxies in the form enclosed with this Joint Proxy
Statement/Prospectus will, unless such proxies have previously been revoked,
be voted in accordance with the instructions indicated in such proxies. To the
extent instructions are not indicated, shares will be voted FOR the TBS Merger
Proposal, and in the discretion of the proxy holder as to any other matter
that may properly come before the TBS Meeting. A TBS shareholder who has given
a proxy may revoke it at any time prior to its being voted at the TBS Meeting
by delivering a new duly executed proxy with a later date or by delivering a
written notice of revocation to the Secretary of TBS prior to the taking of
the vote at the TBS Meeting or by appearing and voting in person at the TBS
Meeting. Any written notice of revocation or subsequent proxy should be sent
or delivered to Turner Broadcasting System, Inc., One CNN Center, Atlanta,
Georgia 30303, Attention: Secretary, or hand delivered to the Secretary of TBS
prior to the taking of the vote at the TBS Meeting.
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In addition to mailing this material to TBS shareholders, TBS has asked
custodians, nominees and fiduciaries to forward copies to persons for whom
they hold shares of TBS Capital Stock and to request authority for execution
of proxies. TBS will reimburse such custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses in doing so. Officers and employees of
TBS may, without being additionally compensated, solicit proxies by mail,
telephone, telegram or personal contact. TBS will pay all of its expenses in
connection with the solicitation of proxies for the TBS Meeting. TBS does not
intend to employ any other party to assist in the solicitation of proxies.
HOLDERS OF TBS CAPITAL STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
SHARES OF TBS CAPITAL STOCK WITH THE ENCLOSED PROXY CARD. IF THE TBS MERGER IS
CONSUMMATED, A LETTER OF TRANSMITTAL WILL BE MAILED TO EACH PERSON WHO WAS A
HOLDER OF OUTSTANDING SHARES OF TBS CAPITAL STOCK IMMEDIATELY PRIOR TO THE
CONSUMMATION OF THE TBS MERGER. TBS SHAREHOLDERS SHOULD SEND CERTIFICATES
REPRESENTING TBS CAPITAL STOCK TO THE EXCHANGE AGENT ONLY AFTER THEY RECEIVE,
AND IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED IN, THE LETTER OF
TRANSMITTAL.
THE TRANSACTION
BACKGROUND
In June 1987, TBS issued 12,396,976 units of its securities (the "Units
Offering") to a group of investors that had ongoing business relationships
with TBS, principally as owners or affiliates of owners of cable television
systems that distribute TBS's programming services (the "Cable Operators").
Each unit consisted of one share of TBS Class B Cumulative Preferred Stock
("TBS Class B Preferred Stock") and one share of TBS Class C Preferred Stock.
The Cable Operators included affiliates of Time Inc. ("Time"), Warner
Communications Inc. ("WCI"), TCI and Continental Cablevision, Inc.
("Continental"). The proceeds from the Units Offering, approximately $561
million, were used by TBS to redeem all outstanding shares of TBS's Series A
Cumulative Preferred Stock. References herein to the relative ownership of
shares of TBS Capital Stock by Time Warner during the period prior to
consummation in 1990 of the merger of WCI and a subsidiary of Time Warner (the
"WCI Acquisition") include shares owned by both Time and WCI and their
respective affiliates.
Each share of TBS Class C Preferred Stock initially was convertible into one
share of common stock of TBS and, as a result of the August 1987
reclassification of the TBS common stock into TBS Class A Common Stock and TBS
Class B Common Stock and a three-for-one stock split in 1990, is currently
convertible into six shares of TBS Class B Common Stock. Dividends on the TBS
Class C Preferred Stock are payable pro rata when, as and if declared by the
TBS Board out of funds legally available therefor as though each share of TBS
Class C Preferred Stock had been converted into the TBS Class B Common Stock
underlying such TBS Class C Preferred Stock.
The holders of TBS Class C Preferred Stock are entitled to vote, together
with holders of TBS Common Stock as a single group except as described below
and as otherwise required by applicable law, as though the TBS Class C
Preferred Stock had been converted into TBS Class B Common Stock. As a result,
each share of TBS Class C Preferred Stock was initially entitled to one vote
per share (which, as a result of the August 1987 reclassification, was reduced
to two-fifths vote per share). The shares of TBS Class C Preferred Stock
issued in the Units Offering in the aggregate represented approximately 36% of
the combined voting power of the voting securities of TBS outstanding at the
time of the consummation of the Units Offering (approximately 15% of such
combined voting power following such August 1987 reclassification). The shares
of TBS Class C Preferred Stock issued to Time Warner and TCI in the Units
Offering represented approximately 13% and 16%, respectively, of the combined
voting power of the TBS common stock and the TBS Class C Preferred Stock
outstanding upon consummation of the Units Offering and 37% and 44%,
respectively, of the TBS Class C Preferred Stock outstanding at such time.
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In 1988 and 1989, TBS issued an aggregate of approximately four million
shares of TBS Class B Common Stock to pay accrued dividends on the TBS Class C
Preferred Stock. In March 1991, TBS issued an additional approximately 2.3
million shares of TBS Class B Common Stock on the reinvestment by holders of
86% of the outstanding TBS Class B Preferred Stock of cash dividends paid by
TBS. In June 1991, holders of 98.6% of the outstanding shares of TBS Class B
Preferred Stock exchanged their shares for approximately 24.2 million shares
of TBS Class B Common Stock. TBS redeemed the remaining TBS Class B Preferred
Stock in December 1992.
In connection with the Units Offering, the TBS Articles and the By-Laws of
TBS (the "TBS By-Laws") were amended to extend certain rights to the holders
of TBS Class C Preferred Stock. The TBS Articles, as so amended, provide that,
so long as at least four million shares of TBS Class C Preferred Stock are
outstanding, the holders of the TBS Class C Preferred Stock have the right to
vote as a separate class for the election of seven directors (the "Class C
Directors") and on certain other matters as described below (the "Special
Voting Rights"). Holders of TBS Common Stock, voting as a separate class, are
entitled to elect the remaining eight TBS directors (the "Common Stock
Directors"). Pursuant to a Voting Agreement entered into among TCI, Time, WCI
and Continental and certain of their affiliates concurrently with the Units
Offering (the "TBS Voting Agreement"), TCI and Time as a group are entitled to
nominate five Class C Directors and WCI and Continental are each entitled to
nominate one Class C Director. In addition, such parties agreed to vote all
shares of TBS Class C Preferred Stock beneficially owned by them in favor of
the election to the TBS Board of each such nominee. Nominees for election to
the TBS Board as Class C Directors and Common Stock Directors are selected
prior to each annual meeting of shareholders by a majority vote of the then
existing directors of each respective class. Directors of each class may be
removed only by the holders of shares of such class, and vacancies in any
class of directors may be filled only by the directors of such class or, in
the case of removal, by the holders of shares of such class.
In addition to the right to elect seven directors, under the TBS Articles
holders of TBS Class C Preferred Stock have Special Voting Rights with respect
to certain matters, including (a) the disposition by TBS of shares of capital
stock of any significant subsidiary of TBS (defined to exclude Atlanta
National League Baseball Club, Inc. and Atlanta Hawks, Inc.) or of a
substantial portion of the assets of TBS or any significant subsidiary of TBS
not in the ordinary course of business, other than pledges or similar security
interests securing bona fide indebtedness, (b) the merger or consolidation of
TBS or any significant subsidiary of TBS with any other entity (other than
certain mergers between subsidiaries of TBS or between TBS and any such
subsidiary) or the dissolution or liquidation of TBS or any significant
subsidiary of TBS (with certain exceptions) and (c) issuances by TBS of shares
of its capital stock (with limited exceptions with respect to issuances
pursuant to then outstanding or existing options, warrants, convertible
securities or stock option or stock purchase plans).
The TBS By-Laws require the affirmative vote of at least 12 members of the
TBS Board, at least four of whom must be Class C Directors, on specified
matters, including (a) approval of certain detailed annual budgets (the
"Budgets"), (b) the making of commitments by TBS not provided for in the
Budgets, which involve amounts in excess of $2 million for any one item or $5
million in the aggregate in any fiscal year, (c) the disposition by TBS of
assets having an aggregate fair market value in excess of $2 million for any
one disposition or $5 million for all dispositions by TBS, whether or not
related, in any fiscal year, except for dispositions contemplated by the
Budgets, (d) the acquisition by TBS of any other business for a purchase price
in excess of, the acquisition by TBS of assets not comprising a business
having an aggregate fair market value in excess of, or the making of any other
capital expenditures not provided for in the Budgets which are in excess of,
$2 million for any one acquisition or expenditure or $5 million in the
aggregate for all such acquisitions or expenditures by TBS in any fiscal year,
(e) the incurrence by TBS of any indebtedness, any refinancings of outstanding
indebtedness of TBS, or the issuance by TBS of any debt securities, (f) the
approval of any amendments to the TBS Articles or the TBS By-Laws, (g) the
issuance by TBS of any shares of its capital stock or any of its other
securities or the split-up, combination or reclassification of the capital
stock of TBS (with limited exceptions), (h) the declaration or payment of any
dividend on the capital stock or other securities of TBS other than the
payment of dividends by a subsidiary to TBS, (i) the merger or consolidation
of TBS with or into any person or the dissolution or liquidation of TBS and
(j) the entering into by TBS of material contracts, except in the ordinary
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course of business. If, as to any matter, a director has an interest either
himself or herself or through his or her affiliates (an "interested
director"), such interested director must abstain from the vote on such
matter, and the total number of affirmative votes required to authorize such
matter is reduced by one vote for each interested director. If, as to any such
matter, any of the interested directors is a Class C Director, the required
vote of the Class C Directors with respect to such matter is deemed satisfied
only if the matter is approved by the vote of at least 50% of the Class C
Directors who are not interested directors as to such matter. A director is
deemed to have an interest in such a matter only if (i) such matter is the
approval of an agreement or transaction to which TBS (or any of its
subsidiaries) and such director or any of his or her affiliates are parties or
(ii) such director otherwise determines that he or she either directly or
through his or her affiliates has an interest in the matter and advises the
TBS Board that he or she has determined to abstain from the vote on such
matter.
Concurrently with the closing of the Units Offering, the Cable Operators,
TBS and Mr. Turner entered into a Shareholders' Agreement (the "TBS
Shareholders' Agreement"), and TBS and the Cable Operators entered into an
Investors' Agreement (the "TBS Investors' Agreement"). In addition, Time, TCI,
and certain affiliates of Time and TCI entered into an agreement (the
"Time/TCI Agreement") with respect to their rights under the TBS Shareholders'
Agreement and other matters. Pursuant to the TBS Shareholders' Agreement, Mr.
Turner agreed to vote all shares of TBS Common Stock held of record by him and
all shares as to which he has voting control, and each Cable Operator agreed
to vote all shares of TBS Class C Preferred Stock and all TBS Common Stock
held of record by such Cable Operator, and all shares as to which such Cable
Operator has voting control, (a) in accordance with the decision of the TBS
Board on all matters that require the affirmative vote of at least 12 members
of the TBS Board (other than those matters that require a separate vote of the
holders of the TBS Class C Preferred Stock under applicable law or the TBS
Articles) and (b) for the election of the Common Stock Directors nominated
from time to time by the TBS Board.
Under the TBS Shareholders' Agreement, Mr. Turner may dispose of TBS Common
Stock or securities that are convertible into TBS Common Stock ("TBS
Convertible Securities") unless and until any such disposition would result in
either (a) Mr. Turner's beneficially owning TBS Common Stock representing less
than 51% of the combined voting power of the outstanding TBS Common Stock and
TBS Class C Preferred Stock or (b) Mr. Turner's beneficially owning TBS Common
Stock, including shares underlying TBS Convertible Securities he owns,
representing less than 51% of the total voting power represented by the sum of
the TBS Common Stock then outstanding, the TBS Common Stock underlying all TBS
Convertible Securities then outstanding and the TBS Common Stock that could be
issued (either directly or upon conversion of TBS Convertible Securities)
without the approval of the holders of the TBS Class C Preferred Stock (any
such effect under such clause (a) or clause (b), a "Prohibited Turner
Effect"). The TBS Shareholders' Agreement provides that Mr. Turner will not
make a disposition of TBS Common Stock or TBS Convertible Securities that
would have a Prohibited Turner Effect, other than a sale of all but not less
than all of the shares of TBS Capital Stock owned by Mr. Turner to a party
that is not (and after the purchase would not be) an affiliate of Mr. Turner
or pursuant to an exercise of the right of first refusal (described below).
The TBS Shareholders' Agreement provides that if Mr. Turner receives a bona
fide offer from a third party that is not an affiliate of Mr. Turner to
purchase his TBS Common Stock and TBS Convertible Securities, he may not
consummate such sale unless he first offers to sell such securities to the
Cable Operators for an equivalent cash consideration and on terms no more
favorable to him than those offered by the third party, and such offer is then
rejected or does not result in a sale to the Cable Operators. In addition, the
TBS Shareholders' Agreement provides that a purchaser of Mr. Turner's
securities, whether purchasing pursuant to a third party bona fide offer or
pursuant to exercise of the right of first refusal, must also agree to make
available, or cause TBS to make available, to TBS shareholders (other than Mr.
Turner, the Cable Operators and the purchasing party) the opportunity to
receive, in exchange for their shares of TBS Common Stock and TBS Convertible
Securities, consideration in an amount per share equal to the per share price
payable to Mr. Turner for his securities. The TBS Shareholders' Agreement also
includes a "take-along" provision that requires that a third party purchaser
of all of Mr. Turner's securities must also agree to purchase, and the Cable
Operators to sell, all the shares of TBS Class C Preferred Stock owned by the
Cable Operators, and obligates such third party to purchase any shares of TBS
Common Stock that the Cable Operators desire to sell, in each case for a price
per share (assuming the conversion of the TBS Class C Preferred Stock into TBS
Common Stock) equivalent to the consideration per share to be received by Mr.
Turner.
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The TBS Investors Agreement provides, generally, that none of the Cable
Operators may convert or make any disposition of any of its shares of TBS
Class C Preferred Stock unless it first offers to sell to the other Cable
Operators all of the shares of TBS Class C Preferred Stock that such Cable
Operator proposes to convert or dispose of for a purchase price equal to the
current market price of the shares of TBS Class B Common Stock into which such
shares are convertible.
Under the Time/TCI Agreement, Time and its controlled affiliates (the "Time
Group") are entitled to nominate two of the five Class C Directors that Time
and TCI as a group are entitled to nominate under the terms of the TBS Voting
Agreement, and TCI and certain of its controlled affiliates (the "TCI Group"
and each of the Time Group and the TCI Group, a "Group") are entitled to
nominate three such Class C Directors. The Time/TCI Agreement provides that
the Time Group will vote all its shares of TBS Capital Stock in favor of the
election to the TBS Board of each nominee of the TCI Group, and the TCI Group
will vote all its shares of TBS Capital Stock in favor of the election to the
TBS Board of each nominee of the Time Group. The Time/TCI Agreement also
provides, except as to voting for TBS directors (as described in the preceding
sentence) and except as otherwise provided in the TBS Shareholders' Agreement,
that each Group will consult and agree with the other Group as to the voting
of all TBS Capital Stock owned by the members of such Group on all matters
presented to a vote of holders of shares of TBS Capital Stock, and the members
of each Group will vote their shares of TBS Capital Stock in accordance with
any such agreement. However, if the Time Group and the TCI Group are unable to
reach agreement on any such matter submitted to a shareholder vote, the
members of each Group must vote all their shares of TBS Capital Stock against
the approval of such matter. As a result of (a) the obligation described in
the immediately preceding sentence, (b) the requirement of the TBS Articles
that any merger involving TBS be approved by a majority of the TBS Class C
Preferred Stock and (c) the fact that Time Warner and TCI together hold a
majority of the TBS Class C Preferred Stock, any merger involving TBS
(including the TBS Merger) requires the approval of both Time Warner and TCI.
Beginning in late 1992 and continuing through early 1993, representatives of
TBS, Time Warner and TCI discussed a number of potential transactions relating
to TBS, including potential transactions in which various assets of TBS would
be sold to, or TBS or related entities would engage in some form of business
combination with, Time Warner or TCI or both. The parties were unable to reach
any understanding with respect to any such transaction, and such discussions
ceased by early May 1993.
In early 1995, TBS, Time Warner and TCI commenced discussions regarding a
possible reorganization of Time Warner's and TCI's shareholder interests in
TBS. Such discussions included consideration of a possible purchase by TCI of
all of Time Warner's interest in TBS and the implementation of changes to the
terms of the securities held by TCI to position TBS to pursue the acquisition
of a broadcast television network consistent with existing regulatory
restrictions under the Communications Act and the rules and regulations of the
FCC thereunder. The parties also discussed possible transactions in which TBS
would participate in such a purchase of Time Warner's interest in TBS through
the distribution to the holders of TBS Class C Preferred Stock (other than
Time Warner) of an unspecified amount of cash, the issuance to TCI of
additional TBS securities, the repurchase of a portion of Time Warner's
interest by TBS or some combination of the foregoing. During these
discussions, Time Warner indicated that it would then be willing to sell its
minority interest in TBS for a cash price equivalent to $30 per share of TBS
Common Stock on a pretax basis. Ultimately, the parties could not agree on the
terms of any such transaction and such discussions ceased in late March 1995.
Following the termination of the discussions related to a direct or indirect
purchase by TCI of Time Warner's interest in TBS, Time Warner and TBS
continued to discuss the possible repurchase by TBS of all of Time Warner's
interest in TBS. TBS pursued these discussions in light of Time Warner's
expressed desire to monetize its interest in TBS, TBS's desire to better
position TBS to pursue the purchase of a broadcast television network and the
view of the TBS senior management that Time Warner did not share TBS's vision
for a long-term strategic plan for TBS as a stand-alone entity. The principal
areas in which the parties' views of the long-term strategic plan had differed
were TBS's interest in acquiring theatrical production operations, acquiring a
broadcast television network and diversifying its programming offerings into
new areas, such as in-home shopping. The discussions between Time Warner and
TBS focused on a transaction in which Time Warner would exchange its interest
in TBS on a tax-free basis for a business consisting of certain operating
assets of TBS and
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cash. Representatives of TBS and Time Warner held a number of meetings during
the summer of 1995 to develop the overall structure of a possible transaction,
which was subject to a number of significant uncertainties, including the
receipt of a favorable ruling from the Internal Revenue Service (the "IRS").
In August 1995, the legal advisors to TBS and Time Warner began preparing a
ruling request and had discussions with the IRS regarding its willingness to
rule that such proposed transaction would qualify for tax-free treatment.
On August 19, 1995, Gerald M. Levin, Chairman and Chief Executive Officer of
Time Warner, met with Mr. Turner and suggested that Time Warner and TBS
consider a combination of the two companies on a stock-for-stock basis. Over
the course of the following week, Mr. Levin, Mr. Turner and John C. Malone,
Chairman of TCI, discussed a possible stock-for-stock combination of Time
Warner and TBS and the possible terms of such a combination. Such terms
included the exchange ratio of shares of Time Warner Common Stock for shares
of TBS Capital Stock and the terms under which TCI and its affiliates would be
restricted, for regulatory reasons, in their ability to vote shares of Time
Warner Common Stock received by them in such a combination. On August 25,
1995, the parties agreed to proceed to negotiate the terms of a combination of
Time Warner and TBS on the basis of an exchange ratio of 0.75 of a share of
Time Warner Common Stock for each share of TBS Common Stock and 4.80 shares of
Time Warner Common Stock for each share of TBS Class C Preferred Stock and the
terms upon which TCI would agree to support the proposed stock-for-stock
combination.
On August 26, 1995, Time Warner and TBS executed a confidentiality agreement
and commenced legal and financial due diligence. On August 28, 1995, the Time
Warner Board held a special meeting to review the status of the discussions
with TBS regarding a possible stock-for-stock combination.
On August 30, 1995, Time Warner and TBS announced that they were negotiating
the terms of a stock-for-stock combination of Time Warner and TBS. On that
day, a special meeting of the TBS Board was held to consider the proposed
transaction. During such meeting, (a) members of TBS senior management and
TBS's legal advisors reviewed with the TBS Board the status of negotiations
with Time Warner and TCI and the terms of the proposed transaction, (b) CS
First Boston reviewed certain matters with the TBS Board, including the
valuation methodologies to be utilized by CS First Boston for purposes of its
financial analyses, and (c) TBS's legal advisors made a presentation to the
TBS Board with respect to the fiduciary duties of the TBS directors in
connection with the proposed transaction.
During the period between August 26, 1995 and September 22, 1995,
representatives of Time Warner, TBS and TCI, together with their respective
legal and financial advisors, met frequently to continue to identify and
resolve open issues and to negotiate the final terms of the proposed
transaction and the proposed arrangements with TCI.
On September 18, 1995, a meeting of the members of the Time Warner Board
who, in the Time Warner Board's judgment, have no direct or indirect material
economic relationship with Time Warner other than as a result of stock
ownership or customary directors' compensation (the "Unaffiliated Directors")
was held to review the terms of the proposed transaction, including the
arrangements with TCI. The Unaffiliated Directors determined at such meeting
to retain separate legal counsel to assist in their review of the proposed
transaction. On September 19 and 20, 1995, representatives of TBS and its
legal advisors met in informal informational sessions with certain directors
of TBS. At such sessions, the status of negotiations with Time Warner and the
remaining open issues, terms of the proposed arrangements with TCI, legal
standards applicable to directors and other matters with respect to the
proposed transaction were discussed. On September 20, 1995, representatives of
senior management of Time Warner met in informal informational sessions with
directors of Time Warner to discuss the proposed transaction.
A meeting of the Time Warner Board was held on September 21, 1995, to
consider the proposed Merger Agreement, the other proposed Transaction
Agreements and the transactions contemplated thereby. At this meeting,
presentations were made to the Time Warner Board by members of the senior
management of Time Warner, Time Warner's legal advisors and Morgan Stanley,
financial advisor to Time Warner. Members of the senior management of Time
Warner, together with Time Warner's advisors, reviewed with the Time Warner
Board the background of the proposed transaction, financial and other analyses
of TBS, required corporate and
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governmental approvals and procedures and the terms of the proposed
Transaction Agreements and the transactions contemplated thereby. Morgan
Stanley delivered its oral opinion (subsequently confirmed in writing) to the
Time Warner Board that, as of the date of such opinion and based upon and
subject to the matters stated therein, the ratio contemplated by the proposed
Merger Agreement for the exchange of Time Warner Common Stock for TBS Capital
Stock and the consideration to be paid by Time Warner for the option to
acquire SSSI as contemplated by the TCI Arrangements, as proposed at that time
(the "Prior TCI Arrangements"), taken together, were fair to Time Warner from
a financial point of view. After discussing the terms of the proposed
Transaction Agreements and the transactions contemplated thereby and the
various presentations, the Time Warner Board adjourned its meeting. The
Unaffiliated Directors also met separately with their legal counsel to review
the proposed transaction.
The Time Warner Board reconvened on September 22, 1995. After further
deliberation, the Time Warner Board unanimously approved the terms of the
Merger Agreement and the other Transaction Agreements to be executed by Time
Warner and its subsidiaries and the transactions contemplated thereby and
authorized the execution of the Merger Agreement and such other Transaction
Agreements.
On September 21, 1995, a special meeting of the TBS Board was held to
consider the proposed transaction. During such meeting, (a) TBS's legal
advisors made a presentation to the TBS Board with respect to the fiduciary
duties of the TBS directors with respect to the proposed transaction and
related transactions, (b) TBS's legal advisors made a presentation with
respect to the terms of the Merger Agreement and certain of the other
Transaction Agreements, members of senior management of TBS made a
presentation with respect to certain agreements to be entered into by TCI and
TBS and counsel to TCI (who attended a portion of the meeting at the request
of TBS) made a presentation with respect to certain agreements to be entered
into by TCI and Time Warner, (c) CS First Boston made a financial presentation
to the TBS Board with respect to the proposed transaction, (d) Merrill Lynch
discussed the proposed transaction with the TBS Board and made a financial
presentation to the TBS Board with respect to the terms of the Prior TCI
Arrangements and (e) a member of senior management of TBS and TBS's legal
advisors made a presentation with respect to the corporate and governmental
approval procedures in connection with the proposed transaction, including the
approvals by the TBS Board and TBS shareholders required under the TBS
Articles and TBS By-Laws and existing contractual arrangements among certain
shareholders of TBS, and the requisite FCC and antitrust filings and
approvals. In addition, special counsel to TBS made a presentation to the TBS
Board with respect to the engagement by TBS of MC Group, an entity of which
Michael R. Milken is the president, including the terms of the engagement, the
restrictions imposed on the activities of MC Group as a result of its
affiliation with Mr. Milken, information with respect to fees paid to
consultants and advisors in certain other large acquisition transactions and
the legal standards applicable to directors of a Georgia corporation in
considering such matters. The information concerning large acquisition
transactions referred to in the previous sentence included (i) information
from publicly available sources regarding the fees paid to consultants in
connection with the acquisition of MCA Inc. ("MCA") by Matsushita Electric
Industrial Co., Ltd. ("Matsushita"), the acquisition of American Cyanamid
Company by American Home Products Corp., the acquisition of Squibb Corporation
by Bristol-Myers Co., the acquisition of Hospital Corporation of America by
HCA-Hospital Corporation of America, the acquisition of Kraft Inc. by Philip
Morris Inc. and the acquisition of Fort Howard Corp. by HF Acquisition Corp.,
in which fees payable to one or more consultants ranged from approximately
0.20% to 1.1% of the total value of the transaction, as compared to
approximately 0.47% of the total value of the Transaction in the case of the
$40 million fee proposed to be paid by TBS to MC Group, or 0.56% of such value
in the case of the aggregate $48 million of fees proposed to be paid by TBS to
MC Group, CS First Boston, Merrill Lynch and Capital City Advisors, Inc.
("Capital City"), another consultant to TBS (the value of the Transaction, in
each case, based on the closing price of Time Warner Common Stock on September
21, 1995), and (ii) information provided by representatives of MC Group with
respect to consulting fees previously paid to MC Group in connection with a
recent joint venture between The News Corporation Limited and MCI
Communications Corporation and a recent transaction between Fox Television
Stations, Inc. and New World Communications Group Incorporated in which the
fees payable to MC Group, in each case, represented approximately 2% to 3% of
the total value of the transaction. See "--Certain Fees and Expenses."
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During the Merrill Lynch presentation, the TBS directors raised questions
regarding certain of the assumptions provided by TBS management as well as
other assumptions used by Merrill Lynch to prepare its analysis with respect
to the Prior TCI Arrangements. These questions principally related to (a) the
assumptions relating to the growth rate in cable subscribers on TCI-affiliated
cable systems and the growth rate in subscribers for TBS's recently launched
cable networks and (b) the range of discount rates utilized by Merrill Lynch
in evaluating the Prior TCI Arrangements generally. The TBS Board requested
that Merrill Lynch perform additional analyses and make a presentation with
respect thereto at the continuation of the meeting of the TBS Board to be held
the following day. In addition, during this meeting, Timothy P. Neher, the
Vice Chairman of the Board of Continental and a Class C Director of TBS, and
Brian L. Roberts, the President of Comcast Corporation ("Comcast") and a
Common Stock Director of TBS, each determined, after consultation with his
respective counsel, that, due to the interests of his employer in the effects
of the proposed transaction, he had a conflict of interest, and each declared
himself to be an interested director with respect to the proposed transaction
under the TBS By-Laws and informed the TBS Board that he would abstain from
voting on the proposed transaction. Thereafter, each of Messrs. Neher and
Roberts recused himself from further consideration of the proposed transaction
and left the meeting, following which the remaining directors resumed their
deliberations with respect to the proposed transaction.
On September 22, 1995, the special meeting of the TBS Board was reconvened
to consider and vote upon the Transaction. During such meeting, Merrill Lynch,
in response to the request of the TBS directors made the prior day, made a
financial presentation to the TBS Board with respect to the Prior TCI
Arrangements using certain revised assumptions provided by TBS senior
management. Merrill Lynch rendered its oral opinion (which was subsequently
confirmed in writing) to the effect that, as of September 22, 1995, and based
upon and subject to the matters stated therein, (a) the consideration to be
received by shareholders of TBS (other than TCI and its affiliates and Time
Warner) pursuant to the TBS Merger was fair to such holders from a financial
point of view and (b) in the context of the governance arrangements relating
to TBS's ability to consummate the TBS Merger, the financial terms of the
Prior TCI Arrangements were fair from a financial point of view to TBS and its
shareholders (other than TCI and its affiliates and Time Warner). CS First
Boston rendered to the TBS Board an oral opinion (which was subsequently
confirmed in writing) to the effect that, as of September 22, 1995 and based
upon and subject to the matters stated therein, the consideration to be
received by the holders of TBS Capital Stock (other than Time Warner and its
affiliates) in the TBS Merger was fair to such holders from a financial point
of view. TBS, in consultation with its legal advisors, had determined that Mr.
Levin, Joseph J. Collins and Michael J. Fuchs, Time Warner's then designees as
Class C Directors of TBS; Dr. Malone, Peter R. Barton and Fred A. Vierra,
TCI's designees as Class C Directors of TBS; and Mr. Turner, a Common Stock
Director, were interested directors under the applicable provisions of the TBS
By-Laws. In addition, as permitted by the TBS By-Laws and as described above,
Mr. Neher and Mr. Roberts had each declared himself interested with respect to
the proposed transaction. Under the TBS By-Laws, none of the interested
directors of TBS was eligible to vote with respect to the proposed
transaction. Thereafter, the TBS Board, by a unanimous vote of the six
directors eligible to vote, approved the terms of the Merger Agreement and the
other Transaction Agreements to be executed by TBS and its subsidiaries and
the transactions contemplated thereby and authorized the execution of the
Merger Agreement and such other Transaction Agreements. In addition, the TBS
Board approved the payment of fees, conditioned upon consummation of the
Mergers, of $40 million to MC Group and $3 million to Capital City. See "--
Certain Fees and Expenses."
Time Warner and TBS announced on September 22, 1995 that they had agreed to
the combination of TBS with Time Warner at an exchange ratio of 0.75 of a
share of Time Warner Common Stock for each share of TBS Common Stock and 4.80
shares of Time Warner Common Stock for each share of TBS Class C Preferred
Stock. Thereafter, the parties and their advisors proceeded to finalize the
forms of the Merger Agreement and the other Transaction Agreements. Following
the finalization of the Transaction Agreements, the parties executed the
Merger Agreement (in its original form), the LMC Agreement (in its original
form), the Support Agreement and certain other Transaction Agreements.
The Merger Agreement, as originally executed, contemplated a transaction in
which TBS would be merged with a wholly owned subsidiary of Time Warner but
contained provisions relating to an amendment to the Merger Agreement if the
parties agreed to alter the form of the Transaction. Time Warner and TBS
subsequently
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concluded that it would be desirable to revise the transaction structure such
that Time Warner and TBS would each become a wholly owned subsidiary of a
holding company. To give effect to this revised structure, Time Warner and
TBS, advised by their respective legal counsel, agreed to amend and restate
the original Merger Agreement. At a meeting of the Time Warner Board held on
November 16, 1995, the Time Warner Board approved the form of the Merger
Agreement, as so amended and restated. At the request of the Time Warner
Board, Morgan Stanley subsequently confirmed its opinion that, as of
November 16, 1995, and based upon and subject to the matters stated therein,
the ratio contemplated by the Merger Agreement for the exchange of New Time
Warner Common Stock for TBS Capital Stock and the consideration to be paid by
New Time Warner for the option to acquire SSSI as contemplated by the Prior
TCI Arrangements, taken together, were fair to New Time Warner and its
subsidiary, Time Warner, from a financial point of view. At a special meeting
of the TBS Board held on November 21, 1995, the TBS Board approved the form of
the Merger Agreement, as so amended and restated. At such meeting, CS First
Boston rendered to the TBS Board an oral opinion (subsequently confirmed in
writing) to the effect that, as of November 21, 1995 and based upon and
subject to the matters stated therein, the consideration to be received by the
holders of TBS Capital Stock (other than Time Warner and its affiliates) in
the TBS Merger was fair to such holders from a financial point of view. In
addition, at such meeting Merrill Lynch advised the TBS Board that the
amendments to the Merger Agreement did not alter the conclusions reached in
its opinion previously delivered to the TBS Board to the effect that, as of
September 22, 1995, and based upon and subject to the matters stated therein,
(a) the consideration to be received by shareholders of TBS (other than TCI
and its affiliates and Time Warner) pursuant to the TBS Merger was fair to
such holders from a financial point of view and (b) in the context of the
governance arrangements relating to TBS's ability to consummate the TBS
Merger, the financial terms of the Prior TCI Arrangements were fair from a
financial point of view to TBS and its shareholders (other than TCI and its
affiliates and Time Warner). The parties thereafter executed the amended and
restated Merger Agreement, and Time Warner, New Time Warner and LMC executed
the LMC Agreement, as amended and restated to reflect the revised structure of
the Transaction.
The Transaction Agreements, as executed in November 1995, received extensive
scrutiny from the FTC staff. As a result of that scrutiny, the parties entered
into negotiations with the FTC staff with a view to revising the Transaction
Agreements to eliminate concerns raised by the FTC staff regarding possible
competitive effects of the Transaction. These negotiations resulted in the FTC
Consent Decree, which required that the Transaction Agreements be revised to
(a) reflect limits on the amount and type of New Time Warner securities that
TCI and its affiliates may hold after the consummation of the Mergers, (b)
require that the New Time Warner Common Stock to be received by TCI and its
affiliates in the TBS Merger be exchanged for New Time Warner securities with
reduced voting rights, thus causing the parties to agree to create the LMC
Reduced Voting Common Stock and eliminate those provisions that required TCI
and its affiliates to place the New Time Warner Common Stock received in the
TBS Merger in a voting trust to be voted by Mr. Levin, (c) eliminate the
provisions that would have given New Time Warner an option to purchase the
outstanding stock of SSSI, (d) eliminate Time Warner's option to purchase
TCI's interest in TBS prior to the consummation of the Mergers and (e) reduce
substantially the duration of the agreements for mandatory analog carriage by
TCI cable systems of TBS programming services after the consummation of the
Mergers. See "--Regulatory Approvals" below for a discussion of the provisions
of the FTC Consent Decree.
Concurrently with the execution of the FTC Consent Decree, the parties
entered into revised Transaction Agreements to give effect to the FTC Consent
Decree and to make other revisions as negotiated by the parties. At a meeting
of the Time Warner Board held on August 8, 1996, the Time Warner Board
considered and approved the FTC Consent Decree and such revisions to the
Transaction Agreements. At this meeting, presentations were made to the Time
Warner Board by members of the senior management of Time Warner, Time Warner's
legal advisors and Morgan Stanley. Members of the senior management of Time
Warner, together with Time Warner's advisors, reviewed with the Time Warner
Board the background of the proposed revisions to the Transaction Agreements,
financial and other analyses of TBS, required corporate approvals and
procedures and the status of governmental approvals. At such meeting, Morgan
Stanley delivered its oral opinion (subsequently confirmed in writing) to the
Time Warner Board that, as of August 8, 1996 and based upon and subject to the
matters stated therein, the ratio contemplated by the Merger Agreement for the
exchange of New
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Time Warner Common Stock for TBS Capital Stock and the consideration to be
paid by New Time Warner for the SSSI Option and the LMC Non-competition
Covenant, taken together, were fair to New Time Warner and its subsidiary,
Time Warner, from a financial point of view. See "--Opinion of Time Warner's
Financial Advisor" below.
On August 8, 1996, a special meeting of the TBS Board was held to consider
the FTC Consent Decree and proposed revisions to the Transaction Agreements
necessary to give effect to the FTC Consent Decree and to make other changes
as negotiated by the parties. During such meeting, (a) TBS's legal advisors
made a presentation to the TBS Board with respect to the fiduciary duties of
the TBS directors with respect to the Transaction, (b) TBS's management and
legal advisors made a presentation with respect to the process and status of
the discussions and negotiations between the parties and with the FTC, (c)
TBS's management and legal advisors made presentations with respect to the FTC
Consent Decree, the proposed revisions to the Merger Agreement and the Program
Agreement and the PPV Output Agreement and counsel to Time Warner (who
attended a portion of the meeting at the request of TBS) made a presentation
with respect to the FTC Consent Decree, the proposed revisions to the LMC
Agreement and the SSSI Agreement and the Distribution Contract to be entered
into between Time Warner and TCI or its affiliates, (d) CS First Boston made a
financial presentation (see "--Opinions of TBS's Financial Advisors--Opinion
of CS First Boston" below) to the TBS Board with respect to the Transaction
and rendered to the TBS Board an oral opinion (which was subsequently
confirmed in writing) to the effect that, as of August 8, 1996 and based upon
and subject to the matters stated therein, the consideration to be received by
the holders of TBS Capital Stock (other than Time Warner and its affiliates)
in the TBS Merger was fair to such holders from a financial point of view, (e)
Merrill Lynch made a financial presentation to the TBS Board with respect to
the TCI Arrangements and rendered its oral opinion (which was subsequently
confirmed in writing) to the effect that, as of August 8, 1996, and based upon
and subject to the matters stated therein, (i) the consideration to be
received by shareholders of TBS (other than TCI and its affiliates and Time
Warner) pursuant to the TBS Merger was fair to such holders from a financial
point of view and (ii) in the context of the governance arrangements relating
to TBS's ability to consummate the TBS Merger, the financial terms of the TCI
Arrangements were fair from a financial point of view to TBS and its
shareholders (other than TCI and its affiliates and Time Warner). See "--
Opinions of TBS's Financial Advisors" below. Thereafter, the TBS Board, by a
unanimous vote of the six directors eligible to vote, approved the terms of
the FTC Consent Decree and the Transaction Agreements, as revised, to be
executed by TBS and its subsidiaries and the transactions contemplated
thereby, ratified all action taken by the TBS Board and the officers of TBS
prior to such meeting (except to the extent amended by the actions taken at
such special meeting) and authorized the execution of the FTC Consent Decree
and the revised Transaction Agreements to which TBS or any of its subsidiaries
is a party.
RECOMMENDATION OF THE TIME WARNER BOARD; TIME WARNER'S REASONS FOR THE
TRANSACTION
At meetings of the Time Warner Board and the Unaffiliated Directors held on
September 21 and 22, 1995, the Time Warner Board received and considered
presentations of the senior management of Time Warner and its legal and
financial advisors regarding the Transaction. At its meeting on September 22,
1995 the Time Warner Board unanimously approved the Merger Agreement, the
other Transaction Agreements to be executed by Time Warner and its
subsidiaries and the Transaction and determined that the Transaction was in
the best interests of the stockholders of Time Warner. Thereafter, on November
16, 1995, the Time Warner Board held a meeting at which it received and
considered an additional presentation by the senior management of Time Warner
regarding revisions to the structure of the Transaction, including revisions
such that Time Warner and TBS would each become a wholly owned subsidiary of a
holding company. At this meeting, the Time Warner Board unanimously approved
the Merger Agreement, as amended and restated to reflect such revisions. On
August 8, 1996, the Time Warner Board held a meeting at which it received and
considered presentations from senior management of Time Warner and its legal
and financial advisors regarding the FTC Consent Decree and the proposed
amendments to the Transaction Agreements (see "--Regulatory Approvals--FTC
Consent Decree" below). At this meeting, the Time Warner Board (with one
member absent) unanimously approved the FTC Consent Decree, such amendments to
the Transaction Agreements and the Transaction and determined that the
Transaction is in the best interests of the stockholders of Time Warner. THE
TIME WARNER BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF TIME WARNER CAPITAL
STOCK VOTE FOR THE TW MERGER PROPOSAL.
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In reaching its determination to approve the Merger Agreement, the other
Transaction Agreements to be executed by Time Warner and its subsidiaries and
the Transaction, the Time Warner Board considered a number of factors,
including those listed below. In view of the wide variety of factors
considered by the Time Warner Board in connection with its evaluation of the
Transaction Agreements and the Transaction, and the complexity of those
matters, the Time Warner Board did not consider it practicable to, nor did it
attempt to, quantify or otherwise assign relative weights to the specific
factors it considered in reaching its determination. At its meetings held on
September 21-22, 1995, November 16, 1995 and August 8, 1996, the Time Warner
Board did not consider any alternative business strategies with respect to
Time Warner's investment in TBS.
Relationship with Existing Businesses of Time Warner. The Time Warner Board
reviewed presentations from the senior management of Time Warner with respect
to the strategic rationale for the Transaction and the potential growth
opportunities that would be created by the combination of the two companies.
The Time Warner Board considered the view of senior management that the
combination of Time Warner and TBS would create an entity with worldwide
resources in entertainment, news and information and distribution systems. The
Time Warner Board noted that the combination of TBS with Time Warner was
expected to strengthen the combined entity, including by increasing the mix of
revenues and cash flow being derived from "content."
TBS's Business, Condition and Prospects. In evaluating the Transaction, the
Time Warner Board considered information with respect to the financial
condition, results of operations and businesses of TBS, on both an historical
and prospective basis, and current industry, economic and market conditions as
they would be likely to affect TBS. The Time Warner Board considered the three
segments in which TBS primarily operates--cable networks, news and film
production and distribution--and noted the performance of TBS and its
prospects for growth in these segments. Management reviewed with the Time
Warner Board TBS's historical revenue and cash flow growth rates and the
growth potential of TBS's established domestic networks, TBS's two new cable
networks - the Cartoon Network and TCM - and TBS's international operations.
Benefits of a Combination. The Time Warner Board reviewed the potential
benefits of a combination of the two companies. The management of Time Warner
discussed with the Time Warner Board the current operations of WTBS and the
opportunities that would be created for Time Warner from the ownership of
WTBS, including those arising after the WTBS Conversion, if effected. The Time
Warner Board discussed with the senior management how other assets of TBS
would complement Time Warner's existing assets and provide opportunities for
revenue enhancements and cost savings, including opportunities for cross
promotion, to improve TBS's film and television distribution, to leverage
TBS's characters and brands through Time Warner's consumer products outlets
and to exploit CNN's news gathering capabilities.
Pro Forma Impact on Time Warner. The Time Warner Board also considered
information relating to the pro forma impact of a combination of TBS with Time
Warner on the financial condition and results of operations of the combined
entity. The Time Warner Board also considered the dilutive effect of the
issuance of additional stock in connection with the Transaction and the likely
effect of such issuance on the earnings per share and cash flow of the
combined entity. The Time Warner Board reviewed presentations from senior
management of Time Warner with respect to the expected effect of such a
combination on Time Warner's cash flow, credit statistics and balance sheet.
Opinion of Morgan Stanley. At its meeting on September 22, 1995, the Time
Warner Board considered as favorable to its determination the oral opinion
rendered by Morgan Stanley, subsequently confirmed in writing, that, as of
September 22, 1995, and based upon and subject to the matters expressed in
that opinion, the ratio contemplated by the Merger Agreement for the exchange
of Time Warner Common Stock for TBS Capital Stock and the consideration to be
paid by Time Warner for the option to acquire SSSI as contemplated by the
Prior TCI Arrangements, taken together, were fair to Time Warner from a
financial point of view. At the meeting of the Time Warner Board held on
August 8, 1996, Morgan Stanley rendered its oral opinion, subsequently
confirmed in writing, that, as of August 8, 1996, the ratio contemplated by
the Merger Agreement for the exchange of New Time Warner Common Stock for TBS
Capital Stock and the consideration to be paid by New Time Warner for the SSSI
Option and the LMC Non-competition Covenant, taken together, were fair to New
Time Warner and its subsidiary, Time Warner, from a financial point of view.
See "--Opinion of Time Warner's Financial Advisor" below. The Time Warner
Board also considered the oral and written presentations made to it
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by Morgan Stanley (see "--Opinion of Time Warner's Financial Advisor" below)
at the meetings of the Time Warner Board held on September 21, 1995 and August
8, 1996, including the analysis by Morgan Stanley of recent comparable
acquisition transactions in the entertainment and media industries. The
written opinion of Morgan Stanley to the Time Warner Board, dated as of August
8, 1996, is attached hereto as Appendix C-1 and is incorporated herein by
reference. Time Warner requested that the opinion of Morgan Stanley
specifically address the consideration to be paid by New Time Warner pursuant
to the SSSI Agreement in light of the amount of such consideration and the
fact that such consideration is to be paid by New Time Warner to a TBS
shareholder (namely LMC and its affiliate SSSI). Time Warner management did
not believe that the Morgan Stanley Opinion needed specifically to refer to
the other components of the TCI Arrangements due to the fact that such other
components either involved transactions that were in the nature of operational
agreements or did not involve consideration that Time Warner management
believed to be material to the evaluation of the fairness, from a financial
point of view, of the Transaction taken as a whole. In the course of its due
diligence (as discussed below under "--Opinion of Time Warner's Financial
Advisor"), Morgan Stanley did, however, review certain of the other
Transaction Agreements in connection with the issuance of the Morgan Stanley
Opinion.
Conditions, Termination Provisions and Termination Fee. The Time Warner
Board reviewed the conditions to consummation of the Transaction and the
circumstances under which Time Warner or TBS would have the right to terminate
the Merger Agreement. In that connection, the Time Warner Board considered the
provisions of the Merger Agreement that prohibit TBS from soliciting or
encouraging alternative acquisition proposals or, subject to the fiduciary
duties of the TBS Board, from negotiating with any third parties with respect
to alternative proposals. The Time Warner Board also considered the terms of
the Support Agreement and the LMC Agreement, pursuant to which TBS
shareholders who, together with Time Warner, beneficially own a majority of
each class of outstanding TBS Capital Stock would agree to vote all such
shares in favor of the TBS Merger Proposal. The Time Warner Board also
reviewed the various amounts that might be payable by or to Time Warner if the
Merger Agreement were terminated under certain circumstances. See "The Merger
Agreement--Termination of the Merger Agreement" and "--Effects of
Termination."
Arrangements with TCI. In evaluating the Transaction, the Time Warner Board
took into account the terms of the TCI Arrangements. The Time Warner Board
considered the terms of the SSSI Agreement, pursuant to which (a) New Time
Warner will issue to SSSI 4,166,667 shares of LMC Reduced Voting Common Stock
in consideration for the SSSI Option and (b) New Time Warner will issue to LMC
833,333 shares of LMC Reduced Voting Common Stock and will pay to LMC
approximately $67 million (payable, at New Time Warner's option, in cash or
additional shares of LMC Reduced Voting Common Stock) and LMC will agree to
the LMC Non-competition Covenant. The Time Warner Board discussed with senior
management of Time Warner the business opportunities that may arise from the
WTBS Conversion and the Distribution Contract. The Time Warner Board also
noted that the fairness opinion issued by Morgan Stanley took into account the
payments to be made by New Time Warner as consideration for the SSSI Option
and the LMC Non-competition Covenant. The Time Warner Board also considered
that the payments to be made by New Time Warner pursuant to the SSSI Agreement
and the Distribution Contract will be tax-deductible to New Time Warner. The
Time Warner Board also reviewed the terms of the LMC Agreement, including the
provisions pursuant to which (a) under certain circumstances, TCI would be
entitled to require that the Transaction be abandoned, (b) if the Transaction
were consummated, New Time Warner would be required to indemnify LMC and
certain of its affiliates against certain income tax liabilities that may be
incurred in the event that the activities of New Time Warner after the
consummation of the Transaction require LMC or such affiliates to dispose of
their shares of New Time Warner Capital Stock and (c) New Time Warner would be
prevented from redeeming shares of LMC Common Stock and LMC Reduced Voting
Common Stock held by LMC and its affiliates even if such redemption would be
required to preserve a license or franchise from a governmental agency
necessary to the business of New Time Warner. In conjunction with the
discussion of the WTBS Conversion, management discussed with the Time Warner
Board the Program Agreement, including the rebate arrangements available to
TCI-affiliated cable systems, and the potential impact of that agreement on
the combined operations of Time Warner and TBS. Management also reviewed with
the Time Warner Board the terms of the other TCI Arrangements, including the
PPV Output Agreement, and the recent operating performance of SportSouth and
the Sunshine Network.
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Arrangements with Mr. Turner. The Time Warner Board considered the terms of
the Transaction Agreements that provide certain rights to Mr. Turner,
including his right, under certain circumstances, to designate two candidates
to be nominated for election to the New Time Warner Board. The Time Warner
Board also considered the general terms of the employment agreement to be
entered into between New Time Warner and Mr. Turner. See "--Interests of
Certain Persons in the Transaction" below.
Regulatory Matters. In addition to its consideration of the conditions to
the consummation of the Transaction, the Time Warner Board also specifically
considered the various regulatory approvals that are necessary to consummate
the Transaction, including FCC approvals and the approval of the FTC. At its
meetings in September and November 1995, the Time Warner Board took into
account the possibility that such approvals might not be forthcoming without
changes to the terms of the Transaction Agreements or the Transaction. At its
meeting held on August 8, 1996, the Time Warner Board also considered the
terms of the FTC Consent Decree, including the provisions of the FTC Consent
Decree relating to restrictions to be imposed on New Time Warner following the
consummation of the Mergers and the changes to the terms of the Transaction
Agreements that were required in order to comply with the FTC Consent Decree.
See "--Regulatory Approvals" below. The Time Warner Board also noted that,
pursuant to the LMC Agreement, and except for changes resulting from the FTC
Consent Decree, which LMC has agreed to, LMC is not required to agree to or
accept certain changes adverse to it that may be requested by any regulatory
authority and that, in the event such changes were required and could not be
accommodated in a manner satisfactory to LMC, Time Warner would be required,
upon the written request of LMC, to terminate the Merger Agreement and abandon
the Transaction. See "TCI Arrangements--LMC Agreement."
Certain Stockholder Matters. The Time Warner Board, in evaluating the
Transaction, also considered the effect that the Transaction would have on the
composition of the stockholder body of New Time Warner relative to that of
Time Warner. In particular, the Time Warner Board considered the restrictions
that would be placed on the shares of New Time Warner Common Stock that would
be held by Mr. Turner, as described under "Certain Related Agreements--Rights
Amendment" and "--Investors' Agreements," and LMC, as described under "--
Regulatory Approvals" below.
RECOMMENDATION OF THE TBS BOARD; TBS'S REASONS FOR THE TRANSACTION
At TBS Board meetings held on August 30, 1995 and September 21 and 22, 1995,
the TBS Board received and considered the presentations of the management of
TBS and its legal advisors and investment bankers regarding the proposed
transaction. On September 22, 1995, the TBS Board, with nine directors not
present or abstaining on the basis that they were interested directors with
respect to the proposed transaction, unanimously approved the terms of the
Merger Agreement and the other Transaction Agreements to be executed by TBS or
its subsidiaries and determined that the Transaction was fair to and in the
best interests of TBS and its shareholders. Thereafter, on November 21, 1995,
the TBS Board considered the amendment and restatement of the Merger Agreement
to revise the transaction structure such that Time Warner and TBS would each
become a wholly owned subsidiary of a holding company and to make other
revisions negotiated by the parties. At this meeting, the TBS Board (with nine
directors either not present or abstaining on the basis that they were
interested directors) unanimously approved the Merger Agreement as so amended
and restated. On August 8, 1996, the TBS Board held a meeting at which
presentations were made by TBS senior management and legal and financial
advisors to TBS with respect to the FTC Consent Decree and the changes to the
Transaction Agreements required thereby (see "--Regulatory Approvals--FTC
Consent Decree" below). At such meeting, the TBS Board (with nine directors
either not present or abstaining on the basis that they were interested
directors) unanimously approved the FTC Consent Decree and the Transaction
Agreements to be entered into by TBS and its subsidiaries as so amended and
determined that the Transaction was fair to and in the best interests of TBS
and its shareholders. See "--Background" above. THE TBS BOARD HAS DETERMINED
THAT THE TRANSACTION IS FAIR TO AND IN THE BEST INTERESTS OF TBS AND ITS
SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF TBS VOTE FOR THE TBS
MERGER PROPOSAL.
In reaching its determination to approve the Transaction, the TBS Board
considered a number of factors, including, without limitation, the factors
listed below. In view of the number and wide variety of factors
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considered in connection with its evaluation of the Transaction, the TBS Board
did not consider it practicable to, nor did it attempt to, quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination. At its meetings held on August 30, September 21
and 22, November 21, 1995 and August 8, 1996, the TBS Board did not consider
alternative transactions to the Transaction, other than TBS continuing as an
independent entity.
Management's Recommendation. The TBS Board received and reviewed
presentations from, and discussed the terms and conditions of the Merger
Agreement and the Transaction with, senior executive officers of TBS,
representatives of its legal counsel and representatives of its investment
bankers. The TBS Board considered management's view of recent trends in the
entertainment and media industries, including recently announced acquisitions
and business combinations in such industries. The TBS Board considered
management's view that the combination of Time Warner, a leading content
provider in the global entertainment industry with strong positions in
critical distribution channels, with TBS, another leading content provider,
especially with respect to cable programming, would create a significantly
stronger global competitor in the entertainment and media industries. In
making its determination, the TBS Board considered that the Transaction would
benefit the shareholders of TBS because they would participate in the value
that may be generated through the combination of the two companies through
their continued equity participation as stockholders of New Time Warner.
TBS's Business, Condition and Prospects. In evaluating the terms of the
Transaction, the TBS Board considered information with respect to the
historical growth and the financial condition, results of operations,
prospects and businesses of TBS, as well as current industry, economic and
market conditions. In evaluating TBS's prospects, the TBS Board considered the
strengths of TBS's cable programming business, the recent strength of the
advertising market and the performance of TBS's growing filmed entertainment
production operations, as well as the challenges facing its businesses,
including higher programming and production costs, increasing capital demands
and competition from the traditional broadcast media as well as emerging
distribution channels.
In addition, senior management of TBS noted that, in certain cases, the
goals of the major shareholders of TBS had diverged, and such shareholders did
not share a vision of the future of TBS. The TBS Board considered these
factors and the potential for conflicts among the shareholder groups created
by the existing TBS governance arrangements.
Comparison of Historical and Recent Market Prices of TBS Common Stock to the
Market Price of the Transaction Consideration. The TBS Board reviewed the
historical market prices and recent trading activity of the TBS Class A Common
Stock and the TBS Class B Common Stock. The TBS Board considered the value to
be received per share of TBS Class A Common Stock and TBS Class B Common Stock
(which, as of August 29, 1995, the last trading day prior to the announcement
that TBS and Time Warner were engaged in merger discussions, represented a
premium of more than 34.5% and 32.4%, over the respective closing sale prices
on such date). The TBS Board also noted that the value to be received by
holders of TBS Class A Common Stock and TBS Class B Common Stock pursuant to
the TBS Merger was within the reference range of multiples paid in selected
acquisitions of other companies deemed to be comparable to TBS contained in CS
First Boston's analysis. At its meeting held on August 8, 1996, the TBS Board
considered information regarding the historical market prices for the Time
Warner Common Stock, the TBS Class B Common Stock and a peer group of other
entertainment and media companies (comprised of The Walt Disney Corporation
("Disney"), The News Corporation Limited ("News Corp."), TCI and Viacom Inc.
("Viacom")) during the period from August 29, 1995 through August 2, 1996.
The TBS Board considered the fact that the Merger Agreement does not contain
any provisions that either limit the effect of changes in the price of Time
Warner Common Stock prior to consummation of the Mergers on the value of the
consideration to be received by the holders of TBS Common Stock in the
Transaction or permit TBS to terminate the Merger Agreement based upon such
changes and that, accordingly, the value of such consideration could change
depending upon the performance of Time Warner Common Stock between the
execution of the Merger Agreement and the consummation of the Mergers. While
recognizing that the absence of such provisions exposed the TBS shareholders
to some market risk, the TBS Board considered this risk to be
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mitigated by (a) a review of the historical trading prices of both the Time
Warner Common Stock and the TBS Common Stock and the fact that, generally,
industry changes affecting Time Warner Common Stock should similarly affect
TBS Common Stock and (b) the fact that TBS shareholders would be able to
participate in any appreciation in the value of Time Warner Common Stock
between the announcement of the Transaction and the consummation of the
Mergers. The TBS Board also recognized that, while such provisions might
provide limited protection against declines in the share price of the New Time
Warner Common Stock to be received, they also generally would limit the
benefits from any appreciation in that price.
Consideration Payable to Holders of TBS Class C Preferred Stock. In
evaluating the terms of the Transaction, the TBS Board considered that the
holders of TBS Common Stock would receive 0.75 of a share of New Time Warner
Common Stock per share of TBS Common Stock and that the holders of TBS Class C
Preferred Stock would receive 4.80 shares of New Time Warner Common Stock per
share of TBS Class C Preferred Stock, equivalent to 0.80 of a share of New
Time Warner Common Stock per share of TBS Class B Common Stock into which each
share of TBS Class C Preferred Stock is convertible. The TBS Board considered
(a) that, by virtue of the class voting rights to which holders of the TBS
Class C Preferred Stock are entitled under the TBS Articles, the holders of
such shares as a group and, by virtue of the TCI/Time Agreement, TCI
individually in its capacity as a holder of such shares, has the ability to
veto the Transaction, (b) its understanding that TCI was not willing to vote
in favor of the Transaction absent the higher exchange ratio for shares of TBS
Class C Preferred Stock, (c) the significant benefits which the TBS Board
believed would accrue to holders of TBS Capital Stock as a result of the
Transaction, (d) the range of premiums paid in other transactions involving
multiple classes of stock, although the TBS Board recognized that there were a
small number of such transactions, that each transaction was highly
individualized and none was precisely comparable, and that in most cases no
premium was paid to a given class of stock, and (e) the opinions of CS First
Boston and Merrill Lynch.
Time Warner's Business, Condition and Prospects. The TBS Board considered,
among other things, certain publicly available information with respect to the
financial condition and results of operations of Time Warner and the five
business segments in which Time Warner operates and limited prospective
financial data supplied by Time Warner with respect to Time Warner's
publishing and music businesses and cable systems owned directly by Time
Warner and for TWE and discussed such information with CS First Boston.
Lack of Other Proposals. In evaluating the Transaction, the TBS Board also
considered that no other parties had proposed or expressed an interest in
exploring a business combination with TBS, particularly in view of the fact
that any party that desired to do so would have had sufficient time to make an
alternative proposal during the period between the August 30, 1995 joint
announcement by TBS and Time Warner that they were in discussions regarding a
possible business combination and the September 21-22, 1995 meeting of the TBS
Board. In evaluating this factor, the TBS Board also took into consideration
the existing governance arrangements that would permit any of Time Warner, Mr.
Turner or TCI to veto any merger proposal relating to TBS and the provisions
of the TBS Shareholders' Agreement relating to the Cable Operators' right of
first refusal on Mr. Turner's shares of TBS Common Stock and the "take-along"
provisions with respect to the shares of TBS Capital Stock owned by the Cable
Operators applicable to certain sales of TBS Common Stock by Mr. Turner. In
light of the arrangements described above and the fact that the TBS Merger
represented a unique strategic combination for TBS, the TBS Board did not
solicit other indications of interest from third parties with respect to the
possible acquisition of TBS or any of its businesses, nor did it authorize or
instruct its financial advisors to solicit any such indications of interest.
Termination Provisions and Termination Fee. The TBS Board considered the
provisions of the Merger Agreement that permit the TBS Board to terminate the
Merger Agreement if an alternative proposal is received that the TBS Board
determines, in the exercise of its fiduciary duties, to accept, upon the
payment to Time Warner of a fee of $175 million (approximately 2.3% of the
transaction value as of the time the Merger Agreement, as originally executed,
was entered into). See "The Merger Agreement--Termination of the Merger
Agreement" and "--Effects of Termination." The TBS Board considered the view
of its legal advisors that the
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termination fee specified in the Merger Agreement was within the range of such
fees agreed to be paid in transactions of comparable size and determined that
such fee was not likely, in and of itself, to preclude an alternative
proposal. The TBS Board also was aware that Mr. Turner and affiliates of TCI
had agreed to enter into the Support Agreement and the LMC Agreement,
respectively, pursuant to which, subject to certain conditions, each agreed to
vote for the Transaction and that the Support Agreement contained certain
provisions requiring Mr. Turner to pay to Time Warner any amounts received as
a result of an alternative transaction in excess of the value that would have
been received by Mr. Turner and certain of his affiliates in the Transaction.
See "Certain Related Agreements--Support Agreement." In making its
determination the TBS Board considered the effect of such provisions and the
existing TBS governance arrangements on the likelihood that Mr. Turner, TCI or
Time Warner could or would support an alternative transaction.
Opinions of CS First Boston and Merrill Lynch. The TBS Board considered the
oral opinions rendered by CS First Boston on September 22, 1995, November 21,
1995 and August 8, 1996 (subsequently confirmed in writing) to the effect
that, as of the dates of such opinions and based upon and subject to the
matters stated therein, the consideration to be received by the holders of TBS
Capital Stock (other than Time Warner and its affiliates) pursuant to the TBS
Merger was fair to such holders from a financial point of view. At its
September 22, 1995 meeting, the TBS Board also considered the oral opinion
rendered by Merrill Lynch on such date (subsequently confirmed in writing) to
the effect that, as of the date of such opinion and based upon and subject to
the matters stated therein, (a) the consideration to be received by
shareholders of TBS (other than TCI and its affiliates and Time Warner)
pursuant to the TBS Merger was fair to such holders from a financial point of
view and (b) in the context of the governance arrangements relating to TBS's
ability to consummate the TBS Merger, the financial terms of the Prior TCI
Arrangements were fair from a financial point of view to TBS and its
shareholders (other than TCI and its affiliates and Time Warner). In addition,
the TBS Board considered the oral advice by Merrill Lynch to the TBS Board on
November 21, 1995 (subsequently confirmed in writing), that the amendments to
the Merger Agreement did not alter its opinion previously delivered to the TBS
Board to the effect that as of September 22, 1995 Merrill Lynch was of the
opinions set forth therein. Furthermore, the TBS Board considered the oral
opinion rendered by Merrill Lynch on August 8, 1996 (subsequently confirmed in
writing) to the effect that, as of the date of such opinion and based upon and
subject to the matters stated therein, (a) the consideration to be received by
shareholders of TBS (other than TCI and its affiliates and Time Warner)
pursuant to the TBS Merger was fair to such holders from a financial point of
view and (b) in the context of the governance arrangements relating to TBS's
ability to consummate the TBS Merger, the financial terms of the TCI
Arrangements were fair from a financial point of view to TBS and its
shareholders (other than TCI and its affiliates and Time Warner). The TBS
Board also considered the oral and written financial presentations of CS First
Boston and Merrill Lynch. See "--Opinions of TBS's Financial Advisors" below.
The written opinions to the TBS Board of CS First Boston and of Merrill Lynch,
each dated as of August 8, 1996, are attached hereto as Appendices C-2 and C-
3, respectively, and are incorporated herein by reference.
Arrangements with TCI and its Affiliates. The TBS Board considered the terms
of the TCI Arrangements being concurrently entered into by TBS and by Time
Warner with TCI and its affiliates. See "TCI Arrangements." The TBS Board
evaluated the TCI Arrangements in light of (a) the presentation by TBS
management and TBS's legal advisors and, at the August 8, 1996 meeting, by
legal advisors to Time Warner, as to the terms of the TCI Arrangements, (b)
TCI's ability as a shareholder to veto the Transaction, (c) the understanding
of the TBS Board that TCI was not willing to vote its shares of TBS Capital
Stock in favor of the Transaction in the absence of the TCI Arrangements, (d)
the significant benefits that the TBS Board believed would accrue to holders
of TBS Capital Stock as a result of the Transaction, (e) the expected benefits
to each of TBS and Time Warner of the TCI Arrangements and (f) information
regarding the range of values represented in the aggregate by such
arrangements. The TBS Board also reviewed and considered the presentation of
Merrill Lynch with respect to the ranges of values represented by each of the
TCI Arrangements and the opinion of Merrill Lynch to the effect that, as of
August 8, 1996, and based upon and subject to the matters stated therein, in
the context of the governance arrangements relating to TBS's ability to
consummate the Transaction, the financial terms of the TCI Arrangements were
fair from a financial point of view to TBS and its shareholders (other than
TCI and its affiliates and Time Warner).
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Ability of the Shareholders of TBS to Obtain a Continuing Equity Interest in
New Time Warner. The TBS Board considered that, pursuant to the terms of the
Transaction, holders of TBS Capital Stock will receive equity securities of
New Time Warner, thus enabling TBS shareholders to participate in the value
that may be generated through the combination of the two companies through
their continued equity participation as stockholders of New Time Warner, while
realizing an immediate premium for their TBS shares and obtaining tax-free
treatment. The TBS Board also considered that New Time Warner will have
considerably greater market capitalization and public float than TBS, thus
providing TBS shareholders who become stockholders of New Time Warner with
enhanced liquidity.
The TBS Board also considered that the voting power of TBS is currently
concentrated and that, by virtue of the existing TBS governance arrangements,
each of Mr. Turner, Time Warner and TCI has the ability to veto certain
significant transactions, including certain changes of control of TBS. In
evaluating the Transaction, the TBS Board reviewed the pro forma stock
ownership of New Time Warner Common Stock following the Transaction and
considered the fact that no stockholder would control New Time Warner and that
shareholders of TBS who become stockholders of New Time Warner would retain
the potential for obtaining a premium for their shares in the event of any
subsequent change of control of New Time Warner, although the TBS Board also
considered the fact that the total capitalization of New Time Warner after the
consummation of the Mergers would limit the number of potential purchasers of
New Time Warner.
OPINION OF TIME WARNER'S FINANCIAL ADVISOR
At the meeting of the Time Warner Board that began on September 21, 1995,
Morgan Stanley delivered its oral opinion to the Time Warner Board that, as of
September 22, 1995, the ratio contemplated by the Merger Agreement for the
exchange of Time Warner Common Stock for TBS Capital Stock and the
consideration to be paid by Time Warner for the option to acquire SSSI as
contemplated by the Prior TCI Arrangements, taken together, were fair to Time
Warner from a financial point of view (the "Original Morgan Stanley Opinion").
Morgan Stanley confirmed its oral opinion in a written opinion dated as of
September 22, 1995. In connection with the amendment and restatement of the
Merger Agreement in November 1995, the Time Warner Board requested that Morgan
Stanley update the Original Morgan Stanley Opinion, and Morgan Stanley
subsequently delivered a revised opinion dated as of November 16, 1995,
confirming as of such date the Original Morgan Stanley Opinion. At the meeting
of the Time Warner Board held on August 8, 1996, Morgan Stanley delivered its
oral opinion, that as of such date, the ratio contemplated by the Merger
Agreement for the exchange of New Time Warner Common Stock for TBS Capital
Stock (the "Exchange Ratio") and the consideration to be paid by New Time
Warner for the SSSI Option and the LMC Non-competition Covenant (the "SSSI
Agreement Consideration"), taken together, were fair to New Time Warner and
its subsidiary, Time Warner, from a financial point of view. Morgan Stanley
confirmed its oral opinion in a written opinion dated August 8, 1996 (the
written opinion of Morgan Stanley dated August 8, 1996 is referred to as the
"Morgan Stanley Opinion"). Morgan Stanley has consented to the inclusion of
the Morgan Stanley Opinion as Appendix C-1 to this Joint Proxy
Statement/Prospectus.
A COPY OF THE MORGAN STANLEY OPINION IS ATTACHED HERETO AS APPENDIX C-1.
STOCKHOLDERS OF TIME WARNER ARE URGED TO READ THE MORGAN STANLEY OPINION IN
ITS ENTIRETY FOR INFORMATION WITH RESPECT TO THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY MORGAN
STANLEY IN RENDERING THE MORGAN STANLEY OPINION. REFERENCES TO THE MORGAN
STANLEY OPINION HEREIN AND THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH
BELOW ARE QUALIFIED BY REFERENCE TO THE FULL TEXT OF THE MORGAN STANLEY
OPINION, WHICH IS INCORPORATED HEREIN BY REFERENCE. THE MORGAN STANLEY OPINION
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY TIME WARNER STOCKHOLDER OR TBS
SHAREHOLDER AS TO HOW SUCH STOCKHOLDER OR SHAREHOLDER SHOULD VOTE WITH RESPECT
TO THE TW MERGER PROPOSAL OR THE TBS MERGER PROPOSAL AND SHOULD NOT BE RELIED
UPON BY ANY TIME WARNER STOCKHOLDER OR TBS SHAREHOLDER AS SUCH.
In arriving at its opinion, Morgan Stanley (a) reviewed the publicly
available consolidated financial statements of Time Warner for recent fiscal
years and interim periods, and other relevant financial and operating data of
Time Warner from published sources, as well as information made available to
Morgan Stanley by Time Warner, including information derived from due
diligence discussions with Time Warner senior management
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and discussed with Time Warner senior management their views regarding future
business, financial and operating benefits arising from the Transaction,
including such benefits from the possible exercise of the SSSI Option, (b)
reviewed the publicly available consolidated financial statements of TBS for
recent fiscal years and interim periods, and other relevant financial and
operating data of TBS from published sources, as well as limited information
made available to Morgan Stanley by TBS, including information derived from
due diligence discussions with TBS senior management relating to the benefits
from the possible exercise of the SSSI Option, and conducted other due
diligence discussions with senior management of TBS, (c) analyzed the
estimated pro forma financial impact of the Transaction, including the impact
on Time Warner's consolidated capitalization and financial ratios, (d)
reviewed the historical market prices of Time Warner Common Stock and TBS
Common Stock, (e) analyzed published information regarding certain relevant
companies and their equity securities and compared the financial performance
of TBS and the prices and trading activity of TBS Common Stock with those
other companies and their equity securities, (f) reviewed the financial terms,
to the extent publicly available, of certain comparable acquisition
transactions, (g) reviewed financial information prepared by the management of
Time Warner and limited financial information prepared by the management of
TBS, (h) participated in certain due diligence discussions among
representatives of TBS and Time Warner and their financial and legal advisors,
(i) reviewed the executed version of the amended and restated Merger Agreement
and drafts of Amendment No. 1 to the Merger Agreement and the SSSI Agreement
and related documents in the forms identified by Time Warner as those to be
entered into by the parties and (j) performed such other analyses and
examinations (as more fully described below) as Morgan Stanley deemed
appropriate.
In connection with its review, Morgan Stanley did not assume any
responsibility for independent verification of any of the foregoing
information and relied on its being complete and accurate in all material
respects. With respect to the financial projections supplied to Morgan Stanley
by Time Warner, Morgan Stanley assumed that they had been reasonably prepared
on bases reflecting the best currently available estimates and good faith
judgments of Time Warner senior management of the future competitive,
operating and regulatory environments and related financial performance of
Time Warner. Morgan Stanley requested from TBS financial projections or long-
range financial forecasts, and was provided with limited financial forecasts
and financial targets prepared by TBS management for certain business segments
of TBS and was orally provided with the views of TBS management as to expected
results of operations of TBS over a two-year period. Furthermore, Morgan
Stanley assumed no responsibility for conducting a physical inspection of the
properties or facilities of Time Warner or TBS or for making or obtaining any
independent valuation or appraisal of the assets or liabilities of Time Warner
or TBS, nor was Morgan Stanley furnished with any such valuations or
appraisals. Morgan Stanley noted that the Mergers are intended to qualify as
reorganizations within the meaning of Section 368(a) of the Code and/or as
exchanges under Section 351 of the Code, and assumed with the consent of Time
Warner that the Mergers would so qualify. Morgan Stanley relied, without
independent verification, upon the assessment of the managements of Time
Warner and TBS of the amount and timing of potential cost savings and revenue
enhancements realizable as a result of the Transaction, including the WTBS
Conversion. The Morgan Stanley Opinion is necessarily based on economic,
market and other conditions as in effect on, and any information and
agreements made available to it as of, the date thereof. Morgan Stanley
assumed that the transactions described in the Merger Agreement would be
consummated on the terms set forth therein. Morgan Stanley assumed that the
executed versions of Amendment No. 1 to the Merger Agreement and the SSSI
Agreement would not differ in any material respect from the forms Morgan
Stanley reviewed and that, if the SSSI Option were exercised, the exercise
thereof would be consummated on the terms set forth therein. Morgan Stanley
did not express any opinion as to the price or range of prices at which the
New Time Warner Common Stock might trade subsequent to the consummation of the
Transaction.
At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley
reviewed with the members of the Time Warner Board the financial, industry and
market information with respect to TBS used by Morgan Stanley in its analyses
as described below and the procedures used and the analyses underlying the
Morgan Stanley Opinion. The summary set forth below does not purport to be a
complete description of the Morgan Stanley Opinion or Morgan Stanley's
analyses relating thereto. The preparation of a fairness opinion is a complex
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process that is not purely mathematical and is not necessarily susceptible to
partial analyses or summary description. It involves complex considerations
and judgments. Time Warner stockholders are encouraged to read the Morgan
Stanley Opinion in its entirety.
The following is a summary of all material analyses performed by Morgan
Stanley in connection with the Morgan Stanley Opinion. The principal methods
that Morgan Stanley used in assessing the fairness of the Exchange Ratio and
the SSSI Agreement Consideration to New Time Warner and its subsidiary, Time
Warner, as of August 8, 1996 were (a) an analysis of the variance of TBS's
actual 1995 operating results and the 1996 operating results forecast by TBS
management in June 1996 ("TBS 1996 Forecast"), from the 1995 operating results
forecast by TBS management in August 1995 ("TBS 1995 Forecast") and TBS
management's 1996 budget ("TBS 1996 Budget"), respectively, (b) an analysis of
Time Warner's historical public market trading values as compared to a blended
cable television and entertainment company index composed of the stocks of
Cablevision Systems Corporation ("Cablevision Systems"), Cox Communications,
Inc. ("Cox"), Comcast, TCI (adjusted for the distribution of the Liberty Media
Group Common Stock by TCI), Disney, News Corp. and Viacom (the
"Cable/Entertainment Index"), (c) an analysis of Time Warner's historical
share price since August 29, 1995 as compared to companies included in the
Cable/Entertainment Index and U S WEST Media Group ("UMG" and, together with
the Cable/Entertainment Index, the "Modified Cable/Entertainment Index"), (d)
an analysis of multiples paid in the Transaction and in certain precedent
acquisition transactions, (e) an analysis of aggregate value multiples of
certain cable television programming and diversified entertainment companies
and (f) a discounted cash flow analysis with respect to TBS.
Transaction Overview
At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley
presented a summary of the principal economic terms of the Merger Agreement,
the SSSI Agreement and the Distribution Contract. Morgan Stanley noted that,
based upon a weighted average exchange ratio of 0.759 shares of New Time
Warner Common Stock for each share of TBS Common Stock, the nominal purchase
price pursuant to the Merger Agreement, based upon the $36.50 closing price of
Time Warner Common Stock on August 6, 1996, was approximately $27.71 per share
of TBS Common Stock, as compared to the approximately $32.17 nominal purchase
price per share of TBS Common Stock pursuant to the original Merger Agreement
based upon the $42.375 unaffected closing price of Time Warner Common Stock on
August 29, 1995. Morgan Stanley also noted that, based upon the $36.50 closing
price of Time Warner Common Stock on August 6, 1996, assuming exercise of the
SSSI Option by New Time Warner, the estimated cost of the consideration
payable by New Time Warner pursuant to the SSSI Agreement and the Distribution
Contract was approximately $360 million (assuming that such payments would be
deductible for Federal and state income tax purposes), as compared to the
estimated $370 million cost for the option to acquire SSSI as contemplated by
the Prior TCI Arrangements (assuming exercise of such option by New Time
Warner and based upon the $42.375 unaffected closing price of Time Warner
Common Stock on August 29, 1995.)
TBS Operating Performance Variance Analysis
At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley
presented a comparison of the actual results of operations for 1995 for each
of the major business segments of TBS (comprised of Cable Networks, News, Film
Production and Distribution, and real estate, sports-related assets and
certain other assets ("Real Estate/Sports Segment")), as compared to the TBS
1995 Forecast provided to Morgan Stanley by TBS management in August 1995, as
well as a comparison of the operating performance of these segments contained
in the TBS 1996 Forecast provided to Morgan Stanley in June 1996 by TBS
management, to the 1996 TBS Budget provided to Morgan Stanley. Morgan Stanley
noted that actual results for 1995 revenue and earnings before interest,
taxes, depreciation and amortization expenses ("EBITDA") were favorable, as
compared to the TBS 1995 Forecast, for each of these business segments (other
than EBITDA results for the Film Production and Distribution Segment). Morgan
Stanley also noted that the TBS 1996 Forecast showed favorable revenue
variances for the Cable Networks, News and Real Estate/Sports segments (and a
negative variance for the Film Production and Distribution segment) as
compared to the 1996 TBS Budget, and no variance in forecast 1996 EBITDA for
the Cable Networks and News segments (and negative variances for the Film
Production and
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Distribution and Real Estate/Sports segments) as compared to the 1996 TBS
budget. Morgan Stanley noted that, notwithstanding the negative variances at
the Film Production and Distribution Segment of TBS, which consists primarily
of New Line and Castle Rock (the "Studios"), in connection with its analyses
underlying the Morgan Stanley Opinion, Morgan Stanley continued to assume the
same asset value for the Studios (based on historical cost) that it had
assumed in connection with its analyses underlying the Original Morgan Stanley
Opinion.
Comparable Time Warner Share Price Analysis
At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley
reviewed the share price performance of Time Warner Common Stock for the
period from August 29, 1992 through August 6, 1996, as compared to the
performance of the Cable/Entertainment Index. The Cable/Entertainment Index
was based on the assumption that Time Warner's estimated 1996 EBITDA would be
contributed approximately 41% by its cable operations and 59% by its
diversified entertainment operations. Specifically, Morgan Stanley noted that
Time Warner Common Stock had in general performed consistently with the
Cable/Entertainment Index for the period of comparison.
Morgan Stanley also presented an analysis of the share price performance of
Time Warner Common Stock as compared to each of the companies included in the
Modified Cable/Entertainment Index from August 29, 1995 to August 6, 1996.
Morgan Stanley noted that, with the exception of Disney, each of the Modified
Cable/Entertainment Index companies experienced a decline in its stock price
and that the 13.9% decline in the Time Warner Common Stock price was below the
15.0% mean decline experienced by all such companies contained in the Modified
Cable/Entertainment Index (ranging from a 4.7% stock price increase in the
case of Disney, to a 38.6% stock price decline in the case of Cablevision
Systems).
Acquisition Multiples Analysis
At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley
reviewed and analyzed selected acquisition transactions involving other
companies in the entertainment and media industries that it deemed relevant.
Among other factors, Morgan Stanley indicated that the merger and acquisition
transaction environment varies over time because of macroeconomic factors such
as interest rate and equity market fluctuations and microeconomic factors such
as industry results and growth expectations. Morgan Stanley noted that no
transaction reviewed was identical to the Transaction and that, accordingly,
an assessment of the results of the following analysis necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of TBS and other factors that would affect the
acquisition value of the companies to which it is being compared. Morgan
Stanley advised the Time Warner Board that, in analyzing the results of the
precedent acquisition transactions analysis, the Time Warner Board should
consider the size and demographic and economic characteristics of the markets
of each company and the competitive environment in which it operates. Morgan
Stanley also pointed out that the entertainment and media industries, in
particular, have undergone dramatic changes in recent years and face continued
dynamic evolution.
In analyzing the multiple of forward and current year EBITDA represented by
the aggregate acquisition price, at the August 8, 1996 meeting of the Time
Warner Board, Morgan Stanley noted that, based on the $36.50 closing price for
Time Warner Common Stock on August 6, 1996, Morgan Stanley's analysis yielded
an aggregate value acquisition multiple for the Transaction of 15.2x based on
forward year EBITDA (13.2x, after adjusting the aggregate acquisition value
for the Studios (based on historical cost), the Real Estate/Sports Segment
(based on private market values) and the WTBS Conversion (the "Specified
Adjustments") and adjusting EBITDA for the Specified Adjustments) and 20.7x
based on current year EBITDA (14.6x, after the Specified Adjustments). Morgan
Stanley noted that, based on the $42.375 unaffected Time Warner Common Stock
price on August 29, 1995, its analysis yielded an acquisition multiple for the
Transaction of 17.2x based on forward year EBITDA (15.2x, after the Specified
Adjustments) and 23.4x based on current year EBITDA (16.8x, after the
Specified Adjustments). Morgan Stanley also noted that its analysis of
precedent transactions yielded the following acquisition multiples based on
forward and current year EBITDA, respectively: TCI-
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Comcast/QVC Network Inc. ("QVC"), 8.9x and 10.5x; Disney/Capital Cities/ABC
Inc. ("Capital Cities"), 10.1x and 11.5x; Westinghouse Electric Corporation
("Westinghouse")/CBS Inc. ("CBS"), 12.1x and 13.0x; The Seagram Company Ltd.
("Seagram")/MCA, 12.5x and 14.2x; Matsushita/MCA, 14.1x and 17.6x;
Viacom/Paramount Communications Inc. ("Paramount"), 17.6x (16.3x, after giving
effect to the sale of Paramount's Madison Square Garden assets (the "MSG
Assets")) and 22.3x (20.5x, after giving effect to the sale of the MSG
Assets); Sony Corporation ("Sony")/Columbia Pictures Entertainment Inc.
("Columbia"), 16.2x and 22.9x; and TBS/New Line, 15.3x and 33.6x.
Public Market Trading Valuation
At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley also
presented a comparison of the multiples derived by dividing the acquisition
value of TBS in the Transaction (based on the closing price of Time Warner
Common Stock on August 6, 1996) by forward and current year EBITDA, with the
multiples derived by dividing the aggregate value (based on closing stock
prices on August 6, 1996) of three other publicly traded cable television
programming companies (Gaylord Entertainment Company ("Gaylord"),
International Family Entertainment, Inc. ("International Family") and BET
Holdings Inc. ("BET")) and two other publicly traded diversified entertainment
companies (Viacom and Disney), by their respective forward and current year
EBITDA. Specifically, Morgan Stanley noted that such multiples, after making
the Specified Adjustments, and for illustrative purposes assuming incremental
annual EBITDA from revenue enhancement and cost saving opportunities of $200,
$100 and $0 million, respectively, were 10.3x, 11.6x and 13.2x for forward
year EBITDA and 11.2x, 12.7x and 14.6x for current year EBITDA, as compared to
forward year and current year EBITDA multiples of 11.3x and 13.5x for Gaylord;
9.5x and 10.7x for International Family; 7.4x and 8.9x for Viacom; 8.0x and
9.5x for Disney; and 7.4x and 8.4x for BET.
The foregoing companies, in Morgan Stanley's judgment and based in part on
conversations with the managements of Time Warner and TBS, were comparable to
TBS for the purposes of Morgan Stanley's analysis. Morgan Stanley noted that
because of differences between the business mix, operations and other
characteristics of TBS and the comparable companies, Morgan Stanley did not
believe that a purely quantitative comparable company analysis would be
particularly meaningful in this context. Rather, Morgan Stanley believes that
an appropriate use of the comparable company analysis would also involve
qualitative judgments concerning differences between the financial and
operating characteristics of TBS and the comparable companies, which would
affect the public trading values of the common stock of the comparable
companies, which judgments are incorporated in the Morgan Stanley Opinion.
TBS Discounted Cash Flow Analysis
Morgan Stanley also considered a 10-year discounted cash flow valuation
analysis based upon limited financial forecasts previously prepared by the
management of TBS for certain businesses of TBS, updated financial targets
provided by TBS management in July 1996, as well as due diligence discussions
with Time Warner and TBS management regarding the businesses of TBS. However,
in its discounted cash flow analysis, Morgan Stanley did not give effect to
any potential cost saving or revenue enhancement opportunities that may result
from the Transaction.
In conducting this discounted cash flow analysis, Morgan Stanley assumed
discount rates of between 11% and 13%, year 2005 EBITDA exit multiples of
between 11x and 13x, and adjusted for the value of the Studios based on
historic cost and for certain real estate, sports teams and certain
international start-up businesses based on private market value estimates. The
assumed discount rates were chosen based upon an analysis of the weighted
average cost of capital of TBS. The range of exit multiples used reflected
different assumptions regarding the growth and profitability prospects of TBS
beyond the year 2005. Based on the aforementioned projections and assumptions,
this discounted cash flow analysis yielded a midpoint reference value of
approximately $32 per share of TBS Common Stock.
Morgan Stanley also considered the Time Warner management projections
regarding incremental values associated with the WTBS Conversion. This
analysis yielded an incremental reference value per share of TBS Common Stock
of approximately $2, net of the estimated $360 million after-tax cost
associated with the SSSI Agreement and the Distribution Contract (based on the
unaffected closing price of Time Warner Common Stock
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on August 6, 1996 and assuming that payments to be made by New Time Warner
under the SSSI Agreement and the Distribution Contract will be deductible or
amortizable for Federal and state income tax purposes).
Morgan Stanley's discounted cash flow analysis was utilized to create points
of reference and not to suggest forecasts of valuation ranges for TBS Common
Stock.
In arriving at its opinion, Morgan Stanley performed a variety of financial
analyses, the material portions of which are summarized above. The summary set
forth above does not purport to be a complete description of the analyses
performed by Morgan Stanley. In addition, Morgan Stanley believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all such
factors and analyses, could create a misleading view of the process underlying
the analyses set forth in its opinion. The matters considered by Morgan
Stanley in arriving at its opinion are based on numerous macroeconomic,
operating and financial assumptions with respect to industry performance,
general business, regulatory and economic conditions and other matters, many
of which are beyond the control of Time Warner and TBS. Any estimates or
financial projections incorporated or used in the analyses performed by Morgan
Stanley are not necessarily indicative of actual past or future results or
values, which may be significantly more or less favorable than such
projections or estimates. Estimated values do not purport to be appraisals and
do not necessarily reflect the prices at which businesses or companies may be
sold in the future. Such financial projections and estimates are inherently
subject to substantial uncertainty. With respect to the financial projections
and other estimates supplied or prepared by third parties and used by Morgan
Stanley in its analyses, Morgan Stanley assumed that such financial
projections and estimates had been reasonably prepared on bases reflecting the
best currently available estimates and good faith judgments of the third
parties that supplied or prepared such financial projections or estimates.
Arriving at a fairness opinion is a complex process, not necessarily
susceptible to partial summary or description. No company utilized as a
comparison is identical to Time Warner or TBS or the business segment for
which a comparison is being made. Accordingly, an analysis of comparable
companies and comparable business combinations resulting from the transactions
is not mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the value of the
comparable companies or company to which they are being compared.
The Time Warner Board selected Morgan Stanley as its financial advisor
because it is an internationally recognized investment banking firm, which has
substantial experience in transactions similar to the Transaction and is
familiar with Time Warner and its business. Morgan Stanley is an investment
banking firm engaged, among other things, in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the ordinary course of Morgan Stanley's trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or
short positions, may trade or otherwise effect transactions, for its own
account or for the account of customers, in debt or equity securities of Time
Warner and TBS. Morgan Stanley in the past has provided certain investment
banking, financial advisory and financing services to Time Warner and has
received customary fees and reimbursement of expenses for such services. Since
January 1, 1994, Morgan Stanley has received compensation, including
underwriting fees, from Time Warner for such services of approximately $33
million, other than the fee paid in connection with the Morgan Stanley
Opinion.
See "--Certain Fees and Expenses" below for a summary of the terms of the
engagement of Morgan Stanley by Time Warner, including the fee payable by Time
Warner upon consummation of the Mergers.
Time Warner also retained Bear, Stearns & Co. Inc. to act as an advisor on
various matters, including the Transaction. Bear, Stearns & Co. Inc. was not
requested to, and did not, provide a fairness opinion to the Time Warner
Board.
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OPINIONS OF TBS'S FINANCIAL ADVISORS
OPINION OF CS FIRST BOSTON
CS First Boston has acted as financial advisor to TBS in connection with the
Transaction. CS First Boston was selected by TBS based on CS First Boston's
experience and expertise. CS First Boston is an internationally recognized
investment banking firm and is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
In connection with CS First Boston's engagement, TBS requested that CS First
Boston evaluate the fairness, from a financial point of view, to the holders
of TBS Capital Stock (other than Time Warner and its affiliates) of the
consideration to be received by such holders in the TBS Merger. At a meeting
of the TBS Board held on September 22, 1995 to evaluate the proposed
transaction, CS First Boston rendered to the TBS Board an oral opinion
(subsequently confirmed in writing) to the effect that, as of September 22,
1995 and based upon and subject to the matters stated therein, the
consideration to be received by the holders of TBS Capital Stock (other than
Time Warner and its affiliates) in the TBS Merger was fair to such holders
from a financial point of view. In connection with the meeting of the Board
held on November 21, 1995 to consider the amendment and restatement of the
Merger Agreement to revise the transaction structure and on August 8, 1996 to
approve the FTC Consent Decree and proposed amendments to the Transaction
Agreements, TBS requested that CS First Boston confirm its opinions delivered
on September 22, 1995 and November 21, 1995, respectively. At meetings of the
TBS Board on November 21, 1995 and August 8, 1996, CS First Boston rendered to
the TBS Board oral opinions (subsequently confirmed in writing) to the effect
that, as of the dates of such opinions and based upon and subject to the
matters stated therein, the consideration to be received by the holders of TBS
Capital Stock (other than Time Warner and its affiliates) in the TBS Merger
was fair to such holders from a financial point of view. In connection with
the CS First Boston opinions dated November 21, 1995 and August 8, 1996, CS
First Boston updated certain of the analyses performed in connection with its
opinion delivered November 21, 1995 and reviewed the assumptions on which such
analyses were based and the factors considered in connection therewith.
In arriving at its opinion dated August 8, 1996 (the "CS First Boston
Opinion"), CS First Boston (a) reviewed publicly available business and
financial information relating to TBS and Time Warner, (b) reviewed other
information, including financial forecasts, provided to CS First Boston by TBS
and Time Warner, (c) met with the respective managements of TBS and Time
Warner for due diligence discussions concerning the businesses and prospects
of TBS and Time Warner, (d) reviewed the Merger Agreement, as originally
executed on September 22, 1995 and amended on November 21, 1995, and drafts of
Amendment No. 1 to the Merger Agreement and other related documents, including
certain agreements involving TCI and certain of its affiliates, and assumed
for purposes of its opinion that the final terms of such Amendment No. 1 and
the other documents reviewed by CS First Boston in draft form would not vary
materially from the drafts reviewed by CS First Boston and that the terms of
any additional documents agreed to other than those reviewed by CS First
Boston would not materially affect CS First Boston's analyses, (e) considered
financial and stock market data of TBS and Time Warner and compared that data
with similar data for other publicly held companies in businesses similar to
those of TBS and Time Warner, (f) considered, to the extent publicly
available, the financial terms of certain other business combinations and
other transactions recently effected and (g) considered such other
information, financial studies, analyses and investigations and financial,
economic, regulatory and market criteria (as more fully described below) which
CS First Boston deemed relevant. CS First Boston has consented to the
inclusion of the CS First Boston Opinion as Appendix C-2 to this Joint Proxy
Statement/Prospectus.
In connection with its review, CS First Boston did not assume responsibility
for independent verification of any of the information provided to or
otherwise reviewed by CS First Boston and relied upon its being complete and
accurate in all material respects. With respect to the financial forecasts
reviewed, CS First Boston assumed that such forecasts were reasonably prepared
on bases reflecting the best currently available estimates and judgments of
the respective managements of TBS and Time Warner as to the future financial
performance of TBS and Time Warner. In addition, CS First Boston did not make
an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of TBS or Time Warner, nor was CS First Boston
furnished with
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any such evaluation or appraisal. CS First Boston's opinion was necessarily
based on information available to it and financial, economic, market,
regulatory and other conditions as they existed and could be evaluated on the
date of its opinion. CS First Boston expressed no opinion as to what the value
of New Time Warner Common Stock actually would be when issued pursuant to the
Transaction or the prices at which New Time Warner Common Stock would trade
subsequent to the consummation of the Transaction. CS First Boston was not
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of TBS. Although CS First Boston evaluated the
fairness of the consideration to be received by the holders of TBS Capital
Stock (other than Time Warner and its affiliates) in the TBS Merger from a
financial point of view, the specific consideration payable in the Transaction
was determined by negotiations among the parties to the Transaction. No
limitations were imposed by TBS on CS First Boston with respect to the
investigations made or procedures followed by CS First Boston in connection
with the rendering of its opinions.
THE FULL TEXT OF THE CS FIRST BOSTON OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN BY CS
FIRST BOSTON, IS ATTACHED HERETO AS APPENDIX C-2 AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF TBS CAPITAL STOCK ARE URGED TO READ THE CS FIRST BOSTON
OPINION CAREFULLY IN ITS ENTIRETY. THE CS FIRST BOSTON OPINION IS DIRECTED
ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF TBS
CAPITAL STOCK (OTHER THAN TIME WARNER AND ITS AFFILIATES) IN THE TBS MERGER
FROM A FINANCIAL POINT OF VIEW, DOES NOT CONSTITUTE AN OPINION WITH RESPECT TO
ANY OTHER ASPECT OF THE TRANSACTION OR ANY RELATED TRANSACTION AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY TBS SHAREHOLDER OR TIME WARNER STOCKHOLDER
AS TO HOW SUCH SHAREHOLDER OR STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE TBS
MERGER OR THE TIME WARNER MERGER. THE SUMMARY OF THE CS FIRST BOSTON OPINION
SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT THEREOF.
In preparing its opinions to the TBS Board, CS First Boston performed a
variety of financial and comparative analyses, including those described below
performed by CS First Boston in connection with the CS First Boston Opinion.
The summary of CS First Boston's analyses set forth below does not purport to
be a complete description of the analyses underlying the CS First Boston
Opinion. The preparation of a fairness opinion is a complex analytic process
involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. In arriving at its opinions, CS First
Boston made qualitative judgments as to the significance and relevance of each
analysis and factor considered by it. Accordingly, CS First Boston believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and factors, without considering all analyses and factors, could
create a misleading or incomplete view of the processes underlying such
analyses and opinions. In its analyses, CS First Boston made numerous
assumptions with respect to TBS, Time Warner, industry performance and
regulatory, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of TBS and Time Warner. No
company, transaction or business used in such analyses as a comparison is
identical to TBS, Time Warner or the Transaction, nor is an evaluation of the
results of such analyses entirely mathematical; rather, it involves complex
considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed. The estimates contained in such analyses and the ranges of
valuations resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than those suggested by such
analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such estimates are
inherently subject to substantial uncertainty.
The following is a summary of all the material analyses performed by CS
First Boston in connection with the CS First Boston Opinion:
Comparable Company Analysis. CS First Boston reviewed and compared certain
financial, operating and stock market information of TBS with the following
selected publicly traded entertainment companies: Time
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Warner, News Corp., Disney and Viacom (the "Comparable Companies"). CS First
Boston compared adjusted market values (equity market value plus net debt) as
a multiple of estimated fiscal 1996 and estimated fiscal 1997 revenue and
operating cash flow. CS First Boston multiplied TBS's operating statistics by
a range of multiples based on the trading performance of the Comparable
Companies. The ranges of multiples of estimated fiscal 1996 and estimated
fiscal 1997 revenues and operating cash flow for the Comparable Companies were
as follows: (a) estimated fiscal 1996 and fiscal 1997 revenues: 1.9x to 2.5x
and 1.7x to 2.2x, respectively; and (b) estimated fiscal 1996 and fiscal 1997
operating cash flow: 8.7x to 14.5x and 7.9x to 13.3x, respectively. All
multiples were based on closing stock prices on August 2, 1996. Estimated
financial information was based on, in the case of the Comparable Companies,
estimates of selected investment banking firms and, in the case of TBS and
Time Warner, estimates of TBS and Time Warner management. Applying multiples
of estimated 1997 operating cash flow for the Comparable Companies of 10.0x to
13.0x to corresponding financial statistics for TBS resulted in an enterprise
reference range for TBS of approximately $7.1 billion to $9.2 billion and an
equity reference range for TBS of approximately $5.0 billion to $7.1 billion,
resulting in a reference range per share of TBS Common Stock of approximately
$16.50 to $23.50.
Comparable Transaction Analysis. Using publicly available information, CS
First Boston analyzed the adjusted purchase prices and multiples paid or
proposed to be paid in the following selected media merger and acquisition
transactions: A group including Tracinda Corporation and management of Metro-
Goldwyn Mayer Inc. ("MGM")/MGM, U S WEST/Continental, Westinghouse/CBS,
Disney/Capital Cities, Gannett Co., Inc./Multimedia, Inc., Seagram/MCA,
Viacom/Blockbuster and Viacom/Paramount (the "Comparable Transactions"). CS
First Boston compared adjusted purchase prices as a multiple of latest 12
months and forward year operating cash flow. The ranges of multiples of latest
12 months and forward year operating cash flow for the Comparable Transactions
were as follows: (a) latest 12 months operating cash flow: 9.4x to 25.3x; and
(b) forward year operating cash flow: 8.2x to 13.1x. All multiples for the
Comparable Transactions were based on information available at the time of
announcement of such transaction. Applying multiples of estimated 1997
operating cash flow for the Comparable Transactions of 16.5x to 19.1x to
corresponding financial statistics for TBS resulted in an enterprise reference
range for TBS of approximately $11.7 billion to $13.5 billion and an equity
reference range for TBS of approximately $9.6 billion to $11.4 billion,
resulting in a reference range per share of TBS Common Stock of approximately
$32.00 to $38.00.
Discounted Cash Flow Analysis. CS First Boston performed a discounted cash
flow analysis of the projected unlevered free cash flow of TBS for the fiscal
years ended December 31, 1996 through 2001, based upon operating and financial
assumptions, forecasts and other information provided by the management of
TBS. For purposes of this analysis, CS First Boston utilized discount rates of
11.5%, 12.5% and 13.5% (with particular focus on discount rates of 11.5% and
12.5%) and terminal value multiples of operating cash flow of 13.0x, 15.0x and
17.0x (with particular focus on terminal value multiples of 13.0x and 15.0x).
Based on discount rates of 11.5% to 12.5% and terminal value multiples of
13.0x to 15.0x, this analysis indicated an enterprise reference range for TBS
of approximately $8.9 billion to $10.5 billion and an equity reference range
for TBS of approximately $6.8 billion to $8.4 billion, resulting in a
reference range per share of TBS Common Stock of approximately $22.50 to
$28.00.
Other Factors and Analyses. In the course of preparing its opinion, CS First
Boston reviewed other matters, including (a) historical and projected
financial results of TBS and Time Warner, (b) trading characteristics and
public market valuations of TBS and Time Warner, including the estimated
public market value of Time Warner based on an analysis of the business
segments of publishing, music and cable systems owned directly by Time Warner
and Time Warner's investment in TWE, (c) the pro forma capitalization and
ownership of the combined company and (d) the material terms of the TCI
Arrangements (excluding arrangements resulting from the Program Agreement and
the PPV Output Agreement). CS First Boston was not requested to, and did not,
express any opinion with respect to the TCI Arrangements. CS First Boston's
review of those TCI Arrangements evaluated by CS First Boston was focused
primarily on the potential additional consideration to be received by TCI as a
result of such TCI Arrangements. In analyzing such potential additional
consideration, CS First Boston utilized an acquisition multiple of 12.0x
fiscal 1996 projected operating cash flow
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with respect to SportSouth. CS First Boston assumed that the maximum value to
TCI of the SSSI Option equaled the $155 million after-tax purchase price to be
paid by Time Warner for the SSSI Option (based upon the closing price per
share of Time Warner Common Stock on August 6, 1996 of $36.50 and assuming
such payments are deductible by New Time Warner). CS First Boston further
assumed that Time Warner would not be required to make payments to TCI under
any tax indemnities or similar arrangements. Based on the foregoing and
operating and financial assumptions and other information provided by or
otherwise discussed with TBS management, CS First Boston derived an aggregate
reference range for such potential additional consideration of approximately
$15 million to $184 million. CS First Boston noted that, based on a weighted
average of the per share consideration payable in the TBS Merger in respect of
shares of TBS Capital Stock beneficially owned by TCI, this reference range
represented potential additional consideration to TCI for its shares of TBS
Capital Stock, on a TBS Common Stock equivalent basis, of approximately $1.23
to $3.77 per share. CS First Boston further noted that such potential
additional consideration, if allocated among all outstanding shares of TBS
Capital Stock (excluding shares beneficially owned by Time Warner and its
affiliates), represented approximately $0.06 to $0.75 per share of additional
potential consideration for the outstanding shares of TBS Capital Stock, on a
TBS Common Stock equivalent basis.
Miscellaneous. In the ordinary course of business, CS First Boston and its
affiliates may actively trade the debt and equity securities of both TBS and
Time Warner for their own account and for accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
CS First Boston in the past has provided investment banking and financial
advisory services to TBS, Time Warner and certain shareholders of TBS and Time
Warner in connection with a number of transactions (including debt and equity
financing and merger and acquisition activities). Since January 1, 1994, CS
First Boston has received compensation from TBS and Time Warner for such
services of approximately $2.1 million and $0.5 million, respectively, other
than the fee payable to CS First Boston in connection with the CS First Boston
Opinion. See "--Certain Fees and Expenses" below for a summary of the terms of
the engagement of CS First Boston by TBS.
OPINION OF MERRILL LYNCH
On August 8, 1996, Merrill Lynch delivered its oral opinion (which it
subsequently confirmed in writing) (the "Merrill Lynch Opinion") to the TBS
Board, to the effect that, as of August 8, 1996, and based upon the
assumptions made, matters considered and limits of the review as set forth in
such opinion, (i) the consideration to be received by holders of TBS Capital
Stock (other than TCI and its affiliates and Time Warner) pursuant to the TBS
Merger was fair to such holders from a financial point of view and (ii) in the
context of the governance arrangements relating to TBS's ability to consummate
the TBS Merger, the financial terms of the TCI Arrangements were fair from a
financial point of view to TBS and its shareholders (other than TCI and its
affiliates and Time Warner). For purposes of its opinion, Merrill Lynch
included as part of the TCI Arrangements the incremental value to be received
by TCI as a holder of shares of TBS Class C Preferred Stock as a result of the
difference between the consideration to be received by holders of TBS Common
Stock and holders of TBS Class C Preferred Stock, on an as-converted basis
(the "Class C Premium"). Merrill Lynch has consented to the inclusion of the
Merrill Lynch Opinion as Appendix C-3 to this Joint Proxy
Statement/Prospectus.
Merrill Lynch initially delivered an oral opinion (which it subsequently
confirmed in writing) to the TBS Board on September 22, 1995 to the effect
that, as of September 22, 1995, and based upon the assumptions made, matters
considered and limits of the review as set forth in such opinion, (i) the
consideration to be received by the holders of TBS Capital Stock (other than
TCI and its affiliates and Time Warner) pursuant to the TBS Merger was fair to
such holders from a financial point of view and (ii) in the context of the
governance arrangements relating to TBS's ability to consummate the TBS
Merger, the financial terms of the Prior TCI Arrangements were fair from a
financial point of view to TBS and its shareholders (other than TCI and its
affiliates and Time Warner). In connection with the execution of the FTC
Consent Decree, the parties amended and modified the Prior TCI Arrangements
and, at the request of TBS, Merrill Lynch provided the Merrill Lynch Opinion.
The methodologies used by Merrill Lynch in the financial analyses relating to
its September 22, 1995 opinion (the "September 22 Analyses") are similar to
the methodologies used by Merrill Lynch in the financial analyses relating to
the Merrill Lynch Opinion, which are described herein. Except as otherwise
provided herein, the
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following data represents the financial analyses performed by Merrill Lynch in
connection with the Merrill Lynch Opinion.
A COPY OF THE MERRILL LYNCH OPINION IS ATTACHED HERETO AS APPENDIX C-3.
HOLDERS OF TBS CAPITAL STOCK ARE URGED TO READ THE MERRILL LYNCH OPINION IN
ITS ENTIRETY FOR THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE
REVIEW BY MERRILL LYNCH. THE MERRILL LYNCH OPINION IS DIRECTED ONLY TO THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY
HOLDERS OF TBS CAPITAL STOCK (OTHER THAN TCI AND ITS AFFILIATES AND TIME
WARNER) IN THE TBS MERGER AND, IN THE CONTEXT OF THE GOVERNANCE ARRANGEMENTS
RELATING TO TBS'S ABILITY TO CONSUMMATE THE TBS MERGER, TO THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE FINANCIAL TERMS OF THE TCI ARRANGEMENTS TO TBS
AND ITS SHAREHOLDERS (OTHER THAN TCI AND ITS AFFILIATES AND TIME WARNER), AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY TBS SHAREHOLDER OR TIME WARNER
STOCKHOLDER AS TO HOW SUCH SHAREHOLDER OR STOCKHOLDER SHOULD VOTE AT THE TBS
MEETING OR THE TIME WARNER MEETING. THE SUMMARY OF THE MERRILL LYNCH OPINION
SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERRILL LYNCH OPINION.
In arriving at the Merrill Lynch Opinion, Merrill Lynch (a) reviewed TBS's
Annual Reports to Shareholders, Annual Reports on Form 10-K and related
financial information for the five fiscal years ended December 31, 1995 and
TBS's Quarterly Reports on Form 10-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1996 and June 30, 1996,
(b) reviewed Time Warner's Annual Reports to Stockholders, Annual Reports on
Form 10-K and related financial information for the five fiscal years ended
December 31, 1995 and Time Warner's Quarterly Report on Form 10-Q and the
related unaudited financial information for the quarterly period ended March
31, 1996, (c) reviewed information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of TBS and SportSouth
furnished to Merrill Lynch by TBS, (d) reviewed information, including
financial forecasts, relating to the business, earnings, cash flow, assets,
and prospects of the Sunshine Network furnished to Merrill Lynch by Time
Warner, (e) reviewed certain publicly available information relating to the
business, earnings, cash flow, assets and prospects of Time Warner, (f)
conducted due diligence discussions with members of senior management of TBS
concerning its business and prospects, conducted due diligence discussions
with members of senior management of Time Warner concerning its business and
prospects, and conducted due diligence discussions with members of senior
management of TBS, Time Warner and TCI concerning the TCI Arrangements,
(g) reviewed the historical market prices and trading activity for the shares
of TBS Common Stock and the shares of Time Warner Common Stock and compared
them with that of publicly traded companies which Merrill Lynch deemed to be
reasonably similar to TBS and Time Warner, respectively, (h) compared the
results of operations of TBS and Time Warner with those of companies which
Merrill Lynch deemed to be reasonably similar to TBS and Time Warner,
respectively, (i) compared the proposed financial terms of the transactions
contemplated by the Merger Agreement with the financial terms of other mergers
and acquisitions which Merrill Lynch deemed to be relevant, (j) compared the
proposed financial terms of the proposed transactions involving SportSouth and
the Sunshine Network with the financial terms of other transactions which
Merrill Lynch deemed to be relevant, (k) reviewed the financial terms of a
limited number of transactions in which controlling shareholders or persons
having the right to consent to, or effective veto power over, a transaction
received different consideration than other shareholders, (l) reviewed the
financial terms of a limited number of transactions in which an issuer of
securities sold a non-controlling interest in the issuer to a strategic
acquiror, (m) reviewed the TCI Arrangements and with respect thereto (i)
prepared analyses based upon assumptions provided by TBS and Time Warner, (ii)
analyzed from a financial point of view the impact of the TCI Arrangements on
TBS and Time Warner and (iii) discussed its analyses with members of senior
management of TBS who advised Merrill Lynch that its analyses were reasonable,
(n) reviewed the Merger Agreement and a draft proxy statement relating to the
Mergers, (o) reviewed a draft of the FTC Consent Decree, and (p) reviewed such
other financial studies and analyses and performed such other investigations
and took into account such other matters (as more fully described below) as
Merrill Lynch deemed necessary.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
TBS and Time Warner, and Merrill Lynch did not independently verify
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such information or undertake an independent appraisal of the assets or
liabilities of TBS or Time Warner. With respect to the financial forecasts
furnished by TBS, Merrill Lynch assumed that they were reasonably prepared and
reflected the best currently available estimates and judgment of TBS's
management as to the expected future financial performance of TBS or
SportSouth, as the case may be. With respect to the financial forecasts
furnished by Time Warner relating to the Sunshine Network, Merrill Lynch
assumed that they were reasonably prepared and reflected the best currently
available estimates and judgments of Time Warner's management as to the
expected future financial performance of the Sunshine Network for the period
covered by the forecasts. Merrill Lynch also assumed, based on advice of TBS,
that the TBS Merger could not be consummated without the support of TCI and
that TCI would not support the TBS Merger unless the TCI Arrangements were
entered into and effected. Merrill Lynch further assumed that (i) the payments
to be made by New Time Warner in connection with the SSSI Agreement would be
tax-deductible to New Time Warner and (ii) New Time Warner would not be
required to make any payments to TCI under any tax indemnities or similar
provisions contained in the TCI Arrangements. In addition, based upon advice
of TBS senior management, Merrill Lynch assumed that the rebate arrangement
with TCI under the Program Agreement would commence and terminate at specified
dates in the case of each particular program service and that the terms of the
PPV Output Agreement are customary for an arrangement of that type and reflect
market terms and conditions. Merrill Lynch expressed no opinion as to what the
value of New Time Warner Common Stock actually will be when issued to the
shareholders of TBS pursuant to the TBS Merger or the prices at which New Time
Warner Common Stock will trade subsequent to the Mergers. Merrill Lynch also
assumed for purposes of its opinion that the terms of any additional documents
that may be agreed to other than those reviewed by Merrill Lynch would not
affect Merrill Lynch's analyses. In connection with the preparation of its
opinion, Merrill Lynch was not authorized by TBS or the TBS Board to solicit,
nor did Merrill Lynch solicit, third party indications of interest for the
acquisition of all or any part of TBS. Although Merrill Lynch evaluated the
fairness of the TBS Merger consideration and the TCI Arrangements from a
financial point of view, Merrill Lynch was not requested to, and did not,
participate in the negotiation or structuring of the Transaction or the TCI
Arrangements and was not asked to, and did not, recommend or determine the
specific consideration payable in the TBS Merger or the financial terms of the
TCI Arrangements. The specific consideration payable in the Transaction was
determined by negotiations among the parties to the Transaction. No
limitations were imposed by TBS on Merrill Lynch with respect to the
investigations made or procedures followed by Merrill Lynch in connection with
the rendering of its opinion.
Merrill Lynch provided the TBS Board with a summary of valuation results
obtained by using several different valuation methods, the material portions
of which are summarized below. While Merrill Lynch advised the TBS Board that
the consideration to be received by the shareholders of TBS (other than TCI
and its affiliates and Time Warner) pursuant to the TBS Merger was fair to
such holders from a financial point of view, in light of the presentation made
to the TBS Board by CS First Boston, at the request of TBS, Merrill Lynch did
not provide the TBS Board with the valuation methods and analyses prepared in
connection with such portion of its opinion. The following is a summary of all
the material analyses performed by Merrill Lynch with respect to the TCI
Arrangements.
Summary Valuation of TCI Arrangements
In valuing the TCI Arrangements, Merrill Lynch calculated (i) the imputed
benefit to TCI for each TCI Arrangement (the "TCI Value") and (ii) the imputed
(cost)/benefit to New Time Warner for each TCI Arrangement (a number in
parentheses representing the cost to New Time Warner of such TCI Arrangement)
(the "New Time Warner Value"). In its analysis, Merrill Lynch employed one or
more of the following valuation methodologies (a) discounted cash flow
analyses, (b) analyses of selected publicly traded comparable companies and/or
(c) analyses of selected comparable acquisition transactions. In addition to
calculating a TCI Value and a New Time Warner Value for each TCI Arrangement,
Merrill Lynch also calculated (i) the aggregate TCI Value of all the TCI
Arrangements as a percentage of the offer value of the TBS Merger (calculated
to be $8.2 billion, based upon the market price of Time Warner Common Stock on
August 7, 1996) (the "Offer Value Percentage") and (ii) the per share premium
imputed to TCI with respect to all of the TCI
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Arrangements (defined to be the aggregate TCI Value of all the TCI
Arrangements divided by the total number of TBS Common Stock equivalents owned
by TCI) as a percentage of the per share consideration payable in the TBS
Merger to each holder of TBS Common Stock (the "Per Share Premium
Percentage").
Merrill Lynch calculated the aggregate TCI Value of all the TCI Arrangements
to be $441.2 million and the aggregate New Time Warner Value of all the TCI
Arrangements to be $224.3 million. The aggregate TCI Value of all the TCI
Arrangements to TCI represented (a) an Offer Value Percentage of 5.4% and (b)
a Per Share Premium Percentage of 24.5% (or a per share premium of $6.60). In
its analyses, Merrill Lynch calculated the TCI Value and the New Time Warner
Value of (i) the rebate arrangement under the Program Agreement to be $84.6
million and ($84.6) million, respectively, (ii) the SSSI Agreement (including
the carriage arrangements relating to WTBS after the WTBS Conversion) to be
$246.1 million and $409.4 million, respectively, (iii) the SportSouth
Agreement to be $35.0 million and ($35.0) million, respectively, (iv) the
Sunshine Option to be $10.0 million and $0.0, respectively, and (v) the Class
C Premium to be $65.5 million and ($65.5) million, respectively.
Following the delivery of its opinion, at the request of TBS management,
Merrill Lynch reviewed the final terms of the Program Agreement and
supplementally advised TBS that Merrill Lynch recalculated (a) the TCI Value
for the Program Agreement to be $76.8 million and the New Time Warner Value
for the Program Agreement to be ($76.8) million, (b) the aggregate TCI Value
of all the TCI Arrangements to be $433.4 million and the aggregate New Time
Warner Value of all TCI Arrangements to be $232.0 million, (c) the Offer Value
Percentage of all TCI Arrangements to be 5.3% and (d) the Per Share Premium
Percentage to be 24.1% (or a per share premium of $6.48).
In its September 22 Analyses, Merrill Lynch calculated the aggregate TCI
Value of all the Prior TCI Arrangements to be $401.2 million, representing an
Offer Value Percentage of 4.4% and a Per Share Premium Percentage of 20.0% (or
a per share premium of $6.00).
Analysis of Premiums Paid in Selected Transactions
Comparable Public Premium Analysis. Merrill Lynch compared the range of
Offer Value Percentages to the premiums paid in 26 transactions from 1992 to
the present in which minority interests (15%-49%) in publicly traded companies
were acquired in privately negotiated transactions (each such transaction, a
"Public Premium Transaction" and the company in which such minority interest
was purchased referred to as the "Public Premium Target"). In connection with
its analysis, Merrill Lynch reviewed the Public Premium Transactions to
compare the premium payable to TCI in the TBS Merger with respect to its
minority interest in TBS to premiums paid in other transactions in which a
minority interest in a publicly traded company was purchased in order to
analyze the incremental price a buyer would pay for a significant block of
stock versus the purchase of shares on the open market. While the Public
Premium Transactions are not exactly comparable to the TBS Merger (since they
do not involve a sale of a minority interest with a veto power in the context
of a sale of a company), Merrill Lynch conducted this analysis in order to
analyze the fairness of the TCI Arrangements (and the imputed premium to TCI
as a result thereof) in an alternative manner.
In connection with this analysis, Merrill Lynch analyzed the aggregate
economic premium (defined as the sum of (a) the market price per share
multiplied by the number of shares of outstanding stock with respect to which
no premium is payable and (b) the premium price per share multiplied by the
number of shares of stock with respect to which such premium is payable) paid
by the acquiror in each Public Premium Transaction as a percentage of the
implied market value of the Public Premium Target and compared those results
to the range of Offer Value Percentages. Merrill Lynch determined the range of
economic premiums in the Public Premium Transactions to be (i) (5.4%) to 26.3%
(based on the closing stock price one day prior to the announcement of the
Public Premium Transaction) and (ii) (3.5%) to 24.4% (based on the closing
stock price four weeks prior to the announcement of the Public Premium
Transaction), as compared to an Offer Value Percentage of 5.4%. The Public
Premium Transactions reviewed were Rebar Financial Group/Ampal-American Israel
Corp.; DowElan Co./Mycogen Corp.; Travellers Inc./Taco Cabana Inc.; Telecom
Holding Company Limited/Kopin Corp.; Investor Group/Micros Systems Inc.; The
Anschutz Corporation/Forest Oil Corporation; Hass Wheat & Partners/Playtex
Products, Inc.; Samsung Electronics Co., Ltd./AST Research, Inc.; American
General Corporation/Western National Corporation; CIBA-GEIGY Limited/Chiron
Corporation; France Telecom,
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Deutsche Telekom AG/Sprint Corporation; Nestle USA, Inc./Dreyer's Grand Ice
Cream, Inc.; Electronic Data Systems Corporation/Video Lottery Technologies
Incorporated; Bell Canada International, Inc./Jones Intercable, Inc.; Cadbury
Schweppes P.L.C./Dr. Pepper/Seven-Up Companies, Inc.; Hyundai Electronics
Industries Co., Ltd./Maxtor Corporation; Burlington Resources Inc./Permian
Basin Royalty Trust; Rhone-Poulenc Rorer Inc./Applied Immune Sciences, Inc.;
British Telecommunications plc/MCI Communications Corporation; Blockbuster
Entertainment Corporation/Republic Pictures Corporation; Figgie International
Inc./Kirschner Medical Corporation; Traco International NV/Hartmarx
Corporation; Primerica Corporation/Travelers Corporation; Trian Group L.P./DWG
Corporation; Archer-Daniels-Midland Company/Pilgrim's Pride Corporation; and
Intel Corporation/VLSI Technology, Inc.
Merrill Lynch also analyzed the per share premium paid by the acquiror in
each Public Premium Transaction as a percentage of the closing stock price of
the Public Premium Target (each such per share premium, a "Public Per Share
Premium") and compared those results to the Per Share Premium Percentage.
Merrill Lynch determined the range of Public Per Share Premiums to be (a)
(16.5%) to 95.8% (based on a closing stock price one day prior to public
announcement of the Public Premium Transaction) and (b) (12.6%) to 86.5%
(based on a closing stock price four weeks prior to public announcement of the
Public Premium Transaction), as compared to a Per Share Premium Percentage of
24.5%. The foregoing analysis of the Public Premium Transactions takes into
account solely the purchase price paid for the equity interest in the Public
Premium Target and does not take into account any value or detriment inherent
in any strategic arrangements or other agreements that may have been entered
into in connection with the Public Premium Transactions.
Comparable Private Premium Analysis. Merrill Lynch compared the range of
Offer Value Percentages to the premiums paid (or proposed to be paid) in ten
recapitalization or acquisition transactions from 1986 to the present in which
controlling shareholders were paid (or were proposed to be paid) a premium
versus non-controlling or public shareholders. In conducting this analysis,
Merrill Lynch reviewed the following ten transactions: General Motors
Corporation's spin-off of Electronic Data Systems; recapitalization of Fischer
& Porter Company; recapitalization of Bergen Brunswig Corporation; the
proposed acquisition in November 1995 by Silver King Communications, Inc.
("Silver King") of Home Shopping Network, Inc. ("HSN"); The Griffin Co.'s
acquisition of Resorts International, Inc.; CSX Corporation's acquisition of
Sea-Land Service; Inc.; Bell Atlantic Corporation's proposed acquisition of
TCI; AT&T Corp.'s proposed acquisition of McCaw Cellular Communications, Inc.;
Premark International, Inc.'s acquisition of Sikes Corporation; and The Trump
Group's acquisition of Pay'n Save Inc. (each a "Private Premium Transaction").
While there were numerous other instances of acquisitions of companies with
dual classes of stock, the other transactions considered by Merrill Lynch did
not involve the payment of a premium to controlling shareholders. Merrill
Lynch compared the aggregate economic premium paid in each Private Premium
Transaction as a percentage of the total consideration paid in such
transaction and compared those results to the range of Offer Value
Percentages. Merrill Lynch determined the value range of the economic premiums
in the Private Premium Transactions to be 1.2% to 23.1%, as compared to an
Offer Value Percentage of 5.4%.
Merrill Lynch also analyzed the per share premium paid by the acquiror in
each Private Premium Transaction as a percentage of the per share
consideration paid to the other shareholders of the target company (the
"Private Per Share Premium") and compared those results to the Per Share
Premium Percentages. Merrill Lynch determined the range of Private Per Share
Premiums to be 6.4% to 852.9%, as compared to a Per Share Premium Percentage
of 24.5%. The foregoing analysis of the Private Premium Transactions takes
into account solely the purchase price paid for the equity interest in the
target company and does not take into account any value or detriment inherent
in any strategic arrangements or other agreements that may have been entered
into in connection with the Private Premium Transactions.
The Merrill Lynch valuation of each TCI Arrangement is set forth in greater
detail below.
Program Agreement
Merrill Lynch considered the value of the carriage arrangements under the
Program Agreement relating to WTBS after the WTBS Conversion in its evaluation
of the SSSI Agreement. Merrill Lynch assigned no value to the Program
Agreement as it relates to carriage of Headline News since, while the Program
Agreement provides
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for mandatory carriage of Headline News for a period of at least five years,
the terms of such carriage are not materially more advantageous to TCI as
compared to agreements with other cable systems operators.
Merrill Lynch performed a discounted cash flow analysis of the value to TCI
of the rebate arrangement under the Program Agreement. Merrill Lynch's
calculations were based on the following principal assumptions: (i) that the
rebates to TCI, in the case of each particular service, would commence and
terminate at specified dates, (ii) that TCI would meet certain terms and
conditions so that TCI would be entitled to the maximum rebate throughout the
rebate period and (iii) certain operating assumptions provided by TBS senior
management including with respect to pricing and subscriber growth rates.
Utilizing discount rates ranging from 9% to 13%, Merrill Lynch calculated the
TCI Value to be $84.6 million and the New Time Warner Value to be ($84.6)
million. Merrill Lynch did not attempt to quantify the benefit, if any, to New
Time Warner of any long-term carriage on TCI cable systems as part of its
analysis described above.
Following the August 8, 1996 meeting of the TBS Board, the Program Agreement
was executed with certain changes from the draft of such agreement reviewed by
Merrill Lynch and the TBS Board relating to the timing and duration of the
rebate arrangements to which TCI would be entitled thereunder. At the request
of TBS management, Merrill Lynch performed a discounted cash flow analysis of
the value to TCI of the revised rebate arrangement under the Program
Agreement, using the same assumptions as in the prior analysis (described in
the previous paragraph). Utilizing discount rates ranging from 9% to 13%,
Merrill Lynch calculated the TCI Value of the revised rebate arrangements to
be $76.8 million and the New Time Warner Value of such arrangements to be
($76.8) million, as compared to the $84.6 million TCI Value and the ($84.6)
million New Time Warner Value presented to the TBS Board.
PPV Output Agreement
Merrill Lynch assumed, based on the advice of TBS senior management, that
the terms of the PPV Output Agreement are customary for an arrangement of that
type and reflect market terms and conditions.
SSSI Agreement
Merrill Lynch performed a discounted cash flow analysis of the value of the
SSSI Agreement to New Time Warner based upon discussions with TBS senior
management as to the projected license revenues, advertising sales and
expenses associated with the WTBS Conversion. Utilizing these projections,
Merrill Lynch calculated a range of present values of the SSSI Agreement based
upon the discounted net present value of the sum of (a) the projected
unlevered after-tax free cash flow (defined as operating cash flow available
after working capital, capital spending and tax requirements) of WTBS to the
year 2007 and (b) the projected terminal value of SSSI at such year based upon
a range of multiples of projected operating cash flows ("OCF") of WTBS in the
year 2007. Merrill Lynch's calculations were based on the following principal
assumptions: (i) operating assumptions provided by TBS senior management,
including with respect to pricing and subscriber growth rates, advertising
revenues and probability of carriage of WTBS by all cable operators (other
than Time Warner and TCI), (ii) that New Time Warner would make quarterly
payments of $7.7 million for a period of twelve years and (iii) that all
payments by New Time Warner in connection with the SSSI Agreement would be
deductible by New Time Warner for Federal and state income tax purposes.
Utilizing this methodology, assuming New Time Warner exercised the SSSI Option
and applying (i) a sensitivity analysis based on the probability of carriage
of WTBS by all cable operators (other than Time Warner and TCI), (ii) discount
rates ranging from 11.0% to 13.0% and (iii) multiples of terminal OCF ranging
from 7.0x to 8.0x, Merrill Lynch calculated the New Time Warner Value of the
SSSI Agreement to be $409.4 million (net of the $246.1 million cost of the
SSSI Agreement, which amount represents the sum of (A) 5 million shares of LMC
Reduced Voting Common Stock being issued to SSSI and LMC in respect of the
SSSI Option and the LMC Non-competition Covenant, respectively, valued at
$35.88 per share (the market price per share of Time Warner Common Stock on
August 7, 1996) plus (B) an approximately $67 million payment, payable in cash
or stock at New Time Warner's option). Merrill Lynch calculated the TCI Value
of the SSSI Agreement to be $246.1 million based on the assumption that New
Time Warner would not exercise the SSSI Option if management of New Time
Warner did not believe that New Time Warner could obtain sufficient carriage
of WTBS by cable operators (other than Time Warner and TCI).
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SportSouth Agreement
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis of SportSouth based on its review of SportSouth's historical
financial performance and projections of SportSouth's financial performance as
provided by TBS senior management. Utilizing these projections, Merrill Lynch
calculated a range of present values for SportSouth based upon the discounted
net present value of the sum of (a) the projected unlevered after-tax free
cash flow (defined as operating cash flow available after working capital,
capital spending and tax requirements) of SportSouth to the year 2005 and (b)
the projected terminal value of SportSouth at such year based upon a range of
multiples of projected OCF of SportSouth in the year 2005. Merrill Lynch
subtracted SportSouth's net indebtedness as of June 30, 1996 from each such
value and multiplied the result by TBS's percentage interest in SportSouth in
order to determine a range of implied values of TBS's equity interest in
SportSouth. Utilizing this methodology and applying discount rates ranging
from 14.0% to 16.0% and multiples of terminal OCF ranging from 10.0x to 12.0x,
Merrill Lynch calculated the implied value of TBS's equity interest in
SportSouth to range from $76.8 to $97.7 million.
Comparable Public Company Analysis. Merrill Lynch reviewed certain publicly
available financial information regarding the following four selected publicly
traded basic cable network companies: Gaylord, HSN, International Family and
BET (the "Public Programming Companies"). For each Public Programming Company,
Merrill Lynch derived an OCF multiple by comparing the adjusted enterprise
value of the Public Programming Company (determined by multiplying the closing
stock price by the total outstanding shares, adding thereto net indebtedness,
preferred stock and minority interests and subtracting therefrom, if required,
the estimated value of all non-programming and non-consolidated assets) to its
1997 estimated OCF. Applying OCF multiples ranging from 7.0x to 10.0x, which
multiples were derived from the Public Programming Companies, to SportSouth's
1997 expected OCF, Merrill Lynch calculated the implied asset value of
SportSouth. Merrill Lynch subtracted SportSouth's net indebtedness as of June
30, 1996 from each such value and multiplied the result by TBS's percentage
interest in SportSouth to determine a range of implied values for TBS's equity
interest in SportSouth. Utilizing this methodology, the implied value of TBS's
equity interest in SportSouth was calculated by Merrill Lynch to range from
$57.9 to $83.9 million.
Comparable Acquisition Transaction Analysis. Merrill Lynch reviewed certain
publicly available information regarding ten selected business combinations of
cable networks (the "Cable Comparables") and five selected business
combinations in the entertainment industry (the "Entertainment Comparables").
The Cable Comparables reviewed were Comcast-TCI/QVC, Cablevision Systems--ITT
Corp./Madison Square Garden Corp., K-III Communications Corp./Whittle
Educational Network, LMC/Prime Ticket Inc., Capital Cities/Lifetime
Television, Ellis Communications Inc./Raycom Inc., Cablevision Systems/AMC
Entertainment Inc., LMC/Sportschannel Chicago Associates, Hearst Corp./ESPN
Inc., the Wometco sale of its participation interest in SportSouth to TBS and
TCI and the proposed acquisition in November 1995 by Silver King of HSN. The
Entertainment Comparables reviewed were Viacom/Paramount, Seagram/MCA,
Disney/Capital Cities, Westinghouse/CBS and the proposed acquisition of MGM by
a group including Tracinda Corporation and MGM management. For each such
transaction, Merrill Lynch compared the transaction value (determined by
multiplying the consideration per share by the total outstanding shares of the
target company, adding thereto net indebtedness, preferred stock and minority
interests of the target company and subtracting therefrom, if required, the
estimated value of all non-programming and non-consolidated assets of the
target company) of each such transaction as a multiple of EBITDA for the last
twelve months of the target company. Applying this analysis to the SportSouth
transaction, Merrill Lynch calculated the transaction value of the SportSouth
transaction to be 9.2x SportSouth's OCF for the twelve months ending June 30,
1996. Merrill Lynch then calculated the implied asset value of SportSouth by
applying OCF multiples ranging from 10.0x to 12.0x, which multiples were
derived from the Cable Comparables and the Entertainment Comparables, to
SportSouth's 1997 expected OCF. Merrill Lynch subtracted SportSouth's net
indebtedness as of June 30, 1996 from each such value and multiplied the
result by TBS's equity interest in SportSouth to determine a range of TBS's
implied equity value in SportSouth. Utilizing this methodology, the implied
equity value of TBS's interest in SportSouth was calculated by Merrill Lynch
to range from $83.9 to $101.3 million.
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Based on its analyses, Merrill Lynch calculated the TCI Value and the New
Time Warner Value of the SportSouth Agreement to be $35 million and ($35)
million, respectively.
Sunshine Option
Merrill Lynch calculated the implied offer value of the Sunshine Network to
be $93.3 million based on TCI's purchase of Time Warner's approximately 15.0%
indirect interest in the Sunshine Network at a purchase price of $14.0 million
pursuant to the Sunshine Option. Merrill Lynch calculated the implied
transaction value of the Sunshine Option to be $90.7 million (implied offer
value of $93.3 million plus ($2.6) million of net indebtedness of the Sunshine
Network as of June 30, 1996) and determined such value to be a 22.1x, 18.5x
and 45.4x multiple of the Sunshine Network's 1995 OCF, 1996 OCF and adjusted
1996 OCF (adjusted 1996 OCF assumes that the Sunshine Network loses a
significant amount of its programming rights to SportsChannel Florida, a
competing regional sports programming service controlled by Front Row
Communications, Inc. (an affiliate of H. Wayne Huizenga, who also controls
major Florida sports teams) and annual cash flow decreases to approximately $2
million). Merrill Lynch then analyzed the value of the Sunshine Network based
on the Sunshine Network's 1996 OCF and adjusted 1996 OCF utilizing OCF
multiples of 10.0x to 12.0x. In addition, Merrill Lynch also analyzed the
value of the Sunshine Network based on the terms of the recent sale of the
Prime Ticket Network. Based on its analyses, Merrill Lynch calculated the TCI
Value and the New Time Warner Value of the Sunshine Option to be $10.0 million
and $0.0, respectively.
Class C Premium Payable to TCI
Pursuant to the TBS Merger, (a) the exchange ratio with respect to each
share of TBS Common Stock is 0.75 of a share of New Time Warner Common Stock
and (b) the exchange ratio with respect to each share of TBS Class C Preferred
Stock (which, by its terms, is convertible into six shares of TBS Class B
Common Stock) is 4.80 shares of New Time Warner Common Stock. Based on a
$35.88 price per share of New Time Warner Common Stock (the closing market
price of Time Warner Common Stock on August 7, 1996), Merrill Lynch calculated
the aggregate Class C Premium payable to TCI with respect to its holdings of
TBS Class C Preferred Stock to be $65.5 million.
In arriving at the Merrill Lynch Opinion, Merrill Lynch performed a variety
of financial analyses, the material portions of which are summarized above.
Merrill Lynch believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all such factors and analyses, could create a misleading
view of the process underlying its analyses set forth in the Merrill Lynch
Opinion. Any estimates incorporated in the analyses performed by Merrill Lynch
are not necessarily indicative of actual past or future results or values,
which may be significantly more or less favorable than such estimates.
Estimated values do not purport to be appraisals and do not necessarily
reflect the prices at which businesses or companies may be sold in the future,
and such estimates are inherently subject to uncertainty. No company or
transaction utilized in the comparable company and comparable acquisition
analyses as a comparison is identical to SportSouth or the Sunshine Network.
Additionally, no Public Premium Transaction or Private Premium Transaction is
identical to the Transaction or to the TCI Arrangements. Accordingly, an
analysis of comparable transactions and/or comparable companies is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the public trading value of the comparable companies
or the business segment or company to which they are being compared. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description.
Miscellaneous
The TBS Board selected Merrill Lynch to render a fairness opinion because
Merrill Lynch is an internationally recognized investment banking firm with
substantial experience in transactions similar to the
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Transaction and because it is familiar with TBS and its business. Merrill
Lynch has, in the past provided (and may in the future provide), financial
advisory and/or financing services to TBS, Time Warner and TCI and has
received fees for the rendering of such services. Specifically, since January
1, 1989, Merrill Lynch has received fees, including underwriting fees, of
approximately $18 million, $122 million and $50 million from TBS, Time Warner
and TCI, respectively, other than the fee paid to Merrill Lynch in connection
with the Merrill Lynch Opinion. Merrill Lynch has recently provided financial
advisory services to TCI in connection with other matters for which Merrill
Lynch expects to receive customary compensation. In addition, an affiliate of
Merrill Lynch is currently providing commercial lending services to Mr. Turner
for which it receives customary compensation and Merrill Lynch may in the
future provide additional services to Mr. Turner. See "Certain Fees and
Expenses" below for a summary of the terms of the engagement of Merrill Lynch
by TBS.
PURPOSE AND CERTAIN EFFECTS OF THE TRANSACTION
The purpose of the Transaction is to combine Time Warner and TBS. As a
result of the Transaction, Time Warner and TBS will each become a wholly owned
subsidiary of New Time Warner. New Time Warner will derive the sole benefit of
TBS's net earnings and net book value, and former holders of TBS Capital Stock
will no longer have any direct interest in TBS or be able to vote with respect
to the future affairs of TBS. Although former holders of TBS Capital Stock
will no longer enjoy the possibility of a direct interest in any future
appreciation in their equity interest in TBS, after the Transaction such
former holders will enjoy the possibility of future appreciation in their
equity interest in New Time Warner, which will include TBS.
Registration of the TBS Common Stock under the Exchange Act may be
terminated upon application of TBS to the Commission if the TBS Common Stock
is neither listed on a national securities exchange nor held by more than 300
holders of record. Following consummation of the Mergers, TBS will be a wholly
owned subsidiary of New Time Warner and the TBS Common Stock will be delisted
from the AMEX and will no longer trade publicly. TBS expects that the TBS
Common Stock will continue to be listed and traded on the AMEX until the
consummation of the Transaction.
Following consummation of the Mergers, New Time Warner intends to guarantee
unconditionally the outstanding publicly traded indebtedness of Time Warner
and TBS. As a result (subject to confirmation from the Commission), neither
Time Warner nor TBS expects to continue to file financial information or other
reports under the Exchange Act; however, New Time Warner intends to include
summarized financial information regarding Time Warner and TBS in its
financial statements, to the extent required by the rules of the Commission.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendations of the Time Warner Board and the TBS
Board with respect to the Transaction, stockholders of Time Warner and
shareholders of TBS should be aware that certain members of the TBS Board and
management of TBS have certain interests in the Transaction that may be in
addition to the interests of stockholders of Time Warner or shareholders of
TBS generally. The Time Warner Board and the TBS Board were aware of these
interests and considered them, among other factors, in approving the
Transaction. These interests are summarized below.
Employment Agreement with R.E. Turner
Upon consummation of the Mergers, New Time Warner and Mr. Turner will enter
into a five-year employment agreement (the "Turner Employment Agreement"). The
Turner Employment Agreement provides that, subject to and after consummation
of the Mergers, Mr. Turner will serve as Vice Chairman of New Time Warner and
Chief Executive Officer of New Time Warner's newly-created Video Division
(consisting principally of the businesses of TBS, the Home Box Office division
of TWE ("Home Box Office") and TWE's interest in Court TV) (the "Video
Division") until December 31, 2001 (the "Term Date"). He will also continue to
serve as the Chairman of the Board, President and Chief Executive Officer of
TBS. Pursuant to the Turner Employment
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Agreement, Mr. Turner will receive an annual salary of not less than $700,000
and will have a target annual bonus equal to 90% of the target annual bonus
paid to the Chief Executive Officer of New Time Warner (assuming comparable
levels of achievement of their respective qualitative goals established by the
Compensation Committee of the New Time Warner Board (the "Compensation
Committee")), with the actual annual bonus paid to be determined by the
Compensation Committee in accordance with the Time Warner Inc. Annual Bonus
Plan for Executive Officers, which will be assumed by New Time Warner. In
addition, the Turner Employment Agreement provides that deferred compensation
in an amount equal to 50% of Mr. Turner's base salary during each year of the
term of employment will be credited to an account to be maintained by New Time
Warner and managed by an investment advisor appointed by New Time Warner,
subject to Mr. Turner's approval. Funds will be invested or deemed to be
invested in securities as directed by the investment advisor, with the assumed
after-tax effect upon New Time Warner of gains, losses and income, and
distributions thereof, and of interest expenses and brokerage commissions and
other direct expenses attributed thereto, being credited or charged to the
account. Payments from his deferred compensation account will be made to Mr.
Turner in installments over a five-year period beginning after expiration of
his term of employment. Such payments will include an amount equal to the
assumed tax benefit to New Time Warner of the compensation deduction available
for tax purposes for the portion of the account represented by the net
appreciation in such account, even though New Time Warner might not actually
receive such tax benefit.
So long as Mr. Turner is employed by New Time Warner and subject to New Time
Warner's obligations under Investors' Agreement (No. 1), New Time Warner will
include him in management's slate for election as a director at every
stockholders' meeting at which his term as a director would otherwise expire
and will use its best efforts to cause Mr. Turner to be elected to the New
Time Warner Board.
In the event Mr. Turner's employment is terminated for cause, Mr. Turner
will receive earned and unpaid base salary and deferred compensation accrued
through such date of termination. "Cause" under the Turner Employment
Agreement will be defined as termination by action of the New Time Warner
Board, or a committee thereof, because of Mr. Turner's conviction of a felony,
willful refusal without proper cause to perform his obligations under the
Turner Employment Agreement or his material breach of certain other provisions
of the Turner Employment Agreement.
In the event of New Time Warner's material breach or wrongful termination of
the Turner Employment Agreement, Mr. Turner will be entitled to terminate his
employment with New Time Warner and receive a lump-sum payment (the "Lump Sum
Payment") equal to the present value of the base salary, bonuses and deferred
compensation that would otherwise be payable to Mr. Turner through the Term
Date. In lieu of the Lump Sum Payment, Mr. Turner may elect to remain an
employee of New Time Warner through the Term Date and, without performing any
services, receive the base salary, bonuses and deferred compensation payable
under the Turner Employment Agreement at the times such amounts would have
been paid had there been no breach or wrongful termination. Mr. Turner is not
generally required to mitigate his damages after such a termination, other
than as necessary to prevent New Time Warner from losing any tax deductions
that it otherwise would have been entitled to receive for any payments deemed
to be "contingent on a change" in ownership or control of a corporation under
the Code and applicable regulations.
If Mr. Turner becomes disabled during the term of the Turner Employment
Agreement, he will receive his full salary, bonus and deferred compensation
through the sixth month of disability and 75% of his annual salary and bonus
through the Term Date. Deferred compensation will be maintained and paid after
giving effect to Mr. Turner's base salary after disability. Any such payments
will be reduced by amounts received by Mr. Turner from Workers' Compensation,
Social Security and disability insurance policies maintained by New Time
Warner.
If Mr. Turner dies during the term of the Turner Employment Agreement, his
beneficiaries will receive Mr. Turner's earned and unpaid salary and deferred
compensation to the last day of the month in which the death
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occurs and a pro rata portion of Mr. Turner's bonus for the year of his death.
Deferred compensation will be valued and paid promptly after death.
Mr. Turner will have the right to terminate the Turner Employment Agreement
at any time prior to the Term Date. In such event, Mr. Turner will receive
earned and unpaid salary and deferred compensation and a pro rata portion of
his bonus through the date of such termination.
New Time Warner is required to maintain for Mr. Turner, throughout his life,
$6 million of split ownership life insurance. At the time of his death, Mr.
Turner's estate is required to pay New Time Warner an amount equal to the net
after-tax cost to New Time Warner of the premiums on such policy. Such
insurance is in addition to any other insurance provided to Mr. Turner under
any group contract maintained by New Time Warner.
Pursuant to the Turner Employment Agreement, Mr. Turner, as Vice Chairman of
New Time Warner, is entitled to receive an initial award of options
("Options") to purchase 1.3 million shares of New Time Warner Common Stock
upon consummation of the Mergers (the "Initial Award") and an award of Options
with respect to an additional 300,000 shares of New Time Warner Common Stock
on each of the first four anniversaries of the consummation of the Mergers, in
each case pursuant to the terms of a stock option plan of New Time Warner.
Pursuant to the Turner Employment Agreement, each such Option will have a ten-
year term and will become exercisable in installments of one-third on each of
the first three anniversaries of the date of the grant.
Pursuant to the Turner Employment Agreement, the Options included in each of
Mr. Turner's annual awards other than the Initial Award will be awarded at
exercise prices no less favorable to Mr. Turner (on a percentage basis) than
those most recently granted to the Chief Executive Officer of New Time Warner.
With respect to the Initial Award, Options to purchase 650,000 shares of New
Time Warner Common Stock will be awarded at an exercise price equal to the
fair market value of Time Warner Common Stock on the date of the Initial
Award, Options to purchase 325,000 shares of New Time Warner Common Stock will
be awarded at an exercise price equal to 125% of the fair market value of Time
Warner Common Stock on the date of the Initial Award and Options to purchase
325,000 shares of New Time Warner Common Stock will be awarded at an exercise
price equal to 150% of the fair market value of Time Warner Common Stock on
the date of the Initial Award. Mr. Turner's Options will become immediately
exercisable in full in respect of the aggregate number of shares covered
thereby if Mr. Turner's employment terminates by reason of death or total
disability. In the event of New Time Warner's material breach or wrongful
termination of the Turner Employment Agreement, all Options awarded to Mr.
Turner will become immediately exercisable and all remaining Options under the
Turner Employment Agreement will be granted.
Options may be exercised after termination of Mr. Turner's employment only
to the extent provided in the agreement pursuant to which the Options are
awarded; provided, however, that (a) if his employment terminates by reason of
death or total disability, Options will remain exercisable for a period of at
least one year after such termination (but not later than the scheduled
expiration of such Options), (b) if his employment terminates for cause, then
all Options awarded to Mr. Turner will terminate immediately and (c) in the
event of New Time Warner's material breach or wrongful termination of the
Turner Employment Agreement, the Options will remain exercisable until the
scheduled expiration of such Options.
Right of R.E. Turner to Name Designees to New Time Warner Board
Pursuant to Investors' Agreement (No.1), New Time Warner will agree to take
all action necessary to cause Mr. Turner and a designee of Mr. Turner to be
elected as directors of New Time Warner. See "Certain Related Agreements--
Investors' Agreements."
Certain Arrangements With Officers of TBS
In connection with the execution of the Merger Agreement, Time Warner agreed
to extend certain severance and option arrangements to a group of senior
executives of TBS and its subsidiaries. Such arrangements are
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described below. Notwithstanding the entry into such arrangements, Time Warner
has expressed its desire that such persons remain with the combined enterprise
following consummation of the Mergers.
With respect to each of Terence F. McGuirk, TBS Executive Vice President, W.
Thomas Johnson, TBS Vice President--News, Scott M. Sassa, TBS Vice President--
Turner Entertainment Group, Bert Carp, TBS Vice President--Government Affairs,
William H. Grumbles, TBS Vice President--Worldwide Distribution, Steven J.
Heyer, TBS Vice President--Advertising Sales and Marketing, Steven W. Korn,
TBS Vice President, General Counsel and Secretary, and Wayne H. Pace, TBS Vice
President--Finance and Chief Financial Officer (collectively, the "TBS
Officers"), Time Warner has acknowledged and agreed that the consummation of
the Mergers will be deemed a breach of each such officer's employment
agreement with TBS and that each such officer will have the right thereafter
at any time to terminate his employment agreement and receive a lump sum
payment equal to the aggregate of his salary, bonus, long-term bonus, car
allowance and all other payments due such officer under the terms of his
employment agreement. Upon consummation of the Mergers, all options to
purchase shares of TBS Common Stock held by the TBS Officers, whether vested
or unvested, will, pursuant to their terms, be converted into vested options
to purchase shares of New Time Warner Common Stock. Currently such options
terminate between 90 days and one year after the termination of such officer's
employment. However, in the event such officer's employment is terminated for
any reason, Time Warner has agreed that each of such options will be
exercisable until the earlier of the existing expiration date of such option
and the fifth anniversary of the consummation of the Mergers (the "Five-Year
Exercise Right"). As of June 30, 1996, the TBS Officers held options to
acquire in the aggregate 3,661,000 shares of TBS Class B Common Stock. As of
such date, the net value of such options (i.e., the aggregate positive
difference between the exercise price of such options and the value of the TBS
Class B Common Stock that may be purchased pursuant to such options, based on
the closing sale price of TBS Class B Common Stock on such date (the "Net
Value")) held by the TBS Officers was $19,499,344. The lump sum payments to
which the TBS Officers would be entitled upon termination of their employment
agreements (assuming that each of them terminated his employment agreement as
of September 30, 1996), in the aggregate, would be approximately $28,336,000
(exclusive of long-term bonuses, amounts in respect of required continuation
of certain benefit plans and the value of certain services to be provided
under such contracts).
With respect to each of Robert Shaye, Chairman and Chief Executive Officer
of New Line, Michael Lynne, President and Chief Operating Officer of New Line,
and Alan F. Horn, Chief Executive Officer of Castle Rock, Time Warner has
agreed that all options held by such officers that would not otherwise vest
pursuant to their terms will, upon consummation of the Mergers, be converted
into vested options to purchase shares of New Time Warner Common Stock and has
agreed to extend the Five-Year Exercise Right to such officers. Absent the
Five-Year Exercise Right, the options held by such officers to which such
right has been extended would otherwise terminate between 90 days and one year
after the termination of such officer's employment. As of June 30, 1996,
Messrs. Shaye, Lynne and Horn held options to acquire in the aggregate
6,046,778 shares of TBS Class B Common Stock. As of such date, the Net Value
of such options held by such officers was $50,937,000.
Director and Officer Liability Insurance and Indemnification
The Merger Agreement provides that all rights to indemnification for acts or
omissions occurring prior to the consummation of the Mergers, existing as of
September 22, 1995, in favor of the current or former directors or officers of
TBS as provided in the TBS Articles or the TBS By-Laws will survive the TBS
Merger and will continue in full force and effect in accordance with their
terms from the consummation of the Mergers until the expiration of the
applicable statute of limitations with respect to any claims against the
current or former directors or officers of TBS arising out of such acts or
omissions. New Time Warner has agreed to cause to be maintained TBS's
directors' and officers' insurance and indemnification policy in effect as of
September 22, 1995, to the extent that it provides coverage for events
occurring prior to the consummation of the Mergers so long as the annual
premium therefor would not be in excess of 150% of the last annual premium
paid prior to September 22, 1995 (the "Maximum Premium"). If such policy
expires, is terminated or canceled during such six-year period,
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New Time Warner will use all reasonable efforts to cause to be maintained as
much of such insurance coverage as can be obtained for the remainder of such
period for an annualized premium not in excess of the Maximum Premium.
TCI Arrangements
Certain agreements have been or will be entered into between TCI and Time
Warner, or their respective affiliates, and between TCI and TBS, or their
respective affiliates. For a description of the principal terms of these
agreements, see "TCI Arrangements." As of June 30, 1996, TCI owned 7.7% of the
voting power of the outstanding TBS Capital Stock and has the right to
designate three of the seven Class C Directors. See "--Background" above.
FEDERAL INCOME TAX CONSEQUENCES
Time Warner Merger
The discussion set forth below is the opinion of Cravath, Swaine & Moore as
to the material Federal income tax consequences of the Time Warner Merger.
Such opinion is not binding on the IRS. The opinion is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury Regulations thereunder, judicial decisions and current
administrative rulings, any of which may be changed at any time with
retroactive effect. The opinion does not address all aspects of Federal income
taxation that may be important to particular taxpayers in light of their
personal investment circumstances or to taxpayers subject to special treatment
under the Federal income tax laws (including life insurance companies, foreign
persons, tax-exempt entities, holders who acquired their Time Warner Capital
Stock pursuant to the exercise of employee stock options or otherwise as
compensation and persons who hold, directly or indirectly, 10% or more of Time
Warner Capital Stock or any class of Time Warner Capital Stock) and does not
address any aspect of state, local or foreign taxation. The opinion also
assumes that Time Warner Capital Stock will be held as a capital asset at the
time of the consummation of the Time Warner Merger. No rulings have been or
will be requested from the IRS with respect to any of the matters discussed
herein. There can be no assurance that future legislation, regulations,
administrative rulings or court decisions would not alter the tax consequences
set forth below.
Based upon representation letters, which will be reconfirmed prior to the
Closing of the Mergers, it is the opinion of Cravath, Swaine & Moore that the
Time Warner Merger will be treated as a transfer of property to New Time
Warner by the holders of Time Warner Capital Stock and governed by Section 351
of the Code. The opinion is based on current law and assumes that the Mergers
will be consummated as described in this Joint Proxy Statement/Prospectus and
in accordance with the Merger Agreement and related agreements in their
current form. It is a condition to the obligation of Time Warner to consummate
the Time Warner Merger that it shall have received confirmation, dated the
Closing Date, of the opinion contained in this paragraph.
Treatment of New Time Warner, Time Warner and TW Merger Corp. No gain or
loss will be recognized by New Time Warner, Time Warner or TW Merger Corp. as
a result of the Time Warner Merger.
Conversion of Time Warner Common Stock into New Time Warner Common Stock. A
holder of Time Warner Common Stock whose shares of Time Warner Common Stock
are converted in the Time Warner Merger into shares of New Time Warner Common
Stock will not recognize gain or loss upon such conversion. The tax basis of
the New Time Warner Common Stock received by such holder will be equal to the
tax basis of the Time Warner Common Stock so converted, and the holding period
of the New Time Warner Common Stock will include the holding period of the
Time Warner Common Stock so converted.
Conversion of Time Warner Preferred Stock into New Time Warner Preferred
Stock. A holder of Time Warner Preferred Stock whose shares of Time Warner
Preferred Stock are converted in the Time Warner Merger
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into shares of New Time Warner Preferred Stock will not recognize gain or loss
upon such conversion. The tax basis of the New Time Warner Preferred Stock
received by such holder will be equal to the tax basis of the Time Warner
Preferred Stock so converted and the holding period of the New Time Warner
Preferred Stock will include the holding period of the Time Warner Preferred
Stock so converted.
Constructive Distributions on the New Time Warner Series M Preferred Stock.
Section 305 of the Code and the Treasury Regulations thereunder provide that,
under certain circumstances, the excess of the redemption price of preferred
stock (as defined for purposes of Section 305 of the Code) over the issue
price of such preferred stock will be taxable as a constructive distribution
to the holder (which will be treated as a dividend to the extent of the
issuer's current and accumulated earnings and profits). None of the New Time
Warner Preferred Stock except the New Time Warner Series M Preferred Stock
will be deemed "preferred stock" for purposes of Section 305 of the Code.
If the redemption price at the issue date of the New Time Warner Series M
Preferred Stock exceeds, by more than a de minimis amount, the issue price of
the New Time Warner Series M Preferred Stock (i.e., the fair market value of
such stock at its date of issue), holders will be required to accrue such
excess (the "redemption premium") as a constructive dividend distribution (to
the extent of the issuer's current and accumulated earnings and profits) over
the term of such stock. In addition, distribution by New Time Warner of any
additional shares of New Time Warner Series M Preferred Stock, in lieu of a
cash dividend payment, may give rise to additional redemption premium. Holders
should consult their tax advisors regarding the application of the above rules
to their particular situation.
Dissenting Holders of Time Warner Preferred Stock. A holder of Time Warner
Preferred Stock that receives solely cash in exchange for such stock in the
Time Warner Merger pursuant to the exercise of appraisal rights under Section
262 of the DGCL will recognize capital gain or loss at the time of the
consummation of the Time Warner Merger equal to the difference between the tax
basis of the Time Warner Preferred Stock surrendered and the amount of cash
received therefor. Such capital gain or loss will constitute long-term capital
gain or loss if such Time Warner Preferred Stock has been held by the holder
for more than one year at the time of the consummation of the Time Warner
Merger.
Reporting Requirements. Each holder of Time Warner Common Stock that
receives New Time Warner Common Stock in the Time Warner Merger and each
holder of Time Warner Preferred Stock that receives New Time Warner Preferred
Stock in the Time Warner Merger will be required to retain records and file
with such holder's Federal income tax return a statement setting forth certain
facts relating to the Time Warner Merger.
TBS Merger
The discussion set forth below is the opinion of Skadden, Arps, Slate,
Meagher & Flom as to the material Federal income tax consequences of the TBS
Merger. Such opinion is not binding on the IRS. The opinion is based upon the
provisions of the Code, applicable Treasury Regulations thereunder, judicial
decisions and current administrative rulings, any of which may be changed at
any time with retroactive effect. The opinion does not address all aspects of
Federal income taxation that may be important to particular taxpayers in light
of their personal investment circumstances or to taxpayers subject to special
treatment under the Federal income tax laws (including life insurance
companies, foreign persons, tax-exempt entities, holders who acquired their
TBS Capital Stock pursuant to the exercise of employee stock options or
otherwise as compensation and persons who hold, directly or indirectly, 10% or
more of TBS Capital Stock or any class of TBS Capital Stock) and does not
address any aspect of state, local or foreign taxation. The opinion also
assumes that TBS Capital Stock will be held as a capital asset at the time of
the consummation of the TBS Merger. No rulings have been or will be requested
from the IRS with respect to any of the matters discussed herein. There can be
no assurance that future legislation, regulations, administrative rulings or
court decisions would not alter the tax consequences set forth below.
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Based upon representation letters, which will be reconfirmed prior to the
Closing of the Mergers, it is the opinion of Skadden, Arps, Slate, Meagher &
Flom that the TBS Merger will be treated as a transfer of property to New Time
Warner by the holders of TBS Capital Stock governed by Section 351 of the
Code. The opinion is based on current law and assumes that the Mergers will be
consummated as described in this Joint Proxy Statement/Prospectus and in
accordance with the Merger Agreement and related agreements in their current
form. It is a condition to the obligation of TBS to consummate the TBS Merger,
that it shall have received confirmation, dated the Closing Date, of the
opinion contained in this paragraph.
Treatment of New Time Warner, TBS and TBS Merger Corp. No gain or loss will
be recognized by New Time Warner, TBS or TBS Merger Corp. as a result of the
TBS Merger.
Conversion of TBS Capital Stock into New Time Warner Common Stock. A holder
of TBS Capital Stock whose shares of TBS Capital Stock are converted in the
TBS Merger into the right to receive shares of New Time Warner Common Stock
will not recognize gain or loss upon such conversion, except to the extent
cash is received in lieu of fractional shares. See "--Cash in Lieu of
Fractional Shares" below. The aggregate tax basis of the New Time Warner
Common Stock received by such holder will be equal to the aggregate tax basis
of the TBS Capital Stock so converted (excluding any portion of the holder's
basis allocated to fractional shares), and the holding period of the New Time
Warner Common Stock will include the holding period of the TBS Capital Stock
so converted. See "--Transfer Taxes" below.
Cash in Lieu of Fractional Shares. A holder of TBS Capital Stock who
receives cash in lieu of fractional shares of New Time Warner Common Stock
will be treated as having received such fractional shares pursuant to the TBS
Merger and then as having exchanged such fractional shares for cash in a
redemption by New Time Warner. Any gain or loss attributable to fractional
shares will generally be capital gain or loss. The amount of such gain or loss
will be equal to the difference between the ratable portion of the tax basis
of the TBS Capital Stock converted in the TBS Merger that is allocated to such
fractional shares and the cash received in lieu thereof. Any such capital gain
or loss will constitute long-term capital gain or loss if such TBS Capital
Stock has been held by the holder for more than one year at the time of the
consummation of the TBS Merger.
Dissenting Holders of TBS Capital Stock. A holder of TBS Capital Stock that
receives solely cash in exchange for such stock in the TBS Merger pursuant to
the exercise of dissenter's rights under Article 13 of the GBCC will recognize
capital gain or loss at the time of the consummation of the TBS Merger equal
to the difference between the tax basis of the TBS Capital Stock surrendered
and the amount of cash received therefor. Such capital gain or loss will
constitute long-term capital gain or loss if such TBS Capital Stock has been
held by the holder for more than one year at the time of the consummation of
the TBS Merger. See "--Transfer Taxes" below.
Reporting Requirements. Each holder of TBS Capital Stock that receives New
Time Warner Common Stock in the TBS Merger will be required to retain records
and file with such holder's Federal income tax return a statement setting
forth certain facts relating to the TBS Merger.
Tax Treatment to Holders of TBS LYONs. As a result of the Mergers, the TBS
LYONs will become convertible into shares of New Time Warner Common Stock. See
"--Effect of Transaction on TBS LYONs" below. There will be no gain or loss
recognized for Federal income tax purposes as a result of such modification.
Any conversion of a TBS LYON into New Time Warner Common Stock after the
consummation of the Transaction will, however, be a taxable transaction to a
holder of such TBS LYON.
THIS FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY
NOT APPLY TO ALL HOLDERS OF TIME WARNER CAPITAL STOCK OR TBS CAPITAL STOCK.
SUCH HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGERS.
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ACCOUNTING TREATMENT
The Transaction will be accounted for by New Time Warner under the purchase
method of accounting for business combinations. See "Unaudited Pro Forma
Consolidated Condensed Financial Statements."
CERTAIN FEES AND EXPENSES
TBS retained CS First Boston, pursuant to the terms of a letter agreement
(the "CSFB Engagement Letter"), as its financial advisor to provide financial
analyses and advice and to render an opinion to the TBS Board as to the
fairness to the shareholders of TBS (other than Time Warner and its
affiliates), from a financial point of view, of the consideration to be
received by such shareholders pursuant to the terms of a potential business
combination between Time Warner and TBS. TBS agreed to pay CS First Boston, as
compensation for its services under the CSFB Engagement Letter, a fee of $4
million, payable upon delivery of the opinion dated September 22, 1995
contemplated by the CSFB Engagement Letter, and to reimburse CS First Boston
for reasonable out-of-pocket expenses, including reasonable fees and expenses
of counsel, incurred in connection with its services to TBS. TBS also agreed
to pay CS First Boston an additional fee of $500,000 as compensation for
additional services, payable upon delivery of the opinion dated August 8,
1996. TBS also agreed to indemnify CS First Boston and certain related persons
and entities against certain liabilities, including liabilities under the
Federal securities laws.
TBS retained Merrill Lynch, pursuant to the terms of a letter agreement (the
"Merrill Lynch Engagement Letter"), as its financial advisor to assist in
analyzing the proposed transaction and the Prior TCI Arrangements and to
render an opinion to the TBS Board as to (a) the fairness to the shareholders
of TBS (other than TCI and its affiliates and Time Warner), from a financial
point of view, of the consideration to be received by such shareholders
pursuant to the Transaction and (b) in the context of the governance
arrangements relating to TBS's ability to consummate the Transaction, the
fairness of the financial terms of the Prior TCI Arrangements, from a
financial point of view, to TBS and its shareholders (other than TCI and its
affiliates and Time Warner). TBS and Merrill Lynch subsequently entered into
an amendment to the Merrill Lynch Engagement Letter pursuant to which TBS
retained Merrill Lynch to render an additional opinion to the TBS Board with
respect to the amended TCI Arrangements. TBS agreed to (i) pay Merrill Lynch
(x) as compensation for its services under the Merrill Lynch Engagement
Letter, a fee of $1 million, payable upon delivery of the opinion contemplated
by the Merrill Lynch Engagement Letter and (y) as compensation for its
services under the amendment to the Merrill Lynch Engagement Letter, an
additional fee of $500,000, payable upon delivery of the opinion contemplated
by that amendment, and (ii) to reimburse Merrill Lynch for certain out-of-
pocket expenses incurred in connection with its services to TBS. TBS also
agreed to indemnify Merrill Lynch, its affiliates, the respective directors,
officers, agents and employees of Merrill Lynch and its affiliates, and each
person, if any, controlling Merrill Lynch or any of its affiliates, against
certain liabilities, including liabilities under the Federal securities laws.
The TBS Board has approved the payment to Capital City of $3 million upon
consummation of the Mergers in addition to monthly retainer fees payable by
TBS pursuant to a consulting agreement dated May 1, 1994, between TBS and
Capital City (as amended, the "Capital City Consulting Agreement"). The
principal of Capital City, Randolph L. Booth, was formerly the Chief Financial
Officer of TBS and provided certain consulting services to TBS relating to the
development and implementation of plans and strategies related to mergers,
acquisitions, financings and such additional matters as mutually agreed upon
pursuant to the Capital City Consulting Agreement, which expired on April 30,
1996. The services performed by Capital City included (a) meeting with members
of TBS's senior management and other advisors to TBS to discuss potential
business opportunities identified by TBS and under consideration from time to
time by TBS, (b) meeting with representatives of TBS and its advisors and with
representatives of Time Warner and TCI to identify unresolved business issues
relating to the proposed Transaction, (c) meeting with representatives of TBS
to discuss strategies for resolving open business issues, (d) assisting TBS in
developing its presentations addressing the strategic benefits of the
Transaction for the meetings of the TBS Board held in August and September of
1995 and (e) assisting in the resolution of issues related to the arrangements
to be put in place for executive officers of TBS
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upon consummation of the Mergers. The Capital City Consulting Agreement
provided for a monthly retainer of $50,000, certain transaction fees, as
described therein, and the reimbursement of certain out-of-pocket expenses.
Pursuant to the Capital City Consulting Agreement, each of TBS and Capital
City also agreed to indemnify the other against certain liabilities arising as
a result of the consulting services provided under the Capital City Consulting
Agreement.
TBS and MC Group are parties to a letter agreement (the "MC Group Consulting
Agreement"), pursuant to which MC Group agreed to provide certain consulting
services to TBS. Such services have included (a) meeting with representatives
of TBS and Capital City to discuss and provide MC Group's views and
perspective on the future of the entertainment/telecommunications industry and
TBS's position in such industry, (b) consulting with respect to TBS's long-
term goals, including discussing with Mr. Turner his desire to position TBS to
acquire a broadcast television network, to establish a presence in the
interactive television and computer technologies industries and to enhance
TBS's international businesses, (c) assisting TBS in identifying strategic
partners for TBS in the pursuit of these long-term goals, (d) providing TBS
with MC Group's views with respect to the manner in which certain potential
opportunities identified and under consideration from time to time by TBS
could contribute to TBS's long-term strategy, (e) providing TBS with
introductions to other operating companies for the purpose of exploring
potential business opportunities, (f) meeting with representatives of TBS and
Capital City to discuss and provide MC Group's views and perspective on the
strategic benefits to TBS of the proposed merger with Time Warner in the
context of TBS's long-term strategic goals, (g) meeting with Mr. Turner and
representatives of TCI and Time Warner to identify business issues relating to
the proposed merger to be resolved by the parties, (h) providing Mr. Turner
with advice with respect to keeping the parties to the Transaction focused on
resolving open business issues, and (i) providing Mr. Turner and
representatives of TCI and Time Warner with MC Group's views with respect to
the long-term benefit of the proposed merger for each such party. TBS agreed
to pay MC Group a fee of $100,000 per month during the term of the engagement
of MC Group, which commenced on July 1, 1995 and extended to June 30, 1996. In
addition, the MC Group Consulting Agreement provided that an additional fee,
in an amount to be agreed upon between MC Group and TBS, would be payable to
MC Group with respect to any transaction between TBS and any other entity
during the term of the MC Group Consulting Agreement or within 12 months
thereafter which resulted from or was otherwise facilitated by the services of
MC Group under the MC Group Consulting Agreement. At the meeting held in
September 1995, the TBS Board approved the payment of $40 million to MC Group
upon consummation of the Mergers as such additional fee. In reviewing and
approving such fee, the TBS Board was aware that, in connection with the
settlement of civil proceedings brought by the Commission, Mr. Milken entered
into a consent decree (the "Consent Decree") with the Commission in 1991 which
prohibits Mr. Milken from association with any broker, dealer, investment
adviser, investment company or municipal securities dealer. The effect of the
Consent Decree is to limit the activities in which MC Group and Mr. Milken may
engage. In addition, prior to the approval of the MC Group fee, Mr. Turner
informed the TBS Board that, in view of the substantial benefits that would
accrue to him as a result of the Transaction in his capacity as the largest
shareholder of TBS, he thought it appropriate, and had agreed with MC Group,
that he would pay MC Group a fee of $10 million, in addition to the fee
proposed to be paid by TBS. Pursuant to the MC Group Consulting Agreement,
each of TBS and MC Group also agreed to indemnify the other, and the other's
affiliates, directors, officers, employees, agents and controlling persons,
against certain liabilities.
Time Warner retained Morgan Stanley, pursuant to the terms of a letter
agreement (the "Morgan Stanley Engagement Letter"), as its financial advisor
to provide financial analyses and advice and to render an opinion to the Time
Warner Board as to the fairness to New Time Warner and its subsidiary, Time
Warner, from a financial point of view, of the Exchange Ratio and the SSSI
Agreement Consideration, taken as a whole. Time Warner agreed to pay Morgan
Stanley, as compensation for its services under the Morgan Stanley Engagement
Letter, a fee of $13 million, $4 million of which was payable upon
announcement of the Transaction and $9 million of which is payable upon
consummation of the Mergers, and to reimburse Morgan Stanley for certain out-
of-pocket expenses incurred in connection with its services to Time Warner.
Time Warner also agreed to indemnify Morgan Stanley, its affiliates, the
respective directors, officer, partners, agents and employees of
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Morgan Stanley and its affiliates, and each person, if any, controlling Morgan
Stanley or any of its affiliates, against certain liabilities, including
liabilities under the Federal securities laws.
REGULATORY APPROVALS
FCC Approval Process
Regulation of Broadcast Stations. Television and radio broadcasting are
subject to the jurisdiction of the FCC under the Communications Act. The
Communications Act prohibits the operation of broadcasting stations except
under licenses issued by the FCC. The Communications Act further prohibits the
assignment of a station license or the transfer of control of a broadcast
station licensee without prior approval of the FCC. Because the Transaction
will result in the transfer of control of TBS, which, through a subsidiary
(Superstation, Inc.), is the licensee of one television broadcasting station
(WTBS, Channel 17, Atlanta, Georgia), the prior approval of the FCC is
necessary before the Transaction may be consummated.
Upon the filing of an application for consent to the transfer of control of
a broadcast station licensee, the FCC will issue an official public notice of
such filing. Interested parties have a period of 30 days following issuance of
the public notice in which to petition to deny such application. An
application for consent to the transfer of control to New Time Warner of
Superstation, Inc., the licensee of WTBS, and associated broadcast auxiliary
licenses, was filed with the FCC on October 20, 1995 (the "FCC Application").
On December 1, 1995, the deadline for filing petitions to deny the FCC
Application, comments were filed with regard to the FCC Application by the
United States Telephone Association and The Small Cable Business Association.
Comments were filed after that deadline by The Center for Media
Education/Consumer Federation of America and Peoples Network Inc. No comments
were filed with regard to the transfer of any other TBS facilities. Such
comments primarily expressed concern about the effect of the Transaction on
competition in the video programming market and requested that the FCC impose
conditions to ensure the continued availability of programming at
nondiscriminatory prices, terms and conditions.
In reviewing applications for its consent to transfer of control, the FCC
considers whether such transfers will serve the "public interest, convenience
and necessity," as well as whether the proposed transferee has the requisite
legal, financial, technical and other qualifications to operate the licensed
entities. In making its decision, the FCC has the authority to approve or deny
the application, or to condition its approval in ways which the FCC believes
would best serve the public interest. Following the FCC's approval or denial
with respect to such a transfer, any "person who is aggrieved or whose
interests are adversely affected" may appeal such action to the United States
Court of Appeals for the District of Columbia Circuit. In addition, under
certain circumstances, the FCC may reconsider its action at the request of a
third party or on its own motion.
License Grant and Renewal. The Telecommunications Act of 1996 (the
"Telecommunications Act"), which substantially amends the Communications Act,
was enacted on February 8, 1996. The Telecommunications Act authorizes the FCC
to extend television license terms to eight years from current terms of five
years. The FCC has initiated a rulemaking proceeding which proposes to
implement eight-year terms for television stations commencing with their next
renewal application. The Telecommunications Act also directs the FCC to grant
renewal of a broadcast license if it finds that the station has served the
public interest, convenience, and necessity, and that there have been no
serious violations (or other violations which would constitute a "pattern of
abuse") by the licensee of the Communications Act or FCC rules. If the FCC
finds that a licensee has failed to meet these standards and there are not
sufficient mitigating factors, it may deny renewal or condition renewal
appropriately, including renewing for less than a full term. Any other party
with standing may petition the FCC to deny a broadcaster's application for
renewal. However, only if the FCC issues an order denying renewal will it
accept and consider applications from other parties for a construction permit
for a new station to operate on the channel subject to such denial. The FCC
may not consider any such applicant in making determinations concerning the
grant or denial of the licensee's renewal application.
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The license for WTBS was last renewed on April 1, 1992. There were no
petitions to deny the renewal application or competing applications filed.
WTBS's current five-year term expires on April 1, 1997. An application for
renewal, which must be filed four months prior to the scheduled expiration of
the license, must therefore be filed on or before December 1, 1996.
Regulation of Other Facilities. TBS, in connection with the operation of its
news and entertainment networks, holds licenses for broadcast auxiliary
facilities, private operational fixed microwave facilities and fixed satellite
earth stations. Applications to transfer control of these facilities have been
granted by the FCC. The broadcast auxiliary and fixed satellite applications
were subject to the same public notice and 30-day comment period procedures as
is the broadcast station transfer application. No comments or oppositions were
filed with regard to those applications.
Cable Television/Television Cross-Ownership Rule. The FCC's rules prohibit
the common ownership or control of a cable television system located in whole
or in part within the predicted Grade B service contour of a television
broadcast station. The Telecommunications Act eliminated a similar provision
in the Communications Act, but preserved the parallel FCC rule pending FCC
review. Time Warner has an ownership interest in a cable system serving
approximately 60,000 subscribers which is located within the Grade B service
contour of WTBS. Time Warner has asked the FCC for a temporary waiver of this
rule for a period of 18 months to allow for the orderly divestiture of its
interest in the affected cable system. The "Grade B service contour" is an
FCC-promulgated technical description of the strength of a television
station's signal which demarks an area in which a certain minimum signal
strength can be received. Generally, this defines an area where, on average, a
television station can be expected to be viewable with the aid of a rooftop
antenna. The FCC uses this contour measurement as a geographical demarcation
in several of its ownership rules.
Cable Television Multiple Ownership Rule. Pursuant to the Communications
Act, the FCC has imposed limits on the number of cable television systems in
which a single entity may hold an attributable interest. In general, no cable
operator may have an attributable interest in cable systems which pass more
than 30% of all cable homes passed nationwide. In the context of the cable
television multiple ownership rule, the term "homes passed" means the number
of homes which are or could be readily connected to a cable system's
distribution wires running along the street on which the homes are located.
Attributable interests for these purposes include voting stock interests of 5%
or more, officerships, directorships and general partnership interests. The
FCC has stayed the effectiveness of this rule pending the outcome of its
appeal of a U.S. District Court decision holding the multiple ownership limit
provision of the Communications Act unconstitutional. Because TCI would
receive more than 5% of the voting securities of New Time Warner pursuant to
the TBS Merger, TCI would be in violation of the multiple ownership rule if
the rule were again made effective. The provisions of the LMC Agreement
regarding the exchange of TCI's New Time Warner Common Stock for shares of LMC
Reduced Voting Common Stock will render LMC's interest in New Time Warner non-
attributable for purposes of current FCC rules. See "TCI Arrangements--LMC
Agreement." The FCC is currently engaged in an extensive review of its
attribution rules and its broadcast ownership rules. In connection with such
review, it has sought comment on whether non-voting stock should be deemed
attributable for purposes of multiple ownership rules in certain
circumstances. The cable television multiple ownership rule which has been
stayed incorporates the broadcast attribution standard. Time Warner cannot
predict the outcome of the FCC's attribution rules review or what impact it
may ultimately have.
FTC Consent Decree
Under the HSR Act and the rules promulgated thereunder by the FTC,
transactions such as the Transaction may not be consummated until
notifications have been given and certain information has been furnished to
the Antitrust Division of the United States Department of Justice and the FTC
and specified waiting period requirements have been satisfied. In October
1995, Time Warner, TBS and TCI filed all appropriate Notification and Report
Forms with the Antitrust Division and the FTC with respect to the Transaction.
After an extensive
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review of the Transaction by the FTC and in order to eliminate concerns raised
by the FTC regarding possible competitive effects of the Transaction, Time
Warner, TBS, TCI and LMC have executed the FTC Consent Decree and have
submitted the FTC Consent Decree to the commissioners of the FTC. The FTC
commissioners have not yet initially accepted the FTC Consent Decree, and the
obligations of Time Warner, TBS and TCI to consummate the Transaction are
conditioned upon such initial acceptance. For purposes of the FTC Consent
Decree, TCI and its affiliates include John C. Malone and Robert Magness. The
material provisions of the FTC Consent Decree are described below.
TCI/LMC Equity Interest in New Time Warner. TCI and its affiliates will not
be permitted to hold voting securities of New Time Warner (other than
securities, such as LMC Reduced Voting Common Stock, that have limited voting
rights). In addition, TCI and its affiliates will not be permitted to hold
more than the lesser of (a) 9.2% of the outstanding New Time Warner Common
Stock (calculated on a fully diluted basis) and (b) 12.4% of the outstanding
common stock of New Time Warner (calculated on an actual outstanding basis),
without the prior approval of the FTC. The effect of this provision, among
other things, was to require (a) the elimination of the provisions of the
Transaction Agreements that permitted LMC to hold voting securities of New
Time Warner if such securities were placed in a voting trust to be voted by
Mr. Levin, (b) significant restrictions to be placed upon the exercise by LMC
of its rights under the Right of First Refusal Agreement to purchase shares of
New Time Warner Common Stock from Mr. Turner and (c) the elimination of the
provisions of the Transaction Agreements under which LMC agreed to give Time
Warner an option to purchase LMC's interest in TBS directly.
TCI will be required under the FTC Consent Decree to use its best efforts to
obtain a ruling (the "Letter Ruling") from the IRS to the effect that the
distribution of SSSI, which at the time of the such distribution will hold,
directly and indirectly, substantially all the New Time Warner Capital Stock
received by TCI and its affiliates pursuant to the Transaction, to holders of
the Liberty Media Group Common Stock issued by TCI would be a non-taxable
transaction under Section 355 of the Code. If the Letter Ruling is obtained,
TCI will implement the TCI Spin-off within 30 days after making required
regulatory filings. If the TCI Spin-off takes place, Mr. Magness, Dr. Malone
and Kearns-Tribune Corporation (together, the "TCI Control Shareholders") will
exchange all of the shares of SSSI they receive in the TCI Spin-off for a
convertible preferred security of SSSI that will have limited voting rights in
SSSI. TCI's officers, directors and employees (including the TCI Control
Shareholders) will be prohibited from communicating with the management of
SSSI, except on those limited matters on which the TCI Control Shareholders
are entitled to vote. Following the TCI Spin-off, SSSI will be prohibited from
holding more than 14.99% of the outstanding New Time Warner Common Stock
(calculated on a fully diluted basis), and from holding New Time Warner
securities with voting rights (other than securities, such as LMC Reduced
Voting Common Stock, that have limited voting rights). The restrictions
described in the immediately preceding sentence will terminate if the TCI
Control Shareholders hold no more than 0.1% of the ownership interest and the
voting power of SSSI or if the TCI Control Shareholders hold no more than 0.1%
of the ownership interest and the voting power of both of TCI and LMC.
Following such distribution, TCI and its affiliates will not be permitted to
purchase more than the lesser of (a) an additional 1% of the outstanding New
Time Warner Common Stock (calculated on a fully diluted basis) and (b) 1.35%
of the outstanding common stock of New Time Warner (calculated on an actual
outstanding basis), without the prior approval of the FTC.
Program Carriage Agreements. Time Warner, TBS and TCI were required to
eliminate from the Transaction Agreements provisions providing for long-term,
mandatory carriage by TCI cable systems of TBS programming services, except
that the parties were permitted to enter into five-year agreements providing
for the mandatory carriage after consummation of the Mergers by TCI cable
systems of WTBS (once the WTBS Conversion has occurred) and Headline News.
Prior to six months after the consummation of the Mergers, Time Warner and TCI
will not be permitted to enter into any new agreement providing for the
mandatory carriage by TCI cable systems on their analog tiers of any other
video programming service offered by TBS, and any such mandatory carriage
agreement entered into thereafter will be limited in effective duration to
five years.
Anti-bundling Provision. New Time Warner will not be permitted to condition
the availability or terms of providing its HBO video programming service to
any MVPD on whether that MVPD or any other MVPD agrees to carry any national
video programming service offered by TBS. New Time Warner will not be
permitted to
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condition the availability or terms of providing CNN, TNT or WTBS to any MVPD
on whether that MVPD or any other MVPD agrees to carry any national video
programming service offered by TWE.
Price Discrimination Provision. New Time Warner will be prohibited from
discriminating, in certain respects, against MVPDs having geographical overlap
with New Time Warner's cable systems in the terms upon which TBS programming
services are made available to such MVPDs in the relevant geographical overlap
area.
Programming Foreclosure Provision. The FTC Consent Decree provides that New
Time Warner will be prohibited generally from requiring a financial interest
in any video programming service as a condition for carriage or otherwise
improperly discriminating against unaffiliated national video programming
vendors in the provision of access to New Time Warner's cable systems.
New Time Warner will be required to collect, on a quarterly basis, certain
information relating to the terms under which New Time Warner cable systems
carry national video programming services, including information relating to
pricing, commitments, if any, to a roll-out schedule and penetration rates.
This information is to be provided to each member of the Management Committee
of TWE on a quarterly basis.
By February 1, 1997, New Time Warner will be required to enter into a
programming service agreement with at least one nationally significant
advertising-supported news and informational national video programming
service not affiliated with New Time Warner. Under the terms of the FTC
Consent Decree, New Time Warner will be required to carry such national video
programming service in accordance with a roll-out schedule incorporated in the
FTC Consent Decree.
To the extent applicable to New Time Warner, the foregoing provisions are
generally consistent with existing legal requirements or Time Warner's
existing business practices and will not impose undue financial burdens on New
Time Warner and, accordingly, Time Warner does not believe that the FTC
Consent Decree will have an adverse effect on the businesses of New Time
Warner and TBS following consummation of the Mergers.
If the FTC does not initially accept the FTC Consent Decree, the FTC may
seek to enjoin the consummation of the Transaction. If the FTC does initially
accept the FTC Consent Decree, the FTC will publish the FTC Consent Decree for
public comment for a period of 60 days. If the FTC does not finally accept the
FTC Consent Decree after the period for public comment, the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking the divestiture of substantial assets of
TBS or its subsidiaries or of Time Warner or its subsidiaries. If the FTC does
finally accept the FTC Consent Decree, the FTC Consent Decree will terminate
on the tenth anniversary of such final acceptance.
Other Antitrust
Other antitrust authorities may also bring legal action under state or
federal antitrust laws. Such action could include seeking to enjoin the
consummation of the Transaction or seeking divestiture of certain assets of
Time Warner or TBS. Private parties may also seek to take legal action under
the antitrust laws under certain circumstances. There can be no assurance that
a challenge to the Transaction on antitrust grounds will not be made or, if
such a challenge is made, with respect to the result thereof.
Further, although the Transaction is not subject to preclosing notification
and approval requirements of the Merger Regulation of the European Community,
separate regulatory approvals are required in certain European jurisdictions.
Status of Regulatory Approvals and Other Information
Time Warner and TBS have filed applications with all applicable domestic
regulatory agencies and have taken, or will take, other appropriate action
with respect to any requisite approvals or other action of any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, whose consent, approval, order or
authorization, or with whom registration, declaration or filing of the Merger
Agreement is required to consummate the Transaction, subject to the provisions
of the Merger Agreement. Time Warner has determined that franchise agreements
covering approximately 10% of the total number of subscribers to cable systems
owned by Time Warner and TWE contain provisions that may result in the
Transaction being
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treated as a "transfer of control" of the franchise for which approval of the
franchising authority is required. Time Warner expects to obtain any required
approvals prior to consummation of the Transaction.
The Merger Agreement provides that the obligation of each of Time Warner and
TBS to consummate the Transaction is conditioned upon, among other things, the
approval of the FCC, the termination of any applicable waiting period under
the HSR Act, initial acceptance of the FTC Consent Decree and the absence of
any injunction restraining consummation of the Transaction. In addition, the
Merger Agreement also provides that the obligation of Time Warner to
consummate the Transaction is conditioned upon receipt of all necessary orders
and permits approving the Mergers from all applicable cable franchising
authorities having jurisdiction over all or any portion of a material cable
system operated by Time Warner. See "The Merger Agreement--Conditions to the
Mergers." There can be no assurance that any governmental agency will approve
or take any other required action with respect to the Transaction, and, if
approvals are received or action is taken, that such approvals or action will
not be conditioned upon matters that would cause the parties to abandon the
Transaction. In addition, there can be no assurance that an action will not be
brought challenging such approvals or action, including a challenge by the
FTC, or, if such challenge is made, with respect to the result thereof. Other
than the FTC Consent Decree, which TCI has agreed to, the LMC Agreement
provides that neither TCI nor any of its affiliates is required to agree to,
approve or otherwise be bound by or satisfy any condition upon the grant or
effectiveness of any consent or approval of any governmental agency required
in connection with the consummation of the transactions contemplated by the
Merger Agreement and the LMC Agreement that requires the surrender or
modification in any significant respect of any license held by TCI or any of
its affiliates, the divestiture of any assets of TCI or any of its affiliates,
the holding of any such assets in a trust or otherwise separate and apart from
such person's other assets, limitations on such person's freedom of action,
any change in such person's ownership or any rights or arrangements among its
equity holders or any other restrictions, limitations, requirements or
conditions which are or might be burdensome or adverse to any such person. See
"TCI Arrangements--LMC Agreement."
Time Warner and TBS are not aware of any material governmental approvals or
actions that may be required for consummation of the Transaction other than as
described above. Should any other approval or action be required, it is
presently contemplated that such approval or action would be sought. There can
be no assurance, however, that any such approval or action, if needed, could
be obtained and would not be conditioned in a manner that would cause the
parties to abandon the Transaction.
CERTAIN LITIGATION
U S WEST Litigation
On September 22, 1995, U S WEST and U S WEST Multimedia Communications, Inc.
("USWMC"), a wholly owned subsidiary of U S WEST, filed a complaint in the
Court of Chancery of the State of Delaware individually and allegedly in a
derivative capacity on behalf of TWE against Time Warner and four of TWE's
general partners, ATC, Time Warner Operations Inc., WCI and Warner Cable
Communications Inc. ("WCCI"), as well as TWE (as a nominal defendant) alleging
that the Transaction would breach fiduciary duties owed by the defendants to U
S WEST and that the Transaction would breach certain provisions of the
agreement pursuant to which TWE is organized and managed (the "TWE Partnership
Agreement") and the agreement pursuant to which USWMC was admitted as a
limited partner in TWE (the "Admission Agreement"). U S WEST, Inc., et al. v.
Time Warner Inc., et al., Case No. 14555. U S WEST sought equitable relief,
including an injunction against consummation of the Transaction. On October
11, 1995, Time Warner and the other defendants filed an answer and
counterclaims denying the material allegations contained in U S WEST's
complaint. The trial of this action was completed in March 1996. On June 6,
1996, the Court of Chancery ruled in Time Warner's favor on all of U S WEST's
claims and denied U S WEST's application for an injunction against
consummation of the Transaction. U S WEST has not appealed the court's
decision and the period for filing a notice of appeal expired on July 12,
1996. Thereafter, Time Warner consented to the dismissal of its counterclaims.
TBS Shareholder Litigation
Seventeen complaints have been filed against TBS, Time Warner, certain
officers and directors of TBS, Time Warner or TWE, and other defendants,
purportedly on behalf of a class of TBS shareholders, two of which
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have been voluntarily dismissed. Sixteen of the seventeen complaints were
filed in Superior Court, Fulton County, Georgia; the other was filed in the
Court of Chancery of the State of Delaware in and for New Castle County. Of
the complaints filed in Georgia, fourteen were filed prior to the approval of
the Transaction on September 22, 1995 by the Time Warner Board and the TBS
Board (Shingala v. Turner Broadcasting Sys., Inc., et al., Case No. E-41502;
Schrank v. R. E. Turner, et al., Case No. E-41501; Lewis, et al. v. Turner
Broadcasting Sys., Inc., et al., Case No. E-41500; Silverstein and Silverstein
v. Turner Broadcasting Sys., Inc., et al., Case No. E-41526; Strauss v. Turner
Broadcasting Sys., Inc., et al., Case No. E-41538; Hoffman v. Ted Turner, et
al., Case No. E-41544; Barry v. Turner Broadcasting Sys., Inc., et al., Case
No. E-41545; Mersel and Mersel v. R. E. Turner, et al., Case No. E-41554;
Friedland and Friedland v. Turner Broadcasting Sys., Inc., et al., Case No. E-
41562; Schwarzchild v. Turner Broadcasting Sys., Inc., et al., Case No. E-
41586; Turner and Hanson v. Turner Broadcasting Sys., Inc., et al., Case No.
E-41637; H. Mark Solomon v. Turner Broadcasting Sys., Inc., et al., Case No.
E-41685; Shores v. Turner Broadcasting Sys., Inc., et al., Case No. E-41749;
and Krim and Davidson v. Turner Broadcasting Sys., Inc., et al., Case No. E-
41779). Two of the complaints filed in Georgia were filed after the
Transaction was approved by the Time Warner Board and the TBS Board on
September 22, 1995 (Altman v. Turner Broadcasting Sys., Inc., et al., Case No.
E-43205; Joyce v. Tele-Communications, Inc., et al., Case No. E-43321). The
plaintiff in Altman filed a voluntary dismissal of the action without
prejudice on November 10, 1995. On September 27, 1995, an amended complaint
was filed in Shingala. On October 24, 1995, an amended complaint was filed in
Lewis, apparently on behalf of the named plaintiffs in twelve of the sixteen
actions filed in Georgia. On November 1, 1995, a second amended complaint (the
"Second Amended Complaint") was filed in Lewis which is virtually identical to
the first amended Lewis complaint except that the plaintiff in the Joyce
action was no longer included as a named plaintiff. The purported class action
filed by a TBS shareholder in Delaware was filed on October 2, 1995 (Joyce v.
John C. Malone, et al., Case No. 14592) and subsequently dismissed voluntarily
without prejudice by the plaintiff on November 15, 1995. As noted above, a
substantially similar action on behalf of the same plaintiff was filed in
Georgia on October 23, 1995 (Joyce v. Tele-Communications, Inc., et al., Case
No. E-43321).
On November 13, 1995, Judge Elizabeth Long, to whom all remaining actions
had been assigned, consolidated the actions, except the Joyce action. On
November 20, 1995, subject to court approval, the plaintiff in Joyce proposed
to file an amended and consolidated class action complaint which also includes
a derivative claim. Also on November 20, 1995, plaintiffs in the actions other
than Joyce filed a motion for the recusal of Judge Long, which motion was
denied on January 22, 1996. On December 20, 1995, the defendants filed answers
in response to the Second Amended Complaint previously filed in Lewis. On
January 19, 1996, defendants in these actions filed a motion for judgment on
the pleadings on all claims asserted in the Second Amended Complaint filed in
Lewis on the grounds that, under Georgia law, the valid grant of dissenters'
rights to TBS shareholders with respect to the TBS Merger prohibits plaintiffs
from maintaining the claims asserted in the Second Amended Complaint.
On January 31, 1996, the court consolidated the Joyce action with the other
consolidated actions, and ordered plaintiffs to file a consolidated amended
complaint within thirty days of the date of the order. Additionally, the court
stayed discovery in these consolidated actions until the court rules on the
defendants' motion for judgment on the pleadings.
On February 29, 1996, plaintiffs filed their third amended consolidated
supplemental and derivative class action complaint (the "Third Amended
Complaint"). The Third Amended Complaint, which includes a derivative claim,
alleges, among other things, that the terms of the TBS Merger are unfair to
TBS shareholders and that the defendants have breached or aided and abetted
the breach of fiduciary common law and statutory duties owned to TBS
shareholders by (a) conferring benefits on controlling shareholders at the
expense of other shareholders, (b) committing corporate waste and (c) taking
actions to entrench TBS Board members. The Third Amended Complaint further
alleges that the defendants acted fraudulently in negotiating and approving
the proposed TBS Merger, that the approval of the TBS Merger by the TBS Board
was fraudulently obtained, and that the vote of the TBS Board approving the
TBS Merger did not comply with the TBS Articles and TBS
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Bylaws or with Georgia law. Among other relief demanded, the Third Amended
Complaint seeks damages, an injunction against the consummation of the TBS
Merger and related transactions, and an auction of TBS. On April 1, 1996,
defendants in this action filed motions for judgment on the pleadings on all
claims asserted in the Third Amended Complaint. On June 17, 1996, the court
transformed the defendants' motion for judgment on the pleadings into a motion
for summary judgment with respect to two of the plaintiffs' claims and denied
the plaintiffs' request for discovery on those claims. The court has not yet
ruled on the defendants' motion.
Time Warner and TBS intend to continue to defend vigorously these actions.
By letter dated October 20, 1995, plaintiffs in certain of the Georgia suits
made a demand upon TBS to repudiate the SportSouth Agreement and the fee
authorized to be paid by TBS to MC Group as corporate waste or, absent
repudiation, to seek indemnification from any officers or directors of TBS who
authorized the challenged matters. These plaintiffs indicated that a
shareholders' derivative suit seeking injunctive relief would be filed in less
than 90 days. These derivative claims were asserted four days later in the
first amended complaint filed in Lewis and later asserted in both the Second
Amended Complaint and the Third Amended Complaint. The TBS Board has
established a committee of the TBS Board to investigate such claims.
Time Warner Stockholder Litigation
Three complaints have been filed against Time Warner, certain officers and
directors of Time Warner, and other defendants, by Time Warner stockholders,
purportedly derivatively on behalf of Time Warner. The first two complaints
filed by Time Warner stockholders were filed in the Court of Chancery of the
State of Delaware in and for New Castle County on October 30, 1995 (Bernard v.
Time Warner Inc., et al., Case No. 14651; Parnes v. Time Warner Inc., et al.,
Case No. 14660). These two complaints allege that some or all of the
defendants have violated fiduciary duties owed to Time Warner and its
stockholders by (a) seeking to entrench themselves in board and management
positions and to eliminate the threat of a hostile takeover, (b) securing
economic benefits for themselves or conferring special benefits on TCI and
others at the expense of Time Warner's public stockholders and (c) structuring
the Transaction so as to place Time Warner's chief executive officer in a
position which allegedly will involve a conflict between the interests of TCI
and Time Warner. Both complaints seek an injunction against consummation of
the Transaction and an order directing the individual defendants to account to
Time Warner for their alleged profits and plaintiffs' alleged damages. On
November 22, 1995, Time Warner and the other defendants named in the Bernard
complaint moved to dismiss such complaint on the ground that the plaintiff has
failed to comply with the Delaware Chancery Court Rule 23.1. As of December 5,
1995, the parties in Bernard agreed to stay discovery and to stay briefing of
the pending motions to dismiss.
The third complaint, brought by a Time Warner stockholder against the
directors and certain officers of Time Warner and nominally against Time
Warner, was filed in the Court of Chancery of the State of Delaware in and for
New Castle County on March 12, 1996 (Trust for the Benefit of Paula C. Rand v.
Levin, et al., Case No. 14890). The Rand complaint alleges that some or all of
the defendants have breached or will in the future breach fiduciary duties
owed to Time Warner and its stockholders in furtherance of an entrenchment
scheme by, among other things, (a) forcing the resignations of or firing
certain Time Warner directors and officers, (b) conferring special benefits on
TCI, Mr. Turner and Mr. Milken in connection with the Transaction and (c)
agreeing in the future to settle the ongoing dispute with U S WEST in order to
remove U S WEST's opposition to the Transaction. The complaint seeks (a) an
injunction against consummation of the Transaction, (b) voiding of a voting
trust agreement that, prior to the amendment of the Transaction Agreements
pursuant to the FTC Consent Decree, was intended to hold the shares of LMC
Common Stock received by TCI and its affiliates, (c) an injunction against any
settlement of the U S WEST dispute and (d) damages. On April 8, 1996, the
defendants moved to dismiss the Rand complaint.
Time Warner intends to continue to defend vigorously each of these actions.
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Other Litigation
In Bartholdi Cable Company, Inc., and LVE, L.L.C. v. Time Warner Inc., et
al., Case No. 96-2687 (E.D.N.Y.), the plaintiffs have filed an amended
complaint adding TBS as a defendant and alleging, among other things, that the
Transaction would violate the antitrust laws. The amended complaint seeks
injunctive relief, divestiture and damages. Time Warner intends to defend
vigorously this action.
STOCK EXCHANGE LISTING
New Time Warner will apply for the listing of New Time Warner Common Stock
on the NYSE and the PSE under the symbol TWX. It is a condition to the
consummation of the Mergers that the shares of New Time Warner Common Stock to
be issued in connection with the Mergers shall have been approved for listing
on the NYSE, subject only to official notice of issuance.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of New Time Warner Capital Stock received by Time Warner
stockholders and TBS shareholders in the Mergers will be freely transferable
under the Federal securities laws, except that shares of New Time Warner
Capital Stock received by persons who are deemed to be "affiliates" (as such
term is defined under the Securities Act) of Time Warner or TBS prior to the
consummation of the Mergers may be resold by them only in transactions
permitted by the resale provisions of Rule 145 promulgated under the
Securities Act (or Rule 144 in the case of such persons who become affiliates
of New Time Warner) or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of Time Warner, TBS or New Time
Warner generally include individuals or entities that control, are controlled
by, or are under common control with, such party and may include certain
officers and directors of such party as well as principal stockholders of such
party. Upon the consummation of the Mergers, New Time Warner, the Turner
Shareholders and certain associated holders will enter into the Turner
Registration Rights Agreement, and New Time Warner and the LMC Holders (as
defined below) will enter into the LMC Registration Rights Agreement. See
"Certain Related Agreements--Registration Rights Agreements."
APPRAISAL AND DISSENTERS' RIGHTS
Time Warner
Under the DGCL, holders of Time Warner Common Stock are not entitled to
appraisal or dissenters' rights in connection with the Time Warner Merger
because the Time Warner Common Stock is listed on a national securities
exchange and the consideration which such holders will be entitled to receive
in the Time Warner Merger will consist solely of New Time Warner Common Stock
which will also be listed on a national securities exchange.
Holders of record of Time Warner Preferred Stock who do not vote in favor of
the TW Merger Proposal and who otherwise comply with the applicable statutory
procedures summarized herein will be entitled to appraisal rights under
Section 262 of the DGCL ("Section 262"). A person having a beneficial interest
in shares of Time Warner Preferred Stock held of record in the name of another
person, such as a broker or nominee, must act promptly to cause the record
holder to follow the steps summarized below properly and in a timely manner to
perfect appraisal rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE
FULL TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX D-1.
ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER" OR
"HOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF TIME WARNER PREFERRED STOCK
AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED.
Under the DGCL, holders of shares of Time Warner Preferred Stock ("Appraisal
Shares") who follow the procedures set forth in Section 262 will be entitled
to have their Appraisal Shares appraised by the Delaware
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Chancery Court and to receive payment in cash of the "fair value" of such
Appraisal Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Transaction, together with a fair rate of
interest, if any, as determined by such court.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, must notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal rights are
available, that appraisal rights are so available, and must include in such
notice a copy of Section 262.
This Joint Proxy Statement/Prospectus constitutes such notice to the holders
of Appraisal Shares and the applicable statutory provisions of the DGCL are
attached to this Joint Proxy Statement/Prospectus as Appendix E-1. Any
stockholder who wishes to exercise such appraisal rights or who wishes to
preserve his right to do so should review the following discussion and
Appendix D-1 carefully, because failure to timely and properly comply with the
procedures specified will result in the loss of appraisal rights under the
DGCL.
A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL
RIGHTS (A) MUST NOT VOTE IN FAVOR OF THE TW MERGER PROPOSAL AND (B) MUST
DELIVER TO TIME WARNER PRIOR TO THE VOTE ON THE TW MERGER PROPOSAL AT THE TIME
WARNER MEETING TO BE HELD ON OCTOBER 10, 1996, A WRITTEN DEMAND FOR APPRAISAL
OF SUCH HOLDER'S APPRAISAL SHARES. A HOLDER OF APPRAISAL SHARES WISHING TO
EXERCISE SUCH HOLDER'S APPRAISAL RIGHTS MUST BE THE RECORD HOLDER OF SUCH
APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL IS MADE AND MUST
CONTINUE TO HOLD SUCH APPRAISAL SHARES OF RECORD UNTIL THE CONSUMMATION OF THE
TIME WARNER MERGER. ACCORDINGLY, A HOLDER OF APPRAISAL SHARES WHO IS THE
RECORD HOLDER OF APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL
IS MADE, BUT WHO THEREAFTER TRANSFERS SUCH APPRAISAL SHARES PRIOR TO THE
CONSUMMATION OF THE TIME WARNER MERGER, WILL LOSE ANY RIGHT TO APPRAISAL IN
RESPECT OF SUCH APPRAISAL SHARES.
Only a holder of record of Appraisal Shares is entitled to assert appraisal
rights for the Appraisal Shares registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully
and correctly, as such holder's name appears on such holder's stock
certificates. If the Appraisal Shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the Appraisal Shares are owned of
record by more than one person as in a joint tenancy or tenancy in common, the
demand should be executed by or on behalf of all joint owners. An authorized
agent, including one or more joint owners, may execute a demand for appraisal
on behalf of a holder of record; however, the agent must identify the record
owner or owners and expressly disclose the fact that, in executing the demand,
the agent is agent for such owner or owners. A record holder such as a broker
who holds Appraisal Shares as nominee for several beneficial owners may
exercise appraisal rights with respect to the Appraisal Shares held for one or
more beneficial owners while not exercising such rights with respect to the
Appraisal Shares held for other beneficial owners; in such case, the written
demand should set forth the number of Appraisal Shares as to which appraisal
is sought. When no number of Appraisal Shares is expressly mentioned the
demand will be presumed to cover all Appraisal Shares held in the name of the
record owner. Stockholders who hold their Appraisal Shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures
for the making of a demand for appraisal by such a nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO TIME WARNER
INC. AT 75 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10019, ATTENTION: SECRETARY.
Within 10 days after the consummation of the Time Warner Merger, Time Warner
will notify each stockholder who has properly asserted appraisal rights under
Section 262 and has not voted in favor of the TW Merger Proposal of the date
the Time Warner Merger became effective.
Within 120 days after the consummation of the Time Warner Merger, but not
thereafter, Time Warner or any stockholder who has complied with the statutory
requirements summarized above may file a petition in the Delaware Chancery
Court demanding a determination of the fair value of the Appraisal Shares.
Time Warner is under no obligation to and has no present intention to file a
petition with respect to the appraisal of the fair value of the Appraisal
Shares. Accordingly, it is the obligation of the stockholders to initiate all
necessary action to perfect their appraisal rights within the time prescribed
in Section 262.
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Within 120 days after the consummation of the Time Warner Merger, any
stockholder who has complied with the requirements for exercise of appraisal
rights will be entitled, upon written request, to receive from Time Warner a
statement setting forth the aggregate number of Appraisal Shares not voted in
favor of adoption of the TW Merger Proposal and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
Appraisal Shares. Such statements must be mailed within ten days after a
written request therefor has been received by Time Warner.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to appraisal rights and will appraise the "fair value" of their Appraisal
Shares, exclusive of any element of value arising from the accomplishment or
expectation of the Time Warner Merger, together with a fair rate of interest,
if any, to be paid upon the amount determined to be the fair value.
Stockholders considering seeking appraisal should be aware that the fair value
of their Appraisal Shares as determined under Section 262 could be more than,
the same as or less than the value of the consideration they would receive
pursuant to the Merger Agreement if they did not seek appraisal of their
Appraisal Shares and that investment banking opinions as to fairness from a
financial point of view are not necessarily opinions as to fair value under
Section 262. The Delaware Supreme Court has stated that "proof of value by any
techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
the appraisal proceedings.
The Delaware Chancery Court will determine the amount of interest, if any,
to be paid upon the amounts to be received by persons whose Appraisal Shares
have been appraised. The costs of the action may be determined by the Delaware
Chancery Court and taxed upon the parties as the Delaware Chancery Court deems
equitable. The Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with an appraisal,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all of the Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares who has duly demanded an appraisal in
compliance with Section 262 will not, after the consummation of the Time
Warner Merger, be entitled to vote the Appraisal Shares subject to such demand
for any purpose or be entitled to the payment of dividends or other
distributions on those Appraisal Shares (except dividends or other
distributions payable to holders of record of Appraisal Shares as of a record
date prior to the consummation of the Time Warner Merger).
If any stockholder who properly demands appraisal of his Appraisal Shares
under Section 262 fails to perfect, or effectively withdraws or loses, his
right to appraisal, as provided in the DGCL the Appraisal Shares of such
stockholder will be converted into the right to receive the consideration
receivable with respect to such Appraisal Shares in accordance with the Merger
Agreement. A stockholder will fail to perfect, or effectively lose or
withdraw, his right to appraisal if, among other things, no petition for
appraisal is filed within 120 days after the consummation of the Time Warner
Merger, or if the stockholder delivers to Time Warner a written withdrawal of
his demand for appraisal. Any such attempt to withdraw an appraisal demand
more than 60 days after the consummation of the Time Warner Merger will
require the written approval of Time Warner.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING APPRAISAL
RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A STOCKHOLDER
WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH RESPECT TO SUCH
APPRAISAL SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT).
The holders of all the outstanding Time Warner Series J Preferred Stock have
agreed not to exercise appraisal rights with respect to the Time Warner
Merger.
TBS
Holders of TBS Capital Stock will be entitled to assert dissenters' rights
with respect to the TBS Merger under and in accordance with Article 13 of the
GBCC. The Merger Agreement provides that Time Warner is not obligated to
consummate the TBS Merger if dissenters' rights are exercised with respect to
more than 28 million
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TBS Common Stock equivalents (calculated on the basis of each share of TBS
Common Stock representing one TBS Common Stock equivalent and each share of
TBS Class C Preferred Stock representing six TBS Common Stock equivalents),
which represent approximately 10% of the TBS Common Stock equivalents
outstanding as of June 30, 1996. Holders of 73.35% of the TBS Common Stock
equivalents outstanding as of June 30, 1996 have agreed to vote all shares of
TBS Capital Stock owned by them in favor of the TBS Merger Proposal and thus
will not exercise dissenters' rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO DISSENTERS' RIGHTS UNDER THE GBCC AND IS QUALIFIED IN ITS ENTIRETY BY THE
FULL TEXT OF ARTICLE 13 OF THE GBCC, WHICH IS REPRINTED IN ITS ENTIRETY AS
APPENDIX D-2. ALL REFERENCES IN ARTICLE 13 OF THE GBCC AND IN THIS SUMMARY TO
A "SHAREHOLDER" OR "HOLDER" ARE TO THE RECORD HOLDER OF TBS CAPITAL STOCK AS
TO WHICH DISSENTERS' RIGHTS ARE ASSERTED.
This Joint Proxy Statement/Prospectus constitutes notice to holders of TBS
Capital Stock of the applicable statutory provisions of Article 13 of the
GBCC. Any shareholder who wishes to assert such dissenters' rights or who
wishes to preserve his right to do so should review the following discussion
and Appendix D-2 carefully because failure to comply timely and properly with
the procedures specified will result in the loss of dissenters' rights under
Article 13 of the GBCC.
A shareholder of TBS is entitled to dissent, and obtain payment of the Fair
Value (as hereinafter defined) of his shares of TBS Capital Stock ("Dissenting
Shares"), if the TBS Merger is consummated. For purposes of Article 13 of the
GBCC, "Fair Value" means the value of the Dissenting Shares immediately before
the consummation of the TBS Merger, excluding any appreciation or depreciation
in anticipation of the TBS Merger. Each record holder of Dissenting Shares who
wishes to assert dissenters' rights (a) must deliver to TBS, before the TBS
Merger Proposal is voted upon at the TBS Meeting, written notice of his intent
to demand payment for his Dissenting Shares if the TBS Merger is consummated
(a "Notice of Intent") and (b) must not vote his Dissenting Shares in favor of
the TBS Merger Proposal (any such holder, a "Dissenting TBS Holder"). A
shareholder of TBS who does not satisfy such requirements is not entitled to
payment for his Dissenting Shares under Article 13 of the GBCC. All Notices of
Intent should be sent or delivered to TBS at One CNN Center, Atlanta, Georgia
30303, Attention: Secretary.
A TBS shareholder entitled to dissent and obtain payment for his shares of
TBS Capital Stock under Article 13 of the GBCC may not challenge the TBS
Merger unless the TBS Merger fails to comply with certain procedural
requirements of the GBCC or the TBS Articles or the TBS By-Laws or the vote
required to obtain approval of the TBS Merger was obtained by fraudulent and
deceptive means, regardless of whether such shareholder has exercised
dissenters' rights.
A shareholder of record of TBS may assert dissenters' rights as to fewer
than all shares of TBS Capital Stock registered in his name only if he
dissents with respect to all shares of TBS Capital Stock beneficially owned by
any one beneficial shareholder and notifies TBS in writing of the name and
address of each person on whose behalf he asserts dissenters' rights. The
rights of such a partial dissenter are determined as if the shares of TBS
Capital Stock as to which he dissents and his other shares of TBS Capital
Stock were registered in the names of different shareholders. A beneficial
owner of shares of TBS Capital Stock that are held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized herein properly and in a timely
manner to assert any dissenters' rights on behalf of such beneficial owner.
If the TBS Merger is authorized at the TBS Meeting, TBS must deliver a
written dissenters' notice (the "Dissenters' Notice") to all Dissenting TBS
Holders. The Dissenters' Notice must be sent no later than ten days after
consummation of the TBS Merger and must (a) state where the payment demand
must be sent and where and when certificates for certificated Dissenting
Shares must be deposited, (b) set a date by which TBS must
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receive the payment demand, which date may not be fewer than 30 nor more than
60 days after the date the Dissenters' Notice is delivered, and (c) be
accompanied by a copy of Article 13 of the GBCC.
A Dissenting TBS Holder to whom a Dissenters' Notice is sent must demand
payment and deposit his certificates representing Dissenting Shares in
accordance with the terms of the Dissenters' Notice. Upon consummation of the
TBS Merger, the rights of a Dissenting TBS Holder are limited to the right to
receive the Fair Value of his Dissenting Shares, assuming compliance with
Article 13 of the GBCC. A Dissenting TBS Holder who does not demand payment or
deposit his certificates representing Dissenting Shares where required, each
by the date set in the Dissenters' Notice, will not be entitled to payment for
his Dissenting Shares under Article 13 of the GBCC and, thereafter, will no
longer be deemed a Dissenting TBS Holder.
Except as described below, within ten days of the later of consummation of
the TBS Merger or receipt of a payment demand, TBS must by written notice (the
"Offer of Payment") offer to pay to each Dissenting TBS Holder, who complied
with the payment demand and deposit requirements specified in the Dissenters'
Notice, the amount TBS estimates to be the Fair Value of his Dissenting
Shares, plus accrued interest from the date of consummation of the TBS Merger.
The Offer of Payment must be accompanied by (a) certain recent TBS financial
statements, (b) a statement of TBS's estimate of the Fair Value of the
Dissenting Shares, (c) an explanation of how the interest was calculated, (d)
a statement of the Dissenting TBS Holder's right under the GBCC to notify TBS
of his own estimate of the Fair Value of his Dissenting Shares and the amount
of interest due and (e) a copy of Article 13 of the GBCC. If such Dissenting
TBS Holder accepts TBS's Offer of Payment by written notice to TBS within 30
days after TBS's Offer of Payment or is deemed to have accepted the Offer of
Payment by failure to respond within such 30-day period, payment by TBS for
such Dissenting TBS Holder's Dissenting Shares must be made within 60 days
after the later of the making of the Offer of Payment or the consummation of
the TBS Merger.
If the TBS Merger is not consummated within 60 days after the date set in
the Dissenters' Notice for demanding payment and depositing certificates
representing Dissenting Shares, TBS must return the deposited certificates.
If, after such return, the TBS Merger is consummated, TBS must send a new
Dissenters' Notice and repeat the payment demand procedure described above.
A Dissenting TBS Holder may notify TBS in writing of his own estimate of the
Fair Value of his Dissenting Shares and amount of interest due, and demand
payment of such estimate (a "Dissenting TBS Holder Demand"), if (a) such
Dissenting TBS Holder believes that the amount offered by TBS in the Offer of
Payment is less than the Fair Value of his Dissenting Shares or that the
interest is incorrectly calculated or (b) TBS, having failed to consummate the
TBS Merger, does not return the deposited certificates within 60 days after
the date set in the Dissenter's Notice for demanding payment. A Dissenting TBS
Holder waives his right to demand payment pursuant to a Dissenting TBS Holder
Demand and is deemed to have accepted TBS's offer contained in the Offer of
Payment unless he notifies TBS of his demand in writing within 30 days after
TBS's Offer of Payment for his Dissenting Shares. If TBS does not make an
Offer of Payment to any Dissenting TBS Holder within ten days of the later of
the consummation of the TBS Merger or receipt of a payment demand, then (a)
such Dissenting TBS Holder may demand the financial statements and other
information required to accompany the Offer of Payment, and TBS must provide
such information within ten days after receipt of written demand for such
information, and (b) such Dissenting TBS Holder may, at any time within three
years after the TBS Merger is consummated, notify TBS of his own estimate of
the Fair Value of his Dissenting Shares and the amount of interest due and
demand payment of such estimate.
If a Dissenting TBS Holder Demand remains unsettled, TBS must commence a
nonjury equitable valuation proceeding (the "Appraisal Proceeding") in the
Superior Court of Fulton County, Georgia (the "Court"), within 60 days after
receiving such Dissenting TBS Holder Demand and must petition the Court to
determine the Fair Value of the Dissenting Shares and accrued interest. If TBS
does not commence the Appraisal Proceeding within
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such 60-day period, it must pay each Dissenting TBS Holder whose demand
remains unsettled, the amount demanded. TBS must make all Dissenting TBS
Holders whose demands remain unsettled parties to the Appraisal Proceeding and
must serve a copy of the petition in the Appraisal Proceeding upon each
Dissenting TBS Holder. The Court may appoint one or more persons as appraisers
to receive evidence and recommend a decision on the Fair Value of the
Dissenting Shares. Each Dissenting TBS Holder made a party to the Appraisal
Proceeding will be entitled to judgment for the amount that the Court finds to
be the Fair Value of such holder's Dissenting Shares plus interest to the date
of judgment. Under existing Georgia case law, claims arising by virtue of a
person's status as a shareholder, including claims relating to breaches by
directors of a Georgia corporation of their fiduciary duties to shareholders,
are generally not maintainable following consummation of a transaction to
which dissenters' rights apply except as an element of the determination of
the fair value of the dissenting shares in an Appraisal Proceeding. TBS has
moved to dismiss all of the pending litigation filed in connection with the
Transaction in the Georgia state court actions on behalf of purported
shareholders of TBS on that basis. See "--Certain Litigation--TBS Shareholder
Litigation."
The Court in the Appraisal Proceeding will determine all costs of the
Appraisal Proceeding, including the reasonable compensation and expenses of
appraisers appointed by the Court, but not including fees and expenses of
attorneys and experts for the respective parties. The Court will assess such
costs against TBS, except that the Court may assess the costs against all or
some of the Dissenting TBS Holders, in amounts the Court finds equitable, to
the extent the Court finds they acted arbitrarily, vexatiously or not in good
faith in making a Dissenting TBS Holder Demand. The Court also may assess the
fees and expenses of attorneys and experts for the respective parties against
TBS and in favor of all Dissenting TBS Holders if the Court finds that TBS did
not substantially comply with the requirements of certain provisions of
Article 13 of the GBCC, or against either TBS or a Dissenting TBS Holder, in
favor of the other party, if the Court finds that the party against whom such
fees and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by Article 13 of the GBCC.
If the Court finds that the services of attorneys for any Dissenting TBS
Holder were of substantial benefit to other Dissenting TBS Holders similarly
situated, and that the fees for those services should not be assessed against
TBS, the Court may award such attorneys reasonable fees to be paid out of the
amounts awarded the Dissenting TBS Holders who were benefitted.
No action by any Dissenting TBS Holder to enforce dissenters' rights may be
brought more than three years after consummation of the TBS Merger, regardless
of whether notice of the Transaction and of the right to dissent was given by
TBS in accordance with the relevant provisions of Article 13 of the GBCC.
Any Dissenting TBS Holder who has duly asserted dissenters' rights in
compliance with Article 13 of the GBCC will not, after the consummation of the
TBS Merger, be entitled to vote the Dissenting Shares subject to such demand
for any purpose or be entitled to the payment of dividends or other
distributions on those Dissenting Shares (except dividends or other
distributions payable to holders of record of Dissenting Shares as of a record
date prior to the consummation of the TBS Merger).
If any shareholder who properly asserts dissenters' rights under Article 13
of the GBCC fails to perfect such rights, or effectively withdraws such
assertion or loses such rights, as provided in Article 13 of the GBCC, the
Dissenting Shares of such shareholder will be converted into the right to
receive the consideration receivable with respect to such Dissenting Shares in
accordance with the Merger Agreement.
FAILURE TO FOLLOW THE STEPS REQUIRED BY ARTICLE 13 OF THE GBCC FOR ASSERTING
DISSENTERS' RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN VIEW OF THE
COMPLEXITY OF THE PROVISIONS OF ARTICLE 13 OF THE GBCC, SHAREHOLDERS OF TBS
WHO ARE CONSIDERING DISSENTING FROM THE TBS MERGER PROPOSAL SHOULD CONSULT
THEIR OWN LEGAL ADVISORS.
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EFFECT OF TRANSACTION ON THE TBS LYONS
As of June 30, 1996, there was $582,056,000 aggregate principal amount at
maturity of the TBS LYONs outstanding. The TBS LYONs were issued under an
Indenture dated as of February 13, 1992 (the "TBS LYONs Indenture"), between
TBS and The Bank of New York, as successor trustee. The TBS LYONs are
convertible at the option of the holder thereof into shares of TBS Class B
Common Stock at a conversion rate of 12.783 shares of TBS Class B Common Stock
per $1,000 principal amount at maturity of the TBS LYONs, subject to
adjustment upon the happening of certain events. Accordingly, the effective
conversion price at June 30, 1996, based upon the original issue price and the
accrued original issue discount at such date, would have been
$36.72 per share. Upon consummation of the Mergers, New Time Warner will enter
into a supplemental indenture to the TBS LYONs Indenture providing that
thereafter, subject to the terms and conditions set forth in the TBS LYONs
Indenture, the TBS LYONs will be convertible into the number of shares of New
Time Warner Common Stock which a holder of such TBS LYONs would have received
if such holder had converted such TBS LYONs immediately prior to the
consummation of the Mergers, subject to adjustment thereafter upon the
happening of the same events that would currently result in an adjustment
pursuant to the TBS LYONs Indenture. Accordingly, assuming no events occur
prior to consummation of the Mergers that would result in an adjustment to the
current conversion rate, upon consummation of the Mergers the TBS LYONs will
become convertible into 9.587 shares of New Time Warner Common Stock for each
$1,000 principal amount at maturity of the TBS LYONs. The TBS LYONs also
provide that, in the event of a "Change in Control" (as defined in the TBS
LYONs Indenture) occurring on or prior to February 13, 1997, each holder of
TBS LYONs will have the right to require TBS to purchase all or any part of
such holder's TBS LYONs at a cash purchase price equal to the original issue
price plus accrued original issue discount to the repurchase date. Because New
Time Warner is a "Permitted Other Holder," within the meaning of the TBS LYONs
Indenture, the Transaction will not constitute a "Change In Control" as
defined in the TBS LYONs Indenture and, accordingly, holders of TBS LYONs will
not have the right to require TBS to repurchase TBS LYONs as a result of the
consummation of the Mergers. Following consummation of the Mergers, it is
expected that New Time Warner will guarantee the obligations of TBS under the
TBS LYONs.
EFFECT OF TRANSACTION ON CERTAIN OUTSTANDING TIME WARNER CONVERTIBLE
SECURITIES
TW LYONs
As of June 30, 1996, there was $2,415,000,000 aggregate principal amount at
maturity of the TW LYONs outstanding. The TW LYONs were issued under an
Indenture dated as of January 15, 1993 (the "TW Indenture"), between Time
Warner and Chemical Bank, as trustee. The TW LYONs are convertible at the
option of the holder thereof into shares of Time Warner Common Stock at a
conversion rate of 7.759 shares of Time Warner Common Stock per $1,000
principal amount at maturity of TW LYONs, subject to adjustment upon the
happening of certain events. Upon consummation of the Mergers, New Time Warner
will enter into a supplemental indenture to the TW Indenture providing that
thereafter, subject to the terms and conditions set forth in the TW Indenture,
the TW LYONs will be convertible into the number of shares of New Time Warner
Common Stock which a holder of TW LYONs would have received if such holder had
converted such TW LYONs immediately prior to the Mergers, subject to
adjustment thereafter upon the happening of the same events that would
currently result in an adjustment to the TW LYONs pursuant to the TW
Indenture. Following consummation of the Mergers, it is expected that New Time
Warner will guarantee the obligations of Time Warner under the TW LYONs.
Hasbro LYONs
The Transaction will not result in any adjustment to Time Warner's Liquid
Yield Option Notes due 2012 (the "Hasbro LYONs"), which are exchangeable for
shares of the common stock of Hasbro, Inc. held indirectly by Time Warner.
Following consummation of the Mergers, it is expected that New Time Warner
will guarantee the obligations of Time Warner under the Hasbro LYONs.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is attached hereto as Appendix A-1(a), and Amendment No. 1
thereto, a copy of which is attached hereto as Appendix A-1(b), each of which
is incorporated herein by reference. The following summary is qualified in its
entirety by reference to the complete text of the Merger Agreement.
THE MERGERS
Pursuant to the Merger Agreement and on the terms and subject to the
conditions set forth in the Merger Agreement, TW Merger Corp. and TBS Merger
Corp. will be merged into Time Warner and TBS, respectively. Following the
Mergers, Time Warner and TBS will each become a wholly owned subsidiary of New
Time Warner.
Subject to the conditions set forth in the Merger Agreement, the closing of
the Mergers (the "Closing") will take place on a date to be specified by the
parties, which shall be no later than the second business day after
satisfaction of the conditions described in the first paragraph under "--
Conditions to the Mergers" below (the "Closing Date"). The Mergers will become
effective at the time specified in the certificate of merger filed with the
Secretary of State of the State of Delaware with respect to the Time Warner
Merger and the articles of merger filed with the Secretary of State of the
State of Georgia with respect to the TBS Merger. The time at which the Mergers
become effective is referred to as the "Effective Time of the Mergers."
CONVERSION OF TIME WARNER CAPITAL STOCK
At the Effective Time of the Mergers, pursuant to the Merger Agreement (a)
each issued and outstanding share of Time Warner Common Stock, other than
shares held directly or indirectly by Time Warner, will be converted into one
share of New Time Warner Common Stock, and upon such conversion all such
shares of Time Warner Common Stock will be canceled and retired and will cease
to exist, (b) each issued and outstanding share of each series of Time Warner
Preferred Stock, other than shares held directly or indirectly by Time Warner
and shares with respect to which appraisal rights are properly exercised, will
be converted into one share of a substantially identical series of New Time
Warner Preferred Stock having the same designation as the shares of Time
Warner Preferred Stock so converted, and upon such conversion all such shares
of Time Warner Preferred Stock will be canceled and retired and will cease to
exist, (c) all shares of Time Warner Capital Stock held by Time Warner will be
canceled and retired and will cease to exist without payment of any
consideration therefor and (d) all shares of Time Warner Capital Stock held by
subsidiaries of Time Warner shall continue as shares of Time Warner Capital
Stock.
Holders of Time Warner Common Stock will not receive any payment or other
consideration in the Time Warner Merger in respect of the preferred stock
purchase rights (the "Rights") outstanding under the Existing Rights
Agreement.
AT THE EFFECTIVE TIME OF THE MERGERS, (A) EACH CERTIFICATE REPRESENTING
OUTSTANDING SHARES OF TIME WARNER COMMON STOCK WILL, WITHOUT ANY ACTION ON THE
PART OF THE HOLDER THEREOF, BE DEEMED TO REPRESENT AN EQUAL NUMBER OF SHARES
OF NEW TIME WARNER COMMON STOCK AND (B) EACH CERTIFICATE REPRESENTING
OUTSTANDING SHARES OF TIME WARNER PREFERRED STOCK (OTHER THAN SHARES OF TIME
WARNER PREFERRED STOCK WITH RESPECT TO WHICH APPRAISAL RIGHTS ARE PROPERLY
EXERCISED) WILL, WITHOUT ANY ACTION ON THE PART OF THE HOLDER THEREOF, BE
DEEMED TO REPRESENT AN EQUAL NUMBER OF SHARES OF NEW TIME WARNER PREFERRED
STOCK OF THE SAME DESIGNATION.
HOLDERS OF TIME WARNER CAPITAL STOCK SHOULD NOT SUBMIT CERTIFICATES
REPRESENTING THEIR SHARES OF TIME WARNER CAPITAL STOCK FOR EXCHANGE.
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CONVERSION OF TBS CAPITAL STOCK
At the Effective Time of the Mergers, pursuant to the Merger Agreement (a)
each issued and outstanding share of TBS Common Stock, other than shares held
directly or indirectly by Time Warner or New Time Warner or in the treasury of
TBS and shares with respect to which dissenters' rights are properly
exercised, will be converted into the right to receive 0.75 of a share of New
Time Warner Common Stock, and upon such conversion all such shares of TBS
Common Stock will be canceled and retired and will cease to exist, (b) each
issued and outstanding share of TBS Class C Preferred Stock, other than shares
held directly or indirectly by Time Warner or New Time Warner or in the
treasury of TBS and shares with respect to dissenters' rights are properly
exercised, will be converted into the right to receive 4.80 shares of New Time
Warner Common Stock, and upon such conversion all such shares of TBS Class C
Preferred Stock will be canceled and retired and will cease to exist, (c) all
shares of TBS Capital Stock held by TBS will be canceled and retired and will
cease to exist without payment of any consideration therefor and (d) all
shares of TBS Capital Stock directly or indirectly held by Time Warner or New
Time Warner will continue as shares of TBS.
HOLDERS OF TBS CAPITAL STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
SHARES OF TBS CAPITAL STOCK WITH THE ENCLOSED PROXY CARD. IF THE TRANSACTION
IS APPROVED, A LETTER OF TRANSMITTAL WILL BE MAILED AFTER THE EFFECTIVE TIME
OF THE MERGERS TO EACH PERSON WHO WAS A HOLDER OF OUTSTANDING SHARES OF TBS
CAPITAL STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE MERGERS. TBS
SHAREHOLDERS SHOULD SEND CERTIFICATES REPRESENTING TBS CAPITAL STOCK TO THE
EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH THE
INSTRUCTIONS CONTAINED IN, THE LETTER OF TRANSMITTAL.
TREATMENT OF OPTIONS AND WARRANTS
At the Effective Time of the Mergers, pursuant to the Merger Agreement, each
outstanding option or warrant to purchase Time Warner Common Stock and each
outstanding option to purchase TBS Common Stock will be assumed by New Time
Warner and converted into an option or warrant to purchase shares of New Time
Warner Common Stock. Following the Effective Time of the Mergers, each such
option or warrant will continue to have, and will be subject to, the same
terms and conditions as in effect immediately prior to the Effective Time of
the Mergers, except that each option to purchase shares of TBS Common Stock
shall be exercisable for that number of shares of New Time Warner Common Stock
equal to the product of the number of shares of TBS Common Stock for which
such option was exercisable immediately prior to the Effective Time of the
Mergers and 0.75, and the exercise price per share of such option will be
equal to the aggregate exercise price of such option immediately prior to the
Effective Time of the Mergers divided by the number of shares of New Time
Warner Common Stock for which such option will be exercisable immediately
after the Effective Time of the Mergers. At the Effective Time of the Mergers,
all options to purchase TBS Common Stock will become vested.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
both Time Warner and TBS as to, among other things, (a) due organization, good
standing and absence of violations of constitutive documents, (b) ownership of
subsidiaries and other investments, (c) capital structure, (d) requisite
corporate power and authority to enter into the Merger Agreement and to
consummate the transactions contemplated by the Merger Agreement, due
authorization, execution and delivery of the Merger Agreement, validity and
enforceability of the Merger Agreement and the compliance of the Mergers with
constitutive documents, agreements and applicable laws, (e) required filings
and approvals, (f) the disclosure contained in documents filed with the
Commission and absence of certain undisclosed liabilities, (g) absence of
certain material changes or events, (h) absence of certain litigation,
(i) absence of certain changes in benefit plans, (j) compliance with laws
applicable to employee benefit plans, (k) matters relating to financial
advisors, (l) receipt of fairness opinions, (m) tax matters, and (n)
compliance with laws.
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CERTAIN COVENANTS
Conduct of Business Pending the Mergers
Pursuant to the Merger Agreement, TBS has agreed that, prior to the
Effective Time of the Mergers, TBS will, and will cause its subsidiaries to,
carry on their respective businesses in the usual, regular and ordinary course
in substantially the manner as conducted prior to September 22, 1995 and in
compliance in all material respects with all applicable laws and regulations
(including the Communications Act and the FCC's rules and regulations).
Specifically, prior to the Effective Time of the Mergers, and except for
Approved Matters (as defined below), TBS has agreed, among other things, not
to (a) declare any dividends or make any other distributions in respect of any
TBS Capital Stock, other than regular quarterly cash dividends, or purchase,
redeem or otherwise acquire any shares of TBS Capital Stock, (b) subject to
certain exceptions, issue or sell any shares of TBS Capital Stock, (c) amend
the TBS Articles or the TBS By-Laws, (d)(i) make any material acquisition,
(ii) subject to certain exceptions, sell or otherwise dispose of its
properties or assets, (iii) incur any indebtedness for borrowed money, except
for short-term borrowings incurred in the ordinary course of business
consistent with past practice, or make any loans, advances or capital
contributions to, or investments in, any other person or (iv) make any new
capital expenditures, (e) make any material tax election or settle or
compromise any material tax liability or refund, (f) subject to certain
exceptions or in the ordinary course of business pursuant to existing
employment agreements or benefit plans, or as required by applicable laws, (i)
increase the compensation payable to its executive officers or employees, (ii)
grant any severance or termination pay to, or enter into any employment or
severance arrangement with, any director, executive officer or employee or
(iii) establish, adopt, enter into or amend in any material respect or take
action to accelerate any rights or benefits under any employee benefit plan or
(g) terminate or amend on terms less favorable to TBS certain material
agreements. For purposes of the Merger Agreement, "Approved Matters" means
matters that are (x) expressly included in a master budget contemplated by the
TBS By-Laws as in effect on September 22, 1995, or thereafter approved by Time
Warner or (y) otherwise approved in writing by Time Warner.
Pursuant to the Merger Agreement, Time Warner has agreed that (a)
simultaneously with or prior to the Effective Time of the Mergers, it will
cause the New Time Warner Charter to be amended to read in the form of the
Time Warner Charter, and will cause the by-laws of New Time Warner (the "New
Time Warner By-laws") to be amended to read in the form of the Time Warner By-
laws, in each case as in effect immediately prior to the Effective Time of the
Mergers, together with such changes thereto as Time Warner and TBS may from
time to time agree, and (b) during the period from September 22, 1995, to the
Effective Time of the Mergers, Time Warner will not amend the Time Warner
Charter or the Time Warner By-laws in any manner that would be materially
adverse to the holders of Time Warner Common Stock.
Pursuant to the Merger Agreement, TBS and Time Warner have each agreed that
it will not take any action that would, or that could reasonably be expected
to, result in (a) any of the representations and warranties of such party set
forth in the Merger Agreement that are qualified as to materiality becoming
untrue, (b) any of such representations and warranties that are not so
qualified becoming untrue in any material respect or (c) any of the conditions
to the Mergers not being satisfied.
Solicitation of Takeover Proposals
Pursuant to the Merger Agreement, TBS has agreed that it will not, nor will
it permit any of its subsidiaries to, nor will it authorize or permit any of
its officers, directors or employees or any investment banker, attorney or
other advisor or representative of TBS to (a) solicit, initiate or encourage
the submission of any Takeover Proposal (as defined below), (b) enter into any
agreement with respect to any Takeover Proposal or (c) participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal. TBS and the TBS Board, however,
may (i) furnish nonpublic information to, or enter into discussions or
negotiations with, any person in connection with an unsolicited bona fide
written Takeover Proposal to TBS or its shareholders if and to the extent that
(A) the TBS Board determines
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in good faith based on written advice of its outside legal counsel that such
action is necessary for the TBS Board to comply with its fiduciary duties to
TBS shareholders under applicable law and (B) prior to furnishing such
nonpublic information to, or entering into discussions or negotiations with,
such person, the TBS Board receives from such person or entity an executed
confidentiality agreement with terms no less favorable to TBS than those
contained in TBS's confidentiality agreement with Time Warner and (ii) comply
with Rule 14e-2 under the Exchange Act with respect to any Takeover Proposal.
TBS has also agreed to advise Time Warner of any Takeover Proposal or any
inquiry with respect to or which could lead to any Takeover Proposal and the
identity of the person making any such Takeover Proposal or inquiry and to
keep Time Warner promptly and fully informed in all material respects of the
status and details of any such Takeover Proposal or inquiry. For purposes of
the Merger Agreement, "Takeover Proposal" means any proposal for a merger,
consolidation or other business combination involving TBS or any of its
material subsidiaries or any proposal or offer to acquire in any manner,
directly or indirectly, more than 15% of any class of voting securities of TBS
or any of its material subsidiaries, or assets representing a substantial
portion of the assets of TBS and its subsidiaries, taken as a whole.
Material Transactions by Time Warner
Pursuant to the Merger Agreement, Time Warner has agreed to notify TBS if,
prior to the Effective Time of the Mergers, Time Warner or any of its
subsidiaries enters into a definitive agreement for the implementation of a
Material Transaction (as defined below). In such event, the TBS Board may
request CS First Boston to deliver a written opinion, substantially in the
same form as the opinion attached as Appendix C-2, that, after giving effect
to the Material Transaction, the consideration to be received by holders of
TBS Capital Stock in the TBS Merger is fair to such holders (other than Time
Warner) from a financial point of view. If CS First Boston is unable to
deliver such opinion, TBS will have the right to terminate the Merger
Agreement. See "--Termination of the Merger Agreement" below. For purposes of
the Merger Agreement, a "Material Transaction" means, subject to specified
exceptions, (a) the issuance by Time Warner of more than 90 million shares of
Time Warner Common Stock or their equivalent in any single transaction or
series of individual transactions, each of which involves the issuance of more
than 20 million shares of Time Warner Common Stock or their equivalent, or
(b) the sale or other disposition by Time Warner in any transaction or series
of transactions of any business or assets with an aggregate fair market value
in excess of $3.5 billion, excluding from such amount sales of inventory in
the ordinary course of business and the sale, in a single transaction or a
series of related transactions, of assets with an aggregate fair market value
of $500 million or less.
Other Actions
Pursuant to the Merger Agreement, each party has agreed to use its best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Mergers and the other transactions
contemplated by the Merger Agreement; provided, however, that a party shall
not be obligated to take any such action if the taking of such action is
reasonably likely (a) to be materially burdensome to such party and its
subsidiaries taken as a whole or to impact in a materially adverse manner the
economic or business benefits of the transactions contemplated by the Merger
Agreement, the Support Agreement and the LMC Agreement so as to render
inadvisable the consummation of the Time Warner Merger or the TBS Merger, as
the case may be, or (b) to result in any suit, action or proceeding by a
governmental entity that seeks to (i) prohibit or limit the ownership or
operation by TBS, Time Warner, New Time Warner or any of their respective
material subsidiaries, of any material portion of their businesses or assets,
(ii) impose limitations on the ability of New Time Warner to acquire or hold
any shares of capital stock of Time Warner or TBS, including, without
limitation, the right to vote such capital stock, or (iii) prohibit New Time
Warner from effectively controlling in any material respect the business or
operations of TBS or any of its material subsidiaries (collectively, the
"Ownership Limitations").
Board Authority
Pursuant to the Merger Agreement, the TBS Board has adopted resolutions
providing that (a) any action to be subsequently taken by the TBS Board to
implement the transactions contemplated by the Merger Agreement
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shall be authorized if approved by a majority vote of the directors of TBS
(other than any directors that are "interested directors" under the TBS By-
Laws) present and voting at a meeting at which a quorum is present, without
regard to class, and (b) any action to be taken subsequently by TBS to
implement the transactions contemplated by the Merger Agreement that otherwise
requires the approval of the TBS Board shall be authorized if approved by a
majority vote of the directors of TBS (other than any directors that are
"interested directors") present and voting at a meeting at which a quorum is
present, without regard to class. TBS has agreed that the TBS Board will not
amend, rescind or repeal any of such resolutions and that TBS will not enter
into any contract, agreement or other instrument, or adopt any resolution
that, directly or indirectly, would result in any action to be taken by the
TBS Board to implement the transactions contemplated by the Merger Agreement
requiring (i) any approval other than the approval by the majority vote of all
the directors of TBS (other than any directors that are "interested
directors") present and voting at a meeting at which a quorum is present,
without regard to class or (ii) the approval (if not required as of September
22, 1995) of the directors of TBS or any group or committee thereof.
Benefit Plans
Pursuant to the Merger Agreement, New Time Warner has agreed that, for a
period of two years after the Effective Time of the Mergers, New Time Warner
will (a) either (i) maintain the employee benefit plans (other than medical
plans) for TBS at the benefit levels in effect on September 22, 1995, or (ii)
provide benefits to employees of TBS and its subsidiaries that are not
materially less favorable in the aggregate to such employees than are those
that were in effect on September 22, 1995, and (b) provide or cause to be
provided medical benefits to employees of TBS and its subsidiaries that are
substantially equivalent to those provided to similarly situated employees of
Time Warner.
Indemnification and Insurance
Pursuant to the Merger Agreement, New Time Warner, Time Warner and TBS
Merger Corp. have agreed that all rights to indemnification for acts or
omissions occurring prior to the Effective Time of the Mergers existing as of
September 22, 1995 in favor of the current or former directors or officers of
TBS as provided in the TBS Articles or the TBS By-Laws shall survive the TBS
Merger and shall continue in full force and effect in accordance with their
terms. New Time Warner has agreed to cause to be maintained for a period of
not less than six years from the Effective Time of the Mergers TBS's
directors' and officers' insurance and indemnification policy in effect as of
September 22, 1995, to the extent that it provides coverage for events
occurring prior to the Effective Time of the Mergers, so long as the annual
premium therefor would not be in excess of the Maximum Premium. If such policy
expires, is terminated or canceled during such six-year period, Time Warner
will use all reasonable efforts to cause to be obtained as much of such
insurance coverage as can be obtained for the remainder of such six-year
period for an annualized premium not in excess of the Maximum Premium.
Access to Information
Pursuant to the Merger Agreement, each of TBS and Time Warner has agreed to
afford to the other and to its officers, employees, accountants, counsel,
financial advisors and other representatives, reasonable access during normal
business hours prior to the Effective Time of the Mergers to all its
respective properties, books, contracts, commitments, personnel and records.
Except as required by law, each of TBS and Time Warner has agreed to hold any
non-public information in confidence.
Certain Other Covenants
The Merger Agreement also contains customary covenants applicable to
transactions like the Mergers, including covenants relating to (a) delivery of
letters of accountants relating to financial information included in this
Joint Proxy Statement/Prospectus, (b) consultation prior to the issuance of
any press release or other public statement, (c) each party's obligation to
pay its own fees and expenses, (d) the listing on the NYSE of the shares of
New Time Warner Common Stock to be issued in the Mergers, (e) execution and
delivery of closing
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documentation and (f) use of reasonable best efforts to cause the Mergers to
qualify as a tax-free incorporation transaction under Section 351 of the Code.
CONDITIONS TO THE MERGERS
The obligations of Time Warner and TBS to consummate the Mergers are subject
to certain conditions, including the following: (a) the TBS Merger Approval
and the TW Merger Approval shall have been obtained; (b) the shares of New
Time Warner Common Stock issuable pursuant to the Merger Agreement shall have
been approved for listing on the NYSE, subject to official notice of issuance;
(c) the waiting periods (and any extensions thereof) applicable to the
transactions contemplated by the Merger Agreement under the HSR Act and
applicable foreign antitrust laws shall have been terminated or shall have
expired, and the FTC shall have initially accepted the FTC Consent Decree; (d)
no temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal restraint
or prohibition preventing the consummation of the Mergers or preventing LMC or
any of its subsidiaries from voting, as contemplated by the LMC Agreement,
shares of TBS Capital Stock that LMC or any such subsidiary is otherwise
entitled to vote, shall be in effect; (e) the Registration Statement shall
have become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order; and (f) all orders and
approvals of the FCC required in connection with the consummation of the
transactions contemplated by the Merger Agreement shall have been obtained
without the imposition of any Ownership Limitation.
The obligation of Time Warner to consummate the Mergers is also subject to
certain additional conditions, including the following: (a) the accuracy of
the representations and warranties of TBS set forth in the Merger Agreement;
(b) TBS having performed in all material respects all obligations required to
be performed by TBS under the Merger Agreement at or prior to the Closing; (c)
receipt by Time Warner of a satisfactory opinion of its tax counsel; (d)
absence of certain pending suits, actions or proceedings by governmental
agencies; (e) receipt of all necessary orders and permits approving the
transactions contemplated by the Merger Agreement by all applicable cable
franchising authorities having jurisdiction over all or any portion of any
material cable system operated by Time Warner or any of its subsidiaries; and
(f) dissenters' rights not having been asserted with respect to shares of TBS
Capital Stock representing more than 28 million TBS Common Stock equivalents
(calculated on the basis of each share of TBS Common Stock representing one
TBS Common Stock equivalent and each share of Class C Preferred Stock
representing six TBS Common Stock equivalents).
The obligation of TBS to consummate the TBS Merger is also subject to
additional conditions, including the following: (a) the accuracy of the
representations and warranties of Time Warner set forth in the Merger
Agreement; (b) Time Warner having performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing; (c) the absence of certain pending suits, actions or
proceedings by governmental agencies; and (d) receipt by TBS of a satisfactory
opinion of its tax counsel.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time of the Mergers pursuant to the mutual written consent of Time Warner and
TBS and at the option of either Time Warner or TBS under certain
circumstances, including the following (a) if at the TBS Meeting the TBS
Merger Approval is not obtained, (b) if at the Time Warner Meeting the TW
Merger Approval is not obtained, (c) if the Mergers shall not have been
consummated on or before December 31, 1996, unless the failure to consummate
the Mergers is the result of a willful and material breach of the Merger
Agreement by the party seeking to terminate the Merger Agreement, (d) if any
court or other governmental agency shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Mergers, and such order, decree, ruling or other
action shall have become final and nonappealable, (e) in the event of a
material breach by the other party to the Merger Agreement, (f) if the FCC
shall have issued an order or ruling or taken other action denying approval of
the transactions contemplated by the Merger Agreement, and such order, ruling
or other action shall have become final and nonappealable or (g) if (i) all
the conditions to the Mergers that are conditions
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to the obligations of both Time Warner and TBS have been satisfied and (ii)
any of the conditions to the obligations of the terminating party to
consummate the Mergers cannot be satisfied on or before December 31, 1996.
The Merger Agreement may also be terminated at the option of Time Warner
under certain circumstances, including: (a) if any order or approval of the
FCC, receipt of which is a condition to the obligation of Time Warner to
consummate the Mergers, when obtained shall include any Ownership Limitation
that is not acceptable to Time Warner in its sole discretion and such order or
approval shall have become final and nonappealable; or (b) if Time Warner is
required to terminate the Merger Agreement pursuant to the LMC Agreement. For
a description of the circumstances under which LMC may require Time Warner to
terminate the Merger Agreement and abandon the Mergers, see "TCI
Arrangements--LMC Agreement--Covenants With Respect to the Mergers."
The Merger Agreement may also be terminated at the option of TBS under
certain circumstances, including: (a) if Time Warner enters into a definitive
agreement providing for the implementation of a Material Transaction and CS
First Boston is unable to deliver to the TBS Board its opinion that, after
giving effect to such Material Transaction, the consideration to be received
by holders of TBS Capital Stock in the TBS Merger is fair to such holders
(other than Time Warner) from a financial point of view (see "--Certain
Covenants--Material Transactions" above); or (b) within 30 days of (i) Time
Warner entering into an agreement providing for the merger or consolidation of
Time Warner in which the Time Warner Capital Stock is exchanged for or
converted into the right to receive anything other than Time Warner Common
Stock, (ii) any person becoming the beneficial owner of more than 15% of the
outstanding Time Warner Common Stock, other than with the prior approval of
the Time Warner Board or (iii) any person becoming the beneficial owner of
more than 30% of the outstanding Time Warner Common Stock, regardless of
whether approved by the Time Warner Board.
In addition, the Merger Agreement may be terminated at the option of TBS if
the TBS Board determines that a Takeover Proposal is more favorable to the
shareholders of TBS than the transactions contemplated by the Merger Agreement
and the TBS Board shall concurrently approve, and TBS shall concurrently enter
into, a definitive agreement providing for the implementation of the
transactions contemplated by such Takeover Proposal. In order to terminate the
Merger Agreement under this provision, TBS must give Time Warner at least two
business days' notice of its intention to terminate, and the TBS Board is
required to take into account the terms of any revised proposal made by Time
Warner during such two business-day period.
In considering the effect of the termination provisions described in the
immediately preceding paragraph, TBS shareholders should consider the existing
governance arrangements with respect to TBS, certain provisions of the Support
Agreement and the termination fee provisions of the Merger Agreement described
below. The effect of such governance arrangements is that any of Time Warner,
TCI or Mr. Turner may veto any transaction involving a merger or consolidation
of TBS. The Support Agreement provides that if the Merger Agreement is
terminated pursuant to such termination provisions, Mr. Turner is required to
pay to Time Warner all "profit" of Mr. Turner and certain other holders of TBS
Capital Stock from the consummation of any Takeover Proposal that is
consummated, or with respect to which a definitive agreement is executed,
within 18 months of the termination of the Merger Agreement. See "Certain
Related Agreements--Support Agreement." Finally, any such termination pursuant
to such termination provisions will obligate TBS to pay to Time Warner a
termination fee of $175 million upon execution of a definitive agreement with
respect to any Takeover Proposal. See "--Effects of Termination" below. As a
result, in considering whether to exercise the right to terminate the Merger
Agreement in order to enter into a definitive agreement with respect to a
Takeover Proposal, the TBS Board would necessarily have to consider the
likelihood that any such Takeover Proposal would be consummated, based in part
upon whether each of Time Warner, TCI and Mr. Turner would support such
Takeover Proposal and the fact that the termination fee would be payable by
TBS upon execution of a definitive agreement with respect to such Takeover
Proposal, regardless of whether such Takeover Proposal, or any other Takeover
Proposal, is consummated.
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EFFECTS OF TERMINATION
If any person makes a Takeover Proposal and thereafter (a) the Merger
Agreement is terminated (i) for failure to obtain the TBS Merger Approval,
(ii) because the Closing shall not have occurred on or before December 31,
1996 (if at the time of termination TBS is in material breach of the Merger
Agreement and such breach cannot be or has not been cured within 30 days after
TBS becomes aware of such breach or such shorter period as may elapse between
the date TBS becomes aware of such breach and the time of termination), (iii)
by TBS because a court of competent jurisdiction or other governmental agency
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Mergers (if at
the time of termination TBS is in material breach of the Merger Agreement and
such breach cannot be or has not been cured within 30 days after TBS becomes
aware of such breach), (iv) by Time Warner as a result of the breach of the
Merger Agreement by TBS, (v) because the FCC has issued an order or ruling or
taken other action denying approval of the transactions contemplated by the
Merger Agreement (if at the time of termination TBS is in material breach of
the Merger Agreement and such breach cannot be or has not been cured within 30
days after TBS becomes aware of such breach), (vi) by TBS because any of the
conditions to its obligations is not capable of being satisfied prior to
December 31, 1996 (or as extended pursuant to the Merger Agreement) or
(vii) by TBS to permit TBS to enter into a definitive agreement providing for
the implementation of another Takeover Proposal, and (b) a definitive
agreement with respect to a Takeover Proposal is executed, or a Takeover
Proposal is consummated, at or within 18 months after such termination, then
TBS shall pay to Time Warner a fee of $175 million (reduced by any amount
actually paid by TBS pursuant to the next paragraph in connection with such
termination).
If the Merger Agreement is terminated for the failure to obtain the TBS
Merger Approval or terminated by Time Warner as a result of a breach of the
Merger Agreement by TBS, then TBS shall reimburse Time Warner for all its
reasonable out-of-pocket expenses actually incurred in connection with the
Merger Agreement and the transactions contemplated thereby, up to a maximum of
$15 million.
If the Merger Agreement is terminated for the failure to obtain the TW
Merger Approval or terminated by TBS as a result of a breach of the Merger
Agreement by Time Warner, then Time Warner shall reimburse TBS for all its
reasonable out-of-pocket expenses actually incurred in connection with the
Merger Agreement and the transactions contemplated thereby, up to a maximum of
$15 million.
In the event of termination of the Merger Agreement, the Merger Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Time Warner or TBS, other than (a) liability with
respect to termination payments and reimbursement of fees and expenses as
described above, (b) each party's obligation to pay its own fees and expenses
(except as set forth above with respect to reimbursement of fees and
expenses), (c) certain obligations of confidentiality and (d) liability
resulting from any willful and material breach by any party to the Merger
Agreement.
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TCI ARRANGEMENTS
The following is a summary of certain provisions of the Transaction
Agreements that provide for the TCI Arrangements. Copies of these Transaction
Agreements are filed as Exhibits to the Registration Statement and, in the
case of the LMC Agreement, attached hereto as Appendix A-2, and are
incorporated herein by reference. The following summaries are qualified by
reference to the complete text of the relevant Transaction Agreement.
LMC AGREEMENT
Covenants with Respect to the Mergers
Pursuant to the LMC Agreement, LMC has agreed to cause each of its
subsidiaries that holds shares of TBS Capital Stock to attend the TBS Meeting
and to vote all such shares in favor of the approval of the TBS Merger and
each of the other transactions contemplated by the Merger Agreement and in
favor of the approval of the Merger Agreement. This obligation of LMC is
subject to the satisfaction of the following conditions as of the time of the
TBS Meeting (a) the Merger Agreement shall not have been amended in any
respect, nor shall any right of TBS or Time Warner thereunder have been
waived, other than any amendments and waivers that do not change the
consideration to be received in exchange for TBS Capital Stock in the TBS
Merger or the exchange ratio therefor and that, when taken together with all
other amendments and waivers, do not have a material adverse effect on the
value of the consideration to be received in exchange for TBS Capital Stock in
the TBS Merger, (b) Mr. Turner, as a shareholder of TBS, shall have voted or
shall simultaneously be voting all his shares of TBS Capital Stock in favor of
the approval of the TBS Merger, (c) if the Time Warner Meeting shall have been
held, the TW Merger Approval shall have been obtained, (d) no judgment shall
have been entered and be continuing that restrains or enjoins LMC or any of
its subsidiaries from voting its shares of TBS Capital Stock, (e) no person
shall have become the beneficial owner of more than 15% of the Time Warner
Common Stock on a fully-diluted basis and (f) Time Warner shall not have
entered into an agreement (other than the Merger Agreement) providing for the
merger of Time Warner in which shares of Time Warner Capital Stock are
exchanged for or converted into the right to receive anything other than Time
Warner Common Stock.
Pursuant to the LMC Agreement, TCI and LMC have agreed to, and LMC has
agreed to cause each of its subsidiaries that holds shares of TBS Capital
Stock to, and Time Warner has agreed to, use reasonable efforts (a) to take
all actions and to do, and to assist and cooperate with each other in good
faith in doing, all things necessary to obtain all approvals from governmental
agencies as may be necessary for the consummation of the transactions
contemplated by the Merger Agreement and the LMC Agreement and (b) to defend
any lawsuits or other legal proceedings challenging the Merger Agreement or
the LMC Agreement or the consummation of the transactions contemplated
thereby; provided, however, that the foregoing obligation shall not, subject
to limited exceptions, require any such person to agree to enter into or be
bound by any settlement or judgment, or to agree to any change in the terms of
the LMC Agreement or any of the other agreements contemplated by the LMC
Agreement. Notwithstanding the foregoing, nothing in the LMC Agreement imposes
any obligation or duty on the part of TCI or any of its affiliates to agree
to, approve or otherwise be bound by or satisfy, any condition in connection
with the grant or effectiveness of any approval of any governmental agency
required in connection with the consummation of the transactions contemplated
by the Merger Agreement and the LMC Agreement that requires the surrender or
modification in any significant respect of any license held by TCI or any of
its affiliates, the divestiture of any assets of TCI or any of its affiliates,
the holding of any such assets in a trust or otherwise separate and apart from
such person's other assets, limitations on such person's freedom of action
with respect to future acquisitions of assets or with respect to any existing
or future business or activities or its enjoyment of the full rights of
ownership, possession and use of any asset now owned or hereafter acquired by
such person (including any requirement not to receive shares of New Time
Warner Common Stock or LMC Reduced Voting Common Stock pursuant to the Merger
Agreement, the SSSI Agreement or otherwise), any agreement to divest any such
shares, any requirement not to receive, or to agree to divest, shares of LMC
Common Stock or LMC Reduced Voting Common Stock to be received pursuant to the
LMC Agreement, any change in such person's ownership or any rights or
arrangements among its equity holders or any other restrictions, limitations,
requirements or conditions which are or might be burdensome or adverse to any
such person (in any such case, other than such items as are contemplated by
the Transaction Agreements or the FTC Consent Decree).
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Pursuant to the LMC Agreement, Time Warner has agreed, upon the written
request of LMC, to terminate the Merger Agreement and abandon the Mergers in
certain circumstances, including if (a) on the date fixed for the consummation
of the Mergers, the LMC Agreement, any agreement contemplated by the LMC
Agreement or the Merger Agreement or the consummation of the Mergers or any
other transaction contemplated thereby shall be illegal or would result in the
imposition on the Liberty Parties (as defined below) or the SpinCo Parties (as
defined below) of damages or penalties or the FTC shall have failed to accept
or denied acceptance of the FTC Consent Decree for public comment or there
shall be pending any suit by any governmental agency in which the relief
sought would have any such effects or any effect described in the last
sentence of the immediately preceding paragraph (including any proceeding with
respect to an alleged violation of the FTC Consent Decree, but excluding any
other proceeding contemplated by the FTC Consent Decree), (b) on the date
fixed for the consummation of the Mergers, any consent or approval of any
governmental agency required in connection with the consummation of the
transactions contemplated by the Merger Agreement and the LMC Agreement shall
be subject to any condition referred to in the last sentence of the
immediately preceding paragraph, (c) the New Time Warner Rights Agreement, if
adopted, shall differ in any material respect, other than as contemplated by
the Rights Amendment, from the Existing Rights Agreement, (d) on the date
fixed for the consummation of the Mergers (i) any person shall have become the
beneficial owner of more than 15% of the Time Warner Common Stock on a fully-
diluted basis, (ii) Time Warner shall have entered into an agreement (other
than the Merger Agreement) providing for the merger of Time Warner in which
shares of Time Warner Capital Stock are exchanged for or converted into the
right to receive anything other than Time Warner Common Stock or (iii) any
bona fide tender or exchange offer for the Time Warner Common Stock shall have
been commenced or publicly announced and not terminated or withdrawn if
consummation of such offer in accordance with its terms would result in the
consequence described in clause (i) or (ii) above, (e) on the date fixed for
the consummation of the Mergers, the condition to the obligation of TBS to
consummate the TBS Merger that relates to the representations and warranties
of Time Warner in the Merger Agreement shall not have been satisfied, (f) any
action shall have been taken by Time Warner that if taken after the Effective
Time of the Mergers would result in a Prohibited Effect (as defined below),
(g) as of the date fixed for the consummation of the Mergers, any party (other
than LMC and its affiliates) shall be in breach of its obligations under the
LMC Agreement or any other agreement contemplated by the LMC Agreement or (h)
as of the date fixed for the consummation of the Mergers, any required
approval by the stockholders of Time Warner for the consummation of the
transactions contemplated by the Merger Agreement, the LMC Agreement and the
other agreements contemplated by the LMC Agreement shall not have been
obtained.
Pursuant to the LMC Agreement, Time Warner and LMC have agreed to execute
and deliver to the other parties thereto, at the Closing, the LMC Registration
Rights Agreement, the Right of First Refusal Agreement, the SSSI Agreement,
the Distribution Contract and the Sunshine Agreement, each of which is
discussed below or under "Certain Related Agreements."
Post-Closing Covenants
Pursuant to the LMC Agreement, and subject to certain exceptions, (a) all
shares of New Time Warner Common Stock received by LMC or any of its
subsidiaries in connection with the Mergers and related transactions will be
exchanged on a one-for-one basis for shares of LMC Reduced Voting Common Stock
and (b) prior to the expiration of the Restriction Period (as defined below)
and for so long as any of the Liberty Parties or SpinCo Parties hold any
shares of LMC Reduced Voting Common Stock, all shares of New Time Warner
Common Stock and shares of LMC Common Stock from time to time owned
beneficially or of record by any Liberty Party or SpinCo Party, as applicable,
shall be exchanged on a one-for-one basis for shares of LMC Reduced Voting
Common Stock. See "Description of New Time Warner Capital Stock" for a
discussion of the relative rights of the New Time Warner Common Stock and the
LMC Reduced Voting Common Stock.
Pursuant to the New Time Warner Charter, New Time Warner will have the right
to redeem at fair market value shares of New Time Warner Common Stock to the
extent necessary to prevent the loss or to secure the
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reinstatement of any license or franchise issued by any governmental agency.
New Time Warner has agreed pursuant to the LMC Agreement that it will not
exercise such right to require the redemption from any Liberty Party or any
SpinCo Party of any shares of New Time Warner Common Stock unless it has first
given prior written notice of such proposed redemption, whereupon such Liberty
Party or SpinCo Party will have the right to exchange on a one-for-one basis
the shares to be redeemed for shares of LMC Common Stock. LMC Common Stock and
LMC Reduced Voting Common Stock, by their terms, will not be subject to
redemption at the option of New Time Warner.
The LMC Agreement also provides that if, during the Restriction Period, New
Time Warner takes certain actions that have a Prohibited Effect and such
Prohibited Effect did not exist prior to the taking of such action and did not
result from any breach of the LMC Agreement or the FTC Consent Decree by LMC
or any of its affiliates, then New Time Warner will be required to compensate
the Liberty Parties or the SpinCo Parties, as applicable, for income taxes
incurred by them in disposing of Covered TW Securities (as defined below). New
Time Warner will not be required to compensate the Liberty Parties or the
SpinCo Parties under this provision unless the Liberty Parties or the SpinCo
Parties, as applicable, comply with certain notice requirements and New Time
Warner is given the opportunity, at its expense, to try to mitigate the effect
of the actions taken by New Time Warner or otherwise to avoid the Prohibited
Effect. If New Time Warner becomes obligated to compensate the Liberty Parties
or the SpinCo Parties, as applicable, for taxes pursuant to this provision,
(a) New Time Warner will be required so to compensate any Liberty Party or
SpinCo Party that disposes of Covered TW Securities to the extent required or
to the extent necessary to avoid the applicable Prohibited Effect and (b) if
the aggregate number of Covered TW Securities disposed of by the Liberty
Parties or the SpinCo Parties, as applicable, pursuant to clause (a) above
equals or exceeds (on an "as converted" basis, if applicable) 5% of the number
of Covered TW Securities held by LMC and all its subsidiaries immediately
after the Effective Time of the Mergers, then, at the option of LMC, New Time
Warner will be required to compensate the Liberty Parties or the SpinCo
Parties, as applicable, for the disposition of all the Covered TW Securities
if all equity securities of New Time Warner held by the Liberty Parties are
disposed of within twelve months. For the purposes of this compensation
obligation, the taxes incurred by any Liberty Party or SpinCo Party will be
calculated by reference to the gain or income recognized by such Liberty Party
or SpinCo Party for Federal income tax purposes from the disposition of the
Covered TW Securities at the highest combined corporate Federal, state and
local marginal capital gains tax rate applicable to such Liberty Party or
SpinCo Party during the year of disposition and will be calculated on a fully
grossed-up basis.
The covenants described in the two preceding paragraphs may have the effect,
for so long as the Liberty Parties and the SpinCo Parties have any significant
interest in New Time Warner, of requiring New Time Warner to pay amounts to
the Liberty Parties and the SpinCo Parties in order to engage in (or requiring
New Time Warner to refrain from engaging in) activities that the Liberty
Parties and the SpinCo Parties would be prohibited under the Federal
communications laws from engaging in. The extent and duration of these
requirements will vary as a result of changes in the nature or scope of the
businesses of New Time Warner, the Liberty Parties and the SpinCo Parties and
their respective affiliates as well as changes in applicable law. Based on the
current businesses of Time Warner, TBS, the Liberty Parties and the SpinCo
Parties and based upon Time Warner's current understanding of applicable law,
Time Warner does not expect these requirements to have a material effect on
the business of New Time Warner.
In the LMC Agreement, New Time Warner has also agreed that, if New Time
Warner amends the New Time Warner Rights Agreement to reduce the threshold for
determining an "Acquiring Person" and such reduction results in any Liberty
Party or SpinCo Party being required to dispose of Covered TW Securities, then
New Time Warner will compensate such Liberty Party or SpinCo Party for income
taxes incurred in such disposition.
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Certain Definitions
In the LMC Agreement:
"Covered TW Securities" means (a)(i) if the Mergers are consummated, the
shares of New Time Warner Common Stock beneficially owned by LMC immediately
following the consummation of the TBS Merger as a result of the conversion in
the TBS Merger of the shares of TBS Capital Stock beneficially owned by LMC on
September 22, 1995, and (ii) if the Contribution Election (as defined in the
Contribution and Exchange Agreement (see "--Contribution and Exchange
Agreement" below)) is made, the shares of New Time Warner Common Stock
received by the Liberty Parties in connection therewith, determined assuming
that the shares of TBS Capital Stock contributed to New Time Warner or owned
by the subsidiaries of LMC so contributed did not include any shares of TBS
Capital Stock not beneficially owned by LMC on September 22, 1995, (b) the
shares of LMC Reduced Voting Common Stock issued pursuant to the SSSI
Agreement and (c) all shares of LMC Common Stock and LMC Reduced Voting Common
Stock for which the shares of New Time Warner Common Stock and LMC Reduced
Voting Common Stock referred to in clauses (a) and (b) above and in this
clause (c) may be exchanged pursuant to the provisions of the LMC Agreement
described above.
"Liberty Party" means LMC and each affiliate of LMC that is controlled by
LMC from time to time and, for so long as LMC is controlled by TCI, shall also
mean TCI and each affiliate of TCI that is controlled by TCI from time to
time.
"Prohibited Effect" means the effect or consequence (a) (i) of making the
continuing ownership by the Liberty Parties or any of them of any equity
securities of New Time Warner then owned by the Liberty Parties or any of them
illegal under any Federal or state law or (ii) of making the continued
ownership by the SpinCo Parties or any of them of any equity securities owned
by the SpinCo Parties or any of them illegal under any Federal or state law,
(b) of imposing or resulting in the imposition under any Federal or state law
on the Liberty Parties or any of them or the SpinCo Parties or any of them of
damages or penalties by reason of or as a result of such continued ownership,
(c) of requiring the divestiture of, or resulting in the requirement to
divest, any such securities by any Liberty Party or SpinCo Party under any
Federal or state law or (d) of requiring, or resulting in the requirement,
under any Federal or state law that any Liberty Party or SpinCo Party
discontinue any business or divest of any business or assets or that any
license that such Liberty Party or SpinCo Party holds or is required to hold
under any Federal communications law be modified in any significant respect or
not be renewed as a result of such continued ownership.
"Restriction Period" means that period of time commencing on the date any
Covered TW Securities are first issued and (a) if the TCI Spin-off does not
occur, continuing until the first time that the ownership or deemed ownership
by the Liberty Parties of the New Time Warner Common Stock and other voting
securities of New Time Warner then owned by the Liberty Parties (assuming
conversion in full of all LMC Reduced Voting Common Stock and the absence of
any restriction on the exercise by the Liberty Parties of the rights of a
holder of New Time Warner Common Stock), would not have a Prohibited Effect
under any Federal communications law or violate the FTC Consent Decree, and
(b) if the TCI Spin-off occurs, continuing until the first time that both the
ownership by the SpinCo Parties of the New Time Warner Common Stock and the
other voting securities of New Time Warner then owned by the SpinCo Parties
(assuming conversion in full of all LMC Reduced Voting Common Stock and the
absence of any restriction on the exercise by the SpinCo Parties of the rights
of a holder of New Time Warner Common Stock), and the deemed ownership of such
New Time Warner securities by the Liberty Parties (assuming such conversion
and absence of restrictions) pursuant to any relevant attribution rules of the
Federal communications laws would not have a Prohibited Effect under any
Federal communications law or violate the FTC Consent Decree.
"SpinCo Party" means, after the TCI Spin-off, SSSI and each affiliate of
SSSI that is controlled by SSSI from time to time and, for so long as SSSI is
an affiliate of TCI, shall also mean TCI and each affiliate of TCI that is
controlled by TCI from time to time.
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SSSI AGREEMENT AND THE DISTRIBUTION CONTRACT
General
Pursuant to the LMC Agreement, each of New Time Warner, LMC and SSSI will
execute and deliver, at the Closing, the SSSI Agreement. Pursuant to the SSSI
Agreement, upon the earliest of (a) receipt by TCI of the Letter Ruling, (b)
the date on which TCI shall have been advised by the IRS, or TCI shall have
notified New Time Warner in writing that it has determined, that TCI will not
obtain the Letter Ruling and (c) May 31, 1997, (i) SSSI will grant to New Time
Warner the SSSI Option and New Time Warner will issue to SSSI 4,166,667 shares
of LMC Reduced Voting Common Stock in a transaction taxable to SSSI in
consideration for the SSSI Option and (ii) LMC will agree to the LMC Non-
competition Covenant in consideration of which New Time Warner will issue to
LMC 833,333 shares of LMC Reduced Voting Common Stock and will pay to LMC
approximately $67 million (payable, at New Time Warner's option, in cash or
additional shares of LMC Reduced Voting Common Stock) in a transaction taxable
to LMC.
SSSI Option Exercise
The SSSI Option will be exercisable by New Time Warner at any time prior to
the sixth anniversary of the Closing. Upon exercise of the SSSI Option by New
Time Warner, the Distribution Contract will become effective. The
consideration payable by New Time Warner for the exercise of the SSSI Option
consists of the payments due under the Distribution Contract described below.
Distribution Contract
Pursuant to the Distribution Contract, New Time Warner will be required to
make payments to SSSI in an amount sufficient to ensure that, on and after the
effective date of the Distribution Contract, the sum of (a) SSSI's aggregate
Net Cash Flows (as defined in the Distribution Contract) subsequent to such
effective date and (b) all payments received by SSSI from New Time Warner
under the Distribution Contract will have a net present value (calculated in
accordance with the Distribution Contract) as of such effective date of
$213,333,333. In addition, until the aggregate amounts required to be paid
pursuant to the immediately preceding sentence have been received by SSSI, New
Time Warner will make minimum quarterly payments to SSSI in an amount
sufficient to ensure that, with respect to each fiscal quarter of SSSI ending
after such effective date, the sum of (i) SSSI's aggregate Net Cash Flows in
respect of such fiscal quarter and (ii) New Time Warner's payments in respect
of such fiscal quarter under the Distribution Contract is not less than
$7,681,000.
Pursuant to the Distribution Contract, SSSI will, to the extent requested by
New Time Warner, provide satellite uplink and distribution services with
respect to WTBS if the WTBS Conversion shall have occurred.
Limitation on Competitive Activities by LMC
Pursuant to the SSSI Agreement and the Distribution Contract, LMC will agree
to the SSSI Non-competition Covenant. The SSSI Non-competition Covenant
provides that, other than through SSSI, LMC will not and will cause its
affiliates not to (a) engage in the business of uplinking or distributing the
WTBS signal to video programming distribution systems until the sixth
anniversary of the consummation of the Mergers or, if the SSSI Option has been
exercised, the fifth anniversary of the termination of the last programming
agreement between SSSI and any MVPD for the distribution of the WTBS signal
and (b) if the SSSI Option has been exercised, solicit any MVPD to terminate
the carriage of WTBS or, except as contemplated by the Distribution Contract,
terminate any programming agreement with SSSI with respect to WTBS until the
fifth anniversary of the termination of the last programming agreement between
SSSI and any MVPD for the distribution of the WTBS signal.
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PROGRAM AGREEMENT
The Program Agreement provides that, subject to consummation of the Mergers,
TCI and its affiliated cable systems will continue to carry Headline News,
where it was carried and on the same tier of service as it was carried as of
September 15, 1995, for a term of five years from the consummation of the
Mergers, with four five-year renewal terms at TCI's election. The Program
Agreement also provides that if the WTBS Conversion occurs, then, subject to
certain terms and conditions, such service will be carried by TCI and its
affiliated cable systems that carried WTBS on September 15, 1995, at the rates
set forth therein through the fifth anniversary of the WTBS Conversion, with
four five-year renewal terms at TCI's election. The Program Agreement also
contemplates, subject to certain conditions, an annual rebate (determined
pursuant to the Program Agreement) for TCI and its affiliated cable systems
with respect to the carriage of TBS programming services, which rebate
commences at various dates for various services.
CONTRIBUTION AND EXCHANGE AGREEMENT
Pursuant to the Contribution and Exchange Agreement, LMC may elect (the
"Contribution Election") to contribute all the capital stock of United Cable
Turner Investment Inc. ("UCTI"), a wholly owned subsidiary of LMC that owned,
as of June 30, 1996, approximately 2.06% of the outstanding TBS Common Stock
equivalents, to New Time Warner simultaneously with the Closing. If LMC makes
the Contribution Election, LMC will be entitled to receive from New Time
Warner 0.75 of a share of New Time Warner Common Stock for each share of TBS
Common Stock and 4.80 shares of New Time Warner Common Stock for each share of
TBS Class C Preferred Stock owned by UCTI. All the provisions of the
Transaction Agreements that relate to New Time Warner Capital Stock acquired
by LMC and its affiliates pursuant to the Merger Agreement, including the LMC
Agreement, the Right of First Refusal Agreement and the LMC Registration
Rights Agreement, will apply to shares of New Time Warner Common Stock issued
as a result of the exercise of the Contribution Election. See "--LMC
Agreement" above and "Certain Related Agreements" for a description of these
agreements.
SPORTSOUTH AGREEMENT
TBS and LMC Southeast Sports, Inc. ("LSSI") have entered into the SportSouth
Agreement, whereby LSSI has agreed to purchase from TBS, and TBS has agreed to
sell to LSSI, all of the issued and outstanding capital stock of Turner Sports
Programming, Inc. ("TSP"). The only asset of TSP is a 44% partnership interest
in SportSouth. The purchase price is payable by delivery to TBS of a
promissory note of LSSI with a principal amount equal to 44% of the Net
Partnership Value. For purposes of the SportSouth Agreement, "Net Partnership
Value" means (a) $153.7 million, plus (b) the net difference between certain
current assets and certain current liabilities of SportSouth, minus (c) the
amount of certain indebtedness of SportSouth. The purchase price is currently
estimated to be approximately $65 million. The promissory note will be due on
the second anniversary of the closing under the SportSouth Agreement, will
bear interest, payable quarterly, at 7.50% per annum, and will be secured by a
first priority security interest in the TSP shares purchased by LSSI and TSP's
partnership interest in SportSouth. Affiliates of LMC currently own a 44%
partnership interest in SportSouth. The transactions contemplated by the
SportSouth Agreement are conditioned upon the consummation of the Transaction
and will close on the same date as the Transaction, or, if all the conditions
to the parties' obligations set forth in the SportSouth Agreement have not
been satisfied on or prior to such date, on the third business day after all
such conditions have been satisfied or waived. The SportSouth Agreement
contains customary representations, warranties, covenants and conditions.
The SportSouth Agreement may be terminated (a) by LSSI, if TBS has not
complied with or performed its obligations in all material respects under the
SportSouth Agreement prior to the closing of the transactions contemplated by
the SportSouth Agreement, (b) by TBS, if LSSI has not complied with its
obligations under the SportSouth Agreement prior to the closing of the
transactions contemplated by the SportSouth Agreement, (c) by LSSI, if in
connection with its HSR filing, it in its sole opinion considers a request
from a governmental authority for additional data and information to be unduly
burdensome, (d) by TBS or LSSI, if the Merger Agreement is terminated or
otherwise ceases to be in effect pursuant to its terms or (e) by TBS or LSSI,
if the
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closing of the transactions contemplated by the SportSouth Agreement has not
been consummated on or prior to the consummation of the Transaction or the
date that is 92 days after the earlier of the two dates referred to in the
Merger Agreement as the outside date by which the Transaction may be
consummated, for any reason other than (i) a breach or default by such party
in the performance of any of its obligations under the SportSouth Agreement or
(ii) the failure of any representation or warranty of such party to be true.
LSSI's obligations under the SportSouth Agreement are conditioned upon TBS
and Time Warner, on the one hand, and SportSouth, on the other, entering into
an agreement (the "Agreement Restricting Activities") restricting certain
activities of TBS, Time Warner and their respective affiliates. The Agreement
Restricting Activities will provide that, for a period of twelve years
beginning on the closing under the SportSouth Agreement, and subject to
certain exceptions, none of TBS, Time Warner or any of their respective
affiliates will in any way engage or participate in (a) a Competing Business
(as hereinafter defined), (b) the formation or ownership of a Competing Person
(as hereinafter defined) or (c) any purchase or other acquisition of any right
to transmit or distribute any collegiate or professional athletic game,
competition or event for exhibition in the states of Kentucky, North Carolina,
South Carolina, Tennessee, Georgia, Alabama and Mississippi (the "SportSouth
Region") for or on behalf of a Competing Business. "Competing Business" means
the organization, ownership or operation of a regional cable television sports
network offered primarily to viewers in the SportSouth Region. "Competing
Person" means a person engaged, directly or indirectly, in a Competing
Business.
The obligations of both LSSI and TBS under the SportSouth Agreement are
conditioned upon SportSouth's entering into telecast rights agreements with
respect to the broadcast by SportSouth of games of the Atlanta Hawks and the
Atlanta Braves for the period from the closing under the SportSouth Agreement
through the end of such sports teams' seasons in 2007.
SUNSHINE OPTION
Pursuant to the LMC Agreement, at the Closing, TWE and a subsidiary of LMC
will enter into the Sunshine Option Agreement pursuant to which such
subsidiary of LMC will be granted the Sunshine Option to purchase the
approximately 15% interest of TWE and certain of its affiliates in the
Sunshine Network, a Florida-based sports cable channel, for $14 million in
cash. The Sunshine Option will expire on December 31, 2005, and may be
exercised in whole but not in part. If the Sunshine Option is exercised, then
until December 31, 2010, none of New Time Warner or any of its affiliates
will, directly or indirectly, in any way engage or participate in (a) the
formation, ownership, or operation of a regional television sports network (by
any distribution technology) distributing sports programming primarily to
viewers in the State of Florida or (b) any purchase or other acquisition of,
or any other offer to purchase or otherwise acquire, any right to televise or
otherwise transmit or distribute any collegiate or professional athletic game,
competition, or competitive sporting event taking place in the State of
Florida (excluding professional boxing matches) or involving any team (whether
collegiate or professional) from or based in the State of Florida, for
exhibition on television in the State of Florida (except any exhibition as
part of a national exhibition) for or on behalf of itself or any other person
or entity.
PPV OUTPUT AGREEMENT
The PPV Output Agreement provides for the licensing of all motion pictures
theatrically released during a four-year period commencing August 13, 1996 by
New Line, Castle Rock and Turner Pictures for exhibition, on a non-exclusive
basis, on pay-per-view services owned by certain affiliates of TCI. The PPV
Output Agreement provides for a specified number of showings of each such
motion picture, which varies depending upon the domestic box office results
for such motion picture.
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CERTAIN RELATED AGREEMENTS
The following is a summary of certain provisions of the Transaction
Agreements other than the Merger Agreement and the Transaction Agreements
described under "TCI Arrangements." Copies of these Transaction Agreements are
filed as Exhibits to the Registration Statement and, in the case of the
Support Agreement, attached hereto as Appendix A-3, and are incorporated
herein by reference. The following summaries are qualified by reference to the
complete text of the relevant Transaction Agreement.
RIGHTS AMENDMENT
The LMC Agreement contemplates (but does not require) that New Time Warner
will adopt, at or prior to the Closing, the New Time Warner Rights Agreement.
It is currently expected that prior to the Closing, New Time Warner will adopt
the New Time Warner Rights Agreement. If adopted, it is contemplated that the
New Time Warner Rights Agreement would be the same as the Existing Rights
Agreement, other than the changes required to give effect to the Rights
Amendment. The following is a discussion of the principal changes to be
effected by the Rights Amendment.
The Rights Amendment contemplates a change to the definition of
"outstanding" shares of New Time Warner Common Stock to include (a) all issued
and outstanding securities generally entitled to vote together with the shares
of New Time Warner Common Stock actually issued, except such other securities,
if any, owned by New Time Warner or any subsidiary of New Time Warner which
could not be voted at a meeting called for the purpose of electing the
directors of New Time Warner plus (b) the maximum aggregate number of shares
of New Time Warner Common Stock and such other securities which would be
issued upon the exercise in full of all outstanding options, warrants and
rights (other than the New Time Warner Rights), however denominated, to
subscribe for, purchase or otherwise acquire any shares of New Time Warner
Common Stock or such other securities, and the exchange for, or conversion
into, shares of New Time Warner Common Stock or such other securities in full
of all outstanding securities of New Time Warner or any of its subsidiaries
that are exchangeable for, or convertible into, shares of New Time Warner
Common Stock or such other securities. The effect of this change is to
increase the amount of New Time Warner Common Stock that a person may acquire
before becoming an "Acquiring Person" and causing the New Time Warner Rights
to be exercisable. For example, based upon the Time Warner Common Stock and
TBS Capital Stock and the options, warrants and convertible securities of Time
Warner and TBS outstanding on June 30, 1996, and assuming consummation of the
Transaction, a person would have been able to beneficially own approximately
20.2% of the New Time Warner Common Stock outstanding on that date without
becoming an "Acquiring Person" if the Rights Amendment had been in effect on
that date. Such beneficial ownership of New Time Warner Common Stock would
represent approximately 18% of the aggregate voting power of the outstanding
New Time Warner Capital Stock on that date.
In addition, the Rights Amendment contemplates a change to the definition of
"Beneficial Ownership." The Existing Rights Agreement provides that a person
will be deemed the "Beneficial Owner" of, among others, any securities which
are beneficially owned, directly or indirectly, by any other person with which
such person or any of such person's affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any "securities of the Company." The Rights Amendment
will limit "securities of the Company" to any other securities of New Time
Warner generally entitled to vote together with the New Time Warner Common
Stock or any rights (other than the New Time Warner Rights), warrants, options
or other securities exercisable or exchangeable for, or convertible into,
shares of New Time Warner Common Stock or other securities of New Time Warner
generally entitled to vote together with such shares. In addition, under the
Rights Amendment, a person will be deemed to be the "Beneficial Owner" of
shares of New Time Warner Common Stock if such person is the Beneficial Owner
of any other securities of New Time Warner (whether or not exchangeable for,
or convertible into, shares of New Time Warner Common Stock) generally
entitled to vote together with the New Time Warner Common Stock. The Rights
Amendment also contemplates that, in the event any securities of New Time
Warner are subject to a voting trust, each beneficiary of any such voting
trust, and not the trustee or trustees thereunder, will be deemed to be the
"Beneficial Owner" of all such securities.
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The Rights Amendment also contemplates that no person will be deemed to be
the "Beneficial Owner" of any securities by reason of such person or any of
such person's affiliates or associates having the right to acquire (whether
such right is exercisable immediately or only after the passage of time) such
securities pursuant to a right of first refusal, right of first offer or
similar agreement, arrangement or understanding granted by another person (the
"subject person") (a) that does not provide any direct or indirect limitations
or restrictions on the ability of the subject person to exercise (or refrain
from exercising) any voting rights associated with such securities or contain
any other agreement, arrangement or understanding with respect to such voting
rights, (b) that does not contain any incentive for the subject person to
support or oppose any particular business combination with an "Acquiring
Person" (as defined in the New Time Warner Rights Agreement) or otherwise to
exercise (or refrain from exercising) any voting rights associated with such
securities in a manner advantageous to such person or any of such person's
affiliates or associates and (c) with respect to which prior written notice is
given to New Time Warner. This change is intended to ensure that LMC and the
Turner Shareholders will not be regarded as the "Beneficial Owners" of New
Time Warner Capital Stock solely by reason of the Right of First Refusal
Agreement. See "--Right of First Refusal Agreement" below.
If New Time Warner adopts the New Time Warner Rights Agreement, each share
of New Time Warner Common Stock issued pursuant to the Transaction will be
accompanied by one New Time Warner Right.
SUPPORT AGREEMENT
The Turner Shareholders have entered into the Support Agreement with Time
Warner. Pursuant to the Support Agreement, at any meeting of the shareholders
of TBS held prior to the termination of the Support Agreement, each Turner
Shareholder is required to vote the shares of TBS Capital Stock that such
Turner Shareholder is entitled to vote (the "Turner Shareholder Shares") (a)
in favor of the approval of the Transaction and each of the other transactions
contemplated by the Merger Agreement and in favor of the approval and adoption
of the Merger Agreement, and any actions required in furtherance thereof, (b)
against any action or agreement that would result in a breach in any material
respect of any provision of the Merger Agreement and (c) against any takeover
proposal or any other action or agreement that is inconsistent with or that is
reasonably likely to impede, interfere with, delay, postpone or attempt to
discourage the Transaction or any other transaction contemplated by the Merger
Agreement. The Support Agreement also provides that the Turner Shareholders
will not assert dissenters' rights with respect to the Transaction.
The Support Agreement provides that if the Merger Agreement is terminated by
TBS in accordance with its terms because the TBS Board shall have concurrently
approved, and TBS shall have concurrently entered into, a definitive agreement
providing for a Takeover Proposal, each Turner Shareholder must pay to Time
Warner an amount in cash equal to all "profit" of such Turner Shareholder
(and, in the case of Mr. Turner, the profit of certain other holders of TBS
Capital Stock) from the consummation of any Takeover Proposal (a) that is
consummated within 18 months of such termination or (b) with respect to which
a definitive agreement is executed within 18 months of such termination.
For purposes of the Support Agreement, the "profit" of any shareholder from
any Takeover Proposal subject to the provision described in the immediately
preceding paragraph is equal to (a) the aggregate consideration received by
such shareholder pursuant to such Takeover Proposal, valuing any non-cash
consideration (including any residual interest in TBS) at its fair market
value on the date such Takeover Proposal is consummated, plus (b) the fair
market value, on the date of disposition, of all shares of TBS Capital Stock
disposed of by such shareholder after the termination of the Merger Agreement
and prior to the date such Takeover Proposal is consummated, less (c) the
aggregate consideration that such shareholder would have received pursuant to
the Transaction, valuing each share of New Time Warner Common Stock at the
average of the closing price per share of Time Warner Common Stock on the NYSE
for the five trading days prior to the first public announcement by TBS of its
intention to terminate the Merger Agreement. The foregoing profit calculation
does not give effect to any taxes that would be payable by such shareholders
as a result of the consummation of the Takeover Proposal.
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The Support Agreement (other than the provisions described in the previous
two paragraphs) will terminate upon the termination of the Merger Agreement in
accordance with its terms or, if earlier, upon consummation of the
Transaction.
INVESTORS' AGREEMENTS
Investors' Agreement (No. 1)
The Merger Agreement contemplates that at the Closing New Time Warner will
enter into Investors' Agreement (No. 1) with Mr. Turner, Turner Outdoor and
Turner Partners and thereafter with each successor, assign and other person
that, pursuant to the terms of Investors' Agreement (No. 1), is required to
become a party thereto (each, an "Investor"). Investors' Agreement (No. 1)
contains certain "standstill" restrictions and restrictions on dispositions of
New Time Warner Common Stock applicable to the Investors and also provides for
the election to the New Time Warner Board of two persons designated by Mr.
Turner, in each case as more fully described below.
Pursuant to Investors' Agreement (No. 1), from and after the consummation of
the Mergers, the Investors may not (and each Investor will cause its
affiliates and associates that it controls, and use reasonable efforts to
cause its other affiliates and associates, not to), without the prior written
consent of the New Time Warner Board (a) publicly propose that any Investor or
any Qualified Stockholder (as defined below) or any of their respective
affiliates or associates enter into any merger or other business combination
involving New Time Warner or propose to purchase a material portion of the
assets of New Time Warner or any of its material subsidiaries, or make any
such proposal privately if it would reasonably be expected to require New Time
Warner to make a public announcement regarding such proposal, (b) make or in
any way participate in any solicitation of proxies to vote or consent with
respect to any voting securities of New Time Warner or become a participant in
any election contest with respect to New Time Warner, (c) form, join, or
participate in or encourage the formation of a group with respect to any
voting securities of New Time Warner, other than a group consisting solely of
Investors and Qualified Stockholders, (d) deposit any voting securities of New
Time Warner into a voting trust or subject any such voting securities to any
voting agreement or arrangement, other than any such trust, arrangement or
agreement (i) the only parties to or beneficiaries of which are Investors and
Qualified Stockholders and (ii) the terms of which do not require or expressly
permit any party thereto to act in a manner inconsistent with Investors'
Agreement (No. 1), (e) initiate, propose or otherwise solicit stockholders of
New Time Warner for the approval of one or more stockholder proposals with
respect to New Time Warner, or induce or attempt to induce any other person to
initiate any stockholder proposal with respect to New Time Warner, (f) except
with respect to Mr. Turner's rights to designate nominees to the New Time
Warner Board (as described below), seek election to or seek to place a
representative on the New Time Warner Board, or seek the removal of any member
of the New Time Warner Board, (g) call or seek to have called any meeting of
the stockholders of New Time Warner, (h)(i) solicit, seek to effect, negotiate
with or provide non-public information to any other person with respect to,
(ii) make any statement or proposal, whether written or oral, to the New Time
Warner Board or any director or officer of New Time Warner with respect to, or
(iii) otherwise make any public announcement or proposal whatsoever with
respect to, any form of business combination transaction (with any person)
involving a change of control of New Time Warner or the acquisition of a
substantial portion of the equity securities or assets of New Time Warner or
any of its material subsidiaries; provided, however, that the foregoing will
not (A) apply to any discussion between or among the Investors and the
Qualified Stockholders or any of their respective officers, employees, agents
or representatives or (B) in the case of the immediately preceding clause (ii)
above, be interpreted to limit the ability of any Investor or Qualified
Stockholder, or any designee of any Investor or Qualified Stockholder, on the
New Time Warner Board to make any such statement or proposal or to discuss any
such proposal with any officer or director of or advisor to the New Time
Warner Board unless, in either case, it would reasonably be expected to
require New Time Warner to make a public announcement regarding such
discussion, statement or proposal, (i) otherwise act, alone or in concert with
others, to seek to control or influence the management or policies of New Time
Warner (except for voting as a holder of voting securities in accordance with
the terms of such voting securities and actions taken as a director or officer
of New Time Warner), (j) publicly disclose any intention, plan or arrangement
inconsistent with any of the foregoing, or make any such disclosure privately
if it would reasonably be expected to require New Time
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Warner to make a public announcement regarding such intention, plan or
arrangement or (k) advise, assist (including by knowingly providing or
arranging financing for that purpose) or knowingly encourage any other person
in connection with any of the foregoing. "Qualified Stockholder" means any
Charitable Transferee or Qualified Trust from time to time bound under
Investors' Agreement (No. 2) (as hereinafter defined and described below). A
"Charitable Transferee" means any charitable organization described in Section
501(c)(3) of the Code. A "Qualified Trust" means any trust described in
Section 664 of the Code of which Mr. Turner or members of his family are
income beneficiaries.
Investors' Agreement (No. 1) provides that none of the Investors may,
without the prior written consent of New Time Warner, sell, transfer, pledge,
encumber or otherwise dispose of, or agree to sell, transfer, pledge, encumber
or otherwise dispose of, any voting securities of New Time Warner, or any
rights or options to acquire such voting securities, except (a) to the
underwriters in connection with an underwritten public offering of shares of
such securities on a firm commitment basis registered under the Securities
Act, pursuant to which the sale of such securities is in a manner that is
intended to effect a broad distribution, (b) to any wholly owned subsidiary of
such Investor or any partnership of which such Investor is the sole general
partner; provided, however, that such transferee becomes a party to Investors'
Agreement (No. 1) as an Investor, (c) to any person in a transaction that
complies with the volume and manner of sale provisions contained in Rule
144(e) and Rule 144(f) under the Securities Act; provided, however, that no
such disposition may be made during any period that a person has made and not
withdrawn or terminated a tender or exchange offer for voting securities of
New Time Warner or has announced its intention to make such an offer, (d) to
any person, other than a person that such Investor, or any of its affiliates
or associates, knows or, after commercially reasonable inquiry should have
known, beneficially owns or, after giving effect to such sale, will
beneficially own more than 5% of the aggregate voting power of the voting
securities of New Time Warner, (e) in the case of a natural person, to any
Permitted Transferee (as defined below) of such person; provided, however,
that such transferee becomes a party to Investors' Agreement (No. 1) as an
Investor, (f) in a bona fide pledge of shares of voting securities of New Time
Warner to a financial institution to secure borrowings; provided, however,
that such financial institution agrees to be bound by the transfer
restrictions contained in Investors' Agreement (No. 1) and the borrowings so
secured are full recourse obligations of the pledgor entered into
substantially simultaneously with such pledge, (g) upon five business days'
prior notice to New Time Warner, pursuant to the terms of any tender or
exchange offer for voting securities of New Time Warner or pursuant to any
merger or consolidation of New Time Warner, subject to certain limitations,
(h) a gift to a Charitable Transferee or Qualified Trust, subject to certain
limitations, (i) to TCITP, or its designee in accordance with the Right of
First Refusal Agreement or (j) to New Time Warner. A "Permitted Transferee" of
any natural person means (i) in the case of the death of such person, such
person's executors, administrators, testamentary trustees, heirs, devisees and
legatees and (ii) such person's current or future spouse, parents, siblings or
descendants or such parents', siblings' or descendants' spouses (the "Family
Members").
In addition, Investors' Agreement (No. 1) will provide that none of the
Investors may (and each Investor will cause its controlled affiliates and
associates, and use reasonable efforts to cause its other affiliates and
associates, not to) (a) publicly request New Time Warner or any of its agents
to amend or waive any provision of Investors' Agreement (No. 1) or (b)
knowingly take any action that would reasonably be expected to require New
Time Warner to make a public announcement regarding the possibility of a
transaction with such Investor.
Investors' Agreement (No. 1) will provide that New Time Warner will use
reasonable efforts to cause to be elected to the New Time Warner Board two
persons designated by Mr. Turner who are Eligible Persons. "Eligible Person"
means Mr. Turner and any other individual (a) who is reasonably acceptable to
the New Time Warner Board, (b) whose election to the New Time Warner Board
would not, in the opinion of counsel for New Time Warner, violate, conflict
with, or result in any material limitation on the ownership or operation of
any business or assets of New Time Warner or any of its subsidiaries under,
any statute, law, ordinance, regulation, rule, judgment, decree or order of
any governmental entity and (c) who has agreed in writing to comply with the
standstill covenants, and to resign as a director of New Time Warner if
requested to do so upon a reduction in the number of designees to the New Time
Warner Board to which Mr. Turner is entitled, as described below.
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Upon the Investors and the Qualified Stockholders, taken together, ceasing to
own of record and beneficially at least 50% of the voting securities of New
Time Warner owned by the Investors and the Qualified Stockholders, taken
together, immediately following consummation of the Transaction ("Initial
Shares"), the number of persons that Mr. Turner will be entitled to designate
for election to the New Time Warner Board will be reduced to one. Upon (i) the
Investors and the Qualified Stockholders, taken together, ceasing to own of
record and beneficially at least one-third of the Initial Shares and Mr.
Turner ceasing to be an employee of New Time Warner or any of its
subsidiaries, (ii) the death or incapacity of Mr. Turner, (iii) the willful
violation in any material respect of certain covenants contained in Investors'
Agreement (No. 1) by any Investor or (iv) the fifth business day following
written notice of termination of Investors' Agreement (No. 1) from Mr. Turner,
the number of persons that Mr. Turner will be entitled to designate for
election to the New Time Warner Board will be reduced to zero. If at any time
Mr. Turner and his Family Members cease to constitute a sufficient number of
the directors or trustees, as applicable, of any Qualified Stockholder to
permit approval of matters by such Qualified Stockholder without the approval
of any other director or trustee of such Qualified Stockholder, the voting
securities of New Time Warner held by such Qualified Stockholder will
thereafter be deemed not to be owned of record and beneficially by such
Qualified Stockholder (or any Investor) for purposes of determining Mr.
Turner's entitlement to representation on the New Time Warner Board.
The standstill covenants of Investors' Agreement (No. 1) will terminate upon
the last to occur of (a) Mr. Turner ceasing to be an employee of New Time
Warner or any of its subsidiaries, (b) Mr. Turner ceasing to be a member of
the New Time Warner Board and (c) Mr. Turner ceasing to be entitled to
designate any Eligible Persons for election to the New Time Warner Board. In
addition, the transfer restrictions of Investors' Agreement (No. 1) will
terminate on the fifth anniversary of the consummation of the Mergers. Without
limiting the foregoing, the standstill covenants and transfer restrictions
will terminate if the New Time Warner Board does not (i) on the date of
execution of Investors' Agreement (No. 1), elect to the New Time Warner Board
the two Eligible Persons designated by Mr. Turner, (ii) recommend for election
by the stockholders of New Time Warner to the New Time Warner Board any
Eligible Person designated by Mr. Turner in accordance with the terms of
Investors' Agreement (No. 1) or (iii) reasonably promptly after any request
from Mr. Turner, fill any vacancy created on the New Time Warner Board upon
the death, resignation or removal of any designee of Mr. Turner on the New
Time Warner Board with another Eligible Person designated by Mr. Turner, in
each case if the effect of such failure is that Mr. Turner does not have the
representation on the New Time Warner Board to which he is entitled under
Investors' Agreement (No. 1).
Investors' Agreement (No. 2)
The Merger Agreement also contemplates that any Charitable Transferee or
Qualified Trust to whom any Turner Shareholder transfers voting securities of
New Time Warner must enter into an Investors' Agreement ("Investors' Agreement
(No. 2)") with New Time Warner, whereupon such transferee will become a
Qualified Stockholder.
Investors' Agreement (No. 2) will provide that none of the Qualified
Stockholders may, without the prior written consent of New Time Warner, sell,
transfer, pledge, encumber or otherwise dispose of, or agree to sell,
transfer, pledge, encumber or otherwise dispose of, any Covered New Time
Warner Common Stock (as hereinafter defined), or any rights or options to
acquire Covered New Time Warner Stock, except in a transaction complying with
clause (a), (c), (d), (f), (g), (i) or (j) contained in the summary of the
transfer restrictions of Investors' Agreement (No. 1) set forth above (except
that, in the case of such clause (f), the financial institution must agree to
be bound by the transfer restrictions contained in Investors' Agreement (No.
2) rather than the transfer restrictions contained in Investors' Agreement
(No. 1)). "Covered New Time Warner Common Stock" means (i) any shares of New
Time Warner Common Stock transferred to a Qualified Stockholder by an Investor
pursuant to Investors' Agreement (No. 1) and (ii) any shares of New Time
Warner Common Stock acquired by a Qualified Stockholder pursuant to the
Transaction otherwise than in exchange for any shares of TBS Common Stock
owned by such Qualified Stockholder on September 22, 1995.
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The transfer restrictions contained in Investors' Agreement (No. 2) will
terminate on the earlier of (a) the fifth anniversary of the consummation of
the Mergers and (b) the date on which the transfer restrictions contained in
Investors' Agreement (No. 1) have been terminated.
RIGHT OF FIRST REFUSAL AGREEMENT
Pursuant to the LMC Agreement, at the Closing, TCI Turner Preferred, Inc.
("TCITP") and certain of its subsidiaries (the "TCITP Stockholders") will
enter into the Right of First Refusal Agreement with the Turner Shareholders
(any TCITP Stockholder or Turner Shareholder is referred to herein as a
"Subject Stockholder") and New Time Warner. As used below, the term "Other
Stockholder" means, with respect to any TCITP Stockholder, Mr. Turner, and
with respect to any Turner Shareholder, TCITP.
The Right of First Refusal Agreement places various restrictions on
dispositions by any Subject Stockholder of New Time Warner Capital Stock, New
Time Warner securities convertible into such capital stock, or options,
warrants or other rights to purchase such capital stock or such securities
convertible into such capital stock (collectively, "Covered Securities").
Among other restrictions, if a Subject Stockholder intends to sell any or all
of its Covered Securities (the "Subject Shares"), such Subject Stockholder
must give the Other Subject Stockholder an opportunity to purchase such
Subject Shares for a consideration no more favorable to such Subject
Stockholder than the consideration that would apply if such Subject
Stockholder consummated such proposed sale (the "First Refusal Right"). Under
certain circumstances, New Time Warner will also have a similar First Refusal
Right with respect to Subject Shares that are not purchased by the Other
Stockholder.
REGISTRATION RIGHTS AGREEMENTS
Turner Registration Rights Agreement
Pursuant to the Merger Agreement, at the Closing, the Turner Registration
Rights Agreement will be entered into by New Time Warner, on the one hand, and
Mr. Turner, Turner Outdoor, Turner Partners and certain associated holders of
New Time Warner Common Stock, on the other (collectively, and together with
certain specified entities to whom the Registrable Shares (as defined below)
are transferred, the "Turner Holders"). For a three-year period, the Turner
Holders will have the right (a "Turner Demand Registration"), by written
notice, to require New Time Warner, on three separate occasions, to register
under the Securities Act sales of shares of New Time Warner Common Stock
issued to them (the "Registrable Shares") . Each Turner Demand Registration
must include at least five million Registrable Shares. Except to the extent
required by agreements entered into prior to September 22, 1995, New Time
Warner will not include any securities that are not Registrable Shares in any
Turner Demand Registration without the prior written consent of the Turner
Holders who hold a majority in number of the Registrable Shares covered by
such Turner Demand Registration.
If New Time Warner proposes to file a registration statement under the
Securities Act with respect to securities of the same type as the Registrable
Shares pursuant to a firm commitment underwritten offering solely for cash for
its own account (other than a registration statement on Form S-8 or filed in
connection with a dividend reinvestment plan or an employee benefit plan
covering officers or directors of New Time Warner or its affiliates) or for
the account of any holders of securities of the same type as the Registrable
Shares (to the extent that New Time Warner has the right to include
Registrable Shares in any registration statement to be filed by New Time
Warner on behalf of such holders), then New Time Warner will be required to
offer the Turner Holders the opportunity, subject to certain conditions, to
include in such registration statement such number of Registrable Shares as
such Turner Holders may request.
New Time Warner will be required to pay all costs, fees and expenses
incident to its performance of the Turner Registration Rights Agreement,
except that the fees and expenses of any Turner Holder other than for one
counsel for all Turner Holders, and any discounts, commissions, brokers' fees
or fees of similar securities industry professionals and any transfer taxes
relating to the disposition of Registrable Shares by a Turner Holder, will be
payable by such Turner Holder, and New Time Warner will have no obligation to
pay any such amounts.
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The Turner Registration Rights Agreement will contain provisions under which
New Time Warner may require the Turner Holders temporarily to refrain from
effecting public sales of Registrable Shares. In addition, under the Turner
Registration Rights Agreement, New Time Warner and the Turner Holders will
indemnify each other against certain liabilities, including liabilities
arising under the Federal securities laws.
LMC Registration Rights Agreement
Pursuant to the LMC Agreement, at the Closing, the LMC Registration Rights
Agreement will be entered into by New Time Warner, on the one hand, and LMC,
on the other (together with certain specified entities to whom the LMC
Registrable Shares (as defined below) are transferred pursuant to the LMC
Registration Rights Agreement, the "LMC Holders"). The LMC Holders of not less
than a majority of the LMC Registrable Shares then held by all LMC Holders
will have the right, by written notice, to require New Time Warner, on three
separate occasions, to register under the Securities Act all or any portion of
the LMC Registrable Shares designated by such LMC Holders (an "LMC Demand
Registration"). In addition, if a Prohibited Effect occurs, certain LMC
Holders may have an additional demand registration right. Each LMC Demand
Registration must include at least four million LMC Registrable Shares or the
remaining LMC Registrable Shares, if less.
If New Time Warner proposes to file a registration statement under the
Securities Act with respect to a public offering of securities of the same
type as the LMC Registrable Shares pursuant to an underwritten offering solely
for cash for its own account (other than a registration statement on Form S-8
or filed in connection with a dividend reinvestment plan or an employee
benefit plan covering officers or directors of New Time Warner or its
affiliates), then New Time Warner will be required to offer the LMC Holders
the opportunity, subject to certain limitations, to include in such
registration statement such number of LMC Registrable Shares as such LMC
Holders may request.
The rights of an LMC Holder under the LMC Registration Rights Agreement will
terminate upon the later of (a) the third anniversary of the Closing Date and
(b) if such LMC Holder is an affiliate of New Time Warner, the date such LMC
Holder ceases to be an affiliate of New Time Warner.
New Time Warner will be required to pay all costs, fees and expenses
incident to its performance of the LMC Registration Rights Agreement, except
that the fees and expenses of any LMC Holder other than for one counsel for
all such LMC Holders, and any discounts, commissions or brokers' fees or fees
of similar securities industry professionals and any transfer taxes relating
to the disposition of the LMC Registrable Shares by an LMC Holder, will be
payable by such LMC Holder and New Time Warner will have no obligation to pay
any such amounts.
The LMC Registration Rights Agreement will contain provisions under which
New Time Warner may require the LMC Holders temporarily to refrain from
effecting public sales of Registrable Shares. In addition, under the LMC
Registration Rights Agreement New Time Warner and the LMC Holders will
indemnify each other against certain liabilities, including liabilities
arising under the Federal securities laws.
"LMC Registrable Shares" means shares of New Time Warner Common Stock issued
to any of the initial LMC Holders pursuant to the Merger Agreement, or any
securities into which such shares may be exchanged or converted and any such
shares issued to any Turner Holder and acquired by any LMC Holder pursuant to
the Right of First Refusal Agreement.
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UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following pro forma consolidated condensed financial information of New
Time Warner gives effect to the consummation of the Transaction and a number
of transactions that Time Warner and TWE have completed, or have entered into,
during the periods presented below (the "TW Transactions"). The pro forma
effect on Time Warner's historical financial statements resulting from the TW
Transactions is set forth under the heading "Time Warner Adjusted." The TW
Transactions for which adjustments have been made, as more fully described in
the Time Warner Form 8-K, dated August 14, 1996 and the Time Warner Form 10-K,
each of which is incorporated by reference herein, are as follows:
(a) on April 11, 1996, Time Warner issued 1.6 million shares of Time
Warner Series K Preferred Stock for approximately $1.55 billion of net
proceeds. Such proceeds were used by Time Warner to redeem all $250 million
principal amount of its outstanding 8.75% Debentures due 2017 (the "TW
8.75% Debentures") for $265 million (including redemption premiums and
accrued interest thereon of $15 million) and to reduce indebtedness of TWI
Cable Inc. ("TWI Cable"), a wholly-owned subsidiary of Time Warner, under
the New Credit Agreement (as defined below) by approximately $1.3 billion.
The issuance of the Time Warner Series K Preferred Stock and the use of the
proceeds therefrom to reduce outstanding indebtedness of Time Warner are
referred to herein as the "Series K Refinancing";
(b) on February 1, 1996, Time Warner redeemed the remaining $1.2 billion
principal amount of 8.75% Convertible Subordinated Debentures due 2015 (the
"TW 8.75% Convertible Debentures") for $1.28 billion, including redemption
premiums and accrued interest thereon (the "February 1996 Redemption"). In
addition, in September 1995, Time Warner redeemed approximately $1 billion
principal amount of TW 8.75% Convertible Debentures for $1.06 billion,
including redemption premiums and accrued interest thereon (the "September
1995 Redemption"). The September 1995 Redemption was financed with
(1) approximately $500 million of proceeds raised in June 1995 from the
issuance of 7.75% notes due 2005 (the "TW 7.75% Notes"), (2) $363 million
of net proceeds raised in August 1995 from the issuance of approximately
12.1 million Time Warner-obligated mandatorily redeemable preferred
securities of a subsidiary ("PERCS") that are redeemable for cash or, at
Time Warner's option, approximately 12.1 million shares of Hasbro, Inc.
common stock owned by Time Warner and that pay cash distributions at a rate
of 4% per annum and (3) available cash and equivalents (the "1995
Convertible Debt Refinancing"). The February 1996 Redemption was financed
with (1) $557 million of net proceeds raised in December 1995 from the
issuance of Time Warner-obligated mandatorily redeemable preferred
securities of a subsidiary ("Preferred Trust Securities") that pay cash
distributions at a rate of 8 7/8% per annum and (2) proceeds raised from
the $750 million issuance of debentures in January 1996, consisting of (i)
$400 million principal amount of 6.85% debentures due 2026, which are
redeemable at the option of the holders thereof in 2003, (ii) $200 million
principal amount of 8.3% discount debentures due 2036, which do not pay
cash interest until 2016, (iii) $166 million principal amount of 7.48%
debentures due 2008 and (iv) $150 million principal amount of 8.05%
debentures due 2016 (collectively referred to herein as the "January 1996
Debentures"). The issuance of the Preferred Trust Securities and the
January 1996 Debentures, together with the February 1996 Redemption are
collectively referred to herein as the "1996 Convertible Debt Refinancing."
The 1995 Convertible Debt Refinancing and the 1996 Convertible Debt
Refinancing are collectively referred to herein as the "Convertible Debt
Refinancings";
(c) on January 4, 1996, Time Warner completed its acquisition of CVI and
certain affiliated entities of CVI (the "Gerry Companies") (the "CVI
Acquisition"). CVI and the Gerry Companies owned cable television systems
serving approximately 1.3 million subscribers;
(d) on October 2, 1995 and September 5, 1995, Toshiba and ITOCHU,
respectively, each exchanged (i) their 5.61% pro rata equity interests in
TWE, (ii) their 6.25% residual equity interests in TW Service Holding I,
L.P. and TW Service Holding II, L.P., each of which owned certain assets
related to the TWE businesses (the "Time Warner Service Partnerships") and
(iii) their options to increase their interests in TWE under certain
circumstances for, in the case of ITOCHU, 6.2 million shares of Time Warner
Series G Preferred Stock and 1.8 million shares of Time Warner Series H
Preferred Stock and, in the case of Toshiba,
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7 million shares of Time Warner Series I Preferred Stock and $10 million in
cash (the "ITOCHU/Toshiba Transaction"). As a result of the ITOCHU/Toshiba
Transaction, Time Warner and certain of its wholly owned subsidiaries
collectively now own 74.49% of TWE's Series A Capital and Residual Capital
and 100% of TWE's Senior Capital and Series B Capital. A subsidiary of U S
WEST owns the remaining 25.51% of TWE's Series A Capital and Residual
Capital;
(e) on August 15, 1995, Time Warner redeemed all of its $1.8 billion
principal amount of outstanding Redeemable Reset Notes due 2002 (the "Reset
Notes") in exchange for new securities (the "Reset Notes Refinancing"),
consisting of approximately $454 million aggregate principal amount of
Floating Rate Notes due 2000, approximately $272 million aggregate
principal amount of 7.975% Notes due 2004, approximately $545 million
aggregate principal amount of 8.11% Debentures due 2006, and approximately
$545 million aggregate principal amount of 8.18% Debentures due 2007;
(f) on July 6, 1995, Time Warner acquired KBLCOM, which owned cable
television systems serving approximately 700,000 subscribers and a 50%
interest in Paragon, which owned cable television systems serving an
additional 972,000 subscribers (the "KBLCOM Acquisition"). The other 50%
interest in Paragon was already owned by TWE;
(g) on June 30, 1995, TWI Cable, TWE and the TWE-Advance/Newhouse
Partnership (as defined below) executed a five-year revolving credit
facility (the "New Credit Agreement"). The New Credit Agreement enabled
such entities to refinance certain indebtedness assumed in connection with
the Cable Acquisitions (as defined below), to refinance TWE's indebtedness
under a pre-existing bank credit agreement and to finance the ongoing
working capital, capital expenditure and other corporate needs of each
borrower (the "Bank Refinancing"). The Series K Refinancing, the
Convertible Debt Refinancings, the Reset Notes Refinancing and the Bank
Refinancing are referred to herein as the "Debt Refinancings";
(h) on June 23, 1995, (i) Six Flags was recapitalized, (ii) TWE sold a
51% interest in Six Flags to an investment group led by Boston Ventures and
(iii) TWE granted certain licenses to Six Flags (collectively, the "Six
Flags Transaction");
(i) on May 2, 1995, Time Warner acquired Summit, which owned cable
television systems serving approximately 162,000 subscribers (the "Summit
Acquisition" and, together with the CVI Acquisition and the KBLCOM
Acquisition, the "Cable Acquisitions");
(j) on April 1, 1995, TWE closed its transaction (the "TWE-A/N
Transaction") with the Advance/Newhouse Partnership ("Advance/Newhouse"),
pursuant to which TWE and Advance/Newhouse formed the Time Warner
Entertainment-Advance/Newhouse Partnership, a New York general partnership
(the "TWE-Advance/Newhouse Partnership"), and to which Advance/Newhouse and
TWE contributed cable television systems (or interests therein) serving
approximately 4.5 million subscribers, as well as certain foreign cable
investments and certain programming investments that included
Advance/Newhouse's 10% interest in Primestar Partners, L.P. TWE owns a two-
thirds equity interest in the TWE-Advance/Newhouse Partnership and is the
managing partner and Advance/Newhouse owns a one-third equity interest; and
(k) during 1995, TWE entered into agreements to sell, or announced its
intention to sell, 17 of its unclustered cable television systems serving
approximately 180,000 subscribers, of which certain of the transactions
closed during 1995 and the remaining transactions, which are not material,
have closed or are expected to close in 1996 (the "Unclustered Cable
Transactions").
The pro forma consolidated condensed balance sheet of New Time Warner at
June 30, 1996 gives effect to the Transaction as if it was consummated on such
date. The pro forma consolidated statements of operations of New Time Warner
for the six months ended June 30, 1996 and the year ended December 31, 1995
give effect to the Transaction and the TW Transactions, as if such
transactions had occurred at the beginning of 1995. The pro forma consolidated
condensed financial statements should be read in conjunction with (a) the
historical financial statements of Time Warner and TWE, including the notes
thereto, which are contained in the Time Warner Form 10-Q for the quarter
ended June 30, 1996 and the Time Warner Form 10-K, (b) the historical
financial statements
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of TBS, including the notes thereto, which are contained in the TBS Form 10-Q
for the quarter ended June 30, 1996 and the TBS Form 10-K and (c) the
historical financial statements and pro forma consolidated condensed financial
statements included or incorporated by reference in the Time Warner Form 8-K
dated August 14, 1996.
The pro forma consolidated condensed financial statements are presented for
informational purposes only and are not necessarily indicative of the
financial position or operating results that would have occurred if the
transactions had been consummated as of the dates indicated, nor are they
necessarily indicative of future financial conditions or operating results.
Pro forma adjustments for the Transaction reflect (a) the issuance by New
Time Warner of approximately 173.3 million shares of New Time Warner Capital
Stock to be issued to the holders of TBS Capital Stock, including
approximately 50.6 million shares of LMC Series Common Stock to be received by
LMC, (b) the issuance by New Time Warner of an additional five million shares
of LMC Series Common Stock to be received by LMC and its affiliates and the
payment of $67 million in cash in connection with the SSSI Agreement, (c) the
issuance by New Time Warner of options to purchase approximately 14 million
shares of New Time Warner Common Stock to replace all outstanding TBS options,
(d) the assumption of approximately $2.6 billion of indebtedness, including
$273 million of TBS LYONs and (e) the payment of approximately $95 million for
transaction costs and other related liabilities of Time Warner and TBS. The
TBS LYONs may be converted at the option of the holders into an additional 7.4
million shares of TBS Class B Common Stock prior to the consummation of the
Transaction. Should such conversion occur, (i) New Time Warner's pro forma
shareholders' equity at June 30, 1996 would be increased by approximately $186
million to reflect the issuance of approximately 5.6 million additional shares
of New Time Warner Common Stock, (ii) New Time Warner's pro forma indebtedness
at June 30, 1996 would be reduced by $273 million and (iii) New Time Warner's
pro forma loss before extraordinary item and loss before extraordinary item
per common share for the six months ended June 30, 1996 and the year ended
December 31, 1995 would be reduced by $6 million and $.01 per common share and
$11 million and $.03 per common share, respectively.
The pro forma consolidated condensed financial statements reflect an
assumption that New Time Warner will elect to satisfy a portion of the
consideration to be paid to LMC in connection with the SSSI Agreement in cash,
rather than in additional shares of LMC Series Common Stock. Should New Time
Warner elect otherwise, the effect on New Time Warner's pro forma financial
condition and operating results would not be material.
The Transaction will be accounted for by the purchase method of accounting
for business combinations and, accordingly, the estimated cost to acquire such
assets will be allocated to the underlying net assets in proportion to their
respective fair values. The valuations and other studies which will provide
the basis for such an allocation have not been completed. As more fully
described in the notes to the pro forma consolidated condensed financial
statements, a preliminary allocation of the excess of cost over the book value
of the net assets to be acquired has been made to goodwill.
Time Warner expects to realize certain revenue enhancements and cost
reductions as a result of strategic and cost-saving initiatives relating to
the integration of the operations of TBS into Time Warner's operating
structure; however, such incremental revenues and cost savings have not been
reflected in the pro forma consolidated condensed statements of operations of
New Time Warner.
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NEW TIME WARNER
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1996
(MILLIONS, UNAUDITED)
<TABLE>
<CAPTION>
TBS TRANSACTION NEW TIME
---------------------------- WARNER
TIME WARNER TBS PRO FORMA PRO
HISTORICAL HISTORICAL(A) ADJUSTMENTS(B) FORMA
----------- ------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents......... $ 482 $ 119 $ -- $ 601
Other current assets......... 2,742 1,292 (174) 3,860
------- ------ ------ -------
Total current assets......... 3,224 1,411 (174) 4,461
Investments in and amounts
due to and from
Entertainment Group......... 5,945 -- -- 5,945
Other investments............ 2,507 -- (539) 1,968
Noncurrent inventories....... -- 2,042 -- 2,042
Property, plant and
equipment................... 1,481 368 -- 1,849
Cable television franchises.. 3,970 -- -- 3,970
Goodwill..................... 5,825 260 6,428 12,513
Other assets................. 1,556 407 -- 1,963
------- ------ ------ -------
Total assets................. $24,508 $4,488 $5,715 $34,711
======= ====== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities.... $ 2,762 $ 822 $ -- $ 3,584
Long-term debt............... 9,928 2,600 162 12,690
Borrowings against future
stock option proceeds....... 225 -- -- 225
Deferred income taxes........ 3,983 421 -- 4,404
Other long-term liabilities.. 1,232 174 -- 1,406
Time Warner-obligated
mandatorily redeemable
preferred securities of
subsidiaries holding solely
subordinated notes and
debentures of Time
Warner(1)................... 949 -- -- 949
Series K exchangeable
preferred stock............. 1,586 -- -- 1,586
Shareholders' equity:
Preferred stock............. 36 -- (32) 4
Common stock................ 387 -- (381) 6
Paid-in capital............. 5,866 -- 6,437 12,303
Unrealized gains on certain
marketable securities...... 177 -- -- 177
TBS shareholders' equity.... -- 471 (471) --
Accumulated deficit......... (2,623) -- -- (2,623)
------- ------ ------ -------
Total shareholders' equity... 3,843 471 5,553 9,867
------- ------ ------ -------
Total liabilities and
shareholders' equity........ $24,508 $4,488 $5,715 $34,711
======= ====== ====== =======
</TABLE>
- -----------------
(1) Includes $374 million of preferred securities that are redeemable for cash
or, at Time Warner's option, approximately 12.1 million shares of Hasbro,
Inc. common stock owned by Time Warner.
See accompanying notes.
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NEW TIME WARNER
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(MILLIONS, UNAUDITED)
<TABLE>
<CAPTION>
TBS TRANSACTION NEW TIME
---------------------------- WARNER
TIME WARNER TIME WARNER TBS PRO FORMA PRO
HISTORICAL ADJUSTED(C) HISTORICAL(E) ADJUSTMENTS(F) FORMA
----------- ----------- ------------- -------------- --------
<S> <C> <C> <C> <C> <C>
Revenues................ $4,207 $4,207 $1,675 $ -- $5,882
Cost of revenues*....... 2,525 2,525 1,101 97 3,723
Selling, general and
administrative*........ 1,357 1,357 474 -- 1,831
------ ------ ------ ---- ------
Operating expenses...... 3,882 3,882 1,575 97 5,554
------ ------ ------ ---- ------
Business segment
operating income
(loss)................. 325 325 100 (97) 328
Equity in pretax income
of Entertainment
Group.................. 209 209 -- -- 209
Interest and other,
net.................... (578) (540) (97) 10 (627)
Corporate expenses...... (36) (36) -- -- (36)
------ ------ ------ ---- ------
Income (loss) before
income taxes........... (80) (42) 3 (87) (126)
Income tax (provision)
benefit................ (44) (60) (2) 6 (56)
------ ------ ------ ---- ------
Income (loss) before
extraordinary item..... (124) (102) 1 (81) (182)
Preferred dividend
requirements........... (104) (155) -- -- (155)
------ ------ ------ ---- ------
Income (loss) before
extraordinary item
applicable to common
shares................. $ (228) $ (257) $ 1 $(81) $ (337)
====== ====== ====== ==== ======
Loss before
extraordinary item per
common share........... $(.58) $ (.66) $ (.59)
====== ====== ======
Average common shares... 390.6 390.6 568.9
====== ====== ======
- --------
* Includes depreciation
and amortization
expense of: ......... $ 452 $ 452 $ 92 $ 79 $ 623
====== ====== ====== ==== ======
</TABLE>
See accompanying notes.
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<PAGE>
NEW TIME WARNER
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(MILLIONS, UNAUDITED)
<TABLE>
<CAPTION>
TBS TRANSACTION NEW TIME
---------------------------- WARNER
TIME WARNER TIME WARNER TBS PRO FORMA PRO
HISTORICAL ADJUSTED(D) HISTORICAL(E) ADJUSTMENTS(F) FORMA
----------- ----------- ------------- -------------- --------
<S> <C> <C> <C> <C> <C>
Revenues................ $8,067 $8,742 $3,437 $ -- $12,179
Cost of revenues*....... 4,682 5,236 2,166 206 7,608
Selling, general and
administrative*........ 2,688 2,850 889 -- 3,739
------ ------ ------ ----- -------
Operating expenses...... 7,370 8,086 3,055 206 11,347
------ ------ ------ ----- -------
Business segment
operating income
(loss)................. 697 656 382 (206) 832
Equity in pretax income
of Entertainment
Group.................. 256 286 -- -- 286
Interest and other,
net.................... (877) (926) (209) (7) (1,142)
Corporate expenses...... (74) (74) -- -- (74)
------ ------ ------ ----- -------
Income (loss) before
income taxes........... 2 (58) 173 (213) (98)
Income tax (provision)
benefit................ (126) (132) (70) 26 (176)
------ ------ ------ ----- -------
Income (loss) before
extraordinary item..... (124) (190) 103 (187) (274)
Preferred dividend
requirements........... (52) (316) -- -- (316)
------ ------ ------ ----- -------
Income (loss) before
extraordinary item
applicable to common
shares................. $ (176) $ (506) $ 103 $(187) $ (590)
====== ====== ====== ===== =======
Loss before
extraordinary item per
common share........... $ (.46) $(1.30) $ (1.04)
====== ====== =======
Average common shares... 383.8 387.7 566.0
====== ====== =======
- --------
* Includes depreciation
and amortization
expense of: ......... $ 559 $ 935 $ 189 $ 159 $ 1,283
====== ====== ====== ===== =======
</TABLE>
See accompanying notes.
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<PAGE>
NOTES TO THE NEW TIME WARNER PRO FORMA CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
(a) Reflects the historical financial position of TBS at June 30, 1996,
including $2.6 billion of long-term indebtedness that will be assumed pursuant
to the Transaction.
(b) Pro forma adjustments to record the Transaction reflect (1) a
reclassification in shareholders' equity from common stock and preferred stock
to paid-in capital to reflect the reduction in the par value, in the case of
common stock, from $1.00 per share to $.01 per share, and, in the case of
preferred stock, from $1.00 per share to $.10 per share, (2) the issuance of
(i) 173.3 million shares of New Time Warner Capital Stock to be issued to the
holders of TBS Capital Stock, including approximately 50.6 million shares of
LMC Series Common Stock to be received by LMC, (ii) an additional 5 million
shares of LMC Series Common Stock to be received by LMC and its affiliates in
connection with the SSSI Agreement and (iii) approximately 14 million stock
options to replace all outstanding TBS stock options, valued at an aggregate
of $6.024 billion for pro forma purposes based on a New Time Warner Common
Stock price of $33.25 per share, (3) the write-off of approximately $260
million of pre-existing goodwill of TBS and approximately $174 million of TBS
inventory to conform TBS's accounting policy with respect to the
capitalization and amortization of film exploitation costs to Time Warner's
accounting policy, (4) the incurrence of $162 million of additional
indebtedness for the payment of (i) $67 million in connection with the SSSI
Agreement and (ii) $95 million in connection with transaction costs and other
related liabilities of Time Warner and TBS, (5) the allocation of the excess
of the purchase price over the book value of the net assets acquired of $6.688
billion to goodwill and (6) the elimination of (i) Time Warner's historical
investment in TBS in the amount of $539 million and (ii) TBS's historical
stockholders' equity in the amount of $471 million.
(c) Reflects Time Warner's pro forma consolidated condensed statement of
operations for the six months ended June 30, 1996 as previously reported in
the Time Warner Form 8-K dated August 14, 1996, which gives effect to the
Series K Refinancing and the 1996 Convertible Debt Refinancing as if such
transactions occurred at the beginning of 1995.
(d) Reflects Time Warner's pro forma consolidated condensed statement of
operations for the year ended December 31, 1995 as previously reported in the
Time Warner Form 8-K dated August 14, 1996, which gives effect to the Cable
Acquisitions, the Six Flags Transaction, the Unclustered Cable Disposition,
the TWE-A/N Transaction, the Debt Refinancings and the ITOCHU/Toshiba
Transaction, as if each applicable transaction had occurred at the beginning
of such period.
(e) Reflects the historical operating results of TBS for the six months
ended June 30, 1996 and the year ended December 31, 1995, including certain
reclassifications to conform to Time Warner's financial statement
presentation.
(f) Pro forma adjustments to record the Transaction for the six months ended
June 30, 1996 and the year ended December 31, 1995 reflect (1) the exclusion
of $7 million and $10 million, respectively, of merger costs directly related
to the Transaction expensed by TBS in each respective period, (2) an increase
of $97 million and $206 million, respectively, in cost of revenues consisting
of (i) a $5 million and $8 million reduction, respectively, of TBS's
historical amortization of pre-existing goodwill, (ii) an $84 million and $167
million increase, respectively, in amortization with respect to the excess
cost to acquire TBS that has been allocated to goodwill and amortized on a
straight-line basis over a forty-year period and (iii) an $18 million and $47
million increase, respectively, in the amortization of capitalized film
exploitation costs to conform TBS's accounting policy to Time Warner's
accounting policy, (3) an increase of $5 million and $9 million, respectively,
in interest expense on the $162 million of additional indebtedness for the
payment of (i) $67 million in connection with the SSSI Agreement and (ii) $95
million in connection with transaction costs and other related liabilities of
Time Warner and TBS, (4) a decrease of $8 million and an increase of $8
million, respectively, in interest and other, net due to the elimination of
Time Warner's historical equity accounting for its investment in TBS and (5) a
decrease of $6 million and $26 million, respectively, in income tax expense as
a result of income tax benefits provided at a 41% tax rate.
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BUSINESS OF TIME WARNER
Time Warner is the world's leading media company, and has interests in three
fundamental areas of business: Entertainment, consisting principally of
interests in recorded music and music publishing, filmed entertainment,
broadcasting, theme parks and cable television programming; News and
Information, consisting principally of interests in magazine publishing, book
publishing and direct marketing; and Telecommunications, consisting
principally of interests in cable television systems.
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 WCI in July 1989.
WCI became a wholly owned subsidiary of Time Warner in January 1990 upon the
completion of the WCI Acquisition.
TWE was formed as a Delaware limited partnership in 1992 and owns
substantially all of Time Warner's interests in filmed entertainment,
broadcasting, theme parks, cable television programming and a majority of its
interests in cable television systems. Time Warner and the Time Warner General
Partners collectively own general and limited partnership interests in 74.49%
of the Series A Capital and Residual Capital of TWE and 100% of the Senior
Capital and Series B Capital of TWE. The remaining 25.51% limited partnership
interests in the Series A Capital and Residual Capital of TWE are held by U S
WEST.
Publishing. Time Warner's publishing operations are conducted through wholly
owned subsidiaries and include the publication of magazines such as TIME,
PEOPLE, SPORTS ILLUSTRATED, FORTUNE, MONEY, ENTERTAINMENT WEEKLY and PARENTING
and regional magazines such as SOUTHERN LIVING and SUNSET. The publication and
distribution of books is conducted by Time Life Inc., Book-of-the-Month Club,
Inc., Warner Books, Inc., Little, Brown and Company, Oxmoor House and Sunset
Books.
Music. Time Warner's worldwide music business is conducted through wholly
owned subsidiaries and includes the production and sale of compact discs and
cassette tapes marketed throughout the world under various labels, including
the proprietary labels "Warner Bros.," "Elektra," "Atlantic," "Reprise,"
"Sire," "EastWest," "WEA," "Teldec," "Erato" and "Carrere." Time Warner also
owns 50% of the Columbia House Company, a direct marketer of compact discs,
cassette tapes and videocassettes in the U.S. and Canada. Time Warner's music
publishing subsidiaries, headed by Warner/Chappell, Inc., own or control the
rights to many standard and contemporary compositions, and CPP/Belwin, Inc.
and other subsidiaries market sheet music and song books throughout the world.
Filmed Entertainment. Time Warner's filmed entertainment operations are
conducted primarily as a division of TWE. These operations include Warner
Bros. which produces and distributes feature motion pictures, television
programming and animated programming for theatrical and television exhibition.
Warner Home Video distributes home videocassettes and laser discs throughout
the world. In addition, TWE is engaged in product licensing and the ownership
and operation of retail stores, movie theaters and theme parks, including the
management of TWE's interest in Six Flags Theme Parks.
Programming-HBO. Programming-HBO, a division of TWE, consists principally of
Home Box Office, which operates two pay television programming services, HBO
and Cinemax. Home Box Office also has a number of international joint
ventures, including HBO Ole in Latin America and a movie-based HBO service in
Asia. The Home Box Office division also produces television programming and
operates TVKO, an entity that produces boxing matches and other programming
for pay-per-view.
Cable. Time Warner Cable, a division of TWE, is the second largest multiple
system cable operator in the United States. In addition, as a result of the
recent acquisitions of Summit, KBLCOM and CVI, wholly owned subsidiaries of
Time Warner own cable television systems that are managed by Time Warner
Cable. Time Warner may transfer certain of these newly-acquired cable systems
to the TWE-Advance/Newhouse Partnership on a tax-efficient basis. Such
transfers, if they are made, are expected to be structured so that the systems
will be
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transferred subject to a portion of Time Warner's debt, thereby reducing the
financial leverage of Time Warner and increasing the under-leveraged
capitalization of the TWE-Advance/Newhouse Partnership and consequently, TWE.
As of June 30, 1996, Time Warner's wholly and partially owned cable systems
served a total of approximately 11.8 million subscribers.
The WB Television Network. Warner Bros., a division of TWE, launched The WB,
a new national television network, which completed its first full year of
broadcast operations in January 1996. Combining The WB's current broadcast
affiliate line-up of 95 stations with the reach of Tribune Broadcasting
Company's WGN Superstation, The WB's national coverage is more than 80% of all
United States television households.
Six Flags Theme Parks. Six Flags, in which TWE currently owns a 49%
interest, operates 11 theme parks in seven locations, making it the second
largest operator of theme parks in the United States and the leading operator
of a national system of regional theme parks. Six Flags' theme parks include
seven major ride-based theme parks, as well as three separately-gated water
parks and one wildlife safari park.
TWE is the principal component of Time Warner's Entertainment Group, which
is not consolidated with Time Warner for financial reporting purposes.
Although TWE manages substantially all the cable systems owned by Time Warner,
TWE and the TWE-Advance/Newhouse Partnership, the results of operations of the
cable systems owned by Time Warner's consolidated subsidiaries are included in
Time Warner's consolidated results, while the results of operations of the
cable systems owned by TWE and the TWE-Advance/Newhouse Partnership are
included in the consolidated results of the Entertainment Group.
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 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.
Additional information concerning Time Warner is included in the Time Warner
Reports incorporated by reference in this Joint Proxy Statement/Prospectus.
See "Available Information" and "Incorporation of Certain Documents By
Reference."
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BUSINESS OF TBS
TBS is a diversified information and entertainment company which was
incorporated in the State of Georgia in 1965. TBS's operations are in two
primary industry segments: Entertainment and News. The Entertainment Segment,
which consists of Entertainment Networks and Entertainment Production and
Distribution, accounted for approximately 73% of TBS's consolidated revenue
for the year ended December 31, 1995. The News Segment, which consists of
domestic and international news networks, accounted for approximately 22% of
TBS's consolidated revenue for the year ended December 31, 1995.
Entertainment
The TBS domestic Entertainment Networks include WTBS (commonly known as the
"TBS Superstation"), TNT, the Cartoon Network and TCM. The international
Entertainment Networks comprise TNT Latin America, Cartoon Network Latin
America, TNT & Cartoon Network Europe and TNT & Cartoon Network Asia.
TBS Superstation is a 24-hour per day independent UHF television station
that is transmitted over the air to the Atlanta, Georgia area and is also
retransmitted by SSSI via satellite to cable systems located in all 50 states,
Puerto Rico and the Virgin Islands. TNT is a 24-hour per day advertiser-
supported cable television entertainment program service. The Cartoon Network
is a 24-hour per day advertiser-supported cable television animated program
service. TCM is a 24-hour per day, subscriber supported, commercial-free cable
television entertainment program service.
TNT Latin America is a 24-hour per day trilingual entertainment program
service and Cartoon Network Latin America is a 24-hour per day trilingual
animated program service, each distributed principally to subscribing cable
systems in Latin America and the Caribbean. TNT & Cartoon Network Europe is a
24-hour per day program service which originates in the United Kingdom and is
distributed throughout Europe. TNT & Cartoon Network Asia is a 24-hour per day
program service which originates in Hong Kong and is distributed throughout
the Asia Pacific region.
The Entertainment Production and Distribution companies are involved in the
creation of programming or the distribution of original and library products
to the Entertainment Networks and third parties. The Production companies
include New Line, Castle Rock and Turner Pictures, each of which is
principally involved in motion picture and television production. In 1995,
these entities released an aggregate of 28 theatrical films.
TBS owns two major copyright libraries. The Turner Entertainment Co. library
(the "TEC Library") contains approximately 3,400 MGM, RKO Pictures, Inc. and
pre-1950 Warner Bros. films, 3,000 short subjects and 1,850 cartoon episodes,
and a number of television shows. The Hanna-Barbera library consists of over
3,000 half-hours of animation programming.
News
TBS's news networks are CNN, Headline News, CNNI and CNNfn.
CNN is a 24-hour per day cable television news service. CNN uses a format
consisting of up-to-the minute national and international news, sports news,
financial news, science news, medical news, weather, interviews, analysis and
commentary. Headline News is a 24-hour per day cable television news service
which uses a concise, fast-paced format to provide constantly updated half-
hour newscasts. CNNI is a 24-hour per day television news service consisting
of programming produced by CNN and Headline News, as well as original
programming, which is distributed to cable systems, broadcasters, hotels,
direct-to-home satellite viewers and businesses around the world on a network
of 12 satellites outside the United States. CNNfn is a 12-hour per day, 5-day
per week financial news service which was launched in the United States on
December 29, 1995. CNNfn provides live, global market news and information,
business news, political-economic analysis, consumer news and personal
financial reports and is broadcast domestically in connection with the CNNI
domestic feed.
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Other
TBS also owns the Atlanta Braves, the 1995 World Series champions, and has a
96% limited partnership interest in the Atlanta Hawks, a member of the
National Basketball Association.
Additional information concerning TBS is included in the TBS Reports
incorporated by reference in this Joint Proxy Statement/Prospectus. See
"Available Information" and "Incorporation of Certain Documents by Reference."
BUSINESS OF NEW TIME WARNER
New Time Warner is currently a wholly owned subsidiary of Time Warner that
does not conduct any substantial business activities. As a result of the
Transaction, Time Warner and TBS will each become a wholly owned subsidiary of
New Time Warner. Accordingly, the business of New Time Warner will be the
businesses currently conducted by Time Warner and TBS. See "Business of Time
Warner" and "Business of TBS."
MANAGEMENT OF NEW TIME WARNER
DIRECTORS
The following table sets forth the name, age as of June 30, 1996 and
principal positions held during the past five years by each of the persons who
are expected to serve as directors of New Time Warner following consummation
of the Mergers. Immediately following consummation of the Mergers, the New
Time Warner Board is expected to consist of the members of the Time Warner
Board as constituted immediately prior to the consummation of the Mergers,
except that pursuant to Investors' Agreement (No. 1), Mr. Turner is also
expected to be appointed as a director of New Time Warner. In addition,
pursuant to Investors Agreement (No. 1), Mr. Turner will be entitled to
designate another person for election to the New Time Warner Board. The New
Time Warner Board will be divided into three classes consisting of five
directors each. The directors in each class will serve staggered three-year
terms expiring in 1997, 1998 or 1999, respectively. Mr. Turner's designee to
the New Time Warner Board will be elected to the class with a term expiring in
1998.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND YEAR FIRST BECAME DURING THE PAST FIVE YEARS
A DIRECTOR OF TIME WARNER AGE AND OTHER INFORMATION
- -------------------------- --- --------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 1997
<S> <C> <C>
Lawrence B. 64 Partner, Rosenman & Colin. Mr. Buttenwieser served as a
Buttenwieser........... director of WCI from 1963 to 1990. Mr. Buttenwieser has
(1989) been a partner at Rosenman & Colin (attorneys) for more
than the past five years. He is also Chairman of the
Board of Directors of General American Investors
Company, Inc.
David T. Kearns......... 65 Retired Chairman and Chief Executive Officer of Xerox
(1993) Corporation. Mr. Kearns served as a Senior University
Fellow at Harvard University from August 1993 to March
1995 and served as Deputy Secretary of the U.S.
Department of Education from May 1991 until January
1993. Prior to that, he served as Chairman of Xerox
Corporation from 1985 until May 1991, having served as
its Chief Executive Officer from 1982 to August 1990. He
previously served as a director of Time Warner from 1978
until May 1991 when he resigned to accept his government
appointment. He is also a director of Ryder System, Inc.
</TABLE>
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<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND YEAR FIRST BECAME DURING THE PAST FIVE YEARS
A DIRECTOR OF TIME WARNER AGE AND OTHER INFORMATION
- -------------------------- --- --------------------------
<S> <C> <C>
Gerald M. Levin......... 57 Chairman of the Board and Chief Executive Officer of Time
(1988) Warner. Mr. Levin became Chairman of the Board and Chief
Executive Officer of Time Warner on January 21, 1993,
having served as President and Co-Chief Executive
Officer from February 20, 1992. Prior to that, Mr. Levin
served as Vice Chairman of the Board and Chief Operating
Officer of Time Warner from May 1991, having served as
Vice Chairman of the Board from July 1988. He previously
served as a director of Time Warner from 1983 until
January 1987. He is also a director of TBS and a member
of the Board of Representatives of TWE.
J. Richard Munro........ 65 Former Chairman of the Board of, and advisor to, Time
(1978) Warner. Mr. Munro became an advisor to Time Warner in
July 1994. He served as the Chairman of the Executive
Committee of the Time Warner Board from May 1990 until
January 1993 when he became Chairman of the
Executive/Finance Committee following the combination of
the Executive Committee and the Finance Committee. He
served in such position until May 1996. He is also a
director of Genentech, Inc., Kellogg Company, Kmart
Corporation and Mobil Corporation.
Richard D. Parsons...... 48 President of Time Warner. Mr. Parsons became President of
(1991) Time Warner on February 1, 1995. Prior to that, Mr.
Parsons served as the Chairman and Chief Executive
Officer of The Dime Savings Bank of New York, FSB from
January 1991. He served as a director of ATC, then an
82%-owned subsidiary of Time Warner, from 1989 until
1991 and is currently also a director of Citicorp, the
Federal National Mortgage Association and Philip Morris
Companies Inc. and a member of the Board of
Representatives of TWE.
DIRECTORS WHOSE TERMS EXPIRE IN 1998
Merv Adelson............ 66 Chairman of East-West Capital Associates and former
(1989) Chairman and Chief Executive Officer of Lorimar
Telepictures. Mr. Adelson has served as Chairman of
East-West Capital Associates (private investment
company) since April 1989. Mr. Adelson served as Vice
Chairman and a director of WCI from January 1989 through
August 1991. Prior to that, Mr. Adelson served as
Chairman and Chief Executive Officer of Lorimar
Telepictures Corporation from February 1986 until its
acquisition by WCI in January 1989. He is also a
director of 7th Level, Inc.
Michael A. Miles........ 57 Former Chairman of the Board and Chief Executive Officer
(1995) of Philip Morris Companies Inc. Mr. Miles served as
Chairman of the Board and Chief Executive Officer of
Philip Morris Companies Inc. (consumer products) from
September 1991 until July 1994, having served as Vice
Chairman and a member of the Board of Directors of
Philip Morris Companies Inc. and Chairman and Chief
Executive Officer of Kraft General Foods, Inc. from
December 1989. He is also a director of Allstate Corp.,
Dean Witter, Discover & Co., Dell Computer Corporation
and Sears, Roebuck and Co. and is also a Special Limited
Partner in Forstmann Little and Co.
</TABLE>
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<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND YEAR FIRST BECAME DURING THE PAST FIVE YEARS
A DIRECTOR OF TIME WARNER AGE AND OTHER INFORMATION
- -------------------------- --- --------------------------
<S> <C> <C>
Donald S. Perkins....... 69 Former Chairman of Jewel Companies, Inc. Mr. Perkins
(1979) became President of Jewel Companies, Inc. (retailing) in
1965, Chairman of its Board in 1970, and served as
Chairman of its Executive Committee from 1980 to June
1983. He is also a director of AON Corporation, Cummins
Engine Company, Inc., Current Assets, Illinova and
Illinois Power Company, Inland Steel Industries, Inc.,
LaSalle Street Fund, Inc., Lucent Technologies Inc., The
Putnam Funds (including all 97 of its funds), Ryerson
Tull, Inc. and Spring Industries, Inc.
Raymond S. Troubh....... 70 Financial Consultant and Director of various companies.
(1989) Mr. Troubh served as a director of WCI from 1979 to
1990. Mr. Troubh has been a financial consultant and a
corporate director for more than the past five years. He
is also a director of ADT Limited, America West
Airlines, Inc., Applied Power Inc., ARIAD
Pharmaceuticals, Inc., Becton, Dickinson and Company,
Diamond Offshore Drilling, Inc., Foundation Health
Corporation, General American Investors Company, Inc.,
Olsten Corporation, Petrie Stores Corporation, Triarc
Companies, Inc. and WHX Corporation.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Beverly Sills 67 Chairman of Lincoln Center for the Performing Arts. Mrs.
Greenough.............. Greenough served as a director of WCI from 1982 to 1990.
(1989) Mrs. Greenough has served as the Chairman of Lincoln
Center for the Performing Arts since June 1994, having
served as a Managing Director of The Metropolitan Opera
from 1991 and the President of the New York City Opera
Inc. from March 1989 through 1990. She has also served
as National Chairman of the March of Dimes Birth Defects
Foundation. She is also a director of American Express
Company and Human Genome Sciences Inc.
Carla A. Hills.......... 62 Chairman and Chief Executive Officer of Hills & Company
(1993) and former United States Trade Representative.
Ambassador Hills became Chairman and Chief Executive
Officer of Hills & Company (international trade
consultants) in March 1993, having served in President
Bush's Cabinet as the United States Trade Representative
from February 1989 to January 20, 1993. Ambassador Hills
is also a director of American International Group,
Inc., Chevron Corporation, Lucent Technologies Inc. and
Trust Company of the West.
Reuben Mark............. 57 Chairman and Chief Executive Officer of Colgate-Palmolive
(1993) Company. Mr. Mark has served as the Chief Executive
Officer of Colgate-Palmolive Company (consumer products)
since May 1984. In May 1986, he was elected Chairman.
Mr. Mark is also a director of Citicorp, Toys 'R' Us,
Inc. and The New York Stock Exchange, Inc.
R.E. Turner............. 57 Chairman of the Board and President of TBS. Mr. Turner
has served as Chairman of the Board and President of TBS
since 1970 and is a controlling shareholder of TBS. Mr.
Turner will become Vice Chairman of New Time Warner upon
consummation of the Mergers.
</TABLE>
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<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AND YEAR FIRST BECAME DURING THE PAST FIVE YEARS
A DIRECTOR OF TIME WARNER AGE AND OTHER INFORMATION
- -------------------------- --- --------------------------
<S> <C> <C>
Francis T. Vincent, 58 Chairman of Vincent Enterprises. Mr. Vincent has been a
Jr. ............ (1993) private investor at Vincent Enterprises since January 1,
1995. Prior to that, Mr. Vincent served as the
Commissioner of Major League Baseball from September
1989 until September 1992. He is also a director of
Culbro Corporation, Horizon Group and Oakwood Homes
Corporation.
</TABLE>
For certain additional information concerning the persons expected to serve
as directors of New Time Warner, see Time Warner's Proxy Statement used in
connection with its 1996 Annual Meeting of Stockholders (the "1996 Proxy
Statement for Time Warner"), the relevant portions of which are incorporated
by reference into the Time Warner Form 10-K. See "Incorporation of Certain
Documents by Reference."
COMPENSATION OF DIRECTORS
In accordance with existing Time Warner practice, it is expected that
directors who are also full-time employees of New Time Warner will receive no
additional compensation for their services as directors. Each non-employee
director will initially receive the same compensation for service on the New
Time Warner Board as received by non-employee directors on the Time Warner
Board.
For information concerning the compensation paid to non-employee directors
on the Time Warner Board, see the 1996 Proxy Statement for Time Warner, the
relevant portions of which are incorporated by reference into the Time Warner
Form 10-K. See "Incorporation of Certain Documents by Reference."
EXECUTIVE OFFICERS
Set forth below are the name and expected title of each person who is
expected to serve as an executive officer of New Time Warner following
consummation of the Mergers and the age as of June 30, 1996 and principal
positions held by each such person during the past five years. With the
exception of Mr. Turner, these are the current executive officers of Time
Warner.
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Gerald M. Levin ........ 57 Chairman of the Board of Directors and Chief Executive
Officer of Time Warner since January 21, 1993. Prior to
that he served as President and Co-Chief Executive
Officer from February 20, 1992; Vice Chairman and Chief
Operating Officer from May 1991; and Vice Chairman of
the Board prior to that.
R.E. Turner............. 57 Vice Chairman of New Time Warner upon consummation of the
Mergers. Currently, Chairman of the Board and President
of TBS. Mr. Turner has served as Chairman of the Board
and President of TBS since 1970 and is a controlling
shareholder of TBS.
Richard D. Parsons...... 48 President of Time Warner since February 1, 1995. Prior to
that he served as Chairman and Chief Executive Officer
of the Dime Savings Bank of New York, FSB from January
1991.
Peter R. Haje .......... 61 Executive Vice President and General Counsel of Time
Warner since October 1, 1990 and Secretary since May 20,
1993.
Timothy A. Boggs........ 46 Senior Vice President of Time Warner since November 19,
1992. Prior to that he served as Vice President of
Public Affairs.
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Richard J. Bressler..... 38 Senior Vice President and Chief Financial Officer of Time
Warner since March 16, 1995. Prior to that he served as
Senior Vice President, Finance from January 2, 1995; and
as a Vice President prior to that.
Tod R. Hullin .......... 53 Senior Vice President of Time Warner since February 7,
1991.
Philip R. Lochner, Jr. 53 Senior Vice President of Time Warner since July 18, 1991.
....................... Prior to that, he was a Commissioner of the Securities
and Exchange Commission from March 1990 to June 1991.
</TABLE>
For certain additional information concerning the persons expected to serve
as executive officers of New Time Warner, see the 1996 Proxy Statement for
Time Warner, the relevant portions of which are incorporated by reference into
the Time Warner Form 10-K. See "Incorporation of Certain Documents by
Reference."
COMPENSATION OF EXECUTIVE OFFICERS
New Time Warner has not yet paid any compensation to its Chief Executive
Officer or any other person anticipated to become an executive officer, and
the form and amount of such compensation to be paid to each such executive
officer in any future period is expected to be substantially similar to the
form and amount of such compensation that Time Warner would have paid to such
executive officer in such period. New Time Warner will assume employment
agreements that are currently in effect between such executive officers and
Time Warner. Upon consummation of the Mergers, New Time Warner will enter into
the Employment Agreement with Mr. Turner. For a description of the Employment
Agreement with Mr. Turner, see "The Transaction--Interests of Certain Persons
in the Transaction--Employment Agreement with R.E. Turner."
For information concerning the employment agreements with, and the
compensation paid to, the Chief Executive Officer and the other four most
highly compensated executive officers of Time Warner for the 1995 fiscal year,
see the 1996 Proxy Statement for Time Warner, the relevant portions of which
are incorporated by reference into the Time Warner Form 10-K. For information
concerning the compensation paid to Mr. Turner by TBS for the 1995 fiscal
year, see TBS's Proxy Statement used in connection with its 1996 Annual
Meeting of Shareholders, the relevant portions of which are incorporated by
reference into the TBS Form 10-K. See "Incorporation of Certain Documents by
Reference."
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DESCRIPTION OF NEW TIME WARNER CAPITAL STOCK
The following summary of the capital stock of New Time Warner is qualified
in its entirety by reference to the complete text of the proposed New Time
Warner Charter. Attached hereto as Appendix B-1 and incorporated herein by
reference is a copy of the proposed New Time Warner Charter, excluding the
certificates of designations for the LMC Series Common Stock and the various
series of New Time Warner Preferred Stock expected to be outstanding
immediately following the consummation of the Mergers. The forms of such
certificates of designations are filed as Exhibits to the Registration
Statement and are incorporated herein by reference.
AUTHORIZED CAPITAL STOCK
New Time Warner will be authorized by the New Time Warner Charter to issue
(a) 2.0 billion shares of New Time Warner Common Stock, (b) 200 million shares
of New Time Warner Series Common Stock, issuable in series, of which the
following series will be designated: (i) 60 million shares of LMC Common Stock
and (ii) 60 million shares of LMC Reduced Voting Common Stock and (c) 250
million shares of New Time Warner Preferred Stock, issuable in series, of
which the following series will be designated: (i) 8.0 million shares of
Series A Participating Cumulative Preferred Stock ("New Time Warner Series A
Preferred Stock"), (ii) 11 million shares of Series D Convertible Preferred
Stock ("New Time Warner Series D Preferred Stock"), (iii) 3.25 million shares
of Series E Convertible Preferred Stock ("New Time Warner Series E Preferred
Stock"), (iv) 3.08 million shares of Series F Convertible Preferred Stock
("New Time Warner Series F Preferred Stock"), (v) 6.2 million shares of
Series G Convertible Preferred Stock ("New Time Warner Series G Preferred
Stock"), (vi) 1.8 million shares of Series H Convertible Preferred Stock ("New
Time Warner Series H Preferred Stock"), (vii) 7.0 million shares of Series I
Convertible Preferred Stock ("New Time Warner Series I Preferred Stock"),
(viii) 3.35 million shares of Series J Convertible Preferred Stock ("New Time
Warner Series J Preferred Stock") and (ix) 15.2 million shares of 10 1/4%
Series M Exchangeable Preferred Stock ("New Time Warner Series M Preferred
Stock"). In addition, the New Time Warner Board will authorize 9.0 million
shares of 10 1/4% Series L Exchangeable Preferred Stock ("New Time Warner
Series L Preferred Stock") issuable upon exchange for shares of New Time
Warner Series M Preferred Stock.
The New Time Warner Board is authorized to issue shares of New Time Warner
Series Common Stock and New Time Warner Preferred Stock, in one or more
series, and to fix for each such series voting powers, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof as are permitted by the
DGCL. The additional shares of authorized stock available for issuance by New
Time Warner may be issued at such times and under such circumstances as to
have a dilutive effect on earnings per share and on the equity ownership of
the holders of New Time Warner Capital Stock. The ability of the New Time
Warner Board to issue additional shares of stock could enhance the New Time
Warner Board's ability to negotiate on behalf of the stockholders in a
takeover situation. However, the New Time Warner Board could authorize the
issuance of additional shares of New Time Warner Series Common Stock or New
Time Warner Preferred Stock with terms and conditions that could make a change
in control more difficult or discourage a takeover or other transaction in
which such holders might receive a premium for their shares of stock over the
then market price of such shares that holders of some or a majority of shares
of New Time Warner Common Stock might believe to be in their best interests.
NEW TIME WARNER COMMON STOCK
The holders of New Time Warner Common Stock will be entitled to receive
dividends when, as and if declared by the New Time Warner Board out of funds
legally available therefor, subject to the rights of any shares of New Time
Warner Preferred Stock or New Time Warner Series Common Stock at the time
outstanding. The holders of New Time Warner Common Stock will be entitled to
one vote for each share on all matters voted on by stockholders under the New
Time Warner Charter, including elections of directors. The holders of New Time
Warner Common Stock do not have any cumulative voting, conversion, redemption
or preemptive rights. In the event of dissolution, liquidation or winding up
of New Time Warner, holders of the New Time Warner
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Common Stock will be entitled to share ratably with the holders of LMC Series
Common Stock in any assets remaining after the satisfaction in full of the
prior rights of creditors, including holders of New Time Warner's
indebtedness, and subject to the aggregate liquidation preference and
participation rights of any New Time Warner Preferred Stock or other series of
New Time Warner Series Common Stock then outstanding.
Pursuant to the New Time Warner Charter, outstanding shares of New Time
Warner Common Stock may be redeemed by action of the New Time Warner Board to
the extent necessary to prevent the loss of any governmental license or
franchise, the holding of which is conditioned upon stockholders possessing
prescribed qualifications.
LMC SERIES COMMON STOCK
Pursuant to the LMC Agreement, New Time Warner will be required to issue
either LMC Common Stock or LMC Reduced Voting Common Stock to the Liberty
Parties in exchange for New Time Warner Common Stock issued to the Liberty
Parties in the TBS Merger. In addition, from time to time following
consummation of the Mergers, New Time Warner may be required to issue shares
of LMC Common Stock or LMC Reduced Voting Common Stock to the Liberty Parties
in exchange for shares of New Time Warner Common Stock. See "TCI
Arrangements--LMC Agreement" for a description of the circumstances under
which such exchanges will be required.
The holders of LMC Series Common Stock will be entitled to receive dividends
ratably with the holders of New Time Warner Common Stock when, as and if
declared by the New Time Warner Board out of funds legally available
therefore, subject to the terms of any New Time Warner Preferred Stock at the
time outstanding. In the event of dissolution, liquidation or winding up of
New Time Warner, holders of LMC Series Common Stock will be entitled to share
ratably with the holders of New Time Warner Common Stock in any assets
remaining after the satisfaction in full of the prior rights of creditors,
including holders of New Time Warner's indebtedness, and subject to the
aggregate liquidation preference and participation rights of any New Time
Warner Preferred Stock or other series of New Time Warner Series Common Stock
then outstanding. The holders of LMC Series Common Stock do not have any
conversion, redemption or preemptive rights, except that (i) each share of LMC
Common Stock will be convertible at any time at the option of the holder on a
one-for-one basis for a share of either LMC Reduced Voting Common Stock or a
share of New Time Warner Common Stock and (ii) subject to the federal
communications laws, each share of LMC Reduced Voting Common Stock will be
convertible at any time at the option of the holder on a one-for-one basis for
a share of either LMC Common Stock or a share of New Time Warner Common Stock.
The holders of LMC Common Stock will be entitled to one vote for each share
on all matters voted on by holders of New Time Warner Common Stock, including
elections of directors. The holders of LMC Common Stock do not have any
cumulative voting rights. Holders of LMC Reduced Voting Common Stock will be
entitled to one one-hundredth (1/100th) of a vote for each share with respect
to the election of directors. Holders of LMC Reduced Voting Common Stock will
not have any other voting rights, except as required by law or with respect to
limited matters, including amendments of the terms of the LMC Reduced Voting
Common Stock adverse to such holders.
Unlike shares of New Time Warner Common Stock, shares of LMC Series Common
Stock will not be redeemable by action of the New Time Warner Board to the
extent necessary to prevent the loss of any governmental license or franchise,
the holding of which is conditioned upon stockholders possessing prescribed
qualifications.
The LMC Series Common Stock will not be transferable, except in limited
circumstances, and will not be listed on any securities exchange.
NEW TIME WARNER RIGHTS AGREEMENT; NEW TIME WARNER SERIES A PREFERRED STOCK
The following description of the terms of the New Time Warner Rights
Agreement and the New Time Warner Rights is qualified in its entirety by
reference to the form of the New Time Warner Rights Agreement,
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which is filed as an Exhibit to the Registration Statement and is incorporated
herein by reference. The following description assumes that the New Time
Warner Rights Agreement is adopted. The New Time Warner Rights Agreement will
be the same as the Existing Rights Agreement, except for the amendments
contemplated by the Rights Amendment. See "Certain Related Agreements--Rights
Amendment."
New Time Warner Rights Agreement
Each share of New Time Warner Common Stock issued pursuant to the Mergers or
otherwise from time to time and prior to redemption or expiration of the
Rights, will be accompanied by one New Time Warner Right. Each New Time Warner
Right, when it becomes exercisable as described below, will entitle the
registered holder thereof to purchase from New Time Warner one one-thousandth
( 1/1000th) of a share of New Time Warner Series A Preferred Stock at a price
of $150 (the "Purchase Price").
Until the earlier of (a) such time as New Time Warner learns that a person
or group (including an affiliate of such person or group) has acquired, or has
obtained the right to acquire, Beneficial Ownership (as defined below) of more
than 15% of the "outstanding" shares of New Time Warner Common Stock (as
defined in the New Time Warner Rights Agreement, see "Certain Related
Agreements--Rights Amendment"), other than pursuant to a Qualifying Offer (as
defined below) (such person or group being an "Acquiring Person"), and (b)
such date, if any, as may be designated by the New Time Warner Board following
the commencement of, or first public announcement of intent to commence, a
tender or exchange offer for outstanding shares of New Time Warner Common
Stock which could result in such person or group becoming the beneficial owner
of more than 15% of the New Time Warner Common Stock on a fully diluted basis,
other than pursuant to a Qualifying Offer (the earlier of such dates being
called the "Distribution Date"), the New Time Warner Rights will be evidenced
by the certificates for the New Time Warner Common Stock registered in the
names of the holders thereof (which certificates for New Time Warner Common
Stock will also be deemed to be Rights Certificates, as defined below) and not
by separate Rights Certificates. Therefore, until the Distribution Date, the
New Time Warner Rights will be transferred with and only with the New Time
Warner Common Stock. As soon as practicable following the Distribution Date,
separate certificates evidencing the New Time Warner Rights ("Rights
Certificates") will be mailed to holders of record of shares of New Time
Warner Common Stock as of the close of business on the Distribution Date and
to each initial record holder of certain shares of New Time Warner Common
Stock issued after the Distribution Date, and such separate Rights
Certificates alone will thereafter evidence the New Time Warner Rights. The
New Time Warner Rights will not be exercisable until the Distribution Date and
will expire on January 20, 2004 (the "Expiration Date"), unless earlier
redeemed by New Time Warner as described below. The number of shares of New
Time Warner Series A Preferred Stock or other securities issuable upon
exercise of a New Time Warner Right, the Purchase Price, the Redemption Price
(as defined below) and the number of New Time Warner Rights associated with
each outstanding share of New Time Warner Common Stock are all subject to
adjustment in the event of any change in the New Time Warner Common Stock or
the New Time Warner Series A Preferred Stock, whether by reason of stock
dividends, stock splits, recapitalizations, mergers, consolidations,
combinations or exchanges of securities, split-ups, split-offs, spin-offs,
liquidations, other similar changes in capitalization, any distribution or
issuance of cash, assets, evidences of indebtedness or subscription rights,
options or warrants to holders of shares of New Time Warner Common Stock or
New Time Warner Series A Preferred Stock, as the case may be (other than
distribution of the New Time Warner Rights or regular quarterly dividends) or
otherwise.
The shares of New Time Warner Series A Preferred Stock will be authorized to
be issued in fractions which are an integral multiple of one one-thousandth (
1/1000th) of a share of New Time Warner Series A Preferred Stock. New Time
Warner may, but will not be required to, issue fractions of shares upon the
exercise of New Time Warner Rights and, in lieu of fractional shares, New Time
Warner may issue certificates or utilize a depositary arrangement as provided
by the terms of the New Time Warner Series A Preferred Stock and, in the case
of fractions other than one one-thousandth ( 1/1000th) of a share of New Time
Warner Series A Preferred Stock or an integral multiple thereof, may make a
cash payment based on the market value of such shares.
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At such time that there is an Acquiring Person, the New Time Warner Rights
will entitle each registered holder (other than such Acquiring Person or any
associate or affiliate of such Acquiring Person) of a New Time Warner Right to
purchase, for the Purchase Price, that number of one-thousandths ( 1/1000ths)
of a share of New Time Warner Series A Preferred Stock that is equivalent in
value to the number of shares of New Time Warner Common Stock that at the time
of such event would have a market value of twice the Purchase Price.
In the event New Time Warner is acquired in a merger or other business
combination by an Acquiring Person or an associate or affiliate of an
Acquiring Person that is a publicly traded corporation or 50% or more of New
Time Warner's assets or assets representing 50% or more of New Time Warner's
revenues or cash flow are sold, leased, exchanged or otherwise transferred (in
one or more transactions) to an Acquiring Person or an associate or affiliate
of an Acquiring Person that is a publicly traded corporation, each New Time
Warner Right will entitle its holder (subject to the next paragraph) to
purchase, for the Purchase Price, that number of common shares of such
corporation that at the time of the transaction would have a market value of
twice the Purchase Price. In the event New Time Warner is acquired in a merger
or other business combination by an Acquiring Person or an associate or
affiliate of an Acquiring Person that is not a publicly traded corporation or
50% or more of New Time Warner's assets or assets representing 50% or more of
New Time Warner's revenues or cash flow are sold, leased, exchanged or
otherwise transferred (in one or more transactions) to an Acquiring Person or
an associate or affiliate of an Acquiring Person that is not a publicly traded
entity, each New Time Warner Right will entitle its holder (subject to the
next paragraph) to purchase, for the Purchase Price, at such holder's option,
(a) that number of shares of the surviving corporation in the transaction with
such entity (which surviving corporation could be New Time Warner) that at the
time of the transaction would have a book value of twice the Purchase Price,
(b) that number of shares of such entity that at the time of the transaction
would have a book value of twice the Purchase Price or (c) if such entity has
an affiliate that has publicly traded shares, that number of shares of such
affiliate that at the time of the transaction would have a market value of
twice the Purchase Price.
Any New Time Warner Rights that are at any time beneficially owned by an
Acquiring Person (or any affiliate or associate of an Acquiring Person) will
be null and void and nontransferable and any holder of any such New Time
Warner Right (including any purported transferee or subsequent holder) will be
unable to exercise or transfer any such New Time Warner Right.
The New Time Warner Rights Agreement will not apply to any Qualifying Offer.
Accordingly, the New Time Warner Rights will not become exercisable in the
case of a tender offer that constitutes a Qualifying Offer or a merger or
business combination consummated in compliance with the requirements of a
Qualifying Offer. The New Time Warner Rights Agreement will define a
"Qualifying Offer" as an all-cash tender offer for all outstanding shares of
New Time Warner Common Stock which meets the following requirements (a) the
person or group making the tender offer must, prior to or upon commencing such
offer, have provided to New Time Warner firm written commitments from
responsible financial institutions, which have been accepted by such person or
group, to provide, subject only to customary terms and conditions, funds for
such offer which, when added to the amount of cash and cash equivalents which
such person or group then has available and has irrevocably committed in
writing to New Time Warner to utilize for purposes of the offer, will be
sufficient to pay for all shares of New Time Warner Common Stock outstanding
on a fully diluted basis pursuant to the offer and the second-step transaction
required by clause (e) below and all related expenses, together with copies of
all written materials prepared by such person or group for such financial
institutions in connection with obtaining such financing commitments, (b) such
person or group must own, after consummating such offer, shares of New Time
Warner Capital Stock representing a majority of the shares of New Time Warner
Common Stock outstanding on a fully diluted basis, (c) such offer must in all
events remain open for at least 45 business days and must be extended for at
least 20 business days after the last increase or permitted decrease in the
price offered and after any bona fide higher alternative offer (except in
certain limited circumstances to be set forth in the New Time Warner Rights
Agreement), (d) such offer is accompanied by a written opinion, in customary
form, of a nationally recognized investment banking firm which is addressed to
the holders of the shares of New Time Warner Common Stock other than such
person or group and states that the price to be paid to such holders pursuant
to the offer is fair from a financial point of view to such holders and which
includes any written
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presentation of such firm showing the analysis and range of the values
underlying such conclusion, and (e) prior to or upon commencing such offer,
such person or group must irrevocably commit in writing to New Time Warner (i)
to consummate promptly upon completion of the offer a transaction or
transactions whereby all remaining shares of New Time Warner Common Stock will
be acquired for the same price per share paid pursuant to the offer, subject
only to the condition that the New Time Warner Board has granted any approvals
required to enable such person or group to consummate such transaction or
transactions without obtaining the vote of any other stockholder, (ii) that
such person or group will not amend such offer to reduce the per share price
offered (except in certain limited circumstances to be set forth in the New
Time Warner Rights Agreement), to change the form of consideration offered or
to reduce the number of shares being sought or in any other respect which is
materially adverse to New Time Warner's stockholders, (iii) that such person
or group will not make any offer for any equity securities of New Time Warner
for six months after commencement of the original offer if the original offer
does not result in the tender of the number of shares required to be purchased
pursuant to clause (b) above, unless another tender offer by another party for
all outstanding shares of New Time Warner Common Stock (x) constitutes a
Qualifying Offer and (y) is approved by the New Time Warner Board (in which
event any new offer by such person or group must be at a price no less than
that provided for in such approved offer).
At any time prior to the earlier of (a) such time as a person becomes an
Acquiring Person and (b) the Expiration Date, the New Time Warner Board may
redeem the New Time Warner Rights in whole, but not in part, at a price (in
cash or shares of New Time Warner Common Stock or other securities of New Time
Warner deemed by the New Time Warner Board to be at least equivalent in value)
of $0.01 per New Time Warner Right, subject to adjustment as provided in the
New Time Warner Rights Agreement (the "Redemption Price"); provided, however,
that, for the 120-day period after any date of a change (resulting from a
proxy or consent solicitation) in a majority of the New Time Warner Board in
office at the commencement of such solicitation, the New Time Warner Rights
will be able to be redeemed only if (i) there are directors then in office who
were in office at the commencement of such solicitation and (ii) the New Time
Warner Board, with the concurrence of a majority of such directors then in
office, determines that such redemption is, in their judgment, in the best
interests of New Time Warner and its stockholders. Immediately upon the action
of the New Time Warner Board electing to redeem the New Time Warner Rights,
and without any further action and without any notice, the right to exercise
the New Time Warner Rights will terminate, and the only right of the holders
of New Time Warner Rights will be to receive the Redemption Price.
After there is an Acquiring Person, the New Time Warner Board may elect to
exchange each New Time Warner Right (other than New Time Warner Rights that
become null and void and nontransferable as is described above) for
consideration per New Time Warner Right consisting of one-half of the
securities that would be issuable at such time upon the exercise of one New
Time Warner Right pursuant to the terms of the New Time Warner Rights
Agreement. Until a New Time Warner Right is exercised, the holder thereof, as
such, will have no rights as a stockholder of New Time Warner, including the
right to vote or to receive dividends.
At any time prior to the Distribution Date, New Time Warner will be able,
without the approval of any holder of New Time Warner Rights, to supplement or
amend any provision of the New Time Warner Rights Agreement (including the
date on which the Distribution Date shall occur, the time during which the New
Time Warner Rights may be redeemed or the terms of the New Time Warner Series
A Preferred Stock), except that no supplement or amendment shall be made that
reduces the Redemption Price (other than pursuant to certain adjustments
therein) or provides for an earlier Expiration Date. However, during the 120-
day period after any date of a change (resulting from a proxy or consent
solicitation) in a majority of the New Time Warner Board in office at the
commencement of such solicitation, the New Time Warner Rights Agreement will
be able to be supplemented or amended only if (a) there are directors then in
office who were in office at the commencement of such solicitation and (b) the
New Time Warner Board, with the concurrence of a majority of such directors
then in office, determines that such supplement or amendment is, in their
judgment, in the best interests of New Time Warner and its stockholders.
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The New Time Warner Rights Agreement and the New Time Warner Rights will
have certain antitakeover effects. The exercise of the New Time Warner Rights
will cause substantial dilution to any person or group that attempts to
acquire New Time Warner unless (a) such acquisition is approved by the New
Time Warner Board (since the New Time Warner Board may, at its option, at any
time prior to any person becoming an Acquiring Person, redeem the New Time
Warner Rights), (b) such acquisition meets the standard for a Qualifying Offer
or (c) such acquisition is conditioned upon substantially all the New Time
Warner Rights being acquired.
Under the New Time Warner Rights Agreement, a person shall be deemed the
"Beneficial Owner" of, and shall be deemed to "beneficially own," and shall be
deemed to have "Beneficial Ownership" of, any securities:
(a) which such person or any of such person's affiliates or associates is
deemed to "beneficially own" within the meaning of Rule 13d-3 under the
Exchange Act;
(b) which such person or any of such person's affiliates or associates
has (i) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement, arrangement
or understanding (written or oral), or upon the exercise of conversion
rights, exchange rights, rights (other than the New Time Warner Rights),
warrants or options, or otherwise; provided, however, that a person shall
not be deemed under this clause (i) to be the Beneficial Owner of, or to
beneficially own, or to have Beneficial Ownership of, any securities
tendered pursuant to a tender or exchange offer made by or on behalf of
such person or any of such person's affiliates or associates until such
tendered securities are accepted for purchase or exchange thereunder or
(ii) the right to vote pursuant to any agreement, arrangement or
understanding (written or oral); provided, however, that a person shall not
be deemed under this clause (ii) to be the Beneficial Owner of, or to
beneficially own, any security if (A) the agreement, arrangement or
understanding (written or oral) to vote such security arises solely from a
revocable proxy or consent given to such person in response to a public
proxy or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations under the Exchange Act and (B) the
beneficial ownership of such security is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(c) which are beneficially owned, directly or indirectly, by any other
person with which such person or any of such person's affiliates or
associates has any agreement, arrangement or understanding (written or
oral) for the purpose of acquiring, holding, voting or disposing of any
shares of New Time Warner Common Stock, any other securities of New Time
Warner generally entitled to vote together with the shares of New Time
Warner Common Stock or any rights, warrants, options or other securities
exercisable or exchangeable for, or convertible into, shares of New Time
Warner Common Stock or other securities of New Time Warner generally
entitled to vote together with the shares of New Time Warner Common Stock.
A person shall also be deemed to be the "Beneficial Owner" of, and to
"beneficially own," and to have "Beneficial Ownership" of, shares of New Time
Warner Common Stock if such person is the Beneficial Owner of, or beneficially
owns, or has Beneficial Ownership of (as the case may be), any other
securities of New Time Warner (whether or not convertible into or exchangeable
for shares of New Time Warner Common Stock) generally entitled to vote
together with the shares of New Time Warner Common Stock. If the preceding
sentence is applicable in any case, such person shall be deemed by virtue of
Beneficial Ownership of such other securities to be the "Beneficial Owner" of,
and to "beneficially own," and to have "Beneficial Ownership" of, that number
of shares of New Time Warner Common Stock equal to the greater of (a) the
number of votes entitled to be cast in respect of such other securities upon
any matter being voted upon by the holders of shares of New Time Warner Common
Stock and the holders of such other securities, voting together as a single
class, and (b) if applicable, the number of shares of New Time Warner Common
Stock issuable upon conversion in full into, or exchange in full for, shares
of New Time Warner Common Stock of such other securities.
In the event any New Time Warner securities are subject to an approved
voting trust, then (a) the trustee or trustees under such voting trust shall
be deemed not to be the "Beneficial Owner" of any such New Time Warner
securities and (b) each beneficiary of such voting trust shall be deemed to be
the "Beneficial Owner" of all such New Time Warner securities.
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Notwithstanding the foregoing, (a) no person ordinarily engaged in business
as an underwriter of securities shall be deemed to be the "Beneficial Owner"
of, to "beneficially own," or to have any "Beneficial Ownership" of, any
securities acquired in a bona fide firm commitment underwriting pursuant to an
underwriting agreement with New Time Warner and (b) no person shall be deemed
to be the "Beneficial Owner" of, to "beneficially own," or to have any
"Beneficial Ownership" of, any securities by reason of such person or any of
such person's affiliates or associates having the right to acquire (whether
such right is exercisable immediately or only after the passage of time) such
securities pursuant to a right of first refusal, right of first offer or
similar agreement, arrangement or understanding granted by another person (the
"subject person") (i) that does not provide any direct or indirect limitations
or restrictions on the ability of the subject person to exercise (or refrain
from exercising) any voting rights associated with such securities or contain
any other agreement, arrangement or understanding with respect to such voting
rights, (ii) that does not contain any incentive for the subject person to
support or oppose any particular business combination with an Acquiring Person
or otherwise to exercise (or refrain from exercising) any voting rights
associated with such securities in a manner advantageous to such person or any
of such person's affiliates or associates and (iii) with respect to which
prior written notice of which shall have been given to New Time Warner. For
purposes of the New Time Warner Rights Agreement, neither TCITP and its
affiliates nor Mr. Turner and his affiliates will be deemed to "beneficially
own" any shares of New Time Warner Capital Stock held by the other party
solely as a result of their respective rights to purchase the other parties'
shares of New Time Warner Capital Stock pursuant to the Right of First Refusal
Agreement. See "Certain Related Agreements--Right of First Refusal Agreement."
New Time Warner Series A Preferred Stock
The holders of New Time Warner Series A Preferred Stock will be entitled to
receive (a) quarterly cumulative dividends payable in cash in an amount per
share equal to $0.01 per share less the amount of cash dividends received
pursuant to the following clause (b) (but not less than zero) and (b) cash and
in-kind dividends on each payment date for similar dividends on the shares of
New Time Warner Common Stock in an amount per share of New Time Warner Series
A Preferred Stock equal to 1,000 (subject to adjustment) times the per share
amount of all cash dividends then to be paid on each share of New Time Warner
Common Stock.
Holders of New Time Warner Series A Preferred Stock will be entitled to vote
on each matter on which holders of New Time Warner Common Stock are entitled
to vote and will have 1,000 (subject to adjustment) votes for each share of
New Time Warner Series A Preferred Stock held. Holders of any fraction of a
share of
New Time Warner Series A Preferred Stock that is not smaller than one one-
thousandth (1/1,000th) of a share will be entitled to vote such fraction.
Holders of New Time Warner Series A Preferred Stock will have certain special
voting rights in the election of directors when the equivalent of six
quarterly dividends are in default. Whenever quarterly dividends or
distributions on the New Time Warner Series A Preferred Stock shall be in
arrears, New Time Warner's right to declare or pay dividends or other
distributions on, redeem or purchase any shares of stock ranking junior to or
on a parity with the New Time Warner Series A Preferred Stock will be subject
to certain restrictions.
Upon any liquidation, dissolution or winding up of New Time Warner, whether
voluntary or involuntary, the holders of shares of New Time Warner Series A
Preferred Stock will be entitled to receive, before any distribution is made
to holders of shares of stock ranking in junior to the New Time Warner Series
A Preferred Stock or any distribution (other than a ratable distribution) is
made to the holders of stock ranking on a parity with the New Time Warner
Series A Preferred Stock in an amount equal to the accrued dividends thereon
plus the greater of (a) $1,000 per share or (b) an amount per share equal to
1,000 (subject to adjustment) times the amount per share to be distributed to
holders of New Time Warner Common Stock. The New Time Warner Series A
Preferred Stock will rank junior to all other series of New Time Warner
Preferred Stock outstanding immediately following the consummation of the
Mergers. The shares of New Time Warner Series A Preferred Stock will not be
redeemable.
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NEW TIME WARNER SERIES D PREFERRED STOCK
General
The New Time Warner Series D Preferred Stock is identical to the Time Warner
Series D Preferred Stock, except for (a) the items described under "Comparison
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain
technical, immaterial changes (primarily giving precise dates for certain
matters rather than anniversaries of dates of issuance, changing the
definition of "Parity Stock" to include all the pari passu New Time Warner
Preferred Stock and changing the definition of "Junior Stock" to include the
LMC Series Common Stock).
Dividend Rights
Holders of New Time Warner Series D Preferred Stock will be entitled to
receive quarter-annual dividends, as and when declared by the New Time Warner
Board out of funds legally available for payment in the amount per share equal
to (i) in the case of each Series D Dividend Payment Date (as defined below)
occurring on or before July 6, 1999, the greater of (A) $.9375 (which is
equivalent to $3.75 per annum) per $100 in liquidation value, and (B) the
product of (1) the Series D Conversion Rate (as defined below) and (2) the
aggregate per share amount of regularly scheduled dividends paid in cash on
the New Time Warner Common Stock during the period from but excluding the
immediately preceding Series D Dividend Payment Date to and including such
Series D Dividend Payment Date. Dividends on New Time Warner Series D
Preferred Stock will be payable in cash on or about January 1, April 1, July 1
and October 1 of each year, as fixed by the New Time Warner Board, or such
other dates as are fixed by the New Time Warner Board (provided that July 6,
1999 shall be a Series D Dividend Payment Date) (each a "Series D Dividend
Payment Date"), to the holders of record on such record dates as are fixed by
the New Time Warner Board of Directors (each a "Series D Record Date").
Dividends payable in respect of periods prior to July 6, 1999 will be
cumulative and will accrue on each share on a daily basis, whether or not
there are unrestricted funds legally available for the payment of such
dividends and whether or not earned or declared. Any such dividends that
become payable for any partial dividend period shall be computed on the basis
of the actual days elapsed in such period; provided, however, that the
dividend payable on the first Series D Dividend Payment Date shall be computed
as if the period in respect of which such dividend is payable commenced on the
date of payment of the last dividend paid on the Time Warner Series D
Preferred Stock and no payments will be made by Time Warner with respect to
the Time Warner Series D Preferred Stock for the dividend period ending on the
first Series D Dividend Payment Date. From and after July 6, 1999, dividends
on New Time Warner Series D Preferred Stock shall accrue to the extent, but
only to the extent, that regularly scheduled cash dividends are declared by
the New Time Warner Board on the New Time Warner Common Stock with a payment
date after July 6, 1999 (or, in the case of shares of New Time Warner Series D
Preferred Stock originally issued after July 6, 1999, after the Series D
Dividend Payment Date next preceding such date of original issuance).
So long as any New Time Warner Series D Preferred Stock is outstanding, New
Time Warner may not declare or pay any dividend on the New Time Warner Common
Stock or other stock ranking as to the right to receive dividends or to
participate in any distribution of assets other than by way of dividends
junior to or on a parity with the New Time Warner Series D Preferred Stock
(other than a dividend payable in New Time Warner Common Stock or other junior
stock), nor may New Time Warner or any of its subsidiaries purchase, redeem or
otherwise acquire New Time Warner Common Stock or any other stock ranking as
to the right to receive dividends or to participate in any distribution of
assets other than by way of dividends junior to or on a parity with the New
Time Warner Series D Preferred Stock (except by conversion into or exchange
for stock of New Time Warner ranking junior to the New Time Warner Series D
Preferred Stock as to dividends and other distributions), nor shall any monies
be paid or made available for a purchase, redemption or sinking fund therefor,
unless all dividends on the New Time Warner Series D Preferred Stock and any
other New Time Warner Capital Stock ranking as to dividends on a parity with
the New Time Warner Series D Preferred Stock that shall have accrued and be
payable as of any date shall have been paid, or declared and funds set apart
for payment thereof. Should dividends not be paid in full on any outstanding
New Time Warner Series D Preferred
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Stock or any other New Time Warner Capital Stock ranking as to dividends on a
parity with the New Time Warner Series D Preferred Stock, all dividends
declared on the New Time Warner Series D Preferred Stock and any other New
Time Warner Capital Stock ranking as to dividends on a parity with the New
Time Warner Series D Preferred Stock will be declared pro rata, so that the
amount of dividends declared per share of New Time Warner Series D Preferred
Stock and such other New Time Warner Capital Stock will bear to each other the
same ratio that accrued dividends per share on the shares of each series of
New Time Warner Series D Preferred
Stock and such other New Time Warner Capital Stock bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on New Time Warner Series D Preferred Stock
which may be in arrears. The New Time Warner Series D Preferred Stock will
rank on a parity with the New Time Warner Series E Preferred Stock, the New
Time Warner Series F Preferred Stock, the New Time Warner Series G Preferred
Stock, the New Time Warner Series H Preferred Stock, the New Time Warner
Series I Preferred Stock, the New Time Warner Series J Preferred Stock and the
New Time Warner Series K Preferred Stock and will rank senior to the New Time
Warner Common Stock and the LMC Series Common Stock and, if issued, the New
Time Warner Series A Preferred Stock.
If New Time Warner distributes (other than a distribution in liquidation of
New Time Warner) to all holders of New Time Warner Common Stock any assets or
property, including debt or equity securities, of New Time Warner or cash
(excluding regularly scheduled cash dividends payable on shares of New Time
Warner Common Stock), or if New Time Warner distributes (other than a
distribution in liquidation of New Time Warner) rights, options or warrants to
subscribe for or purchase any securities, assets or property (in each case,
whether of New Time Warner or otherwise, but other than any distribution of
rights to purchase securities of New Time Warner if the holder of New Time
Warner Series D Preferred Stock would otherwise be entitled to receive such
rights upon conversion of shares of New Time Warner Series D Preferred Stock
for New Time Warner Common Stock; provided, however, that if such rights are
subsequently redeemed by New Time Warner, such redemption will be treated for
purposes of the provisions described in this paragraph as a cash dividend on
the New Time Warner Common Stock), New Time Warner must simultaneously
distribute such assets, property, securities, rights, options or warrants pro
rata to the holders of New Time Warner Series D Preferred Stock in an amount
equal to the amount that such holders would have been entitled to receive had
their shares of New Time Warner Series D Preferred Stock been converted into
New Time Warner Common Stock immediately prior to the applicable record date.
If a distribution is made to the holders of New Time Warner Series D
Preferred Stock in accordance with the provisions described in the immediately
preceding paragraph, no adjustment to the Series D Conversion Rate shall be
effected by reason of the distribution of such assets, property, securities,
rights, options or warrants or any subsequent modification, exercise,
expiration or termination of such securities, rights, options or warrants. If
holders of New Time Warner Common Stock are entitled to make any election with
respect to the kind or amount of securities or other property receivable by
them in any such distribution, the kind and amount of securities or other
property that shall be distributable to the holders of the New Time Warner
Series D Preferred Stock shall be based on (a) the election, if any, made by
the record holder (as of the date used for determining the holders of New Time
Warner Common Stock entitled to make such election) of the largest number of
shares of New Time Warner Series D Preferred Stock in writing to New Time
Warner on or prior to the last date on which a holder of New Time Warner
Common Stock may make such an election and (b) if no such election is timely
made, an assumption that such holder failed to exercise any such rights
(provided that if the kind or amount of securities or other property is not
the same for each nonelecting holder, then the kind and amount of securities
or other property receivable by holders of New Time Warner Series D Preferred
Stock shall be based on the kind or amount of securities or other property
receivable by a plurality of shares held by the nonelecting holders of New
Time Warner Common Stock).
Conversion Provisions
General. Holders of New Time Warner Series D Preferred Stock shall have the
right at any time or, as to any share of New Time Warner Series D Preferred
Stock called for redemption or exchange, at any time prior to the close of
business on the date fixed for redemption or exchange (unless New Time Warner
defaults in the
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payment of the Series D Redemption Price (as defined below) or fails to
exchange the shares of New Time Warner Series D Preferred Stock for the
applicable number of shares of New Time Warner Common Stock and any cash
portion of the Series D Exchange Price (as defined) or exercises its right to
rescind such redemption, in which case such right shall not terminate at the
close of business on such date), to convert such share into (a) a number of
shares of New Time Warner Common Stock equal to 2.08264 shares of New Time
Warner Common Stock for each share of New Time Warner Series D Preferred
Stock, subject to adjustment as described herein
(such rate, as so adjusted from time to time, is herein called the "Series D
Conversion Rate;" and the "Series D Conversion Price" at any time shall mean
the liquidation value per share of New Time Warner Series D Preferred Stock
divided by the Series D Conversion Rate in effect at such time (rounded to the
nearest one hundredth of a cent)) plus (b) a number of shares of New Time
Warner Common Stock equal to
(A) (1) the aggregate amount of accrued and unpaid dividends on such
share to and including the Conversion Date (as defined below) excluding, if
such Conversion Date occurs after a Series D Record Date and prior to the
related Series D Dividend Payment Date, accrued and unpaid dividends for
the period from and after the most recent Series D Dividend Payment Date
(the "Series D Accrued Dividend Amount") minus (2) unless clause (3) below
is applicable, the product of (x) the Series D Conversion Rate, (y) the
regular quarterly cash dividend per share, if any, paid by New Time Warner
on the New Time Warner Common Stock on the most recent dividend payment
date for the New Time Warner Common Stock occurring during the four months
immediately preceding such Conversion Date and (z) a fraction (I) the
numerator of which is the number of calendar days from and excluding such
most recent dividend payment date to and including such Conversion Date
(or, if such Conversion Date falls after a Series D Record Date and on or
prior to the related Series D Dividend Payment Date, to and including such
Series D Dividend Payment Date) and (II) the denominator of which is 91
days (provided that in no event shall such fraction be greater than one) or
plus (3) if such Conversion Date falls after a record date and prior to the
related payment date for a regularly scheduled cash dividend on the New
Time Warner Common Stock, the product of (x) the Series D Conversion Rate,
(y) the amount per share of New Time Warner Common Stock of the regularly
scheduled cash dividend for which the record date has been set but a
payment date has not yet occurred and (z) a fraction (I) the numerator of
which is the number of calendar days from and including such Conversion
Date (or, if such Conversion Date falls after a Series D Record Date and on
or prior to the related Series D Dividend Payment Date, from and excluding
such Series D Dividend Payment Date) to and including such related payment
date for such regularly scheduled cash divided and (II) the denominator of
which is 91 (provided that in no event shall such fraction be greater than
one) (the amount calculated pursuant to this clause (A) being the "Series D
Net Dividend Amount") divided by
(B) the closing price of the New Time Warner Common Stock on the last
NYSE trading day prior to the Conversion Date;
provided, however, that in the event that the Series D Net Dividend Amount is
a negative number, the number of shares deliverable upon conversion of a share
of New Time Warner Series D Preferred Stock shall be equal to
(I) the number of shares determined pursuant to clause (a) minus
(II) a number of shares equal to (x) the absolute value of the Series D
Net Dividend Amount divided by (y) the closing price of the New Time Warner
Common Stock on the last NYSE trading day prior to the Conversion Date.
If the Series D Net Dividend Amount is positive, New Time Warner may deliver
cash equal to the Series D Net Dividend Amount or any portion thereof in lieu
of New Time Warner Common Stock. The obligations of New Time Warner to issue
the New Time Warner Common Stock or make the cash payments upon the exercise
of conversion rights is absolute whether or not any accrued dividend by which
such issuance or payment is measured has been declared by the New Time Warner
Board and whether or not New Time Warner would have adequate surplus or net
profits to pay such dividend if declared or is otherwise restricted from
making such dividend.
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Except as described herein, no adjustments in respect of payments of
dividends on shares surrendered for conversion or any dividend on the New Time
Warner Common Stock issued upon conversion will be made upon the conversion of
any shares of New Time Warner Series D Preferred Stock (it being understood
that if any conversion of shares of New Time Warner Series D Preferred Stock
occurs after a record date for any Series D Dividend Payment Date and on or
prior to such Series D Dividend Payment Date, the holder of record on such
record date will be entitled to receive the dividend payable with respect to
such shares on the related Series D Dividend Payment Date).
New Time Warner may, but is not required to, in connection with any
conversion of shares of New Time Warner Series D Preferred Stock, issue a
fraction of a share of New Time Warner Common Stock, and if New Time Warner
does not issue any such fraction, New Time Warner shall, except as described
below, make a cash payment (rounded to the nearest cent) equal to such
fraction multiplied by the closing price of the New Time Warner Common Stock
on the last NYSE trading day prior to the Conversion Date.
Conversion of shares of New Time Warner Series D Preferred Stock will be
deemed to have been made as of the date (the "Conversion Date") that
certificates for such shares, and a written notice of election to convert, are
received by the transfer agent or agents for the New Time Warner Series D
Preferred Stock; and the person entitled to receive the New Time Warner Common
Stock issuable upon such conversion will be treated for all purposes as the
record holder of such New Time Warner Common Stock on such date. If New Time
Warner has rescinded a redemption of shares of New Time Warner Series D
Preferred Stock, any holder of shares of New Time Warner Series D Preferred
Stock that shall have surrendered such shares for conversion following the day
on which notice of the subsequently rescinded redemption shall have been given
but prior to the close of business on the later of (a) the NYSE trading day
next succeeding the date on which public announcement of the rescission of
such redemption was made and (b) the NYSE trading day on which the notice of
rescission is deemed given (a "Converting Holder") may rescind the conversion
of such shares surrendered for conversion by properly completing a form
prescribed by New Time Warner and mailed to holders of shares of the New Time
Warner Series D Preferred Stock (including Converting Holders) with New Time
Warner's notice of rescission delivering such form to New Time Warner no later
than the close of business on that date that is 10 NYSE trading days following
the date on which notice of rescission is deemed given.
New Time Warner is required to pay any and all issue or other taxes that may
be payable in respect of any issue or delivery of shares on conversion of New
Time Warner Series D Preferred Stock. New Time Warner is not, however,
required to pay any tax which is payable in respect of any transfer involved
in the issue or delivery of such shares in a name other than that in which the
shares of the New Time Warner Series D Preferred Stock so converted were
registered, and no such issue or delivery is permitted unless and until the
person requesting such issue has paid to New Time Warner the amount of such
tax, or has established, to the satisfaction of New Time Warner, that such tax
has been paid.
Adjustment of Series D Conversion Rate for Certain Actions or Events. The
Series D Conversion Rate will be adjusted from time to time as follows:
(a) In case New Time Warner (i) pays a dividend in shares of New Time
Warner Common Stock, (ii) combines the outstanding shares of New Time
Warner Common Stock into a smaller number of shares, (iii) subdivides the
outstanding shares of New Time Warner Common Stock or (iv) reclassifies
(other than by way of a merger or consolidation that is described below)
the shares of New Time Warner Common Stock, then the Series D Conversion
Rate in effect immediately before such action will be adjusted so that
immediately following such event the holders of such shares will be
entitled to receive upon conversion or exchange thereof the kind and amount
of shares of capital stock of New Time Warner which they would have owned
or been entitled to receive upon or by reason of such event if such shares
had been converted or exchanged immediately before the record date (or, if
no record date, the effective date) for such event (it being understood
that any distribution of cash or of capital stock (other than New Time
Warner Common Stock), including any distribution of capital stock that will
accompany a reclassification of the New Time Warner Common Stock, will have
the effect described under "--Dividend Rights" above). Any such
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adjustment will become effective retroactively immediately after the record
date in the case of a dividend or distribution and will become effective
retroactively immediately after the effective date in the case of a
subdivision, combination or reclassification. If holders of New Time Warner
Common Stock are entitled to make any election with respect to the kind or
amount of securities receivable by them in any transaction described in
this paragraph (including any election that would result in all or a
portion of the transaction being treated as described under "--Dividend
Rights" above), the kind and amount of securities that will be
distributable to the holders of New Time Warner Series D Preferred Stock
will be based on (i) the election, if any, made by the record holder (as of
the date used for determining the holders of New Time Warner Common Stock
entitled to make such election) of the largest number of shares of New Time
Warner Series D Preferred Stock in writing to New Time Warner on or prior
to the last date on which a holder of New Time Warner Common Stock may make
such an election or (ii) if no such election is timely made, an assumption
that such holder failed to exercise any such rights (provided that if the
kind or amount of securities is not the same for each nonelecting holder,
then the kind and amount of securities receivable will be based on the kind
or amount of securities receivable by a plurality of nonelecting holders of
New Time Warner Common Stock).
(b) If a Change of Control (as defined below) occurs, the Series D
Conversion Rate in effect immediately prior to the Change of Control Date
(as defined below) will be increased (but not decreased) by multiplying
such rate by a fraction as follows (i) in the case of a Change of Control
specified in clause (A) of the definition of "Change of Control" set forth
below, a fraction in which the numerator is the Series D Conversion Price
prior to adjustment pursuant hereto and the denominator is the current
market price of the New Time Warner Common Stock at the Change of Control
Date, (ii) in the case of a Change of Control specified in clause (B) of
the definition "Change of Control" set forth below, the greater of the
following fractions: (x) a fraction the numerator of which is the highest
price per share of New Time Warner Common Stock paid by the acquiring
person in connection with the transaction giving rise to the Change of
Control or in any transaction within six months prior to or after the
Change of Control Date (the "highest price"), and the denominator of which
is the current market price of the New Time Warner Common Stock as of the
date (but not earlier than six months prior to the Change of Control Date)
on which the first public announcement is made by the acquiring person that
it intends to acquire or that it has acquired 40% or more of the
outstanding shares of New Time Warner Common Stock (the "announcement
date") or (y) a fraction the numerator of which is the Series D Conversion
Price prior to adjustment pursuant hereto and the denominator of which is
the current market price of the New Time Warner Common Stock on the
announcement date and (iii) in the case where there co-exists a Change of
Control specified in both clauses (A) and (B) of this paragraph, the
greatest of the fractions determined pursuant to clauses (i) and (ii). Such
adjustment will become effective immediately after the Change of Control
Date and will be made, in the case of clauses (ii) and (iii) above,
successively for six months thereafter in the event and at the time of any
increase in the highest price after the Change of Control Date; provided,
however, that no such successive adjustment shall be made with respect to
the Series D Conversion Rate of the shares of this Series in respect of any
event occurring after the Conversion Date. For the purposes of the New Time
Warner Series D Preferred Stock, "Change of Control" means the occurrence
of one or both of the following events: (A) individuals who would
constitute a majority of the members of the New Time Warner Board elected
at any meeting of stockholders or by written consent (without regard to any
members of the New Time Warner Board elected pursuant to the terms of any
New Time Warner Preferred Stock) shall be elected to the Board of Directors
and the election or the nomination for election by the stockholders of such
directors was not approved by a vote of at least a majority of the
directors in office immediately prior to such election (in which event
"Change of Control Date" shall mean the date of such election) or (B) a
person or group of persons acting in concert as a partnership, limited
partnership, syndicate or other group within the meaning of Rule 13d-3
under the Exchange Act shall, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases, share repurchases or
redemptions or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 40% or more of the
outstanding shares of New Time Warner Common Stock (in which event "Change
of Control Date" shall mean the date of the event resulting in such 40%
ownership).
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(c) New Time Warner is entitled to make such additional adjustments in
the Series D Conversion Rate, in addition to those described above in
paragraphs (a) and (b) as are necessary in order that any dividend or
distribution in New Time Warner Common Stock or any subdivision,
reclassification or combination of shares of New Time Warner Common Stock
referred to above, will not be taxable to the holders of New Time Warner
Common Stock for United States Federal income tax purposes so long as such
additional adjustments do not decrease the Series D Conversion Rate.
(d) New Time Warner may elect to defer (but only for five NYSE trading
days following the occurrence of an event which necessitates adjustment of
the Series D Conversion Rate) issuing to the holder of any shares of a
series of New Time Warner Series D Preferred Stock converted after such
record date the shares of New Time Warner Common Stock and other capital
stock of New Time Warner issuable upon such conversion over and above the
shares of New Time Warner Common Stock and other capital stock of New Time
Warner issuable upon such conversion on the basis of the Series D
Conversion Rate prior to adjustment; provided, however, that New Time
Warner must 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.
(e) No adjustment will be made to the Series D Conversion Rate (i) if the
effect thereof would be to reduce the Series D Conversion Price below the
par value of the New Time Warner Common Stock or (ii) subject to paragraph
(c) above, with respect to any share of New Time Warner Series D Preferred
Stock that is converted, prior to the time such adjustment otherwise would
be made.
Adjustment of Series D Conversion Rate upon Consolidation, Merger or Sale of
Assets. If:
(a) any consolidation or merger to which New Time Warner is a party,
other than a merger or consolidation in which New Time Warner is the
surviving or continuing corporation and which does not result in any
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, or as a result
of a subdivision or combination) in, outstanding shares of New Time Warner
Common Stock, occurs, or;
(b) any sale or conveyance of all or substantially all of the property
and assets of New Time Warner occurs,
then lawful provision will be made as part of the terms of such transaction
whereby the holder of each share of New Time Warner Series D Preferred Stock
will have the right thereafter, during the period such share is convertible or
exchangeable, to convert such share into or have such share exchanged for the
kind and amount of shares of stock or other securities and property receivable
upon such consolidation, merger, sale or conveyance by a holder of the number
of shares of New Time Warner Common Stock into which such share could have
been converted or exchanged immediately prior to such consolidation, merger,
sale or conveyance, subject to adjustment which shall be as nearly equivalent
as may be practicable to the adjustments described herein (based on (i) the
election, if any, made in writing to New Time Warner by the record holder (as
of the date used for determining holders of New Time Warner Common Stock
entitled to make such election) of the largest number of shares of New Time
Warner Series D Preferred Stock on or prior to the last date on which a holder
of New Time Warner Common Stock may make an election regarding the kind or
amount of securities or other property receivable by such holder in such
transaction or (ii) if no such election is timely made, an assumption that
such holder failed to exercise any such rights (provided that if the kind or
amount of securities or other property is not the same for each nonelecting
holder, then the kind and amount of securities or other property receivable
will be based upon the kind and amount of securities or other property
receivable by a plurality of the nonelecting holders of New Time Warner Common
Stock)).
If any of the transactions referred to in clauses (a) or (b) of the
immediately preceding paragraph involves the distribution of cash (or property
other than equity securities) to a holder of New Time Warner Common Stock,
lawful provision will be made as part of the terms of the transaction whereby
the holder of each share of New Time Warner Series D Preferred Stock on the
record date fixed for determining holders of New Time Warner Common Stock
entitled to receive such cash or property (or if no such record date is
established, the
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effective date of such transaction) will be entitled to receive the amount of
cash or property that such holder would have been entitled to receive had such
holder converted his shares of New Time Warner Series D Preferred Stock into
New Time Warner Common Stock immediately prior to such record date (or
effective date) (based on the election or nonelection made by the record
holder of the largest number of shares of New Time Warner Series D Preferred
Stock, as provided above). New Time Warner will not enter into any of the
transactions referred to in clause (a) or (b) of the immediately preceding
paragraph unless effective provision shall be made in the certificate or
articles of incorporation or other constituent documents of New Time Warner or
the entity surviving the consolidation or merger, if other than New Time
Warner, or the entity acquiring New Time Warner's assets, as the case may be,
so as to give effect to the provisions set forth in the immediately preceding
paragraph. The provisions of this paragraph shall apply similarly to
successive consolidations, mergers, sales or conveyances.
Redemption or Exchange at New Time Warner's Option
General. New Time Warner may, at its sole option from time to time on and
after July 6, 2000, in the case of clause (i) or (iii) of the immediately
succeeding paragraph and on and after July 6, 1999, in the case of clause (ii)
of the immediately succeeding paragraph, redeem, out of funds legally
available therefor, or exchange, as provided below, shares of New Time Warner
Common Stock for, all (or in the case of a cash redemption, any part) of the
outstanding shares of the New Time Warner Series D Preferred Stock. The
redemption price for each such share called for cash redemption shall be the
liquidation value together with an amount equal to the accrued and unpaid
dividends to the date fixed for redemption (hereinafter collectively referred
to as the "Series D Redemption Price"). The exchange price for each share of
New Time Warner Series D Preferred Stock called for exchange shall be a number
of shares of New Time Warner Common Stock equal to the Series D Conversion
Rate, together with, at the option of New Time Warner, either (x) cash or (y)
a number of shares of New Time Warner Common Stock, valued at the closing
price on the NYSE trading day immediately preceding the date fixed for
exchange, equal, in either case, to the aggregate amount of accrued and unpaid
dividends on New Time Warner Series D Preferred Stock to the date fixed for
exchange (provided that any dividends which are in arrears must be paid in
cash) (hereinafter collectively referred to as the "Series D Exchange Price").
On the date fixed for redemption or exchange of shares of New Time Warner
Series D Preferred Stock, New Time Warner will, at its option, effect either
(i) a redemption of the shares of New Time Warner Series D Preferred
Stock to be redeemed by way of payment, out of funds legally available
therefor, of cash equal to the aggregate Series D Redemption Price for the
shares then being redeemed;
(ii) an exchange of the shares of New Time Warner Series D Preferred
Stock for the Series D Exchange Price in shares of New Time Warner Common
Stock (provided that New Time Warner (A) will be entitled to deliver cash
(1) in lieu of any fractional share of New Time Warner Common Stock and (2)
equal to accrued and unpaid dividends to the date fixed for exchange in
lieu of shares of New Time Warner Common Stock and (B) will be required to
deliver cash in respect of any dividends that are in arrears); or
(iii) any combination of a cash redemption and an exchange with respect
to the shares of New Time Warner Series D Preferred Stock called for
redemption or exchange.
In the event that fewer than all the outstanding shares of the New Time
Warner Series D Preferred Stock are to be redeemed, the number of shares to be
redeemed from each holder of shares of New Time Warner Series D Preferred
Stock shall be determined by New Time Warner by lot or pro rata or by any
other method as may be determined by the New Time Warner Board.
Notice of any proposed redemption or exchange may be given by New Time
Warner by mailing a copy of such notice not less than 15 nor more than 60 days
prior to the date fixed for redemption or exchange, to the
record holder of the shares to be redeemed or exchanged, at their addresses as
reported on the books of New Time Warner.
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All dividends on the shares so called for redemption or exchange shall cease
to accrue and all rights of the holders thereof as stockholders of New Time
Warner with respect to shares so called for redemption or exchange (except (i)
in the case of redemption, the right to receive the Series D Redemption Price
without interest and in the case of exchange, the right to receive the Series
D Exchange Price without interest and (ii) the right to convert such shares as
described above under "--Conversion Provisions" above) shall terminate
(including any right to receive dividends otherwise payable on any Series D
Dividend Payment Date that would have occurred after the time and date of
redemption or exchange) either in the case of a redemption or exchange, from
and after the time and date fixed in the notice of redemption or exchange as
the time and date of redemption or exchange (unless New Time Warner shall (x)
in the case of a redemption, default in the payment of the Series D Redemption
Price, (y) in the case of an exchange, fail to exchange the applicable number
of shares of New Time Warner Common Stock and any cash portion of the Series D
Exchange Price or (z) exercise its right to rescind such redemption or
exchange, in which case such rights shall not terminate at such time and date)
or, if New Time Warner shall so elect and state in the notice of redemption or
exchange, from and after the time and date (which date shall be the date fixed
for redemption or exchange or an earlier date not less than 15 days after the
date of mailing of the redemption or exchange notice) on which New Time Warner
shall irrevocably deposit with a designated bank or trust company designated
as paying agent, money sufficient to pay at the office of such paying agent,
on the redemption date, the Series D Redemption Price, in the case of
redemption, or certificates representing the shares of New Time Warner Common
Stock to be so exchanged and any cash portion of the Series D Exchange Price,
in the case of an exchange. Subject to applicable escheat laws, any moneys or
certificates so set aside by New Time Warner and unclaimed at the end of one
year from the redemption date will revert to the general funds of New Time
Warner, after which reversion the holders of such shares so called for
redemption or exchange may look only to New Time Warner for the payment of the
Series D Redemption Price or the Series D Exchange Price, as applicable,
without interest. Any interest accrued on funds so deposited shall be paid to
New Time Warner from time to time.
The New Time Warner Series D Preferred Stock will not be subject to
redemption at the option of New Time Warner pursuant to Section 5 of Article
IV of the New Time Warner Charter.
Right to Rescind Redemption. If a Redemption Rescission Event (as defined
below) shall occur following any day on which a notice of cash redemption
shall have been given but at or prior to the earlier of (a) the time and date
fixed for cash redemption as set forth in such notice of cash redemption and
(b) the time and date at which New Time Warner shall have irrevocably
deposited funds or certificates with a designated bank or trust company, New
Time Warner may, at its sole option, at any time prior to the earliest of (i)
the close of business on that day which is two NYSE trading days following
such Redemption Rescission Event, (ii) the time and date fixed for redemption
as set forth in such notice and (iii) the time and date on which New Time
Warner shall have irrevocably deposited such funds or certificates with a
designated bank or trust company, rescind the cash redemption to which such
notice of redemption shall have related by making a public announcement of
such rescission. From and after the making of such announcement, New Time
Warner shall have no obligation to redeem shares of New Time Warner Series D
Preferred Stock called for cash redemption pursuant to such notice of
redemption or to pay the Series D Redemption Price therefor and all rights of
holders of New Time Warner Series D Preferred Stock shall be restored as if
such notice of redemption had not been given. New Time Warner will give notice
of any such rescission as promptly as practicable, but in no event later than
the close of business on that date which is five NYSE trading days following
the date of public announcement of such rescission to each record holder of
shares of New Time Warner Series D Preferred Stock at the close of business on
such date and to any other person or entity that was a record holder of shares
of New Time Warner Series D Preferred Stock and that shall have surrendered
shares of New Time Warner Series D Preferred Stock for conversion following
the giving of notice of the subsequently rescinded redemption. For purposes of
the New Time Warner Series D Preferred Stock, a "Redemption Rescission Event"
means 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 New Time Warner Common Stock are registered and
listed for trading (or, if shares of New Time Warner Common Stock are not
registered and listed for trading on any such exchange, in the over-the-
counter market)
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for more than six-and-one-half 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 NYSE trading day to the close
of business on the next succeeding NYSE trading day during the period
commencing on the NYSE trading day preceding the day notice of any redemption
of shares is given (or, if such notice is given after the close of business on
a NYSE trading day, commencing on such NYSE trading day) and ending at the
earlier of (x) the time and date fixed for redemption in such notice and (y)
the time and date at which New Time Warner shall have irrevocably deposited
funds or certificates with a designated bank or trust company 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 notice of redemption is given, 20%),
measured from the close of business on the NYSE trading day preceding the day
notice of such redemption is given (or, if such notice is given after the
close of business on a NYSE trading day, from such NYSE trading day) to the
close of business on any NYSE trading day on or prior to the earlier of the
dates specified in clauses (x) and (y) above, (c) a declaration of a banking
moratorium or any suspension of payments in respect of banks by Federal or
state 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 New
Time Warner could have a material adverse effect on the market for the New
Time Warner Common Stock.
Pro Rata Repurchase
Upon a Pro Rata Repurchase (as defined below), each holder of shares of New
Time Warner Series D Preferred Stock will have the right to require New Time
Warner to repurchase, out of funds legally available therefor, a Pro Rata
Portion (as defined below) of the shares of New Time Warner Series D Preferred
Stock of such holder, or any lesser number requested by the holder, at a price
per share equal to the highest price per share of New Time Warner Common Stock
paid in the Pro Rata Repurchase multiplied by the Series D Conversion Rate
then in effect plus an amount equal to the accrued but unpaid dividends on
such shares to the date of repurchase.
The Board of Directors of New Time Warner may not approve any tender or
exchange offer by New Time Warner or a third party for shares of New Time
Warner Common Stock or recommend that the holders of New Time Warner Common
Stock accept any offer or tender their shares into any offer unless a Pro Rata
Portion of the shares of New Time Warner Series D Preferred Stock of all
holders are entitled to be tendered into such offer at a price not less than
the price per share for shares of New Time Warner Common Stock pursuant to
such offer multiplied by the Series D Conversion Rate then in effect plus an
amount equal to accrued but unpaid dividends on such shares to the date of
payment for such shares in such tender or exchange offer.
"Pro Rata Portion" with respect to the shares of New Time Warner Series D
Preferred Stock held by any holder shall mean all the shares of New Time
Warner Series D Preferred Stock then owned by such holder times a fraction,
the numerator of which is the number of outstanding shares of New Time Warner
Common Stock (a) purchased in the applicable Pro Rata Repurchase or (b) for
which a tender or exchange offer referred to above is made, as the case may
be, and the denominator of which is the number of outstanding shares of New
Time Warner Common Stock immediately prior to such Pro Rata Repurchase or the
commencement of such tender or exchange offer, as the case may be.
"Pro Rata Repurchase" shall mean the purchase of shares of New Time Warner
Common Stock by New Time Warner or by any of its subsidiaries, whether for
cash or other property or securities of New Time Warner, which purchase is
subject to Section 13(e) of the Exchange Act or is made pursuant to an offer
made available to all holders of New Time Warner Common Stock, but excluding
any purchase made in open market transactions that satisfies the conditions of
clause (b) of Rule 10b-18 under the Exchange Act or has been designed (as
reasonably determined by the New Time Warner Board or a committee thereof) to
prevent such purchase from having a material effect on the trading market of
the New Time Warner Common Stock. The "Effective Date" of a Pro Rata
Repurchase shall mean the applicable expiration date (including all extensions
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thereof) of any tender or exchange offer which is a Pro Rata Repurchase or the
date of purchase with respect to any Pro Rata Repurchase which is not a tender
or exchange offer.
Liquidation Rights
Upon the dissolution, liquidation or winding up of New Time Warner, whether
voluntary or involuntary, holders of shares of New Time Warner Series D
Preferred Stock shall be entitled to receive out of the assets of New Time
Warner available for distribution to stockholders, in preference to the
holders of, and before any payment or distribution shall be made on, junior
stock, the liquidation value in respect of such share, plus an amount equal to
all accrued and unpaid dividends to the date of final distribution. The
liquidation value applicable to shares of New Time Warner Series D Preferred
Stock shall initially be $100 per share, subject to adjustment from time to
time to appropriately give effect to any split or combination of such share.
In the event the assets of New Time Warner available for distribution to the
holders of New Time Warner Series D Preferred Stock upon any dissolution,
liquidation or winding up of New Time Warner, whether voluntary or
involuntary, are insufficient to pay in full all amounts to which such holders
are entitled, no such distribution may be made on account of any shares of any
parity stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of shares of the
New Time Warner Series D Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all parity stock are entitled upon
such dissolution, liquidation or winding up.
Voting Rights
Each share of New Time Warner Series D Preferred Stock will be entitled to
vote together with holders of the shares of New Time Warner Common Stock (and
any other class or series which may similarly be entitled to vote with the
shares of New Time Warner Common Stock) as a single class upon all matters
upon which holders of New Time Warner Common Stock are entitled to vote. In
any such vote, the holder of such share shall be entitled to two votes per
$100 in liquidation value of such share, subject to adjustment at the same
time and in the same manner as each adjustment of the Series D Conversion
Rate, so that the holders of New Time Warner Series D Preferred Stock shall be
entitled following such adjustment to the number of votes equal to the number
of votes such holders were entitled to immediately prior to such adjustment
multiplied by a fraction (x) the numerator of which is the Series D Conversion
Rate as adjusted and (y) the denominator of which is the Series D Conversion
Rate immediately prior to such adjustment.
So long as any shares of New Time Warner Series D Preferred Stock shall be
outstanding, unless a greater percentage is required by law, New Time Warner
will not, without the affirmative vote at a meeting or the written consent
with or without a meeting of the holders of shares of New Time Warner Series D
Preferred Stock representing at least two-thirds of the aggregate voting power
of shares of New Time Warner Series D Preferred Stock then outstanding, (i)
authorize any class or series of stock ranking prior to the New Time Warner
Series D Preferred Stock and the parity stock or reclassify any parity stock
or junior stock into shares of stock ranking prior to the New Time Warner
Series D Preferred Stock, (ii) merge into or consolidate with any person where
the surviving or continuing corporation will have any authorized senior stock
(other than capital stock corresponding to shares of senior stock of New Time
Warner existing immediately before such merger or consolidation), or (iii)
amend, alter or repeal (by operation of law or otherwise) any provision of the
Certificate of Designations of New Time Warner Series D Preferred Stock or the
New Time Warner Charter so as in any such case to materially and adversely
affect the voting powers, designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of, the shares of New Time Warner Series D
Preferred Stock.
No consent of holders of the New Time Warner Series D Preferred Stock is
required for (i) the creation of any indebtedness of any kind of New Time
Warner, (ii) the authorization or issuance of any class of junior stock or
parity stock, (iii) in certain circumstances, the authorization, designation
or issuance of additional shares of New Time Warner Series D Preferred Stock
or (iv) subject to the immediately preceding paragraph, the authorization or
issuance of any other shares of New Time Warner Preferred Stock.
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If and whenever at any time or times dividends payable on shares of the New
Time Warner Series D Preferred Stock shall have been in arrears and unpaid in
an aggregate amount equal to or exceeding the amount
of dividends payable thereon for six quarterly dividend periods, then the
number of directors constituting the New Time Warner Board shall be increased
by two (without duplication of any such increase in directorships required by
the terms of any other New Time Warner Capital Stock which has similar rights)
and the holders of shares of the New Time Warner Series D Preferred Stock,
together with the holders of any shares of any parity stock as to which in
each case dividends are in arrears and unpaid in an aggregate amount equal to
or exceeding the amount of dividends payable thereon for six quarterly
dividend periods, shall have the exclusive right, voting separately as a class
with such other series, to elect two directors of New Time Warner.
NEW TIME WARNER SERIES E PREFERRED STOCK
General
The New Time Warner Series E Preferred Stock is identical to the Time Warner
Series E Preferred Stock, except for (a) the items described under "Comparison
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain
technical, immaterial changes (primarily giving precise dates for certain
matters rather than anniversaries of dates of issuance, changing the
definition of "Parity Stock" to include all the pari passu New Time Warner
Preferred Stock and changing the definition of "Junior Stock" to include the
LMC Series Common Stock).
Dividend Rights
Holders of New Time Warner Series E Preferred Stock will be entitled to the
same dividend rights as holders of New Time Warner Series D Preferred Stock
described in "--New Time Warner Series D Preferred Stock--Dividend Rights"
above, except that (i) all references to the date July 6, 1999, in "--New Time
Warner Series D Preferred Stock--Dividend Rights" shall instead apply to
November 30, 2000, (ii) all references to January 1, April 1, July 1 and
October 1 in "--New Time Warner Series D Preferred Stock--Dividend Rights"
shall instead apply to March 1, June 1, September 1 and December 1,
respectively, and (iii) dividends payable in respect of periods prior to
November 30, 2000, will be cumulative and will accrue on each share on a daily
basis, whether or not there are unrestricted funds legally available for the
payment of such dividends and whether or not declared.
Conversion Provisions
General. The New Time Warner Series E Preferred Stock shall be subject to
the same general conversion provisions as the New Time Warner Series D
Preferred Stock described in "--New Time Warner Series D Preferred Stock--
Conversion Provisions--General" above, except that the following two
paragraphs shall apply instead of the first and second paragraphs,
respectively, of "--New Time Warner Series D Preferred Stock--Conversion
Provisions--General."
Holders of New Time Warner Series E Preferred Stock shall have the right at
any time or, as to any share of New Time Warner Series E Preferred Stock
called for redemption or exchange, at any time prior to the close of business
on the date fixed for redemption or exchange (unless New Time Warner defaults
in the payment of the Series E Redemption Price (as defined below) or fails to
exchange the shares of New Time Warner Series E Preferred Stock for the
applicable number of shares of New Time Warner Common Stock and any cash
portion of the Series E Exchange Price (as defined) or exercises its right to
rescind such redemption, in which case such right shall not terminate at the
close of business on such date), to convert such share into (a) a number of
shares of New Time Warner Common Stock equal to 2.08264 shares of New Time
Warner Common Stock for each share of New Time Warner Series E Preferred
Stock, subject to appropriate adjustment in the event of a split or
combination of shares of New Time Warner Series E Preferred Stock and subject
to further adjustment as described herein (such rate, as so adjusted from time
to time, is herein called the "Series E Conversion Rate"; and the "Series E
Conversion Price" at any time shall mean the liquidation value per share of
New Time Warner
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Series E Preferred Stock divided by the Series E Conversion Rate in effect at
such time (rounded to the nearest one hundredth of a cent)) plus (b) if there
shall be any dividends on shares of New Time Warner Series E Preferred Stock
which shall be accrued and unpaid as of the immediately preceding Series E
Dividend Payment Date, a number of shares of New Time Warner Common Stock
equal to
(A) the aggregate amount of accrued and unpaid dividends on such share to
and including the most recent scheduled Series E Dividend Payment Date
(whether or not such dividends were declared and whether or not there are
unrestricted funds legally available for the payment thereof) (the "Series
E Accrued Dividend Amount") divided by
(B) the closing price of the New Time Warner Common Stock on the last
NYSE trading day prior to the Conversion Date.
New Time Warner may deliver cash equal to the Series E Accrued Dividend
Amount or any portion thereof in lieu of New Time Warner Common Stock. The
obligations of New Time Warner to issue the New Time Warner Common Stock (or
its option to make cash payments) upon the exercise of conversion rights is
absolute whether or not any accrued dividend by which such issuance (or
payment) is measured has been declared by the New Time Warner Board and
whether or not New Time Warner would have adequate surplus or net profits to
pay such dividend if declared or is otherwise restricted from paying such
dividend.
Adjustment of Series E Conversion Rate for Certain Actions or Events. The
Series E Conversion Rate will be adjusted from time to time in the same manner
and under the same circumstances as the Series D Conversion Rate described in
"--New Time Warner Series D Preferred Stock--Conversion Provisions--Adjustment
of Series D Conversion Rate for Certain Actions or Events" above, except that
the Series E Conversion Rate will also be adjusted from time to time as
follows:
If New Time Warner or any subsidiary thereof makes a Pro Rata Repurchase,
the Series E Conversion Rate in effect immediately prior to such action
shall be adjusted (but shall not be decreased) by multiplying such Series E
Conversion Rate by a fraction, the numerator of which shall be the product
of (i) the number of shares of New Time Warner Common Stock outstanding
immediately before such Pro Rata Repurchase minus the number of shares of
New Time Warner Common Stock repurchased by New Time Warner or any
subsidiary thereof in such Pro Rata Repurchase and (ii) the current market
price of the New Time Warner Common Stock as of the day immediately
preceding the first public announcement by New Time Warner of the intent to
effect such Pro Rata Repurchase, and the denominator of which shall be (i)
the product of (x) the number of shares of New Time Warner Common Stock
outstanding immediately before such Pro Rata Repurchase and (y) the current
market price of the New Time Warner Common Stock as of the day immediately
preceding the first public announcement by New Time Warner of the intent to
effect such Pro Rata Repurchase minus (ii) the aggregate purchase price of
the Pro Rata Repurchase (provided that such fraction shall never be less
than 1). Such adjustment shall become effective immediately after the
Effective Date of such Pro Rata Repurchase.
Adjustment of Series E Conversion Rate upon Consolidation, Merger or Sale of
Assets. Holders of New Time Warner Series E Preferred Stock will be entitled
to the same rights upon a consolidation, merger or sale of assets by New Time
Warner as the holders of New Time Warner Series D Preferred Stock described in
"--New Time Warner Series D Preferred Stock--Conversion Provisions--Adjustment
of Series D Conversion Rate upon Consolidation, Merger or Sale of Assets"
above.
Redemption or Exchange at New Time Warner's Option
New Time Warner may redeem or exchange the New Time Warner Series E
Preferred Stock in the same manner and under the same circumstances as it may
redeem or exchange the New Time Warner Series D Preferred Stock described in
"--New Time Warner Series D Preferred Stock--Redemption or Exchange at New
Time Warner's Option" above, except that (i) all references to July 6, 2000 or
July 6, 1999 shall instead apply to November 30, 2000, and (ii) dividends
which are in arrears need not be paid in cash.
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Liquidation Rights
Holders of New Time Warner Series E Preferred Stock will be entitled to the
same rights upon the dissolution, liquidation or winding up of New Time Warner
as the holders of New Time Warner Series D Preferred Stock described in "--New
Time Warner Series D Preferred Stock--Liquidation Rights" above.
Voting Rights
Holders of each share of New Time Warner Series E Preferred Stock will be
entitled to the same general voting rights as holders of each share of New
Time Warner Series D Preferred Stock described in "--New Time Warner Series D
Preferred Stock--Voting Rights" above.
NEW TIME WARNER SERIES F PREFERRED STOCK
General
The New Time Warner Series F Preferred Stock is identical to the Time Warner
Series F Preferred Stock, except for (a) the items described under "Comparison
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain
technical, immaterial changes (primarily giving precise dates for certain
matters rather than anniversaries of dates of issuance, changing the
definition of "Parity Stock" to include all the pari passu New Time Warner
Preferred Stock and changing the definition of "Junior Stock" to include the
LMC Series Common Stock).
Dividend Rights
Holders of New Time Warner Series F Preferred Stock will be entitled to the
same dividend rights as holders of New Time Warner Series D Preferred Stock
described in "--New Time Warner Series D Preferred Stock--Dividend Rights"
above, except that (i) all references to the date July 6, 1999, in "--New Time
Warner Series D Preferred Stock--Dividend Rights" shall instead apply to
November 30, 1999, (ii) all references to January 1, April 1, July 1 and
October 1 in "--New Time Warner Series D Preferred Stock--Dividend Rights"
shall instead apply to March 1, June 1, September 1 and December 1,
respectively, and (iii) dividends payable in respect of periods prior to
November 30, 1999, will be cumulative and will accrue on each share on a daily
basis, whether or not there are unrestricted funds legally available for the
payment of such dividends and whether or not declared.
Conversion Provisions
General. The New Time Warner Series F Preferred Stock shall be subject to
the same general conversion provisions as the New Time Warner Series D
Preferred Stock described in "--New Time Warner Series D Preferred Stock--
Conversion Provisions--General" above, except that the following two
paragraphs shall apply instead of the first and second paragraphs,
respectively, of "--New Time Warner Series D Preferred Stock--Conversion
Provisions--General."
Holders of New Time Warner Series F Preferred Stock shall have the right at
any time or, as to any share of New Time Warner Series F Preferred Stock
called for redemption or exchange, at any time prior to the close of business
on the date fixed for redemption or exchange (unless New Time Warner defaults
in the payment of the Series F Redemption Price (as defined below) or fails to
exchange the shares of New Time Warner Series F Preferred Stock for the
applicable number of shares of New Time Warner Common Stock and any cash
portion of the Series F Exchange Price (as defined) or exercises its right to
rescind such redemption, in which case such right shall not terminate at the
close of business on such date), to convert such share into (a) a number of
shares of New Time Warner Common Stock equal to 2.08264 shares of New Time
Warner Common Stock for each share of New Time Warner Series F Preferred
Stock, subject to appropriate adjustment in the event of a split or
combination of shares of New Time Warner Series F Preferred Stock and subject
to further adjustment as described herein (such rate, as so adjusted from time
to time, is herein called the "Series F Conversion Rate";
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and the "Series F Conversion Price" at any time shall mean the liquidation
value per share of New Time Warner Series F Preferred Stock divided by the
Series F Conversion Rate in effect at such time (rounded to the nearest one
hundredth of a cent)) plus (b) if there shall be any dividends on shares of
New Time Warner Series F Preferred Stock which shall be accrued and unpaid as
of the immediately preceding Series F Dividend Payment Date, a number of
shares of New Time Warner Common Stock equal to
(A) the aggregate amount of accrued and unpaid dividends on such share to
and including the most recent scheduled Series F Dividend Payment Date
(whether or not such dividends were declared and whether or not there are
unrestricted funds legally available for the payment thereof) (the "Series
F Accrued Dividend Amount") divided by
(B) the closing price of the New Time Warner Common Stock on the last
NYSE trading day prior to the Conversion Date.
New Time Warner may deliver cash equal to the Series F Accrued Dividend
Amount or any portion thereof in lieu of New Time Warner Common Stock. The
obligations of New Time Warner to issue the New Time Warner Common Stock (or
its option to make cash payments) upon the exercise of conversion rights is
absolute whether or not any accrued dividend by which such issuance (or
payment) is measured has been declared by the New Time Warner Board and
whether or not New Time Warner would have adequate surplus or net profits to
pay such dividend if declared or is otherwise restricted from paying such
dividend.
Adjustment of Series F Conversion Rate for Certain Actions or Events. The
Series F Conversion Rate will be adjusted from time to time in the same manner
and under the same circumstances as the Series D Conversion Rate described in
"--New Time Warner Series D Preferred Stock--Conversion Provisions--Adjustment
of Series D Conversion Rate for Certain Actions or Events" above, except that
the Series F Conversion Rate will also be adjusted from time to time as
follows
If New Time Warner or any subsidiary thereof makes a Pro Rata Repurchase,
the Series F Conversion Rate in effect immediately prior to such action
shall be adjusted (but shall not be decreased) by multiplying such Series F
Conversion Rate by a fraction, the numerator of which shall be the product
of (i) the number of shares of New Time Warner Common Stock outstanding
immediately before such Pro Rata Repurchase minus the number of shares of
New Time Warner Common Stock repurchased by New Time Warner or any
subsidiary thereof in such Pro Rata Repurchase and (ii) the current market
price of the New Time Warner Common Stock as of the day immediately
preceding the first public announcement by New Time Warner of the intent to
effect such Pro Rata Repurchase, and the denominator of which shall be (i)
the product of (x) the number of shares of New Time Warner Common Stock
outstanding immediately before such Pro Rata Repurchase and (y) the current
market price of the New Time Warner Common Stock as of the day immediately
preceding the first public announcement by New Time Warner of the intent to
effect such Pro Rata Repurchase minus (ii) the aggregate purchase price of
the Pro Rata Repurchase (provided that such fraction shall never be less
than 1). Such adjustment shall become effective immediately after the
Effective Date of such Pro Rata Repurchase.
Adjustment of Series F Conversion Rate upon Consolidation, Merger or Sale of
Assets. Holders of New Time Warner Series F Preferred Stock will be entitled
to the same rights upon a consolidation, merger or sale of assets by New Time
Warner as holders of New Time Warner Series D Preferred Stock described in "--
New Time Warner Series D Preferred Stock--Conversion Provisions--Adjustment of
Series D Conversion Rate upon Consolidation, Merger or Sale of Assets" above.
Redemption or Exchange at New Time Warner's Option
New Time Warner may redeem or exchange the New Time Warner Series F
Preferred Stock in the same manner and under the same circumstances as it may
redeem or exchange the New Time Warner Series D Preferred Stock described in
"--New Time Warner Series D Preferred Stock--Redemption or Exchange at New
Time Warner's Option" above, except that (i) all references to July 6, 2000
shall instead apply to November 30,
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2000, (ii) all references to July 6, 1999 shall instead apply to November 30,
1999, and (iii) dividends which are in arrears need not be paid in cash.
Liquidation Rights
Holders of New Time Warner Series F Preferred Stock will be entitled to the
same rights upon the dissolution, liquidation or winding up of New Time Warner
as the holders of New Time Warner Series D Preferred Stock described in "--New
Time Warner Series D Preferred Stock--Liquidation Rights" above.
Voting Rights
Holders of each share of New Time Warner Series F Preferred Stock will be
entitled to the same general voting rights as holders of each share of New
Time Warner Series D Preferred Stock described in "--New Time Warner Series D
Preferred Stock--Voting Rights" above.
NEW TIME WARNER SERIES G PREFERRED STOCK
General
The New Time Warner Series G Preferred Stock is identical to the Time Warner
Series G Preferred Stock, except for (a) the items described under "Comparison
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain
technical, immaterial changes (primarily giving precise dates for certain
matters rather than anniversaries of dates of issuance, changing the
definition of "Parity Stock" to include all the pari passu New Time Warner
Preferred Stock and changing the definition of "Junior Stock" to include the
LMC Series Common Stock).
Dividend Rights
Holders of New Time Warner Series G Preferred Stock will be entitled to the
same dividend rights as holders of New Time Warner Series D Preferred Stock
described in "--New Time Warner Series D Preferred Stock--Dividend Rights"
above, except that (i) all references to the date July 6, 1999, in "--New Time
Warner Series D Preferred Stock--Dividend Rights" shall instead apply to
September 5, 1999, and (ii) all references to January 1, April 1, July 1 and
October 1 in "--New Time Warner Series D Preferred Stock--Dividend Rights"
shall instead apply to March 1, June 1, September 1 and December 1,
respectively.
Conversion Provisions
The New Time Warner Series G Preferred Stock will be subject to the same
conversion provisions as the New Time Warner Series D Preferred Stock
described in "--New Time Warner Series D Preferred Stock--Conversion
Provisions" above.
Redemption or Exchange at New Time Warner's Option
New Time Warner may redeem or exchange the New Time Warner Series G
Preferred Stock in the same manner and under the same circumstances as it may
redeem or exchange the New Time Warner Series D Preferred Stock described in
"--New Time Warner Series D Preferred Stock--Redemption or Exchange at New
Time Warner's Option" above, except that all references to July 6, 2000 or
July 6, 1999 shall instead apply to September 5, 1999.
Pro Rata Repurchase
Holders of New Time Warner Series G Preferred Stock will be entitled to the
same rights, and New Time Warner and the New Time Warner Board will be subject
to the same obligations and restrictions, as those described in "--New Time
Warner Series D Preferred Stock--Pro Rata Repurchase" above.
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Liquidation Rights
Holders of New Time Warner Series G Preferred Stock will be entitled to the
same rights upon the dissolution, liquidation or winding up of New Time Warner
as the holders of New Time Warner Series D Preferred Stock described in "--New
Time Warner Series D Preferred Stock--Liquidation Rights" above.
Voting Rights
Holders of each share of New Time Warner Series G Preferred Stock will be
entitled to the same voting rights as holders of each share of New Time Warner
Series D Preferred Stock described in "--New Time Warner Series D Preferred
Stock--Voting Rights" above.
NEW TIME WARNER SERIES H PREFERRED STOCK
General
The New Time Warner Series H Preferred Stock is identical to the Series H
Convertible Preferred Stock, par value $1.00 per share, of Time Warner (the
"Time Warner Series H Preferred Stock"), except for (a) the items described
under "Comparison of Rights of Stockholders of New Time Warner and Time
Warner" and (b) certain technical, immaterial changes (primarily giving
precise dates for certain matters rather than anniversaries of dates of
issuance, changing the definition of "Parity Stock" to include all the pari
passu New Time Warner Preferred Stock and changing the definition of "Junior
Stock" to include the LMC Series Common Stock).
Dividend Rights
Holders of New Time Warner Series H Preferred Stock will be entitled to the
same dividend rights as holders of New Time Warner Series D Preferred Stock
described in "--New Time Warner Series D Preferred Stock--Dividend Rights"
above, except that (i) all references to the date July 6, 1999, in "--New Time
Warner Series D Preferred Stock--Dividend Rights" shall instead apply to
September 5, 1999, and (ii) all references to January 1, April 1, July 1 and
October 1 in "--New Time Warner Series D Preferred Stock--Dividend Rights"
shall instead apply to March 1, June 1, September 1 and December 1,
respectively.
Conversion Provisions
The New Time Warner Series H Preferred Stock shall be subject to the same
conversion provisions as the New Time Warner Series D Preferred Stock
described in "'--New Time Warner Series D Preferred Stock--Conversion
Provisions" above, except that holders of New Time Warner Series H Preferred
Stock shall only have the right to convert shares of New Time Warner Series H
Preferred Stock during the Conversion Period (as defined below).
The "Conversion Period" shall mean (i) the period commencing on September 5,
2000, and (ii) any period prior to September 5, 2000 (A) during which there
shall remain open (within the meaning of Rule 14e-1(a) under the Exchange Act)
a tender or exchange offer for 40% or more of the outstanding shares of New
Time Warner Common Stock; provided, however, that New Time Warner shall have
filed a Schedule 14D-9 with respect to such tender or exchange offer and such
tender or exchange offer shall not have been opposed by the New Time Warner
Board or (B) immediately prior to the effective time of any consolidation or
merger to which New Time Warner is a party, other than a merger or
consolidation in which New Time Warner is the surviving or continuing
corporation and which does not result in any reclassification of, or change
(other than a change in par value or as a result of a division or combination)
in outstanding shares of New Time Warner Common Stock.
Redemption or Exchange at New Time Warner's Option
New Time Warner may redeem or exchange the New Time Warner Series H
Preferred Stock in the same manner and under the same circumstances as it may
redeem or exchange the New Time Warner Series D Preferred Stock described in
"--New Time Warner Series D Preferred Stock--Redemption or Exchange at New
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Time Warner's Option" above, except that New Time Warner may only redeem or
exchange New Time Warner Series H Preferred Stock (a) as described in clause
(i) of the second paragraph of "--New Time Warner Series D Preferred Stock--
Redemption at New Time Warner's Option" on and after September 5, 1999, and
(b) as described in clause (ii) or (iii) of the same paragraph on or after
September 5, 2000.
Pro Rata Repurchase
Holders of New Time Warner Series H Preferred Stock will have the same
rights, and New Time Warner and the New Time Warner Board will be subject to
the same obligations and restrictions, as those described in "--New Time
Warner Series D Preferred Stock--Pro Rata Repurchase" above.
Liquidation Rights
Holders of New Time Warner Series H Preferred Stock will be entitled to the
same rights upon the dissolution, liquidation or winding up of New Time Warner
as the holders of New Time Warner Series D Preferred Stock described in "--New
Time Warner Series D Preferred Stock--Liquidation Rights" above.
Voting Rights
Holders of New Time Warner Series H Preferred Stock will have no voting
rights, except as required by law or with respect to certain limited
circumstances, including certain amendments to the terms of the New Time
Warner Series H Preferred Stock.
NEW TIME WARNER SERIES I PREFERRED STOCK
General
The New Time Warner Series I Preferred Stock is identical to the Time Warner
Series I Preferred Stock, except for (a) the items described under "Comparison
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain
technical, immaterial changes (primarily giving precise dates for certain
matters rather than anniversaries of dates of issuance, changing the
definition of "Parity Stock" to include all the pari passu New Time Warner
Preferred Stock and changing the definition of "Junior Stock" to include the
LMC Series Common Stock).
Dividend Rights
Holders of New Time Warner Series I Preferred Stock will be entitled to the
same dividend rights as holders of New Time Warner Series D Preferred Stock
described in "--New Time Warner Series D Preferred Stock--Dividend Rights"
above, except that (i) all references to the date July 6, 1999, in "--New Time
Warner Series D Preferred Stock--Dividend Rights" shall instead apply to
October 2, 1999, and (ii) all references to January 1, April 1, July 1 and
October 1 in "--New Time Warner Series D Preferred Stock--Dividend Rights"
shall instead apply to March 1, June 1, September 1, and December 1,
respectively.
Conversion Provisions
The New Time Warner Series I Preferred Stock shall be subject to the same
conversion provisions as the New Time Warner Series D Preferred Stock
described in "--New Time Warner Series D Preferred Stock--Conversion
Provisions" above.
Redemption or Exchange at New Time Warner's Option
New Time Warner may redeem or exchange the New Time Warner Series I
Preferred Stock in the same manner and under the same circumstances as it may
redeem or exchange the New Time Warner Series D Preferred Stock described in
"--New Time Warner Series D Preferred Stock--Redemption or Exchange at New
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Time Warner's Option" above, except that all references to July 6, 2000, and
July 6, 1999, shall instead apply to October 2, 1999.
Pro Rata Repurchase
Holders of New Time Warner Series I Preferred Stock will be entitled to the
same rights, and New Time Warner and the New Time Warner Board will be subject
to the same obligations and restrictions, as those described in "--New Time
Warner Series D Preferred Stock--Pro Rata Repurchase" above.
Liquidation Rights
Holders of New Time Warner Series I Preferred Stock will be entitled to the
same rights upon the dissolution, liquidation or winding up of New Time Warner
as the holders of New Time Warner Series D Preferred Stock described in "--New
Time Warner Series D Preferred Stock--Liquidation Rights" above.
Voting Rights
Holders of each share of New Time Warner Series I Preferred Stock will be
entitled to the same general voting rights as holders of each share of New
Time Warner Series D Preferred Stock described in "--New Time Warner Series D
Preferred Stock--Voting Rights" above.
NEW TIME WARNER SERIES J PREFERRED STOCK
General
The New Time Warner Series J Preferred Stock is identical to the Time Warner
Series J Preferred Stock, except for (a) the items described under "Comparison
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain
technical, immaterial changes (primarily giving precise dates for certain
matters rather than anniversaries of dates of issuance, changing the
definition of "Parity Stock" to include all the pari passu New Time Warner
Preferred Stock and changing the definition of "Junior Stock" to include the
LMC Series Common Stock).
Dividend Rights
Holders of New Time Warner Series J Preferred Stock will be entitled to
receive quarter-annual dividends, as and when declared by the New Time Warner
Board out of funds legally available for payments in the amount per share of
New Time Warner Series J Preferred Stock equal to (i) in the case of each
Series J Dividend Payment Date (as defined below) occurring on or before May
2, 2000, the greater of (A) $.9375 (which is equivalent to $3.75 per annum)
per $100 in liquidation value, and (B) the product of (1) the Series J
Conversion Rate (as defined below) and (2) the aggregate per share amount of
regularly scheduled dividends paid in cash on the New Time Warner Common Stock
during the period from but excluding the immediately preceding Series J
Dividend Payment Date to and including such Series J Dividend Payment Date and
(ii) in the case of each Series J Dividend Payment Date occurring thereafter,
the product of (1) the Series J Conversion Rate and (2) the aggregate per
share amount of regularly scheduled dividends paid in cash on the New Time
Warner Common Stock during the period from but excluding the immediately
preceding Series J Dividend Payment Date to and including such Series J
Dividend Payment Date. Dividends on New Time Warner Series J Preferred Stock
will be payable in cash on or about February 1, May 1, August 1 and November 1
of each year, as fixed by the New Time Warner Board of Directors, or such
other dates as are fixed by the New Time Warner Board (provided that May 2,
2000, shall be a Series J Dividend Payment Date) (each a "Series J Dividend
Payment Date"), to the holders of record on or about the 15th day of the month
next preceding such February 1, May 1, August 1 and November 1 (or immediately
preceding May 2, 2000, as the case may be,) as fixed by the New Time Warner
Board, or such other dates as are fixed by the New Time Warner Board (each a
"Series J Record Date"). Dividends payable in respect of periods prior to May
2, 2000, will be cumulative and will accrue on each share on a day-to-day
basis, whether or not declared. Any such dividends that become payable for any
partial dividend
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period shall be computed on the basis of the actual days elapsed in such
period; provided, however, that the dividend payable on the first Series J
Dividend Payment Date shall be computed as if the period in respect of which
such dividend is payable commenced on the date of payment of the last dividend
paid on the Time Warner Series J Preferred Stock. From and after May 2, 2000,
dividends on the New Time Warner Series J Preferred Stock shall accrue to the
extent, but only to the extent, that regularly scheduled cash dividends are
declared by the New Time Warner Board on the New Time Warner Common Stock with
a payment date after May 2, 2000 (or, in the case of shares of New Time Warner
Series J Preferred Stock originally issued after May 2, 2000, after the Series
J Dividend Payment Date next preceding such date of original issuance).
So long as any New Time Warner Series J Preferred Stock is outstanding, New
Time Warner may not declare or pay any dividend on the New Time Warner Common
Stock or other stock ranking as to the right to receive dividends or to
participate in any distribution of assets other than by way of dividends
junior to or on a parity with the New Time Warner Series J Preferred Stock
(other than a dividend payable in New Time Warner Common Stock or other junior
stock), nor may New Time Warner or any of its subsidiaries purchase or redeem
New Time Warner Common Stock or any other stock ranking as to the right to
receive dividends or to participate in any distribution of assets other than
by way of dividends junior to or on a parity with the New Time Warner Series J
Preferred Stock (except by conversion into or exchange for, or out of the net
cash proceeds from the concurrent sale of, stock of New Time Warner ranking
junior to the New Time Warner Series J Preferred Stock as to dividends and
other distributions), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund therefor, unless all dividends on the New
Time Warner Series J Preferred Stock and any other New Time Warner Capital
Stock ranking as to dividends on a parity with the New Time Warner Series J
Preferred Stock that shall have accrued and be payable as of any date shall
have been paid, or declared and funds set apart for payment thereof; provided,
however, that nothing herein shall prevent New Time Warner from completing the
purchase of New Time Warner Series J Preferred Stock, parity stock or junior
stock for which a purchase contract was entered into, or the notice of
redemption of which was originally published, prior to the date on which any
such dividends were first required to be paid. Should dividends not be paid in
full on any outstanding New Time Warner Series J Preferred Stock or any other
New Time Warner Capital Stock ranking as to dividends on a parity with the New
Time Warner Series J Preferred Stock, all dividends declared on the New Time
Warner Series J Preferred Stock and any other New Time Warner Capital Stock
ranking as to dividends on a parity with the New Time Warner Series J
Preferred Stock will be declared pro rata, so that the amount of dividends
declared per share of New Time Warner Series J Preferred Stock and such other
New Time Warner Capital Stock will bear to each other the same ratio that
accrued dividends per share on the shares of each series of New Time Warner
Series J Preferred Stock and such other New Time Warner Capital Stock bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on New Time Warner Series J
Preferred Stock which may be in arrears. The New Time Warner Series J
Preferred Stock will rank on a parity with the New Time Warner Series D
Preferred Stock, the New Time Warner Series E Preferred Stock, the New Time
Warner Series F Preferred Stock, the New Time Warner Series G Preferred Stock,
the New Time Warner Series H Preferred Stock, the New Time Warner Series I
Preferred Stock and the New Time Warner Series K Preferred Stock and will rank
senior to the New Time Warner Common Stock and the LMC Series Common Stock
and, if issued, the New Time Warner Series A Preferred Stock.
If New Time Warner distributes (other than a distribution in liquidation of
New Time Warner) to all holders of New Time Warner Common Stock any assets or
property, including evidences of indebtedness or securities, of New Time
Warner or cash (excluding regularly scheduled cash dividends payable on shares
of New Time Warner Common Stock) or if New Time Warner distributes (other than
a distribution in liquidation of New Time Warner) rights, options or warrants
to subscribe for or purchase any securities, assets or property (in each case,
whether of New Time Warner or otherwise, but other than any distribution of
rights to purchase securities of New Time Warner if the holder of New Time
Warner Series J Preferred Stock would otherwise be entitled to receive such
rights upon conversion of shares of New Time Warner Series J Preferred Stock
for New Time Warner Common Stock; provided, however, that if such rights are
subsequently redeemed by New Time Warner, such redemption will be treated for
purposes of the provisions described in this paragraph as a cash dividend on
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the New Time Warner Common Stock), New Time Warner must simultaneously
distribute such assets, property, securities, rights, options or warrants pro
rata to the holders of New Time Warner Series J Preferred Stock in an amount
equal to the amount that such holders would have been entitled to receive had
their shares of New Time Warner Series J Preferred Stock been converted into
New Time Warner Common Stock immediately prior to the applicable record date.
If a distribution is made to the holders of New Time Warner Series J
Preferred Stock in accordance with the provisions described in the immediately
preceding paragraph, no adjustment to the Series J Conversion Rate shall be
effected by reason of the distribution of such assets, property, securities,
rights, options or warrants or the subsequent modification, exercise,
expiration or termination of such securities, rights, options or warrants. If
holders of New Time Warner Common Stock are entitled to make any election with
respect to the kind or amount of securities or other property receivable by
them in any such distribution, the kind and amount of securities or other
property that shall be distributable to the holders of the New Time Warner
Series J Preferred Stock shall be based on (a) the election, if any, made by
the record holder (as of the date used for determining the holders of New Time
Warner Common Stock entitled to make such election) of the largest number of
shares of New Time Warner Series J Preferred Stock in writing to New Time
Warner on or prior to the last date on which a holder of New Time Warner
Common Stock may make such an election and (b) if no such election is timely
made, an assumption that such holder failed to exercise any such rights
(provided that if the kind or amount of securities or other property is not
the same for each nonelecting holder, then the kind and amount of securities
or other property receivable by holders of New Time Warner Series J Preferred
Stock shall be based on the kind or amount of securities or other property
receivable by a plurality of the shares held by the nonelecting holders of New
Time Warner Common Stock).
Conversion Provisions
General. Holders of New Time Warner Series J Preferred Stock shall have the
right at any time or, as to any share of New Time Warner Series J Preferred
Stock called for redemption or exchange, at any time prior to the close of
business on the date fixed for redemption or exchange (unless New Time Warner
defaults in the payment of the Series J Redemption Price (as defined below) or
fails to exchange the shares of New Time Warner Series J Preferred Stock for
the applicable number of shares of New Time Warner Common Stock and any
applicable cash amount, or exercises its right to rescind such redemption or
exchange, in which case such right shall not terminate at the close of
business on such date), to convert such share into a number of shares of New
Time Warner Common Stock equal to 2.08264 shares of New Time Warner Common
Stock for each share of New Time Warner Series J Preferred Stock, subject to
adjustment as described herein (such rate, as so adjusted from time to time,
is herein called the "Series J Conversion Rate;" and the "Series J Conversion
Price" at any time shall mean the liquidation value per share of New Time
Warner Series J Preferred Stock divided by the Series J Conversion Rate in
effect at such time (rounded to the nearest one hundredth of a cent)).
If any shares of New Time Warner Series J Preferred Stock are surrendered
for conversion subsequent to the Series J Record Date immediately preceding a
Series J Dividend Payment Date but on or prior to such Series J Dividend
Payment Date (except shares called for redemption or exchange on a redemption
date or exchange date between such Series J Record Date and Series J Dividend
Payment Date and with respect to which such redemption or exchange has not
been rescinded), the registered holder of such shares at the close of business
on such Series J Record Date shall be entitled to receive the dividend, if
any, payable on such shares on such Series J Dividend Payment Date
notwithstanding the conversion thereof. Shares of New Time Warner Series J
Preferred Stock surrendered for conversion during the period from the close of
business on any Series J Record Date next preceding any Series J Dividend
Payment Date to the opening of business on such Series J Dividend Payment Date
shall (except in the case of shares which have been called for redemption or
exchange on a redemption date or exchange date within such period and with
respect to which such redemption or exchange has not been rescinded) be
accompanied by payment of an amount equal to the dividend payable on such
Series J Dividend Payment Date on the shares being surrendered for conversion.
Except as described herein, no adjustments in respect of payments of dividends
on shares surrendered for conversion or any dividend on the New Time Warner
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Common Stock issued upon conversion will be made upon the conversion of any
shares of New Time Warner Series J Preferred Stock.
New Time Warner may, but is not required to, in connection with any
conversion of shares of New Time Warner Series J Preferred Stock, issue a
fraction of a share of New Time Warner Common Stock, and if New
Time Warner does not to issue any such fraction, New Time Warner shall, except
as described below, make a cash payment (rounded to the nearest cent) equal to
such fraction multiplied by the closing price of the New Time Warner Common
Stock on the last NYSE trading day prior to the date of conversion.
Conversion of shares of New Time Warner Series J Preferred Stock will be
deemed to have been made as of the date that certificates for such shares, and
a written notice of election to convert and any required payment, are received
by the transfer agent or agents for the New Time Warner Series J Preferred
Stock; and the person entitled to receive the New Time Warner Common Stock
issuable upon such conversion will be treated for all purposes as the record
holder of such New Time Warner Common Stock on such date. If New Time Warner
has rescinded a redemption or exchange of shares of New Time Warner Series J
Preferred Stock, any holder of shares of New Time Warner Series J Preferred
Stock that shall have surrendered such shares for conversion following the day
on which notice of the subsequently rescinded redemption or exchange shall
have been given but prior to the close of business on the later of (a) the
NYSE trading day next succeeding the date on which public announcement of the
rescission of such redemption or exchange was made and (b) the NYSE trading
day on which the notice of rescission is deemed given (a "Converting Holder")
may rescind the conversion of such shares surrendered for conversion by
properly completing a form prescribed by New Time Warner and mailed to holders
of shares of the New Time Warner Series J Preferred Stock (including
Converting Holders) with New Time Warner's notice of rescission delivering
such form to New Time Warner no later than the close of business on that date
that is 15 NYSE trading days following the date of mailing of New Time
Warner's notice of rescission.
If any shares of New Time Warner Common Stock which would be issuable upon
conversion of shares of the New Time Warner Series J Preferred Stock require
registration with or approval of any governmental authority before such shares
may be issued upon conversion, New Time Warner is required to cause such
shares to be duly registered or approved, as the case may be, and to endeavor
to list the shares of (or depositary shares representing fractional interests
in) New Time Warner Common Stock required to be delivered upon conversion of
shares of the New Time Warner Series J Preferred Stock prior to such delivery
upon the principal national securities exchange upon which the outstanding New
Time Warner Common Stock is listed at the time of such delivery.
New Time Warner is required to pay any and all issue or other taxes that may
be payable in respect of any issue or delivery of shares of New Time Warner
Common Stock on conversion of shares of the New Time Warner Series J Preferred
Stock. New Time Warner is not, however, required to pay any tax which is
payable in respect of any transfer involved in the issue or delivery of New
Time Warner Common Stock in a name other than that in which the shares of the
New Time Warner Series J Preferred Stock so converted were registered, and no
such issue or delivery is permitted unless and until the person requesting
such issue has paid to New Time Warner the amount of such tax, or has
established, to the satisfaction of New Time Warner, that such tax has been
paid.
Adjustment of Series J Conversion Rate for Certain Actions or Events. The
Series J Conversion Rate will be adjusted from time to time as follows:
(a) In case New Time Warner (i) pays a dividend in shares of New Time
Warner Common Stock, (ii) combines the outstanding shares of New Time
Warner Common Stock into a smaller number of shares, (iii) subdivides the
outstanding shares of New Time Warner Common Stock or (iv) issues by
reclassification of the shares of New Time Warner Common Stock any shares
of New Time Warner Capital Stock, then the Series J Conversion Rate in
effect immediately before such action will be adjusted so that the holders
of New Time Warner Series J Preferred Stock will be entitled to receive
upon conversion the kind and amount
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of shares of capital stock of New Time Warner which they would have owned
or been entitled to receive upon or by reason of such event if such shares
had been converted immediately before the record date (or, if no record
date, the effective date) for such event. Any such adjustment will become
effective retroactively immediately after the record date in the case of a
dividend or distribution and will become effective retroactively
immediately after the effective date in the case of a subdivision,
combination or reclassification. Each holder of New Time Warner Series J
Preferred Stock 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, then the kind and amount of securities 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) If New Time Warner issues rights or warrants to all holders of shares
of New Time Warner Common Stock entitling them (for a period expiring
within 45 days after the record date for such issuance) to subscribe for or
purchase shares of New Time Warner Common Stock (or securities convertible
into shares of New Time Warner Common Stock) at a price per share less than
the current market price of the New Time Warner Common Stock at such record
date (treating the price per share of the securities convertible into New
Time Warner Common Stock as equal to (x) the sum of (i) the price for a
unit of the security convertible into New Time Warner Common Stock plus
(ii) any additional consideration initially payable upon the conversion of
such security into New Time Warner Common Stock divided by (y) the number
of shares of New Time Warner Common Stock initially underlying such
convertible security), the Series J Conversion Rate shall be adjusted so
that it shall equal the rate determined by multiplying the Series J
Conversion Rate 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 New Time Warner Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
New Time Warner Common Stock 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 New Time Warner
Common Stock outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total
number of shares 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
into New Time Warner Common Stock) would purchase at such current market
price of the New Time Warner Common Stock. Such adjustment shall become
effective retroactively immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
(c) If New Time Warner distributes to all holders of shares of New Time
Warner Common Stock (including any such distribution made in connection
with a consolidation or merger in which New Time Warner is the continuing
corporation and the New Time Warner Common Stock is not changed or
exchanged) cash, evidences of its indebtedness, securities or assets
(excluding (i) regularly scheduled cash dividends or (ii) dividends payable
in shares of New Time Warner Common Stock for which adjustment is made
under the second preceding paragraph) or rights or warrants to subscribe
for or purchase securities of New Time Warner, then in each such case the
Series J Conversion Rate shall be adjusted so that it shall equal the rate
determined by multiplying the Series J Conversion Rate 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 New Time Warner
Common Stock on the record date referred to below, and the denominator of
which shall be such current market price of the New Time Warner Common
Stock less the then fair market value 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 New Time Warner
Common Stock (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 New Time Warner if the
holder of shares of New Time Warner Series J Preferred Stock would
otherwise be entitled to receive such rights upon conversion at any time of
shares of New Time Warner Series J Preferred Stock into New Time Warner
Common Stock unless
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such rights are subsequently redeemed by New Time Warner, in which case
such redemption shall be treated for purposes of this Section as a dividend
on the New Time Warner Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective retroactively
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(d) If New Time Warner or any subsidiary thereof makes a Pro Rata
Repurchase (as defined below), the Series J Conversion Rate in effect
immediately prior to such action shall be adjusted (but shall not be
decreased) by multiplying such Series J Conversion Rate by a fraction, the
numerator of which shall be the product of (i) the number of shares of New
Time Warner Common Stock outstanding immediately before such Pro Rata
Repurchase minus the number of shares of New Time Warner Common Stock
repurchased by New Time Warner or any subsidiary thereof in such Pro Rata
Repurchase and (ii) the current market price of the New Time Warner Common
Stock as of the day immediately preceding the first public announcement by
New Time Warner of the intent to effect such Pro Rata Repurchase, and the
denominator of which shall be (i) the product of (x) the number of shares
of New Time Warner Common Stock outstanding immediately before such Pro
Rata Repurchase and (y) the current market price of the New Time Warner
Common Stock as of the day immediately preceding the first public
announcement by New Time Warner of the intent to effect such Pro Rata
Repurchase minus (ii) the aggregate purchase price of the Pro Rata
Repurchase (provided that such denominator shall never be less than one).
Such adjustment shall become effective immediately after the effective date
of such Pro Rata Repurchase. For purposes of the New Time Warner Series J
Preferred Stock, "Pro Rata Repurchase" means the purchase of shares of New
Time Warner Common Stock by New Time Warner or by any of its subsidiaries,
which purchase is subject to Section 13(e) of the Exchange Act or is made
pursuant to an offer made available to all holders of New Time Warner
Common Stock, but excluding any purchase made in open market transactions
that satisfies the conditions of clause (b) of Rule 10b-18 under the
Exchange Act or has been designed (as reasonably determined by the New Time
Warner Board or a committee thereof) to prevent such purchase from having a
material effect on the trading market of the Common Stock. The "effective
date" of a Pro Rata Repurchase means the applicable expiration date
(including all extensions thereof) of any tender or exchange offer which is
a Pro Rata Repurchase or the date of purchase with respect to any Pro Rata
Repurchase which is not a tender or exchange offer. The "current market
price" of the New Time Warner Common Stock, as used with respect to the New
Time Warner Series J Preferred Stock, on any date shall mean the average of
the daily closing prices per share of the New Time Warner Common Stock for
the five consecutive NYSE trading days ending on the NYSE trading day
immediately preceding the applicable conversion, redemption or exchange
date.
(e) New Time Warner is entitled to make such additional adjustments in
the Series J Conversion Rate, in addition to those described above in
paragraphs (a), (b), (c) and (d) as are necessary in order that any
dividend or distribution in New Time Warner Common Stock or any
subdivision, reclassification or combination of shares of New Time Warner
Common Stock referred to above, will not be taxable to the holders of New
Time Warner Common Stock for United States Federal income tax purposes, so
long as such additional adjustments do not decrease the Series J Conversion
Rate.
(f) New Time Warner may elect to defer (but only for five trading days
following the occurrence of an event which necessitates adjustment of the
Series J Conversion Rate) issuing to the holder of any shares of New Time
Warner Series J Preferred Stock converted after such record date (i) the
shares of New Time Warner Common Stock and other capital stock of New Time
Warner issuable upon such conversion over and above (ii) the shares of New
Time Warner Common Stock and other capital stock of New Time Warner
issuable upon such conversion on the basis of the Series J Conversion Rate
prior to adjustment; provided, however, that New Time Warner must 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.
(g) No adjustment will be made to the Series J Conversion Rate (i) if the
effect thereof would be to reduce the Series J Conversion Price below the
par value of the New Time Warner Common Stock or
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(ii) subject to paragraph (e) above, with respect to any share of New Time
Warner Series J Preferred Stock that is converted, prior to the time such
adjustment otherwise would be made.
Adjustment of Series J Conversion Rate upon Consolidation, Merger or Sale of
Assets. If
(a) any consolidation or merger to which New Time Warner is a party,
other than a merger or consolidation in which New Time Warner is the
surviving or continuing corporation and which does not result in any
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, or as a result
of a subdivision or combination) in, outstanding shares of New Time Warner
Common Stock, occurs; or
(b) any sale or conveyance of all or substantially all of the property
and assets of New Time Warner occurs,
then each share of New Time Warner Series J Preferred Stock outstanding after
the date of such consolidation, merger, sale or conveyance shall be
convertible from and after such consolidation, merger, sale or conveyance into
the kind and amount of shares of stock or other securities and property
receivable upon such consolidation, merger, sale or conveyance by a holder of
the number of shares of New Time Warner Common Stock into which such share
could have been converted immediately prior to such consolidation, merger,
sale or conveyance, subject to adjustment which shall be as nearly equivalent
as may be practicable to the adjustments described herein. New Time Warner
will not enter into any of the transactions referred to in clause (a) or (b)
of the immediately preceding paragraph unless effective provision shall be
made so as to give effect to the provisions set forth in the immediately
preceding paragraph. The provisions of this paragraph shall apply similarly to
successive consolidations, mergers, sales or conveyances.
Redemption or Exchange at New Time Warner's Option
General. New Time Warner may, at its sole option from time to time on and
after May 2, 2000, redeem, out of funds legally available therefor, or
exchange, as provided below, shares of New Time Warner Common Stock for, all
or any part of the outstanding shares of the New Time Warner Series J
Preferred Stock. The redemption or exchange price for each such share called
for redemption or exchange pursuant to clause (i) of the immediately
succeeding paragraph shall be the liquidation value together with an amount
equal to the accrued and unpaid dividends to the date fixed for redemption or
exchange (hereinafter collectively referred to as the "Series J Redemption
Price").
On the date fixed for redemption or exchange of shares of New Time Warner
Series J Preferred Stock, New Time Warner will, at its option, effect either
(i) (A) a redemption of the shares of New Time Warner Series J
Preferred Stock to be redeemed by way of payment, out of funds legally
available therefor, of cash equal to the aggregate Series J Redemption
Price for the shares then being redeemed, (B) an exchange of the shares
of New Time Warner Series J Preferred Stock being exchanged for shares
of New Time Warner Common Stock the aggregate current market price of
which shall be equal to the aggregate Series J Redemption Price of the
shares then being exchanged (provided that New Time Warner will be
entitled to deliver cash in lieu of any fractional share of New Time
Warner Common Stock or (C) any combination of a cash redemption and an
exchange with respect to the shares of New Time Warner Series J
Preferred Stock called for redemption or exchange; provided, however,
that the Corporation may not redeem or exchange any shares of New Time
Warner Series J Preferred Stock pursuant to this clause (i) unless the
closing price of the New Time Warner Common Stock shall have equalled
or exceeded 125% of the Series J Conversion Price for at least twenty
NYSE trading days within thirty consecutive NYSE trading days ending
within fifteen NYSE trading days prior to the date notice of redemption
is given; or
(ii) an exchange of the shares of New Time Warner Series J Preferred
Stock for shares of New Time Warner Common Stock at a rate of exchange
per $100 in liquidation value of New Time Warner
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Series J Preferred Stock equal to the Series J Conversion Rate
(provided that New Time Warner will be entitled to deliver cash in lieu
of any fractional share of New Time Warner Common Stock; provided,
however, that New Time Warner may not exchange any shares of New Time
Warner Series J Preferred Stock pursuant to this clause (ii) unless all
dividends with respect to such shares accrued through the Series J
Dividend Payment Date immediately prior to the date fixed for such
exchange shall have been declared and paid. Except as provided in the
proviso in the previous sentence, upon
receipt of shares of New Time Warner Common Stock in exchange for
shares of New Time Warner Series J Preferred Stock being exchanged
pursuant to this clause (ii), the holders of such shares of New Time
Warner Series J Preferred Stock shall not be entitled to any accrued
and unpaid dividends to the date fixed for exchange.
In the event that fewer than all the outstanding shares of the New Time
Warner Series J Preferred Stock are to be redeemed or exchanged, the number of
shares to be redeemed or exchanged from each holder of shares of New Time
Warner Series J Preferred Stock shall be determined by New Time Warner by lot
or pro rata or by any other method as may be determined by the New Time Warner
Board.
Notice of any proposed redemption or exchange may be given by New Time
Warner by mailing a copy of such notice not less than 15 nor more than 60 days
prior to the date fixed for redemption or exchange, to the record holder of
the shares to be redeemed or exchanged, at their addresses as reported on the
books of New Time Warner.
All dividends on the shares so called for redemption or exchange shall cease
to accrue and all rights of the holders thereof as stockholders of New Time
Warner with respect to shares so called for redemption or exchange (except (i)
in the case of redemption, the right to receive the Series J Redemption Price
without interest and, in the case of exchange, the right to receive the shares
of New Time Warner Common Stock and cash, if any, exchanged therefor and (ii)
the right to convert such shares as described above under "--Conversion
Provisions" above) shall terminate (including any right to receive dividends
otherwise payable on any Series J Dividend Payment Date that would have
occurred after the time and date of redemption or exchange) either in the case
of a redemption or exchange, from and after the time and date fixed in the
notice of redemption or exchange as the time and date of redemption or
exchange (unless New Time Warner shall (x) in the case of a redemption,
default in the payment of the Series J Redemption Price, (y) in the case of an
exchange, fail to exchange the shares of New Time Warner Series J Preferred
Stock for the applicable number of shares of New Time Warner Common Stock and
any applicable cash amount or (z) exercise its right to rescind such
redemption or exchange, in which case such rights shall not terminate at such
time and date) or, if New Time Warner shall so elect and state in the notice
of redemption or exchange, from and after the time and date (which date shall
be the date of redemption or exchange or an earlier date not less than 15 days
after the date of mailing of the redemption or exchange notice) on which New
Time Warner shall irrevocably deposit with a designated bank or trust company
designated as paying agent, money sufficient to pay at the office of such
paying agent, on the redemption date, the Series J Redemption Price, in the
case of redemption, or certificates representing the shares of New Time Warner
Common Stock to be so exchanged and any applicable cash amount, in the case of
an exchange. Subject to applicable escheat laws, any moneys or certificates so
set aside by New Time Warner and unclaimed at the end of one year from the
redemption date will revert to the general funds of New Time Warner, after
which reversion the holders of such shares so called for redemption or
exchange may look only to New Time Warner for the payment of the Series J
Redemption Price or the Series J Exchange Price, as applicable, without
interest. Any interest accrued on funds so deposited shall be paid to New Time
Warner from time to time.
The New Time Warner Series J Preferred Stock will also be subject to
redemption at the option of New Time Warner pursuant to Section 5 of Article
IV of the New Time Warner Charter.
Right to Rescind Redemption. If a Redemption Rescission Event (as defined
below) shall occur following any day on which a notice of redemption or
exchange shall have been given but at or prior to the earlier of (a) the time
and date fixed for redemption or exchange as set forth in such notice of
redemption or exchange and (b) the time and date at which New Time Warner
shall have irrevocably deposited funds or certificates with a
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designated bank or trust company, New Time Warner may, at its sole option, at
any time prior to the earliest of (i) the close of business on that day which
is two NYSE trading days following such Redemption Rescission Event, (ii) the
time and date fixed for redemption or exchange as set forth in such notice and
(iii) the time and date on which New Time Warner shall have irrevocably
deposited such funds or certificates with a designated bank or trust company,
rescind the redemption or exchange to which such notice of redemption or
exchange shall have related by making a public announcement of such
rescission. From and after the making of such announcement, New Time Warner
shall have no obligation to redeem or exchange shares of New Time Warner
Series J Preferred Stock called for redemption or exchange pursuant to such
notice of redemption or exchange or to pay the redemption price or exchange
price therefor and all rights of holders of New Time Warner Series J Preferred
Stock shall be restored as if such notice of redemption or exchange had not
been given. New Time Warner will give notice of any such rescission as
promptly as practicable, but in no event later than the close of business on
that date which is five NYSE trading days following the date of public
announcement of such rescission to each record holder of shares of New Time
Warner Series J Preferred Stock at the close of business on such date and to
any other person or entity that was a record holder of shares of New Time
Warner Series J Preferred Stock and that shall have surrendered shares of New
Time Warner Series J Preferred Stock for conversion following the giving of
notice of the subsequently rescinded redemption or exchange. For purposes of
the New Time Warner Series J Preferred Stock, a "Redemption Rescission Event"
means 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 New Time Warner Common Stock are registered and
listed for trading (or, if shares of New Time Warner Common Stock are not
registered and listed for trading on any such exchange, in the over-the-
counter market) for more than six-and-one-half 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 NYSE
trading day to the close of business on the next succeeding NYSE trading day
during the period commencing on the NYSE trading day preceding the day notice
of any redemption or exchange of shares is given (or, if such notice is given
after the close of business on a NYSE trading day, commencing on such NYSE
trading day) and ending at the earlier of (x) the time and date fixed for
redemption or exchange in such notice and (y) the time and date at which New
Time Warner shall have irrevocably deposited funds or certificates with a
designated bank or trust company or (ii) an amount in excess of 15% (or, if
the time and date fixed for redemption or exchange is more than 15 days
following the date on which notice of redemption or exchange is given, 20%),
measured from the close of business on the NYSE trading day preceding the day
notice of such redemption or exchange is given (or, if such notice is given
after the close of business on a NYSE trading day, from such NYSE trading day)
to the close of business on any NYSE trading day on or prior to the earlier of
the dates specified in clauses (x) and (y) above, (c) a declaration of a
banking moratorium or any suspension of payments in respect of banks by
Federal or state 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
New Time Warner could have a material adverse effect on the market for the New
Time Warner Common Stock.
Liquidation Rights
Upon the dissolution, liquidation or winding up of New Time Warner, whether
voluntary or involuntary, holders of shares of New Time Warner Series J
Preferred Stock shall be entitled to receive out of the assets of New Time
Warner available for distribution to stockholders, in preference to the
holders of, and before any payment or distribution shall be made on, junior
stock, the liquidation value in respect of such share, plus an amount equal to
all accrued and unpaid dividends to the date of final distribution. The
liquidation value applicable to shares of New Time Warner Series J Preferred
Stock shall initially be $100 per share, subject to adjustment from time to
time to appropriately give effect to any split or combination of such share.
In the event the assets of New Time Warner available for distribution to the
holders of New Time Warner Series J Preferred Stock upon any dissolution,
liquidation or winding up of New Time Warner, whether voluntary or
involuntary, are insufficient to pay in full all amounts to which such holders
are entitled, no such distribution may be made on account of any shares of any
parity stock upon such dissolution, liquidation or winding up unless
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proportionate distributive amounts shall be paid on account of shares of the
New Time Warner Series J Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all parity stock are entitled upon
such dissolution, liquidation or winding up.
Voting Rights
Each share of New Time Warner Series J Preferred Stock will be entitled to
vote together with holders of the shares of New Time Warner Common Stock (and
any other class or series which may similarly be entitled to vote with the
shares of New Time Warner Common Stock) as a single class upon all matters
upon which holders of New Time Warner Common Stock are entitled to vote. In
any such vote, the holder of such share shall be entitled to two votes per
$100 in liquidation value of such share, subject to adjustment at the same
time and in the same manner as each adjustment of the Series J Conversion
Rate, so that the holders of New Time Warner Series J Preferred Stock shall be
entitled following such adjustment to the number of votes equal to the number
of votes such holders were entitled to immediately prior to such adjustment
multiplied by a fraction (x) the numerator of which is the Series J Conversion
Rate as adjusted and (y) the denominator of which is the Series J Conversion
Rate immediately prior to such adjustment.
So long as any shares of New Time Warner Series J Preferred Stock shall be
outstanding, unless a greater percentage is required by law, New Time Warner
will not, without the affirmative vote at a meeting or the written consent
with or without a meeting of the holders of shares of New Time Warner Series J
Preferred Stock representing at least two-thirds of the aggregate voting power
of shares of New Time Warner Series J Preferred Stock then outstanding, (i)
authorize any class or series of stock ranking prior to the New Time Warner
Series J Preferred Stock or reclassify any parity stock or junior stock into
shares of stock ranking prior to the New Time Warner Series J Preferred Stock,
(ii) amend, alter or repeal any provision of the Certificate of Designations
of New Time Warner Series J Preferred Stock or the New Time Warner Certificate
of Incorporation so as in any such case to materially and adversely affect the
preferences, special rights, powers or privileges of the shares of New Time
Warner Series J Preferred Stock.
No consent of holders of the New Time Warner Series J Preferred Stock is
required for (i) the creation of any indebtedness of any kind of New Time
Warner, (ii) the authorization or issuance of any class of junior stock or
parity stock, (iii) in certain circumstances, the authorization, designation
or issuance of additional shares of New Time Warner Series J Preferred Stock
or (iv) subject to the immediately preceding paragraph, the authorization or
issuance of any other shares of New Time Warner Preferred Stock.
If and whenever at any time or times dividends payable on shares of the New
Time Warner Series J Preferred Stock shall have been in arrears and unpaid in
an aggregate amount equal to or exceeding the amount of dividends payable
thereon for six quarterly dividend periods, then the number of directors
constituting the New Time Warner Board shall be increased by two (without
duplication of any such increase in directorships required by the terms of any
other New Time Warner Capital Stock which has similar rights) and the holders
of shares of the New Time Warner Series J Preferred Stock, together with the
holders of any shares of any parity stock as to which in each case dividends
are in arrears and unpaid in an aggregate amount equal to or exceeding the
amount of dividends payable thereon for six quarterly dividend periods, shall
have the exclusive right, voting separately as a class with such other series,
to elect two directors of New Time Warner.
NEW TIME WARNER SERIES M PREFERRED STOCK
General
The New Time Warner Series M Preferred Stock is identical to the 10 1/4%
Series M Exchangeable Preferred Stock, par value $1.00 per share, of Time
Warner (the "Time Warner Series M Preferred Stock"), except for (a) the items
described under "Comparison of Rights of Stockholders of New Time Warner and
Time Warner" and (b) certain technical, immaterial changes (primarily giving
precise dates for certain matters rather than anniversaries of dates of
issuance, changing the definition of "Parity Stock" to include all the pari
passu New
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Time Warner Preferred Stock and changing the definition of "Junior Stock" to
include the LMC Series Common Stock). The Time Warner Series M Preferred Stock
is being issued to the holders of Time Warner Series K Preferred Stock in a
registered exchange offer. Holders of shares of Time Warner Series M Preferred
Stock, if any, and holders of shares of Time Warner Series K Preferred Stock,
if any, will receive shares of New Time Warner Series M Preferred Stock in the
Time Warner Merger.
Dividend Rights
Holders of New Time Warner Series M Preferred Stock are entitled, when, as
and if declared by the New Time Warner Board out of funds legally available
therefor, to receive dividends on each outstanding share of New Time Warner
Series M Preferred Stock, at the rate of 10 1/4% per annum. Dividends on the
New Time Warner Series M Preferred Stock are payable quarterly in arrears on
March 30, June 30, September 30 and December 30 of each year (each a "Series M
Dividend Payment Date"), to holders of record of the New Time Warner Series M
Preferred Stock on March 10, June 10, September 10 and December 10,
respectively (each a "Series M Record Date"), immediately preceding such
Series M Dividend Payment Date; provided, however, that the dividend payable
on the first Series M Dividend Payment Date shall be computed as if the period
in respect of which such dividend is payable commenced on the date of payment
of the last dividend paid on the Time Warner Series M Preferred Stock or the
Time Warner Series K Preferred Stock, as applicable, and no payments will be
made by Time Warner with respect to the Time Warner Series M Preferred Stock
or the Time Warner Series K Preferred Stock, as applicable, for the dividend
period ending on the first Series M Dividend Payment Date. Dividends on the
New Time Warner Series M Preferred Stock will be cumulative (whether or not
earned or declared) and dividends that are not declared and paid when due will
compound quarterly on each Series M Dividend Payment Date at the dividend rate
until payment is made.
Dividends may, at the option of New Time Warner, be paid on any Series M
Dividend Payment Date either in cash or by issuing fully paid and
nonassessable shares of New Time Warner Series M Preferred Stock with an
aggregate liquidation preference equal to the amount of such dividends;
provided, however, that dividends payable on any Series M Dividend Payment
Date shall be paid (i) in cash, to the extent of an amount equal to the Pro
Rata Percentage as of the Series M Record Date applicable to the immediately
preceding Series M Dividend Payment Date, multiplied by the amount of cash
distributions, excluding Tax Distributions other than Included Tax
Distributions, if any, received by New Time Warner (and its subsidiaries) on
or after the Series M Record Date applicable to the immediately preceding
Series M Dividend Payment Date, to, but not including, the current Series M
Record Date with respect to its TWE Series B Capital and TWE Junior Capital
and (ii) in New Time Warner Series M Preferred Stock or cash, at New Time
Warner's option, to the extent of any balance.
No dividends may be declared or paid or set apart for payment on New Time
Warner Series M Preferred Stock or any other Parity Stock, and no Parity
Stock, including the New Time Warner Series M Preferred Stock, may be
repurchased, exchanged, redeemed or otherwise retired by New Time Warner, nor
may funds be set apart for payment with respect thereto, unless full
cumulative dividends shall have been paid or set apart for such payment on,
and all applicable redemption, exchange and repurchase obligations shall have
been satisfied with respect to, all outstanding shares of New Time Warner
Series M Preferred Stock and such other Parity Stock; provided that dividends
may be paid on Parity Stock if they are payable in Junior Stock; and provided
further that Parity Stock may be converted into or exchanged for Parity Stock
(having the same liquidation preference) or Junior Stock. If full dividends
are not so paid, the New Time Warner Series M Preferred Stock will share
dividends with all other Parity Stock so that the amount of dividends declared
per share on the New Time Warner Series M Preferred Stock and all such other
Parity Stock will in all cases bear the same ratio that cumulative dividends
per share on the New Time Warner Series M Preferred Stock and all such other
Parity Stock bear to each other. No dividends may be paid or set apart for
such payment on Junior Stock, and no Junior Stock may be repurchased,
exchanged, redeemed or otherwise retired nor may funds be set apart for
payment with respect thereto, if full cumulative dividends have not been paid
on the New Time Warner Series M Preferred Stock or any applicable redemption,
exchange and repurchase obligation has not been satisfied with respect to all
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outstanding shares of New Time Warner Series M Preferred Stock; provided that
dividends or distributions may be made on Junior Stock if they are payable-in-
kind in additional shares of, or warrants, rights, calls or options
exercisable for or convertible into additional shares of Junior Stock; and
provided further that Junior Stock may be converted into or exchanged for
Junior Stock. In addition, in the event that there shall have occurred certain
events of default in connection with New Time Warner's debt, New Time Warner
will not declare or pay or make any distributions on or with respect to, or
purchase, redeem or exchange any New Time Warner Capital Stock, except where
such dividend or payment is made in the form of, or such exchange is for, New
Time Warner Capital Stock.
Optional Redemption
The New Time Warner Series M Preferred Stock may not be redeemed at the
option of New Time Warner prior to July 1, 2006. Thereafter, the New Time
Warner Series M Preferred Stock will be redeemable at New Time Warner's
option, in whole or in part, at any time and from time to time upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to the
registered address of each holder of the New Time Warner Series M Preferred
Stock as of the record date for such redemption. The redemption price for each
share of New Time Warner Series M Preferred Stock called for redemption during
the 12-month period commencing on July 1 of the years set forth below shall be
the amounts (expressed as percentages of the liquidation preference thereof)
set forth opposite such years, plus accrued and unpaid dividends to the
redemption date.
<TABLE>
<CAPTION>
PERCENTAGE OF
LIQUIDATION
PERIOD PREFERENCE
------ ------------- ---
<S> <C>
2006.................................................... 105.125%
2007.................................................... 103.844
2008.................................................... 102.563
2009.................................................... 101.281
2010 and thereafter..................................... 100.000
</TABLE>
No optional redemption shall be effected unless New Time Warner shall have
obtained a Rating Confirmation with respect to such redemption.
Mandatory Redemption
On July 1 of 2012, 2013, 2014 and 2015 (each, a "Series M Mandatory
Redemption Date"), New Time Warner is required to redeem the Redeemable Number
of shares of New Time Warner Series M Preferred Stock at the Mandatory
Redemption Price.
On July 1, 2016 (the "Final Redemption Date"), New Time Warner is required
to redeem all of the then outstanding shares of New Time Warner Series M
Preferred Stock at the lesser of the Mandatory Redemption Amount and the
Mandatory Redemption Price; provided that if New Time Warner does not obtain a
TWE Valuation within 150 days following the final Series B Redemption date or
if the TWE Series B Capital has been fully redeemed in accordance with the TWE
Partnership Agreement, New Time Warner shall redeem the New Time Warner Series
M Preferred Stock at the Mandatory Redemption Price.
Upon the redemption of New Time Warner Series M Preferred Stock on the Final
Redemption Date, New Time Warner's obligations with respect thereto will be
discharged, and if such redemption is effected at the Mandatory Redemption
Amount, holders of shares of New Time Warner Series M Preferred Stock may have
received less than the liquidation preference thereof plus accumulated and
accrued and unpaid dividends thereon. New Time Warner's obligation to redeem
the New Time Warner Series K Preferred Stock is subject to the legal
availability at New Time Warner of funds therefor.
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Redemption Upon Insolvency of TWE
In the event of a liquidation, winding up or dissolution of TWE as a result
of the insolvency of TWE, the New Time Warner Series M Preferred Stock will be
mandatorily redeemable at the Insolvency Redemption
Amount. Upon such a redemption of New Time Warner Series M Preferred Stock,
New Time Warner's obligation with respect thereto will be discharged and
holders of New Time Warner Series M Preferred Stock may have received less
than the liquidation preference thereof plus accrued and unpaid dividends
thereon. New Time Warner's obligations to redeem the New Time Warner Series M
Preferred Stock upon an insolvency of TWE is subject to the legal availability
at New Time Warner of funds therefor.
Reorganization of TWE
Upon a Reorganization of TWE, New Time Warner will, within 90 days, make a
public announcement that it intends to either (i) exchange each outstanding
share of New Time Warner Series M Preferred Stock for shares of New Time
Warner Series L Preferred Stock having an aggregate liquidation preference
equal to the liquidation preference of such share of New Time Warner Series M
Preferred Stock plus accrued and unpaid dividends thereon at the date of
exchange or (ii) redeem the outstanding shares of New Time Warner Series M
Preferred Stock at the Reorganization Redemption Price; provided, however,
that no such redemption shall be effected prior to July 1, 2011 unless New
Time Warner shall have obtained a Rating Confirmation with respect to such
redemption. New Time Warner's ability to effect such redemption is subject to
the legal availability at New Time Warner of funds therefor.
Change of Control
Upon the occurrence of a Series M Change of Control, New Time Warner will
make an offer to each holder of New Time Warner Series M Preferred Stock to
repurchase all or any part of such holder's New Time Warner Series M Preferred
Stock at a purchase price in cash equal to 101% of the liquidation preference
thereof, plus an amount equal to all accrued and unpaid dividends per share to
the date of purchase. Such offer must be made within 30 days following a
Series M Change of Control, must remain open for at least 30 and not more than
40 days and must comply with the requirements of Rule 14e-1 under the Exchange
Act and any other applicable securities laws and regulations. New Time
Warner's obligation to offer to purchase the New Time Warner Series M
Preferred Stock is subject to the legal availability at New Time Warner of
funds therefor.
Procedure for Redemption or Exchange
On and after a redemption or exchange date, unless New Time Warner defaults
in the payment of the applicable redemption price or exchange obligations,
dividends will cease to accrue on shares of New Time Warner Series M Preferred
Stock called for redemption or exchange and all rights of holders of such
shares will terminate except for the right to receive the redemption price or
New Time Warner Series L Preferred Stock, as the case may be, without
interest. New Time Warner will send a written notice of redemption by first
class mail to each holder of record of shares of New Time Warner Series M
Preferred Stock, not fewer than 30 days nor more than 60 days prior to the
date fixed for such redemption.
In the event of partial redemptions of New Time Warner Series M Preferred
Stock, the shares to be redeemed will be determined pro rata or by lot, as
determined by New Time Warner, except that New Time Warner may redeem such
shares held by any holder of fewer than 100 shares (or shares held by holders
who would hold less than 100 shares as a result of such redemption), as may be
determined by New Time Warner.
Liquidation Preference
In the event of any liquidation, winding-up or dissolution of New Time
Warner, holders of New Time Warner Series M Preferred Stock will be entitled
to their pro rata portion of the assets of New Time Warner
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available for distribution to holders of Parity Stock up to the liquidation
preference of the New Time Warner Series M Preferred Stock, plus accrued and
unpaid dividends, before any distribution is made on any Junior Stock,
including, without limitation, on any New Time Warner Common Stock. If upon
any liquidation, winding-up or dissolution of New Time Warner, the amounts
payable with respect to the New Time Warner Series M Preferred Stock and the
other Parity Stock are not paid in full, the holders of the New Time Warner
Series M Preferred Stock and the other Parity Stock will share equally and
ratably in any distribution of assets of New Time Warner in proportion to the
full liquidation preference to which each is entitled. After payment of the
full amount of the liquidation preferences to which they are entitled, the
holders of shares of New Time Warner Series M Preferred Stock will not be
entitled to any further participation in any distribution of assets of New
Time Warner. Neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially
all of the property or assets of New Time Warner nor the consolidation or
merger of New Time Warner with one or more corporations will be deemed to be a
liquidation, winding-up or dissolution of New Time Warner.
Voting Rights
Holders of the New Time Warner Series M Preferred Stock will have no voting
rights with respect to general corporate matters except as provided by law or
as set forth in the Certificate of Designation therefor. The Certificate of
Designation for the New Time Warner Series M Preferred Stock provides that
upon a failure of New Time Warner to (a) pay dividends on the New Time Warner
Series M Preferred Stock in cash or, to the extent permitted by its terms, by
the issuance of additional shares of New Time Warner Series M Preferred Stock,
for more than six consecutive quarterly dividend periods or (b) discharge any
redemption or exchange obligation with respect to the New Time Warner Series M
Preferred Stock, the size of the New Time Warner Board will be increased by
two directors, and holders of the outstanding shares of New Time Warner Series
M Preferred Stock, voting or consenting, as the case may be, together as a
class with the holders of any shares of Parity Stock as to which dividends are
similarly in arrears or unpaid or New Time Warner's redemption or exchange
obligation has not been satisfied, and to which similar voting rights apply,
will be entitled to elect two directors to fill the newly created
directorships. Such voting rights will continue until such time as all
dividends in arrears on the New Time Warner Series M Preferred Stock are paid
in full and any failure, breach or default referred to in clause (b) is
remedied, at which time the term of the directors elected pursuant to the
provisions of this paragraph will terminate. Any vacancy occurring in the
office of the directors elected by holders of the New Time Warner Series M
Preferred Stock (and such other Parity Stock) may be filled by the remaining
director elected by such holders unless and until such vacancy shall be filled
by such holders.
The Certificate of Designation for the New Time Warner Series M Preferred
Stock will also provide that New Time Warner will not create, authorize or
issue any new class of New Time Warner Capital Stock senior to the New Time
Warner Series M Preferred Stock without the affirmative vote or consent of
holders of at least a majority of the outstanding shares of New Time Warner
Series M Preferred Stock, voting or consenting, as the case may be, separately
as one class. The Certificate of Designation for the New Time Warner Series M
Preferred Stock will also provide that New Time Warner may not amend such
Certificate of Designation or the New Time Warner Charter so as to affect
adversely the specified rights, preferences, privileges or voting rights of
holders of shares of the New Time Warner Series M Preferred Stock, without the
affirmative vote or consent of the holders of at least a majority of the
outstanding shares of New Time Warner Series M Preferred Stock, voting or
consenting, as the case may be, separately as one class. The holders of at
least a majority of the outstanding shares of New Time Warner Series M
Preferred Stock, voting or consenting, as the case may be, separately as one
class, may also waive compliance with any provision of such Certificate of
Designation. The Certificate of Designation for the New Time Warner Series M
Preferred Stock will also provide that, except as set forth above, (a) the
creation, authorization or issuance of any shares of Junior Stock or Parity
Stock or (b) the increase or decrease in the amount of authorized New Time
Warner Capital Stock of any class, including any New Time Warner Preferred
Stock, shall not require the consent of the holders of New Time Warner Series
M Preferred Stock, voting or consenting separately as one class, and shall not
be deemed to affect adversely the rights, preferences, privileges or voting
rights of holders of shares of New Time Warner Series M Preferred Stock.
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Under Delaware law, holders of New Time Warner Series M Preferred Stock will
be entitled to vote together as a class with holders of any shares of New Time
Warner Preferred Stock upon a proposed amendment to the New Time Warner
Charter, whether or not entitled to vote thereon by the New Time Warner
Charter, if the amendment would increase or decrease the par value of the
shares of such class or alter or change the powers, preferences or special
rights of the shares of such class so as to affect them adversely. If any
proposed amendment would alter or change the powers, preferences or special
rights of one or more series of any class so as to affect them adversely, but
shall not so affect the entire class, then only the shares of the series so
affected by such amendment will be entitled to vote thereon separately as one
class.
Certain Definitions
As used in this description of the New Time Warner Series M Preferred Stock,
the following terms have the meanings set forth below:
"Contributed Capital" means the initial priority capital and residual equity
amounts that were assigned to the partners in TWE based on the estimated fair
value of the net assets each contributed to TWE, as adjusted for the fair
value of certain assets distributed by TWE to the Time Warner General Partners
in 1993 which were not subsequently reacquired by TWE in 1995.
"Cumulative Priority Capital" means the sum of Contributed Capital and the
undistributed priority capital return. The priority capital return consists of
net partnership income allocated to date in accordance with the provisions of
the TWE Partnership Agreement and the right to be allocated additional
partnership income which, together with any previously allocated net
partnership income, provides for the various priority capital rates of return
specified in the following table:
<TABLE>
<CAPTION>
PRIORITY CAPITAL
RATES OF RETURN(A)
------------------
(% PER ANNUM
COMPOUNDED
QUARTERLY)
<S> <C>
TWE Senior Capital........................................ 8.00%
TWE Series A Capital...................................... 13.00%(b)
TWE Series B Capital...................................... 13.25%(c)
TWE Residual Capital...................................... -- (d)
</TABLE>
- --------
(a) Income allocations related to priority capital rates of return are based
on partnership income after any special income allocations for tax
purposes.
(b) 11.00% to the extent concurrently distributed.
(c) 11.25% to the extent concurrently distributed.
(d) TWE Residual Capital is not entitled to stated priority rates of return
and, as such, the Cumulative Priority Capital relating thereto is equal to
the Contributed Capital. However, in the case of certain events such as
the liquidation or dissolution of TWE, the TWE Residual Capital is
entitled to any excess of the then fair value of the net assets of TWE
over the aggregate amount of Cumulative Priority Capital and special tax
allocations.
"Included Tax Distributions" means, with respect to any period, Tax
Distributions made by TWE during such period with respect to the TWE Series B
Capital, but only if the total distributions made by TWE during such period
with respect to the TWE Series B Capital exceed such Tax Distributions.
"Insolvency Redemption Amount" means an amount equal to the lesser of (i)
the sum of (a) the Pro Rata Percentage multiplied by the sum of cash
distributions and non-cash distributions (the value of which shall be
determined pursuant to a TWE Insolvency Valuation) received by New Time Warner
(and its subsidiaries) with respect to its TWE Series B Capital and its TWE
Junior Capital in connection with such liquidation, winding-up or dissolution,
in accordance with the TWE Partnership Agreement and (b) an amount equal to
dividends on the
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outstanding shares of New Time Warner Series M Preferred Stock for four
quarters and one day and (ii) the liquidation preference of New Time Warner
Series M Preferred Stock plus accumulated and accrued and unpaid dividends
thereon.
"Junior Stock" means New Time Warner Common Stock, New Time Warner Series A
Preferred Stock, LMC Series Common Stock and all classes of New Time Warner
Capital Stock established after the initial issuance of New Time Warner Series
M Preferred Stock by the New Time Warner Board that by their terms are junior
in right of payment to the Parity Stock.
"Mandatory Redemption Amount" means an amount equal to (i) the Pro Rata
Percentage (determined as of June 30, 2015 without giving effect to the Series
B Redemption occurring on such date) multiplied by the amount (as determined
by a TWE Valuation) that New Time Warner (and its subsidiaries) would have
received in accordance with the TWE Partnership Agreement with respect to its
TWE Series B Capital and its TWE Junior Capital had TWE sold all of its assets
and liquidated on June 30, 2015 plus (ii) dividends on the outstanding shares
of Series M Preferred Stock from July 1, 2015 to July 1, 2016.
"Mandatory Redemption Price" means a redemption price equal to the
liquidation preference of the New Time Warner Series M Preferred Stock to be
redeemed, plus accumulated and accrued and unpaid dividends thereon.
"Parity Stock" means the New Time Warner Series D Preferred Stock, New Time
Warner Series E Preferred Stock, New Time Warner Series F Preferred Stock, New
Time Warner Series G Preferred Stock, New Time Warner Series H Preferred
Stock, New Time Warner Series I Preferred Stock, New Time Warner Series J
Preferred Stock, New Time Warner Series M Preferred Stock and all classes of
New Time Warner Capital Stock established after the initial issuance of Time
Warner Series M Preferred Stock that by their terms are pari passu with the
New Time Warner Series M Preferred Stock.
"Pro Rata Percentage" means, as of any date, a fraction, the numerator of
which shall be the aggregate liquidation preference of the outstanding shares
of New Time Warner Series M Preferred Stock, as of such date, plus accumulated
and unpaid dividends thereon, and the denominator of which shall be the
Cumulative Priority Capital of the TWE Series B Capital as of such date. In
calculating the Pro Rata Percentage in connection with the final mandatory
redemption or upon the insolvency of TWE, the Cumulative Priority Capital of
the TWE Series B Capital shall be increased by the sum of all Tax
Distributions (other than Included Tax Distributions) made by TWE to Time
Warner or New Time Warner (and their respective subsidiaries) following the
initial issuance of the Time Warner Series K Preferred Stock with respect to
the TWE Series B Capital.
"Rating Confirmation" means either (i) a confirmation from each of Moody's
Investors Service, Inc. or any successor to its rating agency business
("Moody's") and Standard and Poor's Corporation or any successor to its rating
agency business ("S&P") that any contemplated redemption or exchange by New
Time Warner would not result in a downgrade of its rating of New Time Warner
senior unsecured long-term debt or (ii) a good faith determination by the New
Time Warner Board or any committee thereof (after consultation with a
nationally recognized investment banking firm meeting certain requirements)
that any contemplated redemption or exchange by New Time Warner should not
result in a downgrade in the rating of New Time Warner's senior unsecured
long-term debt by either Moody's or S&P.
"Redeemable Number" means, with respect to any Series M Mandatory Redemption
Date, a number (rounded down to the nearest whole number) of shares of New
Time Warner Series M Preferred Stock equal to (i) the Pro Rata Percentage
(determined as of the June 30 occurring one year and one day prior to such
Series M Mandatory Redemption Date without giving effect to the Series B
Redemption occurring on such date) of the amount of (a) cash distributions
received by Time Warner (and its subsidiaries) or New Time Warner (and its
subsidiaries), as the case may be, in respect of the Series B Redemption
occurring on such June 30 plus (b) cash distributions received by Time Warner
or New Time Warner in respect of its TWE Junior Capital from such June 30 to
such Series M Mandatory Redemption Date, divided by (ii) the liquidation
preference of $1,000 per
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share plus accumulated and accrued and unpaid dividends thereon; provided,
however, that in no event shall the Redeemable Number exceed 20%, 25%, 33 1/3%
and 50% of the number of shares of New Time Warner Series M Preferred Stock
outstanding on the Series M Mandatory Redemption Dates occurring on July 1 of
2012, 2013, 2014 and 2015, respectively.
"Reorganization of TWE" means (i) any merger or consolidation of TWE or any
sale of all or substantially all of the assets of TWE, (ii) the liquidation,
winding up or dissolution of TWE other than as a result of the insolvency of
TWE, (iii) the making of any distributions, in cash or other property (other
than cash distributions in accordance with the TWE Partnership Agreement), on
the partnership interests in TWE from and after the date of initial issuance
of the Time Warner Series K Preferred Stock having an aggregate fair market
value (together with any such prior distributions) in excess of $500,000,000
as determined by the New Time Warner Board in good faith, (iv) any transaction
or series of related transactions which results in a sale or transfer of 10%
or more of the total assets of TWE (excluding asset swaps and contributions to
subsidiaries or joint ventures, other than joint ventures with any existing
partner of TWE that is not a subsidiary of New Time Warner) unless such sale
or transfer is made at fair market value, the net proceeds of such sale or
transfer are substantially in cash and such cash is used to repay debt or is
reinvested in the business of TWE, (v) any transfer of the beneficial
ownership of a class of partnership interests in TWE that would result in New
Time Warner (directly or indirectly) owning (after giving effect to any
reductions permitted by clause (a) or (b)) less than 90% or more than 110% of
its percentage ownership interests in any class as of the date of initial
issuance of the Time Warner Series K Preferred Stock, other than any change
resulting from (a) cash distributions in accordance with the TWE Partnership
Agreement or (b) the issuance of partnership interests upon exercise of the U
S WEST Option, (vi) any material reduction in voting or management rights of
New Time Warner (and its subsidiaries) in TWE, (vii) any issuance of
additional partnership interests which rank senior to the TWE Series B Capital
(other than (a) the TWE Contingent Capital, (b) partnership interests issued
upon exercise of the U S WEST Option or (c) partnership interests having a
fair market value (together with any such prior issuances) no greater than
$500,000,000, as determined by the New Time Warner Board in good faith, issued
in connection with any contribution of assets to TWE), it being understood
that allocations of income or accretion with respect to the capital accounts
associated with the outstanding partnership interests shall not be considered
issuances of additional partnership interests in TWE, (viii) any amendment
(other than an amendment to effectuate an issuance permitted by clause
(vii)(c) above) to the TWE Partnership Agreement that adversely affects the
allocation of income, payment of distributions, priority capital rate of
return or the priority of the TWE Series B Capital or (ix) the six month
anniversary of a contribution to TWE of filmed entertainment or programming
assets currently owned or subject to an agreement to be acquired by New Time
Warner or any of its subsidiaries (other than TWE) net of associated debt, the
fair market value of which is in excess of $1 billion, which does not
otherwise result in the occurrence of an event specified in (i) through (ix)
above.
"Reorganization Redemption Price" means 110% of the liquidation preference
of the New Time Warner Series M Preferred Stock, plus accumulated and accrued
and unpaid dividends, or, if the New Time Warner Series M Preferred Stock may
be redeemed at the option of New Time Warner at such time, the optional
redemption price then in effect.
"Series B Redemption" means the distributions with respect to the TWE Series
B Capital on June 30 of each of 2011, 2012, 2013, 2014 and 2015.
"Series M Change of Control" means:
(i) whenever in any three-year period, a majority of the members of the
New Time Warner Board elected during such three-year period shall have been
so elected against the recommendation of the management of New Time Warner
or the New Time Warner Board in office immediately prior to such election;
provided, however, that for purposes of this clause (i) a member of the New
Time Warner Board will be deemed to have been elected against the
recommendation of the New Time Warner Board if his or her initial election
occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the New Time Warner Board;
or
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(ii) whenever any person shall acquire (whether by merger, consolidation,
sale, assignment, lease, transfer or otherwise, in one transaction or any
related series of transactions) or otherwise beneficially own voting
securities of New Time Warner that represent in excess of 50% of the voting
power of all outstanding voting securities of New Time Warner generally
entitled to vote for the election of directors, if such person had acquired
or publicly announced its intention to initially acquire ten percent or
more of such voting securities in a transaction that had not been approved
by the management of New Time Warner within 30 days after the date of such
acquisitions or public announcement.
"Tax Distributions" means cash distributions to Time Warner (and its
subsidiaries) or New Time Warner (and its subsidiaries), as the case may be,
required to be made under the TWE Partnership Agreement to the partners of TWE
to permit them to pay taxes at assumed statutory rates on their allocations of
income from TWE.
"TWE Contingent Capital" means increased partnership interests in TWE, which
generally would be junior to the TWE Series B Capital but senior to the TWE
Residual Capital, to which the Time Warner General Partners would be entitled
if certain operating performance targets are achieved by TWE with respect to
the five-year period ending December 31, 1996 and the ten-year period ending
December 31, 2001.
"TWE Insolvency Valuation" means the average of the determinations of two
nationally recognized investment banking firms meeting certain requirements
with respect to the fair market values of any non-cash distributions from TWE
received by New Time Warner (and its subsidiaries) upon a liquidation, winding
up or distribution of TWE as a result of the insolvency of TWE. Such
investment banking firms shall be selected by New Time Warner within 30 days
following the date of the completion of the liquidation, winding up or
dissolution of TWE and shall render their opinions within 90 days following
such date. For purposes of the foregoing, (i) the fair market value of such
non-cash distributions shall be based on the price at which such property
would be sold in an arm's length transaction between a willing buyer and a
willing seller, and to the extent such property comprises an operating
business, it shall be valued on a going concern basis and (ii) such value
shall be increased by the sum of all Tax Distributions other than Included Tax
Distributions made by TWE following the initial issuance of the Time Warner
Series K Preferred Stock with respect to the TWE Series B Capital.
"TWE Residual Capital" means the residual equity partnership interests in
TWE that, in the case of certain events such as the liquidation or dissolution
of TWE, are entitled to any excess of the then fair value of the net assets of
TWE over the aggregate amount of Cumulative Priority Capital and special tax
allocations.
"TWE Senior Capital" means the senior priority capital interests in TWE that
provide Time Warner with certain priority claims to the net partnership income
of TWE and distributions of TWE partnership capital, including certain
priority distributions of partnership capital in the event of liquidation or
dissolution of TWE.
"TWE Series A Capital" means the pro rata priority capital interests in TWE
that provide Time Warner and U S WEST with certain priority claims to the net
partnership income of TWE and distributions of TWE partnership capital,
including certain priority distributions of partnership capital in the event
of liquidation or dissolution of TWE.
"TWE Series B Capital" means the priority capital interests in TWE that are
junior to the TWE Series A Capital and provide Time Warner with certain
priority claims to the net partnership income of TWE and distributions of TWE
partnership capital, including certain priority distributions of partnership
capital in the event of liquidation or dissolution of TWE.
"TWE Valuation" means the average of the determinations of two nationally
recognized investment banking firms meeting certain requirements with respect
to the fair market values of the assets of TWE as of June 30, 2015 (without
giving effect to the Series B Redemption or any distribution in respect of TWE
Junior Capital occurring on such date). Such investment banking firms shall be
selected by New Time Warner within 90 days following the final Series B
Redemption date and shall render their opinions within 150 days following the
final Series B Redemption date. For purposes of the foregoing, (i) the fair
market value of the assets of TWE shall be determined on a going concern
basis, assuming that each division of TWE is sold in a separate arm's length
transaction between a willing buyer and a willing seller and (ii) such value
shall be increased by the sum of all Tax Distributions (other than Included
Tax Distributions) made by TWE following the initial issuance of the Time
Warner Series K Preferred Stock with respect to the TWE Series B Capital.
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"U S WEST Option" means an option for U S WEST to increase its share of the
TWE Series A Capital and the TWE Residual Capital by up to 6.33%, depending on
the operating performance of TWE's cable business, exercisable between January
1, 1999 and on or about May 1, 2005 at a maximum exercise price of $1.25
billion to $1.8 billion, depending on the year of exercise.
NEW TIME WARNER SERIES L PREFERRED STOCK
The provisions of the New Time Warner Series L Preferred Stock are
substantially similar to those of the New Time Warner Series M Preferred
Stock, except as set forth below. See "--New Time Warner Series M Preferred
Stock." The definitions of certain capitalized terms used in the following
summary are used as defined under "--New Time Warner Series M Preferred Stock"
above.
Dividends
Holders of the New Time Warner Series L Preferred Stock are entitled, when,
as and if declared by the New Time Warner Board out of funds legally available
therefor, to receive dividends on each outstanding share of New Time Warner
Series L Preferred Stock, at the rate of 10 1/4% per annum. Dividends on New
Time Warner Series L Preferred Stock are payable quarterly in arrears on each
Series M Dividend Payment Date, commencing on the first Series M Dividend
Payment Date following the exchange of the New Time Warner Series M Preferred
Stock for the New Time Warner Series L Preferred Stock to holders of record as
of the immediately preceding March 15, June 15, September 15 and December 15,
respectively. Dividends on the New Time Warner Series L Preferred Stock will
be cumulative (whether or not earned or declared) and dividends which are not
declared and paid when due will compound quarterly on each Series M Dividend
Payment Date at the dividend rate until payment is made.
Until June 30, 2006, dividends payable on any Series M Dividend Payment Date
may, at the option of New Time Warner, be paid either in cash or by issuing
fully paid and nonassessable shares of New Time Warner Series L Preferred
Stock with an aggregate liquidation preference equal to the amount of such
dividends. Thereafter, dividends are payable only in cash.
Mandatory Redemption
New Time Warner is required to redeem the outstanding shares of New Time
Warner Series L Preferred Stock on July 1, 2011 at a price equal to the
liquidation preference thereof plus accrued and unpaid dividends thereon. New
Time Warner's obligation to redeem the New Time Warner Series L Preferred
Stock is subject to the legal availability at New Time Warner of funds
therefor.
Exchange at Option of New Time Warner
New Time Warner has the option on any Series M Dividend Payment Date to
exchange, in whole but not in part, outstanding shares of New Time Warner
Series L Preferred Stock for 10 1/4% Senior Subordinated Debentures due 2011
(the "Series L Debentures") having a principal amount equal to the liquidation
preference of the New Time Warner Series L Preferred Stock plus accrued and
unpaid dividends thereon; provided that such exchange shall not be effected
unless all accrued dividends have been paid in full and New Time Warner shall
have obtained a Rating Confirmation with respect to such exchange; provided
further that, (a) if substantially all the debt of Time Warner immediately
prior to consummation of the Mergers is assumed by New Time Warner and is
guaranteed by Time Warner, Time Warner shall similarly provide a senior
subordinated guarantee for the Series L Debentures and (b) if substantially
all of the debt of Time Warner is not assumed by New Time Warner upon the
consummation of the Mergers, New Time Warner may, at its option, exchange the
New Time Warner Series L Preferred Stock for (i) Series L Debentures issued by
Time Warner or (ii) Series L Debentures issued by New Time Warner with a
senior subordinated guarantee of Time Warner. New Time Warner's ability to
exchange New Time Warner Series L Preferred Stock for the Series L Debentures
is subject to the legal availability at New Time Warner of funds therefor.
167
<PAGE>
OWNERSHIP OF TIME WARNER AND NEW TIME WARNER CAPITAL STOCK
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, based on information as of June 30, 1996,
the beneficial ownership of Time Warner Common Stock and the anticipated
beneficial ownership, after giving effect to the Transaction, of New Time
Warner Common Stock, as to (a) each Time Warner director and each person
expected to be a New Time Warner director upon consummation of the Mergers,
(b) each of the five most highly compensated executive officers of Time Warner
and each person expected to be one of the five most highly compensated
executive officers of New Time Warner, based on 1995 compensation of Time
Warner executive officers, and (c) all current Time Warner directors and
executive officers, as a group, and all persons expected to be New Time Warner
directors and executive officers, as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------
PERCENT OF CLASS PERCENT OF CLASS
NUMBER OF OPTION PRIOR TO AFTER
NAME SHARES SHARES(2) TRANSACTION TRANSACTION
---- ------------ ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Merv Adelson............ 700,143 * *
Richard J. Bressler(3).. 5,491 122,804 * *
Lawrence B.
Buttenwieser(4)........ 87,325 * *
Beverly Sills
Greenough(5)........... 22,087 * *
Peter R. Haje(3)........ 9,867 691,954 * *
Carla A. Hills.......... 3,787 * *
Tod R. Hullin(3)........ 2,409 278,058 * *
David T. Kearns......... 3,487 * *
Gerald M. Levin(3)(6)... 400,817 2,485,600 * *
Reuben Mark............. 11,187 * *
Michael A. Miles........ 5,034 * *
J. Richard Munro(3)(7).. 332,570 316,832 * *
Richard D. Parsons(3)... 10,259 100,000 * *
Donald S. Perkins....... 14,871 * *
Raymond S. Troubh(8).... 10,247 * *
R.E. Turner(9).......... 64,212,957 NA 12.6%
Francis T. Vincent...... 18,187 * *
All New Time Warner
directors and executive
officers as a group (19 65,918,329 4,436,909 1.6% 13.7%
persons, including the
foregoing)(3)-(9)......
All current Time Warner
directors and executive
officers as a group (18 1,705,372 4,436,909 1.6% 1.2%
persons, including the
foregoing)(3)-(8)......
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of issued and
outstanding Time Warner Common Stock or New Time Warner Common Stock, as
the case may be.
(1) Beneficial ownership as reported in the above table has been determined
in accordance with Rule 13d-3 under the Exchange Act. Unless otherwise
indicated, beneficial ownership includes both sole voting and sole
investment power. This table does not reflect, unless otherwise
indicated, any shares of Time Warner Common Stock or other equity
securities of Time Warner which may be held by pension and profit-sharing
plans of other corporations or endowment funds of educational and
charitable institutions for which various directors and officers serve as
directors or trustees. The shares of Time Warner Common Stock held by
certain subsidiaries of Time Warner, which are not entitled to be voted
at the Time Warner Meeting, are excluded for purposes of calculating the
Percent of Class. As of June 30, 1996, none of the named persons or group
beneficially owns any Time Warner Preferred Stock, TW LYONs or TBS LYONs
nor are they expected to own any LMC Series Common Stock.
(2) Reflects shares of Time Warner Common Stock subject to options to
purchase Time Warner Common Stock issued by Time Warner which on June 30,
1996, were unexercised but were exercisable on, or would become
exercisable within a period of 60 days from, that date. These shares are
excluded from the column headed "Number of Shares."
168
<PAGE>
(3) Includes an aggregate of approximately 54,833 shares of Time Warner
Common Stock held by two trusts under employee stock plans of Time Warner
for the benefit of current directors and executive officers of Time
Warner (including 4,356 shares for Mr. Bressler, 3,379 shares for Mr.
Haje, 2,409 shares for Mr. Hullin, 10,812 shares for Mr. Levin, 18,550
shares for Mr. Munro and 46 shares for Mr. Parsons) and an aggregate of
55,710 shares of Time Warner Common Stock beneficially owned by certain
relatives of such persons.
(4) Includes 1,280 shares of Time Warner Common Stock owned of record and
beneficially by Mr. Buttenwieser's wife and 22,656 shares of Time Warner
Common Stock held of record by a trust of which Mr. Buttenwieser and
others are trustees in which Mr. Buttenwieser has no beneficial interest
and as to all of which Mr. Buttenwieser disclaims any beneficial
ownership.
(5) Includes 10,240 shares of Time Warner Common Stock held by a trust of
which Mrs. Greenough is the beneficiary but as to which she has no voting
or investment power.
(6) Includes 15,000 shares of Time Warner Common Stock held by Mr. Levin's
wife, as to which Mr. Levin disclaims any beneficial ownership.
(7) Includes 35,830 shares of Time Warner Common Stock held of record and
beneficially by members of Mr. Munro's family, as to which Mr. Munro
disclaims any beneficial ownership.
(8) Includes 3,200 shares of Time Warner Common Stock held beneficially by
Mr. Troubh's wife, as to which Mr. Troubh disclaims any beneficial
ownership.
(9) Based on Mr. Turner's beneficial ownership of TBS Capital Stock as of
June 30, 1996. Includes (a) 839,942 shares of New Time Warner Common
Stock expected to be owned by Turner Outdoor, a corporation that is
wholly owned by Mr. Turner, (b) 2,250,000 shares of New Time Warner
Common Stock as to which Mr. Turner is expected to have voting control
but not dispositive control, (c) 1,568,234 shares of New Time Warner
Common Stock expected to be held by the Robert E. Turner Charitable
Remainder Unitrust No. 2, as to which Mr. Turner shares voting and
dispositive control, (d) 4,500,000 shares of New Time Warner Common Stock
expected to be owned by Turner Partners, a limited partnership of which
Mr. Turner is the sole general partner, (e) 375,000 shares of New Time
Warner Common Stock expected to be owned by Mr. Turner's wife and (f)
3,750,000 shares of New Time Warner Common Stock expected to be held by
the Turner Foundation, Inc. Mr. Turner disclaims beneficial ownership of
shares held by his spouse and the Turner Foundation, Inc. Excludes shares
subject to options to purchase New Time Warner Common Stock which are
expected to be awarded to Mr. Turner but are not expected to be
exercisable within 60 days of the consummation of the Mergers. See
"Ownership of TBS Capital Stock--Security Ownership of Directors and
Executive Officers."
169
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to (a) the beneficial
ownership of each person known to Time Warner to own more than 5% of the
outstanding shares of Time Warner Common Stock or any series of Time Warner
Voting Preferred Stock and (b) the anticipated beneficial ownership of each
person expected by Time Warner to own more than 5% of the outstanding shares
of New Time Warner Common Stock, LMC Reduced Voting Common Stock and each
series of New Time Warner Voting Preferred Stock after giving effect to the
Transaction (including the SSSI Agreement). The information with respect to
New Time Warner Capital Stock is based on information known to Time Warner as
of June 30, 1996 regarding the beneficial ownership of voting securities of
Time Warner and TBS.
<TABLE>
<CAPTION>
PERCENT OF COMMON PERCENT OF VOTING
PERCENT OF CLASS(1) STOCK UPON CONVERSION(2) POWER(3)
----------------------- ----------------------------- -----------------------
NAME AND ADDRESS OF NUMBER OF BEFORE AFTER BEFORE AFTER BEFORE AFTER
BENEFICIAL OWNER SHARES TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION
------------------- ---------- ----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK
The Capital Group
Companies, Inc.(4)..... 45,121,394 8.78% 8.86% NA NA 7.21% 7.48%
333 South Hope Street
Los Angeles, CA 90871
The Seagram Company 56,763,349 14.67 11.15 NA NA 12.49 9.83
Ltd.(5)................
1430 Peel Street
Montreal, Quebec,
Canada
M3A1S9
R.E. Turner(6).......... 64,212,957 -- 12.61 -- NA -- 11.12
c/o Turner Broadcasting
System, Inc.
One CNN Center
Atlanta, GA 30303
LMC REDUCED VOTING
COMMON STOCK
Tele-Communications, 55,642,172 NA 100 NA 10.08% NA *
Inc.(7)................
5619 DTC Parkway
Englewood, CO 80111
SERIES D PREFERRED STOCK
Houston Industries
Incorporated(8)........ 11,000,000 100 100 5.84% 4.49 5.06 3.98
1111 Louisiana
Houston, TX 77002
SERIES E AND F PREFERRED
STOCK
Alan Gerry(9)........... Series E
Loomis Road 3,107,956 95.63 95.63
Liberty, NY 12754 3.89 2.98 3.31 2.61
Series F
2,945,580 95.63 95.63
SERIES G PREFERRED STOCK
ITOCHU Corporation(10).. 6,200,000 100 100 4.13 3.17 2.73 2.15
5-1, Kita-Aoyama 2-
Chome
Minato-Ku, Tokyo 107-77
Japan
SERIES I PREFERRED STOCK
Toshiba 7,000,000 100 100 3.63 2.78 3.08 2.42
Corporation(11)........
1-1, Shibaura 1-Chome
Minato-Ku, Tokyo 105
Japan
SERIES J PREFERRED
STOCK(12)
Trust for the benefit of
Gordon Gray, Jr........ 769,043 23.56 23.56 * * * *
Trust for the benefit of
C. Boyden Gray......... 664,583 20.36 20.36 * * * *
</TABLE>
170
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF COMMON PERCENT OF VOTING
PERCENT OF CLASS(1) STOCK UPON CONVERSION(2) POWER(3)
----------------------- ------------------------- -----------------------
NAME AND ADDRESS OF NUMBER OF BEFORE AFTER BEFORE AFTER BEFORE AFTER
BENEFICIAL OWNER SHARES TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION
------------------- --------- ----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Trust for the benefit of
Burton C. Gray......... 769,043 23.56 23.56 * * * *
Trust for the benefit of
Bernard Gray
c/o Wachovia Bank, N.A. 745,035 22.82 22.82 * * * *
.......................
P.O. Box 3099
Winston-Salem, NC 27150
Nancy Maguire Gray,
Trustee of the
Nancy Maguire Gray
Trust u/a 188,336 5.77 5.77 * * * *
dated 12/16/94.........
P.O. Box 3199
Church Street Station
New York, NY 10008
</TABLE>
- --------
*Less than 1%
(1) The shares of Time Warner Common Stock held by certain subsidiaries of
Time Warner, which are not entitled to be voted at the Time Warner Meeting,
are excluded for purposes of calculating the percentages.
(2) Each share of Time Warner Voting Preferred Stock and New Time Warner
Series H Preferred Stock is convertible into 2.08264 shares of Time
Warner Common Stock or New Time Warner Common Stock, as applicable.
Shares issuable upon such conversion are included in the "Percent of
Common Stock Upon Conversion" calculation pursuant to Rule 13d-3 under
the Exchange Act.
(3) Each share of Time Warner Voting Preferred Stock currently has two votes
per share as will each share of New Time Warner Voting Preferred Stock.
(4) Based on information provided by The Capital Group Companies, Inc. ("The
Capital Group") as of June 30, 1996. Beneficial ownership includes
33,977,860 shares of Time Warner Common Stock beneficially owned as of
June 30, 1996, which will be converted into shares of New Time Warner
Common Stock in the Time Warner Merger, and 11,143,533 shares (including
719,043 shares issuable upon conversion of the TBS LYONs) of New Time
Warner Common Stock which The Capital Group will be entitled to receive
in the TBS Merger as a result of its beneficial ownership of TBS Capital
Stock as of June 30, 1996. The Capital Group, a holding company, has
advised Time Warner that it (directly or indirectly) has sole dispositive
power over all its shares of Time Warner Common Stock, that it has sole
voting power over 6,491,170 of these shares and that these shares are
held principally by Capital Research and Management Company, an
investment adviser, and Capital Guardian Trust Company, a bank. The
Capital Group has also advised Time Warner that the shares of Time Warner
Common Stock reported as beneficially owned includes 1,213,500 shares of
Time Warner Common Stock issuable upon conversion of TW LYONs that it
beneficially owns, that all of the reported shares are held for the
benefit of its clients and that it and each of its subsidiary investment
management companies acts separately in exercising investment discretion
over its managed accounts. For information on ownership of TBS Capital
Stock, see "Ownership of TBS Capital Stock--Security Ownership of Certain
Beneficial Owners." Shares issuable upon conversion of convertible
securities have been excluded from the calculation of voting power.
(5) Beneficial ownership and percentage calculations are as of June 30, 1996.
The Seagram Company Ltd. has filed with the Commission Amendment No. 7,
dated April 13, 1994, to its Statement on Schedule 13D and a Statement of
Changes in Beneficial Ownership on Form 4 dated May 9, 1994 to the effect
that indirectly through its indirect wholly owned subsidiary, Seagram
Inc., has sole voting and sole dispositive power over all these shares.
(6) Based on information provided by TBS as of June 30, 1996. See "Ownership
of TBS Capital Stock--Security Ownership of Directors and Executive
Officers." Includes (a) 839,942 shares of New Time Warner Common Stock
expected to be owned by Turner Outdoor, a corporation that is wholly
owned by Mr. Turner, (b) 2,250,000 shares of New Time Warner Common Stock
as to which Mr. Turner is expected to have voting control but not
dispositive control, (c) 1,568,234 shares of New Time Warner Common Stock
expected to be held by the Robert E. Turner Charitable Remainder Unitrust
No. 2, as to which Mr. Turner shares voting and dispositive control,
(d) 4,500,000 shares of New Time Warner Common Stock expected to be owned
by Turner Partners, a limited partnership of which Mr. Turner is the sole
general partner, (e) 375,000 shares of New Time Warner Common Stock
expected to be owned by Mr. Turner's wife and (f) 3,750,000 shares of New
Time Warner Common Stock expected to be held by the Turner Foundation,
Inc. Mr. Turner disclaims beneficial ownership of shares held by his
spouse and the Turner Foundation, Inc. Excludes shares subject to options
to purchase New Time Warner Common Stock which are expected to be awarded
to Mr. Turner but are not expected to be exercisable within 60 days of
the consummation of the Mergers.
(7) Based on information provided by TBS as of June 30, 1996. See "Ownership
of TBS Capital Stock--Security Ownership of Certain Beneficial Owners."
Consists of (a) shares of LMC Reduced Voting Common Stock expected to be
held by entities in which TCI claims beneficial ownership, including
United Cable Turner Investment, Inc. (27,938,169), Communication Capital
Corporation (21,928,253) and TCITP (775,750), (b) 5,000,000 shares of LMC
Reduced Voting Common Stock that are expected to be issued to LMC and
SSSI pursuant to the SSSI Agreement and (c) shares of New Time Warner
Common Stock expected to be held by TCI TKR of Southern Kentucky, Inc.
(279,533) and TKR Cable Company (1,048,517), entities in which TCI claims
beneficial ownership,
171
<PAGE>
(8) Beneficial ownership is as of July 17, 1995. Houston Industries
Incorporated has filed with the Commission a Statement on Schedule 13D
dated July 17, 1995 to the effect that it also beneficially owns
1,000,000 shares of Time Warner Common Stock and has sole voting and
dispositive power over all these shares.
(9) Mr. Gerry also beneficially owns 2,941,392 shares of Time Warner Common
Stock. This information has been provided to Time Warner, as of June 30,
1996, by Mr. Gerry.
(10) Includes 1,200,000 shares of Time Warner Series G Preferred Stock held by
ITOCHU International Inc., 335 Madison Avenue, New York, NY 10017, a
wholly owned subsidiary of ITOCHU Corporation. ITOCHU Corporation and
ITOCHU International Inc. each also holds 1,440,000 and 360,000 shares,
respectively, of Time Warner Series H Preferred Stock. Each share of Time
Warner Series H Preferred Stock is convertible into 2.08264 shares of
Time Warner Common Stock but has no voting rights. This information has
been provided to Time Warner, as of June 30, 1996, by the holders of Time
Warner Series G Preferred Stock.
(11) Includes 177,500 shares of Time Warner Series I Preferred Stock held by
Toshiba America, Inc., 1251 Avenue of the Americas, New York, NY 10020, a
wholly owned subsidiary of Toshiba Corporation. This information has been
provided to Time Warner, as of June 30, 1996, by the holders of Time
Warner Series I Preferred Stock.
(12) This information has been provided to Time Warner, as of June 30, 1996,
by the holders of Time Warner Series J Preferred Stock. The trusts for
the benefit of each of Gordon Gray, Jr. and C. Boyden Gray each also
holds 365,365 shares of Time Warner Common Stock and the trusts for the
benefit of each of Burton C. Gray and Bernard Gray each also holds
315,365 and 265,365 shares of Time Warner Common Stock, respectively (of
which 146,870 shares are, in each case, held in an escrow account subject
to restrictions on disposition). The Nancy Maguire Gray Trust also holds
89,476 shares of Time Warner Common Stock.
172
<PAGE>
OWNERSHIP OF TBS CAPITAL STOCK
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table contains certain information as of June 30, 1996
concerning shares of TBS Class A Common Stock and TBS Class B Common Stock
owned by (a) all of the directors of TBS, (b) the five most highly compensated
executive officers of TBS serving as of December 31, 1995 and (c) all
directors and executive officers of TBS as a group. Under the rules of the
Commission, generally a person is deemed to be a "beneficial owner" of a
security if he or she has or shares the power to vote or direct the voting of
such security, or the power to dispose or to direct the disposition of such
security. Thus, more than one person may be deemed a beneficial owner of the
same security. Because holders of TBS Class A Common Stock, holders of TBS
Class B Common Stock and holders of TBS Class C Preferred Stock generally vote
together on matters other than the election of directors, with each share of
TBS Class A Common Stock having two votes, each share of TBS Class B Common
Stock having one-fifth of a vote and each share of TBS Class C Preferred Stock
having one and one-fifth votes, the percentages of such combined voting power
held by the persons listed in the table below are reflected in a separate
column. Except as otherwise noted, the persons referred to below had sole
voting and investment power with respect to the shares set forth as
beneficially owned by them.
<TABLE>
<CAPTION>
PERCENT OF
SHARES COMBINED
TITLE OF BENEFICIALLY PERCENT OF VOTING
NAME OF BENEFICIAL OWNER SECURITIES OWNED CLASS POWER
------------------------ ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
R. E. Turner................. Class A 57,730,053(1) 84.5% 64.3%
Class B 27,887,224(1) 19.9% 3.1%
Henry L. Aaron............... Class B 1,000(2) * *
Peter R. Barton.............. Class A 600(3) * *
Class B 300(3) * *
Jeffrey L. Bewkes............ NA NA NA NA
Joseph J. Collins............ NA NA NA NA
W. Thomas Johnson............ Class B 335,466(4) * *
Gerald M. Levin.............. NA NA NA NA
Rubye M. Lucas............... Class A 400 * *
Class B 1,053(5) * *
John C. Malone............... NA NA NA NA
Terence F. McGuirk........... Class B 535,351(6) * *
Timothy P. Neher............. Class A 5,000(7) * *
Class B 15,000(7) * *
Brian L. Roberts............. NA NA NA NA
Scott M. Sassa............... Class B 340,061(8) * *
Robert Shaye................. Class B 5,005,211(9) 3.6% *
Fred A. Vierra............... Class A 950 * *
All directors and executive
officers as a group
(25 persons)................ Class A 57,737,225 84.5% 64.3%
Class B 34,816,750(10) 24.9% 3.9%
</TABLE>
- --------
* Indicates beneficial ownership of less than 1.0%.
(1) Includes (a) 559,962 shares of TBS Class A Common Stock and 559,962
shares of TBS Class B Common Stock owned by Turner Outdoor, a corporation
that is wholly-owned by Mr. Turner, (b) 3 million shares of TBS Class B
Common Stock as to which Mr. Turner has voting control but not
dispositive control, (c) 2,090,979 shares of TBS Class B Common Stock
held by the Robert E. Turner Charitable Remainder Unitrust No. 2 as to
which shares Mr. Turner shares voting and dispositive control, (d) 6
million shares of TBS Class A Common Stock held by Turner Partners, a
limited partnership of which Mr. Turner is the sole general partner, (e)
500,000 shares of TBS Class B Common Stock owned by Mr. Turner's wife and
(f) 5 million shares of TBS Class B Common Stock held by the Turner
Foundation, Inc. Mr. Turner disclaims beneficial ownership of those
shares which are held by his wife and the Turner Foundation, Inc.
(2) Represents 1,000 shares which are subject to purchase upon exercise of
options.
(3) All of such shares are held in trust for the benefit of Mr. Barton's
children.
173
<PAGE>
(4) Includes 321,666 shares which are subject to purchase upon exercise of
options.
(5) Includes 1,000 shares which are subject to purchase upon exercise of
options.
(6) Includes 479,999 shares which are subject to purchase upon exercise of
options.
(7) Includes 2,500 shares of TBS Class A Common Stock and 2,500 shares of TBS
Class B Common Stock held in trust for the benefit of Mr. Neher's
children.
(8) Includes 323,332 shares which are subject to purchase upon exercise of
options.
(9) Includes (a) 107,348 shares held in trusts for Mr. Shaye's family which
are subject to voting control by Mr. Shaye, (b) 214,696 shares held in
trust by Mr. Shaye for his children, (c) 176,544 shares owned by Mr.
Shaye's spouse, (d) 49,637 shares held by a private foundation, (e)
31,295 shares held by the 401(k) defined contribution plan of New Line in
which Mr. Shaye has a vested interest and (f) 2,458,088 shares which are
subject to purchase upon exercise of options. Mr. Shaye disclaims
beneficial ownership of those shares which are held of record by his
spouse, by trusts for the benefit of family members and the private
foundation.
(10) Includes an aggregate of 4,272,554 shares which are subject to purchase
upon the exercise of options held by directors and executive officers of
TBS.
Except as discussed below under "--Security Ownership of Certain Beneficial
Owners," TBS knows of no person other than Mr. Turner who, as of June 30,
1996, owns beneficially more than 5% of any class of TBS Common Stock. Mr.
Turner's address is One CNN Center, Atlanta, Georgia 30303.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table contains certain information as of June 30, 1996
concerning shares of TBS Class C Preferred Stock and TBS Class B Common Stock
beneficially owned by each person (other than the person set forth in the
preceding table under the caption "Security Ownership of Directors and
Executive Officers") known to TBS to be the beneficial owner of more than 5%
of the outstanding shares of either of these classes of securities, and
reflects information presented in each such person's Schedule 13D and
amendments (if any) thereto as filed with the Commission and provided to TBS
or quarterly reports of ownership generated by such person and provided to
TBS. Because holders of the TBS Class C Preferred Stock generally vote
together with the holders of the TBS Common Stock on matters other than
election of directors, the percentages of the combined voting power
represented by the persons listed in the table below are reflected in a
separate column. Because the TBS Class C Preferred Stock is convertible into
TBS Class B Common Stock at a present conversion rate of six shares of TBS
Class B Common Stock for each share of TBS Class C Preferred Stock, the
percentages of TBS Class B Common Stock which would be held by the persons
listed below if their presently outstanding shares of TBS Class C Preferred
Stock were presently converted are reflected in a separate column. Except as
otherwise noted, the persons referred to below had sole voting and investment
power with respect to the shares set forth as beneficially owned by them.
<TABLE>
<CAPTION>
CLASS C CLASS B % OF
PREFERRED STOCK COMMON STOCK CLASS B % OF
------------------- -------------------- COMMON COMBINED
BENEFICIAL % OF BENEFICIAL % OF UPON VOTING
ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS OWNERSHIP CLASS CONVERSION POWER
- --------------------------- ---------- ----- ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Tele-Communications, 6,087,080(2) 49.1% 30,111,320(2) 21.5% 31.1% 7.7%(3)
Inc.(1)................
5619 DTC Parkway
Englewood, Colorado
80111
Time Warner Inc.(1)..... 4,890,457(4) 39.4% 25,349,085(5) 18.1% 25.6% 6.4%(6)
75 Rockefeller Plaza
New York, New York
10019
The Capital Group NA NA 14,858,045(7) 10.5% NA 1.7%
Companies, Inc. .......
333 South Hope Street
Los Angeles, California
90071
</TABLE>
- --------
(1) These entities are, directly or through subsidiaries, Cable Operators and
are parties to certain agreements entered into in connection with the
Units Offering, including (a) the TBS Shareholders' Agreement, which
provides for certain voting and disposition arrangements with respect to
the parties' respective equity interests in TBS, and (b) the TBS
Investors' Agreement, which provides for certain conversion and
disposition arrangements with respect to the TBS Class C Preferred Stock
held by the Cable Operators. By virtue of such agreements and certain
other agreements hereinafter referenced in this footnote, such entities
may be deemed, together with the other parties to such respective
agreements, to constitute "groups" (within the meaning of Section 13(d)(3)
of the Exchange Act) for purposes of determining beneficial ownership of
the TBS Class C Preferred Stock and the TBS Class B Common Stock. Except
as set forth in the table above and as otherwise acknowledged in these
footnotes, each of the above entities disclaims beneficial ownership of
174
<PAGE>
the shares owned by any other persons in such "groups." These entities may
also be deemed to constitute a group for purposes of Section 13(d) (3) by
virtue of an agreement entered into by these and certain other parties in
connection with the Units Offerings which contains provisions relating to
the acquisition, disposition and voting of the TBS Capital Stock. In
addition, by virtue of the Time/TCI Agreement entered into in connection
with the Units Offering among subsidiaries of these entities and certain
other Cable Operators, such companies might constitute a group for the
purposes of Section 13(d) (3).
(2) Consists of shares TBS Class C Preferred Stock and TBS Class B Common
Stock, respectively, held by entities in which TCI claims beneficial
ownership, including United Cable Turner Investment, Inc. (5,820,452 and
none), Communication Capital Corporation (none and 29,237,671), TCITP
(119,099 and 47,100), TCI TKR of Southern Kentucky, Inc. (none and
372,711), and TKR Cable Company (147,529 and 453,838).
(3) The percentage of combined voting power includes 225,000 shares of TBS
Class A Common Stock held by TCITP.
(4) Consists of shares held by entities in which Time Warner claims beneficial
ownership, including Time TBS Holdings, Inc. (4,221,619) and WCCI
(668,838).
(5) Consists of shares held by entities in which Time Warner claims beneficial
ownership, including ATC (17,010,889), Time Warner Operations, Inc.
(4,881,687), WCCI (1,991,310) and WCI (1,465,199).
(6) The percentage of combined voting power includes 254,100 shares of TBS
Class A Common Stock held by WCI.
(7) Certain operating subsidiaries of The Capital Group exercised investment
discretion over various institutional accounts which held, as of June 30,
1996, 13,899,320 shares of TBS Class B Common Stock. The total number of
shares set forth in the above table includes 958,725 shares of TBS Class B
Common Stock which would be received upon the conversion, at the current
conversion rate, of $75,000,000 principal amount of the TBS LYONs
currently held by The Capital Group.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
OF NEW TIME WARNER AND TIME WARNER
New Time Warner and Time Warner are both organized under the laws of the
State of Delaware. Any differences, therefore, in the rights of holders of
Time Warner Common Stock and New Time Warner Common Stock arise primarily from
differences in their respective certificates of incorporation and by-laws. The
New Time Warner Charter and the New Time Warner By-laws are substantially
similar to the Time Warner Charter and the Time Warner By-laws, respectively,
except for certain matters described below.
Voting Rights
Under the DGCL, an increase or decrease in the number of authorized shares
of any class of the capital stock of a Delaware corporation requires the
affirmative vote of the holders of a majority of the outstanding shares of
such class unless otherwise provided in the certificate of incorporation of
such corporation. The Time Warner Charter does not otherwise so provide and,
accordingly, the number of authorized shares of Time Warner Common Stock or
Time Warner Preferred Stock may be increased or decreased only with the
affirmative vote of both (a) a majority of the outstanding shares of Time
Warner Common Stock or Time Warner Preferred Stock, as the case may be, voting
separately as a class, and (b) a majority in voting power of the outstanding
Time Warner Common Stock and Time Warner Voting Preferred Stock, voting
together as a single class. Under the New Time Warner Charter, an increase or
decrease in the number of authorized shares of New Time Warner Common Stock,
New Time Warner Preferred Stock or New Time Warner Series Common Stock will
require only the approval of a majority in voting power of the outstanding
shares of New Time Warner Common Stock and any New Time Warner Preferred
Stock, New Time Warner Series Common Stock or other New Time Warner Capital
Stock entitled generally to vote with the New Time Warner Common Stock, voting
together as a single class, and will not require any separate class vote of
any class of the New Time Warner Capital Stock.
Under the DGCL and the Time Warner Charter, any amendment to the Time Warner
Charter (including each certificate of designations forming a part thereof)
requires the approval of a majority in voting power of the outstanding Time
Warner Common Stock and the Time Warner Voting Preferred Stock, voting
together as a single class, in addition to any approval of any single class or
series of Time Warner Capital Stock that may be required by the nature of such
amendment. Under the New Time Warner Charter, any amendment to the New Time
Warner Charter (or any certificate of designations forming a part thereof)
that relates solely to the terms of an outstanding series of New Time Warner
Preferred Stock or New Time Warner Series Common Stock will not require the
approval of the holders of the New Time Warner Common Stock (and therefore
will not require the approval of the holders of any series of New Time Warner
Capital Stock that would vote on such amendment only together with the New
Time Warner Common Stock) if the holders of the affected series of New Time
Warner Preferred Stock or New Time Warner Series Common Stock are separately
entitled to vote on such amendment.
Par Value
The par value of the Time Warner Capital Stock is $1.00 per share. The par
value of the New Time Warner Common Stock will be $0.01 per share, and the par
value of the New Time Warner Preferred Stock will be $0.10 per share. The
principal effect of this change will be to increase the amount that New Time
Warner will have available to pay dividends or repurchase or redeem stock. New
Time Warner does not currently intend to adopt dividend and stock repurchase
policies different from those of Time Warner.
Series Common Stock
Unlike the Time Warner Charter, the New Time Warner Charter will authorize
New Time Warner Series Common Stock. See "Description of New Time Warner
Capital Stock--Authorized Capital Stock."
Certain Change of Control Matters
A number of aspects of the Transaction will affect the ability of a
potential acquiror to complete an acquisition of New Time Warner relative to
the ability of a potential acquiror currently to complete an acquisition
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of Time Warner. These aspects include (a) the fact that Mr. Turner, who will
hold a substantial amount of New Time Warner Common Stock, will be Vice
Chairman, a director and an employee of New Time Warner and, while in any of
these positions, will be subject to restrictions on his activities as a
stockholder of New Time Warner (see "Certain Related Agreements-- Investors'
Agreements"), (b) the FTC Consent Decree, which will limit additional
purchases of New Time Warner Capital Stock by TCI and its affiliates (see "The
Transaction--Regulatory Approvals"), (c) the existence of the Right of First
Refusal Agreement (see "Certain Related Agreements--Right of First Refusal
Agreement") and (d) the changes contemplated by the Rights Amendment (see
"Certain Related Agreements--Rights Amendment").
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
NEW TIME WARNER AND SHAREHOLDERS OF TBS
TBS is incorporated under the laws of the State of Georgia and New Time
Warner is incorporated under the laws of the State of Delaware. TBS's
shareholders, whose rights as shareholders currently are governed by Georgia
law, the TBS Articles and the TBS By-Laws, will become, upon consummation of
the Mergers, stockholders of New Time Warner, and their rights as stockholders
of New Time Warner will then be governed by Delaware law, the New Time Warner
Charter and the New Time Warner By-laws.
The following summary sets forth the material differences between the rights
of TBS shareholders and New Time Warner stockholders. This summary does not
purport to be a complete description of the differences between the rights of
such holders, and is subject, and qualified in its entirety by reference, to
the New Time Warner Charter, a copy of which is attached hereto as Appendix B-
1, and the New Time Warner By-laws, a copy of which is filed as an Exhibit to
the Registration Statement, and both of which are incorporated herein by
reference, the TBS Articles, the TBS By-Laws, the GBCC and the DGCL.
CHANGES IN CONTROL AND BUSINESS COMBINATIONS
Certain provisions of the TBS Articles and the TBS By-Laws, and the New Time
Warner Charter and the New Time Warner By-laws, as well as certain provisions
of the GBCC and the DGCL, may have the effect of discouraging certain
transactions that involve an actual or threatened change in control of TBS or
New Time Warner.
The GBCC contains provisions that restrict certain business combinations
with interested shareholders (the "Georgia Business Combination Statute") and
require that certain fair price criteria be satisfied with respect to certain
business combinations with interested shareholders (the "Georgia Fair Price
Statute"), as summarized below. In accordance with the provisions of these
statutes, the restrictions imposed by these statutes do not apply unless TBS
elects to be covered by such statutes. TBS has not elected to be covered by
such statutes, but it could do so at any time by amending the TBS By-Laws.
Under the Georgia Business Combination Statute, any person who is (a) the
beneficial owner of 10% or more of the voting power of a Georgia corporation's
outstanding voting stock or (b) is an affiliate of the corporation and, at any
time within the two-year period immediately prior to the date in question, was
the beneficial owner of 10% or more of the voting power of the corporation's
then outstanding voting stock (an "interested shareholder") generally may not
engage in certain business combinations with that corporation for a period of
five years following the time such person became an interested shareholder.
The prohibitions do not apply if (i) prior to the time such person became an
interested shareholder, the corporation's board of directors approved either
the business combination or the transaction which resulted in such person
becoming an interested shareholder, (ii) in the transaction which resulted in
such person becoming an interested shareholder, the person became the
beneficial owner of at least 90% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (x)
directors or officers of the corporation or their affiliates or associates,
(y) subsidiaries of the
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corporation and (z) any employee stock plan of the corporation under which
participants do not have the right (as determined exclusively by reference to
the terms of such plan and any trust which is part of such plan) to determine
confidentially the extent to which shares held under such plan will be
tendered in a tender or exchange offer (any such holder described in clause
(ii)(x), (y) or (z) being referred to herein as an "Excluded Holder") or (iii)
subsequent to becoming an interested shareholder (x) such person acquired
additional shares resulting in such person being the beneficial owner of at
least 90% of the outstanding voting stock of the corporation, excluding any
shares owned by the Excluded Holders and (y) the business combination was
approved by the holders of a majority of the voting stock entitled to vote
thereon (excluding voting stock beneficially owned by the interested
shareholder or by the Excluded Holders). The restrictions in the Georgia
Business Combination Statute do not apply if a person (i) becomes an
interested shareholder inadvertently, (ii) as soon as practicable divests
sufficient shares so that such person ceases to be an interested shareholder
and (iii) would not, at any time within the five-year period immediately prior
to a business combination between the corporation and such person, have been
an interested shareholder but for the inadvertent acquisition. The law
restricting business combinations is broad in its scope and is designed to
inhibit unfriendly acquisitions.
In addition, the Georgia Fair Price Statute prohibits certain business
combinations between a Georgia corporation and an interested shareholder,
unless certain requirements are met. The Georgia Fair Price Statute would
permit a business combination to be effected if (i) the business combination
is unanimously approved by the "continuing directors" of the corporation
(generally, directors who served prior to the time the person became an
interested shareholder and who are unaffiliated with the interested
shareholder), (ii) the business combination is recommended by at least two-
thirds of the continuing directors and approved by a majority of the votes
entitled to be cast by holders of voting shares, other than voting shares
beneficially owned by the interested shareholder or (iii) certain fair price
criteria and dividend requirements are met, and the interested shareholder has
neither increased the percentage of his ownership by more than 1% in any 12-
month period nor received certain benefits from the corporation. The Georgia
Fair Price Statute is designed to inhibit unfriendly acquisitions that do not
satisfy the specified "fair price" requirements.
Section 203 of the DGCL is similar to the Georgia Business Combination
Statute, but is, in some ways, less restrictive. Section 203 of the DGCL
provides that an "interested stockholder" is any person who acquires
beneficial ownership of 15% (rather than 10% under the Georgia Business
Combination Statute) or more of the voting power of a corporation's voting
stock. Additionally, the prohibition on specified business combinations does
not apply if, on or subsequent to the date the interested stockholder became
an interested stockholder, the transaction is approved by the board and
authorized at a meeting of stockholders by the affirmative vote of at least
two-thirds of the voting stock not owned by the interested stockholder.
Moreover, the mandatory waiting period for such business combinations under
Section 203 is three years instead of five years under the Georgia Business
Combination Statute. A Delaware corporation will be subject to the provisions
of Section 203 of the DGCL unless it specifically elects to opt out of Section
203 of the DGCL. New Time Warner has not made such an election and, therefore,
is subject to the terms thereof.
The New Time Warner Charter requires the affirmative vote of (a) 80% of the
combined voting power of the then outstanding shares of Voting Stock (as
defined therein), voting together as a single class, and (b) the affirmative
vote of a majority of the combined voting power of the then outstanding Voting
Stock held by Disinterested Stockholders (as defined below), voting together
as a single class, to approve any Business Combination (as defined therein,
which term includes a merger, sale of all or substantially all the assets, the
adoption of a plan of liquidation and similar extraordinary corporate
transactions) between, or otherwise involving, New Time Warner and any
Interested Stockholder (as defined below), unless (i) the Business Combination
has been approved by a majority of the Disinterested Directors (as defined
below), and the Interested Stockholder became an Interested Stockholder in a
manner substantially consistent, and has complied, with an agreement approved
by the New Time Warner Board, (ii) in the case of certain Business
Combinations, the Business Combination has been approved by a majority of the
Disinterested Directors, such Business Combination does not result in an
increase of more than 10% in the amount of equity securities of any class or
series of New Time Warner or any New Time Warner subsidiary beneficially owned
by an Interested Stockholder
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and its affiliates and associates at the time of such approval, and the
Business Combination is not consummated within two years after the
consummation of any other Business Combination in which the proportionate
share of equity securities of any class or series of New Time Warner or any
New Time Warner subsidiary beneficially owned by such Interested Stockholder
and its affiliates and associates was increased, (iii) in the case of certain
other Business Combinations, such Business Combination is approved by a
majority of the Disinterested Directors, or (iv) certain minimum price, form
of consideration and procedural requirements are met. The TBS Articles contain
no similar provisions.
As used in the New Time Warner Charter:
"Interested Stockholder" means any person who or which:
(1) is the beneficial owner, directly or indirectly, of 20% or more of
the combined voting power of the then outstanding shares of New Time Warner
stock entitled to vote generally in the election of directors ("Voting
Stock"); or
(2) is an affiliate of New Time Warner and at any time within the two-
year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 20% or more of the combined voting power
of the then outstanding shares of Voting Stock; or
(3) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially
owned by any Interested Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act.
"Disinterested Stockholder" means a stockholder of New Time Warner who is
not an Interested Stockholder or an affiliate or an associate of an Interested
Stockholder.
"Disinterested Director" means any member of the New Time Warner Board who
is unaffiliated with, and not a nominee of, the Interested Stockholder and was
a member of the New Time Warner Board prior to the time that the Interested
Stockholder became an Interested Stockholder, and any successor of a
Disinterested Director who is unaffiliated with, and not a nominee of, the
Interested Stockholder and who is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the New Time Warner
Board.
CERTAIN VOTING RIGHTS
In general, the GBCC requires a majority of the outstanding shares entitled
to vote thereon to approve certain mergers. Under the GBCC, a board of
directors need not submit a plan of merger to the shareholders of the
surviving corporation if: (a) the merger does not amend the articles of
incorporation of the surviving corporation; (b) each shareholder whose shares
of the surviving corporation were outstanding immediately prior to the
effectiveness of the merger retains the same number of shares with identical
designations, preferences, limitations and relative rights after the merger;
and (c) the number and kind of shares outstanding after the merger will not
exceed the total number and kind of shares of the surviving corporation
authorized before the merger.
The DGCL requires the affirmative vote of the holders of at least a majority
of the outstanding shares entitled to vote thereon to approve certain mergers.
Under Delaware law, the stockholders of the surviving corporation are not
required to approve a merger if certain conditions, similar to those required
under Georgia law, are satisfied, except that with respect to (c) above, such
merger need not be approved by such stockholders where either no new shares of
common stock of the surviving corporation or securities convertible into such
stock are to be issued under the plan of merger, or any such shares to be
issued in the merger plus the shares initially issuable upon conversion of any
such convertible securities issued in the merger will not exceed 20% of the
number of shares outstanding immediately prior to the merger. The DGCL further
provides that no stockholder approval is required in a merger of a corporation
with or into a single direct or indirect wholly-owned
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subsidiary of such corporation for the purpose of effecting a holding company
reorganization, if certain conditions are met, including (a) as a result of
the merger, the corporation or its successor becomes a direct or indirect
wholly-owned subsidiary of the new holding company, (b) stockholders of the
corporation receive in the merger the same number of shares of the new holding
company as they owned in the corporation prior to the merger, which stock has
the same designations, rights, powers and preferences, and the qualifications,
limitations and restrictions thereof, with respect to the holding company as
such stock had with respect to the corporation prior to the merger, (c) the
certificate of incorporation and by-laws of the new holding company contain
provisions identical to the certificate of incorporation and by-laws of the
corporation immediately prior to the effective time of the merger (except for
provisions that could have been amended or deleted without stockholder
approval), (d) the directors of the new holding company will be the same as
the directors of the corporation immediately prior to the merger, (e) the
certificate of incorporation of the corporation or its successor immediately
following the merger is identical in all substantive respects to the
certificate of incorporation of the corporation immediately prior to the
merger, provided that the certificate of incorporation of the corporation or
its successor shall be amended in the merger to contain a provision requiring
that any act or transaction by or involving such corporation that requires for
its adoption under the DGCL or its certificate of incorporation the approval
of the stockholders of such corporation shall require, in addition, the
approval of the stockholders of the new holding company or any successor
thereto by merger and (f) the merger is tax-free for Federal income tax
purposes to the stockholders of the corporation.
The TBS Articles provide that the holders of TBS Class C Preferred Stock
have the right to vote as a separate class on certain matters. See "The
Transaction--Background." In addition, under the TBS Articles, the holders of
TBS Class C Preferred Stock, voting as a separate class, are entitled to elect
seven Class C Directors to the TBS Board, and the holders of TBS Class A
Common Stock and TBS Class B Common Stock, voting together as a single group,
are entitled to elect eight Common Stock Directors to the TBS Board. Under the
GBCC, the holders of each class of TBS Capital Stock are entitled to vote as a
separate class with respect to certain matters, and the holders of TBS Class A
Common Stock and TBS Class B Common Stock are entitled to vote as a single
group with respect to certain matters. Upon consummation of the Mergers, the
holders of each of the TBS Class A Common Stock, the TBS Class B Common Stock
and the TBS Class C Preferred Stock will become holders of a single class of
equity securities, New Time Warner Common Stock. As a result, at and after the
consummation of the Mergers, the current holders of the various classes of TBS
Capital Stock will no longer have separate voting rights but will vote
together with all other holders of New Time Warner Common Stock as a single
class on matters that are presented to the holders of New Time Warner Common
Stock.
NEW TIME WARNER RIGHTS AGREEMENT
Upon the consummation of the Mergers, it is contemplated that New Time
Warner will enter into the New Time Warner Rights Agreement and each
outstanding share of New Time Warner Common Stock will thereafter be
accompanied by one New Time Warner Right issued thereunder. See "Description
of New Time Warner Capital Stock--New Time Warner Rights Agreement; New Time
Warner Series A Preferred Stock" for a description of the New Time Warner
Rights Agreement. TBS currently has no shareholder rights plan.
DIRECTORS
The TBS Articles provide that during such period as there are at least 4
million outstanding shares of TBS Class C Preferred Stock (the "Effective
Period"), the TBS Board shall consist of fifteen persons. During the Effective
Period, which is currently in effect, the holders of TBS Class C Preferred
Stock are entitled to elect seven Class C Directors, and the holders of TBS
Common Stock are entitled to elect eight Common Stock Directors. Vacancies
with respect to a Common Stock Director may be filled by the affirmative vote
of a majority of the remaining Common Stock Directors, unless such vacancy
occurred by reason of the removal (with or without cause) of such Common Stock
Director, in which case such vacancy shall be filled by the affirmative vote
of the holders of the TBS Common Stock. Vacancies with respect to a Class C
Director may be filled by the affirmative vote of a majority of the remaining
Class C Directors, unless such vacancy occurred by reason of the removal (with
or without cause) of such Class C Director, in which case such vacancy must be
filled by the
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affirmative vote of the holders of a majority of TBS Class C Preferred Stock.
Upon termination of the Effective Period, the TBS Board shall consist of
eleven persons, such persons being those nominees receiving the largest number
of votes of the TBS Capital Stock, voting together as a single group. Under
Georgia law, shareholders may remove directors with or without cause unless
the articles of incorporation or a bylaw adopted by the shareholders provides
otherwise. The TBS By-Laws provide that Class C Directors may be removed, with
or without cause, solely by the vote or written consent of the holders of a
majority of the outstanding shares of TBS Class C Preferred Stock. TBS Common
Stock Directors may be removed, with or without cause, solely by the vote of
the holders of a majority of the voting power of TBS Common Stock, or by the
unanimous written consent of the holders of the outstanding shares of TBS
Common Stock.
The New Time Warner By-laws will provide that the number of directors on the
New Time Warner Board shall be determined from time to time by the affirmative
vote of directors constituting at least a majority of the entire New Time
Warner Board, provided that the number of New Time Warner directors may not be
less than three. Upon the consummation of the Mergers, the New Time Warner
Board will consist of 14 directors, and will be classified into three classes,
with each class as nearly equal in number as possible. At each annual meeting
of the stockholders of New Time Warner, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the third succeeding annual meeting of stockholders. In
any election of New Time Warner directors, the persons receiving a plurality
of the votes cast, up to the number of directors to be elected in such
election, shall be deemed elected. Any vacancies on the New Time Warner Board
may be filled only by the affirmative vote of a majority of the remaining New
Time Warner directors then in office. The New Time Warner Charter will provide
that any New Time Warner director may be removed from office only for cause
and only by the affirmative vote of the holders of a majority of the combined
voting power of the then outstanding shares of voting stock, voting together
as a single class. "Cause" will be defined as the willful and continuous
failure of a director to substantially perform such director's duties to New
Time Warner (other than any such failure resulting from incapacity due to
physical or mental illness) or the willful engaging by a director in gross
misconduct materially and demonstrably injurious to New Time Warner. In
addition, pursuant to Investors' Agreement (No. 1), upon the consummation of
the Transaction, Mr. Turner will have the right to designate two persons for
election to the New Time Warner Board. See "Certain Related Agreements--
Investors' Agreements."
REDEMPTION OF STOCK
Under the New Time Warner Charter, subject to the resolutions of the New
Time Warner Board designating any series of New Time Warner Preferred Stock or
New Time Warner Series Common Stock, outstanding shares of New Time Warner
Capital Stock may be redeemed, upon action of the New Time Warner Board, to
the extent necessary to prevent the loss or secure the reinstatement of any
license or franchise from a governmental agency held by New Time Warner or any
of its subsidiaries to conduct any portion of the business of New Time Warner
or such subsidiary, which license or franchise is conditioned upon some or all
of the holders of New Time Warner's stock of any class or series possessing
prescribed qualifications. LMC Series Common Stock will not be subject to the
foregoing rights of redemption. The redemption price of any stock so redeemed
is payable in cash, debt or equity securities of New Time Warner or another
corporation, or any combination thereof, as described in the New Time Warner
Charter, equal to the Fair Market Value (as defined therein) of the stock to
be so redeemed.
RESTRICTIONS ON FOREIGN OWNERSHIP OF SHARES
The TBS Articles provide that at no time shall more than 25% of the issued
and outstanding TBS Capital Stock (or 20% if TBS shall directly hold or shall
apply to directly hold a broadcast license granted by the FCC under the
Communications Act), or any class thereof, be owned of record or voted by
aliens or their representatives or by a foreign government or representative
thereof or any corporation organized under the laws of a foreign country. The
TBS Articles provide that the TBS By-Laws may contain provisions to implement
the provisions of this paragraph and to avoid certain prohibitions under the
Communications Act.
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The TBS By-Laws provide that if, at any time that TBS holds a broadcast
license granted by the FCC, TBS is controlled directly or indirectly by any
other corporation of which any officer is, or more than 25% of the members of
the board of directors are, aliens, or of which more than 25% of the capital
stock is owned of record or voted by or for the account of aliens, then such
other corporation shall, so long as such condition continues to exist, have no
voting, dividend or other rights with respect to the shares of TBS which it
owns, except the right to transfer such shares in such manner that such
conditions will cease to exist.
Neither the New Time Warner Charter nor the New Time Warner By-laws will
initially contain any such provisions, although the New Time Warner Charter
will contain the redemption provision described above.
LIABILITY OF DIRECTORS
Both the GBCC and the DGCL allow a corporation to limit the personal
liability of directors with certain similar exceptions. As permitted by the
GBCC, the TBS Articles provide that no director shall be personally liable to
TBS or its shareholders for monetary damages for breach of duty of care or
other duty as a director, except for liability (a) for any appropriation, in
violation of his duties, of any business opportunity of TBS, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) for unlawful distributions or (d) for any
transaction from which the director derived an improper personal benefit.
The New Time Warner Charter will provide that, to the fullest extent
permitted by the DGCL, no director of New Time Warner shall be liable to New
Time Warner or its stockholders for monetary damages for breach of fiduciary
duty as a director. The DGCL allows a corporation to limit in this manner the
personal liability of a director, except for liability for (a) any breach of
the director's duty of loyalty to the corporation or its stockholders, (b)
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) an unlawful payment of a dividend or an
unlawful stock purchase or redemption or (d) any transaction from which the
director derived an improper personal benefit.
INDEMNIFICATION AND LIABILITY OF DIRECTORS AND OFFICERS
The GBCC permits, and the TBS By-Laws provide, that TBS may indemnify any
director or officer of TBS for any liability and expense that may be incurred
in connection with or resulting from any threatened, pending or completed
civil, criminal, administrative or investigative action, suit or proceeding
(whether brought by or in the right of TBS or otherwise), in which he may
become involved by reason of his being or having been a director or officer of
TBS; provided, that such person acted in a manner he believed in good faith to
be in or not opposed to the best interests of TBS, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Except where the indemnified individual is successful on the
merits or otherwise in defense of any such action, suit or proceeding, in
which case indemnification is as of right, indemnification is at the
discretion of TBS, as determined by the TBS Board, the shareholders, or legal
counsel in accordance with the GBCC. Under the GBCC, directors may not be
indemnified in connection with (a) any proceeding by or in the right of the
corporation in which such individual is adjudged liable to TBS or (b) any
other proceeding in which such individual is adjudged liable on the basis that
such individual received an improper personal benefit.
Under the DGCL, a corporation generally may indemnify its officers and
directors for expenses, judgments or settlements actually and reasonably
incurred by them in connection with suits and other legal proceedings if they
acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe their conduct was
unlawful. If the action is brought by or in the right of the corporation, the
DGCL limits indemnification to the expenses (including attorneys' fees)
reasonably incurred and provides that no such indemnification can be made when
the individual is adjudged liable to the corporation, unless and only to the
extent the Delaware Court of Chancery deems such indemnification fair and
reasonable under the circumstances. The New Time Warner By-laws will provide
that New Time Warner shall indemnify, to the fullest extent permitted by
applicable law, any person who is or was a director or officer of New Time
Warner for any liability and expense in connection with
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any threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil or criminal, administrative or investigative
(including, without limitation, any action, suit or proceeding by or in the
right of New Time Warner to procure a judgment in its favor) by reason of the
fact that such person is or was a director or officer of New Time Warner;
provided, however, that no such indemnification will be available to such
director or officer with respect to such a proceeding that was commenced by
such director or officer unless such proceeding was commenced after a Change
in Control (as defined therein).
Under both Georgia and Delaware law, a corporation may adopt procedures for
advancing expenses to directors and officers without a case-by-case
determination of eligibility as long as any director or officer receiving an
advance undertakes to repay the amounts advanced if it is ultimately
determined that such director or officer was not entitled to be indemnified.
The TBS By-Laws contain, and the New Time Warner By-laws will contain,
provisions for advancing expenses.
AMENDMENT OF CERTIFICATE OR ARTICLES OF INCORPORATION AND BY-LAWS
Generally, the GBCC requires a majority vote of the outstanding shares of
each voting group entitled to vote to amend the articles of incorporation of a
Georgia corporation. Under Georgia law, shareholder action is generally not
necessary to amend the by-laws, unless the articles of incorporation provide
otherwise. The shareholders do, however, have the right to amend, repeal or
adopt by-laws. Furthermore, the shareholders may restrict the right of the
board of directors to amend, alter or repeal a particular bylaw. The TBS By-
Laws expressly provide the TBS shareholders with the right to amend the TBS
By-Laws. The TBS By-Laws may be altered, amended or repealed (a) by the
affirmative vote of the holders of at least a majority of the voting power of
TBS, (b) by a majority vote of the TBS Board at a regular or special meeting
of the TBS Board, or (c) by the unanimous written consent of either all
shareholders or all directors; provided, however, that during the Effective
Period, neither the TBS By-Laws nor the TBS Articles may be amended unless
authorized by (i) the affirmative vote of no less than twelve members of the
TBS Board (not less than four of whom must be Class C Directors), or by
unanimous written consent of the TBS Board, and (ii) with respect to certain
amendments, the affirmative vote of the holders of a majority of the
outstanding shares of TBS Class C Preferred Stock.
The DGCL also generally requires a majority vote of the outstanding shares
entitled to vote to amend a Delaware corporation's certificate of
incorporation, although the certificate of incorporation may require a
greater-than-majority shareholder vote. Under New Time Warner's Charter, the
alteration, amendment, repeal or adoption of any provision inconsistent with
the provisions of the New Time Warner Charter relating to (a) the classified
New Time Warner Board, (b) filling vacancies on the New Time Warner Board, (c)
prohibiting stockholder action by written consent, (d) prohibitions on the
calling of special meetings by New Time Warner stockholders, (e) approval of
Business Combinations, (f) redemption of New Time Warner Capital Stock to
preserve any license or franchise of New Time Warner, (g) limitation of the
liability of directors and (h) amendments to the New Time Warner By-laws will
require the affirmative vote of the holders of at least 80% in voting power of
the then outstanding Voting Stock and, in the case of provisions of the New
Time Warner Charter relating to Business Combinations, the affirmative vote of
a majority of such voting power held by Disinterested Stockholders. The New
Time Warner Board will have the power to adopt, alter, amend or repeal
provisions of the New Time Warner By-laws by a majority vote of the entire New
Time Warner Board at any meeting thereof, provided that such proposed action
in respect thereof shall be stated in the notice of such meeting. Under the
New Time Warner Charter, stockholders will have the power to adopt, alter,
amend or repeal provisions of the New Time Warner By-laws by the affirmative
vote of 80% in voting power of the outstanding Voting Stock.
DIVIDENDS
The ability of TBS and New Time Warner to pay dividends is governed by
different standards. Under the GBCC, TBS is permitted to pay dividends or make
other distributions with respect to its stock unless, after giving effect to
the dividend or other distribution, either TBS would not be able to pay its
debts as they become due in the usual course of business, or TBS's total
assets would be less than the sum of its total liabilities plus the amount
that would be needed, if TBS were to be dissolved at the time of the dividend
or other distribution, to
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satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the dividend or other
distribution. The TBS Articles contain no provisions restricting dividends on
TBS Common Stock, except (a) to the extent TBS preferred stock has preference
as to dividends, (b) that no dividends can be paid on TBS Class A Common Stock
unless the same dividend is paid on TBS Class B Common Stock, or vice versa
(other than in-kind stock dividends) and (c) holders of TBS Class C Preferred
Stock are entitled to receive all dividends (other than in-kind stock
dividends) declared on TBS Class B Common Stock, as if the TBS Class C
Preferred Stock had been converted into TBS Class B Common Stock.
A Delaware corporation, unless otherwise restricted by its certificate of
incorporation, may pay dividends out of surplus or, if no surplus exists, out
of net profits for the fiscal year in which the dividend is declared and/or
for the preceding fiscal year (but the directors may not declare and pay
dividends out of such net profits if the capital of the corporation shall have
diminished to an amount less than the aggregate amount of capital represented
by the issued and outstanding stock of all classes having preference upon the
distribution of assets). The New Time Warner Charter will contain no
provisions restricting dividends on New Time Warner Common Stock, except to
the extent New Time Warner Preferred Stock has preference as to dividends.
SPECIAL MEETINGS
Under Georgia and Delaware law, special meetings of shareholders may be
called by the board of directors or by such other persons as are authorized by
the by-laws or articles or certificate of incorporation, as the case may be.
The TBS By-Laws provide that special meetings of the shareholders may be
called by the President of TBS, by a majority of the TBS Board or by the
Secretary of TBS upon the request of holders owning 25% of the outstanding
stock entitled to vote at such meeting, unless otherwise prescribed by law.
The New Time Warner Charter will provide that a special meeting of the
stockholders may be called only by a resolution approved by a majority of the
entire New Time Warner Board or by the Chairman of the New Time Warner Board,
the Chief Executive Officer or the President of New Time Warner. Stockholders
of New Time Warner will not have the right to call special meetings.
ACTION BY SHAREHOLDERS OR STOCKHOLDERS WITHOUT MEETING
The GBCC permits shareholders of a Georgia corporation to act without a
meeting only by unanimous written consent of all shareholders entitled to vote
on the action, unless otherwise provided by the articles of incorporation. The
TBS Articles do not provide for action by the holders of the TBS Common Stock
by less than unanimous written consent.
The DGCL provides that, unless otherwise provided in the certificate of
incorporation, stockholders of a Delaware corporation may take any action
without a meeting by written consent signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of any action
by less than unanimous consent must be given to stockholders who did not
consent to such action. Under the New Time Warner Charter, any action
permitted or required to be taken by the stockholders must be effected at a
meeting of the stockholders, and may not be effected by written consent.
SHAREHOLDER OR STOCKHOLDER PROPOSALS
None of the GBCC, the TBS Articles or the TBS By-Laws provides TBS
shareholders with the right to propose business at annual meetings of
shareholders. The TBS By-Laws provide that at annual meetings of shareholders,
the order of business shall be determined by the Chairman of the meeting. As
permitted by the GBCC, the TBS By-Laws allow the holders of at least 25% of
the outstanding stock entitled to vote on any issue to demand that TBS hold a
special meeting for the purpose of voting on such issue.
The New Time Warner By-laws will require stockholders of New Time Warner to
provide advance notice of proposals of business to be considered at the annual
meeting of stockholders of New Time Warner, including
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the nomination of directors. With respect to special meetings of stockholders
of New Time Warner (which New Time Warner stockholders will have no right to
call), the New Time Warner By-laws will provide that only such business as is
specified in the notice of any such meeting shall come before such meeting.
See "--Special Meetings" above.
SHAREHOLDER OR STOCKHOLDER INSPECTION RIGHTS
The GBCC provides that a shareholder, after giving advance notice, is
entitled to inspect and copy, among other things, the corporation's articles
of incorporation, by-laws, certain board of directors' and shareholders'
resolutions, and minutes of shareholders' meetings by right, and, among other
things, the corporation's minutes of board of directors' meetings and
accounting records only if (a) its demand is made in good faith and for a
proper purpose that is reasonably relevant to its legitimate interest as a
shareholder, (b) it describes with reasonable particularity its purpose and
the records it desires to inspect, (c) the records are directly connected with
its purpose and (d) the records are to be used only for the stated purpose;
provided, however, that the right to inspect the latter set of records may be
limited by a corporation's articles of incorporation or by-laws for
shareholders owning two percent or less of the corporation's outstanding
shares. The TBS By-Laws provide that the TBS Board has the authority to so
limit the inspection rights of shareholders owning two percent or less of the
outstanding shares of TBS.
Under the DGCL, upon written demand under oath, any stockholder of record
may inspect the stock ledger, a list of the stockholders and the other books
and records of a corporation so long as such inspection is for a purpose
reasonably related to such person's interest as a stockholder.
DISSENTERS' OR APPRAISAL RIGHTS
Subject to the exception provided below, under the GBCC, shareholders who
comply with certain procedural requirements of the GBCC are entitled to assert
dissenters' rights with respect to such shareholder's shares upon the merger
of a corporation, the consummation of a plan of share exchange to which the
corporation is the acquired party, the sale or other disposition of all or
substantially all of the corporation's assets, an amendment of the articles of
incorporation of the corporation that materially and adversely affects rights
in respect of such shareholder's shares in ways specified in the GBCC, or any
corporate action taken pursuant to a shareholder vote to the extent that the
articles of incorporation, by-laws or a resolution of the board of directors
of the corporation provides that shareholders are entitled to rights of
appraisal. The TBS Articles do not currently provide for dissenters' rights in
any situation other than those enumerated above. Unless the articles of
incorporation or resolution of the board of directors of the corporation
provides otherwise, however, holders of any class of shares which are listed
on a "national securities exchange" or are held of record by more than 2,000
shareholders are not entitled to assert dissenters' rights under Georgia law
if the shareholder receives shares of the surviving corporation or another
corporation whose shares are listed on a national securities exchange or are
held of record by at least 2,000 shareholders. The TBS Board has, by
resolution, granted dissenters' rights to the holders of TBS Common Stock with
respect to the TBS Merger. See "The Transaction--Appraisal and Dissenters'
Rights."
Like the GBCC, the DGCL provides stockholders of a Delaware corporation with
appraisal rights in connection with mergers and consolidations generally, but
does not provide appraisal rights for holders of any class or series of stock
which, at the record date fixed to determine stockholders entitled to receive
notice of and to vote at the meeting to act upon the agreement of merger or
consolidation, were either (a) listed on a national securities exchange or
designated as a national market security on an inter-dealer quotation system
by the National Association of Securities Dealers, Inc., or (b) held of record
by more than 2,000 stockholders, so long as, in either case, such stockholders
are not required by the terms of the agreement of merger or consolidation to
receive as consideration in such merger or consolidation anything other than
shares of stock of the surviving corporation or another corporation whose
shares are so listed or designated or held of record by more than 2,000
stockholders. In addition, the DGCL does not provide appraisal rights for
stockholders of the surviving corporation, or for stockholders of the subject
corporation, as applicable, for mergers for which the DGCL does not require
stockholder approval described under "--Certain Voting Rights" above.
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CERTAIN BUSINESS RELATIONSHIPS
During 1995, TBS recorded subscription fees from Time Warner and TCI and
their respective affiliates for their receipt of CNN, TNT, Headline News, the
Cartoon Network and TCM and certain international networks, before deductions
for advertising allowances, as follows: Time Warner--$96,184,000; and TCI--
$165,273,000. These amounts constituted approximately 13% and 22%,
respectively, of TBS's total subscription fees recorded during 1995.
Advertising revenues received by TBS during 1995 were also indirectly
dependent on cable television systems operated by Time Warner and TCI or their
respective affiliates since subscribers to those systems, in the aggregate,
constituted approximately 40%, 41%, 41%, 42% and 31% of the cable audience
coverage for TBS Superstation, TNT, CNN, Headline News and the Cartoon
Network, respectively.
Warner Home Video ("WHV"), a former subsidiary of Time Warner and now a
division of TWE, is the distributor in the home video market of most MGM and
pre-1950 Warner Bros. films in the TEC Library, both domestically and
internationally, and certain RKO films internationally. The related
distribution agreement (the "Home Video Agreement") provides for a fifteen-
year term commencing June 6, 1986 with distribution fees payable based
primarily on the suggested retail price of the films sold. During 1995, TBS
paid an aggregate of $54,441,000 to WHV, which amount included reimbursement
of distribution expenses payable by TBS and a distribution fee payable to WHV.
Time Warner and its subsidiaries have entered into license agreements with
TBS pursuant to which TBS has acquired broadcast rights to certain television
and theatrical product. TBS paid an aggregate of approximately $18,236,000 for
license fees during 1995 under these agreements and, as of December 31, 1995,
was committed to pay $59,946,000 through 2001 under these agreements. Time
Warner also has an investment in n-tv, a 24-hour German language news channel
in which TBS owned a 33.1% limited partnership interest as of December 31,
1995.
In February 1989, TBS entered into a joint venture arrangement with Home Box
Office to purchase satellite transponders. The joint venture is structured so
that the purchased transponders are allocated by agreement between TBS and
Home Box Office, and TBS's obligations are limited solely to those
transponders and ancillary service arrangements which are to be allocated to
and used by TBS and its subsidiaries.
Pursuant to a lease agreement entered into in 1992 relating to a satellite
transponder, TBS recorded revenue from LMC of $1,824,000 in 1995. LMC is
committed to pay approximately $8,816,000 through 2000 under such lease.
Pursuant to an agreement entered into in between New Line and Encore Media
Corporation ("Encore"), New Line has agreed to supply, on an exclusive basis,
a maximum of 16 feature films per year for exhibition on Starz!, a premium
cable programming service, or other pay television services owned or operated
by Encore. LMC has a 90% interest in Encore. For the year ended December 31,
1995, New Line recorded revenue from Encore of $42,198,000 pursuant to such
agreement. In September 1995, such agreement was amended to provide for an
extension of the agreement through December 31, 2005 and the inclusion of up
to three films from New Line's Fine Line division per year as of 1996
(increasing annually to ten films per year as of 1998) and up to two films
from Turner Pictures per year as of 1996 (increasing annually to ten films per
year as of 2004) in addition to the 16 New Line films per year throughout the
extended term.
In addition to the New Line Agreement, Encore has entered into certain other
license agreements with TBS and certain of its other subsidiaries pursuant to
which Encore has acquired broadcast rights to certain television and
theatrical product owned by TBS. TBS recorded revenue under these agreements
of approximately $1,820,000 in 1995.
TBS and its subsidiaries have licensed the pay television broadcast rights
to certain of TBS's programming to other pay television services owned or
operated by Time Warner and TCI. In 1995, TBS recorded aggregate revenue from
such licensing arrangements of approximately $18,583,000.
In connection with the advertising and promotion of its cable services in
1995, TBS purchased advertising space in certain of the magazines that are
published by Time Warner. TBS recorded expenses in connection with those
purchases in 1995 of approximately $3,722,000. TBS recorded advertising
revenues in 1995 of approximately $5,306,000 for advertising placed on TBS's
services by Time Warner and its subsidiaries.
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SIGNIFICANT LEGISLATION AND REGULATION
APPLICABLE TO BROADCASTING AND CABLE TELEVISION SERVICES
Television broadcasting and cable television are subject to the jurisdiction
of the FCC under the Communications Act. The Communications Act empowers the
FCC to adopt such regulations as may be necessary to carry out the provisions
of the Communications Act and to impose certain penalties for violation of its
regulations. The Telecommunications Act, which substantially amends the
Communications Act, was enacted on February 8, 1996. Set forth below is a
general description of some of the principal areas of FCC regulation of the
broadcast and cable television industries and some of the possible effects
thereon of the Telecommunications Act.
ALIEN OWNERSHIP
The Communications Act prohibits a broadcast licensee (as well as certain
other FCC licensees, but not operators of cable systems) from being organized
under the laws of a foreign country or having more than 20% of its capital
stock owned or voted (directly or indirectly) by foreign nationals, foreign
governments or by corporations organized under the laws of a foreign country.
A company that directly or indirectly controls a subsidiary licensee may not
be organized under the laws of a foreign country or may not have more than 25%
of its capital stock owned or voted (directly or indirectly) by foreign
nationals, foreign governments or by corporations organized under the laws of
a foreign country, if the FCC finds that the public interest would be served
by the refusal of a license to such subsidiary. Time Warner and TBS are now,
and upon the consummation of the Mergers, New Time Warner is expected to be in
compliance with these restrictions.
BROADCAST LICENSE RENEWAL
Broadcast stations must seek renewal of their licenses from the FCC at the
end of each license term. The Telecommunications Act authorizes the FCC to
extend television license terms to eight years from current terms of five
years. The FCC has initiated a rulemaking proceeding which proposes to
implement such eight-year terms for television stations commencing with their
next renewal application. The Telecommunications Act directs the FCC to grant
renewal of a broadcast license if it finds that the station has served the
public interest, convenience, and necessity and that there have been no
serious violations (or other violations which would constitute a "pattern of
abuse") by the licensee of the Communications Act or FCC rules. If the FCC
finds that a licensee has failed to meet these standards, and there are not
sufficient mitigating factors, it may deny renewal or condition renewal
appropriately, including renewing for less than a full term. Any other party
with standing may petition the FCC to deny a broadcaster's application for
renewal. However, only if the FCC issues an order denying renewal will it
accept and consider applications from other parties for a construction permit
for a new station to operate on the channel subject to such denial. The FCC
may not consider any such applicant in making determinations concerning the
grant or denial of the licensee's renewal application. The license for WTBS
was most recently renewed on April 1, 1992. There were no petitions to deny or
mutually exclusive applications filed in connection with such renewal.
OWNERSHIP
The Communications Act and the FCC's rules restrict ownership of
"attributable interests" in broadcast licensees and cable television systems
on both the national and local level. Generally, ownership is attributed to
officers, directors and shareholders who own more than 5% of the outstanding
voting stock of a licensee or cable operator (except for certain institutional
shareholders who may own up to 10%). A single entity is now restricted as to
the percentage of the national audience that it may reach from all television
stations in which it holds attributable interests. The Telecommunications Act
eliminates a prior FCC restriction on the number of television stations in
which an entity may hold an attributable interest and raises the national
audience limit from 25 percent to 35 percent of the national television
audience. In addition, the FCC restricts the percentage of homes passed
nationwide by cable systems in which any entity holds a common attributable
interest. This latter rule is currently in abeyance pending an appeal to the
U.S. Court of Appeals for the D.C. Circuit of a lower court decision holding
the statutory provision underlying such rule unconstitutional. As required by
the Telecommunications Act, the FCC has eliminated its previous limitations on
the common ownership or control of a national broadcast network and a cable
system, subject to possible new FCC regulations in the future to ensure
nondiscriminatory treatment of nonaffiliated television stations by any such
cable systems/national broadcast network combination.
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The Telecommunications Act eliminates the statutory prohibition on the
common ownership or control of cable systems and local television broadcast
stations with overlapping service contours. A parallel prohibition in the FCC
rules remains, however, pending FCC review. The Grade B service contour of
WTBS overlaps the service area of a cable system owned by Time Warner in the
Atlanta, Georgia area. Time Warner has requested a temporary waiver from the
FCC for a limited period to allow for the divestiture of the cable system at
issue. In addition, the Telecommunications Act requires the FCC to conduct a
rulemaking to determine whether to retain, modify or eliminate existing
restrictions on the number of television stations in which one entity may hold
an attributable interest in a given market. The Telecommunications Act also
affects other FCC local ownership restrictions.
Pursuant to the Telecommunications Act, the FCC must review all of its
ownership rules biennially, and repeal or modify any regulation it deems to be
no longer in the public interest.
Apart from the Telecommunications Act, the FCC is currently engaged in an
extensive review of its attribution rules and its broadcast ownership rules.
While the FCC has tentatively suggested that it might relax some of its
ownership restrictions, it also has intimated that certain of its attribution
rules might be modified, such that certain ownership interests that currently
are not attributable would become attributable. Time Warner cannot predict
what impact such revisions, if adopted, will have on the operations of New
Time Warner or its subsidiaries if the Mergers are consummated.
ADVANCED TELEVISION SERVICES
The Telecommunications Act requires the FCC to adopt certain requirements
with respect to the implementation of advanced television services ("ATV"),
which will employ digital or other advanced technology. For example, if an
additional ATV license is issued to an existing broadcast licensee to permit
additional use of the spectrum, that grant must be conditioned upon the
ultimate surrender of one of those licenses. In addition, various members of
Congress have expressed an interest in continuing to explore issues related to
the license of additional use of the spectrum for ATV services. It is possible
that Congress will ultimately subject the award of such use of the spectrum to
competitive bidding. In May 1996, as part of an ongoing proceeding, the FCC
proposed to mandate a specific ATV technological standard.
VERTICAL INTEGRATION RULE
The FCC has adopted rules which, with certain exceptions, preclude a cable
television system from devoting more than 40% of its activated channels to
national video programming services in which the entity which owns the cable
television system has an attributable interest. Because of Time Warner's pre-
existing interest in TBS, the cable programming services owned and operated by
TBS have already been factored into Time Warner's compliance with this rule.
Thus, the Transaction will not further implicate this rule.
LEGISLATIVE REFORMS
The Telecommunications Act and FCC rules implementing it could affect
whatever decision the FCC may make with respect to the FCC Application (see
"The Transaction--Regulatory Approvals--FCC Approval Process") in additional
respects not described herein. Neither Time Warner nor TBS can predict the
impact of any telecommunications legislation on the FCC approval process
relating to the
FCC Application or on the operations of New Time Warner and its subsidiaries
following consummation of the Mergers. However, the Telecommunications Act is
expected to affect the operations of Time Warner in the following areas, in
addition to those described above.
Cable Television. The Telecommunications Act deregulates the rates charged
by larger multiple system operators such as Time Warner for tiers of cable
programming service ("CPS") (generally, optional packages of satellite-
delivered programming, over and above the basic tier which contains over-the-
air broadcast signals) as of March 31, 1999. Prior to such CPS rate
deregulation, individual subscribers may not initiate CPS rate complaint
proceedings directly with the FCC. Rather, only the local franchising
authority or state cable regulatory body may do so upon receipt of complaints
filed by more than one subscriber from that community.
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Moreover, the Telecommunications Act adds a new alternate test to the
"effective competition" definition, whereby CPS rates would be deregulated as
soon as a telephone company, or other multichannel video program provider
using the telephone company's facilities, begins to offer comparable video
programming by any means, such as open video systems, franchised cable or
wireless cable (but not direct broadcast satellite), regardless of market
penetration. Under the prior law, effective competition is deemed present only
if (a) fewer than 30 percent of the households in the franchise area subscribe
to the cable system or (b)(i) the cable system faces competition from a
multichannel video programming distributor which offers comparable programming
to at least 50 percent of the households served by the cable operator and (ii)
at least 15 percent of the households in the franchise area subscribe to
competing providers.
Telephone Competition. The Telecommunications Act creates opportunities for
cable television operators and other entities to compete with incumbent local
exchange carriers ("LECs") in the provision of local telecommunications
services, including local exchange telephone service. The Telecommunications
Act preempts the states from erecting or maintaining barriers to entry which
restrict local telephone competition. The Telecommunications Act also
establishes a general obligation for telecommunications providers to
interconnect their networks with those of other telecommunications providers.
LECs may not prohibit, nor may they impose unreasonable conditions or
limitations on, the resale of their services. Under the Telecommunications
Act, LECs must provide, "to the extent technically feasible," the opportunity
for consumers to retain their telephone numbers when changing local service
providers. LECs will be required to provide dialing parity to competing
providers, so a customer can place calls using a competitor's services by
dialing the same number of digits as would be required using the LEC's
services. In addition, LECs will be required to afford access to their poles,
ducts, conduits and rights-of-way to competitors on rates, terms and
conditions subject to regulation by the FCC or the states. LECs and
competitors will also be required to establish reciprocal compensation
arrangements for terminating calls over their networks originated by the
other. Finally, LECs will be required to make available to competitors public
switched network technology, information and telecommunications facilities and
functions as necessary to enable the competitor to provide telecommunications
services or access to information services. The
Telecommunications Act, with limited exceptions, also prohibits an LEC and a
cable operator within the same service area from acquiring more than a 10%
interest in each other or forming a joint venture to provide cable or
telephone service in that area.
The information contained under this heading does not purport to be a
complete summary of all the provisions of the Communications Act, the FCC
rules thereunder, the Telecommunications Act or of pending proposals in FCC
rulemaking proceedings or for other legislation regarding the regulation of
broadcasting and cable television. For a complete statement of such
provisions, reference is made to the Communications Act, the FCC Rules, the
Telecommunications Act and such pending proposals.
LEGAL MATTERS
The validity of the New Time Warner Common Stock and the New Time Warner
Preferred Stock to be issued in connection with the Transaction will be passed
upon by Cravath, Swaine & Moore.
Cravath, Swaine & Moore, counsel for Time Warner, and Skadden, Arps, Slate,
Meagher & Flom, counsel for TBS, will pass on certain Federal income tax
consequences of the Transaction for Time Warner and TBS, respectively.
EXPERTS
The consolidated financial statements of Time Warner and TWE appearing in
the Time Warner Form 10-K, 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.
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The financial statements of TBS as of December 31, 1994 and 1995, and for
the three years ended December 31, 1995, incorporated by reference in this
Joint Proxy Statement/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 given 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
Joint Proxy Statement/Prospectus, have been audited by Ernst & Young 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 given 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
Joint Proxy Statement/Prospectus, have been audited by Ernst & Young 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 given upon the authority of such firm
as experts in accounting and auditing.
The financial statements of Cablevision Industries Corporation as of
December 31, 1994, and for the three years ended December 31, 1994,
incorporated by reference in this Joint Proxy Statement/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
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of KBLCOM as of December 31, 1994, and for the two
years ended December 31, 1994, incorporated by reference in this Joint Proxy
Statement/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 given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Paragon as of December 31, 1993 and 1994, and
for the three years ended December 31, 1994, incorporated by reference in this
Joint Proxy Statement/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 given upon the authority of such firm
as experts in accounting and auditing.
It is expected that representatives of Ernst & Young LLP, Time Warner's
independent auditors, will be present at the Time Warner Meeting and
representatives of Price Waterhouse LLP, TBS's independent accountants, will
be present at the TBS Meeting where they will have an opportunity to respond
to appropriate questions of stockholders and to make a statement if they so
desire.
STOCKHOLDER PROPOSALS
The date by which proposals of stockholders of Time Warner must be submitted
to Time Warner in order to be included in Time Warner's proxy materials for
the next annual meeting of Time Warner stockholders is December 2, 1996. If
the date of such annual meeting is advanced or delayed, Time Warner will
comply with any applicable provision concerning submission of stockholder
proposals under Regulation 14A under the Exchange Act and the Time Warner By-
laws.
The date by which proposals of shareholders of TBS must be submitted to TBS
in order to be included in TBS's proxy materials for the next annual meeting
of TBS shareholders is January 3, 1997. If the date of such annual meeting is
advanced or delayed, TBS will comply with any applicable provision concerning
submission of shareholder proposals under Regulation 14A under the Exchange
Act.
190
<PAGE>
If the Mergers are consummated, the first annual meeting of the public
stockholders of New Time Warner after such consummation is expected to be held
on or about May 15, 1997. If any New Time Warner stockholder intends to
present a proposal at such New Time Warner annual meeting and wishes to have
such proposal considered for inclusion in the proxy materials for such
meeting, such holder must submit the proposal to the Secretary of New Time
Warner in writing so as to be received at the executive offices of New Time
Warner by December 2, 1996. Such proposals must also meet the other
requirements of the rules of the Commission relating to stockholders'
proposals. In addition, the New Time Warner By-laws will establish an advance
notice procedure with regard to certain matters, including stockholder
proposals not included in New Time Warner's proxy statement, to be brought
before an annual meeting of stockholders. In general, notice must be received
by the Secretary of New Time Warner not less than 70 days nor more than 90
days prior to the anniversary date of the immediately preceding annual meeting
and must contain specified information concerning the matters to be brought
before such meeting and concerning the stockholder proposing such matters. If
the date of the annual meeting is more than 30 days earlier or more than 60
days later than such anniversary date, notice must be received not earlier
than the 90th day prior to such annual meeting and not later than the close of
business on the later of the 70th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made. If a stockholder who has notified New Time Warner of his
intention to present a proposal at an annual meeting does not appear or send a
qualified representative to present his proposal at such meeting, New Time
Warner need not present the proposal for a vote at such meeting. If the date
of such annual meeting is advanced or delayed, New Time Warner will comply
with any applicable provision concerning submission of stockholder proposals
under Regulation 14A under the Exchange Act and the New Time Warner By-laws.
----------------
The following information is being disclosed pursuant to Florida law and is
accurate as of the date hereof: A subsidiary of Warner Communications Inc.
pays royalties to Artex, S.A., a corporation organized under the laws of Cuba,
in connection with the distribution in the United States of certain Cuban
musical recordings. Current information concerning this matter may be obtained
from the State of Florida Department of Banking & Finance, The Capital,
Tallahassee, Florida 32399-0350, 904-488-9805.
191
<PAGE>
SCHEDULE 1
INDEX AND GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS PAGE
- ---------------------- ----
<S> <C>
1995 Convertible Debt Refinancing.......................................... 110
1996 Convertible Debt Refinancing.......................................... 110
1996 Proxy Statement for Time Warner....................................... 123
Acquiring Person........................................................... 104
Admission Agreement........................................................ 78
Advance/Newhouse........................................................... 111
Agreement Restricting Activities........................................... 102
AMEX....................................................................... 3
announcement date.......................................................... 136
Appraisal Proceeding....................................................... 85
Appraisal Shares........................................................... 81
Approved Matters........................................................... 90
ATC........................................................................ 22
ATV........................................................................ 188
Bank Refinancing........................................................... 111
BET........................................................................ 52
Budgets.................................................................... 34
Cable Acquisitions......................................................... 111
Cable Comparables.......................................................... 63
Cable/Entertainment Index.................................................. 50
Cable Operators............................................................ 33
Cablevision Systems........................................................ 50
Capital Cities............................................................. 52
Capital City............................................................... 38
Capital City Consulting Agreement.......................................... 72
Castle Rock................................................................ 9
CBS........................................................................ 52
Change of Control.......................................................... 136
Change of Control Date..................................................... 136
Charitable Transferee...................................................... 106
Class C Directors.......................................................... 34
Class C Premium............................................................ 57
Closing.................................................................... 88
Closing Date............................................................... 88
CNN........................................................................ 12
CNNfn...................................................................... 12
CNNI....................................................................... 12
Code....................................................................... 69
Columbia................................................................... 52
Comcast.................................................................... 39
Commission................................................................. 3
Common Stock Directors..................................................... 34
Communications Act......................................................... 20
Comparable Companies....................................................... 56
Comparable Transactions.................................................... 56
Compensation Committee..................................................... 66
Competing Business......................................................... 102
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS PAGE
- ---------------------- ----
<S> <C>
Competing Person........................................................... 102
Consent Decree............................................................. 73
Continental................................................................ 33
Contributed Capital........................................................ 163
Contribution and Exchange Agreement........................................ 10
Contribution Election...................................................... 101
Conversion Date............................................................ 135
Conversion Period.......................................................... 147
Converting Holder.......................................................... 135
Convertible Debt Refinancings.............................................. 110
Court...................................................................... 85
Covered New Time Warner Common Stock....................................... 107
Covered Securities......................................................... 108
Covered TW Securities...................................................... 99
Cox........................................................................ 50
CPS........................................................................ 188
CS First Boston............................................................ 15
CS First Boston Opinion.................................................... 54
CSFB Engagement Letter..................................................... 72
Cumulative Priority Capital................................................ 163
current market price....................................................... 154
CVI........................................................................ 22
CVI Acquisition............................................................ 110
Debt Refinancings.......................................................... 111
DGCL....................................................................... 13
Disinterested Director..................................................... 179
Disinterested Stockholder.................................................. 179
Disney..................................................................... 45
Dissenters' Notice......................................................... 84
Dissenting Shares.......................................................... 84
Dissenting TBS Holder...................................................... 84
Dissenting TBS Holder Demand............................................... 85
Distribution Contract...................................................... 8
Distribution Date.......................................................... 127
EBITDA..................................................................... 50
Effective Date............................................................. 140
Effective Period........................................................... 180
Effective Time of the Mergers.............................................. 88
Eligible Person............................................................ 106
Encore..................................................................... 186
Entertainment Comparables.................................................. 63
Exchange Act............................................................... 3
Exchange Ratio............................................................. 48
Excluded Holder............................................................ 178
Existing Rights Agreement.................................................. 2
Expiration Date............................................................ 127
Fair Value................................................................. 84
Family Members............................................................. 106
FCC........................................................................ 19
FCC Application............................................................ 74
February 1996 Redemption................................................... 110
Final Redemption Date...................................................... 160
First Refusal Right........................................................ 108
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS PAGE
- ---------------------- ----
<S> <C>
Five-Year Exercise Right................................................... 68
FTC........................................................................ 9
FTC Consent Decree......................................................... 9
Gaylord.................................................................... 52
GBCC....................................................................... 7
Georgia Business Combination Statute....................................... 177
Georgia Fair Price Statute................................................. 177
Gerry Companies............................................................ 110
Grade B Service Contour.................................................... 75
Group...................................................................... 36
Hasbro LYONs............................................................... 87
HB Joint Venture........................................................... 25
highest price.............................................................. 136
Home Box Office............................................................ 65
Home Video Agreement....................................................... 186
homes passed............................................................... 75
HSN........................................................................ 61
HSR Act.................................................................... 19
Included Tax Distributions................................................. 163
Initial Award.............................................................. 67
Initial Shares............................................................. 107
Insolvency Redemption Amount............................................... 163
Interested Director........................................................ 35
interested shareholder..................................................... 177
Interested Stockholder..................................................... 179
International Family....................................................... 52
Investor................................................................... 105
Investors' Agreement (No. 1)............................................... 10
Investors' Agreement (No. 2)............................................... 107
IRS........................................................................ 37
ITOCHU..................................................................... 22
ITOCHU/Toshiba Transaction................................................. 111
January 1996 Debentures.................................................... 110
Junior Stock............................................................... 164
KBLCOM..................................................................... 22
KBLCOM Acquisition......................................................... 111
LECs....................................................................... 189
Letter Ruling.............................................................. 76
Liberty Party.............................................................. 99
LMC........................................................................ 7
LMC Agreement.............................................................. 7
LMC Common Stock........................................................... 8
LMC Demand Registration.................................................... 109
LMC Holders................................................................ 109
LMC Non-competition Covenant............................................... 8
LMC Reduced Voting Common Stock............................................ 8
LMC Registrable Shares..................................................... 109
LMC Registration Rights Agreement.......................................... 10
LMC Series Common Stock.................................................... 8
LSSI....................................................................... 101
Lump Sum Payment........................................................... 66
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS PAGE
- ---------------------- ----
<S> <C>
Mandatory Redemption Amount................................................ 164
Mandatory Redemption Price................................................. 164
Material Transaction....................................................... 91
Matsushita................................................................. 38
Maximum Premium............................................................ 68
MC Group Consulting Agreement.............................................. 73
MCA........................................................................ 38
Merger Agreement........................................................... 1
Mergers.................................................................... 2
Merrill Lynch.............................................................. 15
Merrill Lynch Engagement Letter............................................ 72
Merrill Lynch Opinion...................................................... 57
MGM........................................................................ 56
Moody's.................................................................... 164
Morgan Stanley............................................................. 13
Morgan Stanley Engagement Letter........................................... 73
Morgan Stanley Opinion..................................................... 48
MSG Assets................................................................. 52
MVPD....................................................................... 9
Net Partnership Value...................................................... 101
Net Value.................................................................. 68
New Credit Agreement....................................................... 111
New Line................................................................... 9
News Corp.................................................................. 45
New Time Warner............................................................ 1
New Time Warner Board...................................................... 10
New Time Warner By-laws.................................................... 90
New Time Warner Capital Stock.............................................. 2
New Time Warner Charter.................................................... 8
New Time Warner Common Stock............................................... 2
New Time Warner Preferred Stock............................................ 2
New Time Warner Right...................................................... 2
New Time Warner Rights Agreement........................................... 2
New Time Warner Series A Preferred Stock................................... 125
New Time Warner Series Common Stock........................................ 8
New Time Warner Series D Preferred Stock................................... 125
New Time Warner Series E Preferred Stock................................... 125
New Time Warner Series F Preferred Stock................................... 125
New Time Warner Series G Preferred Stock................................... 125
New Time Warner Series H Preferred Stock................................... 125
New Time Warner Series I Preferred Stock................................... 125
New Time Warner Series J Preferred Stock................................... 125
New Time Warner Series M Preferred Stock................................... 125
New Time Warner Series L Preferred Stock................................... 125
New Time Warner Value...................................................... 59
Notice of Intent........................................................... 84
NYSE....................................................................... 3
OCF........................................................................ 62
Offer of Payment........................................................... 85
Offer Value Percentage..................................................... 59
Options.................................................................... 67
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS PAGE
- ---------------------- ----
<S> <C>
Original Morgan Stanley Opinion............................................ 48
Other Stockholder.......................................................... 108
Ownership Limitations...................................................... 91
Paragon.................................................................... 24
Paramount.................................................................. 52
Parity Stock............................................................... 164
PERCS...................................................................... 110
Permitted Other Holder..................................................... 87
Permitted Transferee....................................................... 106
Per Share Premium Percentage............................................... 60
Preferred Trust Securities................................................. 110
Prior TCI Arrangements..................................................... 38
Private Per Share Premium.................................................. 61
Private Premium Transaction................................................ 61
Pro Rata Percentage........................................................ 164
Pro Rata Portion........................................................... 140
Pro Rata Repurchase........................................................ 140
Program Agreement.......................................................... 9
Prohibited Effect.......................................................... 99
Prohibited Turner Effect................................................... 35
PPV Output Agreement....................................................... 9
PSE........................................................................ 3
Public Per Share Premium................................................... 61
Public Premium Target...................................................... 60
Public Premium Transaction................................................. 60
Public Programming Companies............................................... 63
Purchase Price............................................................. 127
Qualified Stockholder...................................................... 106
Qualified Trust............................................................ 106
QVC........................................................................ 52
Rating Confirmation........................................................ 164
Real Estate/Sports......................................................... 50
Redeemable Number.......................................................... 164
Redemption Premium......................................................... 70
Redemption Price........................................................... 129
Redemption Recission Event................................................. 139
Registrable Shares......................................................... 108
Registration Statement..................................................... 3
Reorganization of TWE...................................................... 165
Reorganization Redemption Price............................................ 165
Reset Notes................................................................ 111
Reset Notes Refinancing.................................................... 111
Restriction Period......................................................... 99
Right of First Refusal Agreement........................................... 10
Rights..................................................................... 88
Rights Amendment........................................................... 10
Rights Certificates........................................................ 127
S&P........................................................................ 164
Seagram.................................................................... 52
Second Amended Complaint................................................... 79
Section 262................................................................ 81
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS PAGE
- ---------------------- ----
<S> <C>
Securities Act............................................................. 3
September 1995 Redemption.................................................. 110
September 22 Analyses...................................................... 57
Series B Redemption ....................................................... 165
Series D Accrued Dividend Amount........................................... 134
Series D Conversion Price.................................................. 134
Series D Conversion Rate................................................... 134
Series D Dividend Payment Date............................................. 132
Series D Exchange Price.................................................... 138
Series D Net Dividend Amount............................................... 134
Series D Record Date....................................................... 132
Series D Redemption Price.................................................. 138
Series E Accrued Dividend Amount........................................... 143
Series E Conversion Price.................................................. 142
Series E Conversion Rate................................................... 142
Series F Accrued Dividend Amount........................................... 145
Series F Conversion Price.................................................. 145
Series F Conversion Rate................................................... 144
Series J Conversion Price.................................................. 151
Series J Conversion Rate................................................... 151
Series J Dividend Payment Date............................................. 149
Series J Record Date....................................................... 149
Series J Redemption Price.................................................. 155
Series K Refinancing....................................................... 110
Series L Debentures........................................................ 167
Series M Change of Control................................................. 165
Series M Dividend Payment Date............................................. 159
Series M Mandatory Redemption Date......................................... 160
Series M Record Date....................................................... 159
Silver King................................................................ 61
Six Flags.................................................................. 24
Six Flags Transaction...................................................... 111
Sony....................................................................... 52
Special Meetings........................................................... 1
Special Voting Rights...................................................... 34
Specified Adjustment....................................................... 51
SpinCo Party............................................................... 99
SportSouth................................................................. 9
SportSouth Agreement....................................................... 9
SportSouth Region.......................................................... 102
SSSI....................................................................... 8
SSSI Option................................................................ 8
SSSI Agreement............................................................. 8
SSSI Agreement Consideration............................................... 48
Studios.................................................................... 51
Subject Person............................................................. 104
Subject Shares............................................................. 108
Subject Stockholder........................................................ 108
Summit..................................................................... 22
Summit Acquisition......................................................... 111
Sunshine Option............................................................ 9
Sunshine Option Agreement.................................................. 9
Support Agreement.......................................................... 7
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS PAGE
- ---------------------- ----
<S> <C>
Takeover Proposal.......................................................... 91
Tax Distributions.......................................................... 166
TBS........................................................................ 1
TBS 1995 Forecast.......................................................... 50
TBS 1996 Forecast.......................................................... 50
TBS 1996 Budget............................................................ 50
TBS Articles............................................................... 7
TBS Board.................................................................. 1
TBS By-Laws................................................................ 34
TBS Capital Stock.......................................................... 1
TBS Class A Common Stock................................................... 1
TBS Class B Common Stock................................................... 1
TBS Class B Preferred Stock................................................ 33
TBS Class C Preferred Stock................................................ 1
TBS Common Stock........................................................... 1
TBS Convertible Securities................................................. 35
TBS Form 8-Ks.............................................................. 4
TBS Form 10-K.............................................................. 4
TBS Form 10-Q.............................................................. 4
TBS Investors' Agreement................................................... 35
TBS LYONs.................................................................. 17
TBS LYONs Indenture........................................................ 87
TBS Meeting................................................................ 1
TBS Merger................................................................. 2
TBS Merger Approval........................................................ 31
TBS Merger Corp............................................................ 1
TBS Merger Proposal........................................................ 1
TBS Officers............................................................... 68
TBS Record Date............................................................ 14
TBS Reports................................................................ 4
TBS Shareholders' Agreement................................................ 35
TBS Superstation........................................................... 12
TBS Voting Agreement....................................................... 34
TCI........................................................................ 7
TCI Arrangements........................................................... 8
TCI Control Shareholders................................................... 76
TCI Group.................................................................. 36
TCI Spin-off............................................................... 9
TCI Value.................................................................. 59
TCITP...................................................................... 108
TCITP Stockholders......................................................... 108
TCM........................................................................ 12
TEC Library................................................................ 119
Telecommunications Act..................................................... 74
Term Date.................................................................. 65
The Capital Group.......................................................... 171
Third Amended Complaint.................................................... 79
Time....................................................................... 33
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS PAGE
- ---------------------- ----
<S> <C>
Time Group................................................................. 36
Time/TCI Agreement......................................................... 35
Time Warner................................................................ 1
Time Warner Board.......................................................... 1
Time Warner Capital Stock.................................................. 1
Time Warner Charter........................................................ 13
Time Warner Common Stock................................................... 1
Time Warner Form 8-Ks...................................................... 4
Time Warner Form 10-K...................................................... 4
Time Warner Form 10-Qs..................................................... 4
Time Warner General Partners............................................... 12
Time Warner Meeting........................................................ 1
Time Warner Merger......................................................... 2
Time Warner Preferred Stock................................................ 1
Time Warner Record Date.................................................... 13
Time Warner Reports........................................................ 4
Time Warner Series D Preferred Stock....................................... 13
Time Warner Series E Preferred Stock....................................... 13
Time Warner Series F Preferred Stock....................................... 13
Time Warner Series G Preferred Stock....................................... 13
Time Warner Series H Preferred Stock....................................... 147
Time Warner Series I Preferred Stock....................................... 13
Time Warner Series J Preferred Stock....................................... 13
Time Warner Series K Preferred Stock....................................... 22
Time Warner Series M Preferred Stock....................................... 158
Time Warner Service Partnerships........................................... 110
Time Warner Voting Preferred Stock......................................... 13
TNT........................................................................ 12
Toshiba.................................................................... 22
Transaction................................................................ 2
Transaction Agreements..................................................... 10
TSP........................................................................ 101
Turner Demand Registration................................................. 108
Turner Employment Agreement................................................ 65
Turner Holders............................................................. 108
Turner Outdoor............................................................. 7
Turner Partners............................................................ 10
Turner Pictures............................................................ 9
Turner Registration Rights Agreement....................................... 10
Turner Shareholders........................................................ 7
Turner Shareholder Shares.................................................. 104
TW 7.75% Notes............................................................. 110
TW 8.75% Convertible Debentures............................................ 110
TW 8.75% Debentures........................................................ 110
TW Indenture............................................................... 87
TW LYONs................................................................... 17
TW Merger Approval......................................................... 30
TW Merger Corp............................................................. 1
TW Merger Proposal......................................................... 1
TW Transactions............................................................ 110
TWE........................................................................ 9
TWE Contingent Capital..................................................... 166
</TABLE>
viii
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS PAGE
- ---------------------- ----
<S> <C>
TWE Insolvency Valuation................................................... 166
TWE Partnership Agreement.................................................. 78
TWE Residual Capital....................................................... 166
TWE Senior Capital......................................................... 166
TWE Series A Capital....................................................... 166
TWE Series B Capital....................................................... 166
TWE Valuation.............................................................. 166
TWE-Advance/Newhouse Partnership........................................... 111
TWE-A/N Transaction........................................................ 111
TWI Cable.................................................................. 110
UCTI....................................................................... 101
UMG........................................................................ 50
Unaffiliated Directors..................................................... 37
Unclustered Cable Transactions............................................. 111
Units Offering............................................................. 33
U S WEST................................................................... 12
U S WEST Option............................................................ 167
USWMC...................................................................... 78
Viacom..................................................................... 45
Video Division............................................................. 65
Voting Stock............................................................... 179
WCCI....................................................................... 78
WCI........................................................................ 33
WCI Acquisition............................................................ 33
Westinghouse............................................................... 52
WHV........................................................................ 186
WTBS Conversion............................................................ 8
</TABLE>
ix
<PAGE>
GLOSSARY OF DEFINED TERMS
The following are definitions of certain capitalized terms defined in the
Joint Proxy Statement/Prospectus (other than the capitalized terms defined in
the Joint Proxy Statement/Prospectus under "Description of New Time Warner
Capital Stock") and referenced in the foregoing Index to Defined Terms. Each
such term should be considered in the context in which it is used in the Joint
Proxy Statement/Prospectus.
1995 CONVERTIBLE DEBT REFINANCING--the financing of the September 1995
Redemption.
1996 CONVERTIBLE DEBT REFINANCING--the issuance of the Preferred Trust
Securities and the January 1996 Debentures, together with the financing of the
February 1996 Redemption.
1996 PROXY STATEMENT FOR TIME WARNER--Time Warner's Proxy Statement used in
connection with its 1996 Annual Meeting of Stockholders.
ADMISSION AGREEMENT--the agreement pursuant to which USWMC was admitted as a
limited partner in TWE.
ADVANCE/NEWHOUSE--the Advance/Newhouse Partnership.
AGREEMENT RESTRICTING ACTIVITIES--an agreement to be entered into by TBS and
Time Warner, on the one hand, and SportSouth, on the other, restricting
certain activities of TBS, Time Warner and their respective affiliates.
AMEX--the American Stock Exchange, Inc.
APPRAISAL PROCEEDING--a nonjury equitable valuation proceeding to be
commenced by TBS if a Dissenting TBS Holder Demand remains unsettled.
APPRAISAL SHARES--the shares of Time Warner Preferred Stock whose holders
follow the procedures set forth in Section 262 of the DGCL to have their
shares of Time Warner Preferred Stock appraised by the Delaware Chancery Court
and to receive payment in cash of the "fair value" of such shares, exclusive
of any element of value arising from the accomplishment or expectation of the
Transaction, together with a fair rate of interest, if any, as determined by
such court.
APPROVED MATTERS--the matters that are (x) expressly included in a master
budget contemplated by the TBS By-Laws as in effect on September 22, 1995, or
thereafter approved by Time Warner or (y) otherwise approved in writing by
Time Warner.
ATC--American Television and Communications Corporation.
ATV--advanced television services.
BANK REFINANCING--the use of the New Credit Agreement to refinance certain
indebtedness assumed in connection with the Cable Acquisitions, to refinance
TWE's indebtedness under a pre-existing bank credit agreement and to finance
the ongoing working capital, capital expenditures and other corporate needs of
each borrower under the New Credit Agreement.
BET--BET Holdings Inc.
CABLE ACQUISITIONS--the CVI Acquisition, KBLCOM Acquisition and the Summit
Acquisition.
CABLE/ENTERTAINMENT INDEX--a blended cable television and entertainment
company index composed of the stocks of Cablevision Systems, Cox, Comcast, TCI
(adjusted for the LMC spin-off), Disney, News Corp. and Viacom.
x
<PAGE>
CABLE OPERATORS--the group of investors that participated in the Units
Offering.
CABLEVISION SYSTEMS--Cablevision Systems Corporation.
CAPITAL CITIES--Capital Cities/ABC, Inc.
CAPITAL CITY--Capital City Advisors, Inc.
CAPITAL CITY CONSULTING AGREEMENT--the consulting agreement dated May 1,
1994, between TBS and Capital City, as amended.
CASTLE ROCK--Castle Rock Entertainment.
CBS--CBS Inc.
CHARITABLE TRANSFEREE--any charitable organization described in Section
501(c)(3) of the Code.
CLASS C DIRECTORS--the seven TBS directors elected by the holders of the TBS
Class C Preferred Stock.
CLASS C PREMIUM--the incremental value to be received by TCI as a holder of
shares of TBS Class C Preferred Stock as a result of the difference between
the consideration to be received by holders of TBS Common Stock and holders of
TBS Class C Preferred Stock, on an as-converted basis.
CLOSING--the closing of the Mergers.
CLOSING DATE--the date to be specified by the parties to the Merger
Agreement, which, unless otherwise agreed by the parties, shall be no later
than the second business day after the satisfaction of certain conditions
precedent to the consummation of the Mergers.
CNN--Cable News Network.
CNNFN--CNN Financial News Network.
CNNI--Cable News Network International.
CODE--the Internal Revenue Code of 1986, as amended.
COLUMBIA--Columbia Pictures Entertainment, Inc.
COMCAST--Comcast Corporation.
COMMISSION--the Securities and Exchange Commission.
COMMON STOCK DIRECTORS--the eight TBS directors that the holders of TBS
Common Stock are entitled to elect.
COMMUNICATIONS ACT--the Communications Act of 1934.
COMPARABLE COMPANIES--Time Warner, The News Corporation Limited, Disney and
Viacom.
COMPARABLE TRANSACTIONS--the proposed acquisition of MGM by a group
including Tracinda Corporation and MGM management, U S WEST/Continental,
Westinghouse/CBS, Disney/Capital Cities, Gannet Co., Inc./Multimedia, Inc.,
Seagram/MCA, Viacom/Blockbuster and Viacom/Paramount.
xi
<PAGE>
COMPENSATION COMMITTEE--the Compensation Committee of the New Time Warner
Board.
COMPETING BUSINESS--the organization, ownership or operation of a regional
cable television sports network offered primarily to viewers in the SportSouth
Region.
COMPETING PERSON--a person engaged, directly or indirectly, in a Competing
Business.
CONSENT DECREE--consent decree entered into by Michael Milken with the
Commission in 1991 which prohibits Mr. Milken from association with any
broker, dealer, investment adviser, investment company or municipal securities
dealer.
CONTRIBUTED CAPITAL--the initial priority capital and residual equity
amounts that were assigned to the partners in TWE based on the estimated fair
value of the net assets each contributed to TWE, as adjusted for the fair
value of certain assets distributed by TWE to the Time Warner General Partners
in 1993 which were not subsequently reacquired by TWE in 1995.
CONTINENTAL--Continental Cablevision, Inc.
CONTRIBUTION AND EXCHANGE AGREEMENT--the Contribution and Exchange Agreement
dated as of September 22, 1995, pursuant to which New Time Warner has granted
to LMC the right to require New Time Warner to acquire substantially all
shares of TBS Capital Stock owned by TCI and its affiliates directly from LMC
simultaneously with the Closing for the same consideration payable for such
shares in the TBS Merger.
CONTRIBUTION ELECTION--the election by LMC to contribute all the capital
stock of UCTI to New Time Warner simultaneously with the Closing pursuant to
the Contribution and Exchange Agreement.
CONVERTIBLE DEBT REFINANCINGS--the 1995 Convertible Debt Refinancing and the
1996 Convertible Debt Refinancing.
COURT--the Superior Court of Fulton County, Georgia.
COVERED NEW TIME WARNER COMMON STOCK--(i) any shares of New Time Warner
Common Stock transferred to a Qualified Stockholder by an Investor pursuant to
Investors' Agreement (No. 1) and (ii) any shares of New Time Warner Common
Stock acquired by a Qualified Stockholder pursuant to the Transaction
otherwise than in exchange for any shares of TBS Common Stock owned by such
Qualified Stockholder on September 22, 1995.
COVERED SECURITIES--New Time Warner Capital Stock, New Time Warner
securities convertible into such capital stock, or options, warrants or other
rights to purchase such capital stock or such securities convertible into such
capital stock on which the Right of First Refusal Agreement places various
restrictions on dispositions by any Subject Stockholder.
COVERED TW SECURITIES--(a)(i) if the Mergers are consummated, the shares of
New Time Warner Common Stock beneficially owned by LMC immediately following
the consummation of the TBS Merger as a result of the conversion in the TBS
Merger of the shares of TBS Capital Stock beneficially owned by LMC on
September 22, 1995 and (ii) if the Contribution Election is made, the shares
of New Time Warner Common Stock received by the Liberty Parties in connection
therewith, determined assuming that the shares of TBS Capital Stock
contributed to New Time Warner or owned by the subsidiaries of LMC so
contributed did not include any shares of TBS Capital Stock not beneficially
owned by LMC on September 22, 1995, (b) the shares of LMC Reduced Voting
Common Stock issued pursuant to the SSSI Agreement and (c) all shares of LMC
Common Stock and LMC Reduced Voting Common Stock for which the shares of New
Time Warner Common Stock and LMC Common Stock referred to in clauses (a) and
(b) above and in this clause (c) may be exchanged pursuant to the provisions
of the LMC Agreement.
COX--Cox Communications, Inc.
CPS--cable programming service.
CS FIRST BOSTON--CS First Boston Corporation.
CS FIRST BOSTON OPINION--the oral opinion of CS First Boston (subsequently
confirmed in writing) delivered on August 8, 1996 to the TBS Board.
xii
<PAGE>
CSFB ENGAGEMENT LETTER--the letter agreement pursuant to which TBS retained
CS First Boston as its financial advisor to provide financial analyses and
advice and to render an opinion to the TBS Board.
CUMULATIVE PRIORITY CAPITAL--the sum of Contributed Capital and the
undistributed priority capital return. The priority capital return consists of
net partnership income allocated to date in accordance with the provisions of
the TWE Partnership Agreement and the right to be allocated additional
partnership income which, together with any previously allocated net
partnership income, provides for the various priority capital rates of return
specified in the following table:
<TABLE>
<CAPTION>
PRIORITY CAPITAL
RATES OF RETURN(A)
------------------
(% PER ANNUM
COMPOUNDED
QUARTERLY)
<S> <C>
TWE Senior Capital........................................ 8.00%
TWE Series A Capital...................................... 13.00%(b)
TWE Series B Capital...................................... 13.25%(c)
TWE Residual Capital...................................... -- (d)
</TABLE>
- --------
(a) Income allocations related to priority capital rates of return are based
on partnership income after any special income allocations for tax
purposes.
(b) 11.00% to the extent concurrently distributed.
(c) 11.25% to the extent concurrently distributed.
(d) TWE Residual Capital is not entitled to stated priority rates of return
and, as such, the Cumulative Priority Capital relating thereto is equal to
the Contributed Capital. However, in the case of certain events such as
the liquidation or dissolution of TWE, the TWE Residual Capital is
entitled to any excess of the then fair value of the net assets of TWE
over the aggregate amount of Cumulative Priority Capital and special tax
allocations.
CVI--Cablevision Industries Corporation.
CVI ACQUISITION--the acquisition by Time Warner of CVI.
DEBT REFINANCINGS--collectively, the Series K Refinancing, the Bank
Refinancing, the Convertible Debt Refinancings and the Reset Notes
Refinancing.
DGCL--the General Corporation Law of the State of Delaware.
DISINTERESTED DIRECTOR--any member of the New Time Warner Board who is
unaffiliated with, and not a nominee of, an Interested Stockholder and was a
member of the New Time Warner Board prior to the time that such Interested
Stockholder became an Interested Stockholder, and any successor of a
Disinterested Director who is unaffiliated with, and not a nominee of, such
Interested Stockholder and who is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the New Time Warner
Board.
DISINTERESTED STOCKHOLDER--a stockholder of New Time Warner who is not an
Interested Stockholder or an affiliate or an associate of an Interested
Stockholder.
DISNEY--The Walt Disney Company.
DISSENTERS' NOTICE--a written dissenters' notice to be delivered by TBS to
Dissenting TBS Holders if the TBS Merger is authorized.
DISSENTING SHARES--the shares of TBS Capital Stock owned by a Dissenting TBS
Holder.
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DISSENTING TBS HOLDER--a record holder of shares of TBS Capital Stock who
properly exercises dissenters' rights pursuant to Article 13 of the GBCC.
DISSENTING TBS HOLDER DEMAND--a Dissenting TBS Holder's notification to TBS
in writing of his own estimate of the Fair Value of his Dissenting Shares and
amount of interest due, and demand for payment of such estimate.
DISTRIBUTION CONTRACT--distribution contract pursuant to which SSSI will
undertake specified uplinking and distribution activities for New Time Warner
in the event of the WTBS Conversion.
EFFECTIVE PERIOD--the period during which there are at least 4 million
outstanding shares of TBS Class C Preferred Stock.
EFFECTIVE TIME OF THE MERGERS--the time at which the Mergers become
effective.
ELIGIBLE PERSON--Mr. Turner and any other individual (a) who is reasonably
acceptable to the New Time Warner Board, (b) whose election to the New Time
Warner Board would not, in the opinion of counsel for New Time Warner,
violate, conflict with, or result in any material limitation on the ownership
or operation of any business or assets of New Time Warner or any of its
subsidiaries under, any statute, law, ordinance, regulation, rule, judgment,
decree or order of any governmental entity and (c) who has agreed in writing
to comply with the standstill covenants, and to resign as a director of New
Time Warner if requested to do so upon a reduction in the number of designees
to the New Time Warner Board to which Mr. Turner is entitled.
ENCORE--Encore Media Corporation.
ENTERTAINMENT COMPARABLES--the five selected business combinations in the
entertainment industry reviewed by Merrill Lynch.
EXCHANGE ACT--Securities Exchange Act of 1934, as amended.
EXCHANGE RATIO--the ratio contemplated by the Merger Agreement for the
exchange of New Time Warner Common Stock for TBS Capital Stock.
EXISTING RIGHTS AGREEMENT--Time Warner's existing stockholder rights
agreement.
EXPIRATION DATE--January 20, 2004, the date the New Time Warner Rights will
expire.
FAIR VALUE--the value of Dissenting Shares immediately before the
consummation of the TBS Merger, excluding any appreciation or depreciation in
anticipation of the TBS Merger.
FAMILY MEMBERS--a Permitted Transferee's current or future spouse, parents,
siblings or descendants or such parents', siblings' or descendants' spouses.
FCC--the Federal Communications Commission.
FCC APPLICATION--an application for consent to the transfer of control to
New Time Warner of Superstation, Inc., the licensee of WTBS, and associated
broadcast auxiliary licenses, filed with the FCC on October 20, 1995.
FEBRUARY 1996 REDEMPTION--the redemption by Time Warner in February 1996 of
approximately $1.2 billion principal amount of TW 8.75% Convertible
Debentures.
FIRST REFUSAL RIGHT--the right of a Subject Stockholder, in connection with
any proposed sale of Subject Shares by any Other Subject Stockholder, to
purchase the Subject Shares of such Other Subject Stockholder for a
consideration no more favorable to the Subject Stockholder than the
consideration that would apply if such Subject Stockholder consummated such
proposed sale.
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<PAGE>
FIVE-YEAR EXERCISE RIGHT--the right of certain officers of TBS, in the event
any such officer's employment is terminated for any reason, for each of the
options to purchase New Time Warner Common Stock held by such officer to
remain exercisable until the earlier of the existing expiration date of such
option and the fifth anniversary of the consummation of the Mergers.
FTC--the Federal Trade Commission.
FTC CONSENT DECREE--Agreement Containing Consent Order dated August 14,
1996, among Time Warner, TBS, TCI, LMC and the FTC, including the related
Interim Agreement dated August 14, 1996, among Time Warner, TBS, TCI, LMC and
the FTC. The FTC has not yet initially accepted the FTC Consent Decree.
GAYLORD--Gaylord Entertainment Company.
GBCC--the Georgia Business Corporation Code.
GERRY COMPANIES--certain affiliated entities of CVI.
GRADE B SERVICE CONTOUR--an FCC-promulgated technical description of the
strength of a television station's signal which demarks an area in which a
certain minimum signal strength can be received; generally defining an area
where, on average, a television station can be expected to be viewable with
the aid of a rooftop antenna.
GROUP--the TCI Group or the Time Group.
HASBRO LYON--Time Warner's Liquid Yield Option Notes due 2012.
HB JOINT VENTURE--joint venture which principally owns the Hanna-Barbera
Film Library.
HOME BOX OFFICE--the Home Box Office division of TWE.
HOMES PASSED--the number of homes that are or could be readily connected to
a cable system's distribution wires running along the street on which the
homes are located.
HSN--Home Shopping Network, Inc.
HSR ACT--the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
INITIAL SHARES--the voting securities of New Time Warner owned by the
Investors and the Qualified Stockholders, taken together, immediately
following consummation of the Transaction.
INTERNATIONAL FAMILY--International Family Entertainment, Inc.
INVESTOR--Mr. Turner and Turner Outdoor and each successor, assign and other
person that, pursuant to the terms of Investors' Agreement (No. 1), is
required to become a party thereto.
INVESTORS' AGREEMENT (NO. 1)--the Investors' Agreement to be entered into by
New Time Warner, the Turner Shareholders and Turner Partners upon consummation
of the Mergers, pursuant to which, among other matters, the Turner
Shareholders will agree to certain restrictions on their activities as
stockholders of New Time Warner and to certain restrictions on dispositions by
them of shares of New Time Warner Capital Stock.
INVESTORS' AGREEMENT (NO. 2)--the Investors' Agreement to be entered into by
any Charitable Transferee or Qualified Trust to whom any Turner Shareholder
transfers voting securities of New Time Warner, whereupon such transferee will
become a Qualified Stockholder and become subject to certain restrictions on
dispositions of shares of New Time Warner Common Stock.
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<PAGE>
IRS--the Internal Revenue Service.
ITOCHU--ITOCHU Corporation.
ITOCHU/TOSHIBA TRANSACTION--the exchange by each of Toshiba and ITOCHU of
(i) their 5.61% pro rata equity interests in TWE, (ii) their 6.25% residual
equity interests in the Time Warner Service Partnerships and (iii) their
options to increase their interests in TWE under certain circumstances for, in
the case of ITOCHU, 6.2 million shares of Time Warner Series G Preferred Stock
and 1.8 million shares of Time Warner Series H Preferred Stock and, in the
case of Toshiba, 7 million shares of Time Warner Series I Preferred Stock and
$10 million in cash.
JANUARY 1996 DEBENTURES--(a) the 6.85% debentures due 2026 of Time Warner,
(b) the 8.3% discount debentures due 2036 of Time Warner, (c) the 7.48%
debentures due 2008 of Time Warner and (d) the 8.05% debentures due 2016 of
Time Warner.
KBLCOM--KBLCOM Incorporated.
KBLCOM ACQUISITIONS--the acquisition by Time Warner of KBLCOM.
LECS--local exchange carriers.
LETTER RULING--ruling from the Internal Revenue Service that the TCI Spin-
off would be a non-taxable transaction under Section 355 of the Code.
LIBERTY PARTY--LMC and each affiliate of LMC that is controlled by LMC from
time to time and, for so long as LMC is controlled by TCI, TCI and each
affiliate of TCI that is controlled by TCI from time to time.
LMC--Liberty Media Corporation.
LMC AGREEMENT--the Second Amended and Restated LMC Agreement dated as of
September 22, 1995.
LMC COMMON STOCK--Series LMC Common Stock of New Time Warner.
LMC DEMAND REGISTRATION--the right of the LMC Holders holding not less than
a majority of the LMC Registrable Shares then held by all LMC Holders to
require New Time Warner, on three separate occasions, to register under the
Securities Act all or any portion of the LMC Registrable Shares designated by
such LMC Holders.
LMC HOLDERS--LMC and certain specified entities to whom the LMC Registrable
Shares are transferred pursuant to the LMC Registration Rights Agreement.
LMC NON-COMPETITION COVENANT--agreement by LMC not to compete in the
business of uplinking and distributing the WTBS signal.
LMC REDUCED VOTING COMMON STOCK--Series LMCN-V Common Stock of New Time
Warner.
LMC REGISTRABLE SHARES--the shares of New Time Warner Common Stock issued to
any of the initial LMC Holders pursuant to the Merger Agreement, or any
securities into which such shares may be exchanged or converted and any such
shares issued to any Turner Holder and acquired by any LMC Holder pursuant to
the Right of First Refusal Agreement.
LMC REGISTRATION RIGHTS AGREEMENT--the Registration Rights Agreement to be
entered into by New Time Warner, LMC and certain of its subsidiaries upon
consummation of the Mergers, pursuant to which New Time Warner will grant to
LMC, such subsidiaries and specified transferees rights to require the
registration
under the Securities Act of sales of certain New Time Warner Common Stock held
by LMC, such subsidiaries and such transferees.
xvi
<PAGE>
LMC SERIES COMMON STOCK--the LMC Reduced Voting Common Stock and the LMC
Common Stock.
LSSI--LMC Southeast Sports, Inc.
MATERIAL TRANSACTION--subject to certain exceptions, (a) the issuance by
Time Warner of more than 90 million shares of Time Warner Common Stock or
their equivalent in any single transaction or series of individual
transactions, each of which involves the issuance of more than 20 million
shares of Time Warner Common Stock or their equivalent, or (b) the sales of
other disposition by Time Warner in any transaction or series of transactions
of any business or assets with an aggregate fair market value in excess of
$3.5 billion, excluding from such amount sales of inventory in the ordinary
course of business and the sale, in a single transaction or a series of
related transactions, of assets with an aggregate fair market value of $500
million or less.
MATSUSHITA--Matsushita Electric Industrial Co., Ltd.
MAXIMUM PREMIUM--150% of the last annual premium paid for TBS's directors'
and officers' insurance and indemnification policy in effect as of September
22, 1995.
MC GROUP CONSULTING AGREEMENT--the letter agreement between TBS and MC
Group, pursuant to which MC Group agreed to provide certain consulting
services to TBS.
MCA--MCA Inc.
MERGER AGREEMENT--the Amended and Restated Agreement and Plan of Merger
dated as of September 22, 1995, among Time Warner, TBS, TW Inc., New Time
Warner, TW Merger Corp. and TBS Merger Corp., as amended as of August 8, 1996.
MERGERS--the Time Warner Merger and the TBS Merger.
MERRILL LYNCH--Merrill Lynch & Co.
MERRILL LYNCH ENGAGEMENT LETTER--the letter agreement pursuant to which TBS
retained Merrill Lynch as its financial advisor to assist in analyzing the
proposed transaction and the TCI Arrangements and to render an opinion to the
TBS Board.
MERRILL LYNCH OPINION--the oral opinion of Merrill Lynch (subsequently
confirmed in writing) delivered on August 8, 1996 to the TBS Board.
MGM--Metro-Goldwyn-Mayer, Inc.
MOODY'S--Moody's Investors Service, Inc. or any successor to its rating
agency business.
MORGAN STANLEY--Morgan Stanley & Co. Incorporated.
MORGAN STANLEY ENGAGEMENT LETTER--the letter agreement pursuant to which
Time Warner retained Morgan Stanley as its financial advisor to provide
financial analyses and advice and to render an opinion to the Time Warner
Board.
MORGAN STANLEY OPINION--the written opinion of Morgan Stanley delivered on
August 8, 1996 to the Time Warner Board.
MSG ASSETS--the Madison Square Garden assets disposed of by Paramount.
MVPD--multi-channel video programming distributor.
NET PARTNERSHIP VALUE--(a) $153.7 million, plus (b) the net difference
between certain current assets and certain current liabilities of SportSouth,
minus (c) the amount of certain indebtedness of SportSouth.
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<PAGE>
NET VALUE--the net value of options to purchase TBS Class B Common Stock
held by certain officers of TBS (i.e., the aggregate positive difference
between the exercise price of such options and the value of the TBS Class B
Common Stock that may be purchased pursuant to such options, based on the
closing sale price of TBS Class B Common Stock on such date).
NEW CREDIT AGREEMENT--the five-year revolving credit facility for TWE, the
TWE-Advance/Newhouse Partnership and a wholly owned subsidiary of Time Warner.
NEW LINE--New Line Cinema Corporation.
NEWS CORP.--The News Corporation Limited.
NEW TIME WARNER--TW Inc., a Delaware corporation and currently a wholly
owned subsidiary of Time Warner.
NEW TIME WARNER BOARD--the Board of Directors of New Time Warner.
NEW TIME WARNER BY-LAWS--the by-laws of New Time Warner.
NEW TIME WARNER CAPITAL STOCK--the capital stock of New Time Warner.
NEW TIME WARNER CHARTER--the Restated Certificate of Incorporation of New
Time Warner.
NEW TIME WARNER COMMON STOCK--Common Stock, par value $.01 per share, of New
Time Warner.
NEW TIME WARNER PREFERRED STOCK--Preferred Stock, par value $.10 per share,
of New Time Warner.
NEW TIME WARNER RIGHT--the preferred stock purchase right to accompany each
share of New Time Warner Common Stock issued in connection with the Mergers if
New Time Warner adopts the New Time Warner Rights Agreement.
NEW TIME WARNER RIGHTS AGREEMENT--the stockholder rights agreement expected
to be adopted prior to the consummation of the Mergers.
NEW TIME WARNER SERIES A PREFERRED STOCK--Series A Participating Cumulative
Preferred Stock, par value $.10 per share, of New Time Warner.
NEW TIME WARNER SERIES COMMON STOCK--Series Common Stock, par value $.01 per
share, of New Time Warner.
NEW TIME WARNER SERIES D PREFERRED STOCK--Series D Convertible Preferred
Stock, par value $.10 per share, of New Time Warner.
NEW TIME WARNER SERIES E PREFERRED STOCK--Series E Convertible Preferred
Stock, par value $.10 per share, of New Time Warner.
NEW TIME WARNER SERIES F PREFERRED STOCK--Series F Convertible Preferred
Stock, par value $.10 per share, of New Time Warner.
NEW TIME WARNER SERIES G PREFERRED STOCK--Series G Convertible Preferred
Stock, par value $.10 per share, of New Time Warner.
NEW TIME WARNER SERIES H PREFERRED STOCK--Series H Convertible Preferred
Stock, par value $.10 per share, of New Time Warner.
NEW TIME WARNER SERIES I PREFERRED STOCK--Series I Convertible Preferred
Stock, par value $.10 per share, of New Time Warner.
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<PAGE>
NEW TIME WARNER SERIES J PREFERRED STOCK--Series J Convertible Preferred
Stock, par value $.10 per share, of New Time Warner.
NEW TIME WARNER SERIES L PREFERRED STOCK--10 1/4% Series L Exchangeable
Preferred Stock, par value $.10 per share, of New Time Warner.
NEW TIME WARNER SERIES M PREFERRED STOCK--10 1/4% Series M Exchangeable
Preferred Stock, par value $.10 per share, of New Time Warner.
NEW TIME WARNER VALUE--the imputed (cost)/benefit to New Time Warner for
each TCI Arrangement.
NOTICE OF INTENT--the written notice of intent by a Dissenting TBS Holder to
demand payment for Dissenting Shares if the TBS Merger is consummated.
NYSE--New York Stock Exchange, Inc.
OCF--operating cash flows.
OFFER OF PAYMENT--the offer by TBS to each Dissenting TBS Holder, who
complied with the payment demand and deposit requirements specified in the
Dissenters' Notice, to pay the amount TBS estimates to be the Fair Value of
such Dissenting TBS Holder's Dissenting Shares, plus accrued interest from the
date of consummation of the TBS Merger.
OFFER VALUE PERCENTAGE--the value of all of the TCI Arrangements as a
percentage of the offer value of the TBS Merger.
ORIGINAL MORGAN STANLEY OPINION--the oral opinion of Morgan Stanley
(subsequently confirmed in writing) delivered on September 22, 1995 to the
Time Warner Board.
OTHER STOCKHOLDER--with respect to any TCITP Stockholder, Mr. Turner, and
with respect to any Turner Shareholder, TCITP.
OWNERSHIP LIMITATIONS--any suit, action or proceeding by a governmental
entity that seeks to (i) prohibit or limit the ownership or operation by TBS,
Time Warner, New Time Warner or any of their respective material subsidiaries,
of any material portion of their businesses or assets, (ii) impose limitations
on the ability of New Time Warner to acquire or hold any shares of capital
stock of Time Warner or TBS, including, without limitation, the right to vote
such capital stock, or (iii) prohibit New Time Warner from effectively
controlling in any material respect the business or operations of TBS or any
of its material subsidiaries.
PARAGON--Paragon Communications.
PARAMOUNT--Paramount Communications Inc.
PERCS--Time Warner-obligated mandatorily redeemable preferred securities of
a subsidiary issued in August 1995.
PERMITTED TRANSFEREE--of any person means (i) in the case of the death of
such person, such person's executors, administrators, testamentary trustees,
heirs, devisees and legatees and (ii) such person's current or future spouse,
parents, siblings or descendants or such parents', siblings' or descendants'
spouses.
PER SHARE PREMIUM PERCENTAGE--the per share premium imputed to TCI with
respect to all of the TCI Arrangements (defined to be the aggregate value
imputed to TCI as a result of the TCI Arrangements divided by the total number
of TBS Common Stock equivalents owned by TCI) as a percentage of the per share
consideration payable in the TBS Merger to each other holder of TBS Common
Stock.
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PREFERRED SECURITIES--Time Warner-obligated mandatorily redeemable preferred
securities of a subsidiary issued in December 1995.
PRIOR TCI ARRANGEMENTS--the agreements Time Warner, New Time Warner, TBS and
TCI had entered into or proposed to enter into prior to the execution of
Amendment No. 1 to the Merger Agreement.
PRIVATE PER SHARE PREMIUM--the per share premium paid by the acquiror in
each Private Premium Transaction as a percentage of the per share
consideration paid to the other shareholders of the target company.
PRIVATE PREMIUM TRANSACTION--each of the following eight transactions
Merrill Lynch reviewed: General Motors Corporation's spin-off of Electronic
Data Systems; recapitalization of Fischer & Porter Company; recapitalization
of Bergen Brunswig Corporation; the acquisition by Silver King of HSN; The
Griffin Co.'s acquisition of Resorts International, Inc.; CSX Corporation's
acquisition of Sea-Land Service, Inc.; Bell Atlantic Corporation's proposed
acquisition of TCI; AT&T Corp.'s acquisition of McCaw Cellular Communications,
Inc.; Premark International, Inc.'s acquisition of Sikes Corporation; and The
Trump Group's acquisition of Pay'n Save Inc.
PROGRAM AGREEMENT--the agreement between TBS and a subsidiary of TCI,
relating to the carriage after the consummation of the Mergers by TCI-
affiliated cable systems of WTBS (once the WTBS Conversion has occurred) and
Headline News.
PROHIBITED EFFECT--the effect or consequence (a) of making the continuing
ownership by the Liberty Parties or any of them of any equity securities of
New Time Warner then owned by the Liberty Parties or any of them illegal under
any Federal or state law, or (b) of imposing or resulting in the imposition
under any Federal or state law on the Liberty Parties or any of them of
damages or penalties by reason of or as a result of such continued ownership,
or (c) of requiring the divestiture of, or resulting in the requirement to
divest, any such securities by any Liberty Party under any Federal or state
law, or (d) of requiring, or resulting in the requirement, under any Federal
or state law that any Liberty Party discontinue any business or divest of any
business or assets or that any license that such Liberty Party holds or is
required to hold under any Federal communications law be modified in any
significant respect or not be renewed as a result of such continued ownership.
PROHIBITED TURNER EFFECT--(a) Mr. Turner's owning TBS Common Stock
representing less than 51% of the combined voting power of the outstanding TBS
Common Stock and TBS Class C Preferred Stock or (b) Mr. Turner's owning TBS
Common Stock, including shares underlying TBS Convertible Securities owned by
him, representing less than 51% of the total voting power represented by the
sum of the TBS Common Stock then outstanding, the TBS Common Stock underlying
all TBS Convertible Securities then outstanding and the TBS Common Stock that
could be issued (either directly or upon conversion of TBS Convertible
Securities), without the approval of the holders of the TBS Class C Preferred
Stock.
PPV OUTPUT AGREEMENT--the agreement between TBS and certain affiliates of
TCI providing for the licensing of all motion pictures theatrically released
during the term of the agreement by New Line, Castle Rock and Turner Pictures
for exhibition, on a non-exclusive basis on pay-per-view services owned by
such TCI affiliates.
PSE--Pacific Stock Exchange, Inc.
PUBLIC PER SHARE PREMIUM--the per share premium paid by the acquiror in each
Public Premium Transaction as a percentage of the closing stock price of the
Public Premium Target.
PUBLIC PREMIUM TARGET--the publicly traded company in which a minority
interest was purchased in a Public Premium Transaction.
PUBLIC PREMIUM TRANSACTION--each of 21 transactions from 1992 to the present
in which minority interests in publicly traded companies were acquired in
privately negotiated transactions.
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PUBLIC PROGRAMMING COMPANIES--Gaylord, Home Shopping Network, Inc.,
International Family and BET.
QUALIFIED STOCKHOLDER--any Charitable Transferee or Qualified Trust from
time to time required to become a party to Investors' Agreement (No. 2).
QUALIFIED TRUST--any trust described in Section 664 of the Code of which Mr.
Turner or members of his family are income beneficiaries.
QVC--QVC Network, Inc.
REAL ESTATE/SPORTS SEGMENT--the real estate, sports-related assets and
certain other assets of TBS.
REGISTRABLE SHARES--the shares of New Time Warner Common Stock requested by
the Turner Holders to be registered under the Securities Act pursuant to the
Turner Registration Rights Agreement.
REGISTRATION STATEMENT--the registration statement on Form S-4 (together
with all amendments, exhibits and schedules thereto) New Time Warner has filed
with the Commission under the Securities Act, relating to (a) the shares of
New Time Warner Common Stock (and any New Time Warner Rights) that will be
issued to holders of Time Warner Common Stock and to holders of TBS Capital
Stock in connection with the Transaction, (b) the shares of New Time Warner
Preferred Stock that will be issued to holders of Time Warner Preferred Stock
in connection with the Transaction and (c) the shares of New Time Warner
Common Stock (and any New Time Warner Rights) issuable upon conversion of
certain of such shares of New Time Warner Preferred Stock and conversion or
exercise of certain convertible debt securities and options.
RESET NOTES--the Redeemable Reset Notes due August 15, 2002 of Time Warner.
RESET NOTES REFINANCING--the redemption on August 15, 1995 by Time Warner of
all of the outstanding Reset Notes in exchange for new securities.
RESTRICTION PERIOD--that period of time commencing on the date any Covered
TW Securities are first issued and continuing until the first time that the
ownership or deemed ownership by the Liberty Parties of the New Time Warner
Common Stock and other voting securities of New Time Warner then owned by the
Liberty Parties (assuming conversion in full of all LMC Reduced Voting Common
Stock) would, assuming the absence of any restriction on the exercise by the
Liberty Parties of the rights of a holder of New Time Warner Common Stock
through a voting trust or other arrangement satisfactory to the FCC, not have
a Prohibited Effect under any Federal communications law, as such period may
be earlier terminated pursuant to the LMC Agreement.
RIGHT OF FIRST REFUSAL AGREEMENT--the Stockholders' Agreement to be entered
into upon consummation of the Mergers by certain subsidiaries of LMC, the
Turner Shareholders and New Time Warner, pursuant to which such subsidiaries,
on the one hand, and the Turner Shareholders, on the other hand, grant first
to the other group and then to New Time Warner a right of first refusal with
respect to dispositions of voting securities of New Time Warner beneficially
owned by them.
RIGHTS--the preferred stock purchase rights issued under the Existing Rights
Agreement.
RIGHTS AMENDMENT--certain specified amendments to the Existing Rights
Agreement contemplated by the LMC Agreement.
RIGHTS CERTIFICATES--separate certificates evidencing the New Time Warner
Rights.
S&P--Standard & Poor's Corporation or any successor to its rating agency
business.
SEAGRAM--The Seagram Company Ltd.
SECOND AMENDED COMPLAINT--the second amended complaint filed by the
plaintiffs in Lewis, et al. v. Turner Broadcasting Sys., Inc., et al. on
November 1, 1995.
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SECTION 262--Section 262 of the DGCL.
SECURITIES ACT--the Securities Act of 1933, as amended.
SEPTEMBER 22 ANALYSES--Merrill Lynch's revised presentation to the TBS Board
at the continuation of the September 21, 1995 TBS Board meeting held on
September 22, 1995.
SEPTEMBER 1995 REDEMPTION--the redemption by Time Warner in September 1995
of approximately $1 billion principal amount of TW 8.75% Convertible
Debentures.
SILVER KING--Silver King Communications, Inc.
SIX FLAGS--Six Flags Entertainment Corporation.
SIX FLAGS TRANSACTION--the transaction pursuant to which (i) Six Flags was
recapitalized, (ii) TWE sold a 51% interest in Six Flags to an investment
group led by Boston Ventures and (iii) TWE granted certain licenses to Six
Flags.
SONY--Sony Corporation.
SPECIAL MEETINGS--the TBS Meeting and Time Warner Meeting.
SPECIAL VOTING RIGHTS--the right, so long as at least four million shares of
TBS Class C Preferred Stock are outstanding, of the holders of the TBS Class C
Preferred Stock to vote as a separate class for the election of seven
directors and on certain other matters.
SPECIFIED ADJUSTMENT--the adjustment to the aggregate acquisiton value and
EBITDA with respect to TBS for the Studios, the Real Estate/Sports Segment and
the WTBS Conversion.
SPINCO PARTY--after the TCI Spin-off, SSSI and each affiliate of SSSI that
is controlled by SSSI from time to time and, for so long as SSSI is an
affiliate of TCI, TCI and each affiliate of TCI that is controlled by TCI from
time to time.
SPORTSOUTH--SportSouth Network, Ltd.
SPORTSOUTH AGREEMENT--the Stock Purchase Agreement dated as of September 22,
1995, between TBS and a subsidiary of TCI, pursuant to which, upon
consummation of the Mergers, TBS will sell its interest in SportSouth, a
regional sports cable network, to such TCI subsidiary.
SPORTSOUTH REGION--Kentucky, North Carolina, South Carolina, Tennessee,
Georgia, Alabama and Mississippi.
SSSI--Southern Satellite Systems, Inc.
SSSI OPTION--the option SSSI will grant to New Time Warner pursuant to the
SSSI Agreement, exercisable for six years, to cause the Distribution Contract
to become effective.
SSSI AGREEMENT--an agreement, to be entered into upon consummation of the
Mergers, among New Time Warner, LMC and SSSI pursuant to which (i) New Time
Warner will issue to SSSI 4,166,667 shares of LMC Reduced Voting Common Stock
and SSSI will grant to New Time Warner the SSSI Option and (ii) New Time
Warner will issue to LMC 833,333 shares of LMC Reduced Voting Common Stock and
will pay to LMC approximately $67 million (payable, at New Time Warner's
option, in cash or additional shares of LMC Reduced Voting Common Stock) and
LMC will agree to the LMC Non-competition Covenant.
SSSI AGREEMENT CONSIDERATION--the consideration to be paid by New Time
Warner pursuant to the SSSI Agreement.
STUDIOS--New Line and Castle Rock.
xxii
<PAGE>
SUBJECT SHARES--any or all of its Covered Securities a Subject Stockholder
may intend to sell.
SUBJECT STOCKHOLDER--any TCITP Stockholder or Turner Shareholder.
SUMMIT--Summit Communications Group, Inc.
SUMMIT ACQUISITION--the acquisition by Time Warner of Summit.
SUNSHINE OPTION--the option granted by TWE to a subsidiary of TCI to
purchase the interests of TWE and certain affiliates in the Sunshine Network,
a Florida-based sports cable network, for approximately $14 million.
SUNSHINE OPTION AGREEMENT--the option agreement, to be entered into upon
consummation of the Mergers, between a subsidiary of TCI and TWE, pursuant to
which TWE will grant to such TCI subsidiary the Sunshine Option.
SUPPORT AGREEMENT--the Shareholders' Agreement dated as of September 22,
1995, among R. E. Turner, Turner Outdoor and Time Warner, pursuant to which
the parties have agreed, among other things, to vote all shares of TBS Capital
Stock that they are entitled to vote at the TBS Meeting in favor of the TBS
Merger Proposal.
TAKEOVER PROPOSAL--any proposal for a merger, consolidation or other
business combination involving TBS or any of its material subsidiaries or any
proposal or offer to acquire in any manner, directly or indirectly, more than
15% of any class of voting securities of TBS or any of its material
subsidiaries, or assets representing a substantial portion of the assets of
TBS and its subsidiaries, taken as a whole.
TBS--Turner Broadcasting System, Inc.
TBS 1995 FORECAST--the 1995 operating results of TBS forecast by TBS's
management in August 1995.
TBS 1996 BUDGET--TBS's management 1996 budget.
TBS 1996 FORECAST--the 1996 operating results of TBS forecast by TBS's
management in June 1996.
TBS ARTICLES--the Restated Articles of Incorporation of TBS.
TBS BOARD--the Board of Directors of TBS.
TBS BY-LAWS--the By-Laws of TBS.
TBS CAPITAL STOCK--TBS Class C Preferred Stock and TBS Common Stock.
TBS CLASS A COMMON STOCK--TBS Class A Common Stock, par value $.0625 per
share.
TBS CLASS B COMMON STOCK--TBS Class B Common Stock, par value $.0625 per
share.
TBS CLASS B PREFERRED STOCK--TBS Class B Cumulative Preferred Stock.
TBS CLASS C PREFERRED STOCK--TBS Class C Convertible Preferred Stock, par
value $.125 per share.
TBS COMMON STOCK--TBS Class A Common Stock and TBS Class B Common Stock.
TBS CONVERTIBLE SECURITIES--the securities that are convertible into TBS
Common Stock under the TBS Shareholders' Agreement.
TBS FORM 8-KS--TBS's Current Reports on Form 8-K dated January 3, 1996, June
26, 1996 and September 6, 1996.
TBS FORM 10-K--TBS's Annual Report on Form 10-K for the year ended December
31, 1995.
TBS FORM 10-QS--TBS's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996.
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TBS INVESTORS' AGREEMENT--the Investors' Agreement entered into by TBS and
the Cable Operators concurrently with the closing of the Units Offering.
TBS LYONS--the TBS zero coupon subordinated convertible notes due 2007.
TBS LYONS INDENTURE--the Indenture dated as of February 13, 1992, pursuant
to which the TBS LYONs were issued.
TBS MEETING--the Special Meeting of Shareholders of TBS.
TBS MERGER--the merger of TBS Merger Corp. into TBS as contemplated by the
Merger Agreement.
TBS MERGER APPROVAL--the affirmative vote by holders of TBS Capital Stock of
(a) a majority of the voting power of the outstanding shares of TBS Capital
Stock, voting together as a single group, (b) a majority of the voting power
of the outstanding shares of TBS Common Stock, voting together as a single
group, and (c) a majority of the outstanding shares of TBS Class C Preferred
Stock, voting as a separate class.
TBS MERGER CORP.--Time Warner Acquisition Corp., a Delaware corporation and
a wholly owned subsidiary of New Time Warner.
TBS MERGER PROPOSAL--the proposal to be considered at the TBS Meeting to
approve the Merger Agreement.
TBS OFFICERS--Terence F. McGuirk, TBS Executive Vice President, W. Thomas
Johnson, TBS Vice President--News, Scott M. Sassa, TBS Vice President--Turner
Entertainment Group, Bert Carp, TBS Vice President--Government Affairs,
William H. Grumbles, TBS Vice President--Worldwide Distribution, Steven J.
Heyer, TBS Vice President--Advertising Sales and Marketing, Steven W. Korn,
TBS Vice President, General Counsel and Secretary, and Wayne H. Pace, TBS Vice
President--Finance and Chief Financial Officer.
TBS RECORD DATE--the record date for the determination of the holders of
record of TBS Class A Common Stock, TBS Class B Common Stock and TBS Class C
Preferred Stock entitled to notice of and to vote at the TBS Meeting.
TBS REPORTS--the TBS Form 10-K, the TBS Form 10-Qs and the TBS Form 8-Ks.
TBS SHAREHOLDERS' AGREEMENT--the Shareholders' Agreement, entered into among
the Cable Operators, TBS and Mr. Turner concurrently with the closing of the
Units Offering.
TBS VOTING AGREEMENT--the Voting Agreement, entered into among TCI, Time,
TCI and Continental and certain of their affiliates concurrently with the
Units Offering.
TCI--Tele-Communications, Inc.
TCI ARRANGEMENTS--the agreements, as modified in light of the FTC Consent
Decree, Time Warner, New Time Warner, TBS and TCI entered into or agreed to
enter into in connection with the Transaction for the benefit of TCI and its
affiliates.
TCI CONTROL SHAREHOLDERS--Mr. Robert Magness, Dr. John C. Malone and Kearns-
Tribune Corporation.
TCI GROUP--TCI and certain of its controlled affiliates which are entitled
to nominate three Class C Directors under the terms of the TBS Voting
Agreement.
TCI SPIN-OFF--the distribution of the stock of SSSI to holders of the
Liberty Media Group Common Stock issued by TCI.
TCITP--TCI Turner Preferred, Inc.
TCITP STOCKHOLDERS--TCITP and certain of its subsidiaries which will enter
into the Right of First Refusal Agreement with the Turner Shareholders.
xxiv
<PAGE>
TCI VALUE--the imputed benefit to TCI for each TCI Arrangement.
TCM--Turner Classic Movies.
TEC LIBRARY--the Turner Entertainment Co. library.
TELECOMMUNICATIONS ACT--the Telecommunications Act of 1996.
THE CAPITAL GROUP--The Capital Group Companies, Inc.
THIRD AMENDED COMPLAINT--the third amended complaint filed by the plaintiffs
in Lewis, et al. v. Turner Broadcasting Sys., Inc., et al. on February 29,
1996.
TIME--Time Inc.
TIME GROUP--Time and its controlled affiliates which are entitled to
nominate two of the five Class C Directors under the Time/TCI Agreement.
TIME/TCI AGREEMENT--the agreement between Time and TCI with respect to their
rights under the TBS Shareholders' Agreement and certain other matters.
TIME WARNER--Time Warner Inc.
TIME WARNER BOARD--the Board of Directors of Time Warner.
TIME WARNER CAPITAL STOCK--Time Warner Preferred Stock and Time Warner
Common Stock.
TIME WARNER CHARTER--the Restated Certificate of Incorporation of Time
Warner.
TIME WARNER COMMON STOCK--Common Stock, par value $1.00 per share, of Time
Warner.
TIME WARNER FORM 8-KS--Time Warner's Current Reports on Form 8-K dated
January 4, 1996, March 22, 1996, March 25, 1996, April 2, 1996, April 4, 1996,
April 11, 1996, May 15, 1996, August 6, 1996, August 14, 1996 and September 6,
1996.
TIME WARNER FORM 10-K--Time Warner's Annual Report on Form 10-K for the year
ended December 31, 1995, as amended by Time Warner's Form 10-K/A, dated June
27, 1996.
TIME WARNER FORM 10-QS--Time Warner's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996 and June 30, 1996.
TIME WARNER GENERAL PARTNERS--certain wholly owned subsidiaries of Time
Warner which are general partners of TWE and which, together with Time Warner,
collectively own 74.49% of the pro rata priority capital and residual equity
interests in TWE.
TIME WARNER MEETING--the Special Meeting of Stockholders of Time Warner.
TIME WARNER MERGER--the merger of TW Merger Corp. into Time Warner as
contemplated by the Merger Agreement.
TIME WARNER PREFERRED STOCK--Preferred Stock, par value $1.00 per share, of
Time Warner.
TIME WARNER RECORD DATE--the record date for the determination of the
holders of record of shares of Time Warner Common Stock and Time Warner Voting
Preferred Stock entitled to notice of and to vote at the Time Warner Meeting.
TIME WARNER REPORTS--the Time Warner Form 10-K, the Time Warner Form 10-Qs
and the Time Warner Form 8-Ks.
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TIME WARNER SERIES D PREFERRED STOCK--Series D Convertible Preferred Stock,
par value $1.00 per share, of Time Warner.
TIME WARNER SERIES E PREFERRED STOCK--Series E Convertible Preferred Stock,
par value $1.00 per share, of Time Warner.
TIME WARNER SERIES F PREFERRED STOCK--Series F Convertible Preferred Stock,
par value $1.00 per share, of Time Warner.
TIME WARNER SERIES G PREFERRED STOCK--Series G Convertible Preferred Stock,
par value $1.00 per share, of Time Warner.
TIME WARNER SERIES H PREFERRED STOCK--Series H Convertible Preferred Stock,
par value $1.00 per share, of Time Warner.
TIME WARNER SERIES I PREFERRED STOCK--Series I Convertible Preferred Stock,
par value $1.00 per share, of Time Warner.
TIME WARNER SERIES J PREFERRED STOCK--Series J Convertible Preferred Stock,
par value $1.00 per share, of Time Warner.
TIME WARNER SERIES K PREFERRED STOCK--10 1/4% Series K Exchangeable
Preferred Stock, par value $1.00 per share, of Time Warner.
TIME WARNER SERIES M PREFERRED STOCK--10 1/4% Series M Exchangeable
Preferred Stock, par value $1.00 per share, of Time Warner.
TIME WARNER SERVICE PARTNERSHIPS--TW Service Holding I, L.P. and TW Service
Holding II, L.P., each of which owns certain assets related to the business of
TWE.
TIME WARNER VOTING PREFERRED STOCK--Time Warner Series D Preferred Stock,
Time Warner Series E Preferred Stock, Time Warner Series F Preferred Stock,
Time Warner Series G Preferred Stock, Time Warner Series I Preferred Stock and
Time Warner Series J Preferred Stock.
TNT--Turner Network Television.
TOSHIBA--Toshiba Corporation.
TRANSACTION--collectively, the transactions contemplated by the Transaction
Agreements.
TRANSACTION AGREEMENTS--the Merger Agreement, the LMC Agreement and the
Support Agreement, together with the agreements contemplated thereby.
TSP--Turner Sports Programming, Inc.
TURNER DEMAND REGISTRATION--the right of the Turner Holders, for a three-
year period, to require New Time Warner, on three separate occasions, to
register under the Securities Act sales of Registrable Shares.
TURNER EMPLOYMENT AGREEMENT--the employment agreement to be entered into
between New Time Warner and Mr. Turner.
TURNER HOLDERS--Mr. Turner, Turner Outdoor and certain associated holders of
New Time Warner Common Stock together with certain specified entities to whom
the Registrable Shares are transferred.
TURNER OUTDOOR--Turner Outdoor Inc.
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TURNER PARTNERS--Turner Partners, L.P., a limited partnership of which Mr.
Turner is the sole general partner.
TURNER PICTURES--Turner Pictures Worldwide, Inc.
TURNER REGISTRATION RIGHTS AGREEMENT--the agreement to be entered into upon
consummation of the Mergers between New Time Warner and the Turner
Shareholders, pursuant to which New Time Warner will grant to the Turner
Shareholders and certain associated holders of New Time Warner Common Stock
rights to require the registration under the Securities Act of sales of
certain New Time Warner Common Stock held by them.
TURNER SHAREHOLDER SHARES--the shares of TBS Capital Stock that a Turner
Shareholder is entitled to vote with respect to the TBS Merger Proposal.
TURNER SHAREHOLDERS--R.E. Turner and Turner Outdoor.
TW 7.75% NOTES--the 7.75% notes of Time Warner due 2006.
TW 8.75% CONVERTIBLE DEBENTURES--the 8.75% convertible subordinated
debentures due 2015 of Time Warner.
TW INDENTURE--the Indenture dated as of January 15, 1993, between Time
Warner and Chemical Bank, as trustee, pursuant to which the TW LYONs were
issued.
TW LYONS--the zero coupon convertible notes due 2013 of Time Warner.
TW MERGER APPROVAL--the approval of the TW Merger Proposal by the
affirmative vote, in person or by proxy, of the holders of a majority in
voting power of all outstanding shares of Time Warner Common Stock and Time
Warner Voting Preferred Stock, voting together as a single class.
TW MERGER CORP.--Time Warner Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of New Time Warner.
TW MERGER PROPOSAL--the proposal to be considered at the Time Warner Meeting
to approve and adopt the Merger Agreement.
TW TRANSACTIONS--the ITOCHU/Toshiba Transaction, the Debt Refinancings, the
Six Flags Transaction, the Unclustered Cable Transactions, the TWE-A/N
Transaction and the Cable Acquisitions.
TWE--Time Warner Entertainment Company, L.P.
TWE-ADVANCE/NEWHOUSE PARTNERSHIP--Time Warner Entertainment-Advance/Newhouse
Partnership, a New York general partnership.
TWE-A/N TRANSACTION--the formation of the TWE-Advance/Newhouse Partnership,
in which TWE owns a two-thirds equity interest and is the managing partner and
Advance/Newhouse owns a one-third equity interest.
TWE PARTNERSHIP AGREEMENT--the agreement pursuant to which TWE is organized.
TWE RESIDUAL CAPITAL--the residual equity partnership interests in TWE that,
in the case of certain events such as the liquidation or dissolution of TWE,
are entitled to any excess of the then fair value of the net assets of TWE
over the aggregate amount of Cumulative Priority Capital and special tax
allocations.
TWE SENIOR CAPITAL--the senior priority capital interests in TWE that
provide Time Warner with certain priority claims to the net partnership income
of TWE and distributions of TWE partnership capital, including certain
priority distributions of partnership capital in the event of liquidation or
dissolution of TWE.
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TWE SERIES A CAPITAL--the pro rata priority capital interests in TWE that
provide Time Warner and U S WEST with certain priority claims to the net
partnership income of TWE and distributions of TWE partnership capital,
including certain priority distributions of partnership capital in the event
of liquidation or dissolution of TWE.
TWE SERIES B CAPITAL--the priority capital interests in TWE that are junior
to the TWE Series A Capital and provide Time Warner with certain priority
claims to the net partnership income of TWE and distributions of TWE
partnership capital, including certain priority distributions of partnership
capital in the event of liquidation or dissolution of TWE.
UCTI--United Cable Turner Investment Inc.
UMG--U S WEST Media Group.
UNAFFILIATED DIRECTORS--the members of the Time Warner Board who, in the
Time Warner Board's judgment, have no direct or indirect material economic
relationship with Time Warner other than as a result of stock ownership or
customary directors' compensation.
UNCLUSTERED CABLE TRANSACTIONS--the planned sale by TWE of 17 of its
unclustered cable television systems serving an aggregate of approximately
180,000 subscribers.
UNITS OFFERING--the offering by TBS of units, each consisting of one share
of TBS Class B Preferred Stock and one share of TBS Class C Preferred Stock,
to the Cable Operators.
U S WEST--U S WEST, Inc.
USWMC--U S WEST Multimedia Communications, Inc.
VIACOM--Viacom, Inc.
VIDEO DIVISION--New Time Warner's newly-created Video Division consisting
principally of the businesses of TBS, Home Box Office and TWE's interest in
Court TV.
VOTING STOCK--the New Time Warner stock entitled to vote generally in the
election of directors.
WCCI--Warner Cable Communications, Inc.
WCI--Warner Communications Inc.
WCI ACQUISITION--the acquisition by Time Warner of WCI.
WESTINGHOUSE--Westinghouse Electric Corporation.
WHV--Warner Home Video.
WTBS CONVERSION--the conversion of WTBS into a copyright-paid cable
programming service through the acquisition of national broadcast rights to
all of its programming, thus enabling WTBS to charge a subscription fee to
cable operators and to sell local advertising time without any obligation on
the part of the cable operators to make cable compulsory license payments
under the Copyright Act.
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APPENDIX A-1(a)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 22, 1995
AMONG
TIME WARNER INC.,
TW INC.,
TIME WARNER ACQUISITION CORP.,
TW ACQUISITION CORP.
AND
TURNER BROADCASTING SYSTEM, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
TABLE OF CONTENTS
<C> <S> <C>
Parties and Recitals.................................................... 1
ARTICLE I
The Mergers
Section 1.01. The Mergers.............................................. 1
Section 1.02. Closing.................................................. 2
Section 1.03. Effective Time........................................... 2
Section 1.04. Effects of the Mergers................................... 2
Section 1.05. Charter and By-Laws...................................... 2
Section 1.06. Directors................................................ 3
Section 1.07. Officers................................................. 3
ARTICLE II
Effect of the Mergers on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
Section 2.01. Effect on Parent Capital Stock........................... 3
Section 2.02. Effect on Company Capital Stock.......................... 6
Section 2.03. Exchange of Shares and Certificates...................... 8
ARTICLE III
Representations and Warranties
Section 3.01. Representations and Warranties of the Company............ 11
Section 3.02. Representations and Warranties of Parent................. 17
ARTICLE IV
Covenants Relating to Conduct of Business
Section 4.01. Conduct of Business...................................... 22
Section 4.02. No Solicitation.......................................... 24
ARTICLE V
Additional Agreements
Section 5.01. Preparation of Form S-4 and the Proxy Statement;
Shareholders Meeting and Parent's Stockholders Meeting.. 25
Section 5.02. Letter of the Company's Accountants...................... 25
Section 5.03. Letter of Parent's Accountants........................... 26
Section 5.04. Access to Information; Confidentiality................... 26
Section 5.05. Best Efforts; Notification............................... 26
Section 5.06. Board Authority.......................................... 27
Section 5.07. Public Announcements..................................... 27
Section 5.08. Benefit Plans............................................ 27
Section 5.09. Indemnification.......................................... 28
Section 5.10. Fees and Expenses........................................ 28
Section 5.11. Affiliates............................................... 28
Section 5.12. Stock Exchange Listing................................... 29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 5.13. Execution of the Registration Rights Agreement........... 29
Section 5.14. Tax Treatment............................................ 29
Section 5.15. Transfer and Real Property Transfer Gains Taxes.......... 29
Section 5.16. Material Transactions by Parent.......................... 29
ARTICLE VI
Conditions Precedent
Section 6.01. Conditions to Each Party's Obligation To Effect the
Mergers................................................. 30
Section 6.02. Conditions to Obligations of Parent, Holdco, Delaware Sub
and Georgia Sub......................................... 31
Section 6.03. Conditions to Obligation of the Company.................. 32
ARTICLE VII
Termination, Amendment and Waiver
Section 7.01. Termination.............................................. 32
Section 7.02. Effect of Termination.................................... 34
Section 7.03. Amendment................................................ 35
Section 7.04. Extension; Waiver........................................ 35
Section 7.05. Procedure for Termination, Amendment, Extension or
Waiver.................................................. 35
ARTICLE VIII
General Provisions
Section 8.01. Nonsurvival of Representations and Warranties............ 35
Section 8.02. Notices.................................................. 35
Section 8.03. Definitions.............................................. 36
Section 8.04. Interpretation........................................... 36
Section 8.05. Counterparts............................................. 36
Section 8.06. Entire Agreement; No Third-Party Beneficiaries........... 36
Section 8.07. Governing Law............................................ 37
Section 8.08. Assignment............................................... 37
Section 8.09. Enforcement.............................................. 37
Section 8.10. Waivers.................................................. 37
</TABLE>
<TABLE>
<C> <S>
EXHIBITS
Exhibit A-1 Form of TBS Affiliate Letter
Exhibit A-2 Form of Parent Affiliate Letter
Exhibit B Form of Registration Rights Agreement
Exhibit C-1 Form of Investors' Agreement with Principal
Shareholder and Related Parties
Exhibit C-2 Form of Investors' Agreement with Qualified
Stockholders
Exhibit D Form of Certificates and Letters of Representation
regarding Tax Matters
[EXHIBITS NOT PROVIDED]
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
IN
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
<TABLE>
<CAPTION>
TERM SECTION
- ---- --------
<S> <C>
"affiliate"............................................................ 8.03(a)
"Appraisal Shares"..................................................... 2.01(d)
"Approved Matters"..................................................... 4.01(a)
"Benefit Plans"........................................................ 3.01(i)
"Certificates"......................................................... 2.03(b)
"Certificates of Merger"............................................... 1.03
"Changed Parent Stock"................................................. 2.01(c)
"Class A Common Stock"................................................. 2.02(a)
"Class A Preferred Stock".............................................. 3.01(c)
"Class B Common Stock"................................................. 2.02(a)
"Class B Preferred Stock".............................................. 3.01(c)
"Class C Preferred Stock".............................................. 2.02(a)
"Class C Shareholders"................................................. 3.01(c)
"Class D Preferred Stock".............................................. 3.01(c)
"Closing".............................................................. 1.02
"Closing Date"......................................................... 1.02
"Code"................................................................. Recitals
"Common Conversion Number"............................................. 2.02(c)
"Common Stock Equivalents"............................................. 5.16
"Communications Act"................................................... 3.01(d)
"Company".............................................................. Recitals
"Company Capital Stock"................................................ 2.02(a)
"Company Common Stock"................................................. 2.02(a)
"Company Disclosure Letter"............................................ 3.01(a)
"Company Material Adverse Effect"...................................... 3.01(a)
"Company Programming Subsidiary"....................................... 3.01(a)
"Company Stock Options"................................................ 3.01(c)
"Company Stock Plans".................................................. 3.01(c)
"Company Subsidiary"................................................... 3.01(a)
"Company Warrant"...................................................... 2.02(e)
"Confidentiality Agreement"............................................ 5.04
"Corporation".......................................................... 1.05
"D&O Insurance"........................................................ 5.09
"Delaware Sub"......................................................... Recitals
"DGCL"................................................................. 1.01(a)
"Dissenting Shares".................................................... 2.02(d)
"Effective Time of the Mergers"........................................ 1.03
"employee benefit plan"................................................ 3.02(m)
"employee pension benefit plan"........................................ 5.08(b)
"ERISA"................................................................ 3.01(j)
"Exchange Act"......................................................... 3.01(d)
"Exchange Agent"....................................................... 2.03(a)
"Exchange Fund"........................................................ 2.03(a)
"FCC".................................................................. 3.01(d)
"Filed Parent SEC Documents"........................................... 3.02(g)
"Filed SEC Documents".................................................. 3.01(g)
"Form S-4"............................................................. 3.01(f)
</TABLE>
iii
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<TABLE>
<CAPTION>
TERM SECTION
- ---- ---------
<S> <C>
"Georgia BCC"........................................................ 1.01(b)
"Georgia Sub"........................................................ Recitals
"Governmental Entity"................................................ 3.01(d)
"Holdco"............................................................. Recitals
"Holdco Capital Stock"............................................... 2.01(c)
"Holdco Common Stock"................................................ 2.01(b)
"Holdco LMC Class Stock"............................................. 2.01(c)
"Holdco LMCN-V Stock"................................................ 2.01(c)
"Holdco Series B Preferred Stock".................................... 2.01(c)
"Holdco Series D Preferred Stock".................................... 2.01(c)
"Holdco Series E Preferred Stock".................................... 2.01(c)
"Holdco Series F Preferred Stock".................................... 2.01(c)
"Holdco Series G Preferred Stock".................................... 2.01(c)
"Holdco Series H Preferred Stock".................................... 2.01(c)
"Holdco Series I Preferred Stock".................................... 2.01(c)
"Holdco Series L Preferred Stock".................................... 2.01(c)
"HSR Act"............................................................ 3.01(d)
"incentive stock option"............................................. 2.01(e)
"Liens".............................................................. 3.01(b)
"LMC"................................................................ Recitals
"LMC Agreement"...................................................... Recitals
"Material Breach".................................................... 7.01(b)(v)
"Material Company Subsidiary"........................................ 3.01(a)
"Material Parent Subsidiary"......................................... 3.02(a)
"Material Transaction"............................................... 5.16
"Maximum Premium".................................................... 5.09
"Mergers"............................................................ Recitals
"New Line"........................................................... 3.01(c)
"New Line Debentures"................................................ 3.01(c)
"New Line Options"................................................... 3.01(c)
"New Line Plans"..................................................... 3.01(c)
"NYSE"............................................................... 5.12
"Original Agreement"................................................. Recitals
"Parent"............................................................. Recitals
"Parent Capital Stock"............................................... 2.01(a)
"Parent Common Stock"................................................ 2.01(a)
"Parent Disclosure Letter"........................................... 3.02(c)
"Parent Material Adverse Effect"..................................... 3.02(a)
"Parent Options"..................................................... 3.02(c)
"Parent Preferred Stock"............................................. 3.02(c)
"Parent SEC Documents"............................................... 3.02(e)
"Parent Series B Preferred Stock".................................... 2.01(a)
"Parent Series C Preferred Stock".................................... 2.01(a)
"Parent Series D Preferred Stock".................................... 2.01(a)
"Parent Series E Preferred Stock".................................... 2.01(a)
"Parent Series F Preferred Stock".................................... 2.01(a)
"Parent Series G Preferred Stock".................................... 2.01(a)
"Parent Series H Preferred Stock".................................... 2.01(a)
"Parent Series I Preferred Stock".................................... 2.01(a)
"Parent Series J Preferred Stock".................................... 2.01(a)
"Parent Series K Preferred Stock".................................... 2.01(a)
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ---- --------
<S> <C>
"Parent Series L Preferred Stock"...................................... 2.01(a)
"Parent Stockholder Approvals"......................................... 3.02(i)
"Parent Stock Plans"................................................... 3.02(c)
"Parent Subsidiary".................................................... 3.02(a)
"Parent Warrant"....................................................... 2.01(e)
"Parent's Stockholders Meeting"........................................ 5.01(c)
"person"............................................................... 8.03(b)
"Principal Shareholder"................................................ Recitals
"Programming Agreement"................................................ 3.01(d)
"Proxy Statement"...................................................... 3.01(d)
"Registration Rights Agreement"........................................ 5.13
"Rights Agreement"..................................................... 3.02(c)
"SEC".................................................................. 3.01(a)
"SEC Documents"........................................................ 3.01(e)
"Section 262".......................................................... 2.01(d)
"Securities Act"....................................................... 3.01(e)
"Shareholder Approvals"................................................ 3.01(d)
"Shareholders Meeting"................................................. 5.01(b)
"subsidiary"........................................................... 8.03(c)
"Support Agreement".................................................... Recitals
"takeover proposal".................................................... 4.02(a)
"Taxes"................................................................ 3.01(n)
"Tax Returns".......................................................... 3.01(n)
"TBS Merger"........................................................... Recitals
"TCI".................................................................. 3.01(m)
"TBS Surviving Corporation"............................................ 1.01(b)
"TW Merger"............................................................ Recitals
"TW Surviving Corporation"............................................. 1.01(a)
"TWE".................................................................. 3.02(a)
"Voting Agreements".................................................... Recitals
</TABLE>
v
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement") dated as of September 22, 1995, among TIME
WARNER INC., a Delaware corporation ("Parent"), TW INC.,
a Delaware corporation ("Holdco") and a direct wholly
owned subsidiary of Parent, TIME WARNER ACQUISITION
CORP., a Delaware corporation ("Delaware Sub") and a
direct wholly owned subsidiary of Holdco, TW ACQUISITION
CORP., a Georgia corporation ("Georgia Sub") and a direct
wholly owned subsidiary of Holdco, and TURNER
BROADCASTING SYSTEM, INC., a Georgia corporation (the
"Company").
Whereas Parent, Delaware Sub and the Company have entered into an Agreement
and Plan of Merger dated as of September 22, 1995 (the "Original Agreement"),
providing for the merger of the Company with and into Delaware Sub;
Whereas Section 1.01 of the Original Agreement contemplated that the parties
thereto may amend the Original Agreement to provide for a tax-free
incorporation transaction under Section 351 of the Internal Revenue Code of
1986, as amended (the "Code");
Whereas, Parent, Delaware Sub and the Company wish to amend and restate the
Original Agreement in its entirety to provide for such a transaction and to
make certain other amendments to the Original Agreement, and Holdco and
Georgia Sub wish to become parties thereto;
Whereas, the respective Boards of Directors of Parent, Holdco and Delaware
Sub have approved the merger (the "TW Merger") of Delaware Sub into Parent,
upon the terms and subject to the conditions set forth in this Agreement, and
have approved this Agreement;
Whereas, the respective Boards of Directors of Holdco, Georgia Sub and the
Company have approved the merger (the "TBS Merger" and, together, with the TW
Merger, the "Mergers") of Georgia Sub into the Company, upon the terms and
subject to the conditions set forth in this Agreement, and have adopted this
Agreement;
Whereas Parent and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Mergers and also
to prescribe various conditions to the Mergers;
Whereas for Federal income tax purposes it is intended that the Mergers
qualify as exchanges under Section 351 of the Code or, in the alternative, as
reorganizations within the meaning of Section 368(a) of the Code; and
Whereas R. E. Turner, III (the "Principal Shareholder"), and certain of his
associates and affiliates have entered into a Shareholders' Agreement with
Parent, dated as of September 22, 1995 (the "Support Agreement") and Liberty
Media Corporation ("LMC") and certain of its subsidiaries and affiliates have
entered into an LMC Agreement with Parent, dated as of September 22, 1995 (as
amended, the "LMC Agreement" and, together with the Support Agreement, the
"Voting Agreements"), in each case providing, among other things, that such
persons will vote their shares of Company Capital Stock (as defined in Section
2.02(a)) in favor of the TBS Merger and the approval and adoption of this
Agreement.
Now, Therefore, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Mergers
Section 1.01. The Mergers. (a) Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), Delaware Sub shall be merged into Parent at the
Effective Time of the Mergers (as defined in Section 1.03). Following the TW
<PAGE>
Merger, the separate corporate existence of Delaware Sub shall cease and
Parent shall continue as the surviving corporation (the "TW Surviving
Corporation") and shall succeed to and assume all the rights, properties,
liabilities and obligations of Delaware Sub in accordance with the DGCL. At
the election of Parent, any direct wholly owned corporate subsidiary of Holdco
may be substituted for Delaware Sub as a constituent corporation in the TW
Merger (provided that any such substitution is consistent with the treatment
of the TW Merger as an exchange under Section 351 of the Code). In such event,
the parties agree to execute an appropriate amendment to this Agreement in
order to reflect such substitution.
(b) Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Georgia Business Corporation Code (the
"Georgia BCC"), Georgia Sub shall be merged into the Company at the Effective
Time of the Mergers. Following the TBS Merger, the separate corporate
existence of Georgia Sub shall cease and the Company shall continue as the
surviving corporation (the "TBS Surviving Corporation") and shall succeed to
and assume all the rights, properties, liabilities and obligations of Georgia
Sub in accordance with the Georgia BCC. At the election of Parent, any direct
wholly owned corporate subsidiary of Holdco may be substituted for Georgia Sub
as a constituent corporation in the TBS Merger (provided that any such
substitution is consistent with the treatment of the TBS Merger as an exchange
under Section 351 of the Code). In such event, the parties agree to execute an
appropriate amendment to this Agreement in order to reflect such substitution.
Section 1.02. Closing. The closing of the Mergers (the "Closing") shall take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which (subject to satisfaction or waiver of the conditions set forth
in Sections 6.02 and 6.03) shall be no later than the second business day
after satisfaction of the conditions set forth in Section 6.01 (other than the
condition set forth in Section 6.01(d)), at the offices of Cravath, Swaine &
Moore, Worldwide Plaza, 825 Eighth Avenue, New York, N.Y. 10019, unless
another time, date or place is agreed to in writing by the parties hereto.
Section 1.03. Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, the parties
shall file such certificates of merger, articles of merger or other
appropriate documents (in any such case, the "Certificates of Merger")
executed in accordance with the relevant provisions of the DGCL and the
Georgia BCC and shall make all other filings, recordings or publications
required by the DGCL and the Georgia BCC in connection with the Mergers. Each
Merger shall become effective at the time specified in the Certificates of
Merger, which specified time shall be the same in each Certificate of Merger
(the time the Mergers become effective being the "Effective Time of the
Mergers").
Section 1.04. Effects of the Mergers. The TW Merger shall have the effects
set forth in Section 259 of the DGCL. The TBS Merger shall have the effects
set forth in Section 14-2-1106 of the Georgia BCC.
Section 1.05. Charter and By-laws. (a) The Certificate of Incorporation of
Parent as in effect immediately prior to the Effective Time of the Mergers
shall be amended at the Effective Time of the Mergers so that Article I
thereof reads in its entirety as follows: "The name of the corporation
(hereinafter called the "Corporation") is TIME WARNER COMPANIES INC." and, as
so amended, such Certificate of Incorporation shall be the Certificate of
Incorporation of the TW Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
(b) The By-Laws of Delaware Sub as in effect at the Effective Time of the
Mergers shall be the By-Laws of the TW Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
(c) The Articles of Incorporation of the Company as in effect immediately
prior to the Effective Time of the Mergers shall be the Articles of
Incorporation of the TBS Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
(d) The By-laws of the Company as in effect at the Effective Time of the
Mergers shall be the By-laws of the TBS Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
A1(a)-2
<PAGE>
Section 1.06. Directors. The directors of Delaware Sub and Georgia Sub at
the Effective Time of the Mergers shall be the directors of the TW Surviving
Corporation and the TBS Surviving Corporation, respectively, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be. Immediately after the Effective
Time of the Mergers, Holdco shall take all action necessary to elect, among
others, the Chief Executive Officer of the Company and four other persons to
be agreed upon between Parent and the Chief Executive Officer of the Company,
as directors of the TBS Surviving Corporation.
Section 1.07. Officers. The officers of Parent and the Company at the
Effective Time of the Mergers shall be the officers of the TW Surviving
Corporation and the TBS Surviving Corporation, respectively, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
ARTICLE II
Effects of the Mergers on the Capital Stock of the Constituent Corporations;
Exchange of Certificates
Section 2.01. Effect on Parent Capital Stock. As of the Effective Time of
the Mergers, by virtue of the TW Merger and without any action on the part of
the holder of any shares of Parent Capital Stock (as defined in Section
2.01(a)) or any shares of capital stock of Delaware Sub:
(a) Capital Stock of Delaware Sub. Each issued and outstanding share of
Common Stock, par value $1.00 per share, of Delaware Sub shall be converted
into (i) one one-millionth (1/1,000,000th) of a fully paid and nonassessable
share of Common Stock, par value $1.00 per share, of the TW Surviving
Corporation for each share of Common Stock, par value $1.00 per share, of
Parent ("Parent Common Stock") issued and outstanding immediately prior to the
Effective Time of the Mergers, (ii) one one-millionth (1/1,000,000th) of a
fully paid and nonassessable share of Series B 6.40% Preferred Stock, par
value $1.00 per share, of the TW Surviving Corporation for each share of
Series B 6.40% Preferred Stock, par value $1.00 per share, of Parent ("Parent
Series B Preferred Stock") issued and outstanding immediately prior to the
Effective Time of the Mergers, (iii) one one-millionth (1/1,000,000th) of a
fully paid and nonassessable share of Series C Convertible Preferred Stock,
par value $1.00 per share, of the TW Surviving Corporation for each share of
Series C Convertible Preferred Stock, par value $1.00 per share, of Parent
("Parent Series C Preferred Stock"), if any, issued and outstanding
immediately prior to the Effective Time of the Mergers, (iv) one one-millionth
(1/1,000,000th) of a fully paid and nonassessable share of Series D
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving
Corporation for each share of Series D Convertible Preferred Stock, par value
$1.00 per share, of Parent ("Parent Series D Preferred Stock") issued and
outstanding immediately prior to the Effective Time of the Mergers, (v) one
one-millionth (1/1,000,000th) of a fully paid and nonassessable share of
Series E Convertible Preferred Stock, par value $1.00 per share, of the TW
Surviving Corporation for each share of Series E Convertible Preferred Stock,
par value $1.00 per share, of Parent ("Parent Series E Preferred Stock")
issued and outstanding immediately prior to the Effective Time of the Mergers,
(vi) one one-millionth (1/1,000,000th) of a fully paid and nonassessable share
of Series F Convertible Preferred Stock, par value $1.00 per share, of the TW
Surviving Corporation for each share of Series F Convertible Preferred Stock,
par value $1.00 per share, of Parent ("Parent Series F Preferred Stock")
issued and outstanding immediately prior to the Effective Time of the Mergers,
(vii) one one-millionth (1/1,000,000th) of a fully paid and nonassessable
share of Series G Convertible Preferred Stock, par value $1.00 per share, of
the TW Surviving Corporation for each share of Series G Convertible Preferred
Stock, par value $1.00 per share, of Parent ("Parent Series G Preferred
Stock") issued and outstanding immediately prior to the Effective Time of the
Mergers, (viii) one one-millionth (1/1,000,000th) of a fully paid and
nonassessable share of Series H Convertible Preferred Stock, par value $1.00
per share, of the TW Surviving Corporation for each share of Series H
Convertible Preferred Stock, par value $1.00 per share, of Parent ("Parent
Series H Preferred Stock") issued and outstanding immediately prior to the
Effective Time of the Mergers, (ix) one one-millionth (1/1,000,000th) of a
fully paid and nonassessable share of Series I Convertible Preferred Stock,
par value $1.00 per share, of the TW Surviving Corporation for each share
A1(a)-3
<PAGE>
of Series I Convertible Preferred Stock, par value $1.00 per share, of Parent
("Parent Series I Preferred Stock") issued and outstanding immediately prior
to the Effective Time of the Mergers, (x) one one-millionth (1/1,000,000th) of
a fully paid and nonassessable share of Series J Convertible Preferred Stock,
par value $1.00 per share, of the TW Surviving Corporation for each share of
Series J Convertible Preferred Stock, par value $1.00 per share, of Parent
("Parent Series J Preferred Stock"), if any, issued and outstanding
immediately prior to the Effective Time of the Mergers, (xi) one one-millionth
(1/1,000,000th) of a fully paid and nonassessable share of Series K
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving
Corporation for each share of Series K Convertible Preferred Stock, par value
$1.00 per share, of Parent ("Parent Series K Preferred Stock"), if any, issued
and outstanding immediately prior to the Effective Time of the Mergers and
(xii) one one-millionth (1/1,000,000th) of a fully paid and nonassessable
share of Series L Convertible Preferred Stock, par value $1.00 per share, of
the TW Surviving Corporation for each share of Series L Convertible Preferred
Stock, par value $1.00 per share, of Parent ("Parent Series L Preferred Stock"
and, together with the Parent Common Stock, the Parent Series B Preferred
Stock, the Parent Series C Preferred Stock, the Parent Series D Preferred
Stock, the Parent Series E Preferred Stock, the Parent Series F Preferred
Stock, the Parent Series G Preferred Stock, the Parent Series H Preferred
Stock, the Parent Series I Preferred Stock, the Parent Series J Preferred
Stock and the Parent Series K Preferred Stock, the "Parent Capital Stock")
issued and outstanding immediately prior to the Effective Time of the Mergers.
For the purposes of this Section 2.01(a), shares of Parent Capital Stock,
other than Parent Series C Preferred Stock, held by Parent Subsidiaries (as
defined in Section 3.02(a)) shall be deemed to be not outstanding.
(b) Cancellation of Treasury Stock. Each share of Parent Capital Stock that
is owned by Parent shall automatically be canceled and retired and shall cease
to exist, and no shares of Common Stock, par value $0.01 per share, of Holdco
(the "Holdco Common Stock") or other consideration shall be delivered in
exchange therefor.
(c) Conversion of Parent Capital Stock. Subject to Section 2.01(d), each
issued share of Parent Capital Stock (other than shares to be canceled in
accordance with Section 2.01(b) and other than shares subject to Section
2.01(f)) shall be converted into fully paid and nonassessable shares of the
capital stock of Holdco ("Holdco Capital Stock") in accordance with the
following table (it being acknowledged that as of November 30, 1995 (the date
of execution of this Agreement), (x) no shares of Parent Series E Preferred
Stock, Parent Series F Preferred Stock, Parent Series J Preferred Stock,
Parent Series K Preferred Stock or Parent Series L Preferred Stock are
outstanding and (y) it is anticipated that no shares of Parent Series C
Preferred Stock, Parent Series J Preferred Stock or Series K Parent Preferred
Stock will be outstanding immediately prior to the Effective Time of the
Mergers):
<TABLE>
<CAPTION>
EACH SHARE OF THE NUMBER AND CLASS OR SERIES
SPECIFIED CLASS OR SERIES OF SHARES OF HOLDCO CAPITAL
OF PARENT CAPITAL STOCK STOCK INTO WHICH CONVERTED
------------------------- ---------------------------
<S> <C>
Parent Common Stock............... One Share of Holdco Common Stock
Parent Series B Preferred Stock... One Share of Series B 6.40% Preferred Stock,
par value $0.10 per share, of Holdco
("Holdco Series B Preferred Stock")
Parent Series C Preferred Stock... 2.08264 shares of Holdco Common Stock
Parent Series D Preferred Stock... One share of Series D Convertible Preferred
Stock, par value $0.10 per share, of Holdco
("Holdco Series D Preferred Stock")
Parent Series E Preferred Stock... One share of Series E Convertible Preferred
Stock, par value $0.10 per share, of Holdco
("Holdco Series E Preferred Stock")
</TABLE>
A1(a)-4
<PAGE>
<TABLE>
<CAPTION>
EACH SHARE OF THE NUMBER AND CLASS OR SERIES
SPECIFIED CLASS OR SERIES OF SHARES OF HOLDCO CAPITAL
OF PARENT CAPITAL STOCK STOCK INTO WHICH CONVERTED
------------------------- ---------------------------
<S> <C>
Parent Series F Preferred Stock... One share of Series F Convertible Preferred
Stock, par value $0.10 per share, of Holdco
("Holdco Series F Preferred Stock")
Parent Series G Preferred Stock... One share of Series G Convertible Preferred
Stock, par value $0.10 per share, of Holdco
("Holdco Series G Preferred Stock")
Parent Series H Preferred Stock... One share of Series H Convertible Preferred
Stock, par value $0.10 per share, of Holdco
("Holdco Series H Preferred Stock")
Parent Series I Preferred Stock... One share of Series I Convertible Preferred
Stock, par value $0.10 per share, of Holdco
("Holdco Series I Preferred Stock")
Parent Series J Preferred Stock... 1,000 shares of Series LMCN-V Common Stock,
par value $0.01 per share, of Holdco
("Holdco LMCN-V Stock")
Parent Series K Preferred Stock... 1,000 shares of Series LMC Common Stock, par
value $0.01 per share, of Holdco ("Holdco
LMC Class Stock")
Parent Series L Preferred Stock... One share of Series L Preferred Stock, par
value $0.10 per share, of Holdco ("Holdco
Series L Preferred Stock")
</TABLE>
As of the Effective Time of the Mergers, all such shares of Parent Capital
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist. As of the Effective Time of the Mergers,
each certificate theretofore representing shares of Parent Capital Stock
(other than each certificate theretofore representing Parent Series C
Preferred Stock, Parent Series J Preferred Stock or Parent Series K Preferred
Stock (the "Changed Parent Stock")), without any action on the part of Holdco,
Parent or the holder thereof, shall be deemed to represent an equivalent
number of shares of the class or series of Holdco Capital Stock set forth
above next to the class or series of Parent Capital Stock formerly represented
by such certificate and shall cease to represent any rights in any shares of
Parent Capital Stock. As of the Effective Time of the Mergers, each holder of
a certificate representing any shares of Changed Parent Stock shall cease to
have any rights with respect thereto, except the right to receive, upon the
surrender of any such certificates, certificates representing the number of
shares of the class or series of Holdco Capital Stock, and in the case of any
Parent Series C Preferred Stock any cash in lieu of fractional shares of
Holdco Common Stock, set forth above next to the series of Changed Parent
Stock formerly represented by such certificate to be issued or paid in
consideration therefor upon surrender of such certificate in accordance with
Section 2.03, without interest.
(d) Appraisal Rights. Notwithstanding anything in this Agreement to the
contrary, shares ("Appraisal Shares") of Parent Capital Stock (other than
Parent Common Stock) that are outstanding immediately prior to the Effective
Time of the Mergers and that are held by any stockholder of Parent who is
entitled to demand and properly demands appraisal of such Appraisal Shares
pursuant to, and who complies in all respects with, the provisions of Section
262 of the DGCL ("Section 262") shall not be converted into Holdco Capital
Stock as provided in Section 2.01(c), but rather the holders of Appraisal
Shares shall be entitled to payment of the fair value of such Appraisal Shares
in accordance with the provisions of Section 262; provided, however, that if
any such holder shall fail to perfect or otherwise shall waive, withdraw or
lose the right to appraisal under Section 262 or a court of competent
jurisdiction shall determine that such holder is not entitled to the relief
provided by Section 262, then the right of such holder of Appraisal Shares to
be paid the fair value of such holder's Appraisal Shares shall cease and such
Appraisal Shares shall be treated as if they had been converted as of the
Effective Time of the Mergers into shares of Holdco Capital Stock as provided
in Section 2.01(c).
A1(a)-5
<PAGE>
(e) Exchange Ratio for Parent Options and Parent Warrants. (i) As of the
Effective Time of the Mergers, each outstanding Parent Option (as defined in
Section 3.02(c)) and each outstanding warrant (a "Parent Warrant") to purchase
Parent Common Stock, originally issued in connection with the first issuance
of Parent Series B Preferred Stock, shall be assumed by Holdco and converted
into an option or warrant, as the case may be, to purchase shares of Holdco
Common Stock, as provided below. Following the Effective Time of the Mergers,
each Parent Option shall continue to have, and shall be subject to, the same
terms and conditions set forth in the applicable Parent Stock Plan (as defined
in Section 3.02(c)) pursuant to which such Parent Option was granted, and each
Parent Warrant shall continue to have, and shall be subject to, the same terms
and conditions, in each case as in effect immediately prior to the Effective
Time of the Mergers, except that each such Parent Option or Parent Warrant
shall be exercisable for the same number of shares of Holdco Common Stock as
the number of shares of Parent Common Stock for which such Parent Option or
Parent Warrant was exercisable immediately prior to the Effective Time of the
Mergers.
(ii) As of the Effective Time of the Mergers, Holdco shall enter into an
assumption agreement with respect to each Parent Option and each Parent
Warrant, which, in the case of any Parent Option, shall provide for Holdco's
assumption of the obligations of Parent under the applicable Parent Stock
Plan. Prior to the Effective Time of the Mergers, Parent shall make such
amendments, if any, to the Parent Stock Plans as shall be necessary to permit
such assumption in accordance with this Section 2.01(e).
(iii) It is the intention of the parties that, to the extent that any Parent
Option constitutes an "incentive stock option" (within the meaning of Section
422 of the Code) immediately prior to the Effective Time of the Mergers, such
Parent Option shall continue to qualify as an incentive stock option to the
maximum extent permitted by Section 422 of the Code, and that the assumption
of the Parent Option provided by this Section 2.01(e) shall satisfy the
conditions of Section 424(a) of the Code.
(f) Treatment of Parent Capital Stock Held by Parent
Subsidiaries. Notwithstanding anything in this Agreement to the contrary, each
share of Parent Capital Stock (other than Parent Series C Preferred Stock)
held by any Parent Subsidiary shall be converted into (i) in the case of each
share of Parent Common Stock, one one-thousandth (1/1,000th) of a fully paid
and nonassessable share of Common Stock of the TW Surviving Corporation, (ii)
in the case of each share of Parent Series B Preferred Stock, one one-
thousandth (1/1,000th) of a fully paid and nonassessable share of Series B
6.40% Preferred Stock of the TW Surviving Corporation, (iii) in the case of
each share of Parent Series L Preferred Stock, one one-thousandth (1/1,000th)
of a fully paid and nonassessable share of Series L Convertible Preferred
Stock of the TW Surviving Corporation, (iv) in the case of each share of
Parent Series D Preferred Stock, one one-thousandth (1/1,000th) of a fully
paid and nonassessable share of Series D Convertible Preferred Stock of the TW
Surviving Corporation, (v) in the case of each share of Parent Series E
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of Series E Convertible Preferred Stock of the TW
Surviving Corporation, (vi) in the case of each share of Parent Series F
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of Series F Convertible Preferred Stock of the TW
Surviving Corporation, (vii) in the case of each share of Parent Series G
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of Series G Convertible Preferred Stock of the TW
Surviving Corporation, (viii) in the case of each share of Parent Series H
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of Series H Convertible Preferred Stock of the TW
Surviving Corporation and (ix) in the case of each share of Parent Series I
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of Series I Convertible Preferred Stock of the TW
Surviving Corporation.
Section 2.02. Effect on Company Capital Stock. As of the Effective Time of
the Mergers, by virtue of the TBS Merger and without any action on the part of
the holder of any shares of Company Capital Stock or any shares of capital
stock of Georgia Sub:
(a) Capital Stock of Georgia Sub. Each issued and outstanding share of
capital stock of Georgia Sub shall be converted into (i) one one-millionth
(1/1,000,000th) of a fully paid and nonassessable share of Class A Common
Stock, par value $.0625 per share, of the TBS Surviving Corporation for each
share of Class A
A1(a)-6
<PAGE>
Common Stock, par value $.0625 per share, of the Company ("Class A Common
Stock") issued and outstanding immediately prior to the Effective Time of the
Mergers, other than shares of Class A Common Stock subject to Section 2.02(f),
(ii) one one-millionth (1/1,000,000th) of a share of Class B Common Stock, par
value $.0625 per share, of the TBS Surviving Corporation for each share of
Class B Common Stock, par value $.0625 per share, of the Company ("Class B
Common Stock" and, together with the Class A Common Stock, the "Company Common
Stock") issued and outstanding immediately prior to the Effective Time of the
Mergers, other than shares of Class B Common Stock subject to Section 2.02(f),
and (iii) one one-millionth (1/1,000,000th) of a share of Class C Convertible
Preferred Stock, par value $.125 per share, of the TBS Surviving Corporation
for each share of Class C Convertible Preferred Stock, par value $.125 per
share, of the Company ("Class C Preferred Stock" and, together with the
Company Common Stock, the "Company Capital Stock") issued and outstanding
immediately prior to the Effective Time of the Mergers, other than Class C
Preferred Stock subject to Section 2.02(f).
(b) Cancellation of Treasury Stock. Each share of Company Capital Stock that
is owned by the Company shall automatically be canceled and retired and shall
cease to exist, and no Holdco Common Stock or other consideration shall be
delivered in exchange therefor.
(c) Conversion of Company Capital Stock. Subject to Sections 2.02(d),
2.02(f) and 2.03(e), (i) each issued and outstanding share of Company Common
Stock (other than shares to be canceled in accordance with Section 2.02(b)),
shall be converted into the right to receive 0.75 (the "Common Conversion
Number") of a fully paid and nonassessable share of Holdco Common Stock and
(ii) each issued and outstanding share of Class C Preferred Stock (other than
shares to be canceled in accordance with Section 2.02(b)) shall be converted
into the right to receive 4.80 fully paid and nonassessable shares of Holdco
Common Stock. As of the Effective Time of the Mergers, all such shares of
Company Capital Stock shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Capital Stock shall cease
to have any rights with respect thereto, except the right to receive, upon the
surrender of any such certificates, certificates representing the shares of
Holdco Common Stock and any cash in lieu of fractional shares of Holdco Common
Stock to be issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 2.03, without interest.
(d) Dissenting Shares. (i) The Board of Directors of the Company has adopted
a resolution pursuant to Section 1302(c)(2) of the Georgia BCC conferring
dissenters' rights with respect to the Company Common Stock in connection with
the TBS Merger. Notwithstanding anything in this Agreement to the contrary,
shares of Company Capital Stock that are outstanding immediately prior to the
Effective Time of the Mergers and that are held by any shareholder who has
delivered to the Company, prior to the Shareholder Approvals (as defined in
Section 3.01(d)), a written notice of such shareholder's intent to demand
payment for such holder's shares of Company Capital Stock if the TBS Merger is
effected, in accordance with Article 13 of the Georgia BCC, and who shall have
not voted such shares in favor of the approval and adoption of this Agreement
("Dissenting Shares") shall not be converted into the right to receive Holdco
Common Stock as provided in Section 2.02(c), but the holders of Dissenting
Shares shall be entitled to payment of the fair value of such Dissenting
Shares in accordance with the provisions of such Article 13; provided,
however, that if any such holder shall fail to perfect or shall otherwise
waive the right to demand payment under Article 13 of the Georgia BCC or a
court of competent jurisdiction shall determine that such holder is not
entitled to the relief provided by such Article 13, then the right of such
holder of Dissenting Shares to be paid the fair value of such holder's
Dissenting Shares shall cease and such Dissenting Shares shall be treated as
if they had been converted as of the Effective Time of the Mergers into the
right to receive the shares of Holdco Common Stock as provided in Section
2.02(c) and any cash in lieu of fractional shares of Holdco Common Stock as
provided in Section 2.03(e), without any interest thereon.
(ii) The Company shall give Holdco (A) prompt notice of any notices or other
instruments received by the Company pursuant to Article 13 of the Georgia BCC
and (B) the opportunity to direct all negotiations and proceedings with
respect to demands for payment for Dissenting Shares. The Company shall not,
except with the prior written consent of Holdco, voluntarily offer to make or
make any payment with respect to any demands for payment for Dissenting Shares
or offer to settle or settle any such demands.
A1(a)-7
<PAGE>
(e) Exchange Ratio for Company Options and Company Warrants. (i) As of the
Effective Time of the Mergers, each outstanding Company Stock Option (as
defined in Section 3.01(c)), each outstanding New Line Option (as defined in
Section 3.01(c)) and each outstanding warrant (a "Company Warrant") to
purchase Class B Common Stock shall be assumed by Holdco and converted into an
option or warrant, as the case may be, to purchase shares of Holdco Common
Stock, as provided below. Following the Effective Time of the Mergers, each
Company Stock Option shall continue to have, and shall be subject to, the same
terms and conditions set forth in the applicable Company Stock Plan (as
defined in Section 3.01(c)) pursuant to which such Company Stock Option was
granted, as in effect immediately prior to the Effective Time of the Mergers,
each New Line Option shall continue to have, and shall be subject to, the same
terms and conditions set forth in the applicable New Line Plan (as defined in
Section 3.01(c)) pursuant to which such New Line Option was granted, as in
effect immediately prior to the Effective Time of the Mergers, and each
Company Warrant shall continue to have, and shall be subject to, the same
terms and conditions as in effect immediately prior to the Effective Time of
the Mergers, except that (i) each such Company Stock Option, New Line Option
and Company Warrant shall be exercisable for that number of shares of Holdco
Common Stock equal to the product of (x) the number of shares of Class B
Common Stock for which such Company Stock Option, New Line Option or Company
Warrant was exercisable immediately prior to the Effective Time of the Mergers
and (y) the Common Conversion Number, rounded, in the case of any Company
Warrant or any Company Stock Option or New Line Option other than any
incentive stock option, up and, in the case of any incentive stock option,
down to the nearest whole share, if necessary, and (ii) the exercise price per
share of such Company Stock Option, New Line Option or Company Warrant shall
be equal to the aggregate exercise price of such Company Stock Option, New
Line Option or Company Warrant immediately prior to the Effective Time of the
Mergers divided by the number of shares of Holdco Common Stock for which such
Company Stock Option, New Line Option or Company Warrant shall be exercisable
as determined in accordance with the preceding clause (i), rounded up to the
next highest cent, if necessary.
(ii) As of the Effective Time of the Mergers, Holdco shall enter into an
assumption agreement with respect to each Company Stock Option, New Line
Option and Company Warrant, which shall provide for Holdco's assumption of the
obligations of the Company under the applicable Company Stock Plan, New Line
Plan or Warrant Agreement. Prior to the Effective Time of the Mergers, the
Company shall make such amendments, if any, to the Company Stock Plans and the
New Line Plans and each such Warrant Agreement as shall be necessary to permit
such assumption in accordance with this Section 2.02(e).
(iii) It is the intention of the parties that, to the extent that any
Company Stock Option or New Line Option constitutes an incentive stock option
immediately prior to the Effective Time of the Mergers, such Company Stock
Option or New Line Option shall continue to qualify as an incentive stock
option to the maximum extent permitted by Section 422 of the Code, and that
the assumption of the Company Stock Options and New Line Options provided by
this Section 2.02(e) shall satisfy the conditions of Section 424(a) of the
Code.
(f) Treatment of Company Capital Stock Held By Parent, Parent Subsidiaries
and Company Subsidiaries. Notwithstanding anything in this Agreement to the
contrary, each issued and outstanding share of Company Capital Stock held by
Parent, Holdco or any of their subsidiaries (including any such shares
acquired by Holdco simultaneously with the Effective Time of the Mergers and
any such shares held by corporations (other than the Company, but including
the Company Subsidiaries) that become subsidiaries of Holdco simultaneously
with the Effective Time of the Mergers but excluding any shares acquired
pursuant to Section 2.02(a)) shall be converted into (i) in the case of each
share of Class A Common Stock, one one-thousandth (1/1,000th) of a fully paid
and nonassessable share of Class A Common Stock of the TBS Surviving
Corporation, (ii) in the case of each share of Class B Common Stock, one one-
thousandth (1/1,000th) of a fully paid and nonassessable share of Class B
Common Stock of the TBS Surviving Corporation and (iii) in the case of each
share of Class C Preferred Stock, one one-thousandth (1/1,000th) of a fully
paid and nonassessable share of Class C Preferred Stock of the TBS Surviving
Corporation.
Section 2.03. Exchange of Shares and Certificates. (a) Exchange Agent. As of
the Effective Time of the Mergers, Holdco shall deposit with Chemical Bank or
such other bank or trust company as may be designated by Holdco (the "Exchange
Agent"), for the benefit of the holders of shares of Changed Parent Stock and
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Company Capital Stock, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the shares of Holdco
Capital Stock (such shares of Holdco Capital Stock, together with any
dividends or distributions with respect thereto with a record date after the
Effective Time of the Mergers, being hereinafter referred to as the "Exchange
Fund") issuable pursuant to Sections 2.01 and 2.02 in exchange for outstanding
shares of Changed Parent Stock and Company Capital Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time of the Mergers, the Exchange Agent shall mail to each holder of
record of a certificate or certificates which immediately prior to the
Effective Time of the Mergers represented outstanding shares of Changed Parent
Stock or Company Capital Stock (the "Certificates") whose shares were
converted into the right to receive shares of Holdco Capital Stock pursuant to
Section 2.01 or 2.02, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Holdco may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Holdco
Capital Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Holdco,
together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Holdco Capital Stock
which such holder has the right to receive pursuant to the provisions of this
Article II, and the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of Changed Parent Stock or Company
Capital Stock which is not registered in the transfer records of Parent or the
Company, as applicable, a certificate representing the proper number of shares
of Holdco Capital Stock may be issued to a person other than the person in
whose name the Certificate so surrendered is registered, if such Certificate
shall be properly endorsed or otherwise be in proper form for transfer and the
person requesting such payment shall pay any transfer or other taxes required
by reason of the issuance of shares of Holdco Capital Stock to a person other
than the registered holder of such Certificate or establish to the
satisfaction of Holdco that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.03, each Certificate shall be
deemed at any time after the Effective Time of the Mergers to represent only
the right to receive upon such surrender the certificate representing shares
of Holdco Capital Stock and cash in lieu of any fractional shares of Holdco
Capital Stock as contemplated by this Section 2.03. No interest shall be paid
or accrue on any cash payable in lieu of any fractional shares of Holdco
Capital Stock.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Holdco Capital Stock with a record date after
the Effective Time of the Mergers shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Holdco Capital Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.03(e), until the surrender of
such Certificate in accordance with this Article II. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificate representing whole shares of Holdco
Capital Stock issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of any cash payable in lieu of a fractional
share of Holdco Capital Stock to which such holder is entitled pursuant to
Section 2.03(e) and the amount of dividends or other distributions with a
record date after the Effective Time of the Mergers theretofore paid with
respect to such whole shares of Holdco Capital Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with
a record date after the Effective Time of the Mergers but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such whole shares of Holdco Capital Stock.
(d) No Further Ownership Rights in Changed Parent Stock and Company Capital
Stock. All shares of Holdco Capital Stock issued upon the surrender for
exchange of Certificates in accordance with the terms of this Article II
(including any cash paid pursuant to Section 2.03(c) or 2.03(e)) shall be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of Changed Parent Stock or Company Capital Stock
theretofore represented by such Certificates, subject, however, to the
obligation of the TW Surviving
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Corporation or the TBS Surviving Corporation, as applicable, to pay any
dividends or make any other distributions with a record date prior to the
Effective Time of the Mergers which may have been declared or made by Parent
or the Company, as applicable, on such shares of Changed Parent Stock and
Company Capital Stock in accordance with the terms of this Agreement or prior
to September 22, 1995, and which remain unpaid at the Effective Time of the
Mergers, and there shall be no further registration of transfers on the stock
transfer books of the TW Surviving Corporation or the TBS Surviving
Corporation, as applicable, of the shares of Changed Parent Stock or Company
Capital Stock which were outstanding immediately prior to the Effective Time
of the Mergers. If, after the Effective Time of the Mergers, Certificates are
presented to the TW Surviving Corporation or the TBS Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II, except as otherwise provided by law.
(e) Fractional Shares. (i) No certificates or scrip representing fractional
shares of Holdco Common Stock shall be issued upon the surrender for exchange
of Certificates, and such fractional share interests shall not entitle the
owner thereof to vote or to any other rights of a stockholder of Holdco.
(ii) Notwithstanding any other provision of this Agreement, each holder of
shares of Changed Parent Stock or Company Capital Stock converted pursuant to
the Mergers who would otherwise have been entitled to receive a fraction of a
share of Holdco Common Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Holdco
Common Stock multiplied by the closing price of a share of Parent Common Stock
on the Closing Date as reported on the NYSE-Composite Transactions Tape (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source).
(iii) Certificates shall be issued by the TW Surviving Corporation and the
TBS Surviving Corporation to evidence any fractional shares of the TW
Surviving Corporation and the TBS Surviving Corporation, as the case may be,
issued pursuant to Section 2.01(a), 2.01(f), 2.02(a) or 2.02(f).
(iv) Certificates shall be issued by Holdco to evidence any fractional
shares of Holdco LMC Class Stock or Holdco LMCN-V Stock issued pursuant to
Section 2.01(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time of the Mergers shall be delivered to Holdco, upon demand,
and any holders of the Certificates who have not theretofore complied with
this Article II shall thereafter look only to Holdco for payment of their
claim for Holdco Capital Stock, any cash in lieu of fractional shares of
Holdco Common Stock and any dividends or distributions with respect to Holdco
Capital Stock.
(g) No Liability. None of Parent, Holdco, Delaware Sub, Georgia Sub, the
Company or the Exchange Agent shall be liable to any person in respect of any
shares of Holdco Capital Stock (or dividends or distributions with respect
thereto) or cash from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificates shall not have been surrendered prior to seven years after the
Effective Time of the Mergers (or immediately prior to such earlier date on
which any shares of Holdco Capital Stock, any cash in lieu of fractional
shares of Holdco Capital Stock or any dividends or distributions with respect
to Holdco Capital Stock in respect of such Certificate would otherwise escheat
to or become the property of any Governmental Entity (as defined in Section
3.01(d)), any such shares, cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of the TW Surviving Corporation or the TBS Surviving Corporation, as
applicable, free and clear of all claims or interest of any person previously
entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Holdco, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Holdco.
A1(a)-10
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ARTICLE III
Representations and Warranties
Section 3.01. Representations and Warranties of the Company. The Company
represents and warrants to Parent as follows:
(a) Organization, Standing and Corporate Power. Each of the Company and each
of the Material Company Subsidiaries (as defined below) is a corporation,
partnership or other legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has
the requisite power and authority to carry on its business as now being
conducted. Each of the Company and its subsidiaries (each a "Company
Subsidiary") is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) would not have a material adverse
effect on the business, properties, assets, condition (financial or
otherwise), results of operations or prospects of the Company and the Company
Subsidiaries, taken as a whole (a "Company Material Adverse Effect"). The
Company has delivered to Parent complete and correct copies of its Restated
Articles of Incorporation and By-laws and the certificates of incorporation
and by-laws or comparable organizational documents of the Material Company
Subsidiaries, in each case as amended to the date of this Agreement. For
purposes of this Agreement, a "Material Company Subsidiary" means each Company
Subsidiary that (i) constitutes a significant subsidiary within the meaning of
Rule 1-02 of Regulation S-X of the Securities and Exchange Commission (the
"SEC") or (ii) is party to an agreement pursuant to which such Company
Subsidiary or another Company Subsidiary distributes programming or licenses
programming from any person other than a Company Subsidiary and is listed in
Section 3.01(a) of the letter from the Company, dated September 22, 1995
addressed to Parent (the "Company Disclosure Letter") (a "Company Programming
Subsidiary"). The Company is not in violation of any provision of its Restated
Articles of Incorporation or By-laws and no Material Company Subsidiary is in
violation of any provision of its certificate of incorporation, by-laws or
comparable organizational documents, except to the extent that such violations
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
(b) Subsidiaries. Section 3.01(b) of the Company Disclosure Letter sets
forth each Material Company Subsidiary and the ownership or interest therein
of the Company. All the outstanding shares of capital stock of each such
Material Company Subsidiary have been validly issued and are fully paid and
nonassessable and, except as set forth in Section 3.01(b) of the Company
Disclosure Letter, are owned by the Company, by another Company Subsidiary or
by the Company and another Company Subsidiary, free and clear of all pledges,
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens"). Except for the capital stock of the
Company Subsidiaries and except for the ownership interests set forth in
Section 3.01(b) of the Company Disclosure Letter, the Company does not own,
directly or indirectly, any capital stock or other ownership interest, with a
fair market value as of September 22, 1995, greater than $2,000,000, in any
corporation, partnership, limited liability company, joint venture or other
entity.
(c) Capital Structure. (i) The authorized capital stock of the Company
consists of 75,000,000 shares of Class A Common Stock, 300,000,000 shares of
Class B Common Stock, 500,000 shares of Class A Serial Preferred Stock, par
value $.10 per share (the "Class A Preferred Stock"), 12,600,000 shares of
Class B Cumulative Preferred Stock, par value $.125 per share (the "Class B
Preferred Stock"), 12,600,000 shares of Class C Preferred Stock and
100,000,000 shares of Class D Serial Preferred Stock, par value $.0625 per
share (the "Class D Preferred Stock"). Each share of Class C Preferred Stock
is convertible into six shares of Class B Common Stock. At the close of
business on August 29, 1995, (A)(I) 68,330,388 shares of Class A Common Stock
were outstanding, all of which were validly issued, fully paid and
nonassessable, (II) 137,819,078 shares of Class B Common Stock were
outstanding, all of which were validly issued, fully paid and nonassessable,
(III) 12,396,976 shares of Class C Preferred Stock were outstanding, all of
which were validly issued, fully paid and nonassessable, and (iv) no shares of
Class A Preferred Stock, Class B Preferred Stock or Class D Preferred Stock
were issued or outstanding; and (B)(I) 81,822,278 shares of Class B Common
Stock were reserved for issuance
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upon conversion of the Class C Preferred Stock and the Company's Zero Coupon
Subordinated Convertible Notes due 2007, (II) 13,904,724 shares of Class B
Common Stock were reserved for issuance upon the exercise of outstanding stock
options (the "Company Stock Options") granted pursuant to the Company's 1988
Stock Option Plan, the Company's 1993 Stock Option and Equity Award Plan and
the agreement, dated June 1, 1993, among CNN America, Inc., the Company, Larry
King Enterprises, Inc., and Larry King (the "Company Stock Plans") and (III)
4,892,214 shares of Class B Common Stock were reserved for issuance upon
conversion of the 6 1/2% Convertible Subordinated Debentures (the "New Line
Debentures") of New Line Cinema Corporation ("New Line"), upon the exercise of
outstanding stock options (the "New Line Options") granted pursuant to the New
Line 1986 Stock Option Plan, the New Line 1990 Stock Option Plan, the New Line
1991 Stock Option Plan, the Stock Option Agreements, dated January 17, 1986,
and February 14, 1990, among New Line, Michael Lynne and Richard L.
Blumenthal, the Stock Option Agreements, dated February 14, 1990, September
27, 1990, and January 22, 1993, between New Line and Michael Lynne, and the
Stock Option Agreement, dated October 6, 1993, between New Line and Mitch
Goldman (the "New Line Plans") or upon the exercise of outstanding warrants
issued by New Line pursuant to the Warrant to Purchase Common Stock of New
Line, dated May 31, 1991, initially issued to NHI Nelson Holdings
International Ltd. Except as set forth above, at the close of business on
August 29, 1995, no shares of capital stock or other voting securities of the
Company were issued, reserved for issuance or outstanding and, since such
date, no shares of capital stock or other voting securities or options in
respect thereof have been issued except upon the conversion of the securities
or the exercise of the Company Stock Options or other options and warrants
referred to in clauses (B)(I) through (III) above. Except as set forth in this
Section 3.01(c) or in Section 3.01(c) of the Company Disclosure Letter and
except for Company Stock Options granted in the ordinary course of business to
employees of the Company and the Company Subsidiaries who are not senior
executive officers and covering not in excess of an aggregate of 1,000,000
shares of Class B Common Stock for all such grants during the period from
September 22, 1995, through the Effective Time of the Mergers, there were not
on September 22, 1995, and at the Effective Time of the Mergers there will not
be, any options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company or any Company
Subsidiary is a party or by which any of them is bound relating to the issued
or unissued capital stock of the Company or any Company Subsidiary, or
obligating the Company or any Company Subsidiary to issue, transfer, grant or
sell any shares of capital stock of, or other equity interests in, or
securities convertible into or exchangeable for any capital stock or other
equity interests in, the Company or any Company Subsidiary or obligating the
Company or any Company Subsidiary to issue, grant, extend or enter into any
such option, warrant, call, right, commitment, agreement, arrangement or
undertaking. All shares of Class B Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are not any outstanding
contractual obligations of the Company or any Company Subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any Company Subsidiary, or make any material investment (in the
form of a loan, capital contribution or otherwise) in, any Company Subsidiary
or any other person.
(ii) The Company has previously delivered to Parent (A) a true and complete
list of the holders of record of the Class C Preferred Stock (the "Class C
Shareholders") and the number of shares of Class C Preferred Stock owned of
record by each such Class C Shareholder, (B) a true and complete list of the
number of shares of each class of capital stock of the Company owned of record
by the Principal Shareholder and each person known by the Company to be an
affiliate of the Principal Shareholder and (C) true and complete copies of any
agreement relating to the ownership or voting of the Class C Preferred Stock
to which the Company is a party.
(d) Authority; Noncontravention. The Company has the requisite corporate
power and authority to enter into this Agreement and, subject to approval of
this Agreement by the holders of (i) a majority of the voting power of the
outstanding Company Capital Stock, voting as a single class, (ii) a majority
of the voting power of the outstanding Class A Common Stock and the Class B
Common Stock, voting as a single class, and (iii) the holders of a majority of
the outstanding shares of Class C Preferred Stock, voting as a separate class
(the "Shareholder Approvals"), to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions
A1(a)-12
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contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of the Company, subject to the Shareholder
Approvals. This Agreement has been duly executed and delivered by the Company
and constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. Except as set forth in
Section 3.01(d) of the Company Disclosure Letter, the execution and delivery
of this Agreement by the Company do not, and the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or
to loss of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of the Company or any Company Subsidiary
under, (i) the Restated Articles of Incorporation or By-laws of the Company or
the comparable organizational documents of any Company Subsidiary, (ii) any
agreement pursuant to which the Company or any Company Programming Subsidiary
distributes programming or licenses programming from a person other than a
Company Subsidiary individually involving annual payments to or by the Company
and the Company Subsidiaries of $20,000,000 or more (any such agreement, a
"Programming Agreement"), (iii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement (but excluding any Programming
Agreement), instrument, permit, concession, franchise or license applicable to
the Company or any Company Subsidiary or their respective properties or assets
or (iv) subject to the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or any Company Subsidiary or
their respective properties or assets, other than, in the case of clauses
(iii) and (iv), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a Company Material Adverse
Effect, (y) prevent the Company from performing its obligations under this
Agreement in any material respect or (z) prevent or delay in any material
respect the consummation of any of the transactions contemplated by this
Agreement. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Federal, state or local government or any
court, administrative agency or commission or other governmental authority or
agency, domestic or foreign, including the European Union (a "Governmental
Entity"), is required by or with respect to the Company or any of the Company
Subsidiaries in connection with the execution and delivery of this Agreement
by the Company or the consummation by the Company of the transactions
contemplated by this Agreement, except for (i) the filing of a premerger
notification and report form by the Principal Shareholder as the ultimate
parent entity of the Company under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (ii) the filing with the SEC of (A)
a joint proxy statement relating to the meetings of the Company's shareholders
and Parent's stockholders to be held in connection with the Mergers and the
transactions contemplated by this Agreement (as amended or supplemented from
time to time, the "Proxy Statement"), and (B) such reports under Section 13(a)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (iii) the filing of the Certificates of Merger
with the Delaware Secretary of State and the Georgia Secretary of State and
appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business, (iv) such filings with, and orders
of, the Federal Communications Commission (the "FCC") as may be required under
the Communications Act of 1934, as amended (the "Communications Act"), and the
FCC's rules and regulations in connection with this Agreement and the
transactions contemplated by this Agreement and (v) such other consents,
approvals, orders, authorizations, registrations, declarations and filings (x)
as may be required under the laws of any foreign country in which the Company
or any of the Company Subsidiaries conducts any business or owns any property
or assets or (y) which, if not obtained or made, would not prevent or delay in
any material respect the consummation of any of the transactions contemplated
by this Agreement or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect or have, individually
or in the aggregate, a Company Material Adverse Effect.
(e) SEC Documents; Undisclosed Liabilities. The Company has filed all
required reports, schedules, forms, statements and other documents with the
SEC since December 31, 1992 (the "SEC Documents"; such term, when used with
respect to such documents filed prior to September 22, 1995, shall mean such
documents as amended prior to September 22, 1995). As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933 (the "Securities Act"), or the
Exchange
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<PAGE>
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except to the extent such statements have been modified or
superseded by a later Filed SEC Document (as defined in Section 3.01(g)).
Except to the extent that information contained in any SEC Document has been
revised or superseded by a later filed SEC Document, neither the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, nor any SEC
Document filed after December 31, 1994, contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in the SEC Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except,
in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of the Company and the consolidated Company Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the Filed SEC
Documents, neither the Company nor any Company Subsidiary has any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise) required by generally accepted accounting principles to be set
forth on a consolidated balance sheet of the Company and the consolidated
Company Subsidiaries or in the notes thereto and which, individually or in the
aggregate, could reasonably be expected to have a Company Material Adverse
Effect.
(f) Information Supplied. None of the information supplied or to be supplied
by the Company for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Holdco in
connection with the issuance of Holdco Capital Stock in the Mergers (the "Form
S-4") will, at the time the Form S-4 is filed with the SEC, at any time it is
amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) the Proxy Statement will, at the
date the Proxy Statement is first mailed to the Company's shareholders or
Parent's stockholders or at the time of the Shareholders Meeting (as defined
in Section 5.01(b)) or the Parent's Stockholders Meeting (as defined in
Section 5.01(c)), 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, in light of the circumstances under which they
are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder, except that no representation is made by
the Company with respect to statements made or incorporated by reference
therein based on information supplied by Parent specifically for inclusion or
incorporation by reference in the Proxy Statement.
(g) Absence of Certain Changes or Events. Except as disclosed in the SEC
Documents filed and publicly available prior to September 22, 1995 (the "Filed
SEC Documents"), since the date of the most recent audited financial
statements included in the Filed SEC Documents, the Company has conducted its
business only in the ordinary course, and there has not been:
(i) any change or effect (or any development that, insofar as can
reasonably be foreseen, is likely to result in a change or effect) which,
individually or in the aggregate, has had or is likely to have, a Company
Material Adverse Effect;
(ii) except for regular quarterly dividends not in excess of $.0175 per
share of Class A Common Stock, $.0175 per share of Class B Common Stock and
$.105 per share of Class C Preferred Stock, with customary record and
payment dates, any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any
of the Company Capital Stock;
A1(a)-14
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(iii) any split, combination or reclassification of any of the Company's
capital stock or any issuance or the authorization of any issuance of any
other securities in exchange or in substitution for shares of the Company's
capital stock;
(iv) except as disclosed in Section 3.01(g) of the Company Disclosure
Letter, (A) any granting by the Company or any Company Subsidiary to any
executive officer of the Company or any of the Company Subsidiaries of any
increase in compensation, except in the ordinary course of business
consistent with prior practice or as was required under employment
agreements in effect as of the date of the most recent audited financial
statements included in the Filed SEC Documents, (B) any granting by the
Company or any of the Company Subsidiaries to any such executive officer of
any increase in severance or termination pay, except as was required under
any employment, severance or termination agreements in effect as of the
date of the most recent audited financial statements included in the Filed
SEC Documents, or (C) any entry by the Company or any of the Company
Subsidiaries into any employment, severance or termination agreement with
any such executive officer (other than, in the case of clauses (B) and (C),
for any such item entered into after September 22, 1995, in compliance with
Section 4.01(a)(ix));
(v) any damage, destruction or loss, whether or not covered by insurance,
that has had or is likely to have a Company Material Adverse Effect; or
(vi) any change in accounting methods, principles or practices by the
Company or any Material Company Subsidiary materially affecting its assets,
liabilities or business, except insofar as may have been required by a
change in generally accepted accounting principles.
(h) Litigation. Except as disclosed in the Filed SEC Documents or in Section
3.01(h) of the Company Disclosure Letter, there is no suit, action or
proceeding (including any proceeding by or before the FCC) pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
of the Company Subsidiaries (and the Company is not aware of any basis for any
such suit, action or proceeding) that, individually or in the aggregate, could
reasonably be expected to (i) have a Company Material Adverse Effect or (ii)
prevent the Company from performing its obligations under this Agreement in
any material respect, and there is not any judgment, decree, injunction, rule
or order of any Governmental Entity or arbitrator outstanding against the
Company or any of the Company Subsidiaries having, or which, insofar as
reasonably can be foreseen, in the future would have, any Company Material
Adverse Effect. As of September 22, 1995, except as disclosed in the Filed SEC
Documents or in Section 3.01(h) of the Company Disclosure Letter, there was no
suit, action or proceeding pending, or, to the knowledge of the Company,
threatened, against the Company or any of the Company Subsidiaries (and the
Company is not aware of any basis for any such suit, action or proceeding)
that, individually or in the aggregate, could reasonably be expected to
prevent or delay in any material respect the consummation of the Mergers or
any of the transactions contemplated by this Agreement.
(i) Absence of Changes in Benefit Plans. Except as disclosed in the Filed
SEC Documents or in Section 3.01(i) of the Company Disclosure Letter, since
the date of the most recent audited financial statements included in the Filed
SEC Documents, there has not been any adoption or amendment in any material
respect by the Company or any of the Company Subsidiaries of any collective
bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
(whether or not legally binding) providing benefits to any current or former
employee, officer or director of the Company or any of the Company
Subsidiaries (collectively, "Benefit Plans").
(j) ERISA Compliance. Except as described in the Filed SEC Documents or in
Section 3.01(j) of the Company Disclosure Letter or as would not have a
Company Material Adverse Effect, (i) all employee benefit plans or programs
maintained for the benefit of the current or former employees or directors of
the Company or any Company Subsidiary that are sponsored, maintained or
contributed to by the Company or any Company Subsidiary, or with respect to
which the Company or any Company Subsidiary has any liability, including any
such plan that is an "employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income
A1(a)-15
<PAGE>
Security Act of 1974 ("ERISA"), are in compliance with all applicable
requirements of law, including ERISA and the Code, and (ii) neither the
Company nor any Company Subsidiary has any liabilities or obligations with
respect to any such employee benefit plans or programs, whether accrued,
contingent or otherwise, nor to the knowledge of the executive officers of the
Company are any such liabilities or obligations expected to be incurred.
Except as set forth in Section 3.01(j) of the Company Disclosure Letter, the
execution of, and performance of the transactions contemplated in, this
Agreement will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any benefit plan, policy,
arrangement or agreement or any trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any employee. The only severance agreements or
severance policies applicable to the Company or the Company Subsidiaries are
the agreements and policies specifically referred to in Section 3.01(j) of the
Company Disclosure Letter.
(k) Voting Requirements. The Shareholder Approvals are the only votes of the
holders of any class or series of the Company's capital stock necessary to
approve this Agreement and the transactions contemplated by this Agreement.
(l) Brokers; Schedule of Fees and Expenses. Except as set forth in Section
3.01(l) of the Company Disclosure Letter, no broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The Company will pay the fees and expenses of the
persons listed in Section 3.01(1) of the Company Disclosure Letter. The fees
incurred and to be incurred by the Company in connection with this Agreement
and the transactions contemplated by this Agreement for the persons listed in
Section 3.01(l) of the Company Disclosure Letter are set forth in Section
3.01(l) of the Company Disclosure Letter. The Company has furnished to Parent
true and complete copies of all the agreements referred to in Section 3.01(l)
of the Company Disclosure Letter and all indemnification and other agreements
related to the engagement of the persons so listed.
(m) Opinions of Financial Advisors. The Company has received the opinions of
CS First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated to the effect that, as of the respective dates of such opinions
(i) in the case of the CS First Boston Corporation opinion, the consideration
to be received by the Company's shareholders in the TBS Merger is fair to the
Company's shareholders (other than Parent) from a financial point of view, and
(ii) in the case of the Merrill Lynch, Pierce, Fenner & Smith Incorporated
opinion, the consideration to be received by shareholders of the Company
(other than Tele-Communications, Inc. ("TCI"), and its affiliates and Parent)
is fair to such shareholders from a financial point of view and, in the
context of the governance arrangements relating to the Company's ability to
consummate the TBS Merger, the financial terms of the transactions to be
entered into between the Company, Parent and their respective affiliates, on
the one hand, and TCI, on the other hand, are fair from a financial point of
view to the Company and its shareholders (other than TCI and its affiliates
and Parent), a signed copy of which opinions have been delivered to Parent.
(n) Taxes. (i) The Company and each Company Subsidiary have timely filed (or
have had timely filed on their behalf) or will file or cause to be timely
filed, all material Tax Returns required by applicable law to be filed by any
of them prior to or as of the Effective Time of the Mergers. All such Tax
Returns are, or will be at the time of filing, true, complete and correct in
all material respects.
(ii) The Company and each Company Subsidiary have paid (or have had paid on
their behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the Effective Time of the
Mergers, an adequate accrual for the payment of, all material Taxes due with
respect to any period ending prior to or as of the Effective Time of the
Mergers.
A1(a)-16
<PAGE>
(iii) For purposes of this Agreement, the following terms shall have the
following meanings:
(A) "Taxes" shall mean all Federal, state, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties
applicable thereto.
(B) "Tax Returns" shall mean all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and
information returns and any amended tax return relating to Taxes.
(o) Compliance with Laws. Neither the Company nor any of the Company
Subsidiaries has violated or failed to comply with any statute, law,
ordinance, regulation, rule, judgment, decree or order of any Governmental
Entity applicable to its business or operations (including the Communications
Act and the FCC's rules and regulations), except for violations and failures
to comply that could not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect.
Section 3.02. Representations and Warranties of Parent. Parent represents
and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent, Holdco and
Delaware Sub and each of the Material Parent Subsidiaries (as defined below)
is a corporation, partnership or other legal entity duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it
is organized and has the requisite power and authority to carry on its
business as now being conducted. Each of Parent and Parent's subsidiaries,
including Holdco and Delaware Sub (each a "Parent Subsidiary"), is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed (individually
or in the aggregate) would not have a material adverse effect on the business,
properties, assets, condition (financial or otherwise), results of operations
or prospects of Parent and the Parent Subsidiaries, taken as a whole (a
"Parent Material Adverse Effect"). As of the date of execution of this
Agreement, Georgia Sub is, and on the Closing Date Georgia Sub will be, a
corporation duly organized, validly existing and in good standing under the
laws of the State of Georgia. As of the date of execution of this Agreement,
Georgia Sub has, and on the Closing Date Georgia Sub will have, the requisite
power and authority to carry on its business as now conducted. As of the date
of execution of this Agreement, Georgia Sub is, and on the Closing Date
Georgia Sub will be, duly qualified or licensed to do business and in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so
qualified or licensed (individually or in the aggregate) would not have a
Parent Material Adverse Effect. Prior to the date of execution of this
Agreement, Parent has delivered to the Company complete and correct copies of
its Restated Certificate of Incorporation and By-laws and the certificates of
incorporation and by-laws or comparable organizational documents of Holdco,
Delaware Sub, Georgia Sub and the Material Parent Subsidiaries, in each case
as amended to the date of delivery. None of Parent, Holdco, Delaware Sub and
Georgia Sub is in violation of any provision of its certificate of
incorporation or by-laws and no Material Parent Subsidiary is in violation of
any provision of its certificate of incorporation, by-laws or comparable
organizational documents, except to the extent that such violations would not,
individually or in the aggregate, have a Parent Material Adverse Effect. Time
Warner Entertainment Company, L.P. ("TWE"), and each other Parent Subsidiary
that constitutes a significant subsidiary of Parent within the meaning of Rule
1-02 of Regulation S-X of the SEC (determined without regard to paragraph (3)
of the definition thereof) is referred to herein as a "Material Parent
Subsidiary".
(b) Subsidiaries. Section 3.02(b) of the Parent Disclosure Letter (as
defined in Section 3.02(c)) sets forth as of September 22, 1995, each Material
Parent Subsidiary and the ownership or interest therein of Parent. All the
outstanding shares of capital stock of each such Material Parent Subsidiary
have been validly issued and are fully paid and nonassessable and, except as
set forth in Section 3.02(b) of the Parent Disclosure Letter, are owned by
Parent, by another Parent Subsidiary or by Parent and another Parent
Subsidiary, free and clear of all Liens. Except for the ownership interests in
the Parent Subsidiaries and except for the ownership interests set forth in
Section 3.02(b) of the Parent Disclosure Letter, as of September 22, 1995,
Parent did not own, directly or indirectly, any capital stock or other
ownership interest, with a fair market value as of September 22, 1995, greater
than $5,000,000, in any corporation, partnership, limited liability company,
joint venture or other entity.
A1(a)-17
<PAGE>
(c) Capital Structure. As of September 22, 1995, the authorized capital
stock of Parent consisted of 750,000,000 shares of Parent Common Stock and
250,000,000 shares of preferred stock, par value $1.00 per share ("Parent
Preferred Stock"). At the close of business on August 31, 1995, (i) (A)
387,166,475 shares of Parent Common Stock were outstanding, all of which were
validly issued, fully paid and nonassessable, (B) 43,739,664 shares of Parent
Common Stock were held by Parent Subsidiaries and (C) 1,988,026 shares of
Parent Common Stock were held by Parent in treasury, (ii) 464,638 shares of
Parent Series B Preferred Stock were outstanding, all of which were validly
issued, fully paid and nonassessable, (iii) 3,264,508 shares of Parent Series
C Preferred Stock were outstanding, all of which were validly issued, fully
paid and nonassessable, (iv) 11,000,000 shares of Parent Series D Preferred
Stock were outstanding, all of which were validly issued, fully paid and
nonassessable, (v) 82,786,025 shares of Parent Common Stock were reserved for
issuance pursuant to the Time Warner 1981 Stock Option Plan, the Time Warner
1986 Stock Option Plan, the 1988 Stock Incentive Plan of Time Warner Inc., the
Time Warner 1989 Stock Incentive Plan, the Time Warner 1989 WCI Replacement
Stock Option Plan, the Time Warner 1989 Lorimar Non-Employee Replacement Stock
Option Plan, the Time Warner 1993 Stock Option Plan, the Time Warner 1994
Stock Option Plan, the Time Warner Corporate Group Stock Incentive Plan, the
Time Warner Cable Television Group Stock Incentive Plan, the Time Warner
Filmed Entertainment Group Stock Incentive Plan, the Time Warner Music Group
Stock Incentive Plan, the Time Warner Programming Group Stock Incentive Plan,
the Time Warner Publishing Group Stock Incentive Plan and the Time Warner 1988
Restricted Stock Plan for Non-Employee Directors (the "Parent Stock Plans" and
the options granted thereunder being the "Parent Options"), (vi) 4,000,000
shares of Parent Preferred Stock were reserved for issuance in connection with
the rights to purchase shares of Parent Common Stock pursuant to the Rights
Agreement dated as of January 20, 1994 (the "Rights Agreement"), between
Parent and Chemical Bank, as Rights Agent, and (vii) additional shares of
capital stock of Parent were reserved for issuance as described in Section
3.02(c) of the letter from Parent, dated September 22, 1995, addressed to the
Company (the "Parent Disclosure Letter"). Except as set forth above, at the
close of business on August 31, 1995, no shares of capital stock or other
voting securities of Parent were issued, reserved for issuance or outstanding.
All shares of Holdco Capital Stock which may be issued pursuant to this
Agreement will be, when issued, duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights. Except as set forth
above or in Section 3.02(c) of the Parent Disclosure Letter, as of September
22, 1995, there were not any options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Parent or any
Parent Subsidiary is a party or by which any of them is bound relating to the
issued or unissued capital stock of Parent or any Parent Subsidiary, or
obligating Parent or any Parent Subsidiary to issue, transfer, grant or sell,
or cause to be issued, transferred, granted or sold, additional shares of
capital stock or other voting securities of Parent or any Material Parent
Subsidiary or obligating Parent or any Parent Subsidiary to issue, grant,
extend or enter into any such option, warrant, call, right, commitment,
agreement, arrangement or undertaking. Except as set forth in Section 3.02(c)
of the Parent Disclosure Letter, as of September 22, 1995, there were not any
outstanding contractual obligations of Parent or any Parent Subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock of Parent
or any Material Parent Subsidiary or make any material investment (in the form
of a loan, capital contribution or otherwise) in any person (other than a
wholly owned Parent Subsidiary). The authorized capital stock of Holdco
consists of 100 shares of common stock, par value $1.00 per share, all of
which have been validly issued, are fully paid and nonassessable and are owned
by Parent free and clear of any Lien. The authorized capital stock of Delaware
Sub consists of 1,000 shares of Common Stock, par value $1.00 per share, all
of which have been validly issued, are fully paid and nonassessable and on the
date of execution of this Agreement are, and will on the Closing Date be,
owned by Holdco free and clear of any Lien. The authorized capital stock of
Georgia Sub on the date of execution of this Agreement consists, and on the
Closing Date will consist, of 1,000 shares of Common Stock, par value $1.00
per share, all of which on the date of execution of this Agreement have been,
and on the Closing Date will have been, validly issued and on the date of
execution of this Agreement are, and on the Closing Date will be, fully paid
and nonassessable and owned by Holdco free and clear of any Lien.
(d) Authority; Noncontravention. Parent, Holdco, Delaware Sub and Georgia
Sub have all requisite corporate power and authority to enter into this
Agreement and, subject to the Parent Stockholder Approvals (as defined in
Section 3.02(i)), to consummate the transactions contemplated by this
Agreement. The execution and
A1(a)-18
<PAGE>
delivery of this Agreement by Parent, Holdco, Delaware Sub and Georgia Sub and
the consummation by Parent, Holdco, Delaware Sub and Georgia Sub of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Parent, Holdco, Delaware Sub and
Georgia Sub, subject to the Parent Stockholder Approvals. This Agreement has
been duly executed and delivered by Parent, Holdco, Delaware Sub and Georgia
Sub and constitutes a valid and binding obligation of each such party,
enforceable against each such party in accordance with its terms. Except as
set forth in Section 3.02(d) of the Parent Disclosure Letter, the execution
and delivery of this Agreement by Parent, Holdco, Delaware Sub and Georgia Sub
do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of the
properties or assets of Parent, Holdco, Delaware Sub, Georgia Sub or any other
Parent Subsidiary under, (i) the Restated Certificate of Incorporation or by-
laws of Parent or the certificate of incorporation or by-laws or comparable
organizational documents of Holdco, Delaware Sub, Georgia Sub or any other
Parent Subsidiary, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Parent, Holdco, Delaware Sub, Georgia Sub or any
other Parent Subsidiary or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Parent, Holdco, Delaware Sub, Georgia Sub or any
other Parent Subsidiary or their respective properties or assets, other than,
in the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate would not (x)
have a Parent Material Adverse Effect, (y) prevent Parent, Holdco, Delaware
Sub or Georgia Sub from performing their respective obligations under this
Agreement in any material respect or (z) prevent or delay in any material
respect the consummation of any of the transactions contemplated by this
Agreement. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Parent, Holdco, Delaware Sub, Georgia Sub or any other Parent
Subsidiary in connection with the execution and delivery of this Agreement by
Parent and Sub or the consummation by Parent, Holdco, Delaware Sub or Georgia
Sub, as the case may be, of any of the transactions contemplated by this
Agreement, except for (i) the filing of a premerger notification and report
form by Parent under the HSR Act and possible filings of premerger
notification and report forms by shareholders of the Company under the HSR Act
with respect to the acquisition of shares of Holdco Common Stock pursuant to
the Mergers, (ii) the filing with the SEC of the Proxy Statement and the Form
S-4 and such reports under Sections 13 and 16(a) of the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated
by this Agreement and the receipt of all state securities or "blue sky"
authorizations necessary to issue Holdco Capital Stock as contemplated by this
Agreement, (iii) the filing of the Certificates of Merger with the Delaware
Secretary of State and the Georgia Secretary of State and appropriate
documents with the relevant authorities of other states in which the Company
is qualified to do business, (iv) such filings with, and orders of, the FCC
under the Communications Act and the FCC's rules and regulations as may be
required in connection with this Agreement and the transactions contemplated
by this Agreement, (v) such filings with, and orders of, cable franchising
authorities as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (vi) the filing of a Restated
Certificate of Incorporation for Holdco (as contemplated by Section 4.01(b))
with the Delaware Secretary of State, (vii) such filings by Holdco as may be
necessary for Holdco to qualify to do business in appropriate jurisdictions
and (viii) such other consents, approvals, orders, authorizations,
registrations, declarations and filings (x) as may be required under the laws
of any foreign country in which Parent or any of the Parent Subsidiaries
conducts any business or owns any property or assets or (y) which, if not
obtained or made, would not prevent or delay in any material respect the
consummation of any of the transactions contemplated by this Agreement or
otherwise prevent Parent, Holdco, Delaware Sub or Georgia Sub from performing
their respective obligations under this Agreement in any material respect or
have, individually or in the aggregate, a Parent Material Adverse Effect.
(e) SEC Documents; Undisclosed Liabilities. Parent has filed all required
reports, schedules, forms, statements and other documents with the SEC since
December 31, 1992 (the "Parent SEC Documents"; such term, when used with
respect to such documents filed prior to September 22, 1995, shall mean such
documents
A1(a)-19
<PAGE>
as amended prior to September 22, 1995). As of their respective dates, the
Parent SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such Parent
SEC Documents, and none of the Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
to the extent such statements have been modified or superseded by a later
Filed Parent SEC Document (as defined in Section 3.02(g)). Except to the
extent that information contained in any Parent SEC Document has been revised
or superseded by a later filed Parent SEC Document, neither Parent's Annual
Report on Form 10-K for the year ended December 31, 1994, nor any Parent SEC
Document filed after December 31, 1994, contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Parent included in the Parent SEC Documents comply as
to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except,
in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of Parent and the consolidated Parent Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the Filed Parent
SEC Documents, neither Parent nor any Parent Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by generally accepted accounting principles to be set forth on a
consolidated balance sheet of Parent and the consolidated Parent Subsidiaries
or in the notes thereto and which, individually or in the aggregate, could
reasonably be expected to have a Parent Material Adverse Effect.
(f) Information Supplied. None of the information supplied or to be supplied
by Parent, Holdco, Delaware Sub or Georgia Sub for inclusion or incorporation
by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with
the SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) the Proxy
Statement will, at the date the Proxy Statement is first mailed to the
Company's shareholders or Parent's stockholders or at the time of the
Shareholders Meeting or the Parent's Stockholders Meeting, 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, in light
of the circumstances under which they are made, not misleading. The Form S-4
and the Proxy Statement will comply as to form in all material respects with
the requirements of the Securities Act and the Exchange Act, as applicable,
and the rules and regulations promulgated thereunder, except that no
representation or warranty is made by Parent with respect to statements made
or incorporated by reference therein based on information supplied by the
Company specifically for inclusion or incorporation by reference in the Form
S-4 or the Proxy Statement.
(g) Absence of Certain Changes or Events. Except as disclosed in the Parent
SEC Documents filed and publicly available prior to September 22, 1995 (the
"Filed Parent SEC Documents"), or in Section 3.02(g) of the Parent Disclosure
Letter, since the date of the most recent audited financial statements
included in the Filed Parent SEC Documents, Parent has conducted its business
only in the ordinary course, and there has not been:
(i) any change or effect (or any development that, insofar as can
reasonably be foreseen, is likely to result in a change or effect) which,
individually or in the aggregate, has had or is likely to have, a Parent
Material Adverse Effect;
(ii) except for regular quarterly dividends not in excess of $0.09 per
share of Parent Common Stock and the stated or required amount of dividends
on any series of Parent Preferred Stock, in each case with customary record
and payment dates, any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to the Parent Common Stock or any series of Parent Preferred Stock;
A1(a)-20
<PAGE>
(iii) any split, combination or reclassification of the Parent Common
Stock or any issuance or, except as contemplated by this Agreement, the
authorization of any issuance of any other securities in exchange or in
substitution for shares of the Parent Common Stock;
(iv) any damage, destruction or loss, whether or not covered by
insurance, that has had or is likely to have a Parent Material Adverse
Effect; or
(v) any change in accounting methods, principles or practices by Parent
or any Material Parent Subsidiary materially affecting its assets,
liabilities or business, except insofar as may have been required by a
change in generally accepted accounting principles.
(h) Litigation. Except as disclosed in the Filed Parent SEC Documents or in
Section 3.02(h) of the Parent Disclosure Letter, there is no suit, action or
proceeding (including any proceeding by or before the FCC) pending or, to the
knowledge of Parent, threatened against or affecting Parent or any of the
Parent Subsidiaries (and Parent is not aware of any basis for any such suit,
action or proceeding) that, individually or in the aggregate, could reasonably
be expected to (i) have a Parent Material Adverse Effect or (ii) prevent
Parent, Holdco, Delaware Sub or Georgia Sub from performing their respective
obligations under this Agreement in any material respect, and there is not any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Parent or any of the Parent Subsidiaries
having, or which, insofar as reasonably can be foreseen, in the future would
have, any Parent Material Adverse Effect. As of September 22, 1995, except as
disclosed in the Filed Parent SEC Documents or in Section 3.02(h) of the
Parent Disclosure Letter, there was no suit, action or proceeding pending, or,
to the knowledge of Parent, threatened, against Parent or any of the Parent
Subsidiaries (and Parent is not aware of any basis for any such suit, action
or proceeding) that, individually or in the aggregate, could reasonably be
expected to prevent or delay in any material respect the consummation of the
Mergers or any of the transactions contemplated by this Agreement.
(i) Voting Requirements. The adoption of this Agreement by the holders of a
majority in voting power of the outstanding Parent Common Stock and the
outstanding voting Parent Preferred Stock, voting together as a single class
(the "Parent Stockholder Approvals"), is the only vote of the holders of any
class or series of Parent's capital stock necessary to approve this Agreement
and the transactions contemplated by this Agreement.
(j) Brokers. No broker, investment banker, financial advisor or other
person, other than Morgan Stanley & Co. Incorporated and Bear, Stearns & Co.
Incorporated, the fees and expenses of which will be paid by Parent, is
entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent or any Parent
Subsidiary.
(k) Taxes. (i) Parent and each Parent Subsidiary have timely filed (or have
had timely filed on their behalf) or will file or cause to be timely filed,
all material Tax Returns required by applicable law to be filed by any of them
prior to or as of the Effective Time of the Mergers. All such Tax Returns are,
or will be at the time of filing, true, complete and correct in all material
respects.
(ii) Parent and each Parent Subsidiary have paid (or have had paid on their
behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the Effective Time of the
Mergers, an adequate accrual for the payment of, all material Taxes due with
respect to any period ending prior to or as of the Effective Time of the
Mergers.
(l) Compliance with Laws. Neither Parent nor any of the Parent Subsidiaries
has violated or failed to comply with any statute, law, ordinance, regulation,
rule, judgment, decree or order of any Governmental Entity applicable to its
business or operations (including the Communications Act and the FCC's rules
and regulations), except for violations and failures to comply that could not,
individually or in the aggregate, reasonably be expected to result in a Parent
Material Adverse Effect.
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(m) ERISA Compliance. Except as described in the Parent Filed SEC Documents
or as would not have a Parent Material Adverse Effect, (i) all employee
benefit plans or programs maintained for the benefit of the current or former
employees or directors of Parent or any Parent Subsidiary that are sponsored,
maintained or contributed to by Parent or any Parent Subsidiary, or with
respect to which Parent or any Parent Subsidiary has any liability, including
any such plan that is an "employee benefit plan" as defined in Section 3(3) of
ERISA, are in compliance with all applicable requirements of law, including
ERISA and the Code, and (ii) neither Parent nor any Parent Subsidiary has any
liabilities or obligations with respect to any such employee benefit plans or
programs, whether accrued, contingent or otherwise, nor to the knowledge of
the executive officers of Parent are any such liabilities or obligations
expected to be incurred.
(n) Operations of Holdco, Delaware Sub and Georgia Sub. Holdco does not, and
will not prior to the Closing, engage in any significant business activities
or conduct any significant operations other than in connection with the
transactions contemplated by this Agreement. Each of Delaware Sub and Georgia
Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and has not engaged in any business activities
or conducted any operations other than in connection with the transactions
contemplated by this Agreement.
ARTICLE IV
Covenants Relating to Conduct of Business
Section 4.01. Conduct of Business. (a) Conduct of Business by the
Company. During the period from September 22, 1995, to the Effective Time of
the Mergers, the Company shall, and shall cause the Company Subsidiaries to,
carry on their respective businesses in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted and in compliance in
all material respects with all applicable laws and regulations (including the
Communications Act and the FCC's rules and regulations) and, to the extent
consistent therewith, use commercially reasonable efforts to preserve intact
their current business organizations, keep available the services of their
current officers and employees and preserve their relationships with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with them. Without limiting the generality of the foregoing,
during the period from September 22, 1995, to the Effective Time of the
Mergers, except for Approved Matters (as defined below) the Company shall not,
and shall not permit any of the Company Subsidiaries to:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by a direct or indirect wholly owned Company Subsidiary
to its parent and regular quarterly cash dividends on the Company Capital
Stock in an amount per share per quarter for each class of Company Capital
Stock not in excess of the amount paid for the quarter immediately
preceding September 22, 1995, (y) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
or (z) purchase, redeem or otherwise acquire any shares of capital stock of
the Company or any of the Company Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities (other than, in the case of this clause (z), for the
redemption of New Line Debentures following a call by the Company for
redemption of all the New Line Debentures);
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible securities (other than (x) the issuance of
shares of Class B Common Stock upon the exercise of Company Stock Options
outstanding on September 22, 1995, and in accordance with their then terms,
(y) the issuance of shares of Class B Common Stock reserved for issuance as
described in clauses (B)(I) and (B)(III) of Section 3.01(c) and (z) the
grant of Company Stock Options permitted under Section 3.01(c)(i) and the
issuance of shares of Class B Common Stock upon the exercise thereof);
(iii) amend its articles of incorporation, by-laws or other comparable
organizational documents;
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(iv) acquire or agree to acquire (x) by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, limited liability
company, joint venture, association or other business organization or
division thereof or (y) any assets that are material, individually or in
the aggregate, to the Company and the Company Subsidiaries taken as a
whole;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets, other
than encumbrances and Liens that are incurred in the ordinary course of
business;
(vi) (y) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of the Company Subsidiaries, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
short-term borrowings incurred in the ordinary course of business
consistent with past practice, or (z) make any loans, advances (other than
advances to employees in the ordinary course of business consistent with
prior practice) or capital contributions to, or investments in, any other
person, other than to the Company or any direct or indirect wholly owned
Company Subsidiary;
(vii) make or agree to make any new capital expenditure or expenditures;
(viii) make any material Tax election or settle or compromise any
material Tax liability or refund;
(ix) except in the ordinary course of business pursuant to employment
agreements or Benefit Plans existing on September 22, 1995, or as required
by applicable laws, (A) increase the compensation payable or to become
payable to its executive officers or employees, (B) grant any severance or
termination pay to, or enter into any employment or severance agreement
with, any director, executive officer or employee of the Company or any
Company Subsidiary or (C) establish, adopt, enter into or amend in any
material respect or take action to accelerate any rights or benefits under
any collective bargaining agreement (other than any collective bargaining
agreement for the film production operations of the Company and the Company
Subsidiaries) or any stock option, employee benefit plan, agreement or
policy except as contemplated by this Agreement; provided, however, that
this clause (ix) shall not prohibit the Company or any Company Subsidiary
from (1) entering into any employment agreement with any employee (other
than any executive officer of the Company) (x) whose current employment
agreement is expiring, (y) contemporaneously with the hiring of such
employee or (z) contemporaneously with the promotion of such employee, if,
in each case, such employment agreement does not provide for salary in
excess of $200,000 in any year, does not have a term in excess of five
years and is entered into in the ordinary course of business consistent
with prior practice, in the case of clause (x) above, such new employment
agreement is substantially similar to the expiring agreement and, in the
case of clause (y) or (z) above, such employment agreement is substantially
similar to current employment agreements for employees of the Company and
the Company Subsidiaries at the applicable level, (2) entering into talent
agreements in the ordinary course of its film production operations
consistent with prior practice, or (3) making any severance payment,
including any payment in settlement of litigation arising out of or
resulting from the cessation of employment, to any employee or former
employee (other than any executive officer or former executive officer of
the Company) in excess of the amounts otherwise permitted under this clause
(ix) if the excess amount of such payment does not, in any case, exceed
$50,000;
(x) except as contemplated by Section 2.02(e), and without limiting the
generality of clause (ix) above, make any amendment to any Company Stock
Plan or New Line Plan as a result of this Agreement or in contemplation of
the Mergers;
(xi) terminate or amend on terms less favorable to the Company any
agreement filed as an exhibit to any SEC Document or any Programming
Agreement; or
(xii) authorize any of, or commit or agree to take any of, the foregoing
actions.
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For purposes of this Agreement, "Approved Matters" means matters that are
(x) expressly included in a Master Budget contemplated by Section 3 of Article
XII of the By-Laws of the Company as in effect on September 22, 1995, or as
approved by Parent after September 22, 1995, and prior to its approval by the
Board of Directors of the Company or (y) otherwise approved in writing by
Parent. Each matter subject to Section 3 of Article XII of the By-laws of the
Company shall first be submitted to Parent for its approval and shall only
thereafter be submitted to the Board of Directors of the Company to the extent
Parent shall have approved such matter.
(b) Certificate of Incorporation and By-Laws of Holdco. Simultaneously with
or prior to the Effective Time of the Mergers, Parent shall cause the
certificate of incorporation of Holdco to be amended to read in the form of
the Restated Certificate of Incorporation of Parent, and shall cause the By-
laws of Holdco to be amended to read in the form of the By-laws of Parent, in
each case as in effect immediately prior to the Effective Time of the Mergers,
together with such changes thereto as Parent and the Company may from time to
time agree; provided, however, that changes reasonably necessary to give
effect to the creation of the Holdco LMC Class Stock and the Holdco LMCN-V
Stock in accordance with the LMC Agreement, to increase the authorized Holdco
Capital Stock and to reduce the par value per share of Holdco Capital Stock
shall not require the agreement of the Company. During the period from
September 22, 1995, to the Effective Time of the Mergers, except as
contemplated by this Agreement, Parent shall not amend its Restated
Certificate of Incorporation or By-laws in any manner that would be materially
adverse to the holders of Parent Common Stock.
(c) Other Actions. The Company and Parent shall not, and shall not permit
any of their respective subsidiaries to, take any action that would, or that
could reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect or (iii) any
of the conditions to the Mergers set forth in Article VI not being satisfied.
(d) Advice of Changes. The Company and Parent shall promptly advise the
other orally and in writing of any change or event having, or which, insofar
as can reasonably be foreseen, would have, a Company Material Adverse Effect
or a Parent Material Adverse Effect, as applicable.
Section 4.02. No Solicitation. (a) The Company shall not, nor shall it
permit any of the Company Subsidiaries to, nor shall it authorize or permit
any officer, director or employee of or any investment banker, attorney or
other advisor or representative of, the Company or any Company Subsidiary to,
(i) solicit, initiate or encourage the submission of any takeover proposal (as
defined below), (ii) enter into any agreement with respect to any takeover
proposal or (iii) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any takeover proposal;
provided, however, that nothing contained in this Agreement shall prevent the
Company or its Board of Directors from (A) furnishing nonpublic information
to, or entering into discussions or negotiations with, any person in
connection with an unsolicited bona fide written takeover proposal to the
Company or its shareholders, if and only to the extent that (1) the Board of
Directors of the Company determines in good faith based on written advice of
its outside legal counsel that such action is necessary for the Board of
Directors of the Company to comply with its fiduciary duties to shareholders
under applicable law and (2) prior to furnishing such nonpublic information
to, or entering into discussions or negotiations with, such person, the Board
of Directors of the Company receives from such person or entity an executed
confidentiality agreement with terms no less favorable to the Company than
those contained in the Confidentiality Agreement (as defined in Section 5.04),
or (B) complying with Rule 14e-2 promulgated under the Exchange Act with
regard to a takeover proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by any executive officer of the Company or any of the Company
Subsidiaries or any investment banker, attorney or other advisor or
representative of the Company or any of the Company Subsidiaries, whether or
not such person is purporting to act on behalf of the Company or any of the
Company Subsidiaries or otherwise, shall be deemed to be a breach of this
Section 4.02(a) by the Company. For purposes of this Agreement, "takeover
proposal" means any proposal for a merger, consolidation or other business
combination involving the Company or any of the Material Company
A1(a)-24
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Subsidiaries or any proposal or offer to acquire in any manner, directly or
indirectly, more than 15% of any class of voting securities of the Company or
any of the Material Company Subsidiaries, or assets representing a substantial
portion of the assets of the Company and the Company Subsidiaries, taken as a
whole, other than the transactions contemplated by this Agreement. The Company
shall immediately cease and cause to be terminated any existing activities,
discussions or negotiations by the Company or any of its officers, investment
bankers, attorneys or other advisors or representatives with any parties
conducted heretofore with respect to any of the foregoing.
(b) Subject to Section 7.01(e), neither the Board of Directors of the
Company nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent, the adoption, approval or
recommendation by such Board of Directors or any such committee of this
Agreement or the TBS Merger or (ii) approve or recommend, or propose to
approve or recommend, any takeover proposal.
(c) The Company promptly shall advise Parent orally and in writing of any
takeover proposal or any inquiry with respect to or which could lead to any
takeover proposal and the identity of the person making any such takeover
proposal or inquiry. The Company shall keep Parent promptly and fully informed
in all material respects of the status and details of any such takeover
proposal or inquiry.
ARTICLE V
Additional Agreements
Section 5.01. Preparation of Form S-4 and the Proxy Statement; Shareholders
Meeting and Parent's Stockholders Meeting. (a) As soon as practicable
following September 22, 1995, the Company and Parent shall prepare and file
with the SEC the Proxy Statement and Parent and Holdco shall prepare and file
with the SEC the Form S-4, in which the Proxy Statement shall be included as a
prospectus. Each of the Company, Parent and Holdco shall use its best efforts
to have the Form S-4 declared effective under the Securities Act as promptly
as practicable after such filing. Each of the Company and Parent shall use its
best efforts to cause the Proxy Statement to be mailed to the Company's
shareholders or Parent's stockholders, respectively, as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
Holdco shall take any action (other than qualifying to do business in any
jurisdiction in which Parent is not now so qualified) required to be taken
under any applicable state securities or "blue sky" laws in connection with
the issuance of Holdco Capital Stock pursuant to the Mergers, and the Company
shall furnish all information concerning the Company and the holders of the
Company Capital Stock and rights to acquire Company Capital Stock pursuant to
the Company Stock Plans or the New Line Plans as may be reasonably requested
in connection with any such action.
(b) The Company shall, as soon as practicable, duly call, give notice of,
convene and hold a meeting of its shareholders (the "Shareholders Meeting")
for the purpose of obtaining the Shareholder Approvals. Subject to Section
7.01(e), the Company shall, through its Board of Directors, recommend to its
shareholders approval of this Agreement and the transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, the Company
agrees that its obligations pursuant to the first sentence of this Section
5.01(b) shall not be altered by the commencement, public proposal, public
disclosure or communication to the Company of any takeover proposal. Parent
shall vote or cause to be voted all the shares of Company Capital Stock owned
of record by Parent or any Parent Subsidiary in favor of the Shareholder
Approvals.
(c) Parent shall, as soon as practicable, duly call, give notice of, convene
and hold a meeting of its stockholders (the "Parent's Stockholders Meeting")
for the purpose of obtaining the Parent Stockholder Approvals. Subject to any
contrary fiduciary obligations, Parent shall, through its Board of Directors,
recommend to its stockholders approval of the matters submitted to them for
such purpose.
Section 5.02. Letter of the Company's Accountants. The Company shall use its
best efforts to cause to be delivered to Parent and Holdco a letter of Price
Waterhouse LLP, the Company's independent public
A1(a)-25
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accountants, dated a date within two business days before the date on which
the Form S-4 shall become effective and addressed to Parent and Holdco, in
form and substance reasonably satisfactory to Parent and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
Section 5.03. Letter of Parent's Accountants. Parent shall use its best
efforts to cause to be delivered to the Company a letter of Ernst & Young LLP,
Parent's independent public accountants, and, with respect to persons or
assets acquired by Parent, one or more other independent public accountants,
dated a date within two business days before the date on which the Form S-4
shall become effective and addressed to the Company, in form and substance
reasonably satisfactory to the Company and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
Section 5.04. Access to Information; Confidentiality. Each of the Company
and Parent shall, and shall cause each of its respective subsidiaries to,
afford to the other party and to the officers, employees, accountants,
counsel, financial advisors and other representatives of such other party,
reasonable access during normal business hours during the period prior to the
Effective Time of the Mergers to all their respective properties, books,
contracts, commitments, personnel and records and, during such period, each of
the Company and Parent shall, and shall cause each of its respective
subsidiaries to, furnish promptly to the other party (a) a copy of each
report, schedule, registration statement and other document filed by it during
such period pursuant to the requirements of Federal or state securities laws
and (b) all other information concerning its business, properties and
personnel as such other party may reasonably request. Except as required by
law, each of the Company and Parent shall hold, and shall cause its respective
officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any nonpublic information in
confidence to the extent required by, and in accordance with, the provisions
of the letter dated August 26, 1995, between the Company and Parent (the
"Confidentiality Agreement").
Section 5.05. Best Efforts; Notification. (a) Upon the terms and subject to
the conditions set forth in this Agreement and, in the case of Parent, in the
LMC Agreement, each of the parties agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Mergers and the other transactions contemplated by this
Agreement and the Voting Agreements, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and
filings (including filings with Governmental Entities, if any) and the taking
of all reasonable steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any Governmental Entity, (ii)
the obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the Voting
Agreements or the consummation of the transactions contemplated by this
Agreement or the Voting Agreements, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement; provided, however, that a
party shall not be obligated to take any action pursuant to the foregoing if
the taking of such action or the obtaining of any waiver, consent, approval or
exemption is reasonably likely (x) to be materially burdensome to such party
and its subsidiaries taken as a whole or to impact in a materially adverse
manner the economic or business benefits of the transactions contemplated by
this Agreement, the Voting Agreements and the Investors' Agreements referred
to in Section 6.02(f) so as to render inadvisable the consummation of the
Mergers or (y) to result in the imposition of a condition or restriction of
the type referred to in clause (ii), (iii) or (iv) of Section 6.02(e). In
connection with and without limiting the foregoing, the Company and its Board
of Directors shall (i) take all reasonable action necessary so that no state
takeover statute or similar statute or regulation is or becomes applicable to
the TBS Merger, this Agreement or any of the other transactions contemplated
by this Agreement or the Voting Agreements and (ii) if any state takeover
statute or similar statute or regulation becomes applicable
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<PAGE>
to the TBS Merger, this Agreement or any other transaction contemplated by
this Agreement or any Voting Agreement, take all action necessary so that the
TBS Merger and the other transactions contemplated by this Agreement and the
Voting Agreements may be consummated as promptly as practicable on the terms
contemplated by this Agreement and the Voting Agreements and otherwise to
minimize the effect of such statute or regulation on the TBS Merger and the
other transactions contemplated by this Agreement and the Voting Agreements.
(b) The Company shall give prompt notice to Parent, and Parent shall give
prompt notice to the Company, of (i) any representation or warranty made by it
contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty
that is not so qualified becoming untrue or inaccurate in any material respect
or (ii) the failure by it to comply with or satisfy in any material respect
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this Agreement.
Section 5.06. Board Authority. The Company represents and warrants to Parent
that (a) on or prior to September 22, 1995, the Board of Directors of the
Company has adopted resolutions providing that (i) any action to be
subsequently taken by the Board of Directors of the Company to implement the
transactions contemplated by this Agreement (excluding any amendment to this
Agreement or to the other agreements entered into in connection with the
Mergers to which the Company is a party) shall be authorized if approved by a
majority vote of the directors of the Company (other than any directors that
are interested directors under Section 3 of Article XII of the Company's By-
laws) present and voting at a meeting at which a quorum is present, without
regard to class, and (ii) any action to be subsequently taken by the Company
to implement the transactions contemplated by this Agreement (excluding any
amendment to this Agreement or to the other agreements entered into in
connection with the Mergers to which the Company is a party) that otherwise
requires the approval of the Board of Directors of the Company shall be
authorized if approved by a majority vote of the directors of the Company
(other than any directors that are interested directors under Section 3 of
Article XII of the Company's By-laws) present and voting at a meeting at which
a quorum is present, without regard to class, and (b) such resolutions were
validly adopted, are in full force and effect, do not conflict with any
provision of the Company's Articles of Incorporation or By-laws or any
contract, agreement or other instrument to which the Company is a party and
are effective in accordance with their terms. The Board of Directors of the
Company shall not amend, rescind or repeal any of such resolutions. The
Company shall not enter into any contract, agreement or other instrument, or
adopt any resolution, that, directly or indirectly, would (A) result in any
action to be taken by the Board of Directors of the Company to implement the
transactions contemplated by this Agreement (excluding any amendment to this
Agreement or to the other agreements entered into in connection with the
Mergers to which the Company is a party) requiring any approval other than the
approval by the majority vote of all the directors of the Company (other than
any directors that are interested directors under Section 3 of Article XII of
the Company's By-laws) present and voting at a meeting at which a quorum is
present, without regard to class, or (B) result in any action to be taken by
the Company to implement the transactions contemplated by this Agreement
requiring the approval (if not required as of September 22, 1995) of the
directors of the Company or any group or committee thereof. The Company
represents and warrants to Parent that neither the Company nor its Board of
Directors was subject to any such contract, agreement or other instrument as
of September 22, 1995.
Section 5.07. Public Announcements. Parent, Holdco, Delaware Sub and Georgia
Sub, on the one hand, and the Company, on the other hand, shall consult with
each other before issuing, and provide each other the opportunity to review
and comment upon, any press release or other public statements with respect to
the transactions contemplated by this Agreement, including the Mergers, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law, court
process or by obligations pursuant to any listing agreement with any national
securities exchange.
Section 5.08. Benefit Plans. (a) Maintenance of Benefits. For a period of
two years after the Effective Time of the Mergers, Holdco shall (i) either (A)
maintain or cause the TBS Surviving Corporation (or in the case of a transfer
of all or substantially all the assets and business of the TBS Surviving
Corporation, its
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successors or assigns) to maintain the Benefit Plans (other than medical
plans) at the benefit levels in effect on September 22, 1995 or (B) provide or
cause the TBS Surviving Corporation (or, in such case, its successors or
assigns) to provide benefits to employees of the Company and the Company
Subsidiaries that are not materially less favorable in the aggregate to such
employees than those in effect on September 22, 1995 and (ii) provide or cause
to be provided medical benefits to employees of the Company and the Company
Subsidiaries that are substantially equivalent to those provided to similarly
situated employees of the TW Surviving Corporation.
(b) Service. With respect to any "employee benefit plan", as defined in
Section 3(3) of ERISA, maintained by Parent, Holdco or any other Parent
Subsidiary (including any severance plan), for purposes of determining
eligibility to participate, vesting, entitlement to benefits, benefit accrual
(but in the case of any "employee pension benefit plan", as defined in Section
3(2) of ERISA, solely to the extent necessary to comply with Section 5.08(a))
and in all other respects where length of service is relevant, service with
the Company or any Company Subsidiary shall be treated as service with Parent,
Holdco or the other Parent Subsidiaries; provided, however, that such service
need not be recognized to the extent that such recognition would result in any
duplication of benefits.
(c) Third Party Beneficiaries. This Section 5.08 is intended to be for the
benefit of and shall be enforceable by each person who is an employee of the
Company or any Company Subsidiary as of the Effective Time of the Mergers (but
only with respect to those provisions applicable to such employee), and his
heirs and personal representatives and, to the extent set forth above, shall
be binding on all successors and assigns of Parent, Holdco, the other Parent
Subsidiaries, the Company and the Company Subsidiaries. To the extent that any
provision of this Section 5.08 shall be reflected in a plan or arrangement
subject to ERISA, the exclusive remedy of any employee referred to in the
preceding sentence with respect to such provisions or request for a related
benefit provided by such plan or arrangement shall be the claims procedure
under such plan or arrangement.
Section 5.09. Indemnification. Parent, Holdco and Georgia Sub agree that all
rights to indemnification for acts or omissions occurring prior to the
Effective Time of the Mergers existing as of September 22, 1995, in favor of
the current or former directors or officers of the Company as provided in its
Restated Articles of Incorporation or By-laws shall survive the TBS Merger and
shall continue in full force and effect in accordance with their terms from
the Effective Time of the Mergers until the expiration of the applicable
statute of limitations with respect to any claims against the current or
former directors or officers of the Company arising out of such acts or
omissions. Holdco shall cause to be maintained for a period of not less than
six years from the Effective Time of the Mergers the Company's directors' and
officers' insurance and indemnification policy in effect as of September 22,
1995, to the extent that it provides coverage for events occurring prior to
the Effective Time of the Mergers (the "D&O Insurance") for all persons who
are directors and officers of the Company who are covered persons under the
Company's D&O insurance policies in effect on September 22, 1995, so long as
the annual premium therefor would not be in excess of 150% of the last annual
premium paid prior to September 22, 1995 (the "Maximum Premium"). If the
existing D&O Insurance expires, is terminated or canceled during such six-year
period, Holdco shall use all reasonable efforts to cause to be obtained as
much D&O Insurance as can be obtained for the remainder of such period for an
annualized premium not in excess of the Maximum Premium, on terms and
conditions no less advantageous to the covered persons than the existing D&O
Insurance. The Company represents to Parent that the Maximum Premium is
$947,602.
Section 5.10. Fees and Expenses. Except as provided in Sections 5.15,
7.02(a), 7.02(b) and 7.02(c), all fees and expenses incurred in connection
with the Mergers, this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such fees or expenses, whether
or not the Mergers are consummated, except that expenses incurred in
connection with printing and mailing the Proxy Statement and the Form S-4
shall be shared equally by Parent and the Company.
Section 5.11. Affiliates. Prior to the Closing Date, the Company shall
deliver to each of Parent and Holdco a letter identifying all persons who are,
at the time this Agreement is submitted for approval to the shareholders of
the Company, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act.
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The Company shall use its best efforts to cause each such person, and Parent
shall use its best efforts to cause each of its "affiliates", to deliver to
Holdco on or prior to the Closing Date a written agreement substantially in
the form attached as Exhibit A.
Section 5.12. Stock Exchange Listing. Parent shall use its best efforts to
cause the shares of Holdco Common Stock to be issued in the Mergers and
pursuant to the Company Stock Options, the New Line Options, the notes
referred to in Section 3.01(c)(i)(B)(I) and the other securities referred to
in Section 3.01(c)(i)(B)(III) to be approved for listing on the New York Stock
Exchange, Inc. (the "NYSE"), subject to official notice of issuance, prior to
the Closing Date.
Section 5.13. Execution of the Registration Rights Agreement. Holdco shall
execute and deliver to the other parties thereto the Registration Rights
Agreement in the form of Exhibit B (the "Registration Rights Agreement") at or
prior to the Closing.
Section 5.14. Tax Treatment. Each of Parent, Holdco and the Company shall
use its reasonable best efforts to cause the Mergers to qualify as exchanges
governed by Section 351 of the Code and to obtain the opinions of counsel
referred to in Sections 6.02(d) and 6.03(d).
Section 5.15. Transfer and Real Property Transfer Gains Taxes. Holdco shall
be responsible for any liabilities, without deduction or withholding from any
amount payable to the holders of Parent Capital Stock or Company Capital
Stock, arising under any New York State Real Estate Transfer Tax, New York
State Tax on Gains Derived from certain Real Property Transfers, New York City
Real Property Transfer Tax, New York State Stock Transfer Tax and any similar
taxes imposed by any other city or State of the United States (and any
penalties and interest with respect to such Taxes), to the extent any such
Taxes become payable in connection with the transactions contemplated by this
Agreement, on behalf of the holders of Parent Capital Stock or Company Capital
Stock. The Company and Holdco shall cooperate in complying with the
requirements of such Taxes. Holders of Parent Capital Stock or Company Capital
Stock shall be bound by the values and allocations established by Holdco and
the Company on any Tax Returns relating to any such Taxes.
Section 5.16. Material Transactions by Parent. Parent shall promptly notify
the Company if, after September 22, 1995, and prior to the Effective Time of
the Mergers, Parent or any Parent Subsidiary enters into a definitive
agreement providing for the implementation of a Material Transaction (as
defined below). In such event, the Board of Directors of the Company may
request the Company's financial advisor, CS First Boston Corporation, to
deliver a written opinion, substantially in the same form as the opinion
referred to in Section 3.01(m), that, after giving effect to the Material
Transaction, the consideration to be received by the Company's shareholders in
the TBS Merger is fair to the Company's shareholders (other than Parent) from
a financial point of view. The Company and Parent shall cooperate in
furnishing such information to CS First Boston Corporation as shall be
reasonably required in order for such opinion to be delivered as promptly as
practicable, and the Company shall use all commercially reasonable efforts to
cause such opinion or the written advice referred to in the following sentence
to be delivered within 15 days following request therefor from the Company. In
the event that CS First Boston Corporation advises the Company and Parent in
writing that it is unable to deliver such opinion, the Company shall be
entitled to terminate this Agreement pursuant to Section 7.01(f), if such
termination is approved by the Board of Directors of the Company. For purposes
of this Agreement, "Material Transaction" means (i) the issuance by Parent of
more than 90,000,000 "common stock equivalents" (one common stock equivalent
being equal to one share of Parent Common Stock, including any share of Parent
Common Stock issuable by Parent upon conversion, exercise or exchange of any
other capital stock, warrant or other security or right of Parent, any Parent
Subsidiary or any other controlled affiliate of Parent) in any single
transaction or in any series of individual transactions (excluding (A) any
transaction involving an exchange by Parent on a one-for-one basis of newly
issued shares of Parent Series L Preferred Stock for outstanding shares of
Parent Series C Preferred Stock and (B) any transaction contemplated by the
elective merger letter agreement dated as of September 22, 1995, between
Parent and LMC, if, in the case of this clause (B), such transaction is not
reasonably likely to (1) cause the satisfaction of any condition set forth in
Article VI to be delayed in any material respect or (2) make the satisfaction
of any such condition materially more difficult or costly or otherwise more
disadvantageous to the Company, Parent or Holdco in any material respect),
each of which involves the issuance of more than 20,000,000 common stock
equivalents, whether or not such individual
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transactions are related to each other, or (ii) the sale or other disposition
in any transaction or series of transactions, whether or not related to each
other, by Parent or any Parent Subsidiary of any business or assets with an
aggregate fair market value in excess of $3,500,000,000, excluding from such
amount (x) sales of inventory in the ordinary course of business consistent
with prior practice and (y) the sale or disposition, in a single transaction
or series of related transactions, of assets with an aggregate fair market
value of $500,000,000 or less. The fair market value of any cable television
systems disposed of by Parent or any Parent Subsidiary in exchange for cable
television systems owned by third parties shall be included in such amount
only to the extent, if any, in excess of the fair market value of the cable
televisions systems acquired in such exchange by Parent or any Parent
Subsidiary.
ARTICLE VI
Conditions Precedent
Section 6.01. Conditions to Each Party's Obligation To Effect the
Mergers. The respective obligation of each party to effect the Mergers is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Shareholder Approvals and Parent Stockholder Approvals. The Company
shall have obtained the Shareholder Approvals and Parent shall have obtained
the Parent Stockholder Approvals.
(b) NYSE Listing. The shares of Holdco Common Stock issuable pursuant to
this Agreement shall have been approved for listing on the NYSE, subject to
official notice of issuance.
(c) Antitrust. The waiting periods (and any extensions thereof) applicable
to the transactions contemplated by this Agreement under the HSR Act shall
have been terminated or shall have expired. Any consents, approvals and
filings under any foreign antitrust law the absence of which would prohibit
the consummation of the Mergers shall have been obtained or made.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of either Merger or preventing LMC or any of its subsidiaries
from voting, as contemplated by the LMC Agreement, shares of Company Capital
Stock that LMC or any such subsidiary is otherwise entitled to vote, shall be
in effect; provided, however, that, subject to the proviso in Section 5.05(a),
each of the parties shall have used its best efforts to prevent the entry of
any such injunction or other order and to appeal as promptly as possible any
such injunction or other order that may be entered.
(e) Form S-4. The Form S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a
stop order, and Holdco shall have received all state securities or "blue sky"
authorizations necessary to issue the Holdco Capital Stock issuable pursuant
to this Agreement.
(f) FCC Approvals. All orders and approvals of the FCC required in
connection with the consummation of the transactions contemplated by this
Agreement shall have been obtained without the imposition of any conditions or
restrictions of the type referred to in Section 6.02(e)(ii), (iii) or (iv)
that are not acceptable to Parent in its sole discretion.
(g) Certain Proceedings. Each action or proceeding relating to the issue of
whether the transactions contemplated by this Agreement violate, or require
the consent of any person under, the TWE Partnership Agreement shall either
(i) have been dismissed with prejudice or (ii) be subject to a final judgment
that remains unstayed for a period of 60 days; provided, however, that this
condition shall cease to be effective on December 23, 1996.
(h) Voting Trust Approval. Either (A) Parent and the Company shall be
satisfied that, and the FCC shall have confirmed that, the Voting Trust (as
defined in the LMC Agreement) will be effective to prevent the beneficiaries
thereunder from having an attributable interest, within the meaning of the
FCC's rules and
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regulations, in the assets and businesses of Holdco by reason of the Holdco
Capital Stock subject thereto or (B) the parties to the LMC Agreement (other
than Parent and Time TBS Holdings, Inc.) shall have acknowledged that the
procedures set forth in Section 4.1 of the LMC Agreement relating to exchange
for nonvoting Holdco securities are applicable.
Section 6.02. Conditions to Obligations of Parent, Holdco, Delaware Sub and
Georgia Sub. The obligations of Parent, Holdco, Delaware Sub and Georgia Sub
to effect the Mergers are further subject to the satisfaction or waiver by
Parent on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement that are qualified as to materiality
shall be true and correct, and the representations and warranties of the
Company set forth in this Agreement that are not so qualified shall be true
and correct in all material respects, in each case as of the date of this
Agreement, and as of the Closing Date as though made on and as of the Closing
Date, except to the extent any such representation or warranty expressly
relates to an earlier date (in which case as of such date), and Parent shall
have received a certificate signed on behalf of the Company by the Chief
Executive Officer (or the Executive Vice President) and the Chief Financial
Officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the Chief Executive
Officer (or the Executive Vice President) and the Chief Financial Officer of
the Company to such effect.
(c) Letters from Company Affiliates. Holdco shall have received from each
person named in the letter referred to in Section 5.11 an executed copy of an
agreement substantially in the form of Exhibit A.
(d) Tax Opinion. Parent and Holdco shall have received an opinion dated the
Closing Date from Cravath, Swaine & Moore, based upon certificates and
letters, which letters and certificates are substantially in the form set
forth in Exhibit D and dated the Closing Date, to the effect that the TW
Merger will qualify as an exchange governed by the provisions of Section 351
of the Code.
(e) No Litigation. There shall not be pending any suit, action or proceeding
by any Governmental Entity (i) challenging the acquisition by Parent or Holdco
of any shares of capital stock of the Company or the TBS Surviving
Corporation, seeking to restrain or prohibit the consummation of the Mergers
or any of the other transactions contemplated by this Agreement or the LMC
Agreement or seeking to obtain from the Company, Parent, Holdco or any of
their respective subsidiaries any damages that are material in relation to the
Company and its subsidiaries taken as a whole, (ii) seeking to prohibit or
limit the ownership or operation by the Company, Parent, Holdco, any Material
Company Subsidiary or any Material Parent Subsidiary of any material portion
of the business or assets of the Company, Parent, Holdco, any Material Company
Subsidiary or any Material Parent Subsidiary or to compel the Company, Parent,
Holdco, or any of their respective subsidiaries to dispose of or hold separate
any material portion of the business or assets of the Company, Parent, Holdco,
any Material Company Subsidiary or any Material Parent Subsidiary as a result
of the Mergers or any of the other transactions contemplated by this
Agreement, (iii) seeking to impose limitations on the ability of Holdco to
acquire or hold, or exercise full rights of ownership of, any shares of
capital stock of the TW Surviving Corporation or the TBS Surviving
Corporation, including, without limitation, the right to vote such capital
stock on all matters properly presented to the stockholders of the TW
Surviving Corporation or the TBS Surviving Corporation, (iv) seeking to
prohibit Parent or Holdco from effectively controlling in any material respect
the business or operations of the Company or any Material Company Subsidiary
or (v) which otherwise is reasonably likely to have a Company Material Adverse
Effect or a Parent Material Adverse Effect.
(f) Investors' Agreements. Each of the other parties thereto shall have
executed and delivered to Holdco an Investors' Agreement in the form of
Exhibit C-1 or C-2, as applicable.
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(g) Cable Franchise Authorities. All necessary orders and permits approving
the transactions contemplated by this Agreement from all applicable cable
franchising authorities having jurisdiction over all or any portion of any
material cable system operated by Parent or any Parent Subsidiary shall have
been received.
(h) Dissenters' Rights. The Company shall not have received pursuant to
Section 1321(a)(1) of the Georgia BCC written notices of intent to demand
payment in connection with the TBS Merger with respect to shares of Company
Capital Stock representing more than 28,000,000 Company Common Stock
equivalents (calculated on the basis that each share of Company Common Stock
represents one Company Common Stock equivalent and each share of Class C
Preferred Stock represents six Company Common Stock equivalents).
Section 6.03. Conditions to Obligation of the Company. The obligation of the
Company to effect the TBS Merger is further subject to the satisfaction or
waiver by the Company on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations and warranties of
Parent set forth in this Agreement that are qualified as to materiality shall
be true and correct, and the representations and warranties of Parent set
forth in this Agreement that are not so qualified shall be true and correct in
all material respects, in each case as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date, except to the
extent any such representation or warranty expressly relates to another date
(in which case as of such date), and the Company shall have received a
certificate signed on behalf of Parent by the chief executive officer (or any
executive vice president) and the chief financial officer of Parent to such
effect.
(b) Performance of Obligations. Parent, Holdco, Delaware Sub and Georgia Sub
shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of Parent by
the chief executive officer (or any executive vice president) and the chief
financial officer of Parent to such effect.
(c) No Litigation. There shall not be pending any suit, action or proceeding
by any Governmental Entity (i) seeking to obtain from the Company, Parent,
Holdco or any of their respective subsidiaries any damages that are material
in relation to Holdco and its subsidiaries taken as a whole (determined after
giving effect to the Mergers), (ii) seeking to prohibit or limit the ownership
or operation by Parent, Holdco or any of their respective subsidiaries of any
material portion of the business or assets of Holdco and its subsidiaries
taken as a whole (determined after giving effect to the Mergers), or to compel
Parent, Holdco or any of their respective subsidiaries to dispose of or hold
separate any material portion of the business or assets of Holdco and its
subsidiaries, taken as a whole (determined after giving effect to the
Mergers), as a result of the Mergers or any of the other transactions
contemplated by this Agreement, or (iii) which otherwise is reasonably likely
to have a material adverse effect on Holdco and its subsidiaries, taken as a
whole (determined after giving effect to the Mergers).
(d) Tax Opinion. The Company shall have received an opinion dated the
Closing Date from Skadden, Arps, Slate, Meagher & Flom, based upon
certificates and letters, which letters and certificates are substantially in
the form set forth in Exhibit D and dated the Closing Date, to the effect that
the TBS Merger will qualify as an exchange governed by the provisions of
Section 351 of the Code.
ARTICLE VII
Termination, Amendment and Waiver
Section 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time of the Mergers, whether before or after the
Shareholder Approvals or the Parent Stockholder Approvals:
(a) by mutual written consent of Parent and the Company;
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(b) by either Parent or the Company:
(i) if, at a duly held shareholders meeting of the Company or any
adjournment thereof at which the Shareholder Approvals are voted upon, the
Shareholder Approvals shall not have been obtained;
(ii) if, at a duly held stockholders meeting of Parent or any adjournment
thereof at which the Parent Stockholder Approvals are voted upon, the
Parent Stockholder Approvals shall not have been obtained;
(iii) if the Mergers shall not have been consummated on or before
September 30, 1996, unless the failure to consummate the Mergers is the
result of a wilful and material breach of this Agreement by the party
seeking to terminate this Agreement; provided, however, that if all the
conditions set forth in Sections 6.01 (other than 6.01(g)), 6.02 and 6.03
have been satisfied at such date, either Parent or the Company may, by
notice to the other prior to such date, extend such date to the latest date
so extended by either party but in no event later than December 31, 1996;
(iv) if any court of competent jurisdiction or other Governmental Entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Mergers and
such order, decree, ruling or other action shall have become final and non-
appealable;
(v) in the event of a breach by the other party of any representation,
warranty, covenant or other agreement contained in this Agreement which (A)
would give rise to the failure of a condition set forth in Section 6.02(a)
or 6.02(b) or Section 6.03(a) or 6.03(b), as applicable, and (B) cannot be
or has not been cured within 30 days after the giving of written notice to
the breaching party of such breach (a "Material Breach") (provided that the
terminating party is not then in breach of any representation, warranty,
covenant or other agreement that would give rise to a failure of a
condition as described in clause (A) above); or
(vi) if the FCC shall have issued an order or ruling or taken other
action denying approval of the transactions contemplated by this Agreement,
and such order, ruling or other action shall have become final and non-
appealable;
(c) by either Parent or the Company in the event that (i) all the conditions
to the obligation of such party to effect the Mergers set forth in Section
6.01 shall have been satisfied and (ii) any condition to the obligation of
such party to effect the Mergers set forth in Section 6.02 (in the case of
Parent) or Section 6.03 (in the case of the Company) is not capable of being
satisfied prior to the end of the period referred to in Section 7.01(b)(iii);
(d) by Parent, if any order or approval of the FCC contemplated by Section
6.01(f) when obtained shall have included any conditions or restrictions of
the type referred to in Section 6.02(e)(ii), (iii) or (iv) that are not
acceptable to Parent in its sole discretion and such order or approval shall
have become final and non-appealable;
(e) by the Company, subject to Section 7.05(b), if the Board of Directors of
the Company shall concurrently approve, and the Company shall concurrently
enter into, a definitive agreement providing for the implementation of the
transactions contemplated by a takeover proposal; provided, however, that (i)
the Company is not then in breach of Section 4.02 or in breach of any other
representation, warranty, covenant or agreement that would give rise to a
failure of a condition set forth in Section 6.02(a) or 6.02(b), (ii) the Board
of Directors of the Company shall have complied with Section 7.05(b) in
connection with such takeover proposal and (iii) no termination pursuant to
this Section 7.01(e) shall be effective unless the Company shall
simultaneously make the payment required by Section 7.02(a);
(f) by the Company, as contemplated by Section 5.16;
(g) by the Company within 30 days of (i) Parent entering into any agreement
providing for any merger or consolidation of Parent with or into any other
person in which the shares of capital stock of Parent are to be exchanged for
or converted into the right to receive anything other than Parent Common
Stock, (ii) any person becoming an Acquiring Person (as defined in the Rights
Agreement, as in effect on September 22, 1995), other than with the prior
approval of the Board of Directors of Parent, or (iii) any person becoming an
Acquiring Person (as defined in the Rights Agreement, as in effect on
September 22, 1995, but determined, for purposes of
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<PAGE>
this clause (iii), as if the reference therein to "15%" were to "30%"), in the
case of clauses (ii) and (iii) above, (x) including any person excluded from
the definition of "Acquiring Person" in the Rights Agreement by virtue of the
acquisition of shares pursuant to a Qualifying Offer (as defined in the Rights
Agreement, as in effect on September 22, 1995) and (y) regardless of whether
the Rights Agreement is then in effect (and excluding, in all cases, this
Agreement); or
(h) by Parent to the extent required by Section 2.3 of the LMC Agreement.
Section 7.02. Effect of Termination. (a) In the event that any person shall
make a takeover proposal and thereafter (i) this Agreement is terminated (A)
pursuant to Section 7.01(b)(i), (B) pursuant to Section 7.01(b)(iii) (if at
the time of termination (x) the Company is in breach of any representation,
warranty, covenant or other agreement that would give rise to a failure of a
condition set forth in Section 6.02(a) or 6.02(b) and (y) such breach cannot
be or has not been cured within 30 days after the Company becomes aware of
such breach or such shorter period as may elapse between the date the Company
becomes aware of such breach and the time of termination), (C) by the Company
pursuant to Section 7.01(b)(iv) (if at the time of termination (x) the Company
is in breach of any representation, warranty, covenant or other agreement that
would give rise to a failure of a condition set forth in Section 6.02(a) or
6.02(b) and (y) such breach cannot be or has not been cured within 30 days
after the Company becomes aware of such breach), (D) by Parent pursuant to
Section 7.01(b)(v), (E) pursuant to Section 7.01(b)(vi) (if at the time of
termination (x) the Company is in breach of any representation, warranty,
covenant or other agreement that would give rise to a failure of a condition
set forth in Section 6.02(a) or 6.02(b) and (y) such breach cannot be or has
not been cured within 30 days after the Company becomes aware of such breach),
(F) by the Company pursuant to Section 7.01(c) or (G) pursuant to Section
7.01(e), and (ii) a definitive agreement with respect to a takeover proposal
is executed, or a takeover proposal is consummated, at or within eighteen
months after such termination, then the Company shall pay to Parent a fee of
$175,000,000 (reduced by any amount actually paid by the Company pursuant to
Section 7.02(b) in connection with such termination), which amount shall be
payable by wire transfer of same day funds on the date such agreement is
executed, or such takeover proposal is consummated, as applicable. The Company
acknowledges that the agreements contained in this Section 7.02(a) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the amount due pursuant to
this Section 7.02(a), and, in order to obtain such payment, Parent commences a
suit which results in a judgment against the Company for the fee set forth in
this Section 7.02(a), the Company shall also pay to Parent its costs and
expenses (including reasonable attorneys' fees) in connection with such suit.
(b) In the event of termination of this Agreement by either Parent or the
Company pursuant to Section 7.01(b)(i) or by Parent pursuant to Section
7.01(b)(v), then the Company shall reimburse Parent for all its reasonable
out-of-pocket expenses actually incurred in connection with this Agreement and
the transactions contemplated hereby, up to a maximum amount of $15,000,000,
which amount shall be payable by wire transfer of same day funds within three
business days of written demand, accompanied by a reasonably detailed
statement of such expenses and appropriate supporting documentation, therefor.
(c) In the event of termination of this Agreement by either Parent or the
Company pursuant to Section 7.01(b)(ii) or by the Company pursuant to Section
7.01(b)(v), then Parent shall reimburse the Company for all its reasonable
out-of-pocket expenses actually incurred in connection with this Agreement and
the transactions contemplated hereby, up to a maximum amount of $15,000,000,
which amount shall be payable by wire transfer of same day funds within three
business days of written demand, accompanied by a reasonably detailed
statement of such expenses and appropriate supporting documentation, therefor.
(d) In the event of termination of this Agreement by either the Company or
Parent as provided in Section 7.01, this Agreement shall forthwith become void
and have no effect, without any liability or obligation on the part of Parent,
Holdco, Delaware Sub, Georgia Sub or the Company, other than the provisions of
Sections 3.01(l) and 3.02(j), the second sentence of Section 5.04, Section
5.10, this Section 7.02 and Article VIII and except to the extent that such
termination results from the wilful and material breach by a party of any of
its representations, warranties, covenants or other agreements set forth in
this Agreement.
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Section 7.03. Amendment. This Agreement may be amended by the parties at any
time before or after the Shareholder Approvals or the Parent Stockholder
Approvals; provided, however, that (i) after the Shareholder Approvals, there
shall be made no amendment that pursuant to the Georgia BCC requires further
approval by the shareholders of the Company without the further approval of
such shareholders and (ii) after the Parent Stockholder Approvals, there shall
be made no amendment that pursuant to the DGCL requires further approval by
the stockholders of Parent without the further approval of such stockholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
Section 7.04. Extension; Waiver. At any time prior to the Effective Time of
the Mergers, the parties may (a) extend the time for the performance of any of
the obligations or other acts of the other parties, (b) waive any inaccuracies
in the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 7.03, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
Section 7.05. Procedure for Termination, Amendment, Extension or Waiver. (a)
A termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 shall, in order to be effective, require, in the case of Parent,
Holdco, Delaware Sub, Georgia Sub or the Company, action by its Board of
Directors or, in the case of an extension or waiver pursuant to Section 7.04,
the duly authorized designee of its Board of Directors.
(b) The Company shall provide to Parent written notice prior to any
termination of this Agreement pursuant to Section 7.01(e) advising Parent (i)
that the Board of Directors of the Company in the exercise of its good faith
judgment as to its fiduciary duties to the shareholders of the Company under
applicable law, after receipt of written advice of outside legal counsel, has
determined (on the basis of such takeover proposal and the terms of this
Agreement, as then in effect) that such termination is required in connection
with a takeover proposal that is more favorable to the shareholders of the
Company than the transactions contemplated by this Agreement (taking into
account all terms of such takeover proposal and this Agreement, including all
conditions) and (ii) as to the material terms of any such takeover proposal.
At any time after two business days following receipt of such notice, the
Company may terminate this Agreement as provided in Section 7.01(e) only if
the Board of Directors of the Company determines that such proposal is more
favorable to the shareholders of the Company than the transactions
contemplated by this Agreement (taking into account all terms of such takeover
proposal and this Agreement, including all conditions, and which determination
shall be made in light of any revised proposal made by Parent prior to the
expiration of such two business day period) and concurrently enters into a
definitive agreement providing for the implementation of the transactions
contemplated by such takeover proposal.
ARTICLE VIII
General Provisions
Section 8.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time of the
Mergers. This Section 8.01 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time
of the Mergers.
Section 8.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
A1(a)-35
<PAGE>
(a) if to Parent, Holdco, Delaware Sub or Georgia Sub, to
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Attention: General Counsel
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Peter S. Wilson, Esq.
(b) if to the Company, to
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, GA 30303
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, CA 90071
Attention: Thomas C. Janson, Jr., Esq.
Section 8.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(c) a "subsidiary" of any person means another person, an amount of the
voting securities or other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more
of the equity interests of which) is owned directly or indirectly by such
first person.
Section 8.04. Interpretation. When a reference is made in this Agreement to
a Section or Exhibit such reference shall be to a Section of, or an Exhibit
to, this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation".
Section 8.05. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties.
Section 8.06. Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents referred to herein) (a) constitutes the entire
agreement, and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter of this
Agreement and (b) except for the provisions of Article II, Section 5.08 and
Section 5.09, are not intended to confer upon any person other than the
parties any rights or remedies.
A1(a)-36
<PAGE>
Section 8.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof (except to the extent that the provisions of the Georgia BCC
shall be mandatorily applicable to the TBS Merger or this Agreement).
Section 8.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties, except that either Delaware Sub or
Georgia Sub may assign, in its sole discretion, any of or all its rights,
interests and obligations under this Agreement to Holdco or to any direct
wholly owned subsidiary of Holdco, but no such assignment shall relieve
Delaware Sub or Georgia Sub, as the case may be, of any of its obligations
under this Agreement. Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of, and be enforceable by, the parties
and their respective successors and assigns.
Section 8.09. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to seek an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Delaware or in Delaware state court,
this being in addition to any other remedy to which they are entitled at law
or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any Federal court located in the State
of Delaware or any Delaware state court in the event any dispute arises out of
this Agreement or any of the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction
by motion or other request for leave from any such court and (c) agrees that
it will not initiate any action relating to this Agreement or any of the
transactions contemplated by this Agreement in any court other than a Federal
court sitting in the State of Delaware or a Delaware state court. Each of
Georgia Sub and the Company hereby appoints the Prentice-Hall Corporation
System, Inc., 32 Loockerman Square, Suite L-100, Dover, Delaware 19901, as its
agent for service of process in Delaware.
Section 8.10. Waivers. Except as provided in this Agreement or any waiver
pursuant to Section 7.04, no action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision
hereunder shall not operate or be construed as a waiver of any prior or
subsequent breach of the same or any other provision hereunder.
A1(a)-37
<PAGE>
In Witness Whereof, Parent, Holdco, Delaware Sub, Georgia Sub and the
Company have caused this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the date first written above.
Time Warner Inc.,
By /s/ Peter R. Haje
----------------------------------
Name: Peter R. Haje
Title: Executive Vice President
TW Inc.,
By /s/ Thomas W. McEnerney
----------------------------------
Name: Thomas W. McEnerney
Title: Vice President
Time Warner Acquisition Corp.,
By /s/ Thomas W. McEnerney
----------------------------------
Name: Thomas W. McEnerney
Title: Vice President
TW Acquisition Corp.,
By /s/ Thomas W. McEnerney
----------------------------------
Name: Thomas W. McEnerney
Title: Vice President
Turner Broadcasting System, Inc.
By /s/ R. E. Turner
----------------------------------
Name: R. E. Turner
Title: President
A1(a)-38
<PAGE>
APPENDIX A-1(b)
AMENDMENT NO. 1 (this "Amendment") dated as of August
8, 1996, to the AMENDED AND RESTATED AGREEMENT AND PLAN
OF MERGER (the "Agreement") dated as of September 22,
1995, among TIME WARNER INC., a Delaware corporation
("Parent"), TW INC., a Delaware corporation ("Holdco")
and a direct wholly owned subsidiary of Parent, TIME
WARNER ACQUISITION CORP., a Delaware corporation
("Delaware Sub") and a direct wholly owned subsidiary of
Holdco, TW ACQUISITION CORP., a Georgia corporation
("Georgia Sub") and a direct wholly owned subsidiary of
Holdco, and TURNER BROADCASTING SYSTEM, INC., a Georgia
corporation (the "Company").
Whereas Parent, Holdco, Delaware Sub, Georgia Sub and the Company have
agreed to amend the Agreement; and
Whereas the respective Boards of Directors of Parent, Holdco, Delaware Sub,
Georgia Sub and the Company have approved and adopted this Amendment.
NOW, THEREFORE, the parties agree as follows:
Section 1. Amendment of Agreement. (a) Section 2.01 of the Agreement is
hereby amended and restated in its entirety to read as follows:
"Section 2.01. Effect on Parent Capital Stock. As of the Effective Time of
the Mergers, by virtue of the TW Merger and without any action on the part of
the holder of any shares of Parent Capital Stock (as defined in Section
2.01(a)) or any shares of capital stock of Delaware Sub:
(a) Capital Stock of Delaware Sub. Each issued and outstanding share of
Common Stock, par value $1.00 per share, of Delaware Sub shall be converted
into (i) one one-millionth (1/1,000,000th) of a fully paid and nonassessable
share of Common Stock, par value $1.00 per share, of the TW Surviving
Corporation for each share of Common Stock, par value $1.00 per share, of
Parent ("Parent Common Stock") issued and outstanding immediately prior to the
Effective Time of the Mergers, (ii) one one-millionth (1/1,000,000th) of a
fully paid and nonassessable share of Series C Convertible Preferred Stock,
par value $1.00 per share, of the TW Surviving Corporation for each share of
Series C Convertible Preferred Stock, par value $1.00 per share, of Parent
("Parent Series C Preferred Stock"), if any, issued and outstanding
immediately prior to the Effective Time of the Mergers, (iii) one one-
millionth (1/1,000,000th) of a fully paid and nonassessable share of Series D
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving
Corporation for each share of Series D Convertible Preferred Stock, par value
$1.00 per share, of Parent ("Parent Series D Preferred Stock"), if any, issued
and outstanding immediately prior to the Effective Time of the Mergers, (iv)
one one-millionth (1/1,000,000th) of a fully paid and nonassessable share of
Series E Convertible Preferred Stock, par value $1.00 per share, of the TW
Surviving Corporation for each share of Series E Convertible Preferred Stock,
par value $1.00 per share, of Parent ("Parent Series E Preferred Stock"), if
any, issued and outstanding immediately prior to the Effective Time of the
Mergers, (v) one one-millionth (1/1,000,000th) of a fully paid and
nonassessable share of Series F Convertible Preferred Stock, par value $1.00
per share, of the TW Surviving Corporation for each share of Series F
Convertible Preferred Stock, par value $1.00 per share, of Parent ("Parent
Series F Preferred Stock"), if any, issued and outstanding immediately prior
to the Effective Time of the Mergers, (vi) one one-millionth (1/1,000,000th)
of a fully paid and nonassessable share of Series G Convertible Preferred
Stock, par value $1.00 per share, of the TW Surviving Corporation for each
share of Series G Convertible Preferred Stock, par value $1.00 per share, of
Parent ("Parent Series G Preferred Stock"), if any, issued and outstanding
immediately prior to the Effective Time of the Mergers, (vii) one one-
millionth (1/1,000,000th) of a fully paid and nonassessable share of Series H
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving
Corporation for each share of Series H Convertible Preferred Stock, par value
$1.00 per share, of Parent ("Parent Series H Preferred Stock"), if any, issued
and outstanding immediately prior to the Effective Time of the Mergers, (viii)
one one-millionth (1/1,000,000th) of a fully paid and nonassessable share of
Series I
A1(b)-1
<PAGE>
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving
Corporation for each share of Series I Convertible Preferred Stock, par value
$1.00 per share, of Parent ("Parent Series I Preferred Stock"), if any, issued
and outstanding immediately prior to the Effective Time of the Mergers, (ix)
one one-millionth
(1/1,000,000th) of a fully paid and nonassessable share of Series J
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving
Corporation for each share of Series J Convertible Preferred Stock, par value
$1.00 per share, of Parent ("Parent Series J Preferred Stock"), if any, issued
and outstanding immediately prior to the Effective Time of the Mergers, (x)
one one-millionth (1/1,000,000th) of a fully paid and nonassessable share of
10 1/4% Series K Exchangeable Preferred Stock, par value $1.00 per share, of
the TW Surviving Corporation for each share of 10 1/4% Series K Exchangeable
Preferred Stock, par value $1.00 per share, of Parent ("Parent Series K
Preferred Stock"), if any, issued and outstanding immediately prior to the
Effective Time of the Mergers, (xi) one one-millionth (1/1,000,000th) of a
fully paid and nonassessable share of 10 1/4% Series L Exchangeable Preferred
Stock, par value $1.00 per share, of the TW Surviving Corporation for each
share of 10 1/4% Series L Exchangeable Preferred Stock, par value $1.00 per
share, of Parent ("Parent Series L Preferred Stock"), if any, issued and
outstanding immediately prior to the Effective Time of the Mergers and (xii)
one one-millionth (1/1,000,000th) of a fully paid and nonassessable share of
10 1/4% Series M Exchangeable Preferred Stock, par value $1.00 per share, of
the TW Surviving Corporation for each share of 10 1/4% Series M Exchangeable
Preferred Stock, par value $1.00 per share, of Parent ("Parent Series M
Preferred Stock" and, together with the Parent Common Stock, the Parent Series
C Preferred Stock, the Parent Series D Preferred Stock, the Parent Series E
Preferred Stock, the Parent Series F Preferred Stock, the Parent Series G
Preferred Stock, the Parent Series H Preferred Stock, the Parent Series I
Preferred Stock, the Parent Series J Preferred Stock, the Parent Series K
Preferred Stock and the Parent Series L Preferred Stock, the "Parent Capital
Stock"), if any, issued and outstanding immediately prior to the Effective
Time of the Mergers. For the purposes of this Section 2.01(a), shares of
Parent Capital Stock, other than Parent Series C Preferred Stock, held by
Parent Subsidiaries (as defined in Section 3.02(a)) shall be deemed to be not
outstanding.
(b) Cancellation of Treasury Stock. Each share of Parent Capital Stock that
is owned by Parent shall automatically be canceled and retired and shall cease
to exist, and no shares of Common Stock, par value $.01 per share, of Holdco
(the "Holdco Common Stock") or other consideration shall be delivered in
exchange therefor.
(c) Conversion of Parent Capital Stock. Subject to Sections 2.01(d) and
2.03(e), each issued share of Parent Capital Stock (other than shares to be
canceled in accordance with Section 2.01(b) and other than shares subject to
Section 2.01(f)) shall be converted into fully paid and nonassessable shares
of the capital stock of Holdco ("Holdco Capital Stock") in accordance with the
following table (it being acknowledged that as of August 8, 1996 (the date of
the last amendment of this Section 2.01), (x) no shares of Parent Series J
Preferred Stock, Parent Series L Preferred Stock and Parent Series M Preferred
Stock are outstanding and (y) it is anticipated that no shares of Parent
Series C Preferred Stock, Parent Series L Preferred Stock and either Parent
Series K Preferred Stock or Parent Series M Preferred Stock will be
outstanding immediately prior to the Effective Time of the Mergers):
<TABLE>
<CAPTION>
EACH SHARE OF THE NUMBER AND CLASS OR SERIES
SPECIFIED CLASS OR SERIES OF SHARES OF HOLDCO CAPITAL
OF PARENT CAPITAL STOCK STOCK INTO WHICH CONVERTED
------------------------- ---------------------------
<S> <C>
Parent Common Stock................ One Share of Holdco Common Stock
Parent Series C Preferred Stock.... 2.08264 shares of Holdco Common Stock
Parent Series D Preferred Stock.... One share of Series D Convertible Preferred
Stock, par value $.10 per share, of Holdco
("Holdco Series D Preferred Stock")
Parent Series E Preferred Stock.... One share of Series E Convertible Preferred
Stock, par value $.10 per share, of Holdco
("Holdco Series E Preferred Stock")
Parent Series F Preferred Stock.... One share of Series F Convertible Preferred
Stock, par value $.10 per share, of Holdco
("Holdco Series F Preferred Stock")
</TABLE>
A1(b)-2
<PAGE>
<TABLE>
<CAPTION>
EACH SHARE OF THE NUMBER AND CLASS OR SERIES
SPECIFIED CLASS OR SERIES OF SHARES OF HOLDCO CAPITAL
OF PARENT CAPITAL STOCK STOCK INTO WHICH CONVERTED
------------------------- ---------------------------
<S> <C>
Parent Series G Preferred One share of Series G Convertible Preferred
Stock.......................... Stock, par value $.10 per share, of Holdco
("Holdco Series G Preferred Stock")
Parent Series H Preferred One share of Series H Convertible Preferred
Stock.......................... Stock, par value $.10 per share, of Holdco
("Holdco Series H Preferred Stock")
Parent Series I Preferred One share of Series I Convertible Preferred
Stock.......................... Stock, par value $.10 per share, of Holdco
("Holdco Series I Preferred Stock")
Parent Series J Preferred One share of Series J Convertible Preferred
Stock.......................... Stock, par value $.10 per share, of Holdco
("Holdco Series J Preferred Stock")
Parent Series K Preferred One share of 10% Series M Exchangeable
Stock.......................... Preferred Stock, par value $ .10 per share,
of Holdco ("Holdco Series M Preferred
Stock")
Parent Series L Preferred One share of 10% Series L Exchangeable
Stock.......................... Preferred Stock, par value $ .10 per share,
of Holdco ("Holdco Series L Preferred
Stock")
Parent Series M Preferred One share of Holdco Series M Preferred Stock
Stock..........................
</TABLE>
As of the Effective Time of the Mergers, all such shares of Parent Capital
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist. Subject to Sections 2.01(d) and 2.03(e), as
of the Effective Time of the Mergers (i) each certificate theretofore
representing shares of Parent Capital Stock (other than each certificate
theretofore representing Parent Series C Preferred Stock or Parent Series K
Preferred Stock (the "Changed Parent Stock")), without any action on the part
of Holdco, Parent or the holder thereof, shall be deemed to represent an
equivalent number of shares of the class or series of Holdco Capital Stock set
forth above next to the class or series of Parent Capital Stock formerly
represented by such certificate and shall cease to represent any rights in any
shares of Parent Capital Stock, and (ii) each holder of a certificate
representing any shares of Changed Parent Stock shall cease to have any rights
with respect thereto, except the right to receive, upon the surrender of any
such certificates, certificates representing the number of shares of the class
or series of Holdco Capital Stock, and any cash in lieu of fractional shares
of such class or series of Holdco Capital Stock, set forth above next to the
series of Changed Parent Stock formerly represented by such certificate to be
issued or paid in consideration therefor upon surrender of such certificate in
accordance with Section 2.03, without interest.
(d) Appraisal Rights. Notwithstanding anything in this Agreement to the
contrary, shares ("Appraisal Shares") of Parent Capital Stock (other than
Parent Common Stock) that are outstanding immediately prior to the Effective
Time of the Mergers and that are held by any stockholder of Parent who is
entitled to demand and properly demands appraisal of such Appraisal Shares
pursuant to, and who complies in all respects with, the provisions of Section
262 of the DGCL ("Section 262") shall not be converted into Holdco Capital
Stock as provided in Section 2.01(c), but rather the holders of Appraisal
Shares shall be entitled to payment of the fair value of such Appraisal Shares
in accordance with the provisions of Section 262; provided, however, that if
any such holder shall fail to perfect or otherwise shall waive, withdraw or
lose the right to appraisal under Section 262 or a court of competent
jurisdiction shall determine that such holder is not entitled to the relief
provided by Section 262, then the right of such holder of Appraisal Shares to
be paid the fair value of such holder's Appraisal Shares shall cease and such
Appraisal Shares shall be treated as if they had been converted as of the
Effective Time of the Mergers into shares of Holdco Capital Stock as provided
in Section 2.01(c).
A1(b)-3
<PAGE>
(e) Exchange Ratio for Parent Options and Parent Warrants. (i) As of the
Effective Time of the Mergers, each outstanding Parent Option (as defined in
Section 3.02(c)) and each outstanding warrant (a "Parent Warrant") to purchase
Parent Common Stock, originally issued in connection with the first issuance
of Parent
Series B Preferred Stock, shall be assumed by Holdco and converted into an
option or warrant, as the case may be, to purchase shares of Holdco Common
Stock, as provided below. Following the Effective Time of the Mergers, each
Parent Option shall continue to have, and shall be subject to, the same terms
and conditions set forth in the applicable Parent Stock Plan (as defined in
Section 3.02(c)) pursuant to which such Parent Option was granted, and each
Parent Warrant shall continue to have, and shall be subject to, the same terms
and conditions, in each case as in effect immediately prior to the Effective
Time of the Mergers, except that each such Parent Option or Parent Warrant
shall be exercisable for the same number of shares of Holdco Common Stock as
the number of shares of Parent Common Stock for which such Parent Option or
Parent Warrant was exercisable immediately prior to the Effective Time of the
Mergers.
(ii) As of the Effective Time of the Mergers, Holdco shall enter into an
assumption agreement with respect to each Parent Option and each Parent
Warrant, which, in the case of any Parent Option, shall provide for Holdco's
assumption of the obligations of Parent under the applicable Parent Stock
Plan. Prior to the Effective Time of the Mergers, Parent shall make such
amendments, if any, to the Parent Stock Plans as shall be necessary to permit
such assumption in accordance with this Section 2.01(e).
(iii) It is the intention of the parties that, to the extent that any Parent
Option constitutes an "incentive stock option" (within the meaning of Section
422 of the Code) immediately prior to the Effective Time of the Mergers, such
Parent Option shall continue to qualify as an incentive stock option to the
maximum extent permitted by Section 422 of the Code, and that the assumption
of the Parent Option provided by this Section 2.01(e) shall satisfy the
conditions of Section 424(a) of the Code.
(f) Treatment of Parent Capital Stock Held by Parent Subsidiaries.
Notwithstanding anything in this Agreement to the contrary, each share of
Parent Capital Stock (other than any Parent Series C Preferred Stock) held by
any Parent Subsidiary shall be converted into (i) in the case of each share of
Parent Common Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of Common Stock of the TW Surviving Corporation, (ii) in
the case of each share of Parent Series D Preferred Stock, one one-thousandth
(1/1,000th) of a fully paid and nonassessable share of Series D Convertible
Preferred Stock of the TW Surviving Corporation, (iii) in the case of each
share of Parent Series E Preferred Stock, one one-thousandth (1/1,000th) of a
fully paid and nonassessable share of Series E Convertible Preferred Stock of
the TW Surviving Corporation, (iv) in the case of each share of Parent Series
F Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of Series F Convertible Preferred Stock of the TW
Surviving Corporation, (v) in the case of each share of Parent Series G
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of Series G Convertible Preferred Stock of the TW
Surviving Corporation, (vi) in the case of each share of Parent Series H
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of Series H Convertible Preferred Stock of the TW
Surviving Corporation, (vii) in the case of each share of Parent Series I
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of Series I Convertible Preferred Stock of the TW
Surviving Corporation, (viii) in the case of each share of Parent Series J
Preferred Stock, one one-thousandth (1/1000th) of a fully paid and
nonassessable share of Series J Convertible Preferred Stock of the TW
Surviving Corporation, (ix) in the case of each share of Parent Series K
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of 10 1/4% Series K Exchangeable Preferred Stock of the TW
Surviving Corporation, (x) in the case of each share of Parent Series L
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of 10 1/4% Series L Exchangeable Preferred Stock of the TW
Surviving Corporation and (xi) in the case of each share of Parent Series M
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and
nonassessable share of 10 1/4% Series M Exchangeable Preferred Stock of the TW
Surviving Corporation."
(b) Section 2.03(e)(iv) of the Agreement is hereby deleted.
(c) The definition of "Material Transaction" in the fifth sentence of
Section 5.16 of the Agreement is hereby amended and restated in its entirety
as follows:
A1(b)-4
<PAGE>
"For purposes of this Agreement, "Material Transaction" means (i) the
issuance by Parent of more than 90,000,000 "common stock equivalents" (one
common stock equivalent being equal to one share of Parent Common Stock,
including any share of Parent Common Stock issuable by Parent upon conversion,
exercise or exchange of any other capital stock, warrant or other security or
right of Parent, any Parent Subsidiary or any other controlled affiliate of
Parent) in any single transaction or in any series of individual transactions
(excluding any transaction involving an exchange by Parent on a one-for-one
basis of newly issued shares of Parent Series J Preferred Stock for
outstanding shares of Parent Series C Preferred Stock) each of which involves
the issuance of more than 20,000,000 common stock equivalents, whether or not
such individual transactions are related to each other, or (ii) the sale or
other disposition in any transaction or series of transactions, whether or not
related to each other, by Parent or any Parent Subsidiary of any business or
assets with an aggregate fair market value in excess of $3,500,000,000,
excluding from such amount (x) sales of inventory in the ordinary course of
business consistent with prior practice and (y) the sale or disposition, in a
single transaction or series of related transactions, of assets with an
aggregate fair market value of $500,000,000 or less."
(c) Section 6.01(c) of the Agreement is hereby amended and restated in
its entirety to read as follows:
"(c) Antitrust. The waiting periods (and any extensions thereof) applicable
to the transactions contemplated by this Agreement under the HSR Act shall
have been terminated or shall have expired. The Federal Trade Commission (the
"FTC") shall have initially accepted the FTC Agreement Containing Consent
Order relating to the Mergers and ancillary matters. Any consents, approvals
and filings under any foreign antitrust law the absence of which would
prohibit the consummation of the Mergers shall have been obtained or made."
(d) Section 6.01(h) of the Agreement is hereby deleted.
(e) Section 7.01(b)(iii) of the Agreement is hereby amended and restated
in its entirety, as follows:
" (iii) if the Mergers shall not have been consummated on or before
December 31, 1996, unless the failure to consummate the Mergers is the
result of a wilful and material breach of this Agreement by the party
seeking to terminate this Agreement;".
Section 2. Miscellaneous. (a) Except as expressly set forth in Section 1,
all the provisions of the Agreement are hereby ratified and confirmed by all
the parties and shall remain in full force and effect. All references in the
Agreement to "this Agreement" shall be read as references to the Agreement, as
amended by this Amendment.
(b) Each party consents to the execution and delivery by Parent and the
Company of the Agreement Containing Consent Order referred to in Section
6.01(c) of the Agreement, as amended by this Amendment.
(c) This Amendment may be executed in two or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties.
(d) This Amendment shall be governed by, and construed in accordance with,
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
A1(b)-5
<PAGE>
IN WITNESS WHEREOF, Parent, Holdco, Delaware Sub, Georgia Sub and the
Company have caused this Amendment to be signed by their respective officers
thereunto duly authorized, all as of the date first written above.
Time Warner Inc.,
By /s/ Peter R. Haje
------------------------------------
Name: Peter R. Haje
Title: Executive Vice President
TW Inc.,
By /s/ Thomas W. McEnerney
------------------------------------
Name: Thomas W. McEnerney
Title: Vice President
Time Warner Acquisition Inc.,
By /s/ Thomas W. McEnerney
------------------------------------
Name: Thomas W. McEnerney
Title: Vice President
TW Acquisition Corp.,
By /s/ Thomas W. McEnerney
------------------------------------
Name: Thomas W. McEnerney
Title: Vice President
Turner Broadcasting System, Inc.,
By /s/ Steven W. Korn
------------------------------------
Name: Steven W. Korn
Title: General Counsel
A1(b)-6
<PAGE>
APPENDIX A-2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED
LMC AGREEMENT
AMONG
TIME WARNER INC.,
TW INC.,
LIBERTY MEDIA CORPORATION,
AND CERTAIN SUBSIDIARIES OF
LIBERTY MEDIA CORPORATION
DATED AS OF SEPTEMBER 22, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
Definitions
<C> <S> <C>
SECTION 1.1 Definitions............................................... 3
SECTION 1.2 Terms Generally........................................... 11
ARTICLE II
Covenants With Respect to the Merger
SECTION 2.1 Agreement to Vote; Related Matters........................ 12
SECTION 2.2 Reasonable Efforts........................................ 14
SECTION 2.3 Agreement to Abandon...................................... 14
SECTION 2.4 Closing Deliveries........................................ 16
SECTION 2.5 Dissenters' Rights........................................ 16
SECTION 2.6 Abandoned and Terminated Agreements....................... 16
ARTICLE III
Representations and Warranties
Representations and Warranties of LMC Parent and the
SECTION 3.1 Shareholders.............................................. 17
SECTION 3.2 Representations and Warranties of Old TW.................. 19
SECTION 3.3 Representations and Warranties of Holdco.................. 21
ARTICLE IV
Certain Post-Closing Covenants
SECTION 4.1 Share Exchange............................................ 23
SECTION 4.2 No Redemption............................................. 24
SECTION 4.3 Certain Post-Closing Compensation Obligations............. 25
SECTION 4.4 Certain Post-Closing Covenants............................ 27
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Expenses.................................................. 30
SECTION 5.2 Specific Performance...................................... 30
SECTION 5.3 Amendments; Termination................................... 30
SECTION 5.4 Successors and Assigns.................................... 30
SECTION 5.5 Entire Agreement.......................................... 30
SECTION 5.6 Notices................................................... 31
SECTION 5.7 Governing Law............................................. 32
SECTION 5.8 Counterparts; Effectiveness............................... 32
SECTION 5.9 Descriptive Headings...................................... 32
SECTION 5.10 Severability.............................................. 32
SECTION 5.11 Attorney's Fees........................................... 33
SECTION 5.12 Obligations of Old TW and Holdco Joint and Several........ 33
</TABLE>
i
<PAGE>
EXHIBITS AND SCHEDULES ATTACHED HERETO
<TABLE>
<CAPTION>
Exhibit A Terms of LMCN-V Common Stock
<C> <S>
Exhibit B Form of First Refusal Agreement
Exhibit C Terms of Voting Holdco LMC Common Stock
Exhibit D Form of SSSI Agreement
Exhibit E Form of LMC Registration Rights Agreement
Exhibit F Form of Rights Amendment
Exhibit G SportSouth Agreement
Exhibit H Form of Sunshine Agreement
Exhibit I Contribution and Exchange Agreement
Schedule I Schedule of Shareholder Shares
Schedule 3.1 Litigation
</TABLE>
ii
<PAGE>
SECOND AMENDED AND RESTATED LMC AGREEMENT, dated as of
September 22, 1995 (this "Agreement"), among TIME WARNER
INC., a Delaware corporation, TW INC., a Delaware
corporation ("Holdco"), LIBERTY MEDIA CORPORATION, a
Delaware corporation ("LMC Parent"), TCI TURNER
PREFERRED, INC., a Colorado corporation ("TCITP"), and
certain, other subsidiaries of LMC Parent listed with
TCITP under "Subsidiaries of LMC Parent" on the signature
pages hereto (TCITP and such subsidiaries collectively,
the "Shareholders").
Recitals
A. This Agreement amends and restates in its entirety the Amended and
Restated LMC Agreement, dated as of September 22, 1995 (the "Amended LMC
Agreement"), among the parties hereto, which in turn amended and restated the
LMC Agreement dated as of September 22, 1995 (the "Original LMC Agreement"),
among Old TW, LMC Parent, LMC Sub and the other Shareholders.
B. The Original LMC Agreement was entered into concurrently with, and in
contemplation of, the Agreement and Plan of Merger dated as of September 22,
1995 (the "Original Merger Agreement"), among Old TW, Time Warner Acquisition
Corp., a Delaware corporation and wholly owned subsidiary of Old TW ("Delaware
Sub"), and Turner Broadcasting System, Inc., a Georgia corporation (the
"Company"), providing for the merger of the Company with and into Delaware
Sub.
C. The Amended LMC Agreement was entered into concurrently with, and in
contemplation of, (1) the Original Merger Agreement being amended and restated
(as so amended and restated, and as amended by Amendment No. 1 thereto dated
as of August 8, 1996, the "Amended and Restated Merger Agreement") to provide
for, among other things, a tax-free incorporation transaction under Section
351 of the Internal Revenue Code of 1986, as amended, as contemplated by
Section 1.01 of the Original Merger Agreement, and (2) both Holdco and TW
Acquisition Corp., a Georgia corporation and direct wholly owned subsidiary of
Holdco ("Georgia Sub"), becoming parties to the Amended and Restated Merger
Agreement. Holdco is currently a direct wholly owned subsidiary of Old TW, and
Delaware Sub is a direct wholly owned subsidiary of Holdco. The Amended and
Restated Merger Agreement provides for the merger of Delaware Sub into Old TW
(the "TW Merger") and the simultaneous merger of Georgia Sub into the Company
(the "TBS Merger" and, collectively with the TW Merger, the "Mergers"), in a
transaction in which the outstanding capital stock of Old TW and the Company,
respectively, will be converted into capital stock of Holdco, and each of Old
TW and the Company will become a wholly owned subsidiary of Holdco.
D. The TBS Merger is subject to certain conditions, including the approval
of the TBS Merger and the approval and adoption of the Amended and Restated
Merger Agreement: by the holders of a majority of the outstanding shares of
Class C Convertible Preferred Stock, par value $.125 per share, of the Company
(the "Class C Preferred Stock"), voting as a separate class; by the holders of
a majority of the voting power of the outstanding shares of Class A Common
Stock, par value $.0625 per share, of the Company (the "Class A Common
Stock"), and Class B Common Stock, par value $.0625 per share, of the Company
(the "Class B Common Stock"; together with the Class A Common Stock, the
"Common Stock"), voting as a single class; and by the holders of a majority of
the voting power of the outstanding shares of Common Stock and Class C
Preferred Stock, voting as a single class.
E. Each Shareholder is the record and beneficial owner of the number of
shares of Class A Common Stock, Class B Common Stock and Class C Preferred
Stock, set forth opposite such Shareholder's name on Schedule I hereto (such
shares of Class A Common Stock, Class B Common Stock and Class C Preferred
Stock, together with any shares of capital stock of the Company acquired by
such Shareholder after September 22, 1995 and prior to the Effective Time of
the Mergers, being collectively referred to herein as the "Shareholder
Shares").
<PAGE>
F. The TBS Merger is also subject to the condition that the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") shall have expired. In connection therewith, Old TW, Tele-
Communications, Inc., a Delaware corporation ("TCI"), LMC Parent and the
Company have entered into an Agreement Containing Consent Order (the "ACCO")
dated as of August , 1996, and an Interim Agreement in the form attached as
Appendix I to the ACCO, with the Federal Trade Commission (the "FTC"), which
contemplates the issuance of an Order (the ACCO, together with such Order and
the Interim Agreement, in each case as the same may be amended or modified
from time to time hereafter, the "FTC Consent Decree").
G. Old TW, Holdco, LMC Parent and the Shareholders desire to amend and
restate in its entirety the Amended LMC Agreement and the Original LMC
Agreement as amended thereby, as provided herein.
Now, Therefore, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties do hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. Capitalized terms used but not defined herein and
the term "subsidiary" shall have the meanings assigned to such terms in the
Amended and Restated Merger Agreement. In this Agreement:
"Action" shall mean any of (i) the direct or indirect acquisition (through
purchase, exchange, merger or consolidation, exercise of rights or otherwise)
by TW Parent or any Controlled Affiliate of TW Parent of any assets,
securities or business; (ii) any merger or consolidation of TW Parent with or
into any other person; (iii) the commencement by TW Parent or any of its
Controlled Affiliates of any new business; (iv) any investment by TW Parent or
any Controlled Affiliate of TW Parent in any other person; and (v) the sale or
issuance by TW Parent or any Controlled Affiliate of TW Parent of TW
Securities to any person or the repurchase, redemption or other acquisition by
TW Parent or any Controlled Affiliate of TW Parent of any TW Securities;
excluding, in all of the cases, any of the foregoing actions that TW Parent or
any Controlled Affiliate of TW Parent is required to take pursuant to, or that
is expressly contemplated by, this Agreement, the Amended and Restated Merger
Agreement, (prior to the execution and delivery of the Amended and Restated
Merger Agreement) the Original Merger Agreement, any Additional Agreement or
any other agreement expressly contemplated by this Agreement, the Amended and
Restated Merger Agreement or any Additional Agreement.
"Additional Agreements" shall mean the Registration Rights Agreement, the
First Refusal Agreement, the SSSI Agreement, the Distribution Contract, the
Rights Amendment (if entered into), the SportSouth Agreement, the Sunshine
Agreement, the Contribution and Exchange Agreement and the Program and
Digitization Agreement.
"Adjustment Amount", with respect to the disposition of any TW Securities as
to which TW Parent is obligated to pay an Adjustment Amount to a Liberty Party
or a SpinCo Party, means an amount equal to the Nominal Tax Amount divided by
the Gross-up Factor. For purposes of this definition, the "Nominal Tax Amount"
means an amount equal to the product of (i) the gain or income recognized for
Federal income tax purposes from the disposition of such TW Securities and
(ii) the Blended Rate, and the "Gross-up Factor" is equal to 1 minus the
Blended Rate.
"Affiliate", when used with respect to a specified person, means any other
person which directly or indirectly Controls, is under common Control with or
is Controlled by such first person. The term "affiliated" (whether or not
capitalized) shall have a correlative meaning. For purposes of this Agreement:
(i) no Liberty Party or SpinCo Party shall be deemed to be an Affiliate of TW
Parent or any of its subsidiaries and neither TW Parent nor any of its
Affiliates shall be deemed to be an Affiliate of any Liberty Party or SpinCo
Party; prior to the effective time of the TBS Merger, neither TW Parent nor
any of its Affiliates nor TCI, LMC Parent or any of their respective
Affiliates shall be deemed to be an Affiliate of the Company or any of its
subsidiaries; and after the effective time of the Distribution, in determining
whether any person is an Affiliate of SpinCo, the SpinCo Convertible Preferred
Stock shall be assumed to have been converted by the holders thereof into
SpinCo Series A Common Stock and SpinCo Series B Common Stock, as applicable.
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"Blended Rate", as to any Liberty Party or SpinCo Party, as applicable, for
any relevant taxable year, means the tax rate that is the highest combined
corporate Federal, state and local marginal capital gain rate (determined by
taking into account any deduction for net capital gain) applicable to gain or
income upon dispositions of TW Securities beneficially owned by such Liberty
Party or SpinCo Party during such taxable year as contemplated by Section 4.3
and Section 4.4(a), provided, however, that if the tax liability of the
Liberty Party (or of the consolidated group of which such Liberty Party is a
member for tax purposes) or of the SpinCo Party (or of the consolidated group
of which such SpinCo Party is a member for tax purposes) with respect to such
income or gain for such taxable year is not determined under Section 1201 of
the Internal Revenue Code of 1986, as amended (or any successor Section), such
tax rate shall be the highest combined regular corporate Federal, state and
local ordinary income tax rate applicable to such Liberty Party (or such
consolidated group) or such SpinCo Party (or such consolidated group), as
applicable, for such taxable year. Such tax rate shall be determined taking
into account such Liberty Party's (or its consolidated group's) or such SpinCo
Party's (or its consolidated group's) relevant state and local apportionment
factors with respect to such gain or income, the deductibility of state and
local taxes for Federal income tax purposes (and the deductibility of taxes
imposed by any taxing jurisdiction for purposes of computing the tax liability
to any other taxing jurisdiction), the dividends received deduction (where
such gain or income is eligible for such deduction) and any other relevant
considerations.
"Change in Control Event" shall mean any of the following events: (i) any
person becoming an Acquiring Person (as defined in the Rights Agreement as in
effect on September 22, 1995, as if amended in accordance with the Rights
Amendment), including any person that would otherwise be excluded from the
definition of Acquiring Person in the Rights Agreement by virtue of the
acquisition of shares pursuant to a Qualifying Offer (as defined in the Rights
Agreement as in effect on September 22, 1995, as if amended in accordance with
the Rights Amendment) and regardless of whether the Rights Agreement continues
to be in effect or is so amended, or (ii) TW Parent's entering into any
agreement (other than the Original Merger Agreement, the Amended and Restated
Merger Agreement or any amendment thereto) providing for any merger or
consolidation of TW Parent into any other person, a binding share exchange, or
a merger of TW Parent with any other person in which the shares of capital
stock of TW Parent are exchanged for or converted into the right to receive
anything other than common stock, par value $1.00 per share, of TW Parent, or
(iii) prior to the Closing, Holdco ceasing to be a wholly owned subsidiary of
Old TW or entering into any agreement (other than the Amended and Restated
Merger Agreement or any amendment thereto) that would result in Holdco ceasing
to be a wholly owned subsidiary of Old TW.
"Communications Laws" shall mean the Communications Act of 1934 (as amended
and supplemented from time to time and any successor statute or statutes
regulating tele-communications companies) and the rules and regulations (and
interpretations thereof and determinations with respect thereto) promulgated,
issued or adopted from time to time by the FCC. All references herein to the
Communications Laws shall include as of any relevant date in question the
Communications Laws as then in effect (including any Communications Law or
part thereof the effectiveness of which is then stayed) and as then formally
proposed by the FCC by publication in the Federal Register or promulgated with
a delayed effective date.
"Company Letter" shall mean those certain letters dated September 22, 1995,
December 1, 1995, and August 8, 1996, from the Company to Old TW and LMC
Parent.
"Contract" shall mean any agreement, contract, commitment, indenture, lease,
license, instrument, note, bond, security, undertaking, promise, covenant, or
legally binding arrangement or understanding.
"Contribution and Exchange Agreement" shall mean the Contribution and
Exchange Agreement, dated as of September 22, 1995, to be entered into by
Holdco, Old TW, TCITP and LBI, concurrently with the execution and delivery of
this Agreement, and the Exhibit and Schedules thereto, a copy of which is
annexed hereto as Exhibit I.
"Control", as to any person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such person (whether through ownership of securities,
A2-3
<PAGE>
partnership interests or other ownership interests, by contract, by
participation or involvement in the board of directors, management committee
or other management structure of such person, or otherwise). The terms
"Controlled", "Controlling" and similar variations shall have correlative
meanings.
"Controlled Affiliate" of any specified person shall mean an Affiliate of
such specified person that is Controlled by such specified person and is not
Controlled by another person (other than another Controlled Affiliate of the
specified person), except that as used in the definition of "Action" in this
Section 1.1, the term "Controlled Affiliate" shall include an Affiliate of the
specified person that is also Controlled by another person if the specified
person has the power (by contract, ownership of voting securities or
otherwise) to cause such Affiliate to refrain from taking the Action in
question.
"Covered TW Securities" shall mean:
(i) (A) the shares of TW Parent Common Stock beneficially owned by LMC
Parent immediately following the consummation of the TBS Merger as a result
of the conversion in the TBS Merger of the shares of Company Capital Stock
beneficially owned by LMC Parent on September 22, 1995;
(B) the shares of TW Parent Common Stock received by TCITP and LBI
pursuant to the Contribution and Exchange Agreement in connection with
their contribution to Holdco of the issued and outstanding shares of
capital stock of UCTI, assuming that the shares of Company Capital Stock
owned by UCTI did not include any shares of Company Capital Stock not
beneficially owned by LMC Parent on September 22, 1995; and
(ii) all shares of Holdco LMC Common Stock issued pursuant to the SSSI
Agreement; and
(iii) all shares of Holdco LMC Common Stock for which the shares of TW
Parent Common Stock referred to in clause (i) above may be exchanged
pursuant to Section 4.1;
in each case as such shares may have been changed after issuance thereof. The
number of Covered TW Securities shall be appropriately adjusted from time to
time to take into account the occurrence of any stock dividends, splits,
reverse splits, combinations and the like.
"Distribution" means the proposed distribution by TCI to the holders of
shares of Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
and to the holders of shares of Tele-Communications, Inc. Series B Liberty
Media Group Common Stock, of all of the issued and outstanding shares of
common stock of SpinCo.
"Distribution Contract" shall mean the Distribution Contract, substantially
in the form of Exhibit 1 to the SSSI Agreement, to be entered into by Holdco,
SpinCo and Satellite, at or prior to the Closing (but will not become
effective until the "Closing" under the SSSI Agreement).
"Exchange Act" means the Securities Exchange Act of 1934, and the rules and
regulations thereunder.
"FCC" shall mean the Federal Communications Commission and any successor
agency or other agency charged with the administration of any Communications
Law.
"First Refusal Agreement" shall mean the Stockholders Agreement
substantially in the form of Exhibit B, to be entered into by Holdco, the
Shareholders (other than UCTI), LBI and certain other shareholders of the
Company at or prior to the Closing.
"Holdco LMC Common Stock" shall mean the LMCN-V Common Stock and the Voting
Holdco LMC Common Stock, collectively.
"Holdco Rights Plan" shall have the meaning given to such term in Section
2.3(c).
"Horizontal Rule" shall mean the rule promulgated by the FCC that is set
forth at 47 C.F.R. 76.503 on September 22, 1995.
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<PAGE>
"Judgment" shall mean any order, judgment, writ, decree, injunction, award
or other determination, decision or ruling of any court, any other
Governmental Entity or any arbitrator.
"LBI" shall mean Liberty Broadcasting, Inc., an Oregon corporation.
"Liberty Party" shall mean LMC Parent and each Affiliate of LMC Parent that
is controlled by LMC Parent from time to time and, for so long as LMC Parent
is an Affiliate of TCI, shall also mean TCI and each Affiliate of TCI that is
controlled by TCI.
"Lien" shall mean any pledge, claim, lien, charge, encumbrance or security
interest of any kind or nature whatsoever.
"LMCN-V Common Stock" shall mean the Series LMCN-V Common Stock of Holdco,
having the terms set forth in Exhibit A.
"Old TW" shall mean the Delaware corporation known as "Time Warner Inc." on
September 22, 1995, and, in the event of any merger, consolidation or binding
share exchange after such date (other than pursuant to the Amended and
Restated Merger Agreement or any amendment thereto), any successor
corporation.
"Option Consideration" shall mean the shares of Holdco LMC Common Stock to
be issued and delivered, and, if so elected by Holdco as provided in the SSSI
Agreement, the cash to be paid by TW Parent pursuant to the SSSI Agreement in
respect of the non-competition agreement and contract option contained therein
(specifically excluding any amounts to be paid under the Distribution
Contract).
"person" shall have the meaning ascribed to such term in the Amended and
Restated Merger Agreement and shall include any Governmental Entity.
"Program and Digitization Agreement" shall mean the letter agreement, dated
August , 1996, between Satellite and the Company with respect to, among
other things, the carriage by Satellite of certain programming services of the
Company and Satellite's non-exclusive right to digitize, compress and reuplink
certain programming services of the Company.
"Prohibited Effect" shall mean the effect or consequence (in each case
either immediately or following any notice, demand, hearing, proceeding,
determination or other action by any Governmental Entity) (a)(i) of making the
continued ownership by the Liberty Parties or any of them of any TW Securities
then owned by the Liberty Parties or any of them illegal under any Specified
Law or (ii) of making the continued ownership by the SpinCo Parties or any of
them of any TW Securities then owned by the SpinCo Parties or any of them
illegal under any Specified Law or (b) of imposing or resulting in the
imposition under any Specified Law on the Liberty Parties or any of them or
the SpinCo Parties or any of them of damages or penalties by reason of or as a
result of the ownership by any of the Liberty Parties or SpinCo Parties of TW
Securities or (c) of requiring the divestiture of, or resulting in the
requirement to divest, any TW Securities by any Liberty Party or SpinCo Party
under any Specified Law, or (d) of requiring, or resulting in the requirement,
under any Specified Law that any Liberty Party or SpinCo Party discontinue any
business or divest of any business or assets or that any license that such
Liberty Party or SpinCo Party holds or is required to hold under the
Communications Laws be modified in any significant respect or not be renewed
as a result of such continued ownership.
"Registration Rights Agreement" shall mean the LMC Registration Rights
Agreement substantially in the form of Exhibit E, to be entered into by
Holdco, LMC Parent, the Shareholders (other than UCTI), LBI and SpinCo at or
prior to the Closing.
"Requirement of Law", when used with respect to any person, shall mean any
law, statute, code, rule, regulation or Judgment, and any interpretation of or
determination with respect to any of the foregoing, of any court or other
Governmental Entity applicable to or binding upon such person, or to which
such person, any of its assets or any business conducted by it is subject,
whether now existing or at any time hereafter enacted, promulgated, issued,
entered or otherwise becoming effective.
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<PAGE>
"Restriction Period" shall mean the period of time commencing on the date
any Covered TW Securities are first issued and (i) if the Distribution does
not occur, continuing until the first time that the ownership or deemed
ownership by the Liberty Parties of the TW Parent Common Stock, Voting Holdco
LMC Common Stock and other voting securities of TW Parent then owned by the
Liberty Parties (assuming conversion in full of all LMCN-V Common Stock and
the absence of any restriction on the exercise of the rights of a holder of
voting securities of TW Parent) would not either (x) have a Prohibited Effect
under any Communications Law (determined on the assumption that the Horizontal
Rule, unless previously declared invalid by a final unappealable Judgment, is
in full force and effect) or (y) violate the FTC Consent Decree; and (ii) if
the Distribution occurs, continuing until the first time that both the
ownership by the SpinCo Parties of the TW Parent Common Stock, Voting Holdco
LMC Common Stock and other voting securities of TW Parent then owned by the
SpinCo Parties (assuming conversion in full of all LMCN-V Common Stock and the
absence of any restriction on the exercise of the rights of a holder of voting
securities of TW Parent), and any deemed ownership of such TW Parent
securities (assuming such conversion and absence of restrictions) by the
Liberty Parties pursuant to any relevant attribution rules of the
Communications Laws (assuming for this purpose the conversion of the SpinCo
Convertible Preferred Stock into SpinCo Series A Common Stock and SpinCo
Series B Common Stock, as applicable, by the holders thereof), would not
either (x) have a Prohibited Effect under any Communications Law (determined
on the assumption that the Horizontal Rule, unless previously declared invalid
by a final unappealable Judgment, is in full force and effect) or (y) violate
the FTC Consent Decree. Notwithstanding the foregoing, (a) if any LMCN-V
Common Stock is converted into TW Parent Common Stock or into Voting Holdco
LMC Common Stock by any Liberty Party (other than in connection with the
transfer thereof, whether voluntary or involuntary, to a person that is not a
Liberty Party or SpinCo Party), then the Restriction Period shall be deemed to
terminate upon such conversion with respect to the Liberty Parties and (b) if
any LMCN-V Common Stock is converted into TW Parent Common Stock or into
Voting Holdco LMC Common Stock by any SpinCo Party (other than in connection
with the transfer thereof, whether voluntary or involuntary, to a person that
is not a Liberty Party or SpinCo Party), then the Restriction Period shall be
deemed to terminate upon such conversion with respect to the SpinCo Parties.
"Rights Amendment" shall mean those amendments described on Exhibit F to the
terms of the Rights Agreement.
"Satellite" shall mean Satellite Services, Inc., a Delaware corporation.
"Specified Law", when used with respect to the Liberty Parties or SpinCo
Parties, shall mean (i) the Communications Laws, (ii) any United States
federal law or statute and any law or statute of any state of the United
States or of the District of Columbia, (iii) the rules and regulations (and
interpretations thereof or determinations with respect thereto) of any agency
charged with the administration of any Specified Law within the meaning of
clause (ii), applicable to or binding upon a Liberty Party or SpinCo Party or
to which a Liberty Party or SpinCo Party, any of its assets or any business
conducted by it is subject and (iv) the FTC Consent Decree. Following the
Distribution, "Specified Law" shall specifically exclude the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder. All
references herein to Specified Law shall include as of any relevant date in
question each Specified Law as then in effect (including any Specified Law or
part thereof the effectiveness of which is then stayed) and as then formally
proposed by the relevant Governmental Entity or promulgated with a delayed
effective date.
"SpinCo" shall mean Southern Satellite Systems, Inc., a Georgia corporation,
and any successor thereto by operation of law.
"SpinCo Party" shall mean, after the effective time of the Distribution,
SpinCo and each Affiliate of SpinCo that is Controlled by SpinCo from time to
time and, for so long as SpinCo is an Affiliate of TCI, shall also mean TCI
and each Affiliate of TCI that is Controlled by TCI.
"SpinCo Convertible Preferred Stock" shall mean the classes or series of
preferred stock of SpinCo to be issued immediately following the Distribution
to John C. Malone, Bob Magness and Kearns-Tribune Corporation
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<PAGE>
in exchange for their shares of SpinCo Series A Common Stock and in exchange
for their shares of SpinCo Series B Common Stock, as contemplated by the FTC
Consent Decree. One class or series of the SpinCo Convertible Preferred Stock
will be convertible into SpinCo Series A Common Stock, and the other series
will be convertible into SpinCo Series B Common Stock, subject to the
restrictions of the FTC Consent Decree.
"SpinCo Series A Common Stock" shall mean that series of SpinCo's common
stock to be known as Series A Common Stock, [$.01] par value per share. The
Series A Common Stock will have one vote per share.
"SpinCo Series B Common Stock" shall mean that series of SpinCo's common
stock to be known as Series B Common Stock, [$.01] par value per share. The
Series B Common Stock will have ten votes per share.
"SportSouth Agreement" shall mean the Stock Purchase Agreement, dated as of
September 22, 1995, between the Company and LMC Southeast Sports, Inc., and
the Exhibits and Schedules thereto, a copy of which is annexed hereto as
Exhibit G.
"SSSI Agreement" shall mean the SSSI Agreement substantially in the form of
Exhibit D, to be entered into by Holdco, LMC Parent, SpinCo and Satellite at
or prior to the Closing.
"Sunshine Agreement" shall mean an agreement substantially in the form of
Exhibit H to be entered into by Time Warner Entertainment Company, L.P. and
Liberty Sports, Inc. at or prior to the Closing.
A "Takeover Proposal" shall be pending if any bona fide tender or exchange
offer for the TW Parent Common Stock shall have been commenced or publicly
announced and not terminated or withdrawn if consummation of such offer in
accordance with its terms would result in a Change in Control Event. A tender
offer will not be deemed to be bona fide that is not fully financed unless it
is made or guaranteed by a person whose senior debt securities have investment
grade ratings in one of the four highest investment grade categories.
"Transactions" shall mean the Mergers, the other transactions contemplated
by the Amended and Restated Merger Agreement and the transactions contemplated
by this Agreement and the Additional Agreements.
"Turner Letter" shall mean those certain letters dated September 22, 1995,
December 1, 1995, and August , 1996, from R.E. Turner, III to Old TW and
LMC Parent.
"TW Parent" shall mean (i) Old TW, with respect to all times prior to the
Closing, and (ii) Holdco, with respect to all times from and after the
Closing.
"TW Parent Common Stock" shall mean (i) prior to the Closing, the common
stock, par value $1.00 per share, of Old TW, as it exists on September 22,
1995, and (ii) on and after the Closing, the Common Stock, par value $.01 per
share, of Holdco as it then exists, and shall include, in all cases, where
appropriate, in the case of any reclassification, recapitalization or other
change in the TW Parent Common Stock, or in the case of a consolidation or
merger of TW Parent with or into another person affecting the TW Parent Common
Stock (other than the TW Merger), such capital stock or other securities to
which a holder of TW Parent Common Stock shall be entitled upon the occurrence
of such event.
"TW Securities" shall mean any and all shares of capital stock and any and
all other equity securities of TW Parent of any class, series, issue or other
type, whether now authorized or existing or hereafter authorized or designated
or otherwise created, including the TW Parent Common Stock, the Voting Holdco
LMC Common Stock and the LMCN-V Common Stock.
"UCTI" shall mean United Cable Turner Investment, Inc., a Colorado
corporation.
"Voting Holdco LMC Common Stock" shall mean the Series LMC Common Stock of
Holdco, having the terms set forth in Exhibit C.
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Section 1.2 Terms Generally. The definitions of terms contained in this
Agreement 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". The words "herein", "hereof" and "hereunder" and words
of similar import refer to this Agreement in its entirety and not to any part
hereof unless the context shall otherwise require. All references herein to
Articles, Sections, Exhibits and Schedules shall be deemed references to
Articles and Sections of, and Exhibits and Schedules to, this Agreement unless
the context shall otherwise require. Any reference in this Agreement to a
"day" or number of "days" (without the explicit qualification of "business")
shall be interpreted as a reference to a calendar day or number of calendar
days. If any action or notice is to be taken or given on or by a particular
calendar day, and such calendar day is not a business day, then such action or
notice shall be deferred until, or may be taken or given on, the next business
day.
ARTICLE II
Covenants With Respect To The Merger
Section 2.1 Agreement to Vote; Related Matters.
(a) Subject to the terms and conditions of this Agreement, each of the
Shareholders agrees that such Shareholder shall attend, and LMC Parent shall
cause the Shareholders to attend, the Shareholders Meeting and each
adjournment thereof (provided in each case that the same is held prior to the
Termination Date), in person or by proxy, and shall vote all the Shareholder
Shares (and each class thereof) of such Shareholder that such Shareholder is
entitled to vote, in favor of the approval of the TBS Merger and each of the
other transactions contemplated by the Amended and Restated Merger Agreement
and in favor of the approval of the Amended and Restated Merger Agreement (as
the same may be amended from time to time to the extent consistent with clause
(i) of the following sentence). The foregoing agreement of LMC Parent and each
Shareholder is subject to the satisfaction of the following conditions as of
the time of the Shareholders Meeting or any adjournment thereof at which the
Shareholder Approvals are sought: (i) the Amended and Restated Merger
Agreement shall be in full force and effect in the form originally executed,
as amended through August 8, 1996, and shall not have been thereafter amended
in any respect, nor shall any right of the Company or obligation of Old TW
thereunder (including any condition to the obligation of the Company to
consummate the TBS Merger and the other transactions contemplated by the
Amended and Restated Merger Agreement) have been waived, other than any
amendments and waivers that do not change the consideration to be received in
exchange for Company Capital Stock in the TBS Merger or the exchange ratio
therefor (except to increase the number of shares of TW Parent Common Stock to
be issued in exchange for each share of Company Capital Stock or to provide
additional consideration to all stockholders of the Company that does not
affect the tax-free nature of the transaction) and that, when taken together
with all other amendments and waivers, do not have a material adverse effect
on the value of the consideration to be received in exchange for Company
Capital Stock in the TBS Merger; (ii) R.E. Turner, III, as a shareholder of
the Company, shall have voted or shall simultaneously be voting all his shares
of Company Capital Stock in favor of the approval of the TBS Merger; (iii) if
the Parent Stockholder Approvals shall have been voted upon, the Parent
Stockholder Approvals shall have been obtained; (iv) no Judgment shall have
been entered and be continuing that restrains or enjoins (preliminarily,
temporarily or permanently) LMC Parent or any Shareholder from voting the
Shareholder Shares; and (v) no Change of Control Event shall have occurred.
(b) While this Agreement is in effect, each Shareholder agrees that it shall
not, and LMC Parent agrees to cause each Shareholder not to, (i) grant or
permit any of its subsidiaries to grant any proxy or other right with respect
to the voting of the Shareholder Shares of such Shareholder or (ii) transfer
or permit any of its subsidiaries to transfer (including by operation of law
in a merger) any of such shares to any person (other than TW Parent) unless
such transferee agrees to be bound with respect to such transferred shares by
this Section 2.1 to the same extent as the transferor was so bound with
respect to such transferred shares and such transfer is made in compliance
with all applicable requirements of the Stock Agreements (as defined in
Section 3.1(a)).
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(c) To the extent that such consent or waiver is required by the terms of
any agreement (any "Relevant Agreement") to which the Company, Old TW, Time
TBS Holdings, Inc. ("Time-TBS"), TCI, TCI Communications, Inc. ("TCIC") and/or
any of the Shareholders is a party which relates to the ownership, voting or
disposition of any shares of the capital stock of the Company of any class or
series (including the Stock Agreements), each of Old TW, Time-TBS, TCI, TCIC
and each Shareholder hereby consents to the execution, delivery and
performance of the Support Agreement, this Agreement, the Additional
Agreements, the Original Merger Agreement and the Amended and Restated Merger
Agreement by all parties (and intended parties) to each such agreement and
waives any inconsistent provision of any Relevant Agreement and any rights or
remedies which such party might otherwise have under any Relevant Agreement or
by virtue thereof by reason of such execution, delivery or performance. Each
of Old TW, Time-TBS, TCI, TCIC, LMC Parent and each Shareholder confirms and
agrees that the execution, delivery and performance of this Agreement, the
Original Merger Agreement, the Amended and Restated Merger Agreement, the
Additional Agreements and the Support Agreement by all parties (and intended
parties) thereto do not and will not conflict with any provision of the
Amended and Restated Articles of Incorporation of the Company and do not and
will not result in the loss of any right, power, privilege, remedy or benefit
which any holder of Class C Preferred Stock otherwise has or might have or in
the reduction, qualification or other modification of any such right, power,
privilege, remedy or benefit; none of them shall make, join in, endorse or
recognize any claim to the contrary, and each of them shall vigorously oppose
any such claim made by any other person. Each Shareholder and LMC Parent
consents to (i) the execution and delivery by Old TW, Holdco, Delaware Sub,
Georgia Sub and the Company of Amendment No. 1 to the Amended and Restated
Merger Agreement and (ii) the execution and delivery by Old TW and the Company
of the FTC Consent Decree. Old TW and Holdco each consent to the execution and
delivery by LMC Parent and TCI of the FTC Consent Decree.
(d) Nothing contained in this Agreement shall create any obligation on the
part of LMC Parent, any Shareholder or any of LMC Parent's Affiliates or
restrict LMC Parent, any Shareholder or any of LMC Parent's Affiliates in the
exercise and enjoyment of full rights of ownership of shares of capital stock
of the Company, except as expressly provided in this Section 2.1. Without
limiting the generality of the immediately preceding sentence, if the grant or
effectiveness of any consent or approval of any Governmental Entity required
in connection with the consummation of the Transactions shall be conditioned
upon the surrender or modification in any significant respect of any license,
franchise or permit held by TCI or any of its Affiliates, the divestiture or
rearrangement of the composition of any assets of TCI or any of its
Affiliates, the holding of any assets of any such person in a trust or
otherwise separate and apart from such person's other assets, limitations on
any such person's freedom of action with respect to future acquisitions of
assets or with respect to any existing or future business or activities or its
enjoyment of the full rights of ownership, possession and use of any asset now
owned or hereafter acquired by such person (including any requirement not to
receive shares of TW Parent Common Stock or Voting Holdco LMC Common Stock
pursuant to the Amended and Restated Merger Agreement, the SSSI Agreement, the
First Refusal Agreement or otherwise), any agreement to divest of any such
shares, any requirement not to receive, or to agree to divest, shares of
Voting Holdco LMC Common Stock or LMCN-V Common Stock to be received pursuant
to Section 4.1, any change in such person's ownership or in any rights of or
arrangements among its equity holders or any other restrictions, limitations,
requirements or conditions which are or might be burdensome or adverse to any
such person (other than, in any case, as provided in the FTC Consent Decree
and other than the required exchange of TW Parent Common Stock for Holdco LMC
Common Stock, as contemplated by Section 4.1, or compliance with this
Agreement and the Additional Agreements), then nothing in this Agreement
(including Section 2.2) shall be construed as imposing any obligation or duty
on the part of TCI or any of its Affiliates to agree to, approve or otherwise
be bound by or satisfy any such condition. Nothing contained in this Agreement
shall require LMC Parent, any Shareholder or any of LMC Parent's other
Affiliates to terminate or modify the terms of any pledge of any shares of
capital stock of the Company held by LMC Parent, such Shareholder or Affiliate
existing as of the date of execution hereof (including, without limitation,
either of the Pledge Agreements, as such term is defined in the letter dated
June 28, 1996, from LMC Parent to Old TW and Holdco).
Section 2.2 Reasonable Efforts. Prior to the Termination Date, TCI and LMC
Parent shall, and LMC Parent shall cause each Shareholder to, and Old TW and
Holdco shall, use reasonable efforts (a) to take, or cause
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to be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with each other in good faith in doing, all things necessary to
obtain, in the most expeditious manner practicable, all actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of
all necessary registrations and filings with Governmental Entities, in each
case as may be necessary for the consummation of the Transactions or to avoid
any action or proceeding by any Governmental Entity; and (b) to defend any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging the Amended and Restated Merger Agreement, this Agreement, any of
the Additional Agreements or the consummation of the Transactions, including
seeking to have any stay or temporary restraining order entered by any court
or other Governmental Entity vacated or reversed; provided, however, that
nothing in this Section 2.2 shall require any such person (i) to agree to,
approve or otherwise be bound by or satisfy any condition of any kind referred
to in Section 2.1(d), (ii) to agree to enter into or be bound by any
settlement or judgment (other than the FTC Consent Decree), (iii) to agree to
any change to the terms of this Agreement or any of the Additional Agreements
or (iv) to seek or agree to any changes to the terms of the FTC Consent
Decree.
Section 2.3 Agreement to Abandon. Old TW and Holdco shall, upon the written
request of LMC Parent, terminate the Amended and Restated Merger Agreement and
abandon the TBS Merger if:
(a) on the date fixed for the Closing (i) this Agreement, any Additional
Agreement or the Amended and Restated Merger Agreement or consummation of the
Mergers or any other Transaction shall be illegal, (ii). the consummation of
the Mergers or any other Transaction would result in the imposition on the
Liberty Parties (or, after the Distribution, the SpinCo Parties) of damages or
penalties (other than any such damages or penalties arising out of a breach of
this Agreement, any Additional Agreement or the FTC Consent Decree by LMC
Parent or any of its Affiliates or for which TW Parent and/or Holdco has
agreed to indemnify LMC Parent and its Affiliates), (iii) the FTC has failed
to accept or denied acceptance of the FTC Consent Decree for public comment or
(iv) there shall be pending any suit, action or proceeding by any Governmental
Entity in which the relief sought would have any of the effects described in
clauses (i) and (ii) above or in Section 2.1(d) (including any proceeding with
respect to an alleged violation of the FTC Consent Decree other than any
proceeding by or before the FTC as contemplated by the FTC Consent Decree); or
(b) on the date fixed for the Closing, any consent or approval of any
Governmental Entity required in connection with the consummation of the
Transactions shall be subject to any condition of any kind referred to in
Section 2.1(d) and LMC Parent, any Shareholder or any other Affiliate of LMC
Parent has (without the consent of TCI or LMC Parent) become bound to comply
with such condition; or
(c) at or prior to the Closing, Holdco shall have adopted any shareholder
rights plan or other form of poison pill (any such plan (regardless of when
adopted by Holdco), the "Holdco Rights Plan"), other than a shareholder rights
plan identical in all material respects to the Rights Agreement, as amended in
accordance with the Rights Amendment (the "Amended TW Plan"); or
(d) on or prior to the date fixed for the Closing, a Change in Control Event
shall have occurred or on the Closing Date a Takeover Proposal shall be
pending; or
(e) on the date fixed for the Closing, the condition set forth in Section
6.03(a) of the Amended and Restated Merger Agreement to the Company's
obligations has not been satisfied (determined without regard to the Company's
willingness to waive the failure of such condition); or
(f) any Action shall have been taken by Old TW or any of its Controlled
Affiliates after September 22, 1995 and prior to the Closing which if taken
after the Effective Time of the Mergers would result in a Prohibited Effect;
or
(g) as of the date fixed for the Closing, (i) the representations and
warranties of Old TW and Holdco made herein and to be made in each Additional
Agreement to which Old TW or Holdco is intended to be a party shall not be
true and correct in all material respects as of such date with the same force
and effect as if then made, or
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(ii) any signatory hereto (other than TCI, LMC Parent and the Shareholders)
shall be in breach or default in any material respect of any of its
obligations hereunder, or (iii) any party (other than TCI, LMC Parent or any
of their respective Affiliates) to any of the Additional Agreements then in
effect shall be in breach or default in any material respect of any of its
obligations thereunder or any intended party (other than TCI, LMC Parent or
any of their respective Affiliates) to any of the Additional Agreements (other
than the Distribution Contract) shall have failed to execute and deliver to
the other parties thereto any such Additional Agreement or any of the other
closing deliveries contemplated by the Company Letter or Turner Letter shall
not have been made; or
(h) as of the date fixed for the Closing, any required approval by the
stockholders of Old TW of the issuance and payment of the Option Consideration
or of this Agreement, any of the Additional Agreements or the Transactions has
not been obtained.
Section 2.4 Closing Deliveries. At the Closing, Old TW, Holdco, LMC Parent
and the Shareholders shall (and shall cause their respective Affiliates which
are named as parties in the Additional Agreements to) execute and deliver to
the other parties thereto each Additional Agreement to which he or it is
intended to be a party or, in the case of the Contribution and Exchange
Agreement and any other Additional Agreement entered into prior to the
Closing, deliver an officer's certificate signed by its president or a senior
vice president confirming that such Additional Agreement is effective in
accordance with its terms and such party is in compliance with its obligations
thereunder in all material respects. LMC Parent and TW Parent shall each
deliver to the other at the Closing, an officer's certificate signed by its
president or a senior vice president to the effect that the representations
and warranties set forth in Section 3.1 and Sections 3.2 and 3.3,
respectively, are true in all material respects on and as of the Closing Date
with the same force and effect as if then made and that such party is in
compliance in all material respects with the FTC Consent Decree.
Section 2.5 Dissenters' Rights. None of the Shareholders shall, nor shall
LMC Parent permit any Shareholder to, give notice pursuant to Section 1321 of
the Georgia BCC of such Shareholder's intent to demand payment for any shares
of Company Capital Stock, or take any other action to exercise dissenters'
rights under Article 13 of the Georgia BCC, if the TBS Merger is effectuated.
Section 2.6 Abandoned and Terminated Agreements. The parties hereto
acknowledge that upon the initial acceptance by the FTC of the FTC Consent
Decree for public comment, the Voting Trust Agreement in the form of Exhibit J
to the Original LMC Agreement, as amended by the Amended LMC Agreement, and
the SSSI Agreement (including the related Cable Carriage Agreement) in the
form of Exhibit D to the Original LMC Agreement, as amended by the Amended LMC
Agreement, will not be entered into and have been abandoned. The TW/LMC Letter
Agreement (as defined in the Amended LMC Agreement) is hereby terminated and
the "Elective Merger" contemplated thereby abandoned. Upon the initial
acceptance by the FTC Consent Decree for public comment, the Program Service
Agreement, dated September 15, 1995, a copy of which was attached as Exhibit E
to the Original LMC Agreement, will automatically be terminated by the parties
thereto.
ARTICLE III
Representations And Warranties
Section 3.1 Representations and Warranties of LMC Parent and the
Shareholders. Each Shareholder represents and warrants to Old TW, as to
itself, and LMC Parent represents and warrants to Old TW as to itself and as
to each Shareholder, that (assuming that the consents, waivers and agreements
given and made by Old TW and Time-TBS pursuant to Section 2.1(c) and by the
Company in the Company Letter and by R.E. Turner, III in the Turner Letter are
valid and effective for the intended purposes):
(a) Each Shareholder is as of September 22, 1995 the record and beneficial
owner of the Shareholder Shares set forth opposite the name of such
Shareholder on Schedule I hereto. Such Shareholder has the right to vote such
Shareholder Shares in the manner provided in Section 2.1(a), and such
Shareholder Shares constitute all of
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the shares of capital stock of the Company owned of record or beneficially by
such Shareholder. The Shareholder Shares constitute all shares of capital
stock of the Company beneficially owned by TCI, other than the Excluded Shares
(as defined in Section 4.1). None of the Shareholder Shares owned by any
Shareholder is subject to any proxy, voting trust or other agreement,
arrangement or restriction with respect to the voting of such Shareholder
Shares which is inconsistent with the agreement of such Shareholder pursuant
to Section 2.1 hereof, other than the Stock Agreements. The "Stock Agreements"
means (i) the Investors Agreement dated as of June 3, 1987, among the Company
and the original holders of the Class C Preferred Stock; (ii) the
Shareholders' Agreement dated as of June 3, 1987, as amended by the First
Amendment dated as of April 15, 1988, among the Company, R.E. Turner, III, and
the original holders of the Class C Preferred Stock; (iii) the Voting
Agreement dated as of June 3, 1987, among certain holders of Class C Preferred
Stock; and (iv) the Agreement dated as of June 3, 1987 among Old TW, certain
of the Shareholders and certain other holders of Class C Preferred Stock
affiliated with Old TW and/or LMC Parent. To the knowledge of TCI and LMC
Parent, none of TCI, LMC Parent or any of their respective Affiliates are
party to any agreement with the Company, any of the Company's Affiliates, Old
TW or any of Old TW's Affiliates that would require the consent, waiver or
approval of or by TCI, LMC Parent or any of their respective Affiliates of the
Mergers or for the consummation of any of the Transactions, or the execution,
delivery or performance of the Amended and Restated Merger Agreement, this
Agreement or the Additional Agreements, other than the Stock Agreements.
(b) LMC Parent and the Shareholders each have the requisite corporate power
and authority to enter into this Agreement, the FTC Consent Decree and each of
the Additional Agreements to which it is contemplated to be a party and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement, the FTC Consent Decree and each of such Additional
Agreements by LMC Parent and the Shareholders and the consummation by them of
the Transactions have been duly authorized by all necessary corporate action.
This Agreement and the FTC Consent Decree have been, and when delivered at or
prior to the Closing each of such Additional Agreements will have been, duly
executed and delivered by LMC Parent, the Shareholders and the applicable
Affiliates of LMC Parent named as parties thereto (each, an "Applicable LMC
Affiliate") and constitutes, or in the case of such Additional Agreements will
as of the Closing constitute, a valid and binding obligation of each such
party, enforceable against each such party in accordance with its terms
(except insofar as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, or by principles governing the availability of equitable
remedies). The execution and delivery of this Agreement, the FTC Consent
Decree and each of the Additional Agreements to which it is contemplated to be
a party by LMC Parent and each Applicable LMC Affiliate do not, and the
performance by them of their respective obligations hereunder and thereunder
and the consummation of the Transactions will not, conflict with, or result in
any violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to the loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of LMC Parent or any
Applicable LMC Affiliate under, (i) the Certificate of Incorporation or By-
laws of LMC Parent or the comparable organizational documents of any
Applicable LMC Affiliate, (ii) any Contract to which LMC Parent or any
Applicable LMC Affiliate is a party or by which any of them or their
respective properties or assets are bound, or (iii) subject to the
governmental filings and other matters referred to in Sections 3.01(d) and
3.02(d) of the Amended and Restated Merger Agreement and in the following
sentence, any Requirement of Law applicable to LMC Parent or any Applicable
LMC Affiliate or their respective properties or assets, other than the
Horizontal Rule as to which no representation is being made, and other than,
in the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate would not (x)
prevent LMC Parent or any Applicable LMC Affiliate from performing its
obligations under this Agreement or any applicable Additional Agreement in any
material respect or (y) prevent or delay in any material respect the
consummation of any of the Transactions. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to LMC Parent or any
Applicable LMC Affiliate in connection with the execution and delivery of this
Agreement or any applicable Additional Agreement by them or the consummation
by them of the Transactions, except for (i) filings under the HSR Act and the
initial acceptance of the FTC Consent Decree, (ii) such filings with, and
orders of, the FCC as may be required under the Communications Laws in
connection with the Transactions and
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(iii) such other consents, approvals, orders, authorizations, registrations,
declarations and filings which, if not obtained or made, would not prevent or
delay in any material respect the consummation of any of the Transactions or
prevent LMC Parent or any Applicable LMC Affiliate from performing its
obligations under this Agreement or any applicable Additional Agreement in any
material respect.
(c) Except as disclosed on Schedule 3.1, as of September 22, 1995, there is
no suit, action or proceeding (including any proceeding by or before the FCC)
pending or, to the knowledge of LMC Parent and TCI, threatened against or
affecting LMC Parent or any of its Affiliates (and LMC Parent and TCI are not
aware of any basis for any such suit, action or proceeding) that, individually
or in the aggregate, could reasonably be expected to (i) prevent LMC Parent or
any Applicable LMC Affiliate from performing its obligations under this
Agreement or any applicable Additional Agreement in any material respect or
(ii) prevent or delay in any material respect the consummation of the Mergers
or any of the other Transactions. As of September 22, 1995, and other than the
Horizontal Rule, neither LMC Parent nor any Applicable LMC Affiliate is aware
of any current or formally proposed Communications Law that would prevent any
Shareholder from receiving, or would require any Shareholder to divest all or
any part of, the TW Parent Common Stock issuable to such Shareholder in
connection with the Mergers (assuming no exchange of such TW Parent Common
Stock pursuant to Section 4.1).
(d) No broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the Transactions based upon arrangements made
by or on behalf of LMC Parent or any Shareholder.
Section 3.2 Representations and Warranties of Old TW. Old TW represents and
warrants to LMC Parent and each Shareholder that (assuming that the consents,
waivers and agreements given and made by TCI, LMC Parent and the Shareholders
pursuant to Section 2.1(c) and by the Company in the Company Letter and by
R.E. Turner, III in the Turner Letter are valid and effective for the intended
purposes):
(a) Old TW has delivered to LMC Parent complete and correct copies of its
Restated Certificate of Incorporation, By-laws and the Rights Agreement and of
the certificates of incorporation and by-laws or comparable organizational
documents of the Material Parent Subsidiaries, in each case as amended to
September 22, 1995. As of September 22, 1995, no amendments to the Rights
Agreement have been authorized, approved or adopted and there is no
commitment, arrangement or understanding by Old TW to effect any amendment
other than the Rights Amendment.
(b) Old TW has all requisite corporate power and authority to enter into
this Agreement, the FTC Consent Decree and each of the Additional Agreements
to which it is contemplated to be a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement,
the FTC Consent Decree and each such Additional Agreement by Old TW and the
consummation by it of the Transactions have been duly authorized by all
necessary corporate action subject to the Parent Stockholder Approvals. This
Agreement and the FTC Consent Decree have been, and when delivered at or prior
to the Closing each of such Additional Agreements will have been, duly
executed and delivered by Old TW and the applicable Affiliates of Old TW named
as parties thereto (if any) (each, an "Applicable TW Affiliate", which term
shall also include Holdco, Delaware Sub and Georgia Sub) and constitutes, or
in the case of such Additional Agreements will as of the Closing constitute, a
valid and binding obligation of each such party, enforceable against each such
party in accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by principles governing the
availability of equitable remedies). Except as otherwise set forth in the
Amended and Restated Merger Agreement or in the Parent Disclosure Letter, the
execution and delivery of this Agreement, the FTC Consent Decree and each of
the Additional Agreements to which it is contemplated to be a party by Old TW
and each Applicable TW Affiliate and the consummation by them of the
transactions contemplated hereby and thereby and compliance with the
provisions hereof and thereof will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to the loss of a material benefit under, or result in the
creation of any Lien
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upon any of the properties or assets of Old TW or any Parent Subsidiary under,
(i) the Restated Certificate of Incorporation or By-laws of Old TW or the
comparable organizational documents of any Parent Subsidiary, (ii) any
Contract to which Old TW or any Parent Subsidiary is a party or by which any
of them or their respective properties or assets are bound, or (iii) subject
to the governmental filings and other matters referred to in Sections 3.01(d)
and 3.02(d) of the Amended and Restated Merger Agreement and in the following
sentence, any Requirement of Law applicable to Old TW or any Parent Subsidiary
or their respective properties or assets, other than the Horizontal Rule as to
which no representation is being made, and other than, in the case of clauses
(ii) and (iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a Parent Material Adverse
Effect, (y) prevent Old TW or any Applicable TW Affiliate from performing its
obligations under this Agreement or any applicable Additional Agreement in any
material respect or (z) prevent or delay in any material respect the
consummation of any of the Transactions. Except as otherwise set forth in the
Amended and Restated Merger Agreement or in the Parent Disclosure Letter, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to Old TW
or any Applicable TW Affiliate in connection with the execution and delivery
of this Agreement or any applicable Additional Agreement by Old TW or any
Applicable TW Affiliate or the consummation by Old TW or any Applicable TW
Affiliate, as the case may be, of any of the Transactions, except for (i)
filings under the HSR Act and the initial acceptance of the FTC Consent
Decree, (ii) such filings with, and orders of, the FCC as may be required
under the Communications Laws in connection with the Transactions, (iii)
approvals of cable franchising authorities and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings
which, if not obtained or made, would not prevent or delay in any material
respect the consummation of any of the Transactions or otherwise prevent Old
TW or any Applicable TW Affiliate from performing its obligations under this
Agreement or any applicable Additional Agreement in any material respect or
have, individually or in the aggregate, a Parent Material Adverse Effect. To
the knowledge of Old TW, none of Old TW or any of its Affiliates are party to
any agreement with the Company, any of the Company's Affiliates, TCI or any of
TCI's Affiliates that would require the consent, waiver or approval of or by
Old TW or any of its Affiliates of the Mergers or for the consummation of any
of the Transactions, or the execution, delivery or performance of the Amended
and Restated Merger Agreement, this Agreement or the Additional Agreements,
other than the Stock Agreements.
(c) Except as disclosed in the Parent Disclosure Letter, as of September 22,
1995, there is no suit, action or proceeding (including any proceeding by or
before the FCC) pending or, to the knowledge of Old TW, threatened against or
affecting Old TW or any of its Affiliates (and Old TW is not aware of any
basis for any such suit, action or proceeding) that, individually or in the
aggregate, could reasonably be expected to (i) prevent Old TW or any
Applicable TW Affiliate from performing its obligations under this Agreement
or any applicable Additional Agreement in any material respect, or (ii)
prevent or delay in any material respect the consummation of the Mergers or
any of the other Transactions.
(d) As of September 22, 1995, and other than the Horizontal Rule, Old TW is
not aware of any current or formally proposed Communications Law that would
prevent any Shareholder from receiving, or would require any Shareholder to
divest all or any part of, the TW Parent Common Stock issuable to such
Shareholder in connection with the Mergers (assuming no exchange of such TW
Parent Common Stock pursuant to Section 4.1).
(e) No broker, investment banker, financial advisor or other person, other
than Morgan Stanley & Co., Incorporated and Bear, Stearns & Co. Inc., the fees
and expenses of which will be paid by Old TW, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of Old TW
or Holdco.
Section 3.3 Representations and Warranties of Holdco. Holdco represents and
warrants to LMC Parent and each Shareholder that:
(a) Holdco has delivered to LMC Parent complete and correct copies of its
Certificate of Incorporation and By-laws and the Holdco Rights Plan, if any,
in each case as amended to the date of execution of this Agreement,
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including, without limitation, all certificates of designation. As of the date
of execution hereof, no amendments to any of the foregoing have been
authorized, approved or adopted and there is no commitment, arrangement or
understanding by Holdco (other than pursuant to the Amended and Restated
Merger Agreement and this Agreement) to effect any such amendment. All shares
of Holdco LMC Common Stock which may be issued pursuant to Section 4.1 or 4.2
or pursuant to the SSSI Agreement will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights.
(b) Holdco has all requisite corporate power and authority to enter into
this Agreement and each of the Additional Agreements to which it is
contemplated to be a party and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and each such
Additional Agreement by Holdco and the consummation by it of the Transactions
have been duly authorized by all necessary corporate action. This Agreement
has been, and when delivered at or prior to the Closing each of such
Additional Agreements will have been, duly executed and delivered by Holdco
and constitutes, or in the case of such Additional Agreements will as of the
Closing constitute, a valid and binding obligation of Holdco, enforceable
against Holdco in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally, or by principles governing
the availability of equitable remedies). Except as otherwise set forth in the
Merger Agreement or in the Parent Disclosure Letter, the execution and
delivery of this Agreement and each of the Additional Agreements to which it
is contemplated to be a party by Holdco and the consummation by it of the
transactions contemplated hereby and thereby and compliance with the
provisions hereof and thereof will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to the loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of Holdco or any
subsidiary of Holdco under, (i) the Certificate of Incorporation or By-laws of
Holdco or the comparable organizational documents of any subsidiary of Holdco,
(ii) any Contract to which Holdco or any subsidiary of Holdco is a party or by
which any of them or their respective properties or assets are bound, other
than the Stock Agreements as to which no representation is being made or (iii)
subject to the governmental filings and other matters referred to in Sections
3.01(d) and 3.02(d) of the Merger Agreement and in the following sentence, any
Requirement of Law applicable to Holdco or any subsidiary of Holdco or their
respective properties or assets, other than the Horizontal Rule as to which no
representation is being made, and other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a Parent Material Adverse
Effect, (y) prevent Holdco or any subsidiary of Holdco from performing its
obligations under this Agreement or any applicable Additional Agreement in any
material respect or (z) prevent or delay in any material respect the
consummation of any of the Transactions. Except as otherwise set forth in the
Merger Agreement or in the Parent Disclosure Letter, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Holdco or any subsidiary
of Holdco in connection with the execution and delivery of this Agreement or
any applicable Additional Agreement by Holdco or the consummation by Holdco or
any subsidiary of Holdco, as the case may be, of any of the Transactions,
except for (i) filings under the HSR Act and the initial acceptance of the FTC
Consent Decree, (ii) such filings with, and orders of, the FCC as may be
required under the Communications Laws in connection with the Transactions,
(iii) approvals of cable franchising authorities and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings
which, if not obtained or made, would not prevent or delay in any material
respect the consummation of any of the Transactions or otherwise prevent
Holdco or any subsidiary of Holdco from performing its obligations under this
Agreement or any applicable Additional Agreement in any material respect or
have, individually or in the aggregate, a Parent Material Adverse Effect. To
the knowledge of Holdco, none of Holdco or any of its Affiliates are party to
any agreement with the Company, any of the Company's Affiliates, TCI or any of
TCI's Affiliates that would require the consent, waiver or approval of or by
Holdco or any of its Affiliates of the Mergers or for the consummation of any
of the Transactions, or the execution, delivery or performance of the Merger
Agreement, this Agreement or the Additional Agreements, other than the Stock
Agreements.
(c) Except as disclosed in the Parent Disclosure Letter, as of September 22,
1995, there is no suit, action or proceeding (including any proceeding by or
before the FCC) pending or, to the knowledge of Holdco, threatened
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against or affecting Holdco or any its Affiliates (and Holdco is not aware of
any basis for any such suit, action or proceeding) that, individually or in
the aggregate, could reasonably be expected to (i) prevent Holdco from
performing its obligations under this Agreement or any applicable Additional
Agreement in any material respect, or (ii) prevent or delay in any material
respect the consummation of the Mergers or any of the other Transactions.
(d) As of September 22, 1995, and other than the Horizontal Rule, Holdco is
not aware of any current or formally proposed Communications Law that would
prevent any Shareholder from receiving, or would require any Shareholder to
divest all or any part of, the TW Parent Common Stock issuable to such
Shareholder in connection with the Mergers (assuming no exchange of such TW
Parent Common Stock pursuant to Section 4.1).
(e) No broker, investment banker, financial advisor or other person, other
than Morgan Stanley & Co., Incorporated and Bear, Stearns & Co. Inc., the fees
and expenses of which will be paid by Old TW, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of Old TW
or Holdco.
ARTICLE IV
Certain Post-Closing Covenants
Section 4.1 Share Exchange. Immediately following the Effective Time of the
Mergers, each Shareholder shall cause all of its Covered TW Securities that
consist of shares of TW Parent Common Stock to be delivered to TW Parent for
exchange into, and TW Parent shall issue in exchange therefor, shares of LMCN-
V Common Stock. The rate of exchange pursuant to the foregoing provisions of
this Section 4.1 shall be one share of TW Parent Common Stock for each whole
share of LMCN-V Common Stock. An exchange for LMCN-V Common Stock shall be
effected through a direction from each Shareholder to the Exchange Agent (or,
in the case of an exchange in connection with the Contribution and Exchange
Agreement, such other agent of Holdco exercising a similar function) to
register all of the shares of TW Parent Common Stock issuable to such
Shareholder in the Mergers (or the transactions relating to the Contribution
and Exchange Agreement, as applicable) in the name of, and to deliver the
appropriate certificates to, TW Parent and, upon receipt by TW Parent of such
certificates, the issuance and delivery by TW Parent to each Shareholder of
the appropriate number of shares of LMCN-V Common Stock. All shares of Holdco
LMC Common Stock delivered to the Liberty Parties or the SpinCo Parties from
time to time in accordance with this Agreement shall be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights.
For so long as the Liberty Parties or SpinCo Parties hold any LMCN-V Common
Stock, all of the TW Parent Common Stock and Voting Holdco LMC Common Stock
from time to time owned beneficially or of record (a) by LMC Parent or any of
its Controlled Affiliates, (b) by any SpinCo Party or (c) for so long as TCI
is a Liberty Party, by TCI or any of its Controlled Affiliates (other than any
of the shares (the "Excluded Shares") described in the letter from Baker &
Botts, L.L.P., counsel to TCI, to Peter Haje, Esq., General Counsel of Old TW
dated September 22, 1995, unless and until TCI acquires sole voting and
dispositive control of such shares) shall be delivered to TW Parent for
exchange for LMCN-V Common Stock; provided, however, that the obligations in
this sentence shall terminate with respect to (x) LMC Parent and its
Controlled Affiliates, and TCI and its Controlled Affiliates, upon the
termination of the Restriction Period with respect to the Liberty Parties and
(y) the SpinCo Parties, upon the termination of the Restriction Period with
respect to the SpinCo Parties. TW Parent shall issue, in exchange for the TW
Parent Common Stock delivered to it pursuant to the immediately preceding
sentence, a number of shares of LMCN-V Common Stock equal to (i) the number of
shares of TW Parent Common Stock so delivered divided by (ii) the Formula
Number then in effect pursuant to the terms of the LMCN-V Common Stock, and,
in exchange for each share of Voting Holdco LMC Common Stock delivered to it
at any time pursuant to the two immediately preceding sentences, one share of
LMCN-V Common Stock.
Section 4.2 No Redemption. The Voting Holdco LMC Common Stock and the LMCN-V
Common Stock shall not be redeemable at the option of TW Parent, including
pursuant to any provision equivalent to
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Section 5 of Article IV of Old TW's Restated Certificate of Incorporation, as
amended, as in effect on September 22, 1995 contained in Holdco's Certificate
of Incorporation ("TW Article IV"). TW Parent further agrees that it shall not
exercise any right pursuant to TW Article IV to require the redemption from
any Liberty Party or SpinCo Party of any of its shares of TW Parent Common
Stock unless it has first given at least 10 business days' prior written
notice of such redemption to each Liberty Party or SpinCo Party, as applicable
(which notice shall state that TW Parent intends to effect the redemption of
shares of TW Parent Common Stock held by such Liberty Party or SpinCo Party,
the number of shares to be redeemed and the proposed redemption date (in
addition to any other information required by TW Article IV)), and each
Liberty Party or SpinCo Party, as applicable, shall have the right at any time
prior to the redemption date to exchange the shares to be redeemed for a
number of shares of Voting Holdco LMC Common Stock that are convertible into
the same number of shares of TW Parent Common Stock so called for redemption.
Section 4.3 Certain Post-Closing Compensation Obligations.
(a) If, after the Effective Time of the Mergers,
(i) any Action shall be taken by TW Parent or any of its Controlled
Affiliates (including, after the effective time of the TBS Merger, the
Company and its Controlled Affiliates) which has a Prohibited Effect under
any Specified Law then in effect (including any Specified Law the
effectiveness of which has been stayed if such stay is subsequently lifted)
or then formally proposed or promulgated with a delayed effective date if
such Specified Law becomes effective thereafter, and
(ii) such Prohibited Effect did not exist prior to the taking of such
Action and did not result from any breach of this Agreement or the FTC
Consent Decree by LMC Parent or any Applicable LMC Affiliate or by any
SpinCo Party; and
(iii) if such Prohibited Effect relates to a Liberty Party, such Action
shall have been taken prior to the termination of the Restriction Period
with respect to the Liberty Parties; and if such Prohibited Effect relates
to a SpinCo Party, such action shall have been taken prior to the
termination of Restriction Period with respect to the SpinCo Parties;
then, in any such case, the provisions of this Section 4.3 shall apply.
(b) As promptly as practicable after obtaining actual knowledge that TW
Parent intends to take an Action and that such Action will likely result in a
Prohibited Effect, LMC Parent, if the Prohibited Effect is with respect to a
Liberty Party, or SpinCo, if the Prohibited Effect is with respect to a SpinCo
Party, shall notify TW Parent thereof. If such notice is received by TW Parent
prior to the taking of the referenced Action, then either TW Parent and its
Controlled Affiliates shall not take such Action or if the Action is taken and
a Prohibited Effect described in Section 4.3(a) occurs, TW Parent shall be
obligated to pay compensation pursuant to this Section 4.3.
(c) As promptly as practicable after obtaining actual knowledge that a
Prohibited Effect has occurred or will likely occur (other than a Prohibited
Effect with respect to which notice has been given under Section 4.3(b)), LMC
Parent, if the Prohibited Effect is with respect to a Liberty Party, or
SpinCo, if the Prohibited Effect is with respect to a SpinCo Party (the
applicable of the foregoing being the "Notice Party"), shall notify TW Parent
thereof. Following the giving of such notice, the Notice Party shall at TW
Parent's request consult with TW Parent as to such Prohibited Effect and its
causes and discuss in good faith the actions that either party might take to
avoid or cure such Prohibited Effect. If the Notice Party and TW Parent agree
that certain actions can be taken by TW Parent and its Controlled Affiliates
to cure or avoid the Prohibited Effect, then TW Parent and its Controlled
Affiliates shall either take such actions or become obligated to compensate
the Liberty Parties (if prior to the Distribution or the Distribution does not
occur) or the SpinCo Parties (if the Distribution occurs) (the Liberty Parties
or the SpinCo Parties, as applicable, being the "Affected Parties") pursuant
to this Section 4.3 if a Prohibited Effect described in Section 4.3(a) occurs;
provided, however, that if the Notice Party and TW Parent also agree that
certain actions could be taken by the Notice Party and its Controlled
Affiliates (or by the Affected Party, if different from the Notice Party, and
its Controlled Affiliates) to eliminate the Prohibited Effect which
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would be substantially less burdensome to the Notice Party and its Controlled
Affiliates (and to the Affected Party, if different from the Notice Party, and
its Controlled Affiliates) than the actions that TW Parent and its Controlled
Affiliates would be required to take in order to cure the Prohibited Effect
would be to TW Parent and its Controlled Affiliates and the costs to effect
such actions would be substantially less than the cost to compensate the
Affected Parties pursuant to this Section 4.3, then subject to the following
sentence, the Liberty Parties or SpinCo Parties, as the case may be, shall, at
TW Parent's expense, use reasonable efforts to take such actions.
Notwithstanding the foregoing, unless such Liberty Party or SpinCo Party
otherwise agrees, no Liberty Party or SpinCo Party shall be required to
dispose of any of its TW Securities, to dispose of any assets or discontinue
any business or investments that LMC Parent or SpinCo, as applicable,
determines in good faith are material to the Liberty Parties or SpinCo Parties
or their respective strategic objectives, or to agree to any restrictions or
limitations that LMC Parent or SpinCo, as applicable, deems significant on the
future operation of its business.
(d) If the Prohibited Effect cannot be cured or avoided, or for any reason
(including the failure of the parties to agree upon any course of action or
alternative courses of action that would cure or avoid the Prohibited Effect
or the relative burdens thereof) has not been cured or avoided (x) within 60
days after notice has been given to TW Parent pursuant to this Section 4.3
(unless prior to the expiration of such 60-day period, TW Parent or the
applicable of the Liberty Parties or SpinCo Parties, as agreed by TW Parent
and LMC Parent or SpinCo, as applicable, have commenced an agreed upon course
of action to cure such Prohibited Effect and such cure is effected within an
agreed period of time thereafter), or (y) if earlier, by such date as any
Liberty Party or SpinCo Party would be required by any Governmental Entity or
pursuant to any Judgment against it or its properties to divest of any TW
Securities or suffer any consequences of the kind enumerated in clauses (b)
through (d) of the definition of Prohibited Effect, then in any such event TW
Parent shall be obligated to compensate the Affected Parties pursuant to this
Section 4.3.
(e) If TW Parent becomes obligated to compensate the Affected Parties
pursuant to this Section 4.3, then TW Parent shall be required to (i)
compensate any Affected Party that disposes of Covered TW Securities to the
extent required by or to the extent necessary to avoid the applicable
Prohibited Effect and (ii) if the aggregate number of Covered TW Securities
disposed of by the Affected Parties pursuant to clause (i) above equals or
exceeds (on an as converted basis, if applicable) 5% of the sum of the number
of Covered TW Securities of all Shareholders immediately after the Effective
Time of the Mergers, plus the number of Covered TW Securities included in the
Option Consideration (as such numbers shall be appropriately adjusted from
time to time to take into account the occurrence of any stock dividends,
splits, reverse splits, combinations and the like), then, at the option of LMC
Parent (if the Affected Party is a Liberty Party) or SpinCo (if the Affected
Party is a SpinCo Party) (exercised by notice in writing to TW Parent within
60 days of the first disposition pursuant to clause (i) above), compensate all
Affected Parties for the disposition of all the Covered TW Securities if all
TW Securities of all Affected Parties are disposed of within 12 months of such
notice (provided that claims for compensation may be made pursuant to the
following sentences as dispositions are made during such 12 month period and
payment of such claims shall not be delayed or deferred for such 12 month
period, but rather shall be paid as provided below, and provided, further,
that if all TW Securities of the Affected Parties are not disposed of within
such 12-month period, the Affected Parties shall reimburse TW Parent for the
amount of compensation paid pursuant to this clause (ii) that is in excess of
the amount that was required to be paid pursuant to clause (i) of this
sentence). If TW Parent becomes obligated to compensate any Affected Party
pursuant to this Section 4.3, then such Affected Party, if it desires to
assert a claim for compensation hereunder, shall provide to TW Parent a
statement, certified by independent public accountants of national standing,
setting forth the estimated Blended Rate for the taxable year in which the
particular disposition occurred and the estimated Adjustment Amount owed to
such Affected Party with respect to those of its TW Securities so disposed of.
Within 30 days after delivery of such statement, TW Parent shall pay to such
Affected Party the estimated Adjustment Amount by wire transfer of immediately
available funds to such account and in accordance with such instructions as
such Affected Party shall have previously advised TW Parent in writing. Within
30 days after the end of the taxable year in which the particular disposition
of TW Securities by such Affected Party occurred, such Affected Party shall
provide to TW Parent a statement, certified by independent public accountants
of national standing, setting
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forth the actual Blended Rate for such taxable year and the actual Adjustment
Amount owed to such Affected Party with respect to such disposition. Within
five days after delivery of such statement, (i) TW Parent shall pay to such
Affected Party an amount equal to the amount by which the Adjustment Amount
exceeds the estimated Adjustment Amount, or (ii) such Affected Party shall pay
to TW Parent an amount equal to the amount by which the estimated Adjustment
Amount exceeds the Adjustment Amount. Any such payment shall be made by wire
transfer of immediately available funds to such account and in accordance with
such instructions as such payee shall have previously advised such payor in
writing.
(f) LMC Parent shall upon request from time to time advise TW Parent of the
identity of each Liberty Party and, following the Distribution, SpinCo shall
upon request from time to time advise TW Parent of the identity of each SpinCo
Party.
Section 4.4 Certain Post-Closing Covenants.
(a) If a Holdco Rights Plan is in effect immediately following the Effective
Time of the Mergers or no Holdco Rights Plan is then in effect, but a Holdco
Rights Plan is thereafter adopted, then, in either such case, such Holdco
Rights Plan (the "Initial Rights Plan") shall, in all material respects, be
the same as the Amended TW Plan. If Holdco amends the Initial Rights Plan or
adopts a new Holdco Rights Plan after adoption of the Initial Rights Plan
(such amended or new plan, the "Subsequent Rights Plan") and the "Beneficial
Ownership" by any Liberty Party or SpinCo Party, alone or together with all of
its "Affiliates" and "Associates", of TW Securities would, by reason of and
immediately upon such amendment or adoption, have effects ("Rights Plan
Effects") under such Subsequent Rights Plan analogous to the effects under the
Rights Agreement of a person becoming an "Acquiring Person" (as defined
therein) or of the rights issued pursuant to the Rights Agreement becoming
transferable separately from the TW Parent Common Stock, but such "Beneficial
Ownership" would not have had such effects under the Amended TW Plan, then
Holdco shall be required to (i) compensate, as provided below, any such
Liberty Party or SpinCo Party, together with its "Affiliates" and
"Associates", that disposes of TW Securities (the "Selling Parties") to the
extent necessary to avoid the Rights Plan Effects and (ii) if the aggregate
number of TW Securities disposed of by the Selling Parties pursuant to clause
(i) above equals or exceeds (on an as converted basis, if applicable) 5% of
the sum of the number of Covered TW Securities of all Shareholders immediately
after the Effective Time of the Mergers, plus the number of Covered TW
Securities included in the Option Consideration (as such numbers shall be
appropriately adjusted from time to time to take into account the occurrence
of any stock dividends, splits, reverse splits, combinations and the like),
then, at the option of LMC Parent, on behalf of the Liberty Parties, and at
the option of SpinCo, on behalf of the SpinCo Parties (exercised by notice in
writing to Holdco within 60 days of the first disposition pursuant to clause
(i) above), compensate, as provided below (x) all Selling Parties that are
Liberty Parties for the disposition of all TW Securities owned by the Liberty
Parties of the type considered by the Subsequent Rights Plan in determining
the "Beneficial Ownership" that would trigger Rights Plan Effects (the
"Relevant TW Securities") and (y) all Selling Parties that are SpinCo Parties
for the disposition of all Relevant TW Securities owned by the SpinCo Parties,
as applicable, provided, in each case, that all Relevant TW Securities of the
Liberty Parties or the SpinCo Parties, as applicable, are disposed of within
12 months of such notice (provided that claims for compensation may be made
pursuant to the following sentences as dispositions are made during such 12
month period and payment of such claims shall not be delayed or deferred for
such 12 month period, but rather shall be paid as provided below, and
provided, further, that if all Relevant TW Securities of the Selling Parties
are not disposed of within such 12-month period, the Selling Parties shall
reimburse TW Parent for the amount of compensation paid pursuant to this
clause (ii) that is in excess of the amount that was required to be paid
pursuant to clause (i) of this sentence). The obligation of Holdco to
compensate any Selling Party pursuant to this Section 4.4(a) shall be subject
to the condition that, as of the date of the adoption of the Subsequent Rights
Plan, (i) such Selling Party and its "Affiliates" and "Associates" shall have
made all filings on Schedule 13D with respect to their beneficial ownership of
Relevant TW Securities due on or prior to such date in compliance with
Regulation 13D-G under the Exchange Act, and (ii) LMC Parent or Spinco, as
applicable, shall be in compliance with its obligations under Section 4.4(b),
except to the extent any failure to make any such filings, and/or any failure
to be in compliance with such obligations, shall not have prejudiced Holdco.
If TW Parent becomes obligated to
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compensate any Selling Party pursuant to this Section 4.4(a), then such
Selling Party, if it desires to assert a claim for compensation hereunder,
shall provide to TW Parent a statement, certified by independent public
accountants of national standing, setting forth the estimated Blended Rate for
the taxable year in which the particular disposition occurred and the
estimated Adjustment Amount owed to such Selling Party with respect to those
of its Relevant TW Securities so disposed of. Within 30 days after delivery of
such statement, TW Parent shall pay to such Selling Party the estimated
Adjustment Amount by wire transfer of immediately available funds to such
account and in accordance with such instructions as such Selling Party shall
have previously advised TW Parent in writing. Within 30 days after the end of
the taxable year in which the particular disposition of Relevant TW Securities
by such Selling Party occurred, such Selling Party shall provide to TW Parent
a statement, certified by independent public accountants of national standing,
setting forth the actual Blended Rate for such taxable year and the actual
Adjustment Amount owed to such Selling Party with respect to such disposition.
Within five days after delivery of such statement, (i) TW Parent shall pay to
such Selling Party an amount equal to the amount by which the Adjustment
Amount exceeds the estimated Adjustment Amount, or (ii) such Selling Party
shall pay to TW Parent an amount equal to the amount by which the estimated
Adjustment Amount exceeds the Adjustment Amount. Any such payment shall be
made by wire transfer of immediately available funds to such account and in
accordance with such instructions as such payee shall have previously advised
such payor in writing.
(b) Prior to the Closing, LMC Parent shall, and following the Closing, if
Holdco adopts a Holdco Rights Plan having the terms contemplated by the first
sentence of Section 4.4(a), LMC Parent and SpinCo (following the Distribution)
shall, promptly notify TW Parent in writing of (i) any acquisition of
"Beneficial Ownership" of "Common Shares" by any of its "Affiliates" or
"Associates", and (ii) any "Person" who has "Beneficial Ownership" of any
"Common Shares" becoming its "Affiliate" or "Associate", in each case promptly
following LMC Parent's or SpinCo's (as applicable) obtaining actual knowledge
of such occurrence.
(c) Except as otherwise expressly indicated, terms used in Section 4.4(a)
and Section 4.4(b) in quotation marks have the meanings given such terms (i)
prior to the Closing, in the Amended TW Plan, and (ii) from and after the
Closing, the Holdco Rights Plan, if any, except that the Liberty Parties or,
following the Distribution, the SpinCo Parties shall be deemed to
"Beneficially Own" any TW Securities the subject of an "Offer Notice" (under
Section 3 of the First Refusal Agreement) from any Turner Stockholder (as
defined in the First Refusal Agreement), any "Fast-Track Offer Notice" (under
Section 3.3 of the First Refusal Agreement) from any Turner Stockholder or any
"Tender Notice" (under Section 3.4 of the First Refusal Agreement) from any
Turner Stockholder, in each case until the earlier of the purchase of such TW
Securities pursuant to the First Refusal Agreement and the first date upon
which such Turner Stockholder is free to sell such TW Securities.
ARTICLE V
Miscellaneous
Section 5.1 Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
Section 5.2 Specific Performance. Each of LMC Parent and the Shareholders,
on the one hand, and Old TW and Holdco, on the other hand, agrees that the
other parties would be irreparably damaged if for any reason such party fails
to perform any of such party's obligations under this Agreement, and that the
other parties would not have an adequate remedy at law for money damages in
such event. Accordingly, any of the other parties shall be entitled to seek
specific performance and injunctive and other equitable relief to enforce the
performance of this Agreement by such party. This provision is without
prejudice to any other rights the parties may have against each other for any
failure to perform their respective obligations under this Agreement.
Section 5.3 Amendments; Termination. This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties hereto.
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The representations, warranties, covenants and agreements set forth herein
shall terminate, except with respect to liability for prior breaches thereof,
upon the first to occur of (x) December 31, 1996, if the Effective Time of the
Mergers has not occurred on or prior to such date and (y) the termination of
the Amended and Restated Merger Agreement in accordance with its terms or the
abandonment thereof by TW Parent if required pursuant to Section 2.3 (the
"Termination Date"). The representations, warranties, covenants and agreements
set forth herein (other than in Article II) shall survive the Effective Time
of the Mergers.
Section 5.4 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that a party
may not assign, delegate or otherwise transfer any of such party's rights or
obligations under this Agreement without the consent of the other parties
hereto and any purported assignment, delegation or transfer without such
consent shall be null and void. Each Liberty Party and SpinCo Party from time
to time, provided that it is a Liberty Party or SpinCo Party as of the
relevant time, shall be an intended third party beneficiary of the covenants
of TW Parent contained in Article IV.
Section 5.5 Entire Agreement. This Agreement (including the Exhibits and
Schedules attached hereto), together with the Stock Agreements, constitute the
entire agreement among the parties with respect to the subject matter hereof
and supersede all other prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof.
Section 5.6 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given (i) on
the first business day following the date received, if delivered personally or
by telecopy (with telephonic confirmation of receipt by the addressee), (ii)
on the business day following timely deposit with an overnight courier
service, if sent by overnight courier specifying next day delivery and (iii)
on the first business day that is at least five days following deposit in the
mails, if sent by first class mail, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
If to TW Parent, to it at:
75 Rockefeller Plaza
New York, New York 10019
Facsimile: (212) 956-7281
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Facsimile: (212) 474-3700
Attention: Richard Hall, Esq.
If to LMC Parent or any Shareholder, to it at:
8101 East Prentice Avenue
Suite 500
Englewood, Colorado 80111
Facsimile: (303) 721-5415
Attention: President
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with a copy (which shall not constitute notice) to each of:
Stephen M. Brett, Esq.
General Counsel
Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000
Facsimile: (303) 488-3245
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Facsimile: (212) 705-5125
Attention: Elizabeth M. Markowski, Esq.
Section 5.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware.
Section 5.8 Counterparts; Effectiveness. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties.
Section 5.9 Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Section 5.10 Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein. The parties shall endeavor in good-faith
negotiations to replace any invalid, illegal or unenforceable provision with a
valid provision the effects of which come as close as possible to those of
such invalid, illegal or unenforceable provisions.
Section 5.11 Attorney's Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees, costs and necessary
disbursements, in addition to any other relief to which such party may be
entitled.
Section 5.12 Obligations of Old TW and Holdco Joint and Several. Each of Old
TW and Holdco (collectively, the "TW Parties") covenants and agrees with LMC
Parent and each Shareholder that such TW Party is and shall be jointly and
severally liable, as a primary obligor and not merely a surety, for the full
and timely payment and performance of all obligations of each other TW Party
to be paid and/or performed under this Agreement.
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In Witness Whereof, the parties hereto have caused this Amended and Restated
LMC Agreement to be duly executed and delivered as of the day and year first
above written.
Time Warner Inc.
By: /s/ Peter R. Haje
-----------------------------
Name: Peter R. Haje
Title: Executive Vice President
TW Inc.
By: /s/ Thomas W. McEnerney
-----------------------------
Name: Thomas W. McEnerney
Title: Vice President
Liberty Media Corporation
By: /s/ Robert R. Bennett
-----------------------------
Name: Robert R. Bennett
Title: Executive Vice President
Subsidiaries of LMC Parent:
TCI Turner Preferred, Inc.
By: /s/ Robert R. Bennett
-----------------------------
Name: Robert R. Bennett
Title: Executive Vice President
Communication Capital Corp.
By: /s/ Robert R. Bennett
-----------------------------
Name: Robert R. Bennett
With respect to Sections 2.1(c), 2.2, 3.1(c) and 4.1 only:
Title: Executive Vice President
Tele-Communications, Inc.
By: /s/ Stephen M. Brett
---------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
With respect to Section 2.1(c) only:
TCI Communications, Inc.
By: /s/ Stephen M. Brett United Cable Turner Investment Inc.
---------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
By: /s/ Robert R. Bennett
-----------------------------
Time TBS Holdings, Inc. Name: Robert R. Bennett
Title: Executive Vice President
By: /s/ Thomas W. McEnerney
---------------------------------
Name: Thomas W. McEnerney
Title: Vice President
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<PAGE>
APPENDIX A-3
SHAREHOLDERS' AGREEMENT dated as of September 22, 1995,
among Time Warner Inc., a Delaware corporation
("Parent"), R. E. Turner, III, an individual (the
"Principal Shareholder"), and certain associates and
affiliates of the Principal Shareholder listed on the
signature pages hereto (collectively with the Principal
Shareholder, the "Shareholders").
Parent, Time Warner Acquisition Corp. ("Sub"), a Delaware corporation and a
wholly owned subsidiary of Parent, and Turner Broadcasting System, Inc. (the
"Company"), a Georgia corporation, are entering into an Agreement and Plan of
Merger dated as of the date hereof (as amended from time to time pursuant to
Section 1.01 thereof, the "Merger Agreement"). The Merger (as defined in the
Merger Agreement) is subject to certain conditions, including the approval of
the Merger and the approval and adoption of the Merger Agreement: by the
holders of a majority of the outstanding shares of Class C Convertible
Preferred Stock, par value $.125 per share, of the Company (the "Class C
Preferred Stock"), voting as a separate class; by the holders of a majority of
the voting power of the outstanding shares of Class A Common Stock, par value
$.0625 per share, of the Company (the "Class A Common Stock"), and Class B
Common Stock, par value $.0625 per share, of the Company (the "Class B Common
Stock"; together with the Class A Common Stock, the "Common Stock"), voting as
a single class; and by the holders of a majority of the voting power of the
outstanding shares of Common Stock and Class C Preferred Stock, voting as a
single class.
Each Shareholder is the record and beneficial owner of the shares of Class A
Common Stock and Class B Common Stock (such shares of Class A Common Stock and
Class B Common Stock, together with any shares of capital stock of the Company
acquired by such Shareholder after the date hereof and during the term of this
Agreement, being collectively referred to herein as the "Shareholder Shares"
of such Shareholder) set forth opposite such Shareholder's name on Schedule I
hereto.
As a condition to the willingness of Parent to enter into the Merger
Agreement, and as an inducement to it to do so, each Shareholder has agreed
for the benefit of Parent as set forth in this Agreement.
Now, Therefore, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereby agree
as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. Capitalized terms used but not defined herein,
and the terms "affiliate", "person" and "subsidiary", shall have the meanings
assigned to such terms in the Merger Agreement.
ARTICLE II
Covenants of the Shareholders
Section 2.01. Agreement to Vote. At any meeting of the shareholders of the
Company held prior to the Termination Date (as defined in Section 5.04),
however called, and at every adjournment thereof prior to the Termination
Date, or in connection with any written consent of the shareholders of the
Company given prior to the Termination Date, each Shareholder shall, and the
Principal Shareholder shall cause any Shareholder that is his controlled
affiliate to, vote the Shareholder Shares (and each class thereof) of such
Shareholder that such Shareholder is entitled to vote, (a) in favor of the
approval of the Merger and each of the other transactions contemplated by the
Merger Agreement and in favor of the approval and adoption of the Merger
Agreement, and any actions required in furtherance hereof and thereof; (b)
against any action or agreement that would,
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directly or indirectly, result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement of
the Company under the Merger Agreement; and (c) against any takeover proposal
(as defined in the Merger Agreement) or any other action or agreement that,
directly or indirectly, is inconsistent with or that is reasonably likely,
directly or indirectly, to impede, interfere with, delay, postpone or attempt
to discourage the Merger or any other transaction contemplated by the Merger
Agreement. None of the Shareholders shall, nor shall the Principal Shareholder
permit any Shareholder that is a controlled affiliate of the Principal
Shareholder to, enter into any agreement or understanding with any person
prior to the Termination Date, directly or indirectly, to vote, grant any
proxy or give instructions with respect to the voting of the Shareholder
Shares of such Shareholder in any manner inconsistent with the preceding
sentence.
Section 2.02. Proxies and Voting Agreements. (a) Each Shareholder hereby
revokes any and all previous proxies granted with respect to matters set forth
in Section 2.01 for the Shareholder Shares of such Shareholder.
(b) Prior to the Termination Date, none of the Shareholders shall, nor shall
the Principal Shareholder permit any Shareholder that is a controlled
affiliate of the Principal Shareholder to, directly or indirectly, except as
contemplated hereby, grant any proxies or powers of attorney with respect to
matters set forth in Section 2.01, deposit any of the Shareholder Shares owned
by such Shareholder into a voting trust or enter into a voting agreement with
respect to any of the Shareholder Shares, in each case with respect to such
matters.
Section 2.03. Transfer of Shareholder Shares by any Shareholder. Prior to
the Termination Date, none of the Shareholders shall, nor shall the Principal
Shareholder permit any Shareholder that is a controlled affiliate of the
Principal Shareholder to, (a) place any Encumbrance (as defined in the
Shareholders' Agreement (as defined in Section 3.01)) on any Shareholder
Shares of such Shareholder, other than pursuant to this Agreement, or (b) make
any Disposition (as defined in the Shareholders' Agreement) of any Shareholder
Shares owned by such Shareholder, other than a disposition by operation of law
in connection with the Merger, if, in the case of this clause (b), the effect
thereof would be to create a Prohibited Effect (as defined in the
Shareholders' Agreement), determined as if The Turner Foundation, Inc., and
the Robert E. Turner Charitable Remainder Unitrust No. 2 (collectively, the
"Specified Holders") did not own any shares of Company Capital Stock.
Section 2.04. Dissenters' Rights. None of the Shareholders shall, nor shall
the Principal Shareholder permit any Shareholder that is a controlled
affiliate of the Principal Shareholder to, give notice pursuant to Section
1321 of the Georgia BCC of such Shareholder's intent to demand payment for any
shares of Company Capital Stock, or take any other action to exercise
dissenters' rights under Article 13 of the Georgia BCC, if the Merger is
effectuated.
ARTICLE III
Representations, Warranties and Additional Covenants of the Shareholders
Each Shareholder represents, warrants and covenants to Parent, as to himself
or itself and, in the case of the Principal Shareholder, as to each other
Shareholder, that:
Section 3.01. Ownership. Such Shareholder is as of the date hereof the
beneficial and record owner of the Shareholder Shares set forth opposite the
name of such Shareholder on Schedule I hereto, such Shareholder has the sole
right to vote such Shareholder Shares and there are no restrictions on rights
of disposition or other Liens pertaining to such Shareholder Shares other than
the Shareholders' Agreement dated as of June 3, 1987, as amended by the First
Amendment dated as of April 15, 1988, among the Company, the Principal
Shareholder and the original holders of the Series C Preferred Stock (the
"Shareholders' Agreement"). None of the Shareholder Shares of such Shareholder
is subject to any voting trust or other agreement, arrangement or restriction
with respect to the voting of such Shareholder Shares, other than the
Shareholders' Agreement.
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Section 3.02. Authority and Non-Contravention. The Principal Shareholder has
the right, power and authority, and each other Shareholder has the corporate
power and authority (in the case of a Shareholder that is a corporation), and
in each case such Shareholder has been duly authorized by all necessary action
(including consultation, approval or other action by or with any other
person), to execute, deliver and perform this Agreement and consummate the
transactions contemplated hereby. Such actions by such Shareholder (a) require
no action by or in respect of, or filing with, any Governmental Entity with
respect to such Shareholder, other than any required filings under Section 13
of the Exchange Act, and (b) do not and will not contravene or constitute a
default under, or give rise to a right of termination, cancellation or
acceleration of any right or obligation of such Shareholder or to a loss of
any benefit of such Shareholder under, any provision of applicable law or
regulation or any agreement (including the Shareholders' Agreement), judgment,
injunction, order, decree or other instrument binding on such Shareholder or
result in the imposition of any Lien on any asset of such Shareholder or any
of its affiliates (other than as provided in this Agreement with respect to
Shareholder Shares).
Section 3.03. Binding Effect. This Agreement has been duly executed and
delivered by such Shareholder and is the valid and binding agreement of such
Shareholder, enforceable against such Shareholder in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights generally and
by equitable principles to which the remedies of specific performance and
injunctive and similar forms of relief are subject.
Section 3.04. Total Shares. The Shareholder Shares listed in Schedule I
hereto opposite the name of such Shareholder and, in the case of the Principal
Shareholder, opposite the name of the other Shareholders listed therein, are
the only shares of capital stock of the Company owned beneficially or of
record as of the date hereof by such Shareholder, and such Shareholder does
not have any option to purchase or right to subscribe for or otherwise acquire
any securities of the Company and has no other interest in or voting rights
with respect to any other securities of the Company.
Section 3.05. Finder's Fees. No investment banker, broker or finder is
entitled to a commission or fee from the Company, Parent or Sub in respect of
this Agreement based upon any arrangement or agreement made by or on behalf of
such Shareholder, except as otherwise provided in the Merger Agreement or the
Company Disclosure Letter.
Section 3.06. Reasonable Efforts. (a) Prior to the Termination Date, the
Principal Shareholder shall use reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and
cooperate with Parent in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by the Merger Agreement and
this Agreement, including (i) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and the
making of all necessary registrations and filings (including any necessary
filings under the HSR Act relating to the acquisition of the Company or
relating to the acquisition of Parent Common Stock in the Merger and all other
necessary filings with Governmental Entities, if any) and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from, or
to avoid an action or proceeding by, any Governmental Entity, (ii) the
obtaining of all necessary consents, approvals or waivers from third parties,
(iii) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging the Merger Agreement or this Agreement
or the consummation of any of the transactions contemplated by the Merger
Agreement and this Agreement, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated or
reversed, and (iv) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry
out the purposes of, the Merger Agreement and this Agreement.
(b) On or prior to the Closing Date, each Shareholder shall execute and
deliver to Parent the Investors' Agreement in the form attached as Exhibit C-1
to the Merger Agreement.
Section 3.07. Certain Payments. (a) If the Merger Agreement is terminated
pursuant to Section 7.01(e) of the Merger Agreement, each Shareholder shall
pay to Parent an amount equal to all profit (determined in
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<PAGE>
accordance with Section 3.07(b)) of such Shareholder from the consummation of
any takeover proposal (i) that is consummated within 18 months of such
termination or (ii) with respect to which a definitive agreement is executed
within 18 months of such termination. Such payment shall be made by each
Shareholder (A) within three business days of the receipt of any cash
consideration under such takeover proposal, in an amount equal to the lesser
of the profit of such Shareholder and the aggregate consideration under such
takeover proposal paid to such Shareholder in cash; (B) within three business
days after receipt by such Shareholder of cash proceeds from the sale of any
non-cash consideration in the form of securities received on consummation of
such takeover proposal, but in any event within 30 days of such consummation,
the lesser of the remaining profit of such Shareholder and such cash proceeds;
provided, however, that if such securities have not been sold by such
Shareholder at the end of such 30-day period, such Shareholder shall transfer
to Parent (x) an amount of such securities with a fair market value on the
date of transfer equal to the remaining profit of such Shareholder (or if the
fair market value of all such unsold securities is less than such remaining
profit, all such unsold securities) or (y) at the option of such Shareholder,
cash in an amount equal to such remaining profit; and (C) within three
business days after receipt by such Shareholder of cash proceeds from the sale
of any other non-cash consideration received on consummation of such takeover
proposal, but in any event within six months of such consummation, cash in an
amount equal to the remaining profit of such Shareholder. Each Shareholder
shall use all reasonable efforts to sell, within 30 days of such consummation,
a portion of such other non-cash consideration sufficient to provide cash with
which to pay over any profit of such Shareholder that remains unpaid following
the application of amounts under clauses (A) and (B) above.
(b) The profit of any Shareholder, for the purposes of Section 3.07(a), from
any takeover proposal shall equal (i) the aggregate consideration received by
such Shareholder pursuant to such takeover proposal, valuing any non-cash
consideration (including any residual interest in the Company) at its fair
market value on the date of such consummation, plus (ii) the fair market
value, on the date of disposition, of all Shareholder Shares of such
Shareholder disposed of after the termination of the Merger Agreement and
prior to the date of such consummation less (iii) the aggregate consideration
that would have been issuable or payable to such Shareholder in the Merger,
valuing each share of Parent Common Stock at the average of the closing price
per share of Parent Common Stock, as reported on the NYSE Composite Tape, for
the five trading days ending on the trading day prior to the first public
announcement by the Company of its intention to terminate the Merger Agreement
to pursue a takeover proposal, if the Merger had been consummated on the date
of such public announcement. For the purpose of determining the "profit" of
the Principal Shareholder, there shall be included an amount equal to the
profit that would have been realized by the Specified Holders had they both
been Shareholders and been subject to this Section 3.07.
(c) Any payment of profit under this Section 3.07 shall (i) if paid in cash,
be paid by wire transfer of same day funds to an account designated by Parent
and (ii) if paid through the transfer of securities, be paid through the
delivery of such securities, suitably endorsed for transfer, to Parent at its
address set forth in Section 5.08.
ARTICLE IV
Representations, Warranties and Covenants of Parent
Parent represents, warrants and covenants to each Shareholder that:
Section 4.01. Corporate Power and Authority. Parent has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution, delivery and performance by Parent of
this Agreement and the consummation by Parent of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Parent.
Section 4.02. Binding Effect. This Agreement has been duly executed and
delivered by Parent and is a valid and binding agreement of Parent,
enforceable against Parent in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, moratorium or other similar laws
relating to creditors'
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rights generally and by equitable principles to which the remedies of specific
performance and injunctive and similar forms of relief are subject.
Section 4.03. Investors' Agreement. On or prior to the Closing Date, Parent
shall execute and deliver to each Shareholder the Investors' Agreement in the
form attached as Exhibit C-1 to the Merger Agreement.
ARTICLE V
Miscellaneous
Section 5.01. Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
Section 5.02. Further Assurances. From time to time, at the request of
Parent, in the case of a Shareholder, or at the request of a Shareholder, in
the case of Parent, and without further consideration, each party shall
execute and deliver or cause to be executed and delivered such additional
documents and instruments and take all such further action as may be necessary
or desirable to consummate the transactions contemplated by this Agreement.
Section 5.03. Specific Performance. Each Shareholder agrees that Parent
would be irreparably damaged if for any reason such Shareholder fails to
perform any of such Shareholder's obligations under this Agreement, and that
Parent would not have an adequate remedy at law for money damages in such
event. Accordingly, Parent shall be entitled to seek specific performance and
injunctive and other equitable relief to enforce the performance of this
Agreement by such Shareholder. This provision is without prejudice to any
other rights that Parent may have against such Shareholder for any failure to
perform its obligations under this Agreement.
Section 5.04. Amendments; Termination. This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties hereto. The representations,
warranties, covenants and agreements set forth in Article II and Sections 3.01
and 3.06 and Article IV shall terminate, except with respect to liability for
prior breaches thereof, upon the termination of the Merger Agreement in
accordance with its terms or, if earlier, the Effective Time of the Merger
(the "Termination Date").
Section 5.05. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective estates, heirs, successors and permitted assigns; provided,
however, that a party may not assign, delegate or otherwise transfer any of
such party's rights or obligations under this Agreement without the consent of
the other parties hereto and any purported assignment, delegation or transfer
without such consent shall be null and void.
Section 5.06. Certain Events. Each Shareholder agrees that this Agreement
and the obligations hereunder shall attach to the Shareholder Shares
beneficially owned by such Shareholder and shall be binding upon any person to
which legal or beneficial ownership of such shares shall pass, whether by
operation of law or otherwise.
Section 5.07. Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof.
Section 5.08. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given (i) on
the first business day following the date received, if delivered personally or
by telecopy (with telephonic confirmation of receipt by the addressee), (ii)
on the business day following timely deposit with an overnight courier
service, if sent by overnight courier specifying next day delivery and (iii)
on the first business day that is at least five days following deposit in the
mails, if sent by first
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class mail, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to Parent, to:
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Facsimile: (212) 956-7281
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Facsimile: (212) 474-3700
Attention: Peter S. Wilson, Esq.
If to any Shareholder, to:
R.E. Turner, III
c/o Turner Broadcasting System, Inc.
One CNN Center
Box 105366
Atlanta, GA 30348-5366
Facsimile: (404) 827-3000
For Courier delivery:
100 International Boulevard
Atlanta, GA 30303
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, CA 90071
Facsimile: (213) 687-5600
Attention: Thomas C. Janson, Jr., Esq.
Section 5.09. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware.
Section 5.10. Counterparts; Effectiveness. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement, and, as to any Shareholder, shall become effective when two or more
counterparts have been signed by each of such Shareholder and Parent and
delivered to the other.
Section 5.11. Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
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Section 5.12. Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid but if any provision or portion of any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision, and this Agreement will be reformed, construed
and enforced as if such invalid, illegal or unenforceable provision or portion
of any provision had never been contained herein. The parties shall endeavor
in good faith negotiations to replace any invalid, illegal or unenforceable
provision with a valid provision the effects of which come as close as
possible to those of such invalid, illegal or unenforceable provision.
Section 5.13. Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements, in addition to any other relief to which such party may be
entitled.
In Witness Whereof, Parent and the Shareholders have caused this Agreement
to be duly executed as of the day and year first above written.
Time Warner Inc.,
By /s/ Gerald M. Levin
----------------------------------
Name: Gerald M. Levin
Title: Chairman and CEO
/s/ R. E. Turner
-------------------------------------
R. E. Turner
Turner Outdoor, Inc.,
By /s/ R. E. Turner
----------------------------------
Name: R. E. Turner
Title: Chairman, President and CEO
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APPENDIX B-1
RESTATED CERTIFICATE OF INCORPORATION
OF
TW INC.
TW Inc., a corporation organized and existing under the laws of the State of
Delaware, Does Hereby Certify as Follows:
1. The name of the corporation is TW Inc. and the name under which the
corporation was originally incorporated is TPS Acquisition Inc. The
original Certificate of Incorporation was filed with the Secretary of State
of the State of Delaware on June 12, 1989.
2. This Restated Certificate of Incorporation, having been duly adopted
in accordance with Sections 228, 242 and 245 of the General Corporation Law
of the State of Delaware and by the written consent of the sole stockholder
of TW Inc., restates and integrates and further amends the provisions of
the Certificate of Incorporation as amended or supplemented heretofore. As
so restated and integrated and further amended, the Restated Certificate of
Incorporation (hereinafter, this "Certificate of Incorporation") reads as
follows:
ARTICLE I
The name of the corporation (hereinafter called the "Corporation") is TW
INC.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 32 Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19901. The
name of the Corporation's registered agent at such address is The Prentice-
Hall Corporation System, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
ARTICLE IV
Section 1. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 2.510 billion shares, consisting
of (1) 250 million shares of Preferred Stock, par value $0.10 per share
("Common Stock"), (2) 2.0 billion shares of Common Stock, par value $0.01 per
share ("Common Stock"), and (3) 60 million shares of Series Common Stock, par
value $0.01 per share ("Series Common Stock"). The number of authorized shares
of any of the Preferred Stock, the Common Stock or the Series Common Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority in voting
power of the stock of the Corporation entitled to vote thereon irrespective of
the provisions of Section 242(b)(2) of the General Corporation Law of the
State of Delaware (or any successor provision thereto), and no vote of the
holders of any of the Preferred Stock, the Common Stock or the Series Common
Stock voting separately as a class shall be required therefor.
Section 2. The Board of Directors is hereby expressly authorized, by
resolution or resolutions, to provide, out of the unissued shares of Preferred
Stock, for series of Preferred Stock and, with respect to each such series, to
fix the number of shares constituting such series and the designation of such
series, the voting powers (if any) of the shares of such series, and the
preferences and relative, participating, optional or other special rights, if
any, and any qualifications, limitations or restrictions thereof, of the
shares of such series. The powers, preferences and relative, participating,
optional and other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
<PAGE>
Section 3. The Board of Directors is hereby expressly authorized, by
resolution or resolutions, to provide, out of the unissued shares of Series
Common Stock, for series of Series Common Stock and, with respect to each such
series, to fix the number of shares constituting such series and the
designation of such series, the voting powers (if any) of the shares of such
series, and the preferences and relative, participating, optional or other
special rights, if any, and any qualifications, limitations or restrictions
thereof, of the shares of such series. The powers, preferences and relative,
participating, optional and other special rights of each series of Series
Common Stock, and the qualifications, limitations or restrictions thereof, if
any, may differ from those of any and all other series at any time
outstanding.
Section 4. (a) Each holder of Common Stock, as such, shall be entitled to
one vote for each share of Common Stock held of record by such holder on all
matters on which stockholders generally are entitled to vote; provided,
however, that, except as otherwise required by law, holders of Common Stock,
as such, shall not be entitled to vote on any amendment to this Certificate of
Incorporation (including any Certificate of Designation relating to any series
of Preferred Stock or Series Common Stock) that relates solely to the terms of
one or more outstanding series of Preferred Stock or Series Common Stock if
the holders of such affected series are entitled, either separately or
together with the holders of one or more other such series, to vote thereon
pursuant to this Certificate of Incorporation (including any Certificate of
Designation relating to any series of Preferred Stock or Series Common Stock)
or pursuant to the General Corporation Law of the State of Delaware.
(b) Except as otherwise required by law, holders of a series of Preferred
Stock or Series Common Stock, as such, shall be entitled only to such voting
rights, if any, as shall expressly be granted thereto by this Certificate of
Incorporation (including any Certificate of Designation relating to such
series).
(c) Subject to applicable law and the rights, if any, of the holders of any
outstanding series of Preferred Stock or Series Common Stock or any class or
series of stock having a preference over or the right to participate with the
Common Stock with respect to the payment of dividends, dividends may be
declared and paid on the Common Stock at such times and in such amounts as the
Board of Directors in its discretion shall determine.
(d) Upon the dissolution, liquidation or winding up of the Corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock or Series Common Stock or any class or series of stock having
a preference over or the right to participate with the Common Stock with
respect to the distribution of assets of the Corporation upon such
dissolution, liquidation or winding up of the Corporation, the holders of the
Common Stock, as such, shall be entitled to receive the assets of the
Corporation available for distribution to its stockholders ratably in
proportion to the number of shares held by them.
Section 5. Notwithstanding any other provision of this Certificate of
Incorporation to the contrary, but subject to the provisions of any resolution
or resolutions of the Board of Directors adopted pursuant to this Article IV
creating (i) any series of Preferred Stock, (ii) any series of any other class
or series of stock having a preference over the Common Stock as to dividends
or upon liquidation or (iii) any series of Series Common Stock, outstanding
shares of Common Stock, Series Common Stock, Preferred Stock or any other
class or series of stock of the Corporation shall always be subject to
redemption by the Corporation, by action of the Board of Directors, if in the
judgment of the Board of Directors such action should be taken, pursuant to
Section 151(b) of the General Corporation Law of the State of Delaware (or by
any other applicable provision of law), to the extent necessary to prevent the
loss or secure the reinstatement of any license or franchise from any
governmental agency held by the Corporation or any Subsidiary to conduct any
portion of the business of the Corporation or such Subsidiary, which license
or franchise is conditioned upon some or all of the holders of the
Corporation's stock of any class or series possessing prescribed
qualifications. The terms and conditions of such redemption shall be as
follows:
(a) the redemption price of the shares to be redeemed pursuant to this
Section 5 shall be equal to the Fair Market Value of such shares;
(b) the redemption price of such shares may be paid in cash, Redemption
Securities or any combination thereof;
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(c) if less than all the shares held by Disqualified Holders are to be
redeemed, the shares to be redeemed shall be selected in such manner as shall
be determined by the Board of Directors, which may include selection first of
the most recently purchased shares thereof, selection by lot or selection in
any other manner determined by the Board of Directors;
(d) at least 30 days' written notice of the Redemption Date shall be given
to the record holders of the shares selected to be redeemed (unless waived in
writing by such holder), provided that the Redemption Date may be the date on
which written notice shall be given to record holders if the cash or
Redemption Securities necessary to effect the redemption shall have been
deposited in trust for the benefit of such record holders and subject to
immediate withdrawal by them upon surrender of the stock certificates for
their shares to be redeemed;
(e) from and after the Redemption Date, any and all rights of whatever
nature, which may be held by the owners of shares selected for redemption
(including without limitation any rights to vote or participate in dividends
declared on stock of the same class or series as such shares), shall cease and
terminate and they shall thenceforth be entitled only to receive the cash or
Redemption Securities payable upon redemption; and
(f) such other terms and conditions as the Board shall determine.
For purposes of this Section 5:
(i) "Disqualified Holder" shall mean any holder of shares of stock of the
Corporation of any class or series whose holding of such stock may result
in the loss of any license or franchise from any governmental agency held
by the Corporation or any Subsidiary to conduct any portion of the business
of the Corporation or any Subsidiary.
(ii) "Fair Market Value" of a share of the Corporation's stock of any
class or series shall mean the average (unweighted) Closing Price for such
a share for each of the 45 most recent days on which shares of stock of
such class or series shall have been traded preceding the day on which
notice of redemption shall be given pursuant to paragraph (d) of this
Section 5; provided, however, that if shares of stock of such class or
series are not traded on any securities exchange or in the over-the-counter
market, "Fair Market Value" shall be determined by the Board of Directors
in good faith; and provided further, however, that "Fair Market Value" as
to any stockholder who purchased his stock within 120 days of a Redemption
Date need not (unless otherwise determined by the Board of Directors)
exceed the purchase price paid by him. "Closing Price" on any day means the
reported last sales price regular way or, in case no such sale takes place,
the average of the reported closing bid and asked prices regular way on the
New York Stock Exchange Composite Tape, or, if stock of the class or series
in question is not quoted on such Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such exchange, on the
principal United States registered securities exchange on which such stock
is listed, or, if such stock is not listed on any such exchange, the
highest closing sales price or bid quotation for such stock on the NASDAQ
Stock Market or any system then in use, or if no such prices or quotations
are available, the fair market value on the day in question as determined
by the Board of Directors in good faith.
(iii) "Redemption Date" shall mean the date fixed by the Board of
Directors for the redemption of any shares of stock of the Corporation
pursuant to this Section 5.
(iv) "Redemption Securities" shall mean any debt or equity securities of
the Corporation, any Subsidiary or any other corporation, or any
combination thereof, having such terms and conditions as shall be approved
by the Board of Directors and which, together with any cash to be paid as
part of the redemption price, in the opinion of any nationally recognized
investment banking firm selected by the Board of Directors (which may be a
firm which provides other investment banking, brokerage or other services
to the Corporation), has a value, at the time notice of redemption is given
pursuant to paragraph (d) of this Section 5, at least equal to the Fair
Market Value of the shares to be redeemed pursuant to this Section 5
(assuming, in the case of Redemption Securities to be publicly traded, such
Redemption Securities were fully distributed and subject only to normal
trading activity).
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(v) "Subsidiary" shall mean any corporation more than 50% of whose
outstanding stock having ordinary voting power in the election of directors
is owned by the Corporation, by a Subsidiary or by the Corporation and one
or more Subsidiaries.
ARTICLE V
Subject to Section 253 of the General Corporation Law of the State of
Delaware, the vote of stockholders of the Corporation required to approve
Business Combinations (as hereinafter defined) shall be as set forth in this
Article V.
Section 1. In addition to any affirmative vote required by law or by this
Certificate of Incorporation or any resolution or resolutions of the Board of
Directors adopted pursuant to Article IV of this Certificate of Incorporation,
and except as otherwise expressly provided in Section 3 of this Article V:
(a) any merger or consolidation of the Corporation with (i) any Interested
Stockholder or (ii) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be, an
Affiliate or Associate of an Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder of (i) all or substantially all the assets of the Corporation or
(ii) assets of the Corporation or any of its Subsidiaries representing in the
aggregate more than 75% of the total value of the assets of the Corporation
and its consolidated Subsidiaries as reflected on the most recent consolidated
balance sheet of the Corporation and its consolidated Subsidiaries prepared in
accordance with generally accepted accounting principles then in effect; or
(c) (i) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder of any assets of the Corporation or of any Subsidiary having an
aggregate Fair Market Value of $100,000,000 or more, but less than the amount
referred to in clause (ii) of paragraph (b) of this Section 1, or (ii) any
merger or consolidation of any Subsidiary of the Corporation having assets
with an aggregate Fair Market Value of $100,000,000 or more in a transaction
not covered by paragraph (b) of this Section 1 with (x) any Interested
Stockholder or (y) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be, an
Affiliate or Associate of an Interested Stockholder; or
(d) the issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of transactions) to any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder of any securities of the
Corporation or any Subsidiary in exchange for cash, securities or other
property (or a combination thereof) having an aggregate Fair Market Value of
$100,000,000 or more, other than the issuance of securities upon the
conversion of convertible securities of the Corporation or any Subsidiary
which were not acquired by such Interested Stockholder (or such Affiliate or
Associate) from the Corporation or a Subsidiary; or
(e) the adoption of any plan or proposal for the liquidation or dissolution
of the Corporation proposed by or on behalf of any Interested Stockholder or
any Affiliate or Associate of any Interested Stockholder; or
(f) any reclassification of securities (including any reverse stock split)
or recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries, or any other transaction (whether or
not with or into or otherwise involving any Interested Stockholder), which in
any such case has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class or series of stock
or securities convertible into stock of the Corporation or any Subsidiary
which is directly or indirectly beneficially owned by any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder;
shall not be consummated without (i) (x) the affirmative vote of the holders
of at least 80% of the combined voting power of the shares of stock of all
classes and series of the Corporation entitled to vote generally in the
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election of directors ("Voting Stock") outstanding at the time of approval and
(y) the affirmative vote of a majority of the combined voting power of the
shares of Voting Stock held by Disinterested Stockholders outstanding at the
time of approval, in each case voting together as a single class, or (ii) the
affirmative vote of the holders of all the shares of stock of all classes and
series of the Corporation outstanding at the time of approval. Such
affirmative vote shall be required notwithstanding the fact that no vote may
be required, or that a lesser percentage may be specified, by law or by this
Certificate of Incorporation or any resolution or resolutions of the Board of
Directors adopted pursuant to Article IV of this Certificate of Incorporation
or in any agreement with any national securities exchange or otherwise.
Section 2. The term "Business Combination" as used in this Article V shall
mean any transaction which is referred to in any one or more of paragraphs (a)
through (f) of Section 1 of this Article V.
Section 3. The provisions of Section 1 of this Article V shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by law and
any other provision of this Certificate of Incorporation and any resolution or
resolutions of the Board of Directors adopted pursuant to Article IV of this
Certificate of Incorporation, if all the conditions specified in any of the
following paragraphs (a), (b), (c) or (d) are met:
(a) (i) such Business Combination shall have been approved by a majority
of the Disinterested Directors and (ii) the Interested Stockholder involved
in such Business Combination (x) acquired such status as an Interested
Stockholder in a manner substantially consistent with an agreement or
memorandum of understanding approved by the Board of Directors prior to the
time such Interested Stockholder became an Interested Stockholder and (y)
has complied with all requirements imposed by such agreement or memorandum
of understanding; or
(b) in the case of any Business Combination described in paragraph (a) or
(f) of Section 1 of this Article V, (i) such Business Combination shall
have been approved by a majority of the Disinterested Directors, (ii) such
Business Combination shall not have resulted, directly or indirectly, in an
increase of more than 10% in the total amount of shares of any class or
series of stock or securities convertible into stock of the Corporation or
any Subsidiary which was directly or indirectly beneficially owned by an
Interested Stockholder and all Affiliates and Associates of such Interested
Stockholder at the time of the approval of such Business Combination by a
majority of the Disinterested Directors, and (iii) such Business
Combination shall not have been consummated within a period of two years
after the consummation of any other Business Combination described in
paragraph (a), (b), (c), (d), (e) or (f) of Section 1 of this Article V
(whether or not such other Business Combination shall have been approved by
a majority of the Disinterested Directors) which had the effect, directly
or indirectly, of increasing the proportionate share of the outstanding
shares of any class or series of stock or securities convertible into stock
of the Corporation or any Subsidiary which was directly or indirectly
beneficially owned by such Interested Stockholder or any Affiliate or
Associate of such Interested Stockholder; or
(c) in the case of any Business Combination described in paragraph (c) or
(d) of Section 1 of this Article V, such Business Combination shall have
been approved by a majority of the Disinterested Directors; or
(d) all of the six conditions specified in the following clauses (i)
through (vi) shall have been met:
(i) The transaction constituting the Business Combination shall provide
for a consideration to be received by holders of Common Stock in exchange
for all their shares of Common Stock, and the aggregate amount of the cash
and the Fair Market Value as of the date of the consummation of the
Business Combination of any consideration other than cash to be received
per share by holders of Common Stock in such Business Combination shall be
at least equal to the highest of the following:
(A) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fee) paid
in order to acquire any shares of Common Stock beneficially owned by
the Interested Stockholder which were acquired (i) within the two-year
period immediately
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prior to the Announcement Date or (ii) in the transaction in which it
became an Interested Stockholder, whichever is higher; and
(B) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date, whichever is higher;
and
(ii) if the transaction constituting the Business Combination shall
provide for a consideration to be received by holders of any class or
series of outstanding Voting Stock other than Common Stock, the aggregate
amount of the cash and the Fair Market Value as of the date of the
consummation of the Business Combination of any consideration other than
cash to be received per share by holders of shares of such Voting Stock
shall be at least equal to the highest of the following (it being intended
that the requirements of this clause (d) (ii) shall be required to be met
with respect to every class and series of such outstanding Voting Stock,
whether or not the Interested Stockholder beneficially owns any shares of a
particular class or series of Voting Stock):
(A) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid in order to acquire any shares of such class or series of Voting
Stock beneficially owned by the Interested Stockholder which were
acquired (i) within the two-year period immediately prior to the
Announcement Date or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher;
(B) (if applicable) the highest preferential amount per share to
which the holders of shares of such class or series of Voting Stock are
entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and
(C) the Fair Market Value per share of such class or series of Voting
Stock on the Announcement Date or on the Determination Date, whichever
is higher; and
(iii) the consideration to be received by holders of a particular class
or series of outstanding Voting Stock (including Common Stock) shall be in
cash or in the same form as was previously paid in order to acquire shares
of such class or series of Voting Stock which are beneficially owned by the
Interested Stockholder and, if the Interested Stockholder beneficially owns
shares of any class or series of Voting Stock which were acquired with
varying forms of consideration, the form of consideration to be received by
holders of such class or series of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class or series
of Voting Stock beneficially owned by it; and
(iv) after such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination:
(A) except as approved by a majority of the Disinterested Directors,
there shall have been no failure to declare and pay at the regular
dates therefor the full amount of any dividends (whether or not
cumulative) payable on the Preferred Stock or any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation;
(B) there shall have been (x) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a majority of
the Disinterested Directors, and (y) an increase in such annual rate of
dividends (as necessary to prevent any such reduction) in the event of
any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has
the effect of reducing the number of outstanding shares of the Common
Stock, unless the failure so to increase such annual rate is approved
by a majority of the Disinterested Directors; and
(C) such Interested Stockholder shall not have become the beneficial
owner of any additional shares of Voting Stock except as part of the
transaction in which it became an Interested Stockholder; and
(v) after such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
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<PAGE>
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance provided by the Corporation, whether in anticipation
of or in connection with such Business Combination or otherwise; and
(vi) a proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange
Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to
public stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
Section 4. For the purposes of this Article V:
(a) A "person" shall mean any individual, firm, corporation, partnership,
trust or other entity.
(b) "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(1) is the beneficial owner, directly or indirectly, of 20% or more of
the combined voting power of the then outstanding shares of Voting Stock;
or
(2) is an Affiliate of the Corporation and at any time within the two-
year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 20% or more of the combined voting power
of the then outstanding shares of Voting Stock; or
(3) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially
owned by any Interested Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933.
(c) "Disinterested Stockholder" shall mean a stockholder of the Corporation
who is not an Interested Stockholder or an Affiliate or an Associate of an
Interested Stockholder.
(d) A person shall be a "beneficial owner" of any Voting Stock:
(1) which such person or any of its Affiliates or Associates beneficially
owns, directly or indirectly; or
(2) which such person or any of its Affiliates or Associates has (a) the
right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise (excluding pursuant to any rights
associated generally with the Common Stock), or (b) the right to vote or to
direct the vote pursuant to any agreement, arrangement or understanding; or
(3) which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
(e) For the purposes of determining whether a person is an Interested
Stockholder pursuant to paragraph (b) of this Section 4, the number of shares
of Voting Stock deemed to be outstanding shall include shares deemed owned by
such person through application of paragraph (d) of this Section 4 but shall
not include any other shares of Voting Stock which may be issuable to other
persons pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, exchange rights, warrants or options, or
otherwise.
(f) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on January 1, 1983.
(g) "Subsidiary" shall have the meaning set forth in Section 5 of Article IV
of this Certificate of Incorporation; provided, however, that for the purposes
of the definition of Interested Stockholder set forth in
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paragraph (b) of this Section 4, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned by
the Corporation, by a Subsidiary or by the Corporation and one or more
Subsidiaries.
(h) "Disinterested Director" means any member of the Board of Directors of
the Corporation who is unaffiliated with, and not a nominee of, the Interested
Stockholder and was a member of the Board of Directors prior to the time that
the Interested Stockholder became an Interested Stockholder, and any successor
of a Disinterested Director who is unaffiliated with, and not a nominee of,
the Interested Stockholder and who is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the Board of
Directors.
(i) "Fair Market Value" means: (1) in the case of stock, the highest closing
sale price during the 30-day period immediately preceding the date in question
of a share of such stock on the New York Stock Exchange Composite Tape, or, if
such stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934 on which such stock is listed, or, if such stock is not listed on any
such exchange, the highest closing sales price or bid quotation with respect
to a share of such stock during the 30-day period preceding the date in
question on the NASDAQ Stock Market or any system then in use, or, if no such
quotations are available, the fair market value on the date in question of a
share of such stock as determined by a majority of the Disinterested Directors
in good faith; and (2) in the case of stock of any class or series which is
not traded on any securities exchange or in the over-the-counter market or in
the case of property other than cash or stock, the fair market value of such
stock or property, as the case may be, on the date in question as determined
by a majority of the Disinterested Directors in good faith.
(j) "Announcement Date" means the date of first public announcement of the
proposed Business Combination.
(k) "Determination Date" means the date on which the Interested Stockholder
became an Interested Stockholder.
Section 5. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine, on the basis of information known
to them after reasonable inquiry, all facts necessary to determine compliance
with this Article V, including, without limitation, (a) whether a person is an
Interested Stockholder, (b) the number of shares of Voting Stock beneficially
owned by any person, (c) whether a person is an Affiliate or Associate of
another person, (d) whether the requirements of Section 3 of this Article V
have been met with respect to any Business Combination and (e) whether the
assets which are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of securities by the
Corporation or any Subsidiary in any Business Combination has, (i) an
aggregate Fair Market Value of $100,000,000 or more or (ii) represent in the
aggregate more than 75% of the total value of the assets of the Corporation
and its consolidated Subsidiaries prepared in accordance with generally
accepted accounting principles then in effect; and the good faith
determination of a majority of the Disinterested Directors on such matters
shall be conclusive and binding for all purposes of this Article V.
Section 6. Nothing contained in this Article V shall be construed to relieve
an Interested Stockholder from any fiduciary obligation imposed by law.
ARTICLE VI
Section 1. Except as otherwise fixed by or pursuant to the provisions of
Article IV of this Certificate of Incorporation relating to the rights of the
holders of any series of Preferred Stock or Series Common Stock or any class
or series of stock having a preference over the Common Stock as to dividends
or upon liquidation, the
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number of the directors of the Corporation shall be fixed from time to time by
or pursuant to the By-laws of the Corporation. The directors, other than those
who may be elected by the holders of any series of Preferred Stock or Series
Common Stock or any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation pursuant to the terms of this
Certificate of Incorporation or any resolution or resolutions providing for
the issue of such class or series of stock adopted by the Board of Directors,
shall be classified, with respect to the time for which they severally hold
office, into three classes, as nearly equal in number as possible, one class
to be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1997, another class to be originally elected for a
term expiring at the annual meeting of stockholders to be held in 1998, and
another class to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 1999, with each class to hold office
until its successors are elected and qualified. At each annual meeting of the
stockholders of the Corporation, the date of which shall be fixed by or
pursuant to the By-laws of the Corporation, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the third succeeding annual meeting of stockholders.
The election of directors need not be by written ballot. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
Section 2. Advance notice of nominations for the election of directors shall
be given in the manner and to the extent provided in the By-laws of the
Corporation.
Section 3. Except as otherwise provided for or fixed by or pursuant to the
provisions of Article IV of this Certificate of Incorporation relating to the
rights of the holders of any series of Preferred Stock or Series Common Stock
or any class or series of stock having a preference over the Common Stock as
to dividends or upon liquidation, newly created directorships resulting from
any increase in the number of directors may be filled by the Board of
Directors, or as otherwise provided in the By-laws, and any vacancies on the
Board of Directors resulting from death, resignation, removal or other cause
shall only be filled by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors, or by a sole remaining director, or as otherwise provided in the
By-laws. Any director elected in accordance with the preceding sentence of
this Section 3 shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified.
Section 4. Subject to the rights of the holders of any series of Preferred
Stock or Series Common Stock or any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, any
director may be removed from office only for cause and only by the affirmative
vote of the holders of a majority of the combined voting power of the then
outstanding shares of Voting Stock, voting together as a single class. For
purposes of this Section 4, "cause" shall mean the wilful and continuous
failure of a director to substantially perform such director's duties to the
Corporation (other than any such failure resulting from incapacity due to
physical or mental illness) or the wilful engaging by a director in gross
misconduct materially and demonstrably injurious to the Corporation.
ARTICLE VII
Subject to the rights of the holders of any series of Preferred Stock or
Series Common Stock or any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation, any action required or
permitted to be taken by the stockholders of the Corporation must be effected
at a duly called annual or special meeting of stockholders of the Corporation
and may not be effected by any consent in writing by such stockholders. Except
as otherwise required by law and subject to the rights of the holders of any
series of Preferred Stock or Series Common Stock or any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution approved by a majority
of the entire Board of Directors or as otherwise provided in the By-laws of
the Corporation.
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ARTICLE VIII
In furtherance and not in limitation of the powers conferred upon it by law,
the Board of Directors is expressly authorized to adopt, repeal, alter or
amend the By-laws of the Corporation by the vote of a majority of the entire
Board of Directors. In addition to any requirements of law and any other
provision of this Certificate of Incorporation or any resolution or
resolutions of the Board of Directors adopted pursuant to Article IV of this
Certificate of Incorporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or any
such resolution or resolutions), the affirmative vote of the holders of 80% or
more of the combined voting power of the then outstanding shares of Voting
Stock, voting together as a single class, shall be required for stockholders
to adopt, amend, alter or repeal any provision of the By-laws.
ARTICLE IX
In addition to any requirements of law and any other provisions of this
Certificate of Incorporation or any resolution or resolutions of the Board of
Directors adopted pursuant to Article IV of this Certificate of Incorporation
(and notwithstanding the fact that a lesser percentage may be specified by
law, this Certificate of Incorporation or any such resolution or resolutions),
the affirmative vote of the holders of 80% or more of the combined voting
power of the then outstanding shares of Voting Stock, voting together as a
single class, shall be required to amend, alter or repeal, or adopt any
provision inconsistent with, this Article IX or Articles V, VI, VII or VIII,
or Section 5 of Article IV, of this Certificate of Incorporation; provided,
however, that the affirmative vote of a majority of the combined voting power
of the then outstanding shares of Voting Stock held by the Disinterested
Stockholders (as defined in Section 4 of Article V of this Certificate of
Incorporation), voting together as a single class, shall also be required to
amend, alter or repeal, or adopt any provision inconsistent with, Article V of
this Certificate of Incorporation or the requirements of this proviso. Subject
to the foregoing provisions of this Article IX, the Corporation reserves the
right to amend, alter or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are subject to this reservation.
ARTICLE X
Section 1. To the fullest extent that the General Corporation Law of the
State of Delaware or any other law of the State of Delaware as it exists or as
it may hereafter be amended permits the limitation or elimination of the
liability of directors, no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. No amendment to or repeal of this Article X shall apply to
or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
Section 2. In addition to any requirements of law and any other provisions
of this Certificate of Incorporation or any resolution or resolutions of the
Board of Directors adopted pursuant to Article IV of this Certificate of
Incorporation (and notwithstanding the fact that a lesser percentage may be
specified by law, this Certificate of Incorporation or any such resolution or
resolutions), the affirmative vote of the holders of 80% or more of the
combined voting power of the then outstanding shares of Voting Stock, voting
together as a single class, shall be required to amend, alter or repeal, or
adopt any provision inconsistent with, this Article X.
B1-10
<PAGE>
In Witness Whereof, I, Gerald M. Levin, Chairman of the Board of Directors,
President and Chief Executive Officer of TW Inc., have executed this Restated
Certificate of Incorporation as of the th day of , 1996, and Do Hereby
Certify under the penalties of perjury that the facts stated in this Restated
Certificate of Incorporation are true.
_____________________________________
Gerald M. Levin
Chairman of the Board of Directors,
President and Chief Executive
Officer
Attest
_____________________________________
Secretary
B1-11
<PAGE>
APPENDIX C-1
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
August 8, 1996
Board of Directors
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Dear Sirs and Mesdames:
We understand that Time Warner Inc. ("Time Warner"), TW Inc., a wholly owned
subsidiary of Time Warner ("New Time Warner"), Time Warner Acquisition Corp.,
a wholly owned subsidiary of New Time Warner ("Delaware Subsidiary"), TW Acqui-
sition Corp., a wholly owned subsidiary of New Time Warner ("Georgia Subsidi-
ary"), and Turner Broadcasting System, Inc. ("Turner") propose to enter into an
Amendment No.1, dated as of August 8, 1996 ("Amendment No. 1"), to the Amended
and Restated Agreement and Plan of Merger, dated as of September 22, 1995 (the
"Amended and Restated Merger Agreement" and, as amended by Amendment No. 1, the
"Merger Agreement"), pursuant to which (i) Delaware Subsidiary will be merged
into Time Warner (the "TW Merger"), with Time Warner as the surviving
corporation in the TW Merger, and (ii) Georgia Subsidiary will be merged into
Turner (the "Turner Merger", and together with the TW Merger, the "Mergers"),
with Turner as the surviving corporation in the Turner Merger. As a result of
the Mergers, Time Warner and Turner will each become wholly owned subsidiaries
of New Time Warner.
The Merger Agreement provides, among other things, that at the effective time
of the Mergers, (i) each issued and outstanding share of common stock, par value
$.01 per share, of Time Warner ("Time Warner Common Stock") will be converted
into one share of common stock, par value $1.00 per share, of New Time Warner
("New Time Warner Common Stock"); (ii) each issued and outstanding share of the
several series of preferred stock of Time Warner (the "Time Warner Preferred
Stock"), other than shares of Time Warner Preferred Stock with respect to which
appraisal rights are properly exercised, will be converted into one share of a
substantially identical series of preferred stock of New Time Warner; (iii) each
issued and outstanding share of Class A Common Stock, par value $0.0625 per
share, and Class B Common Stock, par value $0.0625 per share, of Turner
(collectively, the "Company Common Stock") (other than each such share owned by
Turner, Time Warner and their subsidiaries and shares with respect to which
appraisal rights are properly exercised) shall be converted into 0.75 of a share
of New Time Warner Common Stock; and (iv) each issued and outstanding share of
Class C Convertible Preferred Stock, par value $0.125 per share ("Class C
Preferred Stock"), of Turner (other than each such share
<PAGE>
MORGAN STANLEY
Time Warner, Inc.
August 8, 1996
Page 2
owned by Turner, Time Warner and their subsidiaries and shares with respect to
which appraisal rights are properly exercised) shall be converted into 4.8
shares of New Time Warner Common Stock (the ratios of conversion of the Company
Common Stock and the Series C Preferred Stock into New Time Warner Common Stock
are referred to together as the "Exchange Ratio"). The terms and conditions of
the Mergers are more fully set forth in the Merger Agreement.
We also understand Time Warner and New Time Warner propose to enter into a
Second Amended and Restated LMC Agreement with Liberty Media Corporation ("LMC")
and certain subsidiaries of LMC, dated as of September 22, 1995 (as so amended
and restated, the "LMC Agreement"), pursuant to which, at the effective time of
the Mergers, New Time Warner and LMC will enter into an agreement in the form of
Exhibit D to the LMC Agreement (the "SSSI Agreement") providing for (i) the
grant to New Time Warner of an option (the "Option") to cause the effectiveness
of the Distribution Contract between New Time Warner and Southern Satellite
Systems, Inc. ("SSSI"), in the form of Exhibit 1 to the SSSI Agreement (the
"Distribution Contract") and (ii) certain non-competition agreements of LMC on
behalf of itself and its affiliates (the "Non-Competition Arrangements"). The
SSSI Agreement provides, among other things, that (A) as consideration for the
granting of the Option, New Time Warner shall issue and deliver to SSSI
4,166,667 fully paid and nonassessable shares of the Series LMCN-V Common Stock
of New Time Warner with terms as provided in Exhibit A to the LMC Agreement (the
"LMCN-V Common Stock") and (B) as consideration for the entering into of the
Non-Competition Arrangements, New Time Warner shall issue and deliver to LMC (or
its designee) (x) 833,333 fully paid and nonassessable shares of LMCN-V Common
Stock and (y) $66,666,700 payable, at the option of New Time Warner, in cash or
a number of fully paid and nonassessable shares of LMCN-V Common Stock
determined pursuant to a formula set forth in the SSSI Agreement (collectively,
the "SSSI Agreement Consideration").
In connection with the Merger Agreement, you have asked for an opinion
concerning the fairness from a financial point of view to New Time Warner and
its subsidiary, Time Warner, of the Exchange Ratio and the SSSI Agreement
Consideration, taken together.
In connection with our opinion set forth herein, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of Time
Warner for certain recent fiscal years and interim periods for the current
fiscal year, and certain other relevant financial and operating data of
Time Warner from certain published sources, as well as certain information
made available to us by Time Warner, including information derived from
discussions with Time Warner senior management; conducted due diligence
discussions with Time Warner senior management to update and supplement our
knowledge of Time Warner; and reviewed agreements identified
<PAGE>
MORGAN STANLEY
Time Warner Inc.
August 8, 1996
Page 3
to us as being entered into contemporaneously with the Merger Agreement
and discussed with Time Warner senior management their views regarding
future business, financial and operating benefits arising from the
Mergers and such agreements including such benefits from the possible
exercise of the Option;
(ii) reviewed the publicly available consolidated financial statements of
Turner for certain recent fiscal years and interim periods for the
current fiscal year, and certain other relevant financial and operating
data of Turner from certain published sources, as well as certain limited
information made available to us by Turner, including information derived
from discussions with Turner senior management; and conducted due
diligence discussions with senior management of Turner;
(iii) analyzed the estimated pro forma financial impact of the Mergers,
including the impact on Time Warner's consolidated capitalization and
financial ratios;
(iv) reviewed the respective historical market prices and trading values of
Time Warner Common Stock and Company Common Stock;
(v) analyzed published information regarding certain relevant companies and
their equity securities and compared the financial performance of Turner
and the prices and trading activity of Company Common Stock with those
other companies and their equity securities;
(vi) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(vii) reviewed certain financial projections prepared by the management of Time
Warner and certain limited financial information prepared by the
management of Turner;
(viii) participated in certain discussions among representatives of Turner and
Time Warner and their financial and legal advisors;
(ix) reviewed the executed Amended and Restated Merger Agreement and drafts of
each of Amendment No. 1 and the SSSI Agreement in the forms identified by
Time Warner as those to be entered into by the parties; and
(x) performed such other analyses and examinations as we have deemed
appropriate.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial projections supplied to us by
<PAGE>
MORGAN STANLEY
Time Warner Inc.
August 8, 1996
Page 4
Time Warner, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
Time Warner senior management of the future competitive, operating and
regulatory environments and related financial performance of Time Warner. We
were advised by senior management of Turner that they do not normally prepare
detailed financial projections or detailed long-range financial forecasts, and
no such detailed financial projections or detailed long-range financial
forecasts of Turner were furnished to us. However, we were provided with
limited financial forecasts and financial targets prepared by Turner management
and were orally provided with the views of Turner management as to expected
results of operations of Turner over certain limited periods, all of which we
also assumed were reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of Turner senior management of the
future competitive, operating and regulatory environments and related financial
performance of Turner. Furthermore, we have not assumed responsibility for
conducting a physical inspection of the properties or facilities of Time Warner
or Turner or for making or obtaining any independent valuation or appraisal of
the assets or liabilities of Time Warner or Turner, nor have we been furnished
with any such valuations or appraisals. We note that the Mergers are intended
to qualify as reorganizations within the meaning of section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and/or as exchanges under
section 351 of the Code. We have assumed with your consent that (i) the Mergers
will so qualify, (ii) the transactions described in the Merger Agreement will be
consummated on the terms set forth therein, (iii) the executed versions of
Amendment No. 1 and the SSSI Agreement will not differ in any material respect
from the last drafts we have reviewed and (iv) if the Option is exercised, the
exercise thereof will be consummated on the terms set forth therein. We express
no opinion with respect to the effect, if any, upon New Time Warner, Time
Warner or Turner of the potential exercise of appraisal rights by holders of
Time Warner Preferred Stock under Section 262 of the General Corporation Law of
the State of Delaware or by holders of Company Common Stock or Class C Preferred
Stock under Article 13 of the Georgia Business Corporation Code, as provided in
the Merger Agreement. Our opinion is necessarily based on economic, market and
other conditions and circumstances as they exist and can be evaluated on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Time Warner in
connection with the transaction described in this letter and we will receive a
fee for our services. Morgan Stanley & Co. Incorporated and its affiliates in
the past have provided financial advisory and financing services to Time Warner
and have received fees for rendering these services.
It is understood that this letter is for the information of the Board of
Directors of Time Warner and, except for inclusion of this letter in its
entirety in a proxy statement-prospectus of Time Warner relating to the issuance
of New Time Warner Common Stock in the
<PAGE>
MORGAN STANLEY
Time Warner Inc.
August 8, 1996
Page 5
Mergers, may not be used or quoted for any other purpose without our prior
written consent. In addition, we express no opinion or recommendation to any
shareholder as to how such shareholder should vote at the shareholders' meetings
to be held in connection with the Mergers.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Exchange Ratio and the SSSI Agreement Consideration, taken
together, are fair from a financial point of view to New Time Warner and its
subsidiary, Time Warner.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
<PAGE>
APPENDIX C-2
[LETTERHEAD OF CS FIRST BOSTON CORPORATION APPEARS HERE]
August 8, 1996
Board of Directors
Turner Broadcasting System, Inc.
One CNN Center
Box 105366
Atlanta, Georgia 30348-5366
Members of the Board:
You have asked us to advise you with respect to the fairness to the shareholders
of Turner Broadcasting System, Inc. ("TBS"), other than Time Warner Inc. and its
affiliates ("Time Warner"), from a financial point of view of the consideration
to be received by such shareholders pursuant to the terms of the Amended and
Restated Agreement and Plan of Merger dated as of September 22, 1995, as amended
by Amendment No. 1 dated as of August 8, 1996 (the "Merger Agreement"), among
TBS, Time Warner, TW Inc., a wholly owned subsidiary of Time Warner ("New Time
Warner"), Time Warner Acquisition Corp., a wholly owned subsidiary of New Time
Warner ("TW Merger Corp."), and TW Acquisition Corp., a wholly owned subsidiary
of New Time Warner ("TBS Merger Corp."). The Merger Agreement provides for,
among other things, the merger of TBS Merger Corp. into TBS (the "TBS Merger")
and the merger of TW Merger Corp. into Time Warner (the "Time Warner Merger"
and, together with the TBS Merger, the "Mergers"). As a result of the Mergers,
TBS and Time Warner will each become a wholly owned subsidiary of New Time
Warner. As a result of the TBS Merger, (i) each outstanding share of Class A
Common Stock, par value $0.0625 per share, and Class B Common Stock, par value
$0.0625 per share, of TBS will be converted into the right to receive 0.75 of a
share of the common stock, par value $.01 per share, of New Time Warner (the
"New Time Warner Common Stock") and (ii) each outstanding share of Class C
Convertible Preferred Stock, par value $0.125 per share, of TBS (which is
currently convertible into six shares of Class B Common Stock at the option of
the holder) will be converted into the right to receive 4.80 shares of New Time
Warner Common Stock. As a result of the Time Warner Merger, (a) each outstanding
share of Common Stock, par value $1.00 per share, of Time Warner will be
converted into one share of New Warner Common Stock and (b) each outstanding
share of each series of Preferred Stock, par value $1.00 per share, of Time
Warner will be converted into one share of a substantially identical series of
preferred stock of New Time Warner.
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to TBS and Time Warner. We also have reviewed
certain other information, including financial forecasts, provided to us by TBS
and Time Warner, and have met with the respective managements of TBS and Time
Warner for due diligence discussions concerning the businesses and prospects of
TBS and Time Warner. In arriving at our opinion, we also have reviewed the
Merger Agreement as originally executed on September 22, 1995 and amended on
November 21, 1995 and drafts of Amendment No. 1 to the Merger Agreement and
certain related documents, including certain agreements involving
Tele-Communications, Inc. and certain of its affiliates. We have assumed for
purposes of our opinion that the final terms of documents reviewed by us in
draft form will not vary materially from the drafts reviewed by us and that the
terms of any additional
<PAGE>
Board of Directors
Turner Broadcasting System, Inc.
August 8, 1996
Page 2
documents that may be agreed to other than those reviewed by us will not
materially affect our analyses.
We have also considered certain financial and stock market data of TBS and Time
Warner, and we have compared that data with similar data for other publicly held
companies in businesses similar to those of TBS and Time Warner, and we have
considered, to the extent publicly available, the financial terms of certain
other business combinations and other transactions which have recently been
effected. We also considered such other information, financial studies, analyses
and investigations and financial, economic, regulatory and market criteria which
we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that such forecasts have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the respective managements of TBS and Time Warner as to the future
financial performance of TBS and Time Warner. In addition, we have not made an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of TBS or Time Warner, nor have we been furnished with such
evaluations or appraisals. Our opinion is necessarily based upon information
available to us and financial, economic, market, regulatory and other conditions
as they exist and can be evaluated on the date hereof. We are not expressing any
opinion as to what the value of New Time Warner Common Stock actually will be
when issued pursuant to the Mergers or the prices at which such New Time Warner
Common Stock will trade subsequent to the consummation of the Mergers. We were
not requested to, and did not, solicit third party indications of interest in
acquiring all or any part of TBS.
We have acted as financial advisor to TBS in connection with the TBS Merger and
will receive a fee for our services in connection with the delivery of this
opinion. In the ordinary course of our business, CS First Boston and its
affiliates may actively trade the debt and equity securities of both TBS and
Time Warner for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
CS First Boston has previously provided investment banking and financial
advisory services to TBS, Time Warner and certain shareholders of TBS and Time
Warner in connection with a number of transactions, including debt and equity
financings and merger and acquisition activities.
It is understood that this letter is for the information of the Board of
Directors of TBS in connection with its evaluation of the TBS Merger, does not
constitute a recommendation to any shareholder as to how such shareholder should
vote on the proposed Mergers, and is not to be quoted or referred to, in whole
or in part, in any registration statement, prospectus or proxy statement, or in
any other document used in connection with the offering or sale of securities,
nor shall this letter be used for any other purposes, without CS First Boston's
prior written consent.
<PAGE>
Board of Directors
Turner Broadcasting System, Inc.
August 8, 1996
Page 3
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration to be received by the shareholders of TBS in the TBS
Merger is fair to such shareholders (other than Time Warner and its affiliates)
from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
<PAGE>
APPENDIX C-3
[LETTERHEAD OF MERRILL LYNCH APPEARS HERE]
August 8, 1996
Board of Directors of
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, GA 30303
Gentlemen and Madame:
Turner Broadcasting System, Inc. (the "Company"), Time Warner Inc.
("Acquiror" or "Time Warner"), TW Inc., a wholly owned subsidiary of Time Warner
("New Time Warner"), TW Acquisition Corp., a wholly owned subsidiary of New Time
Warner, and Time Warner Acquisition Corp., a wholly owned subsidiary of New
Time Warner, have entered into an Amended and Restated Agreement and Plan of
Merger, dated as of September 22, 1995, as amended by Amendment No. 1 dated as
of August 8, 1996 (as so amended, the "Merger Agreement") providing for (i) the
merger of TW Acquisition Corp. into the Company and (ii) the merger of Time
Warner Acquisition Corp. into Time Warner (the mergers collectively referred to
as the "Merger"), with the result that the Company and Time Warner will each
become a wholly owned subsidiary of New Time Warner. In connection with the
Merger (i) each share of Class A Common Stock and each share of Class B Common
Stock of the Company will be converted into .75 shares of Common Stock of New
Time Warner and (ii) each share of Class C Convertible Preferred Stock ("Class C
Preferred Stock") of the Company will be converted into 4.8 shares of Common
Stock of New Time Warner. In order to obtain the support of
Tele-Communications, Inc. and its affiliates ("TCI") to the Merger, the Company
and the Acquiror and their respective affiliates entered into certain
arrangements with TCI (the "Prior TCI Arrangements"). In accordance with the
terms of the Agreement Containing Consent Order, draft dated August 7, 1996
among the Company, Time Warner, TCI, Liberty Media Corporation and the Federal
Trade Commission (the "Consent Order"), we have been advised by the Company that
certain of the Prior TCI Arrangements require modification and that, in
connection with the Merger, the Company and the Acquiror and their respective
affiliates propose to enter into the agreements set forth on Schedule A with TCI
(together with the Stock Purchase Agreement dated as of September 22, 1995
between the Company and LMC Southeast Sports, Inc. and the Option Agreement,
dated as of September 22, 1995 between Time Warner and Liberty Media
Corporation, the "Agreements"). The Agreements provide for, among other things,
certain arrangements between the Company, the Acquiror and their respective
affiliates, on the one hand, and TCI, on the other hand (the "TCI
Arrangements"). For purposes of our opinion, we have included the consideration
that TCI is to receive in the Merger for its shares of Class C Preferred Stock
as part of the TCI Arrangements.
You have asked us whether, in our opinion, (i) the consideration to be
received by shareholders of the Company (other than TCI and the Acquiror)
pursuant to the Merger is fair to such holders from a financial point of view
and (ii) in the context of the governance arrangements relating to the Company's
ability to consummate the Merger, the financial terms of the TCI Arrangements
are fair from a financial point of view to the Company and its shareholders
(other than TCI and the Acquiror).
<PAGE>
[LOGO OF MERRILL LYNCH APPEARS HERE]
In arriving at the opinion set forth below, we have:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31,
1995 and the Company's Forms 10-Q and the related unaudited
financial information for the quarterly periods ended March 31,
1996 and June 30, 1996;
(2) Reviewed the Acquiror's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31,
1995 and the Acquiror's Form 10-Q and the related unaudited
financial information for the quarterly period ended March 31,
1996;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects
of the Company and SportSouth Network, Ltd.("SportSouth") furnished
to us by the Company;
(4) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects
of the Sunshine Network ("Sunshine") furnished to us by the
Acquiror;
(5) Reviewed certain publicly available information relating to the
business, earnings, cash flow, assets and prospects of the
Acquiror;
(6) Conducted due diligence discussions with members of senior
management of the Company concerning its business and prospects,
conducted due diligence discussions with members of senior
management of the Acquiror concerning its business and prospects,
and conducted due diligence discussions with members of senior
management of the Company, the Acquiror and TCI concerning the TCI
Arrangements;
(7) Reviewed the historical market prices and trading activity for the
shares of publicly traded capital stock of the Company and the
shares of Common Stock of the Acquiror and compared them with that
of certain publicly traded companies which we deemed to be
reasonably similar to the Company and the Acquiror, respectively;
(8) Compared the results of operations of the Company and the Acquiror
with that of certain companies which we deemed to be reasonably
similar to the Company and the Acquiror, respectively;
(9) Compared the proposed financial terms of the transactions
contemplated by the Merger Agreement with the financial terms of
certain other mergers and acquisitions which we deemed to be
relevant;
(10) Compared the proposed financial terms of the proposed transactions
involving SportSouth and Sunshine with the financial terms of
certain other transactions which we deemed to be relevant;
(11) Reviewed the financial terms of a limited number of transactions in
which controlling shareholders or persons having the right to
consent to, or effective veto power over, a transaction received
different consideration than other shareholders;
(12) Reviewed the financial terms of a limited number of transactions in
which an issuer of securities sold a non-controlling interest in
the issuer to a strategic acquiror;
(13) Reviewed the TCI Arrangements and the Agreements, and with respect
thereto (a) prepared analyses based upon assumptions provided by
the Company and the Acquiror and (b) analyzed from a financial
point of view the impact of the TCI Arrangements on the Company and
the Acquiror and discussed our analyses with members of senior
management of the Company who advised us that our analyses were
reasonable;
<PAGE>
[LOGO OF MERRILL LYNCH APPEARS HERE]
(14) Reviewed the Merger Agreement and a draft proxy statement relating to
the Merger (the "Proxy Statement");
(15) Reviewed the Consent Order; and
(16) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company and
the Acquiror, and we have not independently verified such information or
undertaken an independent appraisal of the assets or liabilities of the Company
or the Acquiror. With respect to the financial forecasts furnished by the
Company, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the Company's management as
to the expected future financial performance of the Company or SportSouth, as
the case may be. With respect to the financial forecasts furnished by the
Acquiror relating to Sunshine, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of the
Acquiror's management as to the expected future financial performance of
Sunshine for the period covered by the forecasts. We have also assumed, based on
advice of the Company, that the Merger cannot be consummated without the support
of TCI and that TCI would not support the Merger unless the TCI Arrangements are
entered into and effected. We have further assumed (i) that all current and
future payments to be made by New Time Warner or its affiliates to TCI under the
Agreements set forth on Schedule B hereto will be tax-deductible to New Time
Warner and (ii) that neither New Time Warner nor any of its affiliates will be
required to make any payment to TCI under any tax indemnities or similar
provisions contained in the Agreements. Additionally, we have assumed, based on
the advice of the Company, that the rebates to TCI, under a new program service
agreement, commence and terminate at specified dates in the case of a particular
program service and that the terms of the pay-per-view output arrangement among
New Line, certain other subsidiaries of the Company and certain affiliates of
TCI are customary for an arrangement of that type and reflect market terms and
conditions. We are not expressing any opinion as to what the value of Common
Stock of New Time Warner actually will be when issued to the shareholders of the
Company pursuant to the Merger or the prices at which such Common Stock will
trade subsequent to the Merger. You have also advised us that the Merger
Agreement, the Agreements and the TCI Arrangements are the only agreements and
arrangements between the Company, the Acquiror and their respective affiliates,
on the one hand, and TCI, on the other hand, in connection with the Merger
Agreement and the Merger. We have assumed for purposes of our opinion that the
final terms of Amendment No. 1 and the Agreements set forth on Schedule A will
not vary from the drafts reviewed by us, and that the terms of any additional
documents that may be agreed to other than those reviewed by us will not affect
our analyses.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third party indications of interest for the acquisition of all or any
part of the Company.
<PAGE>
[MERRILL LYNCH LOGO APPEARS HERE]
We have in the past provided (and may in the future provide) financial
advisory and/or financing services to the Company, the Acquiror and TCI and have
received fees for the rendering of such services. Specifically, since January 1,
1989, we have received fees of approximately $18 million, $122 million and $50
million from the Company, the Acquiror and TCI, respectively. In addition, we
provided financial advisory services to TCI in connection with its August 1996
acquisition of Viacom Inc.'s cable systems business and we have been retained by
TCI to provide it with financial advisory services in connection with its
spin-off of TCI Satellite Entertainment, Inc., in each case for which we expect
to receive customary compensation. Moreover, an affiliate of ours is currently
providing commercial lending services to Mr. Turner for which it receives
customary compensation.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its evaluation of the Merger, does
not constitute a recommendation to any shareholder as to how such shareholder
should vote on the proposed Merger, and is not to be quoted or referred to, in
whole or in part, in any registration statement, prospectus or proxy statement,
or in any other document used in connection with the offering or sale of
securities, nor shall this letter be used for any other purposes, without the
prior written consent of Merrill Lynch.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, (i) the consideration to be received by shareholders of
the Company (other than TCI and the Acquiror) pursuant to the Merger is fair to
such holders from a financial point of view and (ii) in the context of the
governance arrangements relating to the Company's ability to consummate the
Merger, the financial terms of the TCI Arrangements are fair from a financial
point of view to the Company and its shareholders (other than TCI and the
Acquiror).
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
<PAGE>
[MERRILL LYNCH LOGO APPEARS HERE]
Schedule A
----------
SSSI Agreement, dated as of August ___, 1996 among TW Inc., Liberty Media
Corporation and Southern Satellite Systems, Inc. (Draft Dated August 5, 1996)
Distribution Contract, dated as of August ___, 1996 between TW Inc. and Southern
Satellite Systems, Inc. (Draft Dated August 5, 1996)
Second Amended and Restated LMC Agreement, dated as of September 22, 1995 among
Time Warner Inc., Liberty Media Corporation and certain subsidiaries of Liberty
Media Corporation. (Draft Dated August 6, 1996)
Rebate Arrangement with TCI as described to us by TBS senior management on
August 8, 1996
Pay-Per-View Output Arrangement with TCI as described to us by TBS and New Line
senior management on August 8, 1996
<PAGE>
[MERRILL LYNCH LOGO APPEARS HERE]
Schedule B
----------
SSSI Agreement, dated as of August __, 1996 among TW Inc., Liberty Media
Corporation and Southern Satellite Systems, Inc. (Draft Dated August 5, 1996)
Distribution Contract, dated as of August __, 1996 between TW Inc. and Southern
Satellite Systems, Inc. (Draft Dated August 5, 1996)
<PAGE>
APPENDIX D-1
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
(S)262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S)228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
subsection (g) of (S)251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
<PAGE>
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation that are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation such notice shall be given by
the surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Any stockholder entitled to appraisal rights may, within twenty
days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20
days following the sending of the first notice, such second notice need
only to be sent to each stockholder who is entitled to appraisal rights and
who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to recieve such notice, each constituent corporation
may fix, in advance, a record date that shall be not more than 10 days
prior to the date the notice is given; provided that, if the notice is
given on or after the effective date of the merger or consolidation, the
record date shall be effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall be the
close of business on the next day preceding the day on which the notice is
given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise
D1-2
<PAGE>
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
D1-3
<PAGE>
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D1-4
<PAGE>
APPENDIX D-2
BUSINESS CORPORATIONS CODE OF THE STATE OF GEORGIA
ARTICLE 13
DISSENTERS' RIGHTS
PART 1
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through 14-2-
1327.
(5) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its parent
under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of the
property of the corporation if a shareholder vote is required on the sale
or exchange pursuant to Code Section 14-2-1202, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
<PAGE>
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of the
class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action
was obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at a meeting at which a plan of merger or share
exchange or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf
he asserts dissenters' rights. The rights of a partial dissenter under this
Code section are determined as if the shares as to which he dissents and his
other shares were registered in the names of different shareholders.
D2-2
<PAGE>
PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under Code Section 14-2-
1302 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in Code Section 14-2-
1322 no later than ten days after the corporate action was taken.
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of subsection
(a) of this Code section is not entitled to payment for his shares under this
article.
14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied
the requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date
the notice required in subsection (a) of this Code section is delivered;
and
(4) Be accompanied by a copy of this article.
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his certificates in accordance with
the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for his shares under this article.
D2-3
<PAGE>
14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall by notice to each dissenter who complied
with Code Section 14-2-1323 offer to pay to such dissenter the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment
for his or her shares shall be made within 60 days after the making of the
offer or the taking of the proposed corporate action, whichever is later.
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section 14-
2-1325 is less than the fair value of his shares or that the interest due
is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or
she notifies the corporation of his or her demand in writing under
D2-4
<PAGE>
subsection (a) of this Code section within 30 days after the corporation
offered payment for his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under subsection
(b) of Code Section 14-2-1325, and the corporation shall provide the
information to the shareholder within ten days after receipt of a written
demand for the information; and
(2) The shareholder may at any time, subject to the limitations period of
Code Section 14-2-1332, notify the corporation of his own estimate of the
fair value of his shares and the amount of interest due and demand payment
of his estimate of the fair value of his shares and interest due.
PART 3
JUDICIAL APPRAISAL OF SHARES
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered
office of the domestic corporation merged with or whose shares were acquired
by the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided
by law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by
publication, or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this Code section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. Except as
otherwise provided in this chapter, Chapter 11 of Title 9, known as the
"Georgia Civil Practice Act," applies to any proceeding with respect to
dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section 14-2-
1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective
parties. The court shall assess the costs against the corporation, except that
the court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under Code Section 14-2-1327.
D2-5
<PAGE>
(b) The court may also assess the fees and expenses of attorneys and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given
by the corporation in compliance with the provisions of Code Section 14-2-1320
and Code Section 14-2-1322.
D2-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 the Registrant'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 the Registrant 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 the Registrant or was serving at the request of the Registrant
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 the
Registrant, 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 the Registrant eliminates the liability of
directors to the extent permitted by Section 102(b)(7).
The foregoing statements are subject to the detailed provisions of Sections
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.
The Registrant'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
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1(a) Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement"), dated as of September 22, 1995, among Time Warner Inc.,
the Registrant, Time Warner Acquisition Corp., TW Acquisition Corp.
and Turner Broadcasting System, Inc. (incorporated by reference to
Appendix
A-1(a) to the Joint Proxy Statement/Prospectus included as part of
this Registration Statement; Exhibits A-1, A-2, B, C-1 and C-2 to the
Merger Agreement are incorporated by reference to Exhibit 2(a) to the
Current Report on Form 8-K dated November 16, 1995 of Time Warner
Inc.).
2.1(b) Amendment No. 1 dated August 8, 1996 to the Merger Agreement
(incorporated by reference to Appendix A-1(b) to the Joint Proxy
Statement/Prospectus included as part of this Registration
Statement).
3.1(a) Form of Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Appendix B-1 to the Joint Proxy
Statement/Prospectus included as part of this Registration
Statement).
3.1(b) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions thereof, of Series LMC
Stock of the Registrant (incorporated by reference to Exhibit 10(a)
to the Current Report on Form 8-K dated September 6, 1996 of Time
Warner Inc.).
3.1(c) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions thereof, of Series LMCN-V
Stock of the Registrant (incorporated by reference to Exhibit 10(a)
to the Current Report on Form 8-K dated September 6, 1996 of Time
Warner Inc.).
*3.1(d) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights and
Qualifications of Series A Participating Cumulative Preferred Stock
of the Registrant.
*3.1(e) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights and
Qualifications of Series D Convertible Preferred Stock of the
Registrant.
*3.1(f) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights and
Qualifications of Series E Convertible Preferred Stock of the
Registrant.
*3.1(g) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights and
Qualifications of Series F Convertible Preferred Stock of the
Registrant.
*3.1(h) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights and
Qualifications of Series G Convertible Preferred Stock of the
Registrant.
*3.1(i) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights and
Qualifications of Series H Convertible Preferred Stock of the
Registrant.
*3.1(j) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights and
Qualifications of Series I Convertible Preferred Stock of the
Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*3.1(k) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights and
Qualifications of Series J Convertible Preferred Stock of the
Registrant.
*3.1(l) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights and
Qualifications of 10 1/4% Series L Exchangeable Preferred Stock of
the Registrant.
*3.1(m) Form of Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights and
Qualifications of 10 1/4% Series M Exchangeable Preferred Stock of
the Registrant.
*3.2 Form of By-laws of the Registrant.
*4.1 Form of Rights Agreement, between the Registrant and ChaseMellon
Shareholder Services L.L.C., as Rights Agent.
*5.1 Opinion of Cravath, Swaine & Moore.
*8.1 Opinion of Cravath, Swaine & Moore.
*8.2 Opinion of Skadden, Arps, Slate, Meagher & Flom.
10.1 Second Amended and Restated LMC Agreement (the "LMC Agreement"),
dated as of September 22, 1995, among the Registrant, Time Warner
Inc., Liberty Media Corporation and certain subsidiaries of Liberty
Media Corporation (incorporated by reference to Appendix A-2 to the
Joint Proxy Statement/Prospectus included as part of this
Registration Statement; Exhibits A, B, C, D, F, G, J, K and L to the
LMC Agreement are incorporated by reference to Exhibit 10(a) to the
Current Report on Form 8-K dated September 6, 1996 of Time Warner
Inc.).
10.2 Shareholders' Agreement, (the "Shareholders' Agreement") dated as of
September 22, 1995, among Time Warner Inc., R.E. Turner and certain
associates and affiliates of R.E. Turner (incorporated by reference
to Appendix A-3 to the Joint Proxy Statement/Prospectus included as
part of this Registration Statement; Schedule I to the Shareholders'
Agreement is incorporated by reference to Exhibit 10(a) to the
Current Report on Form 8-K dated September 22, 1995 of Time Warner
Inc.).
*12.1 Statement regarding computation of ratio of earnings to fixed
charges.
*12.2 Statement regarding computation of ratio of earnings to combined
fixed charges and preferred stock dividends.
*12.3 Statement regarding computation of ratio of earnings to fixed charges
of Time Warner Entertainment Company, L.P.
*23.1 Consent of Cravath, Swaine & Moore (contained in Exhibits 5.1 and
8.1).
*23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (contained in Exhibit
8.2).
*23.3 Consent of Ernst & Young LLP, independent auditors with respect to
Time Warner Inc., Cablevision Industries Corporation, Newhouse
Broadcasting Cable Division of Newhouse Broadcasting Corporation and
Vision Cable Division of Vision Cable Communications, Inc.
*23.4 Consent of Price Waterhouse, independent accountants, with respect to
Turner Broadcasting System, Inc.
*23.5 Consent of Arthur Andersen LLP, independent public accountants, with
respect to Cablevision Industries Corporation.
*23.6 Consent of Deloitte & Touche LLP, independent auditors, with respect
to KBLCOM Incorporated.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*23.7 Consent of Price Waterhouse LLP, independent accountants, with respect
to Paragon Communications.
*23.8 Consent of R. E. Turner.
*23.9 Consent of Merv Adelson.
*23.10 Consent of Lawrence B. Buttenwieser.
*23.11 Consent of Beverly Sills Greenough.
*23.12 Consent of Carla A. Hills.
*23.13 Consent of David T. Kearns.
*23.14 Consent of Reuben Mark.
*23.15 Consent of Michael A. Miles.
*23.16 Consent of J. Richard Munro.
*23.17 Consent of Richard D. Parsons.
*23.18 Consent of Donald S. Perkins.
*23.19 Consent of Raymond S. Troubh.
*23.20 Consent of Francis T. Vincent, Jr.
*24.1 Powers of Attorney.
*99.1 Form of Proxy Card for Stockholders of Time Warner Inc.
*99.2 Forms of Voting Instruction Cards for participants in benefit plans of
Time Warner Inc. and certain of its subsidiaries.
*99.3 Form of Proxy Card for holders of Turner Broadcasting System, Inc.
Class A Common Stock.
*99.4 Form of Proxy Card for holders of Turner Broadcasting System, Inc.
Class B Common Stock.
*99.5 Form of Proxy Card for holders of Turner Broadcasting System, Inc.
Class C Convertible Preferred Stock.
*99.6 Form of Letter to Stockholders of Time Warner Inc.
*99.7 Form of Notice of Special Meeting of Stockholders to the Stockholders
of Time Warner Inc.
*99.8 Form of Letter to Shareholders of Turner Broadcasting System, Inc.
*99.9 Form of Notice of Special Meeting of Shareholders to the Shareholders
of Turner Broadcasting System, Inc.
*99.10 Consent of Morgan Stanley & Co. Incorporated.
*99.11 Consent of CS First Boston Corporation.
*99.12 Consent of Merrill Lynch & Co.
</TABLE>
- --------
* Filed herewith
II-4
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) 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.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(d) The Registrant hereby undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(g) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that such a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its 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 Act and will be governed by the
final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON SEPTEMBER 5, 1996.
TW Inc.,
By /s/ Richard J. Bressler
----------------------------------
RICHARD J. BRESSLER
SENIOR VICE PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW ON SEPTEMBER 5, 1996 BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED.
SIGNATURE TITLE
--------- -----
(i) Principal Executive Officer:
* Director, President
- -------------------------------------
(GERALD M. LEVIN)
(ii) Principal Financial Officer:
/s/ Richard J. Bressler Senior Vice President and Chief
- ------------------------------------- Financial Officer
(RICHARD J. BRESSLER)
(iii) Principal Accounting Officer:
/s/ John A. LaBarca Vice President and Controller
- -------------------------------------
(JOHN A. LABARCA)
(iv) Directors:
*
- -------------------------------------
(THOMAS W. MCENERNEY)
*by: /s/ Peter R. Haje
--------------------------------
ATTORNEY-IN-FACT
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE OR
NUMBER DESCRIPTION FOOTNOTE
------- ----------- --------
<C> <S> <C>
2.1(a) Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement"), dated as of September 22, 1995, among
Time Warner Inc., the Registrant, Time Warner Acquisition
Corp., TW Acquisition Corp. and Turner Broadcasting
System, Inc. (incorporated by reference to Appendix A-1(a)
to the Joint Proxy Statement/Prospectus included as part
of this Registration Statement; Exhibits A-1, A-2, B, C-1
and C-2 to the Merger Agreement are incorporated by
reference to Exhibit 2(a) to the Current Report on Form 8-
K dated November 16, 1995 of Time Warner Inc.).
2.1(b) Amendment No. 1 dated August 8, 1996 to the Merger
Agreement (incorporated by reference to Appendix A-1(b) to
the Joint Proxy Statement/Prospectus included as part of
this Registration Statement).
3.1(a) Form of Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Appendix B-1 to
the Joint Proxy Statement/Prospectus included as part of
this Registration Statement).
3.1(b) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights, and Qualifications, Limitations or
Restrictions Thereof, of Series LMC Stock of the
Registrant (incorporated by reference to Exhibit 10(a) to
the Current Report on Form 8-K dated September 6, 1996 of
Time Warner Inc.).
3.1(c) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights, and Qualifications, Limitations or
Restrictions Thereof, of Series LMCN-V Stock of the
Registrant (incorporated by reference to Exhibit 10(a) to
the Current Report on Form 8-K dated September 6, 1996 of
Time Warner Inc.).
*3.1(d) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications of Series A
Participating Cumulative Preferred Stock of the
Registrant.
*3.1(e) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications of Series D Convertible
Preferred Stock of the Registrant.
*3.1(f) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications of Series E Convertible
Preferred Stock of the Registrant.
*3.1(g) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications of Series F Convertible
Preferred Stock of the Registrant.
*3.1(h) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications of Series G Convertible
Preferred Stock of the Registrant.
*3.1(i) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications of Series H Convertible
Preferred Stock of the Registrant.
*3.1(j) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications of Series I Convertible
Preferred Stock of the Registrant.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE OR
NUMBER DESCRIPTION FOOTNOTE
------- ----------- --------
<C> <S> <C>
*3.1(k) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications of Series J Convertible
Preferred Stock of the Registrant.
*3.1(l) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications of 10 1/4% Series L
Exchangeable Preferred Stock of the Registrant.
*3.1(m) Form of Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications of 10 1/4% Series M
Exchangeable Preferred Stock of the Registrant.
*3.2 Form of By-laws of the Registrant.
*4.1 Form of Rights Agreement, between the Registrant and
ChaseMellon Shareholder Services L.L.C., as Rights Agent.
*5.1 Opinion of Cravath, Swaine & Moore.
*8.1 Opinion of Cravath, Swaine & Moore.
*8.2 Opinion of Skadden, Arps, Slate, Meagher & Flom.
10.1 Second Amended and Restated LMC Agreement (the "LMC
Agreement"), dated as of September 22, 1995, among the
Registrant, Time Warner Inc., Liberty Media Corporation
and certain subsidiaries of Liberty Media Corporation
(incorporated by reference to Appendix A-2 to the Joint
Proxy Statement/Prospectus included as part of this
Registration Statement; Exhibits A, B, C, D, F, G, J, K
and L to the LMC Agreement are incorporated by reference
to Exhibit 10(a) to the Current Report on Form 8-K dated
September 6, 1996 of Time Warner Inc.).
10.2 Shareholders' Agreement, (the "Shareholders' Agreement")
dated as of September 22, 1995, among Time Warner Inc.,
R.E. Turner and certain associates and affiliates of R.E.
Turner (incorporated by reference to Appendix A-3 to the
Joint Proxy Statement/Prospectus included as part of this
Registration Statement; Schedule I to the Shareholders'
Agreement is incorporated by reference to Exhibit 10(a) to
the Current Report on Form 8-K dated September 22, 1995 of
Time Warner Inc.).
*12.1 Statement regarding computation of ratio of earnings to
fixed charges.
*12.2 Statement regarding computation of ratio of earnings to
combined fixed charges and preferred stock dividends.
*12.3 Statement regarding computation of ratio of earnings to
fixed charges of Time Warner Entertainment Company, L.P.
*23.1 Consent of Cravath, Swaine & Moore (contained in Exhibits
5.1 and 8.1).
*23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (contained
in Exhibit 8.2).
*23.3 Consent of Ernst & Young LLP, independent auditors, with
respect to Time Warner Inc., Cablevision Industries
Corporation, Newhouse Broadcasting Cable Division of
Newhouse Broadcasting Corporation and Vision Cable
Division of Vision Cable Communications, Inc.
*23.4 Consent of Price Waterhouse LLP, independent accountants,
with respect to Turner Broadcasting System, Inc.
*23.5 Consent of Arthur Andersen LLP, independent public
accountants, with respect to Cablevision Industries
Limited Partnership.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE OR
NUMBER DESCRIPTION FOOTNOTE
------- ----------- --------
<C> <S> <C>
*23.6 Consent of Deloitte & Touche LLP, independent auditors,
with respect to KBLCOM Incorporated.
*23.7 Consent of Price Waterhouse LLP, independent accountants,
with respect to Paragon Communications.
*23.8 Consent of R. E. Turner.
*23.9 Consent of Merv Adelson.
*23.10 Consent of Lawrence B. Buttenwieser.
*23.11 Consent of Beverly Sills Greenough.
*23.12 Consent of Carla A. Hills.
*23.13 Consent of David T. Kearns.
*23.14 Consent of Reuben Mark.
*23.15 Consent of Michael A. Miles.
*23.16 Consent of J. Richard Munro.
*23.17 Consent of Richard D. Parsons.
*23.18 Consent of Donald S. Perkins.
*23.19 Consent of Raymond S. Troubh.
*23.20 Consent of Francis T. Vincent, Jr.
*24.1 Powers of Attorney.
*99.1 Form of Proxy Card for Stockholders of Time Warner Inc.
*99.2 Forms of Voting Instruction Cards for participants in
benefit plans of Time Warner Inc. and certain of its
subsidiaries.
*99.3 Form of Proxy Card for holders of Turner Broadcasting
System, Inc. Class A Common Stock.
*99.4 Form of Proxy Card for holders of Turner Broadcasting
System, Inc. Class B Common Stock.
*99.5 Form of Proxy Card for holders of Turner Broadcasting
System, Inc. Class C Convertible Preferred Stock.
*99.6 Form of Letter to Stockholders of Time Warner Inc.
*99.7 Form of Notice of Special Meeting of Stockholders to the
Stockholders of Time Warner Inc.
*99.8 Form of Letter to Shareholders of Turner Broadcasting
System, Inc.
*99.9 Form of Notice of Special Meeting of Shareholders to the
Shareholders of Turner Broadcasting System, Inc.
*99.10 Consent of Morgan Stanley & Co. Incorporated.
*99.11 Consent of CS First Boston Corporation.
*99.12 Consent of Merrill Lynch & Co.
</TABLE>
- --------
* Filed herewith
II-9
<PAGE>
EXHIBIT 3.1(d)
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS, AND QUALIFICATIONS, LIMITATIONS
OR RESTRICTIONS THEREOF, OF SERIES A
PARTICIPATING CUMULATIVE
PREFERRED STOCK OF
TW INC.
--------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
--------------------
TW INC. (the "Corporation"), a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware (the "DGCL"),
does hereby certify that the following resolution was duly adopted by action of
the Board of Directors of the Corporation (the "Board of Directors") at a
meeting duly held on [ ], 1996.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $.10 per share ("Preferred Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series as follows:
SECTION 1. Designation and Number of Shares. The shares of such
---------------------------------
series shall be designated as "Series A Participating Cumulative Preferred
Stock" ("Series A Stock"). The number of shares initially constituting the
Series A Stock shall be 8,000,000; provided, however, that, if more than a total
-------- -------
of 8,000,000 shares of Series A Stock shall be issuable upon the exercise of
Rights (the "Rights") issued pursuant to the Rights Agreement dated as of
[date], 1996, between the Corporation and ChaseMellon Shareholder
<PAGE>
2
Services L.L.C., as Rights Agent (the "Rights Agreement"), the Board of
Directors, pursuant to Section 151(g) of the DGCL, shall direct by resolution or
resolutions that a certificate be properly executed, acknowledged, filed and
recorded, in accordance with the provisions of Section 103 thereof, providing
for the total number of shares of Series A Stock authorized to be issued to be
increased (to the extent that the Certificate of Incorporation then permits) to
the largest number of whole shares (rounded up to the nearest whole number)
issuable upon exercise of such Rights.
SECTION 2. Dividends or Distributions. (a) Subject to the prior and
---------------------------
superior rights of the holders of shares of any other series of Preferred Stock
or other class of capital stock of the Corporation ranking prior and superior to
the shares of Series A Stock with respect to dividends, the holders of shares of
the Series A Stock shall be entitled to receive, when, as and if declared by the
Board of Directors, out of the assets of the Corporation legally available
therefor, (1) quarterly dividends payable in cash on the last day of each fiscal
quarter in each year, or such other dates as the Board of Directors shall
approve (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or a fraction of a share of Series A Stock, in the
amount of $.01 per whole share (rounded to the nearest cent) less the amount of
all cash dividends declared on the Series A Stock pursuant to the following
clause (2) since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Stock (the total of
which shall not, in any event, be less than zero) and (2) dividends payable in
cash on the payment date for each cash dividend declared on the common stock,
par value $.01 per share ("Common Stock"), of the Corporation in an amount per
whole share (rounded to the nearest cent) equal to the Formula Number (as
hereinafter defined) then in effect times the cash dividends then to be paid on
each share of Common Stock. In addition, if the Corporation shall pay any
dividend or make any distribution on the Common Stock payable in assets,
securities or other forms of noncash consideration (other than dividends or
distributions solely in shares of Common Stock), then, in each such case, the
Corporation shall simultaneously pay or make on each outstanding whole share of
Series A Stock a dividend or distribution in like kind equal to the Formula
<PAGE>
3
Number then in effect times such dividend or distribution on each share of the
Common Stock. As used herein, the "Formula Number" shall be 1,000; provided,
--------
however, that, if at any time after the date of this Certificate, the
- -------
Corporation shall (i) declare or pay any dividend on the Common Stock payable in
shares of Common Stock or make any distribution on the Common Stock in shares of
Common Stock, (ii) subdivide (by a stock split or otherwise) the outstanding
shares of Common Stock into a larger number of shares of Common Stock or (iii)
combine (by a reverse stock split or otherwise) the outstanding shares of Common
Stock into a smaller number of shares of Common Stock, then in each such event
the Formula Number shall be adjusted to a number determined by multiplying the
Formula Number in effect immediately prior to such event by a fraction, the
numerator of which is the number of shares of Common Stock that are outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that are outstanding immediately prior to such event (and
rounding the result to the nearest whole number); and provided further, that, if
-------- -------
at any time after the date of this Certificate, the Corporation shall issue any
shares of its capital stock in a merger, reclassification, or change of the
outstanding shares of Common Stock, then in each such event the Formula Number
shall be appropriately adjusted to reflect such merger, reclassification or
change so that each share of Preferred Stock continues to be the economic
equivalent of a Formula Number of shares of Common Stock prior to such merger,
reclassification or change.
(b) The Corporation shall declare a dividend or distribution on the
Series A Stock as provided in Section 2(a) immediately prior to or at the same
time it declares a dividend or distribution on the Common Stock (other than a
dividend or distribution solely in shares of Common Stock); provided, however,
-------- -------
that, in the event no dividend or distribution (other than a dividend or
distribution in shares of Common Stock) shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $.01 per share on the
Series A Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Stock entitled to receive a
dividend or distribution declared thereon, which record date shall be the same
as the record date for any corresponding dividend or distribution on the Common
Stock.
<PAGE>
4
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Stock from and after the Quarterly Dividend Payment Date next
preceding the date of original issue of such shares of Series A Stock; provided,
--------
however, that dividends on such shares that are originally issued after the
- -------
record date for the determination of holders of shares of Series A Stock
entitled to receive a quarterly dividend and on or prior to the next succeeding
Quarterly Dividend Payment Date shall begin to accrue and be cumulative from and
after such Quarterly Dividend Payment Date. Notwithstanding the foregoing,
dividends on shares of Series A Stock that are originally issued prior to the
record date for the determination of holders of shares of Series A Stock
entitled to receive a quarterly dividend on the first Quarterly Dividend Payment
Date shall be calculated as if cumulative from and after the last day of the
fiscal quarter next preceding the date of original issuance of such shares.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
(d) So long as any shares of the Series A Stock are outstanding, no
dividends or other distributions shall be declared, paid or distributed, or set
aside for payment or distribution, on the Common Stock unless, in each case, the
dividend required by this Section 2 to be declared on the Series A Stock shall
have been declared.
(e) The holders of the shares of Series A Stock shall not be entitled
to receive any dividends or other distributions except as provided herein.
SECTION 3. Voting Rights. The holders of shares of Series A Stock
--------------
shall have the following voting rights:
(a) Each holder of Series A Stock shall be entitled to a number of
votes equal to the Formula Number then in effect, for each share of Series A
Stock held of record on each matter on which holders of the Common Stock or
stockholders generally are entitled to vote, multiplied by the maximum number of
votes per share that any holder of the Common Stock or stockholders generally
then have with respect to such matter (assuming any holding period or other
<PAGE>
5
requirement to vote a greater number of shares is satisfied).
(b) Except as otherwise provided herein or by applicable law, the
holders of shares of Series A Stock and the holders of shares of Common Stock
shall vote together as one class for the election of directors and on all other
matters submitted to a vote of stockholders.
(c) If, at the time of any annual meeting of stockholders for the
election of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Stock are in default,
the number of directors constituting the Board of Directors shall be increased
by two. In addition to voting together with the holders of Common Stock for the
election of other directors, the holders of record of the Series A Stock, voting
separately as a class to the exclusion of the holders of Common Stock, shall be
entitled at said meeting of stockholders (and at each subsequent annual meeting
of stockholders), unless all dividends in arrears have been paid or declared and
set apart for payment prior thereto, to vote for the election of two directors,
the holders of any Series A Stock being entitled to cast a number of votes per
share of Series A Stock equal to the Formula Number. Until the default in
payments of all dividends that permitted the election of said directors shall
cease to exist, any director who shall have been so elected pursuant to the next
preceding sentence may be removed at any time, either with or without cause,
only by the affirmative vote of the holders of the shares of Series A Stock at
the time entitled to cast a majority of the votes entitled to be cast for the
election of any such director at a special meeting of such holders called for
that purpose, and any vacancy thereby created may be filled by the vote of such
holders. If and when such default shall cease to exist, the holders of the
Series A Stock shall be divested of the foregoing special voting rights, subject
to revesting in the event of each and every subsequent like default in payments
of dividends. Upon the termination of the foregoing special voting rights, the
terms of office of all persons who may have been elected directors pursuant to
said special voting rights shall forthwith terminate, and the number of
directors constituting the Board of Directors shall be reduced by two. The
voting rights granted by this Section 3(c) shall be in addition to any other
voting rights granted to the holders of the Series A Stock in this Section 3.
<PAGE>
6
(d) Except as provided herein, in Section 11 or by applicable law,
holders of Series A Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for authorizing or taking any
corporate action.
SECTION 4. Certain Restrictions. (a) Whenever quarterly dividends
---------------------
or other dividends or distributions payable on the Series A Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Stock, except
dividends paid ratably on the Series A Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Stock; provided,
--------
however, that the Corporation may at any time redeem, purchase or otherwise
-------
acquire shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Stock, or any shares of stock ranking on a parity with the Series
A Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after
<PAGE>
7
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. Liquidation Rights. Upon the liquidation, dissolution or
-------------------
winding up of the Corporation, whether voluntary or involuntary, no distribution
shall be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A Stock
unless, prior thereto, the holders of shares of Series A Stock shall have
received an amount equal to the accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, plus an amount
equal to the greater of (x) $.01 per whole share or (y) an aggregate amount per
share equal to the Formula Number then in effect times the aggregate amount to
be distributed per share to holders of Common Stock or (2) to the holders of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Stock, except distributions made
ratably on the Series A Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
SECTION 6. Consolidation, Merger, etc. In case the Corporation shall
---------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, then in any such case the then
outstanding shares of Series A Stock shall at the same time be similarly
exchanged or changed into an amount per share equal to the Formula Number then
in effect times the aggregate amount of stock, securities, cash or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is exchanged or changed. In the event both this Section 6
and Section 2 appear to apply to a transaction, this Section 6 will control.
<PAGE>
8
SECTION 7. No Redemption; No Sinking Fund. (a) The shares of Series
-------------------------------
A Stock shall not be subject to redemption by the Corporation or at the option
of any holder of Series A Stock except as set forth in Section 5 of Article IV
of the Certificate of Incorporation; provided, however, that the Corporation may
-------- -------
purchase or otherwise acquire outstanding shares of Series A Stock in the open
market or by offer to any holder or holders of shares of Series A Stock.
(b) The shares of Series A Stock shall not be subject to or entitled
to the operation of a retirement or sinking fund.
SECTION 8. Ranking. The Series A Stock shall rank junior to all
--------
other series of Preferred Stock, unless the Board of Directors shall
specifically determine otherwise in fixing the powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
and restrictions thereof.
SECTION 9. Fractional Shares. The Series A Stock shall be issuable
------------------
upon exercise of the Rights issued pursuant to the Rights Agreement in whole
shares or in any fraction of a share that is one one-thousandths (1/1,000ths) of
a share or any integral multiple of such fraction that shall entitle the holder,
in proportion to such holder's fractional shares, to receive dividends, exercise
voting rights, participate in distributions and to have the benefit of all other
rights of holders of Series A Stock. In lieu of fractional shares, the
Corporation, prior to the first issuance of a share or a fraction of a share of
Series A Stock, may elect (1) to make a cash payment as provided in the Rights
Agreement for fractions of a share other than one one-thousandths (1/1,000ths)
of a share or any integral multiple thereof or (2) to issue depository receipts
evidencing such authorized fraction of a share of Series A Stock pursuant to an
appropriate agreement between the Corporation and a depository selected by the
Corporation; provided, however, that such agreement shall provide that the
-------- -------
holders of such depository receipts shall have all the rights, privileges and
preferences to which they are entitled as holders of the Series A Stock.
SECTION 10. Reacquired Shares. Any shares of Series A Stock
------------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
<PAGE>
9
shares shall upon their retirement become authorized but unissued shares of
Preferred Stock, without designation as to series until such shares are once
more designated as part of a particular series by the Board of Directors
pursuant to the provisions of Section 2 of Article IV of the Certificate of
Incorporation.
SECTION 11. Amendment. None of the powers, preferences and relative,
----------
participating, optional and other special rights of the Series A Stock as
provided herein or in the Certificate of Incorporation shall be amended in any
manner that would alter or change the powers, preferences, rights or privileges
of the holders of Series A Stock so as to affect them adversely without the
affirmative vote of the holders of at least 66-2/3% of the outstanding shares of
Series A Stock, voting as a separate class; provided, however, that no such
-------- -------
amendment approved by the holders of at least 66-2/3% of the outstanding shares
of Series A Stock shall be deemed to apply to the powers, preferences, rights or
privileges of any holder of shares of Series A Stock originally issued upon
exercise of the Rights after the time of such approval without the approval of
such holder.
IN WITNESS WHEREOF, TW INC. has caused this Certificate to be duly
executed in its corporate name on this [ ] day of [ ] 1996.
TW INC.,
by
__________________________
Name:
Title:
<PAGE>
EXHIBIT 3.1(e)
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES D CONVERTIBLE
PREFERRED STOCK
OF
TW INC.
____________________
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
____________________
TW INC. (as defined below, the "Corporation"), a corporation organized
and existing by virtue of the General Corporation Law of the State of Delaware
(the "DGCL"), does hereby certify that the following resolution was duly adopted
by action of the Board of Directors of the Corporation (the "Board of
Directors") at a meeting duly held on [ ], 1996.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $.10 per share ("Preferred Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series as follows:
The series of Preferred Stock hereby established shall consist of
11,000,000 shares designated as Series D Convertible Preferred Stock. The
rights, preferences and limitations of such series shall be as follows:
<PAGE>
2
1. Definitions. As used herein, the following terms shall have the
-----------
indicated meanings:
1.1 "Accrued Dividend Amount" shall mean the aggregate amount of
accrued and unpaid dividends on a share of Series D Stock to and including the
Conversion Date, except that if the Conversion Date shall occur after a Record
Date and prior to a related Dividend Payment Date, the Accrued Dividend Amount
shall not include any accrued and unpaid dividends for the period from and after
the most recent Dividend Payment Date.
1.2 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.3 "Capital Stock" shall mean any and all shares of corporate
stock of a Person (however designated and whether representing rights to vote,
rights to participate in dividends or distributions upon liquidation or
otherwise with respect to such Person, or any division or subsidiary thereof, or
any joint venture, partnership, corporation or other entity).
1.4 "Certificate" shall mean the certificate of the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of
Series D Convertible Preferred Stock filed with respect to this resolution with
the Secretary of State of the State of Delaware pursuant to Section 151 of the
DGCL.
1.5 "Change of Control" and "Change of Control Date" shall have
the following meanings: "Change of Control" shall mean the occurrence of one or
both of the following events: (a) individuals who would constitute a majority of
the members of the Board of Directors elected at any meeting of stockholders or
by written consent (without regard to any members of the Board of Directors
elected pursuant to the terms of any series of Preferred Stock) shall be elected
to the Board of Directors and the election or the nomination for election by the
stockholders of such directors was not approved by a vote of at least a majority
of the directors in office immediately prior to such election (in which event
"Change of Control Date" shall mean the date of such election) or (b) a Person
or group of
<PAGE>
3
Persons acting in concert as a partnership, limited partnership, syndicate or
other group within the meaning of Rule 13d-3 under the Exchange Act (the
"Acquiring Person") shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases, share repurchases or
redemptions or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act) of 40% or more of the outstanding shares
of Common Stock (in which event "Change of Control Date" shall mean the date of
the event resulting in such 40% ownership).
1.6 "Closing Price" of the Common Stock shall mean the last
reported sale price of the Common Stock (regular way) as shown on the Composite
Tape of the NYSE, or, in the event that no such sale takes place on such day,
the average of the closing bid and asked prices on the NYSE, or, if the Common
Stock is not listed or admitted to trading on the NYSE, on the principal
national securities exchange on which such stock is listed or admitted to
trading, or, if it is not listed or admitted to trading on any national
securities exchange, the last reported sale price of the Common Stock, or, in
the event that no such sale takes place on such day, the average of the closing
bid and asked prices, in either case as reported by NASDAQ.
1.7 "Common Dividend Deficiency" shall be applicable in the event
that a Conversion Date shall fall after a record date and prior to the related
payment date for a regularly scheduled cash dividend on the Common Stock (the
"Common Dividend Payment Date"), and in such event shall mean the product of (i)
the Conversion Rate, (ii) the amount per share of Common Stock of the regularly
scheduled cash dividend for which the record date has been set but a payment
date has not yet occurred and (ii) a fraction (A) the numerator of which is the
number of calendar days from and excluding the Conversion Date (or in the event
the Conversion Date falls after a Record Date and on or prior to a related
Dividend Payment Date, from and excluding the Dividend Payment Date) to and
including the Common Dividend Payment Date and (B) the denominator of which is
91 (provided that such fraction shall not be greater than one (1)).
1.8 "Common Dividend Excess" shall be applicable in all
circumstances where a Common Dividend Deficiency is not applicable, and in such
event shall mean the product of (i) the Conversion Rate, (ii) the regular
quarterly cash dividend per share, if any, paid by the
<PAGE>
4
Corporation on the Common Stock (the "Historical Dividend") on the most recent
dividend payment date for the Common Stock (the "Prior Dividend Payment Date")
occurring during the four months immediately preceding the Conversion Date and
(iii) a fraction (A) the numerator of which is the number of calendar days from
and excluding (1) the Prior Dividend Payment Date to and including (2) the
Conversion Date (or in the event the Conversion Date falls after a Record Date
and on or prior to a related Dividend Payment Date, to and including the
Dividend Payment Date) and (B) the denominator of which is 91 days (provided
that in no event shall the fraction be greater than one (1)).
1.9 "Common Stock" shall mean the class of Common Stock, par
value $.01 per share, of the Corporation authorized at the date of the
Certificate, or any other class of stock resulting from (x) successive changes
or reclassifications of such Common Stock consisting of changes in par value, or
from par value to no par value, (y) a subdivision or combination or (z) any
other changes for which an adjustment is made under Section 3.6(a), and in any
such case including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other securities of
the Corporation that are at the time represented by the certificates
representing such shares of Common Stock.
1.10 "Conversion Date" shall have the meaning set forth in
Section 3.5 hereof.
1.11 "Conversion Price" at any time shall mean the Liquidation
Value per share divided by the Conversion Rate in effect at such time (rounded
to the nearest one hundredth of a cent).
1.12 "Conversion Rate" shall have the meaning set forth in
Section 3.1 hereof.
1.13 "Converting Holder" shall have the meaning set forth in
Section 3.5 hereof.
1.14 "Corporation" shall mean TW Inc., a Delaware corporation,
and any of its successors by operation of law, including by merger,
consolidation or sale or conveyance of all or substantially all of its property
and assets.
<PAGE>
5
1.15 "Current Market Price" of the Common Stock on any date shall
mean the average of the daily Closing Prices per share of the Common Stock for
the five (5) consecutive Trading Days ending on the Trading Day immediately
preceding the applicable record date, conversion date, redemption date or
exchange date referred to in Section 3 or Section 4.
1.16 "DGCL" shall mean the General Corporation Law of the State
of Delaware.
1.17 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1 hereof.
1.18 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.19 "Exchange Price" shall have the meaning set forth in
Section 4.1 hereof.
1.20 "Junior Stock" shall mean the Common Stock, the Series A
Stock, the Series LMC Stock, the Series LMCN-V Stock and the shares of any other
class or series of Capital Stock of the Corporation that, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall be junior to the Series D Stock in respect of the right to
receive dividends or to participate in any distribution of assets other than by
way of dividends.
1.21 "Liquidation Value" shall have the meaning set forth in
Section 7.1 hereof.
1.22 "NASDAQ" shall mean the Nasdaq Stock Market.
1.23 "Net Dividend Amount" shall have the meaning set forth in
Section 3.1 hereof.
1.24 "NYSE" shall mean the New York Stock Exchange, Inc.
1.25 "Parity Stock" shall mean the Series E Stock, the Series F
Stock, the Series G Stock, the Series H Stock, the Series I Stock, the Series J
Stock, the Series L Stock, the Series M Stock and the shares of any other class
<PAGE>
6
or series of Capital Stock of the Corporation that, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall, in the event that the stated dividends thereon are not paid in
full, be entitled to share ratably with the Series D Stock in the payment of
dividends, including accumulations, if any, in accordance with the sums that
would be payable on such shares if all dividends were declared and paid in full,
or shall, in the event that the amounts payable thereon on liquidation are not
paid in full, be entitled to share ratably with the Series D Stock in any
distribution of assets other than by way of dividends in accordance with the
sums that would be payable in such distribution if all sums payable were
discharged in full; provided, however, that the term "Parity Stock" shall be
-------- -------
deemed to refer (i) in Section 2.2 hereof, to any stock that is Parity Stock in
respect of dividend rights; (ii) in Section 7 hereof, to any stock that is
Parity Stock in respect of the distribution of assets; and (iii) in Sections 6.2
and 6.3 hereof, to any stock that is Parity Stock in respect of either dividend
rights or the distribution of assets and that, pursuant to the Certificate of
Incorporation or any instrument in which the Board of Directors, acting pursuant
to authority granted in the Certificate of Incorporation, shall so designate, is
entitled to vote with the holders of Series D Stock.
1.26 "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
1.27 "Preferred Stock" shall mean the class of Preferred Stock,
par value $.10 per share, of the Corporation authorized at the date of the
Certificate, including any shares thereof authorized after the date of the
Certificate.
1.28 "Pro Rata Portion" shall have the meaning set forth in
Section 5.6 hereof.
1.29 "Pro Rata Repurchase" shall mean the purchase of shares of
Common Stock by the Corporation or by any of its subsidiaries, whether for cash
or other property or securities of the Corporation, which purchase is subject to
Section 13(e) of the Exchange Act or is made pursuant to an offer made available
to all holders of Common Stock, but
<PAGE>
7
excluding any purchase made in open market transactions that satisfies the
conditions of clause (b) of Rule 10b-18 under the Exchange Act or has been
designed (as reasonably determined by the Board of Directors) to prevent such
purchase from having a material effect on the trading market of the Common
Stock. The "Effective Date" of a Pro Rata Repurchase shall mean the applicable
expiration date (including all extensions thereof) of any tender or exchange
offer that is a Pro Rata Repurchase or the date of purchase with respect to any
Pro Rata Repurchase that is not a tender or exchange offer.
1.30 "Record Date" shall have the meaning set forth in
Section 2.1 hereof.
1.31 "Redemption Price" shall have the meaning set forth in
Section 4.1 hereof.
1.32 "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 are registered and listed for trading (or, if shares of Common
Stock are not registered and listed for trading on any such exchange, in the
over-the-counter market) for more than six-and-one-half (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 shares of this Series 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 earlier of (x) the time and date fixed for redemption in such
notice and (y) the time and date at which the Corporation shall have irrevocably
deposited funds with a designated bank or trust company pursuant to Section 4.4
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 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 on or prior to
<PAGE>
8
the earlier of the dates specified in clauses (x) and (y) above, (c) a
declaration of a banking moratorium or any suspension of payments in respect of
banks by Federal or state 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 that in the
reasonable judgment of the Corporation could have a material adverse effect on
the market for the Common Stock.
1.33 "Rescission Date" shall have the meaning set forth in
Section 4.5 hereof.
1.34 "Senior Stock" shall mean the shares of any class or series
of Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series D Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
1.35 "Series A Stock" shall mean the series of Preferred Stock
authorized and designated as Series A Participating Preferred Stock at the date
of the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.36 "Series D Stock" and "this Series" shall mean the series of
Preferred Stock authorized and designated as the Series D Convertible Preferred
Stock, including any shares thereof authorized and designated after the date of
the Certificate.
1.37 "Series E Stock" shall mean the series of Preferred Stock
authorized and designated as Series E Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.38 "Series F Stock" shall mean the series of Preferred Stock
authorized and designated as Series F Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
<PAGE>
9
1.39 "Series G Stock" shall mean the series of Preferred Stock
authorized and designated as Series G Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.40 "Series H Stock" shall mean the series of Preferred Stock
authorized and designated as Series H Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.41 "Series I Stock" shall mean the series of Preferred Stock
authorized and designated as Series I Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.42 "Series J Stock" shall mean the series of Preferred Stock
authorized and designated as Series J Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.43 "Series L Stock" shall mean the series of Preferred Stock
authorized and designated as 10-1/4% Series L Exchangeable Preferred Stock at
the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
1.44 "Series LMC Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMC Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.45 "Series LMCN-V Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMCN-V Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.46 "Series M Stock" shall mean the series of Preferred Stock
authorized and designated as 10-1/4% Series M Exchangeable Preferred Stock at
the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
<PAGE>
10
1.47 "Surrendered Shares" shall have the meaning set forth in
Section 3.5 hereof.
1.48 "Trading Day" shall mean, so long as the Common Stock 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 is not listed or admitted
to trading on the NYSE, a day on which the principal national securities
exchange on which the Common Stock is listed is open for the transaction of
business, or, if the Common Stock 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.
2. Cash Dividends.
--------------
2.1 The holders of the outstanding Series D Stock shall be
entitled to receive quarter-annual dividends, as and when declared by the Board
of Directors out of funds legally available therefor. Each quarter-annual
dividend shall be an amount per share equal to (i) in the case of each Dividend
Payment Date (as defined below) occurring on or prior to July 6, 1999, the
greater of (A) $.9375 per $100 of Liquidation Value of Series D Stock (which is
equivalent to $3.75 per annum), and (B) an amount per $100 of Liquidation Value
of Series D Stock equal to the product of (1) the Conversion Rate and (2) the
aggregate per share amount of regularly scheduled dividends paid in cash on the
Common Stock during the period from but excluding the immediately preceding
Dividend Payment Date to and including such Dividend Payment Date (the
"Preferred Dividend Amount"), and (ii) in the case of each Dividend Payment Date
occurring thereafter, an amount per $100 of Liquidation Value of Series D Stock
equal to the product of (1) the Conversion Rate and (2) the aggregate per share
amount of regularly scheduled dividends paid in cash on the Common Stock during
the period from but excluding the immediately preceding Dividend Payment Date to
and including such Dividend Payment Date. All dividends shall be payable in cash
on or about the first day of January, April, July and October in each year, as
fixed by the Board of Directors, or such other dates as are fixed by the Board
of Directors (provided that July 6, 1999, shall be a Dividend Payment Date)
(each a "Dividend Payment Date"), to the holders of record of Series D Stock at
the close of business on or about the Trading Day next preceding such first day
of January, April, July or October (or July 6, 1999) as the case may be, as
fixed by the Board of Directors, or such
<PAGE>
11
other dates as are fixed by the Board of Directors (each a "Record Date").
Subject to the next sentence, in the case of dividends payable in respect of
periods prior to July 6, 1999, (i) such dividends shall accrue on each share on
a daily basis, whether or not there are unrestricted funds legally available for
the payment of such dividends and whether or not earned or declared and (ii) any
such dividends that become payable for any partial dividend period shall be
computed on the basis of the actual days elapsed in such period.
Notwithstanding the preceding sentence, the amount accruing and payable in
respect of the first dividend on the Series D Stock payable after the date of
the Certificate shall equal the Preferred Dividend Amount. From and after July
6, 1999, dividends on the Series D Stock (determined as to amount as provided
herein) shall accrue to the extent, but only to the extent, that regularly
scheduled cash dividends are declared by the Board of Directors on the Common
Stock with a payment date after July 6, 1999 (or, in the case of Series D Stock
originally issued after July 6, 1999, after the Dividend Payment Date next
preceding such date of original issuance). All dividends that accrue in
accordance with the foregoing provisions shall be cumulative from and after the
day immediately succeeding the date of issuance. The amount payable to each
holder of record on any Dividend Payment Date shall be rounded to the nearest
cent.
2.2 Except as hereinafter provided in this Section 2.2, unless
all dividends on the outstanding shares of Series D Stock and any Parity Stock
that shall have accrued and become payable as of any date shall have been paid,
or declared and funds set apart for payment thereof, no dividend or other
distribution (payable other than in shares of Junior Stock) shall be paid to the
holders of Junior Stock or Parity Stock, and no shares of Series D Stock, Parity
Stock or Junior Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries (except by conversion into or exchange
for Junior Stock), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund for the purchase or redemption of any
Series D Stock, Junior Stock or Parity Stock. When dividends are not paid in
full upon the shares of this Series and any Parity Stock, all dividends declared
upon shares of this Series and all Parity Stock shall be declared pro rata so
that the amount of dividends declared per share on this Series and all such
Parity Stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of this
<PAGE>
12
Series and all such Parity Stock bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on this Series that may be in arrears.
2.3 In the event that the Corporation shall at any time
distribute (other than a distribution in liquidation of the Corporation) to the
holders of its shares of Common Stock any assets or property, including debt or
equity securities of the Corporation (other than Common Stock subject to a
distribution or reclassification covered by Section 3.6(a)) or of any other
Person (including common stock of such Person) or cash (but excluding regularly
scheduled cash dividends payable on shares of Common Stock), or in the event
that the Corporation shall at any time distribute (other than a distribution in
liquidation of the Corporation) to such holders rights, options or warrants to
subscribe for or purchase shares of Common Stock (including shares held in the
treasury of the Corporation), or rights, options or warrants to subscribe for or
purchase any other security or rights, options or warrants to subscribe for or
purchase any assets or property (in each case, whether of the Corporation or
otherwise, but other than any distribution of rights to purchase securities of
the Corporation if the holder of shares of this Series would otherwise be
entitled to receive such rights upon conversion of shares of this Series for
Common Stock; provided, however, that if such rights are subsequently redeemed
-------- -------
by the Corporation, such redemption shall be treated for purposes of this
Section 2.3 as a cash dividend (but not a regularly scheduled cash dividend) on
the Common Stock), the Corporation shall simultaneously distribute such assets,
property, securities, rights, options or warrants pro rata to the holders of
Series D Stock on the record date fixed for determining holders of Common Stock
entitled to participate in such distribution (or, if no such record date shall
be established, the effective time thereof) in an amount equal to the amount
that such holders of Series D Stock would have been entitled to receive had
their shares of Series D Stock been converted into Common Stock immediately
prior to such record date (or effective time). In the event of a distribution to
holders of Series D Stock pursuant to this Section 2.3, such holders shall be
entitled to receive fractional shares or interests only to the extent that
holders of Common Stock are entitled to receive the same. The holders of Series
D Stock on the applicable record date (or effective time) shall be entitled to
receive in lieu of such fractional shares or interests the same
<PAGE>
13
consideration as is payable to holders of Common Stock with respect thereto. If
there are no fractional shares or interests payable to holders of Common Stock,
the holders of Series D Stock on the applicable record date (or effective time)
shall receive in lieu of such fractional shares or interests the fair value
thereof as determined by the Board of Directors.
2.4 If a distribution is made in accordance with the provisions
of Section 2.3, anything in Section 3 to the contrary notwithstanding, no
adjustment pursuant to Section 3 shall be effected by reason of the distribution
of such assets, property, securities, rights, options or warrants or the
subsequent modification, exercise, expiration or termination of such securities,
rights, options or warrants.
2.5 In the event that the holders of Common Stock are entitled to
make any election with respect to the kind or amount of securities or other
property receivable by them in any distribution that is subject to Section 2.3,
the kind and amount of securities or other property that shall be distributable
to the holders of the Series D Stock shall be based on (i) the election, if any,
made by the record holder (as of the date used for determining the holders of
Common Stock entitled to make such election) of the largest number of shares of
Series D Stock in writing to the Corporation on or prior to the last date on
which a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable by holders of the Series D Stock shall
be based on the kind or amount of securities or other property receivable by a
plurality of shares held by the nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to in
this Section, the Corporation shall mail a copy thereof to the record holders of
the Series D Stock as of the date used for determining the holders of record of
Common Stock entitled to such mailing.
<PAGE>
14
3. Conversion Rights.
-----------------
3.1 Each holder of a share of this Series shall have the right
at any time or as to any share of this Series called for redemption or exchange,
at any time prior to the close of business on the date fixed for redemption or
exchange (unless the Corporation defaults in the payment of the Redemption Price
or fails to exchange the shares of this Series for the applicable number of
shares of Common Stock and any cash portion of the Exchange Price or exercises
its right to rescind such redemption pursuant to Section 4.5, in which case such
right shall not terminate at the close of business on such date), to convert
such share into (i) a number of shares of Common Stock equal to 2.08264 shares
of Common Stock for each share of this Series, subject to adjustment as provided
in this Section 3 (such rate, as so adjusted from time to time, is herein called
the "Conversion Rate") plus (ii) a number of shares of Common Stock equal to:
----
(A)(1) the Accrued Dividend Amount minus (2) the Common Dividend
-----
Excess, if applicable, or plus (3) the Common Dividend Deficiency, if
----
applicable (the "Net Dividend Amount"), divided by
----------
(B) the Closing Price of the Common Stock on the last Trading Day prior
to the Conversion Date;
provided, however, that in the event that the Net Dividend Amount is a negative
- -------- -------
number, the number of shares deliverable upon conversion of a share of Series D
Stock shall be equal to:
(I) the number of shares determined pursuant to clause (i) minus
-----
(II) a number of shares equal to (x) the absolute value of the Net
Dividend Amount divided by (y) the Closing Price of the Common Stock on the
----------
last Trading Day prior to the Conversion Date;
and, provided further, that, in the event that the Net Dividend Amount is a
- ---------------------
positive number, the Corporation shall have the right to deliver cash equal to
the Net Dividend Amount or any portion thereof, in which case its obligation to
deliver shares of Common Stock pursuant to clause (ii) shall be reduced by a
number of shares equal to (x) the aggregate amount of cash so delivered divided
-------
by (y) the
- --
<PAGE>
15
Closing Price of the Common Stock on the last Trading Day prior to the
Conversion Date, unless the Corporation shall deliver cash equal to the entire
Net Dividend Amount, in which case its entire obligation under clause (ii) shall
be discharged. The obligations of the Corporation to issue the Common Stock or
make the cash payments provided by this Section 3.1 shall be absolute whether or
not any accrued dividend by which such issuance or payment is measured has been
declared by the Board of Directors and whether or not the Corporation would have
adequate surplus or net profits to pay such dividend if declared or is otherwise
restricted from making such dividend.
3.2 Except as provided in this Section 3, no adjustments in
respect of payments of dividends on shares surrendered for conversion or any
dividend on the Common Stock issued upon conversion shall be made upon the
conversion of any shares of this Series (it being understood that if the
Conversion Date for shares of Series D Stock occurs after a Record Date and on
or prior to a Dividend Payment Date, the holder of record on such Record Date
shall be entitled to receive the dividend payable with respect to such shares on
the related Dividend Payment Date pursuant to Section 2.1 hereof).
3.3 The Corporation may, but shall not be required to, in
connection with any conversion of shares of this Series, issue a fraction of a
share of Common Stock, and if the Corporation shall determine not to issue any
such fraction, the Corporation shall, subject to Section 3.6(c), make a cash
payment (rounded to the nearest cent) equal to such fraction multiplied by the
Closing Price of the Common Stock on the last Trading Day prior to the
Conversion Date.
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock shall surrender the certificate or certificates for
such shares at the office of the transfer agent or agents therefor (or at such
other place as the Corporation may designate by notice to the holders of shares
of this Series) during regular business hours, duly endorsed to the Corporation
or in blank, or accompanied by instruments of transfer to the Corporation or in
blank, or in form satisfactory to the Corporation, and shall give written notice
to the Corporation at such office that such holder elects to convert such shares
of this Series. The Corporation shall, as soon as practicable (subject to
Section 3.6(d)) after such deposit of certificates for shares of this Series,
<PAGE>
16
accompanied by the written notice above prescribed, issue and deliver at such
office to the holder for whose account such shares were surrendered, or to his
nominee, certificates representing the number of shares of Common Stock and the
cash, if any, to which such holder is entitled upon such conversion.
3.5 Conversion shall be deemed to have been made as of the date
(the "Conversion Date") that certificates for the shares of this Series to be
converted, and the written notice prescribed in Section 3.4 are received by the
transfer agent or agents for this Series; and the Person entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such Common Stock on such date. Notwithstanding anything to
the contrary contained herein, in the event the Corporation shall have rescinded
a redemption of shares of this Series pursuant to Section 4.5, any holder of
shares of this Series that shall have surrendered shares of this Series for
conversion following the day on which notice of the subsequently rescinded
redemption shall have been given but prior to the close of business on the later
of (a) the Trading Day next succeeding the date on which public announcement of
the rescission of such redemption shall have been made and (b) the Trading Day
on which the notice of rescission required by Section 4.5 is deemed given
pursuant to Section 8.2 (a "Converting Holder"), may rescind the conversion of
such shares surrendered for conversion by (i) properly completing a form
prescribed by the Corporation and mailed to holders of shares of this Series
(including Converting Holders) with the Corporation'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 Exchange Act) of shares of this Series that the beneficial
ownership (within the meaning of such Rule) of such shares shall not have
changed from the date on which such shares were surrendered for conversion to
the date of such certification and (ii) delivering such form to the Corporation
no later than the close of business on that date which is ten (10) Trading Days
following the date on which the Corporation's notice of rescission is deemed
given pursuant to Section 8.2. The delivery of such form by a Converting Holder
shall be accompanied by (x) any certificates representing shares of Common Stock
issued to such Converting Holder upon a conversion of shares of this Series that
shall be rescinded by the proper delivery of such form (the "Surrendered
<PAGE>
17
Shares"), (y) any securities, evidences of indebtedness or assets (other than
cash) distributed by the Corporation to such Converting Holder by reason of such
Converting Holder's being a record holder of Surrendered Shares and (z) payment
in New York Clearing House funds or other funds acceptable to the Corporation of
an amount equal to the sum of (I) any cash such Converting Holder may have
received in lieu of the issuance of fractional shares upon conversion and (II)
any cash paid or payable by the Corporation to such Converting Holder by reason
of such Converting Holder being a record holder of Surrendered Shares. Upon
receipt by the Corporation 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 or made by such Converting Holder to the
Corporation as set forth above, the Corporation shall instruct the transfer
agent or agents for shares of Common Stock and shares of this Series to cancel
any certificates representing Surrendered Shares (which Surrendered Shares shall
be deposited in the treasury of the Corporation) and reissue certificates
representing shares of this Series to such Converting Holder (which shares of
this Series shall be deemed to have been outstanding at all times during the
period following their surrender for conversion). The Corporation shall, as
promptly as practicable, and in no event more than five (5) 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 or made, pay to the Converting Holder or as otherwise
directed by such Converting Holder any dividend or other payment made on such
shares during the period from the time such shares shall have been surrendered
for conversion to the rescission of such conversion. All questions as to the
validity, form, eligibility (including time or receipt) and acceptance of any
form submitted to the Corporation to rescind the conversion of shares of this
Series, including questions as to the proper completion or execution of any such
form or any certification contained therein, shall be resolved by the
Corporation, whose determination shall be final and binding. The Corporation
shall not be required to deliver certificates for shares of Common Stock while
the stock transfer books for such stock or for this Series are duly closed for
any purpose or during any period commencing at a Redemption Rescission Event and
ending at either (i) the time and date at which the Corporation's right of
rescission shall expire pursuant to Section 4.5 if the Corporation shall not
have exercised such right or (ii) the close of
<PAGE>
18
business on that day which is ten (10) Trading Days following the date on which
notice of rescission pursuant to Section 4.4 is deemed given pursuant to Section
8.2 if the Corporation shall have exercised such right of rescission, but
certificates for shares of Common Stock shall be delivered as soon as
practicable after the opening of such books or the expiration of such period.
3.6 The Conversion Rate shall be adjusted from time to time as
follows for events occurring after the date of the Certificate:
(a) In the event that the Corporation shall, at any time or from
time to time while any of the Series D Stock is outstanding, (i) pay a
dividend in shares of its Common Stock, (ii) combine its outstanding shares
of Common Stock into a smaller number of shares, (iii) subdivide its
outstanding shares of Common Stock or (iv) reclassify (other than by way of
a merger that is subject to Section 3.7) its shares of Common Stock, then
the Conversion Rate in effect immediately before such action shall be
adjusted so that immediately following such event the holders of the Series
D Stock shall be entitled to receive upon conversion or exchange thereof
the kind and amount of shares of Capital Stock of the Corporation that they
would have owned or been entitled to receive upon or by reason of such
event if such shares of Series D Stock had been converted or exchanged
immediately before the record date (or, if no record date, the effective
date) for such event (it being understood that any distribution of cash or
of Capital Stock (other than Common Stock), including any distribution of
Capital Stock that shall accompany a reclassification of the Common Stock,
shall be subject to Section 2.3 rather than this Section 3.6(a)). An
adjustment made pursuant to this Section 3.6(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 3.6(a), in the event
that the holders of Common Stock are entitled to make any election with
respect to the kind or amount of securities receivable by them in any
transaction that is subject to this Section 3.6(a) (including any election
that would result in all or a portion of the transaction becoming subject
to
<PAGE>
19
Section 2.3), the kind and amount of securities that shall be distributable
to the holders of the Series D Stock shall be based on (i) the election, if
any, made by the record holder (as of the date used for determining the
holders of Common Stock entitled to make such election) of the largest
number of shares of Series D Stock in writing to the Corporation on or
prior to the last date on which a holder of Common Stock may make such an
election or (ii) if no such election is timely made, an assumption that
such holder failed to exercise any such rights (provided that if the kind
or amount of securities is not the same for each nonelecting holder, then
the kind and amount of securities receivable shall be based on the kind or
amount of securities receivable by a plurality of nonelecting holders of
Common Stock). Concurrently with the mailing to holders of Common Stock of
any document pursuant to which such holders may make an election of the
type referred to in this Section, the Corporation shall mail a copy thereof
to the record holders of the Series D Stock as of the date used for
determining the holders of record of Common Stock entitled to such mailing.
(b) In the event that a Change of Control shall occur, the
Conversion Rate in effect immediately prior to the Change of Control Date
shall be increased (but not decreased) by multiplying such rate by a
fraction as follows: (i) in the case of a Change of Control specified in
Section 1.5(a), a fraction in which the numerator is the Conversion Price
prior to adjustment pursuant hereto and the denominator is the Current
Market Price of the Common Stock at the Change of Control Date, (ii) in the
case of a Change of Control specified in Section 1.5(b), the greater of the
following fractions: (x) a fraction the numerator of which is the highest
price per share of Common Stock paid by the Acquiring Person in connection
with the transaction giving rise to the Change of Control or in any
transaction within six months prior to or after the Change of Control Date
(the "Highest Price"), and the denominator of which is the Current Market
Price of the Common Stock as of the date (but not earlier than six months
prior to the Change of Control Date) on which the first public announcement
is made by the Acquiring Person that it intends to acquire or that it has
acquired 40% or more of the outstanding shares of Common Stock (the
"Announcement Date") or (y) a
<PAGE>
20
fraction the numerator of which is the Conversion Price prior to adjustment
pursuant hereto and the denominator of which is the Current Market Price of
the Common Stock on the Announcement Date and (iii) in the case where there
co-exists a Change of Control specified in both Section 1.5(a) and Section
1.5(b), the greatest of the fractions determined pursuant to clauses (i)
and (ii). Such adjustment shall become effective immediately after the
Change of Control Date and shall be made, in the case of clauses (ii) and
(iii) above, successively for six months thereafter in the event and at the
time of any increase in the Highest Price after the Change of Control Date;
provided, however, that no such successive adjustment shall be made with
-------- -------
respect to the Conversion Rate of the shares of this Series in respect of
any event occurring after the Conversion Date.
(c) The Corporation shall be entitled to make such additional
adjustments in the Conversion Rate, in addition to those required by
subsections 3.6(a) and 3.6(b), as shall be necessary in order that any
dividend or distribution in Common Stock or any subdivision,
reclassification or combination of shares of Common Stock referred to
above, shall not be taxable to the holders of Common Stock for United
States Federal income tax purposes so long as such additional adjustments
pursuant to this Section 3.6(c) do not decrease the Conversion Rate.
(d) In any case in which this Section 3.6 shall require that any
adjustment be made effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for five (5)
Trading Days following the occurrence of the event that necessitates the
filing of the statement referred to in Section 3.6(f)) issuing to the
holder of any shares of this Series converted after such record date (i)
the shares of Common Stock and other Capital Stock of the Corporation
issuable upon such conversion over and above (ii) the shares of Common
Stock and other Capital Stock of the Corporation issuable upon such
conversion on the basis of the Conversion Rate prior to adjustment;
provided, however, that the Corporation 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.
<PAGE>
21
(e) All calculations under this Section 3 shall be made to the
nearest cent, one-hundredth of a share or, in the case of the Conversion
Rate, one hundred-thousandth. Notwithstanding any other provision of this
Section 3, the Corporation shall not be required to make any adjustment of
the Conversion Rate unless such adjustment would require an increase or
decrease of at least 1.00000% of such Conversion Rate. Any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment that, together with any
adjustment or adjustments so carried forward, shall amount to an increase
or decrease of at least 1.00000% in such rate. Any adjustments under this
Section 3 shall be made successively whenever an event requiring such an
adjustment occurs.
(f) Whenever an adjustment in the Conversion Rate is required,
the Corporation shall forthwith place on file with its transfer agent or
agents for this Series a statement signed by a duly authorized officer of
the Corporation, stating the adjusted Conversion Rate determined as
provided herein. Such statements shall set forth in reasonable detail such
facts as shall be necessary to show the reason for and the manner of
computing such adjustment. Promptly after the adjustment of the Conversion
Rate, the Corporation shall mail a notice thereof to each holder of shares
of this Series.
(g) In the event that at any time as a result of an adjustment
made pursuant to this Section 3, the holder of any share of this Series
thereafter surrendered for conversion shall become entitled to receive any
shares of Capital Stock of the Corporation other than shares of Common
Stock, the conversion rate of such other shares so receivable upon
conversion of any such share of this Series 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 contained in
subparagraphs (a) through (f) and (h) of this Section 3.6, and the
provisions of Section 3.1 through 3.5 and 3.7 through 3.10 shall apply on
like or similar terms to any such other shares and the determination of the
Board of Directors as to any such adjustment shall be conclusive.
<PAGE>
22
(h) No adjustment shall be made pursuant to this Section 3.6
(i) if the effect thereof would be to reduce the Conversion Price below the
par value of the Common Stock or (ii) subject to Section 3.6(c) hereof,
with respect to any share of Series D Stock that is converted, prior to the
time such adjustment otherwise would be made.
3.7 In the event that after the date of the Certificate (a) any
consolidation or merger to which the Corporation is a party, other than a merger
or consolidation in which the Corporation is the surviving or continuing
corporation and that does not result in any 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, or as a result of a subdivision or combination) in,
outstanding shares of Common Stock or (b) any sale or conveyance of all or
substantially all of the property and assets of the Corporation, then lawful
provision shall be made as part of the terms of such transaction whereby the
holder of each share of Series D Stock shall have the right thereafter, during
the period such share shall be convertible or exchangeable, to convert such
share into or have such share exchanged for the kind and amount of shares of
stock or other securities and property receivable upon such consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
into which such shares of this Series could have been converted or exchanged
immediately prior to such consolidation, merger, sale or conveyance, subject to
adjustment that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3 (based on (i) the election, if any,
made in writing to the Corporation by the record holder (as of the date used for
determining holders of Common Stock entitled to make such election) of the
largest number of shares of Series D Stock on or prior to the last date on which
a holder of Common Stock may make an election regarding the kind or amount of
securities or other property receivable by such holder in such transaction or
(ii) if no such election is timely made, an assumption that such holder failed
to exercise any such rights (provided that if the kind or amount of securities
or other property is not the same for each nonelecting holder, then the kind and
amount of securities or other property receivable shall be based upon the kind
and amount of securities or other property receivable by a plurality of the
nonelecting holders of Common Stock)). In the event that any of the transactions
referred to in clauses (a) or (b) involves the distribution
<PAGE>
23
of cash (or property other than equity securities) to a holder of Common Stock,
lawful provision shall be made as part of the terms of the transaction whereby
the holder of each share of Series D Stock on the record date fixed for
determining holders of Common Stock entitled to receive such cash or property
(or if no such record date is established, the effective date of such
transaction) shall be entitled to receive the amount of cash or property that
such holder would have been entitled to receive had such holder converted his
shares of Series D Stock into Common Stock immediately prior to such record date
(or effective date) (based on the election or nonelection made by the record
holder of the largest number of shares of Series D Stock, as provided above).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election regarding the kind or amount
of securities or other property that will be receivable by such holder in any
transaction described in clause (a) or (b) of the first sentence of this Section
3.7, the Corporation shall mail a copy thereof to the holders of the Series D
Stock as of the date used for determining the holders of record of Common Stock
entitled to such mailing. The Corporation shall not enter into any of the
transactions referred to in clauses (a) or (b) of the preceding sentence unless
effective provision shall be made in the certificate or articles of
incorporation or other constituent documents of the Corporation or the entity
surviving the consolidation or merger, if other than the Corporation, or the
entity acquiring the Corporation's assets, as the case may be, so as to give
effect to the provisions set forth in this Section 3.7. The provisions of this
Section 3.7 shall apply similarly to successive consolidations, mergers, sales
or conveyances. For purposes of this Section 3.7 the term "Corporation" shall
refer to the Corporation (as defined in Section 1.14) as constituted immediately
prior to the merger, consolidation or other transaction referred to in this
Section.
3.8 The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
stock, for the purpose of effecting the conversion of the shares of this Series,
such number of its duly authorized shares of Common Stock (or, if applicable,
any other shares of Capital Stock of the Corporation) as shall from time to time
be sufficient to effect the conversion of all outstanding shares of this Series
into such Common Stock (or such other shares of Capital Stock) at any time
(assuming that, at the time of
<PAGE>
24
the computation of such number of shares, all such Common Stock (or such other
shares of Capital Stock) would be held by a single holder); provided, however,
-------- -------
that nothing contained herein shall preclude the Corporation from satisfying its
obligations in respect of the conversion of the shares by delivery of purchased
shares of Common Stock (or such other shares of Capital Stock) that are held in
the treasury of the Corporation. All shares of Common Stock (or such other
shares of Capital Stock of the Corporation) that shall be deliverable upon
conversion of the shares of this Series shall be duly and validly issued, fully
paid and nonassessable. For purposes of this Section 3, any shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Corporation.
3.9 If any shares of Common Stock or other shares of Capital
Stock of the Corporation that would be issuable upon conversion of shares of
this Series hereunder require registration with or approval of any governmental
authority before such shares may be issued upon conversion, the Corporation will
in good faith and as expeditiously as possible cause such shares to be duly
registered or approved, as the case may be. The Corporation will use
commercially reasonable efforts to list the shares of (or depositary shares
representing fractional interests in) Common Stock or other shares of Capital
Stock of the Corporation required to be delivered upon conversion of shares of
this Series prior to such delivery upon the principal national securities
exchange upon which the outstanding Common Stock or such other shares of Capital
Stock is listed at the time of such delivery.
3.10 The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock or other shares of Capital Stock of the Corporation on conversion of
shares of this Series pursuant hereto. The Corporation shall not, however, be
required to pay any tax that is payable in respect of any transfer involved in
the issue or delivery of Common Stock or such other shares of Capital Stock in a
name other than that in which the shares of this Series 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 Corporation the amount of such tax,
or has established, to the satisfaction of the Corporation, that such tax has
been paid.
<PAGE>
25
3.11 In the event of (i) the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, (ii) any Pro Rata
Repurchase or (iii) any action triggering an adjustment to the Conversion Rate
pursuant to this Section 3, then, in each case, the Corporation shall cause to
be filed with the transfer agent or agents for the Series D Stock, and shall
cause to be mailed, first-class postage prepaid, to the holders of record of the
outstanding shares of Series D Stock, at least fifteen (15) days prior to the
applicable record date for any such transaction (or if no record date will be
established, the effective date thereof), a notice stating (x) the date, if any,
on which a record is to be taken for the purpose of any such transaction (or, if
no record date will be established, the date as of which holders of record of
Common Stock entitled to participate in such transaction are determined), and
(y) the expected effective date thereof. Failure to give such notice or any
defect therein shall not affect the legality or validity of the proceedings
described in this Section 3.11.
4. Redemption or Exchange.
----------------------
4.1 (a) The Corporation may, at its sole option, subject to
Section 2.2 hereof, from time to time on and after July 6, 2000, in the case of
clause (i) or (iii) of Section 4.1(b), and on and after July 6, 1999, in the
case of clause (ii) of Section 4.1(b), redeem, out of funds legally available
therefor, or, as provided below, exchange shares of Common Stock for, all (or in
the case of Section 4.1(b)(i), any part) of the outstanding shares of this
Series. The redemption price for each share of this Series called for redemption
pursuant to clause (i) of Section 4.1(b) shall be the Liquidation Value together
with an amount equal to the accrued and unpaid dividends to the date fixed for
redemption (hereinafter collectively referred to as the "Redemption Price"). The
exchange price for each share of this Series called for exchange pursuant to
clause (ii) of Section 4.1(b) shall be a number of shares of Common Stock equal
to the Conversion Rate, together with, at the option of the Corporation, either
(x) cash or (y) a number of shares of Common Stock, valued at the Closing Price
on the Trading Day immediately preceding the date fixed for exchange, equal, in
either case, to the aggregate amount of accrued and unpaid dividends on the
Series D Stock to the date fixed for exchange (provided that any dividends
<PAGE>
26
that are in arrears must be paid in cash) (hereinafter collectively referred to
as the "Exchange Price").
(b) On the date fixed for redemption or exchange the Corporation
shall, at its option, effect either
(i) a redemption of the shares of this Series to be redeemed by
way of payment, out of funds legally available therefor, of cash equal to
the aggregate Redemption Price for the shares of this Series then being
redeemed;
(ii) an exchange of the shares of this Series for the Exchange
Price in shares of Common Stock (provided that the Corporation (A) shall be
--------
entitled to deliver cash (1) in lieu of any fractional share of Common
Stock (determined in a manner consistent with Section 3.3) and (2) equal to
accrued and unpaid dividends to the date fixed for exchange in lieu of
shares of Common Stock and (B) shall be required to deliver cash in respect
of any dividends that are in arrears); or
(iii) any combination thereof with respect to each share of this
Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and (iii) of Section 4.1(b), the
Corporation shall be entitled to effect an exchange of shares of Series D Stock
for Common Stock or other shares of Capital Stock of the Corporation only to the
extent that duly and validly issued, fully paid and nonassessable shares of
Common Stock (or such other shares of Capital Stock) shall be available for
issuance (including delivery of previously issued shares of Common Stock held in
the Corporation's treasury on the date fixed for exchange). The Corporation
shall comply with Sections 3.9 and 3.10 with respect to shares of Common Stock
or other shares of Capital Stock of the Corporation that would be issuable upon
exchange of shares of this Series. Certificates for shares of Common Stock
issued in exchange for surrendered shares of this Series pursuant to this
Section 4.1 shall be made available by the Corporation not later than the fifth
Trading Day following the date for exchange.
4.2 In the event that fewer than all the outstanding shares of
this Series are to be redeemed pursuant to Section 4.1(b)(i), the number of
shares to be
<PAGE>
27
redeemed from each holder of shares of this Series shall be determined by the
Corporation by lot or pro rata or by any other method as may be determined by
the Board of Directors in its sole discretion to be equitable, and the
certificate of the Corporation's Secretary or an Assistant Secretary filed with
the transfer agent or transfer agents for this Series in respect of such
determination by the Board of Directors shall be conclusive.
4.3 In the event the Corporation shall redeem or exchange shares
of this Series pursuant to Section 4.1, notice of such redemption or exchange
shall be given by first-class mail, postage prepaid, mailed not less than
fifteen (15) nor more than sixty (60) days prior to the date fixed for
redemption or exchange, as the case may be, to each record holder of the shares
to be redeemed or exchanged, at such holder's address as the same appears on the
books of the Corporation. Each such notice shall state: (i) whether the shares
of this Series are to be redeemed or exchanged; (ii) the time and date as of
which the redemption or exchange shall occur; (iii) the total number of shares
of this Series to be redeemed or exchanged and, if fewer than all the shares
held by such holder are to be redeemed, the number of such shares to be redeemed
from such holder; (iv) the Redemption Price or the Exchange Price, as the case
may be; (v) that shares of this Series called for redemption or exchange may be
converted at any time prior to the time and date fixed for redemption or
exchange (unless the Corporation shall, in the case of a redemption, default in
payment of the Redemption Price or, in the case of an exchange, fail to exchange
the shares of this Series for the applicable number of shares of Common Stock
and any cash portion of the Exchange Price or shall exercise its right to
rescind such redemption pursuant to Section 4.5, in which case such right of
conversion shall not terminate at such time and date); (vi) the applicable
Conversion Price and Conversion Rate; (vii) the place or places where
certificates for such shares are to be surrendered for payment of the Redemption
Price, in the case of redemption, or for delivery of certificates representing
the shares of Common Stock and the payment of any cash portion of the Exchange
Price, in the case of exchange; and (viii) that dividends on the shares of this
Series to be redeemed or exchanged will cease to accrue on such redemption or
exchange date.
4.4 If notice of redemption or exchange shall have been given by
the Corporation as provided in
<PAGE>
28
Section 4.3, dividends on the shares of this Series so called for redemption or
exchange shall cease to accrue, such shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as stockholders with respect
to shares so called for redemption or exchange (except (i) in the case of
redemption, the right to receive from the Corporation the Redemption Price
without interest and in the case of exchange, the right to receive from the
Corporation the Exchange Price without interest and (ii) the right to convert
such shares in accordance with Section 3) shall cease (including any right to
receive dividends otherwise payable on any Dividend Payment Date that would have
occurred after the time and date of redemption or exchange) either (i) in the
case of a redemption or exchange pursuant to Section 4.1, from and after the
time and date fixed in the notice of redemption or exchange as the time and date
of redemption or exchange (unless the Corporation shall (x) in the case of a
redemption, default in the payment of the Redemption Price, (y) in the case of
an exchange, fail to exchange the applicable number of shares of Common Stock
and any cash portion of the Exchange Price or (z) exercise its right to rescind
such redemption pursuant to Section 4.5, in which case such rights shall not
terminate at such time and date) or (ii) if the Corporation shall so elect and
state in the notice of redemption or exchange, from and after the time and date
(which date shall be the date fixed for redemption or exchange or an earlier
date not less than fifteen (15) days after the date of mailing of the redemption
or exchange notice) on which the Corporation shall irrevocably deposit with a
designated bank or trust company doing business in the Borough of Manhattan,
City and State of New York, as paying agent, money sufficient to pay at the
office of such paying agent, on the redemption date, the Redemption Price, in
the case of redemption, or certificates representing the shares of Common Stock
to be so exchanged and any cash portion of the Exchange Price, in the case of an
exchange. Any money or certificates so deposited with any such paying agent
that shall not be required for such redemption or exchange because of the
exercise of any right of conversion or otherwise shall be returned to the
Corporation forthwith. Upon surrender (in accordance with the notice of
redemption or exchange) of the certificate or certificates for any shares of
this Series to be so redeemed or exchanged (properly endorsed or assigned for
transfer, if the Corporation shall so require and the notice of redemption or
exchange shall so state), such shares shall be redeemed or exchanged by the
Corporation at the Redemption Price or the
<PAGE>
29
Exchange Price, as applicable, as set forth in Section 4.1 (unless the
Corporation shall have exercised its right to rescind such redemption pursuant
to Section 4.5). In the event that fewer than all the shares represented by any
such certificate are to be redeemed, a new certificate shall be issued
representing the unredeemed shares (or fractions thereof as provided in Section
8.4), without cost to the holder thereof, together with the amount of cash, if
any, in lieu of fractional shares other than those issuable in accordance with
Section 8.4. Subject to applicable escheat laws, any moneys so set aside by the
Corporation in the case of redemption and unclaimed at the end of one year from
the redemption date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption or exchange
shall look only to the general funds of the Corporation for the payment of the
Redemption Price or the Exchange Price, as applicable, without interest. Any
interest accrued on funds so deposited shall be paid to the Corporation from
time to time.
4.5 In the event that a Redemption Rescission Event shall occur
following any day on which a notice of redemption shall have been given pursuant
to Section 4.3 but at or prior to the earlier of (a) the time and date fixed for
redemption as set forth in such notice of redemption and (b) the time and date
at which the Corporation shall have irrevocably deposited funds or certificates
with a designated bank or trust company pursuant to Section 4.4, the Corporation
may, at its sole option, at any time prior to the earliest of (i) the close of
business on that day which is two (2) Trading Days following such Redemption
Rescission Event, (ii) the time and date fixed for redemption as set forth in
such notice and (iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or trust company,
rescind the redemption under Section 4.1(b)(i) to which such notice of
redemption shall have 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 Corporation 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 Corporation shall
have no obligation to redeem shares of this Series called for redemption
pursuant to such notice of redemption or to pay the
<PAGE>
30
redemption price therefor and all rights of holders of shares of this Series
shall be restored as if such notice of redemption had not been given. The
Corporation shall give notice of any such rescission by one of the means
specified in Section 8.2 as promptly as practicable, but in no event later than
the close of business on that date which is five (5) Trading Days following the
Rescission Date to each record holder of shares of this Series at the close of
business on the Rescission Date and to any other Person or entity that was a
record holder of shares of this Series and that shall have surrendered shares of
this Series for conversion following the giving of notice of the subsequently
rescinded redemption. Each notice of rescission shall (w) state that the
redemption described in the notice of redemption has been rescinded, (x) state
that any Converting Holder shall be entitled to rescind the conversion of shares
of this Series surrendered for conversion following the day on which notice of
redemption was given but prior to the close of business on the later of (1) the
Trading Day next succeeding the date on which public announcement of the
rescission of such redemption shall have been made and (2) the Trading Day on
which the Corporation's notice of rescission is deemed given pursuant to Section
8.2, (y) be accompanied by a form prescribed by the Corporation to be used by
any Converting Holder rescinding the conversion of shares so surrendered for
conversion (and instructions for the completion and delivery of such form,
including instructions with respect to payments that may be required to
accompany such delivery shall be in accordance with Section 3.5) and (z) state
that such form must be properly completed and received by the Corporation no
later than the close of business on a date that shall be ten (10) Trading Days
following the date of the mailing of such notice of rescission is deemed given
pursuant to Section 8.2.
4.6 The shares of this Series shall not be subject to the
provisions of Section 5 of Article IV of the Certificate of Incorporation.
5. Pro Rata Repurchase.
-------------------
5.1 Upon a Pro Rata Repurchase, each holder of shares of this
Series shall have the right to require that the Corporation repurchase, out of
funds legally available therefor, a Pro Rata Portion (as defined below) of the
shares of such holder, or any lesser number requested by the holder, at a price
per share equal to the highest price
<PAGE>
31
per share of Common Stock paid in the Pro Rata Repurchase multiplied by the
Conversion Rate then in effect plus an amount equal to the accrued but unpaid
----
dividends on such shares to the date of repurchase.
5.2 At any time prior to or within thirty (30) days following any
Pro Rata Repurchase, the Corporation shall mail a notice to each holder of
shares of this Series stating:
(a) that a Pro Rata Repurchase will occur or has occurred and that
such holder will have (upon such Pro Rata Repurchase) or has the right to
require the Corporation to repurchase such holder's shares in an amount not
in excess of the Pro Rata Portion at a repurchase price in cash determined
as set forth above plus an amount equal to accrued and unpaid dividends, if
----
any, to the date of repurchase;
(b) the repurchase date for the Series D Stock (which shall be no
earlier than fifteen (15) days nor later than sixty (60) days from the date
such notice is mailed); and
(c) the instructions determined by the Corporation, consistent with
this Section, that a holder must follow in order to have its shares
repurchased.
5.3 Holders electing to have any shares repurchased will be
required to surrender such shares, with an appropriate form duly completed, to
the Corporation at the address specified in the notice at least five (5) days
prior to the repurchase date. Holders will be entitled to withdraw their
election if the Corporation receives, not later than three (3) days prior to the
repurchase date, a telegram, telex, facsimile transmission or letter setting
forth the name of the holder, the certificate numbers of the shares delivered
for purchase by the holder and a statement that such holder is withdrawing his
election to have such shares repurchased. Holders will have such additional
withdrawal and other rights as may be required pursuant to applicable law.
5.4 On the repurchase date, the Corporation shall (i) pay the
repurchase price plus an amount equal to accrued and unpaid dividends as
----
provided in Section 5.1, if any, to the holders entitled thereto and (ii) issue
to such
<PAGE>
32
holders any equity securities of the Corporation (other than Common Stock) that
would at the time be issuable upon conversion of the shares of Series D Stock
that are then being repurchased pursuant hereto.
5.5 The Board of Directors will not approve any tender or
exchange offer by the Corporation or a third party for shares of Common Stock or
recommend that the holders of Common Stock accept any offer or tender their
shares into any offer unless a Pro Rata Portion of the shares of this Series of
all holders are entitled to be tendered into such offer at a price not less than
the price per share for shares of Common Stock pursuant to such offer multiplied
by the Conversion Rate then in effect plus an amount equal to accrued but unpaid
----
dividends on such shares to the date of payment for such shares in such tender
or exchange offer.
5.6 For purposes hereof, "Pro Rata Portion" with respect to the
shares of this Series held by any holder shall mean all the shares of this
Series then owned by such holder times a fraction, the numerator of which is the
number of outstanding shares of Common Stock (a) purchased in the applicable Pro
Rata Repurchase or (b) for which a tender or exchange offer referred to in
Section 5.5 is made, as the case may be, and the denominator of which is the
number of outstanding shares of Common Stock immediately prior to such Pro Rata
Repurchase or the commencement of such tender or exchange offer, as the case may
be.
6. Voting. The shares of this Series shall have no voting rights
------
except as required by law or as set forth below.
6.1 Each share of this Series shall be entitled to vote together
with holders of the shares of Common Stock (and any other class or series that
may similarly be entitled to vote with the shares of Common Stock) as a single
class upon all matters upon which holders of Common Stock are entitled to vote.
In any such vote, the holders of this Series shall be entitled to two (2) votes
per $100 of Liquidation Value of Series D Stock, subject to adjustment at the
same time and in the same manner as each adjustment of the Conversion Rate
pursuant to Section 3, so that the holders of this Series shall be entitled
following such adjustment to the number of votes equal to the number of votes
such holders were entitled to under this Section 6.1 immediately prior to such
adjustment multiplied
<PAGE>
33
by a fraction (x) the numerator of which is the Conversion Rate as adjusted
pursuant to Section 3 and (y) the denominator of which is the Conversion Rate
immediately prior to such adjustment.
6.2(a) So long as any shares of this Series remain outstanding,
unless a greater percentage shall then be required by law, the Corporation shall
not, without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of shares of this Series representing at least
66-2/3% of the aggregate voting power of shares of this Series then outstanding
(i) authorize any Senior Stock or reclassify (by merger, consolidation or
otherwise) any Junior Stock or Parity Stock as Senior Stock, (ii) merge into or
consolidate with any Person where the surviving or continuing corporation will
have any authorized Senior Stock (other than capital stock corresponding to
shares of Senior Stock existing immediately before such merger or consolidation)
or (iii) amend, alter or repeal (by operation of law or otherwise) any of the
provisions of the Certificate or the Certificate of Incorporation, so as in any
such case to adversely affect the voting powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions of the shares of this Series.
(b) No consent of holders of shares of this Series shall be
required for (i) the creation of any indebtedness of any kind of the
Corporation, (ii) the authorization or issuance of any class of Junior Stock or
Parity Stock, (iii) the authorization, designation or issuance of additional
shares of Series D Stock or (iv) subject to Section 6.2(a), the authorization or
issuance of any other shares of Preferred Stock.
6.3(a) If and whenever at any time or times dividends payable on
shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the Board
of Directors shall be increased by two and the holders of shares of this Series,
together with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six quarterly dividend
periods, shall have the exclusive right, voting separately
<PAGE>
34
as a class with such other series, to elect two directors of the Corporation.
(b) Such voting right may be exercised initially either by
written consent or at a special meeting of the holders of the Preferred Stock
having such voting right, called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at each such annual meeting until such time as all dividends in
arrears on the shares of this Series shall have been paid in full and all
dividends payable on the shares of this Series on four subsequent consecutive
Dividend Payment Dates shall have been paid in full on such dates or funds shall
have been set aside for the payment thereof, at which time such voting right and
the term of the directors elected pursuant to Section 6.3(a) shall terminate.
(c) At any time when such voting right shall have vested in
holders of shares of such series of Preferred Stock described in Section 6.3(a),
and if such right shall not already have been exercised by written consent, a
proper officer of the Corporation may call, and, upon the written request,
addressed to the Secretary of the Corporation, of the record holders of shares
representing ten percent (10%) of the voting power of the shares then
outstanding of such Preferred Stock having such voting right, shall call, a
special meeting of the holders of such Preferred Stock having such voting right.
Such meeting shall be held at the earliest practicable date upon the notice
required for annual meetings of stockholders at the place for holding annual
meetings of stockholders, or, if none, at a place designated by the Board of
Directors. Notwithstanding the provisions of this Section 6.3(c), no such
special meeting shall be called during a period within 60 days immediately
preceding the date fixed for the next annual meeting of stockholders.
(d) At any meeting held for the purpose of electing directors at
which the holders of such Preferred Stock shall have the right to elect
directors as provided herein, the presence in Person or by proxy of the holders
of shares representing more than fifty percent (50%) in voting power of the then
outstanding shares of such Preferred Stock having such right shall be required
and shall be sufficient to constitute a quorum of such class for the election of
directors by such class.
<PAGE>
35
(e) Any director elected by holders of Preferred Stock pursuant
to the voting right created under this Section 6.3 shall hold office until the
next annual meeting of stockholders (unless such term has previously terminated
pursuant to Section 6.3(b)) and any vacancy in respect of any such director
shall be filled only by vote of the remaining director so elected, or if there
be no such remaining director, by the holders of such Preferred Stock entitled
to elect such director or directors by written consent or at a special meeting
called in accordance with the procedures set forth in Section 6.3(c), or, if no
special meeting is called or written consent executed, at the next annual
meeting of stockholders. Upon any termination of such voting right, subject to
applicable law, the term of office of all directors elected by holders of such
Preferred Stock voting separately as a class pursuant to this Section 6.3 shall
terminate.
(f) In exercising the voting rights set forth in this Section
6.3, each share of this Series shall have a number of votes equal to its
Liquidation Value.
7. Liquidation Rights.
------------------
7.1 Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of this
Series shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, in preference to the holders of, and
before any payment or distribution shall be made on, Junior Stock, the amount of
$100 per share (the "Liquidation Value"), plus an amount equal to all accrued
----
and unpaid dividends to the date of final distribution.
7.2 Neither the sale, exchange or other conveyance (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or consolidation of
the Corporation into or with any other corporation, or the merger or
consolidation of any other corporation into or with the Corporation, shall be
deemed to be a dissolution, liquidation or winding up, voluntary or involuntary,
for the purposes of this Section 7.
7.3 After the payment to the holders of the shares of this Series
of full preferential amounts provided for in this Section 7, the holders of this
Series as such
<PAGE>
36
shall have no right or claim to any of the remaining assets of the Corporation.
7.4 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 7.1, no such distribution shall be made on account
of any shares of any Parity Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of this Series, ratably, in proportion to the full distributable amounts
for which holders of all Parity Stock are entitled upon such dissolution,
liquidation or winding up.
8. Other Provisions.
----------------
8.1 All notices from the Corporation to the holders shall be
given by one of the methods specified in Section 8.2. With respect to any notice
to a holder of shares of this Series required to be provided hereunder, neither
failure to give such notice, nor any defect therein or in the transmission
thereof, to any particular holder shall affect the sufficiency of the notice or
the validity of the proceedings referred to in such notice with respect to the
other holders or affect the legality or validity of any distribution, right,
warrant, reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any such action. Any
notice that was mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives the notice.
8.2 All notices and other communications hereunder shall be
deemed given (i) on the first Trading Day following the date received, if
delivered personally, (ii) on the Trading Day following timely deposit with an
overnight courier service, if sent by overnight courier specifying next day
delivery and (iii) on the first Trading Day that is at least five days following
deposit in the mails, if sent by first class mail to (x) a holder at its last
address as it appears on the transfer records or registry for the Series D Stock
and (y) the Corporation at the following address (or at such other address as
the Corporation shall specify in a notice pursuant to this
<PAGE>
37
Section): TW Inc., 75 Rockefeller Plaza, New York, New York 10019, Attention:
General Counsel.
8.3 Any shares of this Series that have been converted, redeemed,
exchanged or otherwise acquired by the Corporation shall, after such conversion,
redemption, exchange or acquisition, as the case may be, be retired and promptly
cancelled and the Corporation shall take all appropriate action to cause such
shares to obtain the status of authorized but unissued shares of Preferred
Stock, without designation as to series, until such shares are once more
designated as part of a particular series by the Board of Directors. The
Corporation may cause a certificate setting forth a resolution adopted by the
Board of Directors that none of the authorized shares of this Series are
outstanding to be filed with the Secretary of State of the State of Delaware.
When such certificate becomes effective, all matters set forth in the
Certificate shall be eliminated from the Certificate of Incorporation and the
shares of Preferred Stock designated hereby as Series D Stock shall have the
status of authorized and unissued shares of Preferred Stock and may be reissued
as part of any new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors.
8.4 The shares of this Series shall be issuable in whole shares
or, if authorized by the Board of Directors, in any fraction of a whole share so
authorized or any integral multiple of such fraction.
8.5 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such record holder shall be deemed the holder of such shares for all
purposes.
8.6 All notice periods referred to in the Certificate shall
commence on the date of the mailing of the applicable notice.
<PAGE>
38
8.7 Certificates for shares of this Series shall bear such
legends as the Corporation shall from time to time deem appropriate.
IN WITNESS WHEREOF, TW INC. has caused this certificate to be
signed this [ ] day of [ ], 1996.
TW INC.,
by
--------------------------
Name:
Title:
<PAGE>
EXHIBIT 3.1(f)
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES E CONVERTIBLE
PREFERRED STOCK
OF
TW INC.
--------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
---------------------
TW INC. (as defined below, the "Corporation"), a corporation organized
and existing by virtue of the General Corporation Law of the State of Delaware
(the "DGCL"), does hereby certify that the following resolution was duly adopted
by action of the Board of Directors of the Corporation (the "Board of
Directors") at a meeting duly held on [ ], 1996.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $.10 per share ("Preferred Stock"), of the Corpora-
tion authorized to be issued pursuant to the Certificate of Incorporation, a
series of Preferred Stock, and hereby fixes the voting powers, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, of the shares of such
series as follows:
The series of Preferred Stock hereby established shall consist of
3,250,000 shares designated as Series E
<PAGE>
2
Convertible Preferred Stock. The rights, preferences and limitations of such
series shall be as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
indicated meanings:
1.1 "Accrued Dividend Amount" shall have the meaning set forth
in Section 3.1 thereof.
1.2 "Board of Directors" shall mean the Board of Directors of
the Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.3 "Capital Stock" shall mean any and all shares of corporate
stock of a Person (however designated and whether representing rights to vote,
rights to participate in dividends or distributions upon liquidation or
otherwise with respect to such Person, any division or subsidiary thereof, or
any joint venture, partnership, corporation or other entity).
1.4 "Certificate" shall mean the certificate of the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of
Series E Convertible Preferred Stock filed with respect to this resolution with
the Secretary of State of the State of Delaware pursuant to Section 151 of the
DGCL.
1.5 "Change of Control" and "Change of Control Date" shall have
the following meanings: "Change of Control" shall mean the occurrence of one or
both of the following events: (a) individuals who would constitute a majority of
the members of the Board of Directors elected at any meeting of stockholders or
by written consent (without regard to any members of the Board of Directors
elected pursuant to the terms of any series of Preferred Stock) shall be elected
to the Board of Directors and the election or the nomination for election by the
stockholders of such directors was not approved by a vote of at least a majority
of the directors in office immediately prior to such election (in which event
"Change of Control Date" shall mean the date of such election) or (b) a Person
or group of Persons acting in concert as a partnership, limited partnership,
syndicate or other group within the meaning of Rule 13d-3 under the Exchange Act
(the "Acquiring Person")
<PAGE>
3
shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases, share repurchases, redemptions or otherwise,
have become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of 40% or more of the outstanding shares of Common Stock (in which
event "Change of Control Date" shall mean the date of the event resulting in
such 40% ownership).
1.6 "Closing Price" of the Common Stock shall mean the last
reported sale price of the Common Stock (regular way) as shown on the Composite
Tape of the NYSE, 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 the Common Stock is not
listed or admitted to trading on the NYSE, on the principal national securities
exchange on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securities exchange, the last
reported sale price of the Common Stock, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, in either case as
reported by NASDAQ.
1.7 "Common Stock" shall mean the class of Common Stock, par
value $.01 per share, of the Corporation authorized at the date of the
Certificate, or any other class of stock resulting from (x) successive changes
or reclassifications of such Common Stock consisting of changes in par value, or
from par value to no par value, (y) a subdivision or combination or (z) any
other changes for which an adjustment is made under Section 3.6(a), and in any
such case including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other securities of
the Corporation that are at the time represented by the certificates
representing such shares of Common Stock.
1.8 "Conversion Date" shall have the meaning set forth in
Section 3.6 hereof.
1.9 "Conversion Price" shall have the meaning set forth in
Section 3.1 hereof.
1.10 "Conversion Rate" shall have the meaning set forth in
Section 3.1 hereof.
1.11 "Converting Holder" shall have the meaning set forth in
Section 3.5 hereof.
<PAGE>
4
1.12 "Corporation" shall mean TW Inc., a Delaware corporation,
and any of its successors by operation of law, including by merger,
consolidation or sale or conveyance of all or substantially all of its property
and assets.
1.13 "Current Market Price" of the Common Stock on any date
shall mean the average of the daily Closing Prices per share of the Common Stock
for the five (5) consecutive Trading Days ending on the Trading Day immediately
preceding the applicable record date, conversion date, redemption date or
exchange date referred to in Section 3 or Section 4.
1.14 "DGCL" shall mean the General Corporation Law of the State
of Delaware.
1.15 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1 hereof.
1.16 "Exchange Price" shall have the meaning set forth in
Section 4.1 hereof.
1.17 "Junior Stock" shall mean the Common Stock, the Series A
Stock, the Series LMC Stock, the Series LMCN-V Stock and the shares of any other
class or series of Capital Stock of the Corporation that, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall be junior to the Series E Stock in respect of the right to
receive dividends or to participate in any distribution of assets other than by
way of dividends.
1.18 "Liquidation Value" shall have the meaning set forth in
Section 7.1 hereof.
1.19 "NASDAQ" shall mean the Nasdaq Stock Market.
1.20 "NYSE" shall mean the New York Stock Exchange, Inc.
1.21 "Parity Stock" shall mean the Series D Stock, the Series F
Stock, the Series G Stock, the Series H Stock, the Series I Stock, the Series J
Stock, the Series L Stock, the Series M Stock and the shares of any other class
<PAGE>
5
or series of Capital Stock of the Corporation that, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall, in the event that the stated dividends thereon are not paid in
full, be entitled to share ratably with the Series E Stock in the payment of
dividends, including accumulations, if any, in accordance with the sums that
would be payable on such shares if all dividends were declared and paid in full,
or shall, in the event that the amounts payable thereon on liquidation are not
paid in full, be entitled to share ratably with the Series E Stock in any
distribution of assets other than by way of dividends in accordance with the
sums that would be payable in such distribution if all sums payable were
discharged in full; provided, however, that the term "Parity Stock" shall be
-------- -------
deemed to refer (i) in Section 2.2 hereof, to any stock that is Parity Stock in
respect of dividend rights; (ii) in Section 6 hereof, to any stock that is
Parity Stock in respect of the distribution of assets; and (iii) in Sections 5.2
and 5.3 hereof, to any stock that is Parity Stock in respect of either dividend
rights or the distribution of assets and that, pursuant to the Certificate of
Incorporation or any instrument in which the Board of Directors, acting pursuant
to authority granted in the Certificate of Incorporation, shall so designate, is
entitled to vote with the holders of Series E Stock.
1.22 "Person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity.
1.23 "Preferred Stock" shall mean the class of Preferred Stock,
par value $.10 per share, of the Corporation authorized at the date of the
Certificate, including any shares thereof authorized after the date of the
Certificate.
1.24 "Pro Rata Repurchase" shall mean the purchase of shares of
Common Stock by the Corporation or by any of its subsidiaries, whether for cash
or other property or securities of the Corporation, which purchase is subject to
Section 13(e) of the Exchange Act or is made pursuant to an offer made available
to all holders of Common Stock, but excluding any purchase made in open market
transactions that satisfies the conditions of clause (b) of Rule 10b-18 under
the Exchange Act or has been designed (as reasonably
<PAGE>
6
determined by the Board of Directors) to prevent such purchase from having a
material effect on the trading market of the Common Stock. The "Effective Date"
of a Pro Rata Repurchase shall mean the applicable expiration date (including
all extensions thereof) of any tender or exchange offer that is a Pro Rata
Repurchase or the date of purchase with respect to any Pro Rata Repurchase that
is not a tender or exchange offer.
1.25 "Record Date" shall have the meaning set forth in Section
2.1 hereof.
1.26 "Redemption Price" shall have the meaning set forth in
Section 4.1 hereof.
1.27 "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 are registered and listed for trading (or, if shares of Common
Stock are not registered and listed for trading on any such exchange, in the
over-the-counter market) for more than six-and-one-half (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 shares of this Series 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 earlier of (x) the time and date fixed for redemption in such
notice and (y) the time and date at which the Corporation shall have irrevocably
deposited funds with a designated bank or trust company pursuant to Section 4.4
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 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 on or prior to the earlier of the dates specified in
clauses (x) and (y) above, (c) a declaration of a banking moratorium or any
suspension of payments in respect of banks by Federal or
<PAGE>
7
state 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 that in the reasonable judgment of the Corporation
could have a material adverse effect on the market for the Common Stock.
1.28 "Rescission Date" shall have the meaning set forth in
Section 4.5 hereof.
1.29 "Senior Stock" shall mean the shares of any class or series
of Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series E Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
1.30 "Series A Stock" shall mean the series of Preferred Stock
authorized and designated as Series A Participating Preferred Stock at the date
of the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.31 "Series D Stock" shall mean the series of Preferred Stock
authorized and designated as Series D Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.32 "Series E Stock" and "this Series" shall mean the series of
Preferred Stock authorized and designated as the Series E Convertible Preferred
Stock, including any shares thereof authorized and designated after the date of
the Certificate.
1.33 "Series F Stock" shall mean the series of Preferred Stock
authorized and designated as Series F Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.34 "Series G Stock" shall mean the series of Preferred Stock
authorized and designated as Series G Convertible Preferred Stock at the date of
the Certificate,
<PAGE>
8
including any shares thereof authorized and designated after the date of the
Certificate.
1.35 "Series H Stock" shall mean the series of Preferred Stock
authorized and designated as Series H Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.36 "Series I Stock" shall mean the series of Preferred Stock
authorized and designated as Series I Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.37 "Series J Stock" shall mean the series of Preferred Stock
authorized and designated as Series J Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.38 "Series L Stock" shall mean the series of Preferred Stock
authorized and designated as 10-1/4% Series L Exchangeable Preferred Stock at
the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
1.39 "Series LMC Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMC Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.40 "Series LMCN-V Stock" shall mean the series of Series
Common Stock authorized and designated as Series LMCN-V Common Stock at the date
of the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.41 "Series M Stock" shall mean the series of Preferred Stock
authorized and designated as 10-1/4% Series M Exchangeable Preferred Stock at
the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
1.42 "Surrendered Shares" shall have the meaning set forth in
Section 3.5 hereof.
<PAGE>
9
1.43 "Trading Day" shall mean, so long as the Common Stock 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 is not listed or admitted
to trading on the NYSE, a day on which the principal national securities
exchange on which the Common Stock is listed is open for the transaction of
business, or, if the Common Stock 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.
2. Cash Dividends.
--------------
2.1 The holders of the outstanding Series E Stock shall be
entitled to receive quarter-annual dividends, as and when declared by the Board
of Directors out of funds legally available therefor. Each quarter-annual
dividend shall be an amount per share equal to (i) in the case of each Dividend
Payment Date (as defined below) occurring on or prior to January 4, 2001, the
greater of (A) $.9375 per $100 of Liquidation Value of Series E Stock (which is
equivalent to $3.75 per annum), and (B) an amount per $100 of Liquidation Value
of Series E Stock equal to the product of (1) the Conversion Rate and (2) the
aggregate per share amount of regularly scheduled dividends paid in cash on the
Common Stock during the period from but excluding the immediately preceding
Dividend Payment Date to and including such Dividend Payment Date (the
"Preferred Dividend Amount"), and (ii) in the case of each Dividend Payment Date
occurring thereafter, an amount per share of Series E Stock equal to the product
of (1) the Conversion Rate and (2) the aggregate per share amount of regularly
scheduled dividends paid in cash on the Common Stock during the period from but
excluding the immediately preceding Dividend Payment Date to and including such
Dividend Payment Date. All dividends shall be payable in cash on or about the
first day of January, April, July and October in each year, as fixed by the
Board of Directors, or such other dates as are fixed by the Board of Directors
(provided that January 4, 2001, shall be a Dividend Payment Date) (each a
"Dividend Payment Date"), to the holders of record of Series E Stock at the
close of business on or about the Trading Day next preceding such first day of
January, April, July or October (or January 4, 2001) as the case may be, as
fixed by the Board of Directors, or such other dates as are fixed by the Board
of Directors (each a "Record Date"). Subject to the next sentence, in the case
of dividends payable in respect of periods prior to January 4, 2001, (i) such
dividends shall
<PAGE>
10
accrue on each share on a daily basis, whether or not there are unrestricted
funds legally available for the payment of such dividends and whether or not
declared and (ii) any such dividends that become payable for any partial
dividend period shall be computed on the basis of the actual days elapsed in
such period. Notwithstanding the preceding sentence, the amount accruing and
payable in respect of the first dividend on the Series E Stock payable after the
date of the Certificate shall equal the Preferred Dividend Amount. From and
after January 4, 2001, dividends on the Series E Stock (determined as to amount
as provided herein) shall accrue to the extent, but only to the extent, that
regularly scheduled cash dividends are declared by the Board of Directors on the
Common Stock with a payment date after January 4, 2001 (or, in the case of
Series E Stock originally issued after January 4, 2001, after the Dividend
Payment Date next preceding such date of original issuance). All dividends that
accrue in accordance with the foregoing provisions shall be cumulative from and
after the day immediately succeeding the date of issuance. The amount payable
to each holder of record on any Dividend Payment Date shall be rounded to the
nearest cent.
2.2 Except as hereinafter provided in this Section 2.2, unless
all dividends on the outstanding shares of Series E Stock and any Parity Stock
that shall have accrued and become payable as of any date shall have been paid,
or declared and funds set apart for payment thereof, no dividend or other
distribution (payable other than in shares of Junior Stock) shall be paid to the
holders of Junior Stock or Parity Stock, and no shares of Series E Stock, Parity
Stock or Junior Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries (except by conversion into or exchange
for Junior Stock), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund for the purchase or redemption of any
Series E Stock, Junior Stock or Parity Stock. When dividends are not paid in
full upon the shares of this Series and any Parity Stock, all dividends declared
upon shares of this Series and all Parity Stock shall be declared pro rata so
that the amount of dividends declared per share on this Series and all such
Parity Stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of this Series and all such Parity Stock bear
to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on this Series that may
be in arrears.
<PAGE>
11
2.3 In case the Corporation shall at any time distribute (other
than a distribution in liquidation of the Corporation) to the holders of its
shares of Common Stock any assets or property, including evidences of
indebtedness or securities of the Corporation (other than Common Stock subject
to a distribution or reclassification covered by Section 3.6(a)) or of any other
Person (including common stock of such Person) or cash (but excluding regularly
scheduled cash dividends payable on shares of Common Stock) or in case the
Corporation shall at any time distribute (other than a distribution in
liquidation of the Corporation) to such holders rights, options or warrants to
subscribe for or purchase shares of Common Stock (including shares held in the
treasury of the Corporation), or rights, options or warrants to subscribe for or
purchase any other security or rights, options or warrants to subscribe for or
purchase any assets or property (in each case, whether of the Corporation or
otherwise, but other than any distribution of rights to purchase securities of
the Corporation if the holder of shares of this Series would otherwise be
entitled to receive such rights upon conversion of shares of this Series for
Common Stock; provided, however, that if such rights are subsequently redeemed
-------- -------
by the Corporation, such redemption shall be treated for purposes of this
Section 2.3 as a cash dividend (but not a regularly scheduled cash dividend) on
the Common Stock), the Corporation shall simultaneously distribute such assets,
property, securities, rights, options or warrants pro rata to the holders of
Series E Stock on the record date fixed for determining holders of Common Stock
entitled to participate in such distribution (or, if no such record date shall
be established, the effective time thereof) in an amount equal to the amount
that such holders of Series E Stock would have been entitled to receive had
their shares of Series E Stock been converted into Common Stock immediately
prior to such record date (or effective time). In the event of a distribution to
holders of Series E Stock pursuant to this Section 2.3, such holders shall be
entitled to receive fractional shares or interests only to the extent that
holders of Common Stock are entitled to receive the same. The holders of Series
E Stock on the applicable record date (or effective time) shall be entitled to
receive in lieu of such fractional shares or interests the same consideration as
is payable to holders of Common Stock with respect thereto. If there are no
fractional shares or interests payable to holders of Common Stock, the holders
of Series E Stock on the applicable record date (or effective time) shall
receive in lieu of such fractional shares or
<PAGE>
12
interests the fair value thereof as determined by the Board of Directors.
2.4 If a distribution is made in accordance with the provisions
of Section 2.3, anything in Section 3 to the contrary notwithstanding, no
adjustment pursuant to Section 3 shall be effected by reason of the distribution
of such assets, property, securities, rights, options or warrants or the
subsequent modification, exercise, expiration or termination of such securities,
rights, options or warrants.
2.5 In the event that the holders of Common Stock are entitled
to make any election with respect to the kind or amount of securities or other
property receivable by them in any distribution that is subject to Section 2.3,
the kind and amount of securities or other property that shall be distributable
to the holders of the Series E Stock shall be based on (i) the election, if any,
made by the record holder (as of the date used for determining the holders of
Common Stock entitled to make such election) of the largest number of shares of
Series E Stock in writing to the Corporation on or prior to the last date on
which a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable by holders of the Series E Stock shall
be based on the kind or amount of securities or other property receivable by a
plurality of the shares held by the nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to in
this Section, the Corporation shall mail a copy thereof to the record holders on
the date of mailing of the largest number of shares of the Series E Stock as of
the date used for determining the holders of record of Common Stock entitled to
such mailing.
3. Conversion Rights.
-----------------
3.1 Each holder of a share of this Series shall have the right
at any time or as to any share of this Series called for redemption or exchange,
at any time prior to the close of business on the date fixed for redemption or
exchange (unless the Corporation defaults in the payment of the Redemption Price
or fails to exchange the shares of this
<PAGE>
13
Series for the applicable number of shares of Common Stock and any cash portion
of the Exchange Price or exercises its right to rescind such redemption pursuant
to Section 4.5, in which case such right shall not terminate at the close of
business on such date), to convert such share into (i) a number of shares of
Common Stock equal to 2.08264 shares of Common Stock for each share of this
Series, subject to appropriate adjustment in the event of a split or combination
of shares of this Series and subject to further adjustment as provided in this
Section 3 (such rate, as so adjusted from time to time, is herein called the
"Conversion Rate"; and the "Conversion Price" at any time shall mean the
Liquidation Value per share divided by the Conversion Rate in effect at such
time (rounded to the nearest one hundredth of a cent)) plus (ii) in the event
there shall be any dividends on shares of this Series that shall be accrued and
unpaid as of the immediately preceding Dividend Payment Date, a number of shares
of Common Stock equal to:
(A) the aggregate amount of accrued and unpaid dividends on such
share of Series E Stock to and including the most recent scheduled
Dividend Payment Date (whether or not such dividends were declared
and whether or not there are unrestricted funds legally available
for the payment thereof) (the "Accrued Dividend Amount") divided by
------- --
(B) the Closing Price of the Common Stock on the last Trading
Day prior to the Conversion Date;
provided, however, that the Corporation shall have the right to deliver cash
- -------- -------
equal to the Accrued Dividend Amount or any portion thereof, in which case its
obligation to deliver shares of Common Stock pursuant to this clause (ii) shall
be reduced by a number of shares equal to (x) the aggregate amount of cash so
delivered divided by (y) the Closing Price of the Common Stock on the last
----------
Trading Day prior to the Conversion Date, unless the Corporation shall deliver
cash equal to the entire Accrued Dividend Amount, in which case its entire
obligation under this clause (ii) shall be discharged. The obligations of the
Corporation to issue the Common Stock (or its option to make cash payments)
provided by this Section 3.1 shall be absolute whether or not any accrued
dividend by which such issuance (or payment) is measured has been declared by
the Board of Directors and whether or not the Corporation would have adequate
surplus or net profits to pay such dividend if declared or is otherwise
restricted from paying such dividend.
<PAGE>
14
3.2 Except as provided in this Section 3, no adjustments in
respect of payments of dividends on shares surrendered for conversion or any
dividend on the Common Stock issued upon conversion shall be made upon the
conversion of any shares of this Series (it being understood that if the
Conversion Date for shares of Series E Stock occurs after a Record Date and on
or prior to a Dividend Payment Date, the holder of record on such Record Date
shall be entitled to receive the dividend payable with respect to such shares on
the related Dividend Payment Date pursuant to Section 2.1 hereof).
3.3 The Corporation may, but shall not be required to, in
connection with any conversion of shares of this Series, issue a fraction of a
share of Common Stock, and if the Corporation shall determine not to issue any
such fraction, the Corporation shall, subject to Section 3.6(d), make a cash
payment (rounded to the nearest cent) equal to such fraction multiplied by the
Closing Price of the Common Stock on the last Trading Day prior to the
Conversion Date.
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock shall surrender the certificate or certificates for
such shares at the office of the transfer agent or agents therefor (or at such
other place as the Corporation may designate by notice to the holders of shares
of this Series) during regular business hours, duly endorsed to the Corporation
or in blank, or accompanied by instruments of transfer to the Corporation or in
blank, or in form satisfactory to the Corporation, and shall give written notice
to the Corporation at such office that such holder elects to convert such shares
of this Series. If any such certificate or certificates shall have been lost,
stolen or destroyed, the holder shall, in lieu of delivering such certificate or
certificates, deliver to the transfer agent or agents therefor (or such other
place) an indemnification agreement and bond satisfactory to the Corporation.
The Corporation shall, as soon as practicable (subject to Section 3.6(e)) after
such deposit of certificates for shares of this Series or delivery of the
indemnification agreement and bond, accompanied by the written notice above
prescribed, issue and deliver at such office to the holder for whose account
such shares were surrendered, or to his nominee, certificates representing the
number of shares of Common Stock and the cash, if any, to which such holder is
entitled upon such conversion.
<PAGE>
15
3.5 Conversion shall be deemed to have been made as of the date
(the "Conversion Date") that certificates for the shares of this Series to be
converted, and the written notice prescribed in Section 3.4 are received by the
transfer agent or agents for this Series; and the Person entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such Common Stock on such date. Notwithstanding anything to
the contrary contained herein, in the event the Corporation shall have rescinded
a redemption of shares of this Series pursuant to Section 4.5, any holder of
shares of this Series that shall have surrendered shares of this Series for
conversion following the day on which notice of the subsequently rescinded
redemption shall have been given but prior to the close of business on the later
of (a) the Trading Day next succeeding the date on which public announcement of
the rescission of such redemption shall have been made and (b) the Trading Day
on which the notice of rescission required by Section 4.5 is deemed given
pursuant to Section 7.2 (a "Converting Holder") may rescind the conversion of
such shares surrendered for conversion by (i) properly completing a form
prescribed by the Corporation and mailed to holders of shares of this Series
(including Converting Holders) with the Corporation'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 Exchange Act) of shares of this Series that the beneficial
ownership (within the meaning of such Rule) of such shares shall not have
changed from the date on which such shares were surrendered for conversion to
the date of such certification and (ii) delivering such form to the Corporation
no later than the close of business on that date which is ten (10) Trading Days
following the date on which the Corporation's notice of rescission is deemed
given pursuant to Section 7.2. The delivery of such form by a Converting Holder
shall be accompanied by (x) any certificates representing shares of Common Stock
issued to such Converting Holder upon a conversion of shares of this Series that
shall be rescinded by the proper delivery of such form (the "Surrendered
Shares"), (y) any securities, evidences of indebtedness or assets (other than
cash) distributed by the Corporation to such Converting Holder by reason of such
Converting Holder's being a record holder of Surrendered Shares and (z) payment
in New York Clearing House funds or other funds acceptable to the Corporation of
an amount equal to the sum of (I) any cash such Converting Holder may have
received in lieu of the
<PAGE>
16
issuance of fractional shares upon conversion and (II) any cash paid or payable
by the Corporation to such Converting Holder by reason of such Converting Holder
being a record holder of Surrendered Shares. Upon receipt by the Corporation 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 or made by such Converting Holder to the Corporation as set forth
above, the Corporation shall instruct the transfer agent or agents for shares of
Common Stock and shares of this Series to cancel any certificates representing
Surrendered Shares (which Surrendered Shares shall be deposited in the treasury
of the Corporation) and reissue certificates representing shares of this Series
to such Converting Holder (which shares of this Series shall be deemed to have
been outstanding at all times during the period following their surrender for
conversion). The Corporation shall, as promptly as practicable, and in no event
more than five (5) 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 or made, pay to the
Converting Holder or as otherwise directed by such Converting Holder any
dividend or other payment made on such shares during the period from the time
such shares shall have been surrendered for conversion to the rescission of such
conversion. All questions as to the validity, form, eligibility (including time
or receipt) and acceptance of any form submitted to the Corporation to rescind
the conversion of shares of this Series, including questions as to the proper
completion or execution of any such form or any certification contained therein,
shall be resolved by the Corporation, whose determination shall be final and
binding. The Corporation shall not be required to deliver certificates for
shares of Common Stock while the stock transfer books for such stock or for this
Series are duly closed for any purpose or during any period commencing at a
Redemption Rescission Event and ending at either (i) the time and date at which
the Corporation's right of rescission shall expire pursuant to Section 4.5 if
the Corporation shall not have exercised such right or (ii) the close of
business on that day which is ten (10) Trading Days following the date on which
the Corporation's notice of rescission pursuant to Section 4.4 is deemed given
pursuant to Section 7.2 if the Corporation shall have exercised such right of
rescission, but certificates for shares of Common Stock shall be delivered as
soon as practicable after the opening of such books or the expiration of such
period.
<PAGE>
17
3.6 The Conversion Rate shall be adjusted from time to time as
follows for events occurring on or after the date of the Certificate:
(a) In case the Corporation shall (i) pay a dividend in shares
of its Common Stock, (ii) combine its outstanding shares of Common Stock
into a smaller number of shares, (iii) subdivide its outstanding shares of
Common Stock or (iv) reclassify (other than by way of a merger or
consolidation that is subject to Section 3.7) its shares of Common Stock,
then the Conversion Rate in effect immediately before such action shall be
adjusted so that immediately following such event the holders of the
Series E Stock shall be entitled to receive upon conversion or exchange
thereof the kind and amount of shares of Capital Stock of the Corporation
that they would have owned or been entitled to receive upon or by reason of
such event if such shares of Series E Stock had been converted immediately
before the record date (or, if no record date, the effective date) for such
event (it being understood that any distribution of cash or Capital Stock
(other than Common Stock), including any distribution of Capital Stock
(other than Common Stock) that shall accompany a reclassification of the
Common Stock, shall be subject to Section 2.3 rather than this Section
3.6(a)). An adjustment made pursuant to this Section 3.6(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 3.6(a),
in the event that the holders of Common Stock are entitled to make any
election with respect to the kind or amount of securities receivable by
them in any transaction that is subject to this Section 3.6(a) (including
any election that would result in all or a portion of the transaction
becoming subject to Section 2.3), the kind and amount of securities that
shall be distributable to the holders of the Series E Stock shall be based
on (i) the election, if any, made by the record holder (as of the date used
for determining the holders of Common Stock entitled to make such election)
of the largest number of shares of Series E Stock in writing to the
Corporation on or prior to the last date on which a holder of Common Stock
may make such an election or (ii) if no such
<PAGE>
18
election is timely made, an assumption that such holder failed to exercise
any such rights (provided that if the kind or amount of securities is not
the same for each nonelecting holder, then the kind and amount of
securities receivable shall be based on the kind or amount of securities
receivable by a plurality of nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to
in this Section, the Corporation shall mail a copy thereof to the record
holders of the Series E Stock as of the date used for determining the
holders of record of Common Stock entitled to such mailing.
(b) In case a Change of Control shall occur, the Conversion Rate
in effect immediately prior to the Change of Control Date shall be
increased (but not decreased) by multiplying such rate by a fraction as
follows: (i) in the case of a Change of Control specified in Section
1.5(a), a fraction in which the numerator is the Conversion Price prior to
adjustment pursuant hereto and the denominator is the Current Market Price
of the Common Stock at the Change of Control Date, (ii) in the case of a
Change of Control specified in Section 1.5(b), the greater of the following
fractions: (x) a fraction the numerator of which is the highest price per
share of Common Stock paid by the Acquiring Person in connection with the
transaction giving rise to the Change of Control or in any transaction
within six months prior to or after the Change of Control Date (the
"Highest Price"), and the denominator of which is the Current Market Price
of the Common Stock as of the date (but not earlier than six months prior
to the Change of Control Date) on which the first public announcement is
made by the Acquiring Person that it intends to acquire or that it has
acquired 40% or more of the outstanding shares of Common Stock (the
"Announcement Date") or (y) a fraction the numerator of which is the
Conversion Price prior to adjustment pursuant hereto and the denominator of
which is the Current Market Price of the Common Stock on the Announcement
Date and (iii) in the case where there co-exists a Change of Control
specified in both Section 1.5(a) and Section 1.5(b), the greatest of the
fractions determined pursuant to clauses (i) and (ii). Such adjustment
shall become effective immediately after the Change of Control Date and
shall
<PAGE>
19
be made, in the case of clauses (ii) and (iii) above, successively for six
months thereafter in the event and at the time of any increase in the
Highest Price after the Change of Control Date; provided, however, that no
-------- -------
such successive adjustment shall be made with respect to the Conversion
Rate of the shares of this Series in respect of any event occurring after
the Conversion Date.
(c) In case the Corporation or any subsidiary thereof shall make
a Pro Rata Repurchase, the Conversion Rate in effect immediately prior to
such action shall be adjusted (but shall not be decreased) by multiplying
such Conversion Rate by a fraction, the numerator of which shall be the
product of (i) the number of shares of Common Stock outstanding immediately
before such Pro Rata Repurchase minus the number of shares of Common Stock
repurchased by the Corporation or any subsidiary thereof in such Pro Rata
Repurchase and (ii) the Current Market Price of the Common Stock as of the
day immediately preceding the first public announcement by the Corporation
of the intent to effect such Pro Rata Repurchase, and the denominator of
which shall be (i) the product of (x) the number of shares of Common Stock
outstanding immediately before such Pro Rata Repurchase and (y) the Current
Market Price of the Common Stock as of the day immediately preceding the
first public announcement by the Corporation of the intent to effect such
Pro Rata Repurchase minus (ii) the aggregate purchase price of the Pro Rata
Repurchase (provided that such denominator shall never be less than 1).
Such adjustment shall become effective immediately after the Effective Date
of such Pro Rata Repurchase.
(d) The Corporation shall be entitled to make such additional
adjustments in the Conversion Rate, in addition to those required by
subsections 3.6(a), 3.6(b) and 3.6(c) as shall be necessary in order that
any dividend or distribution in Common Stock or any subdivision,
reclassification or combination of shares of Common Stock referred to
above, shall not be taxable to the holders of Common Stock for United
States Federal income tax purposes, so long as such additional adjustments
pursuant to this Section 3.6(d) do not decrease the Conversion Rate.
<PAGE>
20
(e) In any case in which this Section 3.6 shall require that any
adjustment be made effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for five (5)
Trading Days following the occurrence of the event that necessitates the
filing of the statement referred to in Section 3.6(g)) issuing to the
holder of any shares of this Series converted after such record date (i)
the shares of Common Stock and other Capital Stock of the Corporation
issuable upon such conversion over and above (ii) the shares of Common
Stock and other Capital Stock of the Corporation issuable upon such
conversion on the basis of the Conversion Rate prior to adjustment;
provided, however, that the Corporation 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 3 shall be made to the
nearest cent, one-hundredth of a share or, in the case of the Conversion
Rate, one hundred-thousandth. Notwithstanding any other provision of this
Section 3, the Corporation shall not be required to make any adjustment of
the Conversion Rate unless such adjustment would require an increase or
decrease of at least 1.00000% of such Conversion Rate. Any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment that, together with any
adjustment or adjustments so carried forward, shall amount to an increase
or decrease of at least 1.00000% in such rate. Any adjustments under this
Section 3 shall be made successively whenever an event requiring such an
adjustment occurs.
(g) Whenever an adjustment in the Conversion Rate is required,
the Corporation shall forthwith place on file with its transfer agent or
agents for this Series a statement signed by a duly authorized officer of
the Corporation, stating the adjusted Conversion Rate determined as
provided herein. Such statements shall set forth in reasonable detail such
facts as shall be necessary to show the reason for and the manner of
computing such adjustment. Promptly after the adjustment of the Conversion
Rate, the Corporation shall mail a notice thereof to each holder of shares
of this Series.
<PAGE>
21
(h) In the event that on or at any time as a result of an
adjustment made pursuant to this Section 3, the holder of any share of this
Series thereafter surrendered for conversion shall become entitled to
receive any shares of Capital Stock of the Corporation other than shares of
Common Stock, the conversion rate of such other shares so receivable upon
conversion of any such share of this Series 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 contained in
subparagraphs (a) through (g) and (i) of this Section 3.6, and the
provisions of Section 3.1 through 3.5 and 3.7 through 3.10 shall apply on
like or similar terms to any such other shares and the determination of the
Board of Directors as to any such adjustment shall be conclusive.
(i) No adjustment shall be made pursuant to this Section 3.6 (i)
if the effect thereof would be to reduce the Conversion Price below the par
value of the Common Stock or (ii) subject to Section 3.6(d) hereof, with
respect to any share of Series E Stock that is converted, prior to the time
such adjustment otherwise would be made.
3.7 In the event that on or after the date of the Certificate,
either (a) any consolidation or merger to which the Corporation is a party,
other than a merger or consolidation in which the Corporation is the surviving
or continuing corporation and that does not result in any 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, or as a result of a subdivision or combination)
in, outstanding shares of Common Stock or (b) any sale or conveyance of all or
substantially all of the property and assets of the Corporation, then lawful
provision shall be made as part of the terms of such transaction whereby the
holder of each share of Series E Stock shall have the right thereafter, during
the period such share shall be convertible or exchangeable, to convert such
share into or have such shares exchanged for the kind and amount of shares of
stock or other securities and property receivable upon such consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
into which such shares of this Series could have been converted or exchanged
immediately prior to such consolidation, merger, sale or conveyance, subject to
<PAGE>
22
adjustment that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3 (based on (i) the election, if any,
made in writing to the Corporation by the record holder (as of the date used for
determining holders of Common Stock entitled to make such election) of the
largest number of shares of Series E Stock on or prior to the last date on which
a holder of Common Stock may make an election regarding the kind or amount of
securities or other property receivable by such holder in such transaction or
(ii) if no such election is timely made, an assumption that such holder failed
to exercise any such rights (provided that if the kind or amount of securities
or other property is not the same for each nonelecting holder, then the kind and
amount of securities or other property receivable shall be based upon the kind
and amount of securities or other property receivable by a plurality of the
nonelecting holders of Common Stock)). In the event that any of the
transactions referred to in clauses (a) or (b) involves the distribution of cash
or property (other than equity securities) to a holder of Common Stock, lawful
provision shall be made as part of the terms of the transaction whereby the
holder of each share of Series E Stock on the record date fixed for determining
holders of Common Stock entitled to receive such cash or property (or if no such
record date is established, the effective date of such transaction) shall be
entitled to receive the amount of cash or property that such holder would have
been entitled to receive had such holder converted his shares of Series E Stock
into Common Stock immediately prior to such record date (or effective date)
(based on the election or nonelection made by the record holder of the largest
number of shares of Series E Stock, as provided above). Concurrently with the
mailing to holders of Common Stock of any document pursuant to which such
holders may make an election regarding the kind or amount of securities or other
property that will be receivable by such holder in any transaction described in
clause (a) or (b) of the first sentence of this Section 3.7, the Corporation
shall mail a copy thereof to the record holders of the Series E Stock as of the
date used for determining the holders of record of Common Stock entitled to such
mailing. The Corporation shall not enter into any of the transactions referred
to in clauses (a) or (b) of the preceding sentence unless effective provision
shall be made in the certificate or articles of incorporation or other
constituent documents of the Corporation or the entity surviving the
consolidation or merger, if other than the Corporation, or the entity acquiring
the Corporation's assets, as the case may be, so
<PAGE>
23
as to give effect to the provisions set forth in this Section 3.7. The
provisions of this Section 3.7 shall apply similarly to successive
consolidations, mergers, sales or conveyances. For purposes of this Section
3.7, the term "Corporation" shall refer to the Corporation (as defined in
Section 1.12) as constituted immediately prior to the merger, consolidation or
other transaction referred to in this Section.
3.8 The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
stock, for the purpose of effecting the conversion of the shares of this Series,
such number of its duly authorized shares of Common Stock (or, if applicable,
any other shares of Capital Stock of the Corporation) as shall from time to time
be sufficient to effect the conversion of all outstanding shares of this Series
into such Common Stock (or such other shares of Capital Stock) at any time
(assuming that, at the time of the computation of such number of shares, all
such Common Stock (or such other shares of Capital Stock) would be held by a
single holder); provided, however, that nothing contained herein shall preclude
-------- -------
the Corporation from satisfying its obligations in respect of the conversion of
the shares by delivery of purchased shares of Common Stock (or such other shares
of Capital Stock) that are held in the treasury of the Corporation. All shares
of Common Stock (or such other shares of Capital Stock of the Corporation) that
shall be deliverable upon conversion of the shares of this Series shall be duly
and validly issued, fully paid and nonassessable. For purposes of this Section
3, any shares of Common Stock at any time outstanding shall not include shares
held in the treasury of the Corporation.
3.9 If any shares of Common Stock that would be issuable upon
conversion (or pursuant to redemption or exchange) of shares of this Series
hereunder require registration with or approval of any governmental authority
before such shares may be issued upon conversion, the Corporation will in good
faith and as expeditiously as possible cause such shares to be duly registered
or approved, as the case may be. The Corporation will use commercially
reasonable efforts to list the shares of (or depositary shares representing
fractional interests in) Common Stock or other shares of Capital Stock required
to be delivered upon conversion of shares of this Series prior to such delivery
upon the principal national securities exchange upon which the outstanding
Common Stock (or other
<PAGE>
24
shares of Capital Stock) is listed at the time of such delivery.
3.10 The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion (or pursuant to redemption or exchange) of shares of this
Series pursuant hereto. The Corporation shall not, however, be required to pay
any tax that is payable in respect of any transfer involved in the issue or
delivery of Common Stock or such other shares of Capital Stock in a name other
than that in which the shares of this Series 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 Corporation the amount of such tax, or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
3.11 In case of (i) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, (ii) any Pro Rata Repurchase or
(iii) any action triggering an adjustment to the Conversion Rate pursuant to
this Section 3, then, in each case, the Corporation shall cause to be filed with
the transfer agent or agents for the Series E Stock, and shall cause to be
mailed, first-class postage prepaid, to the holders of record of the outstanding
shares of Series E Stock, at least fifteen (15) days prior to the applicable
record date for any such transaction (or if no record date will be established,
the effective date thereof), a notice stating (x) the date, if any, on which a
record is to be taken for the purpose of any such transaction (or, if no record
date will be established, the date as of which holders or record of Common Stock
entitled to participate in such transaction are determined), and (y) the
expected effective date thereof. Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in this Section 3.11.
4. Redemption or Exchange.
----------------------
4.1 (a) The Corporation may, at its sole option, subject to
Section 2.2 hereof, from time to time on and after January 4, 2001, redeem, out
of funds legally available therefor, or, as provided below, exchange shares of
Common Stock for, all (or in the case of Section 4.1(b)(i), any part) of the
outstanding shares of this Series. The redemption price for each share of this
Series
<PAGE>
25
called for redemption pursuant to clause (i) of Section 4.1(b) shall be the
Liquidation Value together with an amount equal to the accrued and unpaid
dividends to the date fixed for redemption (hereinafter collectively referred to
as the "Redemption Price"). The exchange price for each share of this Series
called for exchange pursuant to clause (ii) of Section 4.1(b) shall be a number
of shares of Common Stock equal to the Conversion Rate, together with, at the
option of the Corporation, either (x) cash or (y) a number of shares of Common
Stock, valued at the Closing Price on the Trading Day immediately preceding the
date fixed for exchange, equal, in either case, to the aggregate amount of
accrued and unpaid dividends on the Series E Stock to the date fixed for
exchange (hereinafter collectively referred to as the "Exchange Price").
(b) On the date fixed for redemption or exchange the Corporation
shall, at its option, effect either
(i) a redemption of the shares of this Series to be redeemed
by way of payment, out of funds legally available therefor, of cash equal
to the aggregate Redemption Price for the shares of this Series then being
redeemed;
(ii) an exchange of the shares of this Series for the
Exchange Price in shares of Common Stock (provided that the Corporation
--------
shall be entitled to deliver cash (A) in lieu of any fractional
share of Common Stock (determined in a manner consistent with Section 3.3)
and (B) equal to accrued and unpaid dividends to the date fixed for
exchange in lieu of shares of Common Stock); or
(iii) any combination thereof with respect to each share
of this Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and (iii) of Section 4.1(b),
the Corporation shall be entitled to effect an exchange of shares of Series E
Stock for Common Stock (or other shares of Capital Stock) only to the extent
Common Stock (or other shares of Capital Stock) shall be available for issuance
(including delivery of previously issued shares of Common Stock held in the
Corporation's treasury on the date fixed for exchange), which shares shall be
duly and validly issued, fully paid and non-assessable. Certificates for shares
of Common Stock issued in exchange for
<PAGE>
26
surrendered shares of this Series pursuant to this Section 4.1 shall be made
available by the Corporation not later than the fifth Trading Day following the
date for exchange.
4.2 In the event that fewer than all the outstanding shares of
this Series are to be redeemed pursuant to Section 4.1(b)(i), the number of
shares to be redeemed from each holder of shares of this Series shall be
determined by the Corporation by lot or pro rata or by any other method as may
be determined by the Board of Directors in its sole discretion to be equitable,
and the certificate of the Corporation's Secretary or an Assistant Secretary
filed with the transfer agent or transfer agents for this Series in respect of
such determination by the Board of Directors shall be conclusive.
4.3 In the event the Corporation shall redeem or exchange shares
of this Series pursuant to Section 4.1, notice of such redemption or exchange
shall be given by first class mail, postage prepaid, mailed not less than
fifteen (15) nor more than sixty (60) days prior to the date fixed for
redemption or exchange, as the case may be, to each record holder of the shares
to be redeemed or exchanged, at such holder's address as the same appears on the
books of the Corporation. Each such notice shall state: (i) whether the shares
of this Series are to be redeemed or exchanged; (ii) the time and date as of
which the redemption or exchange shall occur; (iii) the total number of shares
of this Series to be redeemed or exchanged and, if fewer than all the shares
held by such holder are to be redeemed, the number of such shares to be redeemed
from such holder; (iv) the Redemption Price or the Exchange Price, as the case
may be; (v) that shares of this Series called for redemption or exchange may be
converted at any time prior to the time and date fixed for redemption or
exchange (unless the Corporation shall, in the case of a redemption, default in
payment of the Redemption Price or, in the case of an exchange, fail to exchange
the shares of this Series for the applicable number of shares of Common Stock
and any cash portion of the Exchange Price or shall exercise its right to
rescind such redemption pursuant to Section 4.5, in which case such right of
conversion shall not terminate at such time and date); (vi) the applicable
Conversion Price and Conversion Rate; (vii) the place or places where
certificates for such shares are to be surrendered for payment of the Redemption
Price, in the case of redemption, or for delivery of certificates representing
the shares of
<PAGE>
27
Common Stock and the payment of any cash portion of the Exchange Price, in the
case of exchange; and (viii) that, subject to Section 4.4 of this Certificate,
dividends on the shares of this Series to be redeemed or exchanged will cease to
accrue on such redemption or exchange date.
4.4 If notice of redemption or exchange shall have been given by
the Corporation as provided in Section 4.3, dividends on the shares of this
Series so called for redemption or exchange shall cease to accrue, such shares
shall no longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders with respect to shares so called for redemption or
exchange (except (i) in the case of redemption, the right to receive from the
Corporation the Redemption Price without interest and in the case of exchange,
the right to receive from the Corporation the Exchange Price without interest
and (ii) the right to convert such shares in accordance with Section 3) shall
cease (including any right to receive dividends otherwise payable on any
Dividend Payment Date that would have occurred after the time and date of
redemption or exchange) either (i) in the case of a redemption or exchange
pursuant to Section 4.1, from and after the time and date fixed in the notice of
redemption or exchange as the time and date of redemption or exchange (unless
the Corporation shall (x) in the case of a redemption, default in the payment of
the Redemption Price, (y) in the case of an exchange, fail to exchange the
applicable number of shares of Common Stock and any cash portion of the Exchange
Price or (z) exercise its right to rescind such redemption pursuant to Section
4.5, in which case such rights shall not terminate at such time and date) or
(ii) if the Corporation shall so elect and state in the notice of redemption or
exchange, from and after the time and date (which date shall be the date fixed
for redemption or exchange or an earlier date not less than fifteen (15) days
after the date of mailing of the redemption or exchange notice) on which the
Corporation shall irrevocably deposit with a designated bank or trust company
doing business in the Borough of Manhattan, City and State of New York, as
paying agent, money sufficient to pay at the office of such paying agent, on the
redemption date, the Redemption Price, in the case of redemption, or
certificates representing the shares of Common Stock to be so exchanged and any
cash portion of the Exchange Price, in the case of an exchange. Any money or
certificates so deposited with any such paying agent that shall not be required
for such redemption or exchange because of the exercise of any right of
conversion or
<PAGE>
28
otherwise shall be returned to the Corporation forthwith. Upon surrender (in
accordance with the notice of redemption or exchange) of the certificate or
certificates for any shares of this Series to be so redeemed or exchanged
(properly endorsed or assigned for transfer, if the Corporation shall so require
and the notice of redemption or exchange shall so state), such shares shall be
redeemed or exchanged by the Corporation at the Redemption Price or the Exchange
Price, as applicable, as set forth in Section 4.1 (unless the Corporation shall
have exercised its right to rescind such redemption pursuant to Section 4.5).
In case fewer than all the shares represented by any such certificate are to be
redeemed, a new certificate shall be issued representing the unredeemed shares
(or fractions thereof as provided in Section 7.4), without cost to the holder
thereof, together with the amount of cash, if any, in lieu of fractional shares
other than those issuable in accordance with Section 7.4. Subject to applicable
escheat laws, any moneys so set aside by the Corporation in the case of
redemption and unclaimed at the end of one year from the redemption date shall
revert to the general funds of the Corporation, after which reversion the
holders of such shares so called for redemption or exchange shall look only to
the general funds of the Corporation for the payment of the Redemption Price or
the Exchange Price, as applicable, without interest. Any interest accrued on
funds so deposited shall be paid to the Corporation from time to time.
4.5 In the event that a Redemption Rescission Event shall occur
following any day on which a notice of redemption shall have been given pursuant
to Section 4.3 but at or prior to the earlier of (a) the time and date fixed for
redemption as set forth in such notice of redemption and (b) the time and date
at which the Corporation shall have irrevocably deposited funds or certificates
with a designated bank or trust company pursuant to Section 4.4, the Corporation
may, at its sole option, at any time prior to the earliest of (i) the close of
business on that day which is two (2) Trading Days following such Redemption
Rescission Event, (ii) the time and date fixed for redemption as set forth in
such notice and (iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or trust company,
rescind the redemption under Section 4.1(b)(i) to which such notice of
redemption shall have related by making a public announcement of such rescission
(the date on which such public announcement shall
<PAGE>
29
have been made being hereinafter referred to as the "Rescission Date"). The
Corporation 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 Corporation shall have no obligation to redeem shares of this Series called
for redemption pursuant to such notice of redemption or to pay the redemption
price therefor and all rights of holders of shares of this Series shall be
restored as if such notice of redemption had not been given. The Corporation
shall give notice of any such rescission by one of the means specified in
Section 7.2 as promptly as practicable, but in no event later than the close of
business on that date which is five (5) Trading Days following the Rescission
Date to each record holder of shares of this Series at the close of business on
the Rescission Date and to any other Person or entity that was a record holder
of shares of this Series and that shall have surrendered shares of this Series
for conversion following the giving of notice of the subsequently rescinded
redemption. Each notice of rescission shall (w) state that the redemption
described in the notice of redemption has been rescinded, (x) state that any
Converting Holder shall be entitled to rescind the conversion of shares of this
Series surrendered for conversion following the day on which notice of
redemption was given but prior to the close of business on the later of (1) the
Trading Day next succeeding the date on which public announcement of the
rescission of such redemption shall have been made and (2) the Trading Day on
which the Corporation's notice of rescission is deemed given pursuant to Section
7.2, (y) be accompanied by a form prescribed by the Corporation to be used by
any Converting Holder rescinding the conversion of shares so surrendered for
conversion (and instructions for the completion and delivery of such form,
including instructions with respect to payments that may be required to
accompany such delivery shall be in accordance with Section 3.5) and (z) state
that such form must be properly completed and received by the Corporation no
later than the close of business on a date that shall be ten (10) Trading Days
following the date such notice of rescission is deemed given pursuant to Section
7.2.
4.6 The shares of this Series shall not be subject to the
provisions of Section 5 of Article IV of the Certificate of Incorporation.
<PAGE>
30
5. Voting. The shares of this Series shall have no voting rights
------
except as required by law or as set forth below.
5.1 Each share of this Series shall be entitled to vote together
with holders of the shares of Common Stock (and any other class or series that
may similarly be entitled to vote with the shares of Common Stock) as a single
class upon all matters upon which holders of Common Stock are entitled to vote.
In any such vote, the holders of this Series shall be entitled to two (2) votes
per $100 of Liquidation Value of Series E Stock, subject to adjustment at the
same time and in the same manner as each adjustment of the Conversion Rate
pursuant to Section 3, so that the holders of this Series shall be entitled
following such adjustment to the number of votes equal to the number of votes
such holders were entitled to under this Section 5.1 immediately prior to such
adjustment multiplied by a fraction (x) the numerator of which is the Conversion
Rate as adjusted pursuant to Section 3 and (y) the denominator of which is the
Conversion Rate immediately prior to such adjustment.
5.2(a) So long as any shares of this Series remain outstanding,
unless a greater percentage shall then be required by law, the Corporation shall
not, without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of shares of this Series representing at least
66-2/3% of the aggregate voting power of shares of this Series then outstanding
(i) authorize any Senior Stock or reclassify (by merger, consolidation or
otherwise) any Junior Stock or Parity Stock as Senior Stock, (ii) merge into or
consolidate with any Person where the surviving or continuing corporation will
have any authorized Senior Stock other than Capital Stock corresponding to
shares of Senior Stock existing immediately before such merger or consolidation)
or (iii) amend, alter or repeal any of the provisions of the Certificate or the
Certificate of Incorporation, so as in any such case to adversely affect the
voting powers, designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions of the
shares of this Series.
(b) No consent of holders of shares of this Series shall be
required for (i) the creation of any indebtedness of any kind of the
Corporation, (ii) the authorization or issuance of any class of Junior Stock or
<PAGE>
31
Parity Stock, (iii) the authorization, designation or issuance of additional
shares of Series E Stock or (iv) subject to Section 5.2(a), the authorization or
issuance of any other shares of Preferred Stock.
5.3(a) If and whenever at any time or times dividends payable on
shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the Board
of Directors shall be increased by two and the holders of shares of this Series,
together with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six quarterly dividend
periods, shall have the exclusive right, voting separately as a class with such
other series, to elect two directors of the Corporation.
(b) Such voting right may be exercised initially either by
written consent or at a special meeting of the holders of the Preferred Stock
having such voting right, called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at each such annual meeting until such time as all dividends in
arrears on the shares of this Series shall have been paid in full and all
dividends payable on the shares of this Series on four subsequent consecutive
Dividend Payment Dates shall have been paid in full on such dates or funds shall
have been set aside for the payment thereof, at which time such voting right and
the term of the directors elected pursuant to Section 5.3(a) shall terminate.
(c) At any time when such voting right shall have vested in
holders of shares of such series of Preferred Stock described in Section 5.3(a),
and if such right shall not already have been exercised by written consent, a
proper officer of the Corporation may call, and, upon the written request,
addressed to the Secretary of the Corporation, of the record holders of shares
representing twenty-five percent (25%) of the voting power of the shares then
outstanding of such Preferred Stock having such voting right, shall call, a
special meeting of the holders of such Preferred Stock having such voting right.
Such meeting shall be held at the earliest practicable date upon the notice
required for annual meetings of stockholders at the
<PAGE>
32
place for holding annual meetings of stockholders, or, if none, at a place
designated by the Board of Directors. Notwithstanding the provisions of this
Section 5.3(c), no such special meeting shall be called during a period within
60 days immediately preceding the date fixed for the next annual meeting of
stockholders.
(d) At any meeting held for the purpose of electing directors at
which the holders of such Preferred Stock shall have the right to elect
directors as provided herein, the presence in person or by proxy of the holders
of shares representing more than fifty percent (50%) in voting power of the then
outstanding shares of such Preferred Stock having such right shall be required
and shall be sufficient to constitute a quorum of such class for the election of
directors by such class.
(e) Any director elected by holders of Preferred Stock pursuant
to the voting right created under this Section 5.3 shall hold office until the
next annual meeting of stockholders (unless such term has previously terminated
pursuant to Section 5.3(b)) and any vacancy in respect of any such director
shall be filled only by vote of the remaining director so elected, or if there
be no such remaining director, by the holders of such Preferred Stock entitled
to elect such director or directors by written consent or at a special meeting
called in accordance with the procedures set forth in Section 5.3(c), or, if no
special meeting is called or written consent executed, at the next annual
meeting of stockholders. Upon any termination of such voting right, subject to
applicable law, the term of office of all directors elected by holders of such
Preferred Stock voting separately as a class pursuant to this Section 5.3 shall
terminate.
(f) In exercising the voting rights set forth in this Section
5.3, each share of this Series shall have a number of votes equal to its
Liquidation Value.
6. Liquidation Rights.
------------------
6.1 Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of this
Series shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, in preference to the holders of, and
before any payment or distribution shall be made on, Junior Stock, the amount of
$100 per share (the
<PAGE>
33
"Liquidation Value") plus an amount equal to all accrued and unpaid dividends to
the date of final distribution. The Liquidation Value shall be subject to
adjustment from time to time to appropriately give effect to any split or
combination of the shares of this Series.
6.2 Neither the sale, exchange or other conveyance (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or consolidation of
the Corporation into or with any other corporation, or the merger or
consolidation of any other corporation into or with the Corporation, shall be
deemed to be a dissolution, liquidation or winding up, voluntary or involuntary,
for the purposes of this Section 6.
6.3 After the payment to the holders of the shares of this
Series of full preferential amounts provided for in this Section 6, the holders
of this Series as such shall have no right or claim to any of the remaining
assets of the Corporation.
6.4 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 6.1, no such distribution shall be made on account
of any shares of any Parity Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of this Series, ratably, in proportion to the full distributable amounts
for which holders of all Parity Stock are entitled upon such dissolution,
liquidation or winding up.
7. Other Provisions.
----------------
7.1 All notices from the Corporation to the holders shall be
given by one of the methods specified in Section 7.2. With respect to any notice
to a holder of shares of this Series required to be provided hereunder, neither
failure to give such notice, nor any defect therein or in the transmission
thereof, to any particular holder shall affect the sufficiency of the notice or
the validity of the proceedings referred to in such notice with respect to the
other holders or affect the legality or validity of any distribution, right,
warrant, reclassification,
<PAGE>
34
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up, or the vote upon any such action. Any notice that was mailed in the manner
herein provided shall be conclusively presumed to have been duly given whether
or not the holder receives the notice.
7.2 All notices and other communications hereunder shall be
deemed given (i) on the first Trading Day following the date received, if
delivered personally, (ii) on the Trading Day following timely deposit with an
overnight courier service, if sent by overnight courier specifying next day
delivery and (iii) on the first Trading Day that is at least five days following
deposit in the mails, if sent by first class mail to (x) a holder at its last
address as it appears on the transfer records or registry for the Series E Stock
and (y) the Corporation at the following address (or at such other address as
the Corporation shall specify in a notice pursuant to this Section 7.2): TW
Inc., 75 Rockefeller Plaza, New York, New York 10019, Attention: General
Counsel.
7.3 Any shares of this Series that have been converted,
redeemed, exchanged or otherwise acquired by the Corporation shall, after such
conversion, redemption, exchange or acquisition, as the case may be, be retired
and promptly cancelled and the Corporation shall take all appropriate action to
cause such shares to obtain the status of authorized but unissued shares of
Preferred Stock, without designation as to series, until such shares are once
more designated as part of a particular series by the Board of Directors. The
Corporation may cause a certificate setting forth a resolution adopted by the
Board of Directors that none of the authorized shares of this Series are
outstanding to be filed with the Secretary of State of the State of Delaware.
When such certificate becomes effective, all matters set forth in the
Certificate shall be eliminated from the Certificate of Incorporation and the
shares of Preferred Stock designated hereby as Series E Stock shall have the
status of authorized and unissued shares of Preferred Stock and may be reissued
as part of any new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors.
7.4 The shares of this Series shall be issuable in whole shares
or, if authorized by the Board of Directors, in any fraction of a whole share so
authorized or any integral multiple of such fraction.
<PAGE>
35
7.5 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such record holder shall be deemed the holder of such shares for all
purposes.
7.6 All notice periods referred to in the Certificate shall
commence on the date of the mailing of the applicable notice.
7.7 Any registered holder of Series E Stock may proceed to
protect and enforce its rights by any available remedy by proceeding at law or
in equity to protect and enforce any such rights, whether for the specific
enforcement of any provision in this Certificate or in aid of the exercise of
any power granted herein, or to enforce any other proper remedy.
IN WITNESS WHEREOF, TW Inc. has caused this certificate to be
signed this [ ] day of [ ].
TW INC.,
by
------------------------------
Name:
Title:
<PAGE>
EXHIBIT 3.1(g)
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES F CONVERTIBLE
PREFERRED STOCK
OF
TW INC.
--------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
--------------------
TW INC. (as defined below, the "Corporation"), a corporation organized
and existing by virtue of the General Corporation Law of the State of Delaware
(the "DGCL"), does hereby certify that the following resolution was duly adopted
by action of the Board of Directors of the Corporation (the "Board of
Directors") at a meeting duly held on [ ], 1996.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $.10 per share ("Preferred Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series as follows:
The series of Preferred Stock hereby established shall consist of
3,226,792 shares designated as Series F Convertible Preferred Stock. The
rights, preferences and limitations of such series shall be as follows:
<PAGE>
2
1. Definitions. As used herein, the following terms shall have the
-----------
indicated meanings:
1.1 "Accrued Dividend Amount" shall have the meaning set forth
in Section 3.1 thereof.
1.2 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.3 "Capital Stock" shall mean any and all shares of corporate
stock of a Person (however designated and whether representing rights to vote,
rights to participate in dividends or distributions upon liquidation or
otherwise with respect to such Person, any division or subsidiary thereof, or
any joint venture, partnership, corporation or other entity).
1.4 "Certificate" shall mean the certificate of the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of
Series F Convertible Preferred Stock filed with respect to this resolution with
the Secretary of State of the State of Delaware pursuant to Section 151 of the
DGCL.
1.5 "Change of Control" and "Change of Control Date" shall have
the following meanings: "Change of Control" shall mean the occurrence of one or
both of the following events: (a) individuals who would constitute a majority of
the members of the Board of Directors elected at any meeting of stockholders or
by written consent (without regard to any members of the Board of Directors
elected pursuant to the terms of any series of Preferred Stock) shall be elected
to the Board of Directors and the election or the nomination for election by the
stockholders of such directors was not approved by a vote of at least a majority
of the directors in office immediately prior to such election (in which event
"Change of Control Date" shall mean the date of such election) or (b) a Person
or group of Persons acting in concert as a partnership, limited partnership,
syndicate or other group within the meaning of Rule 13d-3 under the Exchange Act
(the "Acquiring Person") shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases, share repurchases, redemptions
or otherwise, have become the
<PAGE>
3
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
40% or more of the outstanding shares of Common Stock (in which event "Change of
Control Date" shall mean the date of the event resulting in such 40% ownership).
1.6 "Closing Price" of the Common Stock shall mean the last
reported sale price of the Common Stock (regular way) as shown on the Composite
Tape of the NYSE, 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 the Common Stock is not
listed or admitted to trading on the NYSE, on the principal national securities
exchange on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securities exchange, the last
reported sale price of the Common Stock, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, in either case as
reported by NASDAQ.
1.7 "Common Stock" shall mean the class of Common Stock, par
value $.01 per share, of the Corporation authorized at the date of the
Certificate, or any other class of stock resulting from (x) successive changes
or reclassifications of such Common Stock consisting of changes in par value, or
from par value to no par value, (y) a subdivision or combination or (z) any
other changes for which an adjustment is made under Section 3.6(a), and in any
such case including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other securities of
the Corporation that are at the time represented by the certificates
representing such shares of Common Stock.
1.8 "Conversion Date" shall have the meaning set forth in
Section 3.6 hereof.
1.9 "Conversion Price" shall have the meaning set forth in
Section 3.1 hereof.
1.10 "Conversion Rate" shall have the meaning set forth in
Section 3.1 hereof.
1.11 "Converting Holder" shall have the meaning set forth in
Section 3.5 hereof.
1.12 "Corporation" shall mean TW Inc., a Delaware corporation,
and any of its successors by operation of law, including by merger,
consolidation or sale or
<PAGE>
4
conveyance of all or substantially all of its property and assets.
1.13 "Current Market Price" of the Common Stock on any date shall
mean the average of the daily Closing Prices per share of the Common Stock for
the five (5) consecutive Trading Days ending on the Trading Day immediately
preceding the applicable record date, conversion date, redemption date or
exchange date referred to in Section 3 or Section 4.
1.14 "DGCL" shall mean the General Corporation Law of the State
of Delaware.
1.15 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1 hereof.
1.16 "Exchange Price" shall have the meaning set forth in
Section 4.1 hereof.
1.17 "Junior Stock" shall mean the Common Stock, the Series A
Stock, the Series LMC Stock, the Series LMCN-V Stock and the shares of any other
class or series of Capital Stock of the Corporation that, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall be junior to the Series F Stock in respect of the right to
receive dividends or to participate in any distribution of assets other than by
way of dividends.
1.18 "Liquidation Value" shall have the meaning set forth in
Section 7.1 hereof.
1.19 "NASDAQ" shall mean the Nasdaq Stock Market.
1.20 "NYSE" shall mean the New York Stock Exchange, Inc.
1.21 "Parity Stock" shall mean the Series D Stock, the Series E
Stock, the Series G Stock, the Series H Stock, the Series I Stock, the Series J
Stock, the Series L Stock, the Series M Stock and the shares of any other class
or series of Capital Stock of the Corporation that, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant
<PAGE>
5
to authority granted in the Certificate of Incorporation, shall fix the relative
rights, preferences and limitations thereof, shall, in the event that the stated
dividends thereon are not paid in full, be entitled to share ratably with the
Series F Stock in the payment of dividends, including accumulations, if any, in
accordance with the sums that would be payable on such shares if all dividends
were declared and paid in full, or shall, in the event that the amounts payable
thereon on liquidation are not paid in full, be entitled to share ratably with
the Series F Stock in any distribution of assets other than by way of dividends
in accordance with the sums that would be payable in such distribution if all
sums payable were discharged in full; provided, however, that the term "Parity
-------- -------
Stock" shall be deemed to refer (i) in Section 2.2 hereof, to any stock that is
Parity Stock in respect of dividend rights; (ii) in Section 6 hereof, to any
stock that is Parity Stock in respect of the distribution of assets; and (iii)
in Sections 5.2 and 5.3 hereof, to any stock that is Parity Stock in respect of
either dividend rights or the distribution of assets and that, pursuant to the
Certificate of Incorporation or any instrument in which the Board of Directors,
acting pursuant to authority granted in the Certificate of Incorporation, shall
so designate, is entitled to vote with the holders of Series F Stock.
1.22 "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
1.23 "Preferred Stock" shall mean the class of Preferred Stock,
par value $.10 per share, of the Corporation authorized at the date of the
Certificate, including any shares thereof authorized after the date of the
Certificate.
1.24 "Pro Rata Repurchase" shall mean the purchase of shares of
Common Stock by the Corporation or by any of its subsidiaries, whether for cash
or other property or securities of the Corporation, which purchase is subject to
Section 13(e) of the Exchange Act or is made pursuant to an offer made available
to all holders of Common Stock, but excluding any purchase made in open market
transactions that satisfies the conditions of clause (b) of Rule 10b-18 under
the Exchange Act or has been designed (as reasonably determined by the Board of
Directors) to prevent such purchase from having a material effect on the trading
market of the Common Stock. The "Effective Date" of a Pro Rata
<PAGE>
6
Repurchase shall mean the applicable expiration date (including all extensions
thereof) of any tender or exchange offer that is a Pro Rata Repurchase or the
date of purchase with respect to any Pro Rata Repurchase that is not a tender or
exchange offer.
1.25 "Record Date" shall have the meaning set forth in Section
2.1 hereof.
1.26 "Redemption Price" shall have the meaning set forth in
Section 4.1 hereof.
1.27 "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 are registered and listed for trading (or, if shares of Common
Stock are not registered and listed for trading on any such exchange, in the
over-the-counter market) for more than six-and-one-half (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 shares of this Series 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 earlier of (x) the time and date fixed for redemption in such
notice and (y) the time and date at which the Corporation shall have irrevocably
deposited funds with a designated bank or trust company pursuant to Section 4.4
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 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 on or prior to the earlier of the dates specified in
clauses (x) and (y) above, (c) a declaration of a banking moratorium or any
suspension of payments in respect of banks by Federal or state 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
<PAGE>
7
the United States that in the reasonable judgment of the Corporation could have
a material adverse effect on the market for the Common Stock.
1.28 "Rescission Date" shall have the meaning set forth in
Section 4.5 hereof.
1.29 "Senior Stock" shall mean the shares of any class or series
of Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series F Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
1.30 "Series A Stock" shall mean the series of Preferred Stock
authorized and designated as Series A Participating Preferred Stock at the date
of the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.31 "Series D Stock" shall mean the series of Preferred Stock
authorized and designated as Series D Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.32 "Series E Stock" shall mean the series of Preferred Stock
authorized and designated as Series E Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.33 "Series F Stock" and "this Series" shall mean the series of
Preferred Stock authorized and designated as the Series F Convertible Preferred
Stock, including any shares thereof authorized and designated after the date of
the Certificate.
1.34 "Series G Stock" shall mean the series of Preferred Stock
authorized and designated as Series G Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
<PAGE>
8
1.35 "Series H Stock" shall mean the series of Preferred Stock
authorized and designated as Series H Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.36 "Series I Stock" shall mean the series of Preferred Stock
authorized and designated as Series I Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.37 "Series J Stock" shall mean the series of Preferred Stock
authorized and designated as Series J Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.38 "Series L Stock" shall mean the series of Preferred Stock
authorized and designated as 10-1/4% Series L Exchangeable Preferred Stock at
the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
1.39 "Series LMC Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMC Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.40 "Series LMCN-V Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMCN-V Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.41 "Series M Stock" shall mean the series of Preferred Stock
authorized and designated as 10-1/4% Series M Exchangeable Preferred Stock at
the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
1.42 "Surrendered Shares" shall have the meaning set forth in
Section 3.5 hereof.
1.43 "Trading Day" shall mean, so long as the Common Stock is
listed or admitted to trading on the NYSE, a day on which the NYSE is open for
the transaction of
<PAGE>
9
business, or, if the Common Stock is not listed or admitted to trading on the
NYSE, a day on which the principal national securities exchange on which the
Common Stock is listed is open for the transaction of business, or, if the
Common Stock 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.
2. Cash Dividends.
--------------
2.1 The holders of the outstanding Series F Stock shall be
entitled to receive quarter-annual dividends, as and when declared by the Board
of Directors out of funds legally available therefor. Each quarter-annual
dividend shall be an amount per share equal to (i) in the case of each Dividend
Payment Date (as defined below) occurring on or prior to January 4, 2000, the
greater of (A) $.9375 per $100 of Liquidation Value of Series F Stock (which is
equivalent to $3.75 per annum), and (B) an amount per $100 of Liquidation Value
of Series F Stock equal to the product of (1) the Conversion Rate and (2) the
aggregate per share amount of regularly scheduled dividends paid in cash on the
Common Stock during the period from but excluding the immediately preceding
Dividend Payment Date to and including such Dividend Payment Date (the
"Preferred Dividend Amount"), and (ii) in the case of each Dividend Payment Date
occurring thereafter, an amount per share of Series F Stock equal to the product
of (1) the Conversion Rate and (2) the aggregate per share amount of regularly
scheduled dividends paid in cash on the Common Stock during the period from but
excluding the immediately preceding Dividend Payment Date to and including such
Dividend Payment Date. All dividends shall be payable in cash on or about the
first day of January, April, July and October in each year, as fixed by the
Board of Directors, or such other dates as are fixed by the Board of Directors
(provided that January 4, 2000, shall be a Dividend Payment Date) (each a
"Dividend Payment Date"), to the holders of record of Series F Stock at the
close of business on or about the Trading Day next preceding such first day of
January, April, July or October (or January 4, 2000) as the case may be, as
fixed by the Board of Directors, or such other dates as are fixed by the Board
of Directors (each a "Record Date"). Subject to the next sentence, in the case
of dividends payable in respect of periods prior to January 4, 2000, (i) such
dividends shall accrue on each share on a daily basis, whether or not there are
unrestricted funds legally available for the payment of such dividends and
whether or not declared and (ii) any such
<PAGE>
10
dividends that become payable for any partial dividend period shall be computed
on the basis of the actual days elapsed in such period. Notwithstanding the
preceding sentence, the amount accruing and payable in respect of the first
dividend on the Series F Stock payable after the date of the Certificate shall
equal the Preferred Dividend Amount. From and after January 4, 2000, dividends
on the Series F Stock (determined as to amount as provided herein) shall accrue
to the extent, but only to the extent, that regularly scheduled cash dividends
are declared by the Board of Directors on the Common Stock with a payment date
after January 4, 2000 (or, in the case of Series F Stock originally issued after
January 4, 2000, after the Dividend Payment Date next preceding such date of
original issuance). All dividends that accrue in accordance with the foregoing
provisions shall be cumulative from and after the day immediately succeeding the
date of issuance. The amount payable to each holder of record on any Dividend
Payment Date shall be rounded to the nearest cent.
2.2 Except as hereinafter provided in this Section 2.2, unless
all dividends on the outstanding shares of Series F Stock and any Parity Stock
that shall have accrued and become payable as of any date shall have been paid,
or declared and funds set apart for payment thereof, no dividend or other
distribution (payable other than in shares of Junior Stock) shall be paid to the
holders of Junior Stock or Parity Stock, and no shares of Series F Stock, Parity
Stock or Junior Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries (except by conversion into or exchange
for Junior Stock), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund for the purchase or redemption of any
Series F Stock, Junior Stock or Parity Stock. When dividends are not paid in
full upon the shares of this Series and any Parity Stock, all dividends declared
upon shares of this Series and all Parity Stock shall be declared pro rata so
that the amount of dividends declared per share on this Series and all such
Parity Stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of this Series and all such Parity Stock bear
to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on this Series that may
be in arrears.
2.3 In case the Corporation shall at any time distribute (other
than a distribution in liquidation of
<PAGE>
11
the Corporation) to the holders of its shares of Common Stock any assets or
property, including evidences of indebtedness or securities of the Corporation
(other than Common Stock subject to a distribution or reclassification covered
by Section 3.6(a)) or of any other Person (including common stock of such
Person) or cash (but excluding regularly scheduled cash dividends payable on
shares of Common Stock) or in case the Corporation shall at any time distribute
(other than a distribution in liquidation of the Corporation) to such holders
rights, options or warrants to subscribe for or purchase shares of Common Stock
(including shares held in the treasury of the Corporation), or rights, options
or warrants to subscribe for or purchase any other security or rights, options
or warrants to subscribe for or purchase any assets or property (in each case,
whether of the Corporation or otherwise, but other than any distribution of
rights to purchase securities of the Corporation if the holder of shares of this
Series would otherwise be entitled to receive such rights upon conversion of
shares of this Series for Common Stock; provided, however, that if such rights
-------- -------
are subsequently redeemed by the Corporation, such redemption shall be treated
for purposes of this Section 2.3 as a cash dividend (but not a regularly
scheduled cash dividend) on the Common Stock), the Corporation shall
simultaneously distribute such assets, property, securities, rights, options or
warrants pro rata to the holders of Series F Stock on the record date fixed for
determining holders of Common Stock entitled to participate in such distribution
(or, if no such record date shall be established, the effective time thereof) in
an amount equal to the amount that such holders of Series F Stock would have
been entitled to receive had their shares of Series F Stock been converted into
Common Stock immediately prior to such record date (or effective time). In the
event of a distribution to holders of Series F Stock pursuant to this Section
2.3, such holders shall be entitled to receive fractional shares or interests
only to the extent that holders of Common Stock are entitled to receive the
same. The holders of Series F Stock on the applicable record date (or effective
time) shall be entitled to receive in lieu of such fractional shares or
interests the same consideration as is payable to holders of Common Stock with
respect thereto. If there are no fractional shares or interests payable to
holders of Common Stock, the holders of Series F Stock on the applicable record
date (or effective time) shall receive in lieu of such fractional shares or
interests the fair value thereof as determined by the Board of Directors.
<PAGE>
12
2.4 If a distribution is made in accordance with the provisions
of Section 2.3, anything in Section 3 to the contrary notwithstanding, no
adjustment pursuant to Section 3 shall be effected by reason of the distribution
of such assets, property, securities, rights, options or warrants or the
subsequent modification, exercise, expiration or termination of such securities,
rights, options or warrants.
2.5 In the event that the holders of Common Stock are entitled to
make any election with respect to the kind or amount of securities or other
property receivable by them in any distribution that is subject to Section 2.3,
the kind and amount of securities or other property that shall be distributable
to the holders of the Series F Stock shall be based on (i) the election, if any,
made by the record holder (as of the date used for determining the holders of
Common Stock entitled to make such election) of the largest number of shares of
Series F Stock in writing to the Corporation on or prior to the last date on
which a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable by holders of the Series F Stock shall
be based on the kind or amount of securities or other property receivable by a
plurality of the shares held by the nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to in
this Section, the Corporation shall mail a copy thereof to the record holders on
the date of mailing of the largest number of shares of the Series F Stock as of
the date used for determining the holders of record of Common Stock entitled to
such mailing.
3. Conversion Rights.
-----------------
3.1 Each holder of a share of this Series shall have the right at
any time or as to any share of this Series called for redemption or exchange, at
any time prior to the close of business on the date fixed for redemption or
exchange (unless the Corporation defaults in the payment of the Redemption Price
or fails to exchange the shares of this Series for the applicable number of
shares of Common Stock and any cash portion of the Exchange Price or exercises
its right to rescind such redemption pursuant to Section 4.5, in
<PAGE>
13
which case such right shall not terminate at the close of business on such
date), to convert such share into (i) a number of shares of Common Stock equal
to 2.08264 shares of Common Stock for each share of this Series, subject to
appropriate adjustment in the event of a split or combination of shares of this
Series and subject to further adjustment as provided in this Section 3 (such
rate, as so adjusted from time to time, is herein called the "Conversion Rate";
and the "Conversion Price" at any time shall mean the Liquidation Value per
share divided by the Conversion Rate in effect at such time (rounded to the
nearest one hundredth of a cent)) plus (ii) in the event there shall be any
dividends on shares of this Series that shall be accrued and unpaid as of the
immediately preceding Dividend Payment Date, a number of shares of Common Stock
equal to:
(A) the aggregate amount of accrued and unpaid dividends on such
share of Series F Stock to and including the most recent scheduled
Dividend Payment Date (whether or not such dividends were declared
and whether or not there are unrestricted funds legally available for
the payment thereof) (the "Accrued Dividend Amount") divided by
------- --
(B) the Closing Price of the Common Stock on the last Trading
Day prior to the Conversion Date;
provided, however, that the Corporation shall have the right to deliver cash
- -------- -------
equal to the Accrued Dividend Amount or any portion thereof, in which case its
obligation to deliver shares of Common Stock pursuant to this clause (ii) shall
be reduced by a number of shares equal to (x) the aggregate amount of cash so
delivered divided by (y) the Closing Price of the Common Stock on the last
----------
Trading Day prior to the Conversion Date, unless the Corporation shall deliver
cash equal to the entire Accrued Dividend Amount, in which case its entire
obligation under this clause (ii) shall be discharged. The obligations of the
Corporation to issue the Common Stock (or its option to make cash payments)
provided by this Section 3.1 shall be absolute whether or not any accrued
dividend by which such issuance (or payment) is measured has been declared by
the Board of Directors and whether or not the Corporation would have adequate
surplus or net profits to pay such dividend if declared or is otherwise
restricted from paying such dividend.
3.2 Except as provided in this Section 3, no adjustments in
respect of payments of dividends on shares
<PAGE>
14
surrendered for conversion or any dividend on the Common Stock issued upon
conversion shall be made upon the conversion of any shares of this Series (it
being understood that if the Conversion Date for shares of Series F Stock occurs
after a Record Date and on or prior to a Dividend Payment Date, the holder of
record on such Record Date shall be entitled to receive the dividend payable
with respect to such shares on the related Dividend Payment Date pursuant to
Section 2.1 hereof).
3.3 The Corporation may, but shall not be required to, in
connection with any conversion of shares of this Series, issue a fraction of a
share of Common Stock, and if the Corporation shall determine not to issue any
such fraction, the Corporation shall, subject to Section 3.6(d), make a cash
payment (rounded to the nearest cent) equal to such fraction multiplied by the
Closing Price of the Common Stock on the last Trading Day prior to the
Conversion Date.
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock shall surrender the certificate or certificates for
such shares at the office of the transfer agent or agents therefor (or at such
other place as the Corporation may designate by notice to the holders of shares
of this Series) during regular business hours, duly endorsed to the Corporation
or in blank, or accompanied by instruments of transfer to the Corporation or in
blank, or in form satisfactory to the Corporation, and shall give written notice
to the Corporation at such office that such holder elects to convert such shares
of this Series. If any such certificate or certificates shall have been lost,
stolen or destroyed, the holder shall, in lieu of delivering such certificate or
certificates, deliver to the transfer agent or agents therefor (or such other
place) an indemnification agreement and bond satisfactory to the Corporation.
The Corporation shall, as soon as practicable (subject to Section 3.6(e)) after
such deposit of certificates for shares of this Series or delivery of the
indemnification agreement and bond, accompanied by the written notice above
prescribed, issue and deliver at such office to the holder for whose account
such shares were surrendered, or to his nominee, certificates representing the
number of shares of Common Stock and the cash, if any, to which such holder is
entitled upon such conversion.
3.5 Conversion shall be deemed to have been made as of the date
(the "Conversion Date") that
<PAGE>
15
certificates for the shares of this Series to be converted, and the written
notice prescribed in Section 3.4 are received by the transfer agent or agents
for this Series; and the Person entitled to receive the Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder of
such Common Stock on such date. Notwithstanding anything to the contrary
contained herein, in the event the Corporation shall have rescinded a redemption
of shares of this Series pursuant to Section 4.5, any holder of shares of this
Series that shall have surrendered shares of this Series for conversion
following the day on which notice of the subsequently rescinded redemption shall
have been given but prior to the close of business on the later of (a) the
Trading Day next succeeding the date on which public announcement of the
rescission of such redemption shall have been made and (b) the Trading Day on
which the notice of rescission required by Section 4.5 is deemed given pursuant
to Section 7.2 (a "Converting Holder") may rescind the conversion of such shares
surrendered for conversion by (i) properly completing a form prescribed by the
Corporation and mailed to holders of shares of this Series (including Converting
Holders) with the Corporation'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 Exchange
Act) of shares of this Series that the beneficial ownership (within the meaning
of such Rule) of such shares shall not have changed from the date on which such
shares were surrendered for conversion to the date of such certification and
(ii) delivering such form to the Corporation no later than the close of business
on that date which is ten (10) Trading Days following the date on which the
Corporation's notice of rescission is deemed given pursuant to Section 7.2. The
delivery of such form by a Converting Holder shall be accompanied by (x) any
certificates representing shares of Common Stock issued to such Converting
Holder upon a conversion of shares of this Series that shall be rescinded by the
proper delivery of such form (the "Surrendered Shares"), (y) any securities,
evidences of indebtedness or assets (other than cash) distributed by the
Corporation to such Converting Holder by reason of such Converting Holder's
being a record holder of Surrendered Shares and (z) payment in New York Clearing
House funds or other funds acceptable to the Corporation of an amount equal to
the sum of (I) any cash such Converting Holder may have received in lieu of the
issuance of fractional shares upon conversion and (II) any cash paid or payable
by the Corporation to such Converting
<PAGE>
16
Holder by reason of such Converting Holder being a record holder of Surrendered
Shares. Upon receipt by the Corporation 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 or made by such Converting
Holder to the Corporation as set forth above, the Corporation shall instruct the
transfer agent or agents for shares of Common Stock and shares of this Series to
cancel any certificates representing Surrendered Shares (which Surrendered
Shares shall be deposited in the treasury of the Corporation) and reissue
certificates representing shares of this Series to such Converting Holder (which
shares of this Series shall be deemed to have been outstanding at all times
during the period following their surrender for conversion). The Corporation
shall, as promptly as practicable, and in no event more than five (5) 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 or made, pay to the Converting Holder or as otherwise
directed by such Converting Holder any dividend or other payment made on such
shares during the period from the time such shares shall have been surrendered
for conversion to the rescission of such conversion. All questions as to the
validity, form, eligibility (including time or receipt) and acceptance of any
form submitted to the Corporation to rescind the conversion of shares of this
Series, including questions as to the proper completion or execution of any such
form or any certification contained therein, shall be resolved by the
Corporation, whose determination shall be final and binding. The Corporation
shall not be required to deliver certificates for shares of Common Stock while
the stock transfer books for such stock or for this Series are duly closed for
any purpose or during any period commencing at a Redemption Rescission Event and
ending at either (i) the time and date at which the Corporation's right of
rescission shall expire pursuant to Section 4.5 if the Corporation shall not
have exercised such right or (ii) the close of business on that day which is ten
(10) Trading Days following the date on which the Corporation's notice of
rescission pursuant to Section 4.4 is deemed given pursuant to Section 7.2 if
the Corporation shall have exercised such right of rescission, but certificates
for shares of Common Stock shall be delivered as soon as practicable after the
opening of such books or the expiration of such period.
<PAGE>
17
3.6 The Conversion Rate shall be adjusted from time to time as
follows for events occurring on or after the date of the Certificate:
(a) In case the Corporation shall (i) pay a dividend in shares
of its Common Stock, (ii) combine its outstanding shares of Common Stock
into a smaller number of shares, (iii) subdivide its outstanding shares of
Common Stock or (iv) reclassify (other than by way of a merger or
consolidation that is subject to Section 3.7) its shares of Common Stock,
then the Conversion Rate in effect immediately before such action shall be
adjusted so that immediately following such event the holders of the Series
F Stock shall be entitled to receive upon conversion or exchange thereof
the kind and amount of shares of Capital Stock of the Corporation that they
would have owned or been entitled to receive upon or by reason of such
event if such shares of Series F Stock had been converted immediately
before the record date (or, if no record date, the effective date) for such
event (it being understood that any distribution of cash or Capital Stock
(other than Common Stock), including any distribution of Capital Stock
(other than Common Stock) that shall accompany a reclassification of the
Common Stock, shall be subject to Section 2.3 rather than this Section
3.6(a)). An adjustment made pursuant to this Section 3.6(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 3.6(a),
in the event that the holders of Common Stock are entitled to make any
election with respect to the kind or amount of securities receivable by
them in any transaction that is subject to this Section 3.6(a) (including
any election that would result in all or a portion of the transaction
becoming subject to Section 2.3), the kind and amount of securities that
shall be distributable to the holders of the Series F Stock shall be based
on (i) the election, if any, made by the record holder (as of the date used
for determining the holders of Common Stock entitled to make such election)
of the largest number of shares of Series F Stock in writing to the
Corporation on or prior to the last date on which a holder of Common Stock
may make such an election or (ii) if no such
<PAGE>
18
election is timely made, an assumption that such holder failed to exercise
any such rights (provided that if the kind or amount of securities is not
the same for each nonelecting holder, then the kind and amount of
securities receivable shall be based on the kind or amount of securities
receivable by a plurality of nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to
in this Section, the Corporation shall mail a copy thereof to the record
holders of the Series F Stock as of the date used for determining the
holders of record of Common Stock entitled to such mailing.
(b) In case a Change of Control shall occur, the Conversion Rate
in effect immediately prior to the Change of Control Date shall be
increased (but not decreased) by multiplying such rate by a fraction as
follows: (i) in the case of a Change of Control specified in Section
1.5(a), a fraction in which the numerator is the Conversion Price prior to
adjustment pursuant hereto and the denominator is the Current Market Price
of the Common Stock at the Change of Control Date, (ii) in the case of a
Change of Control specified in Section 1.5(b), the greater of the following
fractions: (x) a fraction the numerator of which is the highest price per
share of Common Stock paid by the Acquiring Person in connection with the
transaction giving rise to the Change of Control or in any transaction
within six months prior to or after the Change of Control Date (the
"Highest Price"), and the denominator of which is the Current Market Price
of the Common Stock as of the date (but not earlier than six months prior
to the Change of Control Date) on which the first public announcement is
made by the Acquiring Person that it intends to acquire or that it has
acquired 40% or more of the outstanding shares of Common Stock (the
"Announcement Date") or (y) a fraction the numerator of which is the
Conversion Price prior to adjustment pursuant hereto and the denominator of
which is the Current Market Price of the Common Stock on the Announcement
Date and (iii) in the case where there co-exists a Change of Control
specified in both Section 1.5(a) and Section 1.5(b), the greatest of the
fractions determined pursuant to clauses (i) and (ii). Such adjustment
shall become effective immediately after the Change of Control Date and
shall
<PAGE>
19
be made, in the case of clauses (ii) and (iii) above, successively for six
months thereafter in the event and at the time of any increase in the
Highest Price after the Change of Control Date; provided, however, that no
-------- -------
such successive adjustment shall be made with respect to the Conversion
Rate of the shares of this Series in respect of any event occurring after
the Conversion Date.
(c) In case the Corporation or any subsidiary thereof shall make
a Pro Rata Repurchase, the Conversion Rate in effect immediately prior to
such action shall be adjusted (but shall not be decreased) by multiplying
such Conversion Rate by a fraction, the numerator of which shall be the
product of (i) the number of shares of Common Stock outstanding immediately
before such Pro Rata Repurchase minus the number of shares of Common Stock
repurchased by the Corporation or any subsidiary thereof in such Pro Rata
Repurchase and (ii) the Current Market Price of the Common Stock as of the
day immediately preceding the first public announcement by the Corporation
of the intent to effect such Pro Rata Repurchase, and the denominator of
which shall be (i) the product of (x) the number of shares of Common Stock
outstanding immediately before such Pro Rata Repurchase and (y) the Current
Market Price of the Common Stock as of the day immediately preceding the
first public announcement by the Corporation of the intent to effect such
Pro Rata Repurchase minus (ii) the aggregate purchase price of the Pro Rata
Repurchase (provided that such denominator shall never be less than 1).
Such adjustment shall become effective immediately after the Effective Date
of such Pro Rata Repurchase.
(d) The Corporation shall be entitled to make such additional
adjustments in the Conversion Rate, in addition to those required by
subsections 3.6(a), 3.6(b) and 3.6(c) as shall be necessary in order that
any dividend or distribution in Common Stock or any subdivision,
reclassification or combination of shares of Common Stock referred to
above, shall not be taxable to the holders of Common Stock for United
States Federal income tax purposes, so long as such additional adjustments
pursuant to this Section 3.6(d) do not decrease the Conversion Rate.
<PAGE>
20
(e) In any case in which this Section 3.6 shall require that any
adjustment be made effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for five (5)
Trading Days following the occurrence of the event that necessitates the
filing of the statement referred to in Section 3.6(g)) issuing to the
holder of any shares of this Series converted after such record date (i)
the shares of Common Stock and other Capital Stock of the Corporation
issuable upon such conversion over and above (ii) the shares of Common
Stock and other Capital Stock of the Corporation issuable upon such
conversion on the basis of the Conversion Rate prior to adjustment;
provided, however, that the Corporation 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 3 shall be made to the
nearest cent, one-hundredth of a share or, in the case of the Conversion
Rate, one hundred-thousandth. Notwithstanding any other provision of this
Section 3, the Corporation shall not be required to make any adjustment of
the Conversion Rate unless such adjustment would require an increase or
decrease of at least 1.00000% of such Conversion Rate. Any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment that, together with any
adjustment or adjustments so carried forward, shall amount to an increase
or decrease of at least 1.00000% in such rate. Any adjustments under this
Section 3 shall be made successively whenever an event requiring such an
adjustment occurs.
(g) Whenever an adjustment in the Conversion Rate is required,
the Corporation shall forthwith place on file with its transfer agent or
agents for this Series a statement signed by a duly authorized officer of
the Corporation, stating the adjusted Conversion Rate determined as
provided herein. Such statements shall set forth in reasonable detail such
facts as shall be necessary to show the reason for and the manner of
computing such adjustment. Promptly after the adjustment of the Conversion
Rate, the Corporation shall mail a notice thereof to each holder of shares
of this Series.
<PAGE>
21
(h) In the event that on or at any time as a result of an
adjustment made pursuant to this Section 3, the holder of any share of this
Series thereafter surrendered for conversion shall become entitled to
receive any shares of Capital Stock of the Corporation other than shares of
Common Stock, the conversion rate of such other shares so receivable upon
conversion of any such share of this Series 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 contained in
subparagraphs (a) through (g) and (i) of this Section 3.6, and the
provisions of Section 3.1 through 3.5 and 3.7 through 3.10 shall apply on
like or similar terms to any such other shares and the determination of the
Board of Directors as to any such adjustment shall be conclusive.
(i) No adjustment shall be made pursuant to this Section 3.6 (i)
if the effect thereof would be to reduce the Conversion Price below the par
value of the Common Stock or (ii) subject to Section 3.6(d) hereof, with
respect to any share of Series F Stock that is converted, prior to the time
such adjustment otherwise would be made.
3.7 In the event that on or after the date of the Certificate,
either (a) any consolidation or merger to which the Corporation is a party,
other than a merger or consolidation in which the Corporation is the surviving
or continuing corporation and that does not result in any 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, or as a result of a subdivision or combination)
in, outstanding shares of Common Stock or (b) any sale or conveyance of all or
substantially all of the property and assets of the Corporation, then lawful
provision shall be made as part of the terms of such transaction whereby the
holder of each share of Series F Stock shall have the right thereafter, during
the period such share shall be convertible or exchangeable, to convert such
share into or have such shares exchanged for the kind and amount of shares of
stock or other securities and property receivable upon such consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
into which such shares of this Series could have been converted or exchanged
immediately prior to such consolidation, merger, sale or conveyance, subject to
<PAGE>
22
adjustment that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3 (based on (i) the election, if any,
made in writing to the Corporation by the record holder (as of the date used for
determining holders of Common Stock entitled to make such election) of the
largest number of shares of Series F Stock on or prior to the last date on which
a holder of Common Stock may make an election regarding the kind or amount of
securities or other property receivable by such holder in such transaction or
(ii) if no such election is timely made, an assumption that such holder failed
to exercise any such rights (provided that if the kind or amount of securities
or other property is not the same for each nonelecting holder, then the kind and
amount of securities or other property receivable shall be based upon the kind
and amount of securities or other property receivable by a plurality of the
nonelecting holders of Common Stock)). In the event that any of the
transactions referred to in clauses (a) or (b) involves the distribution of cash
or property (other than equity securities) to a holder of Common Stock, lawful
provision shall be made as part of the terms of the transaction whereby the
holder of each share of Series F Stock on the record date fixed for determining
holders of Common Stock entitled to receive such cash or property (or if no such
record date is established, the effective date of such transaction) shall be
entitled to receive the amount of cash or property that such holder would have
been entitled to receive had such holder converted his shares of Series F Stock
into Common Stock immediately prior to such record date (or effective date)
(based on the election or nonelection made by the record holder of the largest
number of shares of Series F Stock, as provided above). Concurrently with the
mailing to holders of Common Stock of any document pursuant to which such
holders may make an election regarding the kind or amount of securities or other
property that will be receivable by such holder in any transaction described in
clause (a) or (b) of the first sentence of this Section 3.7, the Corporation
shall mail a copy thereof to the record holders of the Series F Stock as of the
date used for determining the holders of record of Common Stock entitled to such
mailing. The Corporation shall not enter into any of the transactions referred
to in clauses (a) or (b) of the preceding sentence unless effective provision
shall be made in the certificate or articles of incorporation or other
constituent documents of the Corporation or the entity surviving the
consolidation or merger, if other than the Corporation, or the entity acquiring
the Corporation's assets, as the case may be, so
<PAGE>
23
as to give effect to the provisions set forth in this Section 3.7. The
provisions of this Section 3.7 shall apply similarly to successive
consolidations, mergers, sales or conveyances. For purposes of this Section
3.7, the term "Corporation" shall refer to the Corporation (as defined in
Section 1.12) as constituted immediately prior to the merger, consolidation or
other transaction referred to in this Section.
3.8 The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
stock, for the purpose of effecting the conversion of the shares of this Series,
such number of its duly authorized shares of Common Stock (or, if applicable,
any other shares of Capital Stock of the Corporation) as shall from time to time
be sufficient to effect the conversion of all outstanding shares of this Series
into such Common Stock (or such other shares of Capital Stock) at any time
(assuming that, at the time of the computation of such number of shares, all
such Common Stock (or such other shares of Capital Stock) would be held by a
single holder); provided, however, that nothing contained herein shall
-------- -------
preclude the Corporation from satisfying its obligations in respect of the
conversion of the shares by delivery of purchased shares of Common Stock (or
such other shares of Capital Stock) that are held in the treasury of the
Corporation. All shares of Common Stock (or such other shares of Capital Stock
of the Corporation) that shall be deliverable upon conversion of the shares of
this Series shall be duly and validly issued, fully paid and nonassessable. For
purposes of this Section 3, any shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Corporation.
3.9 If any shares of Common Stock that would be issuable upon
conversion (or pursuant to redemption or exchange) of shares of this Series
hereunder require registration with or approval of any governmental authority
before such shares may be issued upon conversion, the Corporation will in good
faith and as expeditiously as possible cause such shares to be duly registered
or approved, as the case may be. The Corporation will use commercially
reasonable efforts to list the shares of (or depositary shares representing
fractional interests in) Common Stock or other shares of Capital Stock required
to be delivered upon conversion of shares of this Series prior to such delivery
upon the principal national securities exchange upon which the outstanding
Common Stock (or other
<PAGE>
24
shares of Capital Stock) is listed at the time of such delivery.
3.10 The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion (or pursuant to redemption or exchange) of shares of this
Series pursuant hereto. The Corporation shall not, however, be required to pay
any tax that is payable in respect of any transfer involved in the issue or
delivery of Common Stock or such other shares of Capital Stock in a name other
than that in which the shares of this Series 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 Corporation the amount of such tax, or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
3.11 In case of (i) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, (ii) any Pro Rata Repurchase or
(iii) any action triggering an adjustment to the Conversion Rate pursuant to
this Section 3, then, in each case, the Corporation shall cause to be filed with
the transfer agent or agents for the Series F Stock, and shall cause to be
mailed, first-class postage prepaid, to the holders of record of the outstanding
shares of Series F Stock, at least fifteen (15) days prior to the applicable
record date for any such transaction (or if no record date will be established,
the effective date thereof), a notice stating (x) the date, if any, on which a
record is to be taken for the purpose of any such transaction (or, if no record
date will be established, the date as of which holders or record of Common Stock
entitled to participate in such transaction are determined), and (y) the
expected effective date thereof. Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in this Section 3.11.
4. Redemption or Exchange.
----------------------
4.1 (a) The Corporation may, at its sole option, subject to
Section 2.2 hereof, from time to time on and after January 4, 2001, in the case
of clause (i) or (iii) of Section 4.1(b), and on and after January 4, 2000, in
the case of clause (ii) of Section 4.1(b), redeem, out of funds legally
available therefor, or, as provided below, exchange shares of Common Stock for,
all (or in the case of
<PAGE>
25
Section 4.1(b)(i), any part) of the outstanding shares of this Series. The
redemption price for each share of this Series called for redemption pursuant to
clause (i) of Section 4.1(b) shall be the Liquidation Value together with an
amount equal to the accrued and unpaid dividends to the date fixed for
redemption (hereinafter collectively referred to as the "Redemption Price").
The exchange price for each share of this Series called for exchange pursuant to
clause (ii) of Section 4.1(b) shall be a number of shares of Common Stock equal
to the Conversion Rate, together with, at the option of the Corporation, either
(x) cash or (y) a number of shares of Common Stock, valued at the Closing Price
on the Trading Day immediately preceding the date fixed for exchange, equal, in
either case, to the aggregate amount of accrued and unpaid dividends on the
Series F Stock to the date fixed for exchange (hereinafter collectively referred
to as the "Exchange Price").
(b) On the date fixed for redemption or exchange the Corporation
shall, at its option, effect either
(i) a redemption of the shares of this Series to be redeemed
by way of payment, out of funds legally available therefor, of cash equal
to the aggregate Redemption Price for the shares of this Series then being
redeemed;
(ii) an exchange of the shares of this Series for the
Exchange Price in shares of Common Stock (provided that the Corporation
--------
shall be entitled to deliver cash (A) in lieu of any fractional share of
Common Stock (determined in a manner consistent with Section 3.3) and (B)
equal to accrued and unpaid dividends to the date fixed for exchange in
lieu of shares of Common Stock); or
(iii) any combination thereof with respect to each share of
this Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and (iii) of Section 4.1(b), the
Corporation shall be entitled to effect an exchange of shares of Series F Stock
for Common Stock (or other shares of Capital Stock) only to the extent Common
Stock (or other shares of Capital Stock) shall be available for issuance
(including delivery of previously issued shares of Common Stock held in the
Corporation's treasury on the date fixed for exchange), which shares shall be
duly and
<PAGE>
26
validly issued, fully paid and non-assessable. Certificates for shares of
Common Stock issued in exchange for surrendered shares of this Series pursuant
to this Section 4.1 shall be made available by the Corporation not later than
the fifth Trading Day following the date for exchange.
4.2 In the event that fewer than all the outstanding shares of
this Series are to be redeemed pursuant to Section 4.1(b)(i), the number of
shares to be redeemed from each holder of shares of this Series shall be
determined by the Corporation by lot or pro rata or by any other method as may
be determined by the Board of Directors in its sole discretion to be equitable,
and the certificate of the Corporation's Secretary or an Assistant Secretary
filed with the transfer agent or transfer agents for this Series in respect of
such determination by the Board of Directors shall be conclusive.
4.3 In the event the Corporation shall redeem or exchange shares
of this Series pursuant to Section 4.1, notice of such redemption or exchange
shall be given by first class mail, postage prepaid, mailed not less than
fifteen (15) nor more than sixty (60) days prior to the date fixed for
redemption or exchange, as the case may be, to each record holder of the shares
to be redeemed or exchanged, at such holder's address as the same appears on the
books of the Corporation. Each such notice shall state: (i) whether the shares
of this Series are to be redeemed or exchanged; (ii) the time and date as of
which the redemption or exchange shall occur; (iii) the total number of shares
of this Series to be redeemed or exchanged and, if fewer than all the shares
held by such holder are to be redeemed, the number of such shares to be redeemed
from such holder; (iv) the Redemption Price or the Exchange Price, as the case
may be; (v) that shares of this Series called for redemption or exchange may be
converted at any time prior to the time and date fixed for redemption or
exchange (unless the Corporation shall, in the case of a redemption, default in
payment of the Redemption Price or, in the case of an exchange, fail to exchange
the shares of this Series for the applicable number of shares of Common Stock
and any cash portion of the Exchange Price or shall exercise its right to
rescind such redemption pursuant to Section 4.5, in which case such right of
conversion shall not terminate at such time and date); (vi) the applicable
Conversion Price and Conversion Rate; (vii) the place or places where
certificates for such shares are to be surrendered for
<PAGE>
27
payment of the Redemption Price, in the case of redemption, or for delivery of
certificates representing the shares of Common Stock and the payment of any cash
portion of the Exchange Price, in the case of exchange; and (viii) that, subject
to Section 4.4 of this Certificate, dividends on the shares of this Series to be
redeemed or exchanged will cease to accrue on such redemption or exchange date.
4.4 If notice of redemption or exchange shall have been given by
the Corporation as provided in Section 4.3, dividends on the shares of this
Series so called for redemption or exchange shall cease to accrue, such shares
shall no longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders with respect to shares so called for redemption or
exchange (except (i) in the case of redemption, the right to receive from the
Corporation the Redemption Price without interest and in the case of exchange,
the right to receive from the Corporation the Exchange Price without interest
and (ii) the right to convert such shares in accordance with Section 3) shall
cease (including any right to receive dividends otherwise payable on any
Dividend Payment Date that would have occurred after the time and date of
redemption or exchange) either (i) in the case of a redemption or exchange
pursuant to Section 4.1, from and after the time and date fixed in the notice of
redemption or exchange as the time and date of redemption or exchange (unless
the Corporation shall (x) in the case of a redemption, default in the payment of
the Redemption Price, (y) in the case of an exchange, fail to exchange the
applicable number of shares of Common Stock and any cash portion of the Exchange
Price or (z) exercise its right to rescind such redemption pursuant to Section
4.5, in which case such rights shall not terminate at such time and date) or
(ii) if the Corporation shall so elect and state in the notice of redemption or
exchange, from and after the time and date (which date shall be the date fixed
for redemption or exchange or an earlier date not less than fifteen (15) days
after the date of mailing of the redemption or exchange notice) on which the
Corporation shall irrevocably deposit with a designated bank or trust company
doing business in the Borough of Manhattan, City and State of New York, as
paying agent, money sufficient to pay at the office of such paying agent, on the
redemption date, the Redemption Price, in the case of redemption, or
certificates representing the shares of Common Stock to be so exchanged and any
cash portion of the Exchange Price, in the case of an exchange. Any money or
certificates so deposited with any such paying agent that
<PAGE>
28
shall not be required for such redemption or exchange because of the exercise of
any right of conversion or otherwise shall be returned to the Corporation
forthwith. Upon surrender (in accordance with the notice of redemption or
exchange) of the certificate or certificates for any shares of this Series to be
so redeemed or exchanged (properly endorsed or assigned for transfer, if the
Corporation shall so require and the notice of redemption or exchange shall so
state), such shares shall be redeemed or exchanged by the Corporation at the
Redemption Price or the Exchange Price, as applicable, as set forth in Section
4.1 (unless the Corporation shall have exercised its right to rescind such
redemption pursuant to Section 4.5). In case fewer than all the shares
represented by any such certificate are to be redeemed, a new certificate shall
be issued representing the unredeemed shares (or fractions thereof as provided
in Section 7.4), without cost to the holder thereof, together with the amount of
cash, if any, in lieu of fractional shares other than those issuable in
accordance with Section 7.4. Subject to applicable escheat laws, any moneys so
set aside by the Corporation in the case of redemption and unclaimed at the end
of one year from the redemption date shall revert to the general funds of the
Corporation, after which reversion the holders of such shares so called for
redemption or exchange shall look only to the general funds of the Corporation
for the payment of the Redemption Price or the Exchange Price, as applicable,
without interest. Any interest accrued on funds so deposited shall be paid to
the Corporation from time to time.
4.5 In the event that a Redemption Rescission Event shall occur
following any day on which a notice of redemption shall have been given pursuant
to Section 4.3 but at or prior to the earlier of (a) the time and date fixed for
redemption as set forth in such notice of redemption and (b) the time and date
at which the Corporation shall have irrevocably deposited funds or certificates
with a designated bank or trust company pursuant to Section 4.4, the Corporation
may, at its sole option, at any time prior to the earliest of (i) the close of
business on that day which is two (2) Trading Days following such Redemption
Rescission Event, (ii) the time and date fixed for redemption as set forth in
such notice and (iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or trust company,
rescind the redemption under Section 4.1(b)(i) to which such notice of
redemption shall
<PAGE>
29
have 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 Corporation 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 Corporation shall have no obligation to redeem
shares of this Series called for redemption pursuant to such notice of
redemption or to pay the redemption price therefor and all rights of holders of
shares of this Series shall be restored as if such notice of redemption had not
been given. The Corporation shall give notice of any such rescission by one of
the means specified in Section 7.2 as promptly as practicable, but in no event
later than the close of business on that date which is five (5) Trading Days
following the Rescission Date to each record holder of shares of this Series at
the close of business on the Rescission Date and to any other Person or entity
that was a record holder of shares of this Series and that shall have
surrendered shares of this Series for conversion following the giving of notice
of the subsequently rescinded redemption. Each notice of rescission shall (w)
state that the redemption described in the notice of redemption has been
rescinded, (x) state that any Converting Holder shall be entitled to rescind the
conversion of shares of this Series surrendered for conversion following the day
on which notice of redemption was given but prior to the close of business on
the later of (1) the Trading Day next succeeding the date on which public
announcement of the rescission of such redemption shall have been made and (2)
the Trading Day on which the Corporation's notice of rescission is deemed given
pursuant to Section 7.2, (y) be accompanied by a form prescribed by the
Corporation to be used by any Converting Holder rescinding the conversion of
shares so surrendered for conversion (and instructions for the completion and
delivery of such form, including instructions with respect to payments that may
be required to accompany such delivery shall be in accordance with Section 3.5)
and (z) state that such form must be properly completed and received by the
Corporation no later than the close of business on a date that shall be ten (10)
Trading Days following the date such notice of rescission is deemed given
pursuant to Section 7.2.
4.6 The shares of this Series shall not be subject to the
provisions of Section 5 of Article IV of the Certificate of Incorporation.
<PAGE>
5. Voting. The shares of this Series shall have no voting rights
------
except as required by law or as set forth below.
5.1 Each share of this Series shall be entitled to vote together
with holders of the shares of Common Stock (and any other class or series that
may similarly be entitled to vote with the shares of Common Stock) as a single
class upon all matters upon which holders of Common Stock are entitled to vote.
In any such vote, the holders of this Series shall be entitled to two (2) votes
per $100 of Liquidation Value of Series F Stock, subject to adjustment at the
same time and in the same manner as each adjustment of the Conversion Rate
pursuant to Section 3, so that the holders of this Series shall be entitled
following such adjustment to the number of votes equal to the number of votes
such holders were entitled to under this Section 5.1 immediately prior to such
adjustment multiplied by a fraction (x) the numerator of which is the Conversion
Rate as adjusted pursuant to Section 3 and (y) the denominator of which is the
Conversion Rate immediately prior to such adjustment.
5.2(a) So long as any shares of this Series remain outstanding,
unless a greater percentage shall then be required by law, the Corporation shall
not, without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of shares of this Series representing at least
66-2/3% of the aggregate voting power of shares of this Series then outstanding
(i) authorize any Senior Stock or reclassify (by merger, consolidation or
otherwise) any Junior Stock or Parity Stock as Senior Stock, (ii) merge into or
consolidate with any Person where the surviving or continuing corporation will
have any authorized Senior Stock other than Capital Stock corresponding to
shares of Senior Stock existing immediately before such merger or consolidation)
or (iii) amend, alter or repeal any of the provisions of the Certificate or the
Certificate of Incorporation, so as in any such case to adversely affect the
voting powers, designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions of the
shares of this Series.
(b) No consent of holders of shares of this Series shall be
required for (i) the creation of any indebtedness of any kind of the Corpora-
tion, (ii) the authorization or issuance of any class of Junior Stock or
<PAGE>
31
Parity Stock, (iii) the authorization, designation or issuance of additional
shares of Series F Stock or (iv) subject to Section 5.2(a), the authorization or
issuance of any other shares of Preferred Stock.
5.3(a) If and whenever at any time or times dividends payable on
shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the Board
of Directors shall be increased by two and the holders of shares of this Series,
together with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six quarterly dividend
periods, shall have the exclusive right, voting separately as a class with such
other series, to elect two directors of the Corporation.
(b) Such voting right may be exercised initially either by
written consent or at a special meeting of the holders of the Preferred Stock
having such voting right, called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at each such annual meeting until such time as all dividends in
arrears on the shares of this Series shall have been paid in full and all
dividends payable on the shares of this Series on four subsequent consecutive
Dividend Payment Dates shall have been paid in full on such dates or funds shall
have been set aside for the payment thereof, at which time such voting right and
the term of the directors elected pursuant to Section 5.3(a) shall terminate.
(c) At any time when such voting right shall have vested in
holders of shares of such series of Preferred Stock described in Section 5.3(a),
and if such right shall not already have been exercised by written consent, a
proper officer of the Corporation may call, and, upon the written request,
addressed to the Secretary of the Corporation, of the record holders of shares
representing twenty-five percent (25%) of the voting power of the shares then
outstanding of such Preferred Stock having such voting right, shall call, a
special meeting of the holders of such Preferred Stock having such voting right.
Such meeting shall be held at the earliest practicable date upon the notice
required for annual meetings of stockholders at the
<PAGE>
32
place for holding annual meetings of stockholders, or, if none, at a place
designated by the Board of Directors. Notwithstanding the provisions of this
Section 5.3(c), no such special meeting shall be called during a period within
60 days immediately preceding the date fixed for the next annual meeting of
stockholders.
(d) At any meeting held for the purpose of electing directors
at which the holders of such Preferred Stock shall have the right to elect
directors as provided herein, the presence in person or by proxy of the holders
of shares representing more than fifty percent (50%) in voting power of the then
outstanding shares of such Preferred Stock having such right shall be required
and shall be sufficient to constitute a quorum of such class for the election of
directors by such class.
(e) Any director elected by holders of Preferred Stock
pursuant to the voting right created under this Section 5.3 shall hold office
until the next annual meeting of stockholders (unless such term has previously
terminated pursuant to Section 5.3(b)) and any vacancy in respect of any such
director shall be filled only by vote of the remaining director so elected, or
if there be no such remaining director, by the holders of such Preferred Stock
entitled to elect such director or directors by written consent or at a special
meeting called in accordance with the procedures set forth in Section 5.3(c),
or, if no special meeting is called or written consent executed, at the next
annual meeting of stockholders. Upon any termination of such voting right,
subject to applicable law, the term of office of all directors elected by
holders of such Preferred Stock voting separately as a class pursuant to this
Section 5.3 shall terminate.
(f) In exercising the voting rights set forth in this Section
5.3, each share of this Series shall have a number of votes equal to its
Liquidation Value.
6. Liquidation Rights.
------------------
6.1 Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of this
Series shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, in preference to the holders of, and
before any payment or distribution shall be made on, Junior Stock, the amount of
$100 per share (the
<PAGE>
33
"Liquidation Value") plus an amount equal to all accrued and unpaid dividends to
the date of final distribution. The Liquidation Value shall be subject to
adjustment from time to time to appropriately give effect to any split or
combination of the shares of this Series.
6.2 Neither the sale, exchange or other conveyance (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or consolidation of
the Corporation into or with any other corporation, or the merger or
consolidation of any other corporation into or with the Corporation, shall be
deemed to be a dissolution, liquidation or winding up, voluntary or involuntary,
for the purposes of this Section 6.
6.3 After the payment to the holders of the shares of this Series
of full preferential amounts provided for in this Section 6, the holders of this
Series as such shall have no right or claim to any of the remaining assets of
the Corporation.
6.4 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 6.1, no such distribution shall be made on account
of any shares of any Parity Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of this Series, ratably, in proportion to the full distributable amounts
for which holders of all Parity Stock are entitled upon such dissolution,
liquidation or winding up.
7. Other Provisions.
----------------
7.1 All notices from the Corporation to the holders shall be
given by one of the methods specified in Section 7.2. With respect to any notice
to a holder of shares of this Series required to be provided hereunder, neither
failure to give such notice, nor any defect therein or in the transmission
thereof, to any particular holder shall affect the sufficiency of the notice or
the validity of the proceedings referred to in such notice with respect to the
other holders or affect the legality or validity of any distribution, right,
warrant, reclassification,
<PAGE>
34
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up, or the vote upon any such action. Any notice that was mailed in the manner
herein provided shall be conclusively presumed to have been duly given whether
or not the holder receives the notice.
7.2 All notices and other communications hereunder shall be
deemed given (i) on the first Trading Day following the date received, if
delivered personally, (ii) on the Trading Day following timely deposit with an
overnight courier service, if sent by overnight courier specifying next day
delivery and (iii) on the first Trading Day that is at least five days following
deposit in the mails, if sent by first class mail to (x) a holder at its last
address as it appears on the transfer records or registry for the Series F Stock
and (y) the Corporation at the following address (or at such other address as
the Corporation shall specify in a notice pursuant to this Section 7.2): TW
Inc., 75 Rockefeller Plaza, New York, New York 10019, Attention: General
Counsel.
7.3 Any shares of this Series that have been converted, redeemed,
exchanged or otherwise acquired by the Corporation shall, after such conversion,
redemption, exchange or acquisition, as the case may be, be retired and promptly
cancelled and the Corporation shall take all appropriate action to cause such
shares to obtain the status of authorized but unissued shares of Preferred
Stock, without designation as to series, until such shares are once more
designated as part of a particular series by the Board of Directors. The
Corporation may cause a certificate setting forth a resolution adopted by the
Board of Directors that none of the authorized shares of this Series are
outstanding to be filed with the Secretary of State of the State of Delaware.
When such certificate becomes effective, all matters set forth in the
Certificate shall be eliminated from the Certificate of Incorporation and the
shares of Preferred Stock designated hereby as Series F Stock shall have the
status of authorized and unissued shares of Preferred Stock and may be reissued
as part of any new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors.
7.4 The shares of this Series shall be issuable in whole shares
or, if authorized by the Board of Directors, in any fraction of a whole share so
authorized or any integral multiple of such fraction.
<PAGE>
35
7.5 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such record holder shall be deemed the holder of such shares for all
purposes.
7.6 All notice periods referred to in the Certificate shall
commence on the date of the mailing of the applicable notice.
7.7 Any registered holder of Series F Stock may proceed to
protect and enforce its rights by any available remedy by proceeding at law or
in equity to protect and enforce any such rights, whether for the specific
enforcement of any provision in this Certificate or in aid of the exercise of
any power granted herein, or to enforce any other proper remedy.
IN WITNESS WHEREOF, TW Inc. has caused this certificate to be
signed this [ ] day of [ ].
TW INC.,
by
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT 3.1(h)
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES G CONVERTIBLE
PREFERRED STOCK
OF
TW INC.
------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
-------------------
TW INC. (the "Corporation"), a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware (the "DGCL"),
does hereby certify that the following resolution was duly adopted by action of
the Board of Directors of the Corporation (the "Board of Directors") at a
meeting duly held on [ ], 1996.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $.10 per share ("Preferred Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series as follows:
The series of Preferred Stock hereby established shall consist of
6,200,000 shares designated as Series G Convertible Preferred Stock. The
rights, preferences and limitations of such series shall be as follows:
<PAGE>
2
1. Definitions. As used herein, the following terms shall have the
-----------
indicated meanings:
1.1 "Accrued Dividend Amount" shall mean the aggregate amount of
accrued and unpaid dividends on a share of Series G Stock to and including the
Conversion Date, except that if the Conversion Date shall occur after a Record
Date and prior to a related Dividend Payment Date, the Accrued Dividend Amount
shall not include any accrued and unpaid dividends for the period from and after
the most recent Dividend Payment Date.
1.2 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.3 "Capital Stock" shall mean any and all shares of corporate stock
of a Person (however designated and whether representing rights to vote, rights
to participate in dividends or distributions upon liquidation or otherwise with
respect to such Person, or any division or subsidiary thereof, or any joint
venture, partnership, corporation or other entity).
1.4 "Certificate" shall mean the certificate of the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of Series G
Convertible Preferred Stock filed with respect to this resolution with the
Secretary of State of the State of Delaware pursuant to Section 151 of the DGCL.
1.5 "Change of Control" and "Change of Control Date" shall have the
following meanings: "Change of Control" shall mean the occurrence of one or both
of the following events: (a) individuals who would constitute a majority of the
members of the Board of Directors elected at any meeting of stockholders or by
written consent (without regard to any members of the Board of Directors elected
pursuant to the terms of any series of Preferred Stock) shall be elected to the
Board of Directors and the election or the nomination for election by the
Corporation's stockholders of such directors was not approved by a vote of at
least a majority of the directors in office immediately prior to such election
(in which event "Change of Control Date" shall mean the date of such election)
or (b) a Person
<PAGE>
3
or group of Persons acting in concert as a partnership, limited partnership,
syndicate or other group within the meaning of Rule 13d-3 under the Exchange Act
(the "Acquiring Person") shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases, share repurchases or
redemptions or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act) of 40% or more of the outstanding shares
of Common Stock (in which event "Change of Control Date" shall mean the date of
the event resulting in such 40% ownership).
1.6 "Closing Price" of the Common Stock shall mean the last reported
sale price of the Common Stock (regular way) as shown on the Composite Tape of
the NYSE, 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 the Common Stock is not listed
or admitted to trading on the NYSE, on the principal national securities
exchange on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securities exchange, the last
reported sale price of the Common Stock, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, in either case as
reported by NASDAQ.
1.7 "Common Dividend Deficiency" shall be applicable in the event
that a Conversion Date shall fall after a record date and prior to the related
payment date for a regularly scheduled cash dividend on the Common Stock (the
"Common Dividend Payment Date"), and in such event shall mean the product of (i)
the Conversion Rate, (ii) the amount per share of Common Stock of the regularly
scheduled cash dividend for which the record date has been set but a payment
date has not yet occurred and (ii) a fraction (A) the numerator of which is the
number of calendar days from and excluding the Conversion Date (or in the event
the Conversion Date falls after a Record Date and on or prior to a related
Dividend Payment Date, from and excluding the Dividend Payment Date) to and
including the Common Dividend Payment Date and (B) the denominator of which is
91 (provided that such fraction shall not be greater than one (1)).
1.8 "Common Dividend Excess" shall be applicable in all circumstances
where a Common Dividend Deficiency is not applicable, and in such event shall
mean the product of (i) the Conversion Rate, (ii) the regular quarterly cash
dividend per share, if any, paid by the
<PAGE>
4
Corporation on the Common Stock (the "Historical Dividend") on the most recent
dividend payment date for the Common Stock (the "Prior Dividend Payment Date")
occurring during the four months immediately preceding the Conversion Date and
(iii) a fraction (A) the numerator of which is the number of calendar days from
and excluding (1) the Prior Dividend Payment Date to and including (2) the
Conversion Date (or in the event the Conversion Date falls after a Record Date
and on or prior to a related Dividend Payment Date, to and including the
Dividend Payment Date) and (B) the denominator of which is 91 days (provided
that in no event shall the fraction be greater than one (1)).
1.9 "Common Stock" shall mean the class of Common Stock, par value
$.01 per share, of the Corporation authorized at the date of the Certificate, or
any other class of stock resulting from (x) successive changes or
reclassifications of such Common Stock consisting of changes in par value, or
from par value to no par value, (y) a subdivision or combination or (z) any
other changes for which an adjustment is made under Section 3.6(a), and in any
such case including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other securities of
the Corporation that are at the time represented by the certificates
representing such shares of Common Stock.
1.10 "Conversion Date" shall have the meaning set forth in Section
3.5 hereof.
1.11 "Conversion Price" at any time shall mean the Liquidation Value
per share divided by the Conversion Rate in effect at such time (rounded to the
nearest one hundredth of a cent).
1.12 "Conversion Rate" shall have the meaning set forth in Section
3.1 hereof.
1.13 "Converting Holder" shall have the meaning set forth in Section
3.5 hereof.
1.14 "Corporation" shall mean TW Inc., a Delaware corporation, and
any of its successors by operation of law, including by merger, consolidation or
sale or conveyance of all or substantially all of its property and assets.
<PAGE>
5
1.15 "Current Market Price" of the Common Stock on any date shall
mean the average of the daily Closing Prices per share of the Common Stock for
the five (5) consecutive Trading Days ending on the Trading Day immediately
preceding the applicable record date, conversion date, redemption date or
exchange date referred to in Section 3 or Section 4.
1.16 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1 hereof.
1.17 "DGCL" shall mean the General Corporation Law of the State of
Delaware.
1.18 "Exchange Act" shall mean Securities Exchange Act of 1934, as
amended.
1.19 "Exchange Price" shall have the meaning set forth in Section 4.1
hereof.
1.20 "Junior Stock" shall mean the Common Stock, the Series A Stock,
the Series LMC Stock, the Series LMCN-V Stock and the shares of any other class
or series of Capital Stock of the Corporation that, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall be junior to the Series G Stock in respect of the right to
receive dividends or to participate in any distribution of assets other than by
way of dividends.
1.21 "Liquidation Value" shall have the meaning set forth in Section
7.1 hereof.
1.22 "NASDAQ" shall mean the Nasdaq Stock Market.
1.23 "Net Dividend Amount" shall have the meaning set forth in
Section 3.1 hereof.
1.24 "NYSE" shall mean the New York Stock Exchange, Inc.
1.25 "Parity Stock" shall mean the Series D Stock, the Series E
Stock, the Series F Stock, the Series H Stock, the Series I Stock, the Series J
Stock, the Series L Stock, the Series M Stock and the shares of any other class
<PAGE>
6
or series of Capital Stock of the Corporation that, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall, in the event that the stated dividends thereon are not paid in
full, be entitled to share ratably with the Series G Stock in the payment of
dividends, including accumulations, if any, in accordance with the sums that
would be payable on such shares if all dividends were declared and paid in full,
or shall, in the event that the amounts payable thereon on liquidation are not
paid in full, be entitled to share ratably with the Series G Stock in any
distribution of assets other than by way of dividends in accordance with the
sums that would be payable in such distribution if all sums payable were
discharged in full; provided, however, that the term "Parity Stock" shall be
-------- -------
deemed to refer (i) in Section 2.2 hereof, to any stock that is Parity Stock in
respect of dividend rights; (ii) in Section 7 hereof, to any stock that is
Parity Stock in respect of the distribution of assets; and (iii) in Sections 6.2
and 6.3 hereof, to any stock that is Parity Stock in respect of either dividend
rights or the distribution of assets and that, pursuant to the Certificate of
Incorporation or any instrument in which the Board of Directors, acting pursuant
to authority granted in the Certificate of Incorporation, shall so designate, is
entitled to vote with the holders of Series G Stock.
1.26 "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
1.27 "Preferred Stock" shall mean the class of Preferred Stock, par
value $.10 per share, of the Corporation authorized at the date of the
Certificate, including any shares thereof authorized after the date of the
Certificate.
1.28 "Pro Rata Portion" shall have the meaning set forth in Section
5.6 hereof.
1.29 "Pro Rata Repurchase" shall mean the purchase of shares of
Common Stock by the Corporation or by any of its subsidiaries, whether for cash
or other property or securities of the Corporation, which purchase is subject to
Section 13(e) of the Exchange Act or is made pursuant to an offer made available
to all holders of Common Stock, but
<PAGE>
7
excluding any purchase made in open market transactions that satisfies the
conditions of clause (b) of Rule 10b-18 under the Exchange Act or has been
designed (as reasonably determined by the Board of Directors) to prevent such
purchase from having a material effect on the trading market of the Common
Stock. The "Effective Date" of a Pro Rata Repurchase shall mean the applicable
expiration date (including all extensions thereof) of any tender or exchange
offer that is a Pro Rata Repurchase or the date of purchase with respect to any
Pro Rata Repurchase that is not a tender or exchange offer.
1.30 "Record Date" shall have the meaning set forth in Section 2.1
hereof.
1.31 "Redemption Price" shall have the meaning set forth in Section
4.1 hereof.
1.32 "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 are
registered and listed for trading (or, if shares of Common Stock are not
registered and listed for trading on any such exchange, in the over-the-counter
market) for more than six-and-one-half (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
shares of this Series 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
earlier of (x) the time and date fixed for redemption in such notice and (y) the
time and date at which the Corporation shall have irrevocably deposited funds
with a designated bank or trust company pursuant to Section 4.4 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 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 on or prior to
<PAGE>
8
the earlier of the dates specified in clauses (x) and (y) above, (c) a
declaration of a banking moratorium or any suspension of payments in respect of
banks by Federal or state 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 that in the
reasonable judgment of the Corporation could have a material adverse effect on
the market for the Common Stock.
1.33 "Rescission Date" shall have the meaning set forth in Section
4.5 hereof.
1.34 "Senior Stock" shall mean the shares of any class or series of
Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series G Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
1.35 "Series A Stock" shall mean the series of Preferred Stock
authorized and designated as Series A Participating Preferred Stock at the date
of the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.36 "Series D Stock" shall mean the series of Preferred Stock
authorized and designated as Series D Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.37 "Series E Stock" shall mean the series of Preferred Stock
authorized and designated as Series E Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.38 "Series F Stock" shall mean the series of Preferred Stock
authorized and designated as Series F Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
<PAGE>
9
1.39 "Series G Stock" and "this Series" shall mean the series of
Preferred Stock authorized and designated as the Series G Convertible Preferred
Stock, including any shares thereof authorized and designated after the date of
the Certificate.
1.40 "Series H Stock" shall mean the series of Preferred Stock
authorized and designated as Series H Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.41 "Series I Stock" shall mean the series of Preferred Stock
authorized and designated as Series I Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.42 "Series J Stock" shall mean the series of Preferred Stock
authorized and designated as Series J Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.43 "Series L Stock" shall mean the series of Preferred Stock
authorized and designated as 10-1/4% Series L Exchangeable Preferred Stock at
the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
1.44 "Series LMC Stock" shall mean the series of Series Common Stock
authorized and designated as Series LMC Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.45 "Series LMCN-V Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMCN-V Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.46 "Series M Stock" shall mean the series of Preferred Stock
authorized and designated as 10-1/4% Series M Exchangeable Preferred Stock at
the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
<PAGE>
10
1.47 "Surrendered Shares" shall have the meaning set forth in Section
3.5 hereof.
1.48 "Trading Day" shall mean, so long as the Common Stock 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 is not listed or admitted to
trading on the NYSE, a day on which the principal national securities exchange
on which the Common Stock is listed is open for the transaction of business, or,
if the Common Stock 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.
2. Cash Dividends.
--------------
2.1 The holders of the outstanding Series G Stock shall be entitled
to receive quarter-annual dividends, as and when declared by the Board of
Directors out of funds legally available therefor. Each quarter-annual dividend
shall be an amount per share equal to (i) in the case of each Dividend Payment
Date (as defined below) occurring on or prior to September 5, 1999, the greater
of (A) $.9375 per $100 of Liquidation Value of Series G Stock (which is
equivalent to $3.75 per annum), and (B) an amount per $100 of Liquidation Value
of Series G Stock equal to the product of (1) the Conversion Rate and (2) the
aggregate per share amount of regularly scheduled dividends paid in cash on the
Common Stock during the period from but excluding the immediately preceding
Dividend Payment Date to and including such Dividend Payment Date (the
"Preferred Dividend Amount"), and (ii) in the case of each Dividend Payment Date
occurring thereafter, an amount per $100 of Liquidation Value of Series G Stock
equal to the product of (1) the Conversion Rate and (2) the aggregate per share
amount of regularly scheduled dividends paid in cash on the Common Stock during
the period from but excluding the immediately preceding Dividend Payment Date to
and including such Dividend Payment Date. All dividends shall be payable in
cash on or about the first day of March, June, September and December in each
year, beginning on the first such date that is more than 15 days after the date
of issuance of the relevant shares of Series G Stock, as fixed by the Board of
Directors, or such other dates as are fixed by the Board of Directors (provided
that September 5, 1999, shall be a Dividend Payment Date) (each a "Dividend
Payment Date"), to the holders of record of Series G Stock at the close of
business on or about the Trading Day next preceding such
<PAGE>
11
first day of March, June, September and December (or September 5, 1999) as the
case may be, as fixed by the Board of Directors, or such other dates as are
fixed by the Board of Directors (each a "Record Date"). Subject to the next
sentence, in the case of dividends payable in respect of periods prior to
September 5, 1999, (i) such dividends shall accrue on each share on a daily
basis, whether or not there are unrestricted funds legally available for the
payment of such dividends and whether or not earned or declared, and (ii) any
such dividends that become payable for any partial dividend period shall be
computed on the basis of the actual days elapsed in such period.
Notwithstanding the preceding sentence, the amount accruing and payable in
respect of the first dividend on the Series G Stock payable after the date of
the Certificate shall equal the Preferred Dividend Amount. From and after
September 5, 1999, dividends on the Series G Stock (determined as to amount as
provided herein) shall accrue to the extent, but only to the extent, that
regularly scheduled cash dividends are declared by the Board of Directors on the
Common Stock with a payment date after September 5, 1999 (or, in the case of
Series G Stock originally issued after September 5, 1999, after the Dividend
Payment Date next preceding such date of original issuance). All dividends that
accrue in accordance with the foregoing provisions shall be cumulative from and
after the day immediately succeeding the date of issuance of the relevant shares
of Series G Stock. The amount payable to each holder of record on any Dividend
Payment Date shall be rounded to the nearest cent.
2.2 Except as hereinafter provided in this Section 2.2, unless all
dividends on the outstanding shares of Series G Stock and any Parity Stock that
shall have accrued and become payable as of any date shall have been paid, or
declared and funds set apart for payment thereof, no dividend or other
distribution (payable other than in shares of Junior Stock) shall be paid to the
holders of Junior Stock or Parity Stock, and no shares of Series G Stock, Parity
Stock or Junior Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries (except by conversion into or exchange
for Junior Stock), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund for the purchase or redemption of any
Series G Stock, Junior Stock or Parity Stock. When dividends are not paid in
full upon the shares of this Series and any Parity Stock, all dividends declared
upon shares of this Series and all Parity Stock shall be declared pro rata so
that the amount of
<PAGE>
12
dividends declared per share on this Series and all such Parity Stock shall in
all cases bear to each other the same ratio that accrued dividends per share on
the shares of this Series and all such Parity Stock bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on this Series that may be in arrears.
2.3 In case the Corporation shall at any time distribute (other than
a distribution in liquidation of the Corporation) to the holders of its shares
of Common Stock any assets or property, including debt or equity securities of
the Corporation (other than Common Stock subject to a distribution or
reclassification covered by Section 3.6(a)) or of any other Person (including
common stock of such Person) or cash (but excluding regularly scheduled cash
dividends payable on shares of Common Stock), or in case the Corporation shall
at any time distribute (other than a distribution in liquidation of the
Corporation) to such holders rights, options or warrants to subscribe for or
purchase shares of Common Stock (including shares held in the treasury of the
Corporation), or rights, options or warrants to subscribe for or purchase any
other security or rights, options or warrants to subscribe for or purchase any
assets or property (in each case, whether of the Corporation or otherwise, but
other than any distribution of rights to purchase securities of the Corporation
if the holder of shares of this Series would otherwise be entitled to receive
such rights upon conversion of shares of this Series for Common Stock; provided,
--------
however, that if such rights are subsequently redeemed by the Corporation, such
- -------
redemption shall be treated for purposes of this Section 2.3 as a cash dividend
(but not a regularly scheduled cash dividend) on the Common Stock), the
Corporation shall simultaneously distribute such assets, property, securities,
rights, options or warrants pro rata to the holders of Series G Stock on the
record date fixed for determining holders of Common Stock entitled to
participate in such distribution (or, if no such record date shall be
established, the effective time thereof) in an amount equal to the amount that
such holders of Series G Stock would have been entitled to receive had their
shares of Series G Stock been converted into Common Stock immediately prior to
such record date (or effective time). In the event of a distribution to holders
of Series G Stock pursuant to this Section 2.3, such holders shall be entitled
to receive fractional shares or interests only to the extent that holders of
Common Stock are entitled to receive the
<PAGE>
13
same. The holders of Series G Stock on the applicable record date (or effective
time) shall be entitled to receive in lieu of such fractional shares or
interests the same consideration as is payable to holders of Common Stock with
respect thereto. If there are no fractional shares or interests payable to
holders of Common Stock, the holders of Series G Stock on the applicable record
date (or effective time) shall receive in lieu of such fractional shares or
interests the fair value thereof as determined by the Board of Directors.
2.4 If a distribution is made in accordance with the provisions of
Section 2.3, anything in Section 3 to the contrary notwithstanding, no
adjustment pursuant to Section 3 shall be effected by reason of the distribution
of such assets, property, securities, rights, options or warrants or the
subsequent modification, exercise, expiration or termination of such securities,
rights, options or warrants.
2.5 In the event that the holders of Common Stock are entitled to
make any election with respect to the kind or amount of securities or other
property receivable by them in any distribution that is subject to Section 2.3,
the kind and amount of securities or other property that shall be distributable
to the holders of the Series G Stock shall be based on (i) the election, if any,
made by the record holder (as of the date used for determining the holders of
Common Stock entitled to make such election) of the largest number of shares of
Series G Stock in writing to the Corporation on or prior to the last date on
which a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable by holders of the Series G Stock shall
be based on the kind or amount of securities or other property receivable by a
plurality of shares held by the nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to in
this Section, the Corporation shall mail a copy thereof to the record holders of
the Series G Stock as of the date used for determining the holders of record of
Common Stock entitled to such mailing.
<PAGE>
14
3. Conversion Rights.
-----------------
3.1 Each holder of a share of this Series shall have the right at any
time or as to any share of this Series called for redemption or exchange, at any
time prior to the close of business on the date fixed for redemption or exchange
(unless the Corporation defaults in the payment of the Redemption Price or fails
to exchange the shares of this Series for the applicable number of shares of
Common Stock and any cash portion of the Exchange Price or exercises its right
to rescind such redemption pursuant to Section 4.5, in which case such right
shall not terminate at the close of business on such date), to convert such
share into (i) a number of shares of Common Stock equal to 2.08264 shares of
Common Stock for each share of this Series, subject to adjustment as provided in
this Section 3 (such rate, as so adjusted from time to time, is herein called
the "Conversion Rate") plus (ii) a number of shares of Common Stock equal to
(A) (1) the Accrued Dividend Amount minus (2) the Common
-----
Dividend Excess, if applicable, or plus (3) the Common Dividend Deficiency,
----
if applicable (the "Net Dividend Amount"), divided by
----------
(B) the Closing Price of the Common Stock on the last Trading
Day prior to the Conversion Date;
provided, however, that in the event that the Net Dividend Amount is a negative
- -------- -------
number, the number of shares deliverable upon conversion of a share of Series G
Stock shall be equal to
(I) the number of shares determined pursuant to clause (i) minus
-----
(II) a number of shares equal to (x) the absolute value of the
Net Dividend Amount divided by (y) the Closing Price of the Common Stock on
----------
the last Trading Day prior to the Conversion Date;
and provided further that, in the event that the Net Dividend Amount is a
- -------------------------
positive number, the Corporation shall have the right to deliver cash equal to
the Net Dividend Amount or any portion thereof, in which case its obligation to
deliver shares of Common Stock pursuant to clause (ii) shall be reduced by a
number of shares equal to (x) the aggregate amount of cash so delivered divided
-------
by (y) the
- --
<PAGE>
15
Closing Price of the Common Stock on the last Trading Day prior to the
Conversion Date, unless the Corporation shall deliver cash equal to the entire
Net Dividend Amount, in which case its entire obligation under clause (ii) shall
be discharged. The obligations of the Corporation to issue the Common Stock or
make the cash payments provided by this Section 3.1 shall be absolute whether or
not any accrued dividend by which such issuance or payment is measured has been
declared by the Board of Directors and whether or not the Corporation would have
adequate surplus or net profits to pay such dividend if declared or is otherwise
restricted from making such dividend.
3.2 Except as provided in this Section 3, no adjustments in respect
of payments of dividends on shares surrendered for conversion or any dividend on
the Common Stock issued upon conversion shall be made upon the conversion of any
shares of this Series (it being understood that if the Conversion Date for
shares of Series G Stock occurs after a Record Date and on or prior to a
Dividend Payment Date, the holder of record on such Record Date shall be
entitled to receive the dividend payable with respect to such shares on the
related Dividend Payment Date pursuant to Section 2.1 hereof).
3.3 The Corporation may, but shall not be required to, in connection
with any conversion of shares of this Series, issue a fraction of a share of
Common Stock, and if the Corporation shall determine not to issue any such
fraction, the Corporation shall, subject to Section 3.6(c), make a cash payment
(rounded to the nearest cent) equal to such fraction multiplied by the Closing
Price of the Common Stock on the last Trading Day prior to the Conversion Date.
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock shall surrender the certificate or certificates for
such shares at the office of the transfer agent or agents therefor (or at such
other place as the Corporation may designate by notice to the holders of shares
of this Series) during regular business hours, duly endorsed to the Corporation
or in blank, or accompanied by instruments of transfer to the Corporation or in
blank, or in form satisfactory to the Corporation, and shall give written notice
to the Corporation at such office that such holder elects to convert such shares
of this Series. The Corporation shall, as soon as practicable (subject to
Section 3.6(d)) after such deposit of certificates for shares of this Series,
<PAGE>
16
accompanied by the written notice above prescribed, issue and deliver at such
office to the holder for whose account such shares were surrendered, or to his
nominee, certificates representing the number of shares of Common Stock and the
cash, if any, to which such holder is entitled upon such conversion.
3.5 Conversion shall be deemed to have been made as of the date (the
"Conversion Date") that certificates for the shares of this Series to be
converted, and the written notice prescribed in Section 3.4 are received by the
transfer agent or agents for this Series; and the Person entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such Common Stock on such date. Notwithstanding anything
to the contrary contained herein, in the event the Corporation shall have
rescinded a redemption of shares of this Series pursuant to Section 4.5, any
holder of shares of this Series that shall have surrendered shares of this
Series for conversion following the day on which notice of the subsequently
rescinded redemption shall have been given but prior to the close of business on
the later of (a) the Trading Day next succeeding the date on which public
announcement of the rescission of such redemption shall have been made and (b)
the Trading Day on which the notice of rescission required by Section 4.5 is
deemed given pursuant to Section 8.2 (a "Converting Holder"), may rescind the
conversion of such shares surrendered for conversion by (i) properly completing
a form prescribed by the Corporation and mailed to holders of shares of this
Series (including Converting Holders) with the Corporation'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 Exchange Act) of shares of this Series that the
beneficial ownership (within the meaning of such Rule) of such shares shall not
have changed from the date on which such shares were surrendered for conversion
to the date of such certification and (ii) delivering such form to the
Corporation no later than the close of business on that date which is ten (10)
Trading Days following the date on which the Corporation's notice of rescission
is deemed given pursuant to Section 8.2. The delivery of such form by a
Converting Holder shall be accompanied by (x) any certificates representing
shares of Common Stock issued to such Converting Holder upon a conversion of
shares of this Series that shall be rescinded by the proper delivery of such
form (the "Surrendered
<PAGE>
17
Shares"), (y) any securities, evidences of indebtedness or assets (other than
cash) distributed by the Corporation to such Converting Holder by reason of such
Converting Holder's being a record holder of Surrendered Shares and (z) payment
in New York Clearing House funds or other funds acceptable to the Corporation of
an amount equal to the sum of (I) any cash such Converting Holder may have
received in lieu of the issuance of fractional shares upon conversion and (II)
any cash paid or payable by the Corporation to such Converting Holder by reason
of such Converting Holder being a record holder of Surrendered Shares. Upon
receipt by the Corporation 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 or made by such Converting Holder to the
Corporation as set forth above, the Corporation shall instruct the transfer
agent or agents for shares of Common Stock and shares of this Series to cancel
any certificates representing Surrendered Shares (which Surrendered Shares shall
be deposited in the treasury of the Corporation) and reissue certificates
representing shares of this Series to such Converting Holder (which shares of
this Series shall be deemed to have been outstanding at all times during the
period following their surrender for conversion). The Corporation shall, as
promptly as practicable, and in no event more than five (5) 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 or made, pay to the Converting Holder or as otherwise
directed by such Converting Holder any dividend or other payment made on such
shares during the period from the time such shares shall have been surrendered
for conversion to the rescission of such conversion. All questions as to the
validity, form, eligibility (including time or receipt) and acceptance of any
form submitted to the Corporation to rescind the conversion of shares of this
Series, including questions as to the proper completion or execution of any such
form or any certification contained therein, shall be resolved by the
Corporation, whose determination shall be final and binding. The Corporation
shall not be required to deliver certificates for shares of Common Stock while
the stock transfer books for such stock or for this Series are duly closed for
any purpose or during any period commencing at a Redemption Rescission Event and
ending at either (i) the time and date at which the Corporation's right of
rescission shall expire pursuant to Section 4.5 if the Corporation shall not
have exercised such right or (ii) the close of
<PAGE>
18
business on that day which is ten (10) Trading Days following the date on which
notice of rescission pursuant to Section 4.4 is deemed given pursuant to Section
8.2 if the Corporation shall have exercised such right of rescission, but
certificates for shares of Common Stock shall be delivered as soon as
practicable after the opening of such books or the expiration of such period.
3.6 The Conversion Rate shall be adjusted from time to time as
follows for events occurring after the date of the Certificate:
(a) In case the Corporation shall, at any time or from time to
time while any of the Series G Stock is outstanding, (i) pay a dividend in
shares of its Common Stock, (ii) combine its outstanding shares of Common
Stock into a smaller number of shares, (iii) subdivide its outstanding
shares of Common Stock or (iv) reclassify (other than by way of a merger
that is subject to Section 3.7) its shares of Common Stock, then the
Conversion Rate in effect immediately before such action shall be adjusted
so that immediately following such event the holders of the Series G Stock
shall be entitled to receive upon conversion or exchange thereof the kind
and amount of shares of Capital Stock of the Corporation that they would
have owned or been entitled to receive upon or by reason of such event if
such shares of Series G Stock had been converted or exchanged immediately
before the record date (or, if no record date, the effective date) for such
event (it being understood that any distribution of cash or of Capital
Stock (other than Common Stock), including any distribution of Capital
Stock (other than Common Stock) that shall accompany a reclassification of
the Common Stock, shall be subject to Section 2.3 rather than this Section
3.6(a)). An adjustment made pursuant to this Section 3.6(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 3.6(a),
in the event that the holders of Common Stock are entitled to make any
election with respect to the kind or amount of securities receivable by
them in any transaction that is subject to this Section 3.6(a) (including
any election that would result in all or a portion of the transaction
becoming subject to
<PAGE>
19
Section 2.3), the kind and amount of securities that shall be distributable
to the holders of the Series G Stock shall be based on (i) the election, if
any, made by the record holder (as of the date used for determining the
holders of Common Stock entitled to make such election) of the largest
number of shares of Series G Stock in writing to the Corporation on or
prior to the last date on which a holder of Common Stock may make such an
election or (ii) if no such election is timely made, an assumption that
such holder failed to exercise any such rights (provided that if the kind
or amount of securities is not the same for each nonelecting holder, then
the kind and amount of securities receivable shall be based on the kind or
amount of securities receivable by a plurality of nonelecting holders of
Common Stock). Concurrently with the mailing to holders of Common Stock of
any document pursuant to which such holders may make an election of the
type referred to in this Section, the Corporation shall mail a copy thereof
to the record holders of the Series G Stock as of the date used for
determining the holders of record of Common Stock entitled to such mailing.
(b) In case a Change of Control shall occur, the Conversion Rate
in effect immediately prior to the Change of Control Date shall be
increased (but not decreased) by multiplying such rate by a fraction as
follows: (i) in the case of a Change of Control specified in Section
1.5(a), a fraction in which the numerator is the Conversion Price prior to
adjustment pursuant hereto and the denominator is the Current Market Price
of the Common Stock at the Change of Control Date, (ii) in the case of a
Change of Control specified in Section 1.5(b), the greater of the following
fractions: (x) a fraction the numerator of which is the highest price per
share of Common Stock paid by the Acquiring Person in connection with the
transaction giving rise to the Change of Control or in any transaction
within six months prior to or after the Change of Control Date (the
"Highest Price"), and the denominator of which is the Current Market Price
of the Common Stock as of the date (but not earlier than six months prior
to the Change of Control Date) on which the first public announcement is
made by the Acquiring Person that it intends to acquire or that it has
acquired 40% or more of the outstanding shares of Common Stock (the
"Announcement Date") or (y) a
<PAGE>
20
fraction the numerator of which is the Conversion Price prior to adjustment
pursuant hereto and the denominator of which is the Current Market Price of
the Common Stock on the Announcement Date and (iii) in the case where there
co-exists a Change of Control specified in both Section 1.5(a) and Section
1.5(b), the greatest of the fractions determined pursuant to clauses (i)
and (ii). Such adjustment shall become effective immediately after the
Change of Control Date and shall be made, in the case of clauses (ii) and
(iii) above, successively for six months thereafter in the event and at the
time of any increase in the Highest Price after the Change of Control Date;
provided, however, that no such successive adjustment shall be made with
-------- -------
respect to the Conversion Rate of the shares of this Series in respect of
any event occurring after the Conversion Date.
(c) The Corporation shall be entitled to make such additional
adjustments in the Conversion Rate, in addition to those required by
subsections 3.6(a) and 3.6(b), as shall be necessary in order that any
dividend or distribution in Common Stock or any subdivision,
reclassification or combination of shares of Common Stock referred to
above, shall not be taxable to the holders of Common Stock for United
States Federal income tax purposes so long as such additional adjustments
pursuant to this Section 3.6(c) do not decrease the Conversion Rate.
(d) In any case in which this Section 3.6 shall require that any
adjustment be made effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for five (5)
Trading Days following the occurrence of the event that necessitates the
filing of the statement referred to in Section 3.6(f)) issuing to the
holder of any shares of this Series converted after such record date (i)
the shares of Common Stock and other Capital Stock of the Corporation
issuable upon such conversion over and above (ii) the shares of Common
Stock and other Capital Stock of the Corporation issuable upon such
conversion on the basis of the Conversion Rate prior to adjustment;
provided, however, that the Corporation 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.
<PAGE>
21
(e) All calculations under this Section 3 shall be made to the
nearest cent, one-hundredth of a share or, in the case of the Conversion
Rate, one hundred-thousandth. Notwithstanding any other provision of this
Section 3, the Corporation shall not be required to make any adjustment of
the Conversion Rate unless such adjustment would require an increase or
decrease of at least 1.00000% of such Conversion Rate. Any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment that, together with any
adjustment or adjustments so carried forward, shall amount to an increase
or decrease of at least 1.00000% in such rate. Any adjustments under this
Section 3 shall be made successively whenever an event requiring such an
adjustment occurs.
(f) Whenever an adjustment in the Conversion Rate is required,
the Corporation shall forthwith place on file with its transfer agent or
agents for this Series a statement signed by a duly authorized officer of
the Corporation, stating the adjusted Conversion Rate determined as
provided herein. Such statements shall set forth in reasonable detail such
facts as shall be necessary to show the reason for and the manner of
computing such adjustment. Promptly after the adjustment of the Conversion
Rate, the Corporation shall mail a notice thereof to each holder of shares
of this Series.
(g) In the event that at any time as a result of an adjustment
made pursuant to this Section 3, the holder of any share of this Series
thereafter surrendered for conversion shall become entitled to receive any
shares of Capital Stock of the Corporation other than shares of Common
Stock, the conversion rate of such other shares so receivable upon
conversion of any such share of this Series 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 contained in
subparagraphs (a) through (f) and (h) of this Section 3.6, and the
provisions of Section 3.1 through 3.5 and 3.7 through 3.10 shall apply on
like or similar terms to any such other shares and the determination of the
Board of Directors as to any such adjustment shall be conclusive.
<PAGE>
22
(h) No adjustment shall be made pursuant to this Section 3.6 (i)
if the effect thereof would be to reduce the Conversion Price below the par
value of the Common Stock or (ii) subject to Section 3.6(c) hereof, with
respect to any share of Series G Stock that is converted, prior to the time
such adjustment otherwise would be made.
3.7 In case after the date of the Certificate (a) any consolidation
or merger to which the Corporation is a party, other than a merger or
consolidation in which the Corporation is the surviving or continuing
corporation and that does not result in any 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, or as a result of a subdivision or combination) in,
outstanding shares of Common Stock or (b) any sale or conveyance of all or
substantially all of the property and assets of the Corporation, then lawful
provision shall be made as part of the terms of such transaction whereby the
holder of each share of Series G Stock shall have the right thereafter, during
the period such share shall be convertible or exchangeable, to convert such
share into or have such share exchanged for the kind and amount of shares of
stock or other securities and property receivable upon such consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
into which such shares of this Series could have been converted or exchanged
immediately prior to such consolidation, merger, sale or conveyance, subject to
adjustment that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3 (based on (i) the election, if any,
made in writing to the Corporation by the record holder (as of the date used for
determining holders of Common Stock entitled to make such election) of the
largest number of shares of Series G Stock on or prior to the last date on which
a holder of Common Stock may make an election regarding the kind or amount of
securities or other property receivable by such holder in such transaction or
(ii) if no such election is timely made, an assumption that such holder failed
to exercise any such rights (provided that if the kind or amount of securities
or other property is not the same for each nonelecting holder, then the kind and
amount of securities or other property receivable shall be based upon the kind
and amount of securities or other property receivable by a plurality of the
nonelecting holders of Common Stock)). In the event that any of the
transactions referred to in clauses (a) or (b) involves the distribution
<PAGE>
23
of cash (or property other than equity securities) to a holder of Common Stock,
lawful provision shall be made as part of the terms of the transaction whereby
the holder of each share of Series G Stock on the record date fixed for
determining holders of Common Stock entitled to receive such cash or property
(or if no such record date is established, the effective date of such
transaction) shall be entitled to receive the amount of cash or property that
such holder would have been entitled to receive had such holder converted his
shares of Series G Stock into Common Stock immediately prior to such record date
(or effective date) (based on the election or nonelection made by the record
holder of the largest number of shares of Series G Stock, as provided above).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election regarding the kind or amount
of securities or other property that will be receivable by such holder in any
transaction described in clause (a) or (b) of the first sentence of this Section
3.7, the Corporation shall mail a copy thereof to the holders of the Series G
Stock as of the date used for determining the holders of record of Common Stock
entitled to such mailing. The Corporation shall not enter into any of the
transactions referred to in clauses (a) or (b) of the preceding sentence unless
effective provision shall be made in the certificate or articles of
incorporation or other constituent documents of the Corporation or the entity
surviving the consolidation or merger, if other than the Corporation, or the
entity acquiring the Corporation's assets, as the case may be, so as to give
effect to the provisions set forth in this Section 3.7. The provisions of this
Section 3.7 shall apply similarly to successive consolidations, mergers, sales
or conveyances. For purposes of this Section 3.7 the term "Corporation" shall
refer to the Corporation (as defined in Section 1.14) as constituted immediately
prior to the merger, consolidation or other transaction referred to in this
Section.
3.8 The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued stock, for the
purpose of effecting the conversion of the shares of this Series, such number of
its duly authorized shares of Common Stock (or, if applicable, any other shares
of Capital Stock of the Corporation) as shall from time to time be sufficient to
effect the conversion of all outstanding shares of this Series into such Common
Stock (or such other shares of Capital Stock) at any time (assuming that, at the
time of
<PAGE>
24
the computation of such number of shares, all such Common Stock (or such other
shares of Capital Stock) would be held by a single holder); provided, however,
-------- -------
that nothing contained herein shall preclude the Corporation from satisfying its
obligations in respect of the conversion of the shares by delivery of purchased
shares of Common Stock (or such other shares of Capital Stock) that are held in
the treasury of the Corporation. All shares of Common Stock (or such other
shares of Capital Stock of the Corporation) that shall be deliverable upon
conversion of the shares of this Series shall be duly and validly issued, fully
paid and nonassessable. For purposes of this Section 3, any shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Corporation.
3.9 If any shares of Common Stock or other shares of Capital Stock of
the Corporation that would be issuable upon conversion of shares of this Series
hereunder require registration with or approval of any governmental authority
before such shares may be issued upon conversion, the Corporation will in good
faith and as expeditiously as possible cause such shares to be duly registered
or approved, as the case may be. The Corporation will use commercially
reasonable efforts to list the shares of (or depositary shares representing
fractional interests in) Common Stock or other shares of Capital Stock of the
Corporation required to be delivered upon conversion of shares of this Series
prior to such delivery upon the principal national securities exchange upon
which the outstanding Common Stock or such other shares of Capital Stock is
listed at the time of such delivery.
3.10 The Corporation shall pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock or
other shares of Capital Stock of the Corporation on conversion of shares of this
Series pursuant hereto. The Corporation shall not, however, be required to pay
any tax that is payable in respect of any transfer involved in the issue or
delivery of Common Stock or such other shares of Capital Stock in a name other
than that in which the shares of this Series 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 Corporation the amount of such tax, or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
<PAGE>
25
3.11 In case of (i) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, (ii) any Pro Rata Repurchase or
(iii) any action triggering an adjustment to the Conversion Rate pursuant to
this Section 3, then, in each case, the Corporation shall cause to be filed with
the transfer agent or agents for the Series G Stock, and shall cause to be
mailed, first-class postage prepaid, to the holders of record of the outstanding
shares of Series G Stock, at least fifteen (15) days prior to the applicable
record date for any such transaction (or if no record date will be established,
the effective date thereof), a notice stating (x) the date, if any, on which a
record is to be taken for the purpose of any such transaction (or if no record
date will be established, the date as of which holders of record of Common Stock
entitled to participate in such transaction are determined), and (y) the
expected effective date thereof. Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in this Section 3.11.
4. Redemption or Exchange.
----------------------
4.1 (a) The Corporation may, at its sole option, subject to Section
2.2 hereof, from time to time on and after September 5, 1999, redeem, out of
funds legally available therefor, or, as provided below, exchange shares of
Common Stock for, all or (in the case of Section 4.1(b)(i), any part) of the
outstanding shares of this Series. The redemption price for each share of this
Series called for redemption pursuant to clause (i) of Section 4.1(b) shall be
the Liquidation Value together with an amount equal to the accrued and unpaid
dividends to the date fixed for redemption (hereinafter collectively referred to
as the "Redemption Price"). The exchange price for each share of this Series
called for exchange pursuant to clause (ii) of Section 4.1(b) shall be a number
of shares of Common Stock equal to the Conversion Rate, together with, at the
option of the Corporation, either (x) cash or (y) a number of shares of Common
Stock, valued at the Closing Price on the Trading Day immediately preceding the
date fixed for exchange, equal, in either case, to the aggregate amount of
accrued and unpaid dividends on the Series G Stock to the date fixed for
exchange (provided that any dividends that are in arrears must be paid in cash)
(hereinafter collectively referred to as the "Exchange Price").
<PAGE>
26
(b) On the date fixed for redemption or exchange the Corporation
shall, at its option, effect either
(i) a redemption of the shares of this Series to be redeemed by
way of payment, out of funds legally available therefor, of cash equal to
the aggregate Redemption Price for the shares of this Series then being
redeemed;
(ii) an exchange of the shares of this Series for the Exchange
Price in shares of Common Stock (provided that the Corporation (A) shall be
---------
entitled to deliver cash (1) in lieu of any fractional share of Common
Stock (determined in a manner consistent with Section 3.3) and (2) equal to
accrued and unpaid dividends to the date fixed for exchange in lieu of
shares of Common Stock and (B) shall be required to deliver cash in respect
of any dividends that are in arrears); or
(iii) any combination thereof with respect to each share of this
Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and of Section 4.1(b), the
Corporation shall be entitled to effect an exchange of shares of Series G Stock
for Common Stock or other shares of Capital Stock of the Corporation only to the
extent that duly and validly issued, fully paid and nonassessable shares of
Common Stock (or such other shares of Capital Stock) shall be available for
issuance (including delivery of previously issued shares of Common Stock held in
the Corporation's treasury on the date fixed for exchange). The Corporation
shall comply with Sections 3.9 and 3.10 with respect to shares of Common Stock
or other shares of Capital Stock of the Corporation that would be issuable upon
exchange of shares of this Series. Certificates for shares of Common Stock
issued in exchange for surrendered shares of this Series pursuant to this
Section 4.1 shall be made available by the Corporation not later than the fifth
Trading Day following the date for exchange.
4.2 In the event that fewer than all the outstanding shares of this
Series are to be redeemed pursuant to Section 4.1(b)(i), the number of shares to
be redeemed from each holder of shares of this Series shall be determined by the
Corporation by lot or pro rata or by any other method as may be determined by
the Board of Directors
<PAGE>
27
in its sole discretion to be equitable, and the certificate of the Corporation's
Secretary or an Assistant Secretary filed with the transfer agent or transfer
agents for this Series in respect of such determination by the Board of
Directors shall be conclusive.
4.3 In the event the Corporation shall redeem or exchange shares of
this Series pursuant to Section 4.1, notice of such redemption or exchange shall
be given by first class mail, postage prepaid, mailed not less than fifteen (15)
nor more than sixty (60) days prior to the date fixed for redemption or
exchange, as the case may be, to each record holder of the shares to be redeemed
or exchanged, at such holder's address as the same appears on the books of the
Corporation. Each such notice shall state: (i) whether the shares of this
Series are to be redeemed or exchanged; (ii) the time and date as of which the
redemption or exchange shall occur; (iii) the total number of shares of this
Series to be redeemed or exchanged and, if fewer than all the shares held by
such holder are to be redeemed, the number of such shares to be redeemed from
such holder; (iv) the Redemption Price or the Exchange Price, as the case may
be; (v) that shares of this Series called for redemption or exchange may be
converted at any time prior to the time and date fixed for redemption or
exchange (unless the Corporation shall, in the case of a redemption, default in
payment of the Redemption Price or, in the case of an exchange, fail to exchange
the shares of this Series for the applicable number of shares of Common Stock
and any cash portion of the Exchange Price or shall exercise its right to
rescind such redemption pursuant to Section 4.5, in which case such right of
conversion shall not terminate at such time and date); (vi) the applicable
Conversion Price and Conversion Rate; (vii) the place or places where
certificates for such shares are to be surrendered for payment of the Redemption
Price, in the case of redemption, or for delivery of certificates representing
the shares of Common Stock and the payment of any cash portion of the Exchange
Price, in the case of exchange; and (viii) that dividends on the shares of this
Series to be redeemed or exchanged will cease to accrue on such redemption or
exchange date.
4.4 If notice of redemption or exchange shall have been given by the
Corporation as provided in Section 4.3, dividends on the shares of this Series
so called for redemption or exchange shall cease to accrue, such shares shall no
longer be deemed to be outstanding, and
<PAGE>
28
all rights of the holders thereof as stockholders with respect to shares so
called for redemption or exchange (except (i) in the case of redemption, the
right to receive from the Corporation the Redemption Price without interest and
in the case of exchange, the right to receive from the Corporation the Exchange
Price without interest and (ii) the right to convert such shares in accordance
with Section 3) shall cease (including any right to receive dividends otherwise
payable on any Dividend Payment Date that would have occurred after the time and
date of redemption or exchange) either (i) in the case of a redemption or
exchange pursuant to Section 4.1, from and after the time and date fixed in the
notice of redemption or exchange as the time and date of redemption or exchange
(unless the Corporation shall (x) in the case of a redemption, default in the
payment of the Redemption Price, (y) in the case of an exchange, fail to
exchange the applicable number of shares of Common Stock and any cash portion of
the Exchange Price or (z) exercise its right to rescind such redemption pursuant
to Section 4.5, in which case such rights shall not terminate at such time and
date) or (ii) if the Corporation shall so elect and state in the notice of
redemption or exchange, from and after the time and date (which date shall be
the date fixed for redemption or exchange or an earlier date not less than
fifteen (15) days after the date of mailing of the redemption or exchange
notice) on which the Corporation shall irrevocably deposit with a designated
bank or trust company doing business in the Borough of Manhattan, City and State
of New York, as paying agent, money sufficient to pay at the office of such
paying agent, on the redemption date, the Redemption Price, in the case of
redemption, or certificates representing the shares of Common Stock to be so
exchanged and any cash portion of the Exchange Price, in the case of an
exchange. Any money or certificates so deposited with any such paying agent
that shall not be required for such redemption or exchange because of the
exercise of any right of conversion or otherwise shall be returned to the
Corporation forthwith. Upon surrender (in accordance with the notice of
redemption or exchange) of the certificate or certificates for any shares of
this Series to be so redeemed or exchanged (properly endorsed or assigned for
transfer, if the Corporation shall so require and the notice of redemption or
exchange shall so state), such shares shall be redeemed or exchanged by the
Corporation at the Redemption Price or the Exchange Price, as applicable, as set
forth in Section 4.1 (unless the Corporation shall have exercised its right to
rescind such redemption pursuant to Section 4.5). In case
<PAGE>
29
fewer than all the shares represented by any such certificate are to be
redeemed, a new certificate shall be issued representing the unredeemed shares
(or fractions thereof as provided in Section 8.4), without cost to the holder
thereof, together with the amount of cash, if any, in lieu of fractional shares
other than those issuable in accordance with Section 8.4. Subject to applicable
escheat laws, any moneys so set aside by the Corporation in the case of
redemption and unclaimed at the end of one year from the redemption date shall
revert to the general funds of the Corporation, after which reversion the
holders of such shares so called for redemption or exchange shall look only to
the general funds of the Corporation for the payment of the Redemption Price or
the Exchange Price, as applicable, without interest. Any interest accrued on
funds so deposited shall be paid to the Corporation from time to time.
4.5 In the event that a Redemption Rescission Event shall occur
following any day on which a notice of redemption shall have been given pursuant
to Section 4.3 but at or prior to the earlier of (a) the time and date fixed for
redemption as set forth in such notice of redemption and (b) the time and date
at which the Corporation shall have irrevocably deposited funds or certificates
with a designated bank or trust company pursuant to Section 4.4, the Corporation
may, at its sole option, at any time prior to the earliest of (i) the close of
business on that day which is two (2) Trading Days following such Redemption
Rescission Event, (ii) the time and date fixed for redemption as set forth in
such notice and (iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or trust company,
rescind the redemption to which such notice of redemption shall have 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 Corporation 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 Corporation shall have no obligation to redeem
shares of this Series called for redemption pursuant to such notice of
redemption or to pay the redemption price therefor and all rights of holders of
shares of this Series shall be restored as if such notice of redemption had not
been given. The Corporation shall give notice of any such rescission by one
<PAGE>
30
of the means specified in Section 8.2 as promptly as practicable, but in no
event later than the close of business on that date which is five (5) Trading
Days following the Rescission Date to each record holder of shares of this
Series at the close of business on the Rescission Date and to any other Person
or entity that was a record holder of shares of this Series and that shall have
surrendered shares of this Series for conversion following the giving of notice
of the subsequently rescinded redemption. Each notice of rescission shall (w)
state that the redemption described in the notice of redemption has been
rescinded, (x) state that any Converting Holder shall be entitled to rescind the
conversion of shares of this Series surrendered for conversion following the day
on which notice of redemption was given but prior to the close of business on
the later of (1) the Trading Day next succeeding the date on which public
announcement of the rescission of such redemption shall have been made and (2)
the Trading Day on which the Corporation's notice of rescission is deemed given
pursuant to Section 8.2, (y) be accompanied by a form prescribed by the
Corporation to be used by any Converting Holder rescinding the conversion of
shares so surrendered for conversion (and instructions for the completion and
delivery of such form, including instructions with respect to payments that may
be required to accompany such delivery shall be in accordance with Section 3.5)
and (z) state that such form must be properly completed and received by the
Corporation no later than the close of business on a date that shall be ten (10)
Trading Days following the date of the mailing of such notice of rescission is
deemed given pursuant to Section 8.2.
4.6 The shares of this Series shall not be subject to the provisions
of Section 5 of Article IV of the Certificate of Incorporation.
5. Pro Rata Repurchase.
-------------------
5.1 Upon a Pro Rata Repurchase, each holder of shares of this Series
shall have the right to require that the Corporation repurchase, out of funds
legally available therefor, a Pro Rata Portion (as defined below) of the shares
of such holder, or any lesser number requested by the holder, at a price per
share equal to the highest price per share of Common Stock paid in the Pro Rata
Repurchase multiplied by the Conversion Rate then in effect plus an amount equal
to the accrued but unpaid dividends on such shares to the date of repurchase.
<PAGE>
31
5.2 At any time prior to or within thirty (30) days following any Pro
Rata Repurchase, the Corporation shall mail a notice to each holder of shares of
this Series stating:
(a) that a Pro Rata Repurchase will occur or has occurred and
that such holder will have (upon such Pro Rata Repurchase) or has the right
to require the Corporation to repurchase such holder's shares in an amount
not in excess of the Pro Rata Portion at a repurchase price in cash
determined as set forth above plus an amount equal to accrued and unpaid
dividends, if any, to the date of repurchase;
(b) the repurchase date for the Series G Stock (which shall be
no earlier than fifteen (15) days nor later than sixty (60) days from the
date such notice is mailed); and
(c) the instructions determined by the Corporation, consistent
with this Section, that a holder must follow in order to have its shares
repurchased.
5.3 Holders electing to have any shares repurchased will be required
to surrender such shares, with an appropriate form duly completed, to the
Corporation at the address specified in the notice at least five (5) days prior
to the repurchase date. Holders will be entitled to withdraw their election if
the Corporation receives, not later than three (3) days prior to the repurchase
date, a telegram, telex, facsimile transmission or letter setting forth the name
of the holder, the certificate numbers of the shares delivered for purchase by
the holder and a statement that such holder is withdrawing his election to have
such shares repurchased. Holders will have such additional withdrawal and other
rights as may be required pursuant to applicable law.
5.4 On the repurchase date, the Corporation shall (i) pay the
repurchase price plus an amount equal to accrued and unpaid dividends as
provided in Section 5.1, if any, to the holders entitled thereto and (ii) issue
to such holders any equity securities of the Corporation (other than Common
Stock) that would at the time be issuable upon conversion of the shares of
Series G Stock that are then being repurchased pursuant hereto.
<PAGE>
32
5.5 The Board of Directors will not approve any tender or exchange
offer by the Corporation or a third party for shares of Common Stock or
recommend that the holders of Common Stock accept any offer or tender their
shares into any offer unless a Pro Rata Portion of the shares of this Series of
all holders are entitled to be tendered into such offer at a price not less than
the price per share for shares of Common Stock pursuant to such offer multiplied
by the Conversion Rate then in effect plus an amount equal to accrued but unpaid
dividends on such shares to the date of payment for such shares in such tender
or exchange offer.
5.6 For purposes hereof, "Pro Rata Portion" with respect to the
shares of this Series held by any holder shall mean all the shares of this
Series then owned by such holder times a fraction, the numerator of which is the
number of outstanding shares of Common Stock (a) purchased in the applicable Pro
Rata Repurchase or (b) for which a tender or exchange offer referred to in
Section 5.5 is made, as the case may be, and the denominator of which is the
number of outstanding shares of Common Stock immediately prior to such Pro Rata
Repurchase or the commencement of such tender or exchange offer, as the case may
be.
6. Voting. The shares of this Series shall have no voting rights
------
except as required by law or as set forth below.
6.1 Each share of this Series shall be entitled to vote together with
holders of the shares of Common Stock (and any other class or series that may
similarly be entitled to vote with the shares of Common Stock) as a single class
upon all matters upon which holders of Common Stock are entitled to vote. In
any such vote, the holders of this Series shall be entitled to two (2) votes per
$100 of Liquidation Value of Series G Stock, subject to adjustment at the same
time and in the same manner as each adjustment of the Conversion Rate pursuant
to Section 3, so that the holders of this Series shall be entitled following
such adjustment to the number of votes equal to the number of votes such holders
were entitled to under this Section 6.1 immediately prior to such adjustment
multiplied by a fraction (x) the numerator of which is the Conversion Rate as
adjusted pursuant to Section 3 and (y) the denominator of which is the
Conversion Rate immediately prior to such adjustment.
<PAGE>
33
6.2 (a) So long as any shares of this Series remain outstanding,
unless a greater percentage shall then be required by law, the Corporation shall
not, without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of shares of this Series representing at least
66-2/3% of the aggregate voting power of shares of this Series then outstanding
(i) authorize any Senior Stock or reclassify (by merger, consolidation or
otherwise) any Junior Stock or Parity Stock as Senior Stock, (ii) merge into or
consolidate with any Person where the surviving or continuing corporation will
have any authorized Senior Stock other than capital stock corresponding to
shares of Senior Stock existing immediately before such merger or consolidation)
or (iii) amend, alter or repeal (by operation of law or otherwise) any of the
provisions of the Certificate or the Certificate of Incorporation, so as in any
such case to adversely affect the voting powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions of the shares of this Series.
(b) No consent of holders of shares of this Series shall be
required for (i) the creation of any indebtedness of any kind of the
Corporation, (ii) the authorization or issuance of any class of Junior Stock or
Parity Stock, (iii) the authorization, designation or issuance of additional
shares of Series G Stock or (iv) subject to Section 6.2(a), the authorization or
issuance of any other shares of Preferred Stock.
6.3 (a) If and whenever at any time or times dividends payable on
shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the Board
of Directors shall be increased by two and the holders of shares of this Series,
together with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six quarterly dividend
periods, shall have the exclusive right, voting separately as a class with such
other series, to elect two directors of the Corporation.
(b) Such voting right may be exercised initially either by
written consent or at a special meeting
<PAGE>
34
of the holders of the Preferred Stock having such voting right, called as
hereinafter provided, or at any annual meeting of stockholders held for the
purpose of electing directors, and thereafter at each such annual meeting until
such time as all dividends in arrears on the shares of this Series shall have
been paid in full and all dividends payable on the shares of this Series on four
subsequent consecutive Dividend Payment Dates shall have been paid in full on
such dates or funds shall have been set aside for the payment thereof, at which
time such voting right and the term of the directors elected pursuant to Section
6.3(a) shall terminate.
(c) At any time when such voting right shall have vested in
holders of shares of such series of Preferred Stock described in Section 6.3(a),
and if such right shall not already have been exercised by written consent, a
proper officer of the Corporation may call, and, upon the written request,
addressed to the Secretary of the Corporation, of the record holders of shares
representing ten percent (10%) of the voting power of the shares then
outstanding of such Preferred Stock having such voting right, shall call, a
special meeting of the holders of such Preferred Stock having such voting right.
Such meeting shall be held at the earliest practicable date upon the notice
required for annual meetings of stockholders at the place for holding annual
meetings of stockholders, or, if none, at a place designated by the Board of
Directors. Notwithstanding the provisions of this Section 6.3(c), no such
special meeting shall be called during a period within 60 days immediately
preceding the date fixed for the next annual meeting of stockholders.
(d) At any meeting held for the purpose of electing directors at
which the holders of such Preferred Stock shall have the right to elect
directors as provided herein, the presence in Person or by proxy of the holders
of shares representing more than fifty percent (50%) in voting power of the then
outstanding shares of such Preferred Stock having such right shall be required
and shall be sufficient to constitute a quorum of such class for the election of
directors by such class.
(e) Any director elected by holders of Preferred Stock pursuant
to the voting right created under this Section 6.3 shall hold office until the
next annual meeting of stockholders (unless such term has previously terminated
pursuant to Section 6.3(b)) and any vacancy in
<PAGE>
35
respect of any such director shall be filled only by vote of the remaining
director so elected, or if there be no such remaining director, by the holders
of such Preferred Stock, entitled to elect such director or directors by written
consent or at a special meeting called in accordance with the procedures set
forth in Section 6.3(c), or, if no special meeting is called or written consent
executed, at the next annual meeting of stockholders. Upon any termination of
such voting right, subject to applicable law, the term of office of all
directors elected by holders of such Preferred Stock voting separately as a
class pursuant to this Section 6.3 shall terminate.
(f) In exercising the voting rights set forth in this Section
6.3, each share of this Series shall have a number of votes equal to its
Liquidation Value.
7. Liquidation Rights.
------------------
7.1 Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of this
Series shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, in preference to the holders of, and
before any payment or distribution shall be made on, Junior Stock, the amount of
$100 per share (the "Liquidation Value"), plus an amount equal to all accrued
and unpaid dividends to the date of final distribution.
7.2 Neither the sale, exchange or other conveyance (for cash, shares
of stock, securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation of the
Corporation into or with any other corporation, or the merger or consolidation
of any other corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for the
purposes of this Section 7.
7.3 After the payment to the holders of the shares of this Series of
full preferential amounts provided for in this Section 7, the holders of this
Series as such shall have no right or claim to any of the remaining assets of
the Corporation.
7.4 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or
<PAGE>
36
winding up of the Corporation, whether voluntary or involuntary, shall be
insufficient to pay in full all amounts to which such holders are entitled
pursuant to Section 7.1, no such distribution shall be made on account of any
shares of any Parity Stock upon such dissolution, liquidation or winding up
unless proportionate distributive amounts shall be paid on account of the shares
of this Series, ratably, in proportion to the full distributable amounts for
which holders of all Parity Stock are entitled upon such dissolution,
liquidation or winding up.
8. Other Provisions.
----------------
8.1 All notices from the Corporation to the holders shall be given by
one of the methods specified in Section 8.2. With respect to any notice to a
holder of shares of this Series required to be provided hereunder, neither
failure to give such notice, nor any defect therein or in the transmission
thereof, to any particular holder shall affect the sufficiency of the notice or
the validity of the proceedings referred to in such notice with respect to the
other holders or affect the legality or validity of any distribution, right,
warrant, reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any such action. Any
notice that was mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives the notice.
8.2 All notices and other communications hereunder shall be deemed
given (i) on the first Trading Day following the date received, if delivered
personally, (ii) on the Trading Day following timely deposit with an overnight
courier service, if sent by overnight courier specifying next day delivery and
(iii) on the first Trading Day that is at least five days following deposit in
the mails, if sent by first class mail to (x) a holder at its last address as it
appears on the transfer records or registry for the Series G Stock and (y) the
Corporation at the following address (or at such other address as the
Corporation shall specify in a notice pursuant to this Section): TW Inc., 75
Rockefeller Plaza, New York, New York 10019, Attention: General Counsel.
8.3 Any shares of this Series that have been converted, redeemed,
exchanged or otherwise acquired by the Corporation shall, after such conversion,
redemption, exchange or acquisition, as the case may be, be retired and
<PAGE>
37
promptly cancelled and the Corporation shall take all appropriate action to
cause such shares to obtain the status of authorized but unissued shares of
Preferred Stock, without designation as to series, until such shares are once
more designated as part of a particular series by the Board of Directors. The
Corporation may cause a certificate setting forth a resolution adopted by the
Board of Directors that none of the authorized shares of this Series are
outstanding to be filed with the Secretary of State of the State of Delaware.
When such certificate becomes effective, all matters set forth in the
Certificate shall be eliminated from the Certificate of Incorporation and the
shares of Preferred Stock designated hereby as Series G Stock shall have the
status of authorized and unissued shares of Preferred Stock and may be reissued
as part of any new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors.
8.4 The shares of this Series shall be issuable in whole shares or,
if authorized by the Board of Directors, in any fraction of a whole share so
authorized or any integral multiple of such fraction.
8.5 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such record holder shall be deemed the holder of such shares for all
purposes.
8.6 All notice periods referred to in the Certificate shall commence
on the date of the mailing of the applicable notice.
8.7 Certificates for shares of this Series shall bear such legends as
the Corporation shall from time to time deem appropriate.
IN WITNESS WHEREOF, TW INC. has caused this certificate to be
signed this [ ] day of [ ], 1996.
TW INC.,
By:_________________________
Name:
Title:
<PAGE>
EXHIBIT 3.1(i)
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES H CONVERTIBLE
PREFERRED STOCK
OF
TW INC.
------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
-------------------
TW INC. (the "Corporation"), a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware (the "DGCL"),
does hereby certify that the following resolution was duly adopted by action of
the Board of Directors of the Corporation (the "Board of Directors") at a
meeting duly held on [ ], 1996.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $.10 per share ("Preferred Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series as follows:
The series of Preferred Stock hereby established shall consist of
1,800,000 shares designated as Series H Convertible Preferred Stock. The
rights, preferences and limitations of such series shall be as follows:
<PAGE>
2
1. Definitions. As used herein, the following terms shall have the
-----------
indicated meanings:
1.1 "Accrued Dividend Amount" shall mean the aggregate amount of
accrued and unpaid dividends on a share of Series H Stock to and including the
Conversion Date, except that if the Conversion Date shall occur after a Record
Date and prior to a related Dividend Payment Date, the Accrued Dividend Amount
shall not include any accrued and unpaid dividends for the period from and after
the most recent Dividend Payment Date.
1.2 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.3 "Capital Stock" shall mean any and all shares of corporate
stock of a Person (however designated and whether representing rights to vote,
rights to participate in dividends or distributions upon liquidation or
otherwise with respect to such Person, or any division or subsidiary thereof, or
any joint venture, partnership, corporation or other entity).
1.4 "Certificate" shall mean the certificate of the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of
Series H Convertible Preferred Stock filed with respect to this resolution with
the Secretary of State of the State of Delaware pursuant to Section 151 of the
DGCL.
1.5 "Change of Control" and "Change of Control Date" shall have
the following meanings: "Change of Control" shall mean the occurrence of one or
both of the following events: (a) individuals who would constitute a majority of
the members of the Board of Directors elected at any meeting of stockholders or
by written consent (without regard to any members of the Board of Directors
elected pursuant to the terms of any series of Preferred Stock) shall be elected
to the Board of Directors and the election or the nomination for election by the
Corporation's stockholders of such directors was not approved by a vote of at
least a majority of the directors in office immediately prior to such election
(in which event "Change of Control Date" shall mean the date of such election)
or (b) a Person
<PAGE>
3
or group of Persons acting in concert as a partnership, limited partnership,
syndicate or other group within the meaning of Rule 13d-3 under the Exchange Act
(the "Acquiring Person") shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases, share repurchases or
redemptions or otherwise, have become the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act) of 40% or more of the outstanding shares
of Common Stock (in which event "Change of Control Date" shall mean the date of
the event resulting in such 40% ownership).
1.6 "Closing Price" of the Common Stock shall mean the last
reported sale price of the Common Stock (regular way) as shown on the Composite
Tape of the NYSE, 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 the Common Stock is not
listed or admitted to trading on the NYSE, on the principal national securities
exchange on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securities exchange, the last
reported sale price of the Common Stock, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, in either case as
reported by NASDAQ.
1.7 "Common Dividend Deficiency" shall be applicable in the event
that a Conversion Date shall fall after a record date and prior to the related
payment date for a regularly scheduled cash dividend on the Common Stock (the
"Common Dividend Payment Date"), and in such event shall mean the product of (i)
the Conversion Rate, (ii) the amount per share of Common Stock of the regularly
scheduled cash dividend for which the record date has been set but a payment
date has not yet occurred and (ii) a fraction (A) the numerator of which is the
number of calendar days from and excluding the Conversion Date (or in the event
the Conversion Date falls after a Record Date and on or prior to a related
Dividend Payment Date, from and excluding the Dividend Payment Date) to and
including the Common Dividend Payment Date and (B) the denominator of which is
91 (provided that such fraction shall not be greater than one (1)).
1.8 "Common Dividend Excess" shall be applicable in all
circumstances where a Common Dividend Deficiency is not applicable, and in such
event shall mean the product of (i) the Conversion Rate, (ii) the regular
quarterly cash dividend per share, if any, paid by the
<PAGE>
4
Corporation on the Common Stock (the "Historical Dividend") on the most recent
dividend payment date for the Common Stock (the "Prior Dividend Payment Date")
occurring during the four months immediately preceding the Conversion Date and
(iii) a fraction (A) the numerator of which is the number of calendar days from
and excluding (1) the Prior Dividend Payment Date to and including (2) the
Conversion Date (or in the event the Conversion Date falls after a Record Date
and on or prior to a related Dividend Payment Date, to and including the
Dividend Payment Date) and (B) the denominator of which is 91 days (provided
that in no event shall the fraction be greater than one (1)).
1.9 "Common Stock" shall mean the class of Common Stock, par
value $.01 per share, of the Corporation authorized at the date of the
Certificate, or any other class of stock resulting from (x) successive changes
or reclassifications of such Common Stock consisting of changes in par value, or
from par value to no par value, (y) a subdivision or combination or (z) any
other changes for which an adjustment is made under Section 3.6(a), and in any
such case including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other securities of
the Corporation that are at the time represented by the certificates
representing such shares of Common Stock.
1.10 "Conversion Date" shall have the meaning set forth in
Section 3.5 hereof.
1.11 "Conversion Period" shall mean (i) the period commencing on
September 5, 2000, and (ii) any period prior to September 5, 2000, (A) during
which there shall remain open (within the meaning of Rule 14e-l(a) under the
Exchange Act) a tender or exchange offer for 40% or more of the outstanding
shares of Common Stock; provided that TWX shall have filed a Schedule 14D-9 with
respect to such tender or exchange offer and such tender or exchange offer shall
not have been opposed by the board of directors of TWX or (B) immediately prior
to the effective time of any consolidation or merger to which the Corporation is
a party, other than a merger or consolidation in which the Corporation is the
surviving or continuing corporation and that does not result in any
reclassification of, or change (other than a change in par value or as a result
of a division or combination) in outstanding shares of Common Stock.
<PAGE>
5
1.12 "Conversion Price" at any time shall mean the Liquidation
Value per share divided by the Conversion Rate in effect at such time (rounded
to the nearest one hundredth of a cent).
1.13 "Conversion Rate" shall have the meaning set forth in
Section 3.1 hereof.
1.14 "Converting Holder" shall have the meaning set forth in
Section 3.5 hereof.
1.15 "Corporation" shall mean TW Inc., a Delaware corporation,
and any of its successors by operation of law, including by merger,
consolidation or sale or conveyance of all or substantially all of its property
and assets.
1.16 "Current Market Price" of the Common Stock on any date shall
mean the average of the daily Closing Prices per share of the Common Stock for
the five (5) consecutive Trading Days ending on the Trading Day immediately
preceding the applicable record date, conversion date, redemption date or
exchange date referred to in Section 3 or Section 4.
1.17 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1 hereof.
1.18 "DGCL" shall mean the General Corporation Law of the State
of Delaware.
1.19 "Exchange Act" shall mean Securities Exchange Act of 1934,
as amended.
1.20 "Exchange Price" shall have the meaning set forth in
Section 4.1 hereof.
1.21 "Junior Stock" shall mean the Common Stock, the Series A
Stock, the Series LMC Stock, the Series LMCN-V Stock and the shares of any other
class or series of Capital Stock of the Corporation that, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall be junior to the Series H Stock in respect of the right to
receive dividends or to participate in any distribution of assets other than by
way of dividends.
<PAGE>
6
1.22 "Liquidation Value" shall have the meaning set forth in
Section 7.1 hereof.
1.23 "NASDAQ" shall mean the Nasdaq Stock Market.
1.24 "Net Dividend Amount" shall have the meaning set forth in
Section 3.1 hereof.
1.25 "NYSE" shall mean the New York Stock Exchange, Inc.
1.26 "Parity Stock" shall mean the Series D Stock, the Series E
Stock, the Series F Stock, the Series G Stock, the Series I Stock, the Series J
Stock, the Series L Stock, the Series M Stock and the shares of any other class
or series of Capital Stock of the Corporation that, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall, in the event that the stated dividends thereon are not paid in
full, be entitled to share ratably with the Series H Stock in the payment of
dividends, including accumulations, if any, in accordance with the sums that
would be payable on such shares if all dividends were declared and paid in full,
or shall, in the event that the amounts payable thereon on liquidation are not
paid in full, be entitled to share ratably with the Series H Stock in any
distribution of assets other than by way of dividends in accordance with the
sums that would be payable in such distribution if all sums payable were
discharged in full; provided, however, that the term "Parity Stock" shall be
-------- -------
deemed to refer (i) in Section 2.2 hereof, to any stock that is Parity Stock in
respect of dividend rights; (ii) in Section 7 hereof, to any stock that is
Parity Stock in respect of the distribution of assets; and (iii) in Sections 6.2
and 6.3 hereof, to any stock that is Parity Stock in respect of either dividend
rights or the distribution of assets and that, pursuant to the Certificate of
Incorporation or any instrument in which the Board of Directors, acting pursuant
to authority granted in the Certificate of Incorporation, shall so designate, is
entitled to vote with the holders of Series H Stock.
1.27 "Person" shall mean an individual corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
<PAGE>
7
1.28 "Preferred Stock" shall mean the class of Preferred Stock,
par value $.10 per share, of the Corporation authorized at the date of the
Certificate, including any shares thereof authorized after the date of the
Certificate.
1.29 "Pro Rata Portion" shall have the meaning set forth in
Section 5.6 hereof.
1.30 "Pro Rata Repurchase" shall mean the purchase of shares of
Common Stock by the Corporation or by any of its subsidiaries, whether for cash
or other property or securities of the Corporation, which purchase is subject to
Section 13(e) of the Exchange Act or is made pursuant to an offer made available
to all holders of Common Stock, but excluding any purchase made in open market
transactions that satisfies the conditions of clause (b) of Rule 10b-18 under
the Exchange Act or has been designed (as reasonably determined by the Board of
Directors) to prevent such purchase from having a material effect on the trading
market of the Common Stock. The "Effective Date" of a Pro Rata Repurchase shall
mean the applicable expiration date (including all extensions thereof) of any
tender or exchange offer that is a Pro Rata Repurchase or the date of purchase
with respect to any Pro Rata Repurchase that is not a tender or exchange offer.
1.31 "Record Date" shall have the meaning set forth in Section
2.1 hereof.
1.32 "Redemption Price" shall have the meaning set forth in
Section 4.1 hereof.
1.33 "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 are registered and listed for trading (or, if shares of Common
Stock are not registered and listed for trading on any such exchange, in the
over-the-counter market) for more than six-and-one-half (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
<PAGE>
8
Trading Day preceding the day notice of any redemption of shares of this Series
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 earlier of (x) the time
and date fixed for redemption in such notice and (y) the time and date at which
the Corporation shall have irrevocably deposited funds with a designated bank or
trust company pursuant to Section 4.4 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 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 on or prior to the
earlier of the dates specified in clauses (x) and (y) above, (c) a declaration
of a banking moratorium or any suspension of payments in respect of banks by
Federal or state 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 that in the reasonable judgment of the
Corporation could have a material adverse effect on the market for the Common
Stock.
1.34 "Rescission Date" shall have the meaning set forth in
Section 4.5 hereof.
1.35 "Senior Stock" shall mean the shares of any class or series
of Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series H Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
1.36 "Series A Stock" shall mean the series of Preferred Stock
authorized and designated as Series A Participating Preferred Stock at the date
of the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.37 "Series D Stock" shall mean the series of Preferred Stock
authorized and designated as Series D Convertible Preferred Stock at the date of
the Certificate,
<PAGE>
9
including any shares thereof authorized and designated after the date of the
Certificate.
1.38 "Series E Stock" shall mean the series of Preferred Stock
authorized and designated as Series E Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.39 "Series F Stock" shall mean the series of Preferred Stock
authorized and designated as Series F Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.40 "Series G Stock" shall mean the series of Preferred Stock
authorized and designated as Series G Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.41 "Series H Stock" and "this Series" shall mean the series of
Preferred Stock authorized and designated as the Series H Convertible Preferred
Stock, including any shares thereof authorized and designated after the date of
the Certificate.
1.42 "Series I Stock" shall mean the series of Preferred Stock
authorized and designated as Series I Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.43 "Series J Stock" shall mean the series of Preferred Stock
authorized and designated as Series J Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.45 "Series L Stock" shall mean the series of Preferred Stock
authorized and designated as 10-1/4% Series L Exchangeable Preferred Stock at
the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
1.46 "Series LMC Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMC Common Stock at the date of the
Certificate,
<PAGE>
10
including any shares thereof authorized and designated after the date of the
Certificate.
1.47 "Series LMCN-V Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMCN-V Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.48 "Series M Stock" shall mean the series of Preferred Stock
authorized and designated as 10-1/4% Series M Exchangeable Preferred Stock at
the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
1.49 "Surrendered Shares" shall have the meaning set forth in
Section 3.5 hereof.
1.50 "Trading Day" shall mean, so long as the Common Stock 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 is not listed or admitted
to trading on the NYSE, a day on which the principal national securities
exchange on which the Common Stock is listed is open for the transaction of
business, or, if the Common Stock 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.
2. Cash Dividends.
--------------
2.1 The holders of the outstanding Series H Stock shall be
entitled to receive quarter-annual dividends, as and when declared by the Board
of Directors out of funds legally available therefor. Each quarter-annual
dividend shall be an amount per share equal to (i) in the case of each Dividend
Payment Date (as defined below) occurring on or prior to September 5, 1999, the
greater of (A) $.9375 per $100 of Liquidation Value of Series H Stock (which is
equivalent to $3.75 per annum), and (B) an amount per $100 of Liquidation Value
of Series H Stock equal to the product of (1) the Conversion Rate and (2) the
aggregate per share amount of regularly scheduled dividends paid in cash on the
Common Stock during the period from but excluding the immediately preceding
Dividend Payment Date to and including such Dividend Payment Date (the
"Preferred Dividend Amount"), and (ii) in the case of each Dividend Payment Date
occurring thereafter, an amount per $100 of Liquidation
<PAGE>
11
Value of Series H Stock equal to the product of (1) the Conversion Rate and (2)
the aggregate per share amount of regularly scheduled dividends paid in cash on
the Common Stock during the period from but excluding the immediately preceding
Dividend Payment Date to and including such Dividend Payment Date. All
dividends shall be payable in cash on or about the first day of March, June,
September and December in each year, as fixed by the Board of Directors, or such
other dates as are fixed by the Board of Directors (provided that September 5,
1999, shall be a Dividend Payment Date) (each a "Dividend Payment Date"), to the
holders of record of Series H Stock at the close of business on or about the
Trading Day next preceding such first day of March, June, September and December
(or September 5, 1999) as the case may be, as fixed by the Board of Directors,
or such other dates as are fixed by the Board of Directors (each a "Record
Date"). Subject to the next sentence, in the case of dividends payable in
respect of periods prior to September 5, 1999, (i) such dividends shall accrue
on each share on a daily basis, whether or not there are unrestricted funds
legally available for the payment of such dividends and whether or not earned or
declared, and (ii) any such dividends that become payable for any partial
dividend period shall be computed on the basis of the actual days elapsed in
such period. Notwithstanding the preceding sentence, the amount accruing and
payable in respect of the first dividend on the Series H Stock payable after the
date of the Certificate shall equal the Preferred Dividend Amount. From and
after September 5, 1999, dividends on the Series H Stock (determined as to
amount as provided herein) shall accrue to the extent, but only to the extent,
that regularly scheduled cash dividends are declared by the Board of Directors
on the Common Stock with a payment date after September 5, 1999 (or, in the case
of Series H Stock originally issued after September 5, 1999, after the Dividend
Payment Date next preceding such date of original issuance). All dividends that
accrue in accordance with the foregoing provisions shall be cumulative from and
after the day immediately succeeding the date of issuance of the relevant shares
of Series H Stock. The amount payable to each holder of record on any Dividend
Payment Date shall be rounded to the nearest cent.
2.2 Except as hereinafter provided in this Section 2.2, unless
all dividends on the outstanding shares of Series H Stock and any Parity Stock
that shall have accrued and become payable as of any date shall have been paid,
or declared and funds set apart for payment thereof,
<PAGE>
12
no dividend or other distribution (payable other than in shares of Junior Stock)
shall be paid to the holders of Junior Stock or Parity Stock, and no shares of
Series H Stock, Parity Stock or Junior Stock shall be purchased, redeemed or
otherwise acquired by the Corporation or any of its subsidiaries (except by
conversion into or exchange for Junior Stock), nor shall any monies be paid or
made available for a purchase, redemption or sinking fund for the purchase or
redemption of any Series H Stock, Junior Stock or Parity Stock. When dividends
are not paid in full upon the shares of this Series and any Parity Stock, all
dividends declared upon shares of this Series and all Parity Stock shall be
declared pro rata so that the amount of dividends declared per share on this
Series and all such Parity Stock shall in all cases bear to each other the same
ratio that accrued dividends per share on the shares of this Series and all such
Parity Stock bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
this Series that may be in arrears.
2.3 In case the Corporation shall at any time distribute (other
than a distribution in liquidation of the Corporation) to the holders of its
shares of Common Stock any assets or property, including debt or equity
securities of the Corporation (other than Common Stock subject to a distribution
or reclassification covered by Section 3.6(a)) or of any other Person (including
common stock of such Person) or cash (but excluding regularly scheduled cash
dividends payable on shares of Common Stock), or in case the Corporation shall
at any time distribute (other than a distribution in liquidation of the
Corporation) to such holders rights, options or warrants to subscribe for or
purchase shares of Common Stock (including shares held in the treasury of the
Corporation), or rights, options or warrants to subscribe for or purchase any
other security or rights, options or warrants to subscribe for or purchase any
assets or property (in each case, whether of the Corporation or otherwise, but
other than any distribution of rights to purchase securities of the Corporation
if the holder of shares of this Series would otherwise be entitled to receive
such rights upon conversion of shares of this Series for Common Stock; provided,
--------
however, that if such rights are subsequently redeemed by the Corporation, such
- -------
redemption shall be treated for purposes of this Section 2.3 as a cash dividend
(but not a regularly scheduled cash dividend) on the Common Stock), the
Corporation shall simultaneously distribute such assets,
<PAGE>
13
property, securities, rights, options or warrants pro rata to the holders of
Series H Stock on the record date fixed for determining holders of Common Stock
entitled to participate in such distribution (or, if no such record date shall
be established, the effective time thereof) in an amount equal to the amount
that such holders of Series H Stock would have been entitled to receive had
their shares of Series H Stock been converted into Common Stock immediately
prior to such record date (or effective time). In the event of a distribution
to holders of Series H Stock pursuant to this Section 2.3, such holders shall be
entitled to receive fractional shares or interests only to the extent that
holders of Common Stock are entitled to receive the same. The holders of Series
H Stock on the applicable record date (or effective time) shall be entitled to
receive in lieu of such fractional shares or interests the same consideration as
is payable to holders of Common Stock with respect thereto. If there are no
fractional shares or interests payable to holders of Common Stock, the holders
of Series H Stock on the applicable record date (or effective time) shall
receive in lieu of such fractional shares or interests the fair value thereof as
determined by the Board of Directors.
2.4 If a distribution is made in accordance with the provisions
of Section 2.3, anything in Section 3 to the contrary notwithstanding, no
adjustment pursuant to Section 3 shall be effected by reason of the distribution
of such assets, property, securities, rights, options or warrants or the
subsequent modification, exercise, expiration or termination of such securities,
rights, options or warrants.
2.5 In the event that the holders of Common Stock are entitled to
make any election with respect to the kind or amount of securities or other
property receivable by them in any distribution that is subject to Section 2.3,
the kind and amount of securities or other property that shall be distributable
to the holders of the Series H Stock shall be based on (i) the election, if any,
made by the record holder (as of the date used for determining the holders of
Common Stock entitled to make such election) of the largest number of shares of
Series H Stock in writing to the Corporation on or prior to the last date on
which a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
is not the
<PAGE>
14
same for each nonelecting holder, then the kind and amount of securities or
other property receivable by holders of the Series H Stock shall be based on the
kind or amount of securities or other property receivable by a plurality of
shares held by the nonelecting holders of Common Stock). Concurrently with the
mailing to holders of Common Stock of any document pursuant to which such
holders may make an election of the type referred to in this Section, the
Corporation shall mail a copy thereof to the record holders of the Series H
Stock as of the date used for determining the holders of record of Common Stock
entitled to such mailing.
3. Conversion Rights.
-----------------
3.1 Each holder of a share of this Series shall have the right at
any time during the Conversion Period or as to any share of this Series called
for redemption or exchange, at any time prior to the close of business on the
date fixed for redemption or exchange (unless the Corporation defaults in the
payment of the Redemption Price or fails to exchange the shares of this Series
for the applicable number of shares of Common Stock and any cash portion of the
Exchange Price or exercises its right to rescind such redemption pursuant to
Section 4.5, in which case such right shall not terminate at the close of
business on such date), to convert such share into (i) a number of shares of
Common Stock equal to 2.08264 shares of Common Stock for each share of this
Series, subject to adjustment as provided in this Section 3 (such rate, as so
adjusted from time to time, is herein called the "Conversion Rate") plus (ii) a
number of shares of Common Stock equal to
(A) (1) the Accrued Dividend Amount minus (2) the Common
-----
Dividend Excess, if applicable, or plus (3) the Common Dividend Deficiency,
----
if applicable (the "Net Dividend Amount"), divided by
-------
(B) the Closing Price of the Common Stock on the last Trading
Day prior to the Conversion Date;
provided, however, that in the event that the Net Dividend Amount is a negative
- -------- -------
number, the number of shares deliverable upon conversion of a share of Series H
Stock shall be equal to
<PAGE>
15
(I) the number of shares determined pursuant to clause (i) minus
-----
(II) a number of shares equal to (x) the absolute value of the
Net Dividend Amount divided by (y) the Closing Price of the Common Stock on
----------
the last Trading Day prior to the Conversion Date;
and provided further that, in the event that the Net Dividend Amount is a
- -------------------------
positive number, the Corporation shall have the right to deliver cash equal to
the Net Dividend Amount or any portion thereof, in which case its obligation to
deliver shares of Common Stock pursuant to clause (ii) shall be reduced by a
number of shares equal to (x) the aggregate amount of cash so delivered divided
-------
by (y) the Closing Price of the Common Stock on the last Trading Day prior to
- --
the Conversion Date, unless the Corporation shall deliver cash equal to the
entire Net Dividend Amount, in which case its entire obligation under clause
(ii) shall be discharged. The obligations of the Corporation to issue the
Common Stock or make the cash payments provided by this Section 3.1 shall be
absolute whether or not any accrued dividend by which such issuance or payment
is measured has been declared by the Board of Directors and whether or not the
Corporation would have adequate surplus or net profits to pay such dividend if
declared or is otherwise restricted from making such dividend.
3.2 Except as provided in this Section 3, no adjustments in
respect of payments of dividends on shares surrendered for conversion or any
dividend on the Common Stock issued upon conversion shall be made upon the
conversion of any shares of this Series (it being understood that if the
Conversion Date for shares of Series H Stock occurs after a Record Date and on
or prior to a Dividend Payment Date, the holder of record on such Record Date
shall be entitled to receive the dividend payable with respect to such shares on
the related Dividend Payment Date pursuant to Section 2.1 hereof).
3.3 The Corporation may, but shall not be required to, in
connection with any conversion of shares of this Series, issue a fraction of a
share of Common Stock, and if the Corporation shall determine not to issue any
such fraction, the Corporation shall, subject to Section 3.6(c), make a cash
payment (rounded to the nearest cent) equal to such fraction multiplied by the
Closing Price of the Common Stock on the last Trading Day prior to the
Conversion Date.
<PAGE>
16
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock shall surrender the certificate or certificates for
such shares at the office of the transfer agent or agents therefor (or at such
other place as the Corporation may designate by notice to the holders of shares
of this Series) during regular business hours, duly endorsed to the Corporation
or in blank, or accompanied by instruments of transfer to the Corporation or in
blank, or in form satisfactory to the Corporation, and shall give written notice
to the Corporation at such office that such holder elects to convert such shares
of this Series. The Corporation shall, as soon as practicable (subject to
Section 3.6(d)) after such deposit of certificates for shares of this Series,
accompanied by the written notice above prescribed, issue and deliver at such
office to the holder for whose account such shares were surrendered, or to his
nominee, certificates representing the number of shares of Common Stock and the
cash, if any, to which such holder is entitled upon such conversion.
3.5 Conversion shall be deemed to have been made as of the date
(the "Conversion Date") that certificates for the shares of this Series to be
converted, and the written notice prescribed in Section 3.4 are received by the
transfer agent or agents for this Series; and the Person entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such Common Stock on such date. Notwithstanding anything to
the contrary contained herein, in the event the Corporation shall have rescinded
a redemption of shares of this Series pursuant to Section 4.5, any holder of
shares of this Series that shall have surrendered shares of this Series for
conversion following the day on which notice of the subsequently rescinded
redemption shall have been given but prior to the close of business on the later
of (a) the Trading Day next succeeding the date on which public announcement of
the rescission of such redemption shall have been made and (b) the Trading Day
on which the notice of rescission required by Section 4.5 is deemed given
pursuant to Section 8.2 (a "Converting Holder"), may rescind the conversion of
such shares surrendered for conversion by (i) properly completing a form
prescribed by the Corporation and mailed to holders of shares of this Series
(including Converting Holders) with the Corporation's notice of rescission,
which form shall provide for the certification by any Converting Holder
rescinding a conversion on behalf of any beneficial owner
<PAGE>
17
(within the meaning of Rule 13d-3 under the Exchange Act) of shares of this
Series that the beneficial ownership (within the meaning of such Rule) of such
shares shall not have changed from the date on which such shares were
surrendered for conversion to the date of such certification and (ii) delivering
such form to the Corporation no later than the close of business on that date
which is ten (10) Trading Days following the date on which the Corporation's
notice of rescission is deemed given pursuant to Section 8.2. The delivery of
such form by a Converting Holder shall be accompanied by (x) any certificates
representing shares of Common Stock issued to such Converting Holder upon a
conversion of shares of this Series that shall be rescinded by the proper
delivery of such form (the "Surrendered Shares"), (y) any securities, evidences
of indebtedness or assets (other than cash) distributed by the Corporation to
such Converting Holder by reason of such Converting Holder's being a record
holder of Surrendered Shares and (z) payment in New York Clearing House funds or
other funds acceptable to the Corporation of an amount equal to the sum of (I)
any cash such Converting Holder may have received in lieu of the issuance of
fractional shares upon conversion and (II) any cash paid or payable by the
Corporation to such Converting Holder by reason of such Converting Holder being
a record holder of Surrendered Shares. Upon receipt by the Corporation 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 or made by such Converting Holder to the Corporation as set forth
above, the Corporation shall instruct the transfer agent or agents for shares of
Common Stock and shares of this Series to cancel any certificates representing
Surrendered Shares (which Surrendered Shares shall be deposited in the treasury
of the Corporation) and reissue certificates representing shares of this Series
to such Converting Holder (which shares of this Series shall be deemed to have
been outstanding at all times during the period following their surrender for
conversion). The Corporation shall, as promptly as practicable, and in no event
more than five (5) 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 or made, pay to the
Converting Holder or as otherwise directed by such Converting Holder any
dividend or other payment made on such shares during the period from the time
such shares shall have been surrendered for conversion to the rescission of such
conversion. All questions as to the validity, form,
<PAGE>
18
eligibility (including time or receipt) and acceptance of any form submitted to
the Corporation to rescind the conversion of shares of this Series, including
questions as to the proper completion or execution of any such form or any
certification contained therein, shall be resolved by the Corporation, whose
determination shall be final and binding. The Corporation shall not be required
to deliver certificates for shares of Common Stock while the stock transfer
books for such stock or for this Series are duly closed for any purpose or
during any period commencing at a Redemption Rescission Event and ending at
either (i) the time and date at which the Corporation's right of rescission
shall expire pursuant to Section 4.5 if the Corporation shall not have exercised
such right or (ii) the close of business on that day which is ten (10) Trading
Days following the date on which notice of rescission pursuant to Section 4.4 is
deemed given pursuant to Section 8.2 if the Corporation shall have exercised
such right of rescission, but certificates for shares of Common Stock shall be
delivered as soon as practicable after the opening of such books or the
expiration of such period.
3.6 The Conversion Rate shall be adjusted from time to time as
follows for events occurring after the date of the Certificate:
(a) In case the Corporation shall, at any time or from time
to time while any of the Series H Stock is outstanding, (i) pay a dividend
in shares of its Common Stock, (ii) combine its outstanding shares of
Common Stock into a smaller number of shares, (iii) subdivide its
outstanding shares of Common Stock or (iv) reclassify (other than by way of
a merger that is subject to Section 3.7) its shares of Common Stock, then
the Conversion Rate in effect immediately before such action shall be
adjusted so that immediately following such event the holders of the Series
H Stock shall be entitled to receive upon conversion or exchange thereof
the kind and amount of shares of Capital Stock of the Corporation that they
would have owned or been entitled to receive upon or by reason of such
event if such shares of Series H Stock had been converted or exchanged
immediately before the record date (or, if no record date, the effective
date) for such event (it being understood that any distribution of cash or
of Capital Stock (other than Common Stock), including any distribution of
Capital Stock (other than Common Stock) that shall accompany a
reclassification
<PAGE>
19
of the Common Stock, shall be subject to Section 2.3 rather than this
Section 3.6(a)). An adjustment made pursuant to this Section 3.6(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 3.6(a),
in the event that the holders of Common Stock are entitled to make any
election with respect to the kind or amount of securities receivable by
them in any transaction that is subject to this Section 3.6(a) (including
any election that would result in all or a portion of the transaction
becoming subject to Section 2.3), the kind and amount of securities that
shall be distributable to the holders of the Series H Stock shall be based
on (i) the election, if any, made by the record holder (as of the date used
for determining the holders of Common Stock entitled to make such election)
of the largest number of shares of Series H Stock in writing to the
Corporation on or prior to the last date on which a holder of Common Stock
may make such an election or (ii) if no such election is timely made, an
assumption that such holder failed to exercise any such rights (provided
that if the kind or amount of securities is not the same for each
nonelecting holder, then the kind and amount of securities receivable shall
be based on the kind or amount of securities receivable by a plurality of
nonelecting holders of Common Stock). Concurrently with the mailing to
holders of Common Stock of any document pursuant to which such holders may
make an election of the type referred to in this Section, the Corporation
shall mail a copy thereof to the record holders of the Series H Stock as of
the date used for determining the holders of record of Common Stock
entitled to such mailing.
(b) In case a Change of Control shall occur, the Conversion
Rate in effect immediately prior to the Change of Control Date shall be
increased (but not decreased) by multiplying such rate by a fraction as
follows: (i) in the case of a Change of Control specified in Section
1.5(a), a fraction in which the numerator is the Conversion Price prior to
adjustment pursuant hereto and the denominator is the Current Market Price
of the Common Stock at the Change of Control Date, (ii) in the case of a
Change of Control
<PAGE>
20
specified in Section 1.5(b), the greater of the following fractions: (x) a
fraction the numerator of which is the highest price per share of Common
Stock paid by the Acquiring Person in connection with the transaction
giving rise to the Change of Control or in any transaction within six
months prior to or after the Change of Control Date (the "Highest Price"),
and the denominator of which is the Current Market Price of the Common
Stock as of the date (but not earlier than six months prior to the Change
of Control Date) on which the first public announcement is made by the
Acquiring Person that it intends to acquire or that it has acquired 40% or
more of the outstanding shares of Common Stock (the "Announcement Date") or
(y) a fraction the numerator of which is the Conversion Price prior to
adjustment pursuant hereto and the denominator of which is the Current
Market Price of the Common Stock on the Announcement Date and (iii) in the
case where there co-exists a Change of Control specified in both Section
1.5(a) and Section 1.5(b), the greatest of the fractions determined
pursuant to clauses (i) and (ii). Such adjustment shall become effective
immediately after the Change of Control Date and shall be made, in the case
of clauses (ii) and (iii) above, successively for six months thereafter in
the event and at the time of any increase in the Highest Price after the
Change of Control Date; provided, however, that no such successive
-------- -------
adjustment shall be made with respect to the Conversion Rate of the shares
of this Series in respect of any event occurring after the Conversion Date.
(c) The Corporation shall be entitled to make such
additional adjustments in the Conversion Rate, in addition to those
required by subsections 3.6(a) and 3.6(b), as shall be necessary in order
that any dividend or distribution in Common Stock or any subdivision,
reclassification or combination of shares of Common Stock referred to
above, shall not be taxable to the holders of Common Stock for United
States Federal income tax purposes so long as such additional adjustments
pursuant to this Section 3.6(c) do not decrease the Conversion Rate.
(d) In any case in which this Section 3.6 shall require that
any adjustment be made effective as of or retroactively immediately
following a record date, the Corporation may elect to defer (but
<PAGE>
21
only for five (5) Trading Days following the occurrence of the event that
necessitates the filing of the statement referred to in Section 3.6(f))
issuing to the holder of any shares of this Series converted after such
record date (i) the shares of Common Stock and other Capital Stock of the
Corporation issuable upon such conversion over and above (ii) the shares of
Common Stock and other Capital Stock of the Corporation issuable upon such
conversion on the basis of the Conversion Rate prior to adjustment;
provided, however, that the Corporation 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.
(e) All calculations under this Section 3 shall be made to
the nearest cent, one-hundredth of a share or, in the case of the
Conversion Rate, one hundred-thousandth. Notwithstanding any other
provision of this Section 3, the Corporation shall not be required to make
any adjustment of the Conversion Rate unless such adjustment would require
an increase or decrease of at least 1.00000% of such Conversion Rate. Any
lesser adjustment shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment that, together with any
adjustment or adjustments so carried forward, shall amount to an increase
or decrease of at least 1.00000% in such rate. Any adjustments under this
Section 3 shall be made successively whenever an event requiring such an
adjustment occurs.
(f) Whenever an adjustment in the Conversion Rate is
required, the Corporation shall forthwith place on file with its transfer
agent or agents for this Series a statement signed by a duly authorized
officer of the Corporation, stating the adjusted Conversion Rate determined
as provided herein. Such statements shall set forth in reasonable detail
such facts as shall be necessary to show the reason for and the manner of
computing such adjustment. Promptly after the adjustment of the Conversion
Rate, the Corporation shall mail a notice thereof to each holder of shares
of this Series.
(g) In the event that at any time as a result of an
adjustment made pursuant to this
<PAGE>
22
Section 3, the holder of any share of this Series thereafter surrendered
for conversion shall become entitled to receive any shares of Capital Stock
of the Corporation other than shares of Common Stock, the conversion rate
of such other shares so receivable upon conversion of any such share of
this Series 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 contained in subparagraphs (a) through (f) and (h)
of this Section 3.6, and the provisions of Section 3.1 through 3.5 and 3.7
through 3.10 shall apply on like or similar terms to any such other shares
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 3.6
(i) if the effect thereof would be to reduce the Conversion Price below the
par value of the Common Stock or (ii) subject to Section 3.6(c) hereof,
with respect to any share of Series H Stock that is converted, prior to the
time such adjustment otherwise would be made.
3.7 In case after the date of the Certificate (a) any
consolidation or merger to which the Corporation is a party, other than a merger
or consolidation in which the Corporation is the surviving or continuing
corporation and that does not result in any 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, or as a result of a subdivision or combination) in,
outstanding shares of Common Stock or (b) any sale or conveyance of all or
substantially all of the property and assets of the Corporation, then lawful
provision shall be made as part of the terms of such transaction whereby the
holder of each share of Series H Stock shall have the right thereafter, during
the period such share shall be convertible or exchangeable, to convert such
share into or have such share exchanged for the kind and amount of shares of
stock or other securities and property receivable upon such consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
into which such shares of this Series could have been converted or exchanged
immediately prior to such consolidation, merger, sale or conveyance, subject to
adjustment that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3 (based on (i) the election, if any,
<PAGE>
23
made in writing to the Corporation by the record holder (as of the date used for
determining holders of Common Stock entitled to make such election) of the
largest number of shares of Series H Stock on or prior to the last date on which
a holder of Common Stock may make an election regarding the kind or amount of
securities or other property receivable by such holder in such transaction or
(ii) if no such election is timely made, an assumption that such holder failed
to exercise any such rights (provided that if the kind or amount of securities
or other property is not the same for each nonelecting holder, then the kind and
amount of securities or other property receivable shall be based upon the kind
and amount of securities or other property receivable by a plurality of the
nonelecting holders of Common Stock)). In the event that any of the
transactions referred to in clauses (a) or (b) involves the distribution of cash
(or property other than equity securities) to a holder of Common Stock, lawful
provision shall be made as part of the terms of the transaction whereby the
holder of each share of Series H Stock on the record date fixed for determining
holders of Common Stock entitled to receive such cash or property (or if no such
record date is established, the effective date of such transaction) shall be
entitled to receive the amount of cash or property that such holder would have
been entitled to receive had such holder converted his shares of Series H Stock
into Common Stock immediately prior to such record date (or effective date)
(based on the election or nonelection made by the record holder of the largest
number of shares of Series H Stock, as provided above). Concurrently with the
mailing to holders of Common Stock of any document pursuant to which such
holders may make an election regarding the kind or amount of securities or other
property that will be receivable by such holder in any transaction described in
clause (a) or (b) of the first sentence of this Section 3.7, the Corporation
shall mail a copy thereof to the holders of the Series H Stock as of the date
used for determining the holders of record of Common Stock entitled to such
mailing. The Corporation shall not enter into any of the transactions referred
to in clauses (a) or (b) of the preceding sentence unless effective provision
shall be made in the certificate or articles of incorporation or other
constituent documents of the Corporation or the entity surviving the
consolidation or merger, if other than the Corporation, or the entity acquiring
the Corporation's assets, as the case may be, so as to give effect to the
provisions set forth in this Section 3.7. The provisions of this Section 3.7
shall apply similarly to successive consolidations, mergers, sales or
<PAGE>
24
conveyances. For purposes of this Section 3.7 the term "Corporation" shall
refer to the Corporation (as defined in Section 1.14) as constituted immediately
prior to the merger, consolidation or other transaction referred to in this
Section.
3.8 The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
stock, for the purpose of effecting the conversion of the shares of this Series,
such number of its duly authorized shares of Common Stock (or, if applicable,
any other shares of Capital Stock of the Corporation) as shall from time to time
be sufficient to effect the conversion of all outstanding shares of this Series
into such Common Stock (or such other shares of Capital Stock) at any time
(assuming that, at the time of the computation of such number of shares, all
such Common Stock (or such other shares of Capital Stock) would be held by a
single holder); provided, however, that nothing contained herein shall preclude
-------- -------
the Corporation from satisfying its obligations in respect of the conversion of
the shares by delivery of purchased shares of Common Stock (or such other shares
of Capital Stock) that are held in the treasury of the Corporation. All shares
of Common Stock (or such other shares of Capital Stock of the Corporation) that
shall be deliverable upon conversion of the shares of this Series shall be duly
and validly issued, fully paid and nonassessable. For purposes of this Section
3, any shares of Common Stock at any time outstanding shall not include shares
held in the treasury of the Corporation.
3.9 If any shares of Common Stock or other shares of Capital
Stock of the Corporation that would be issuable upon conversion of shares of
this Series hereunder require registration with or approval of any governmental
authority before such shares may be issued upon conversion, the Corporation will
in good faith and as expeditiously as possible cause such shares to be duly
registered or approved, as the case may be. The Corporation will use
commercially reasonable efforts to list the shares of (or depositary shares
representing fractional interests in) Common Stock or other shares of Capital
Stock of the Corporation required to be delivered upon conversion of shares of
this Series prior to such delivery upon the principal national securities
exchange upon which the outstanding Common Stock or such other shares of Capital
Stock is listed at the time of such delivery.
<PAGE>
25
3.10 The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock or other shares of Capital Stock of the Corporation on conversion of
shares of this Series pursuant hereto. The Corporation shall not, however, be
required to pay any tax that is payable in respect of any transfer involved in
the issue or delivery of Common Stock or such other shares of Capital Stock in a
name other than that in which the shares of this Series 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 Corporation the amount of such tax,
or has established, to the satisfaction of the Corporation, that such tax has
been paid.
3.11 In case of (i) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, (ii) any Pro Rata Repurchase or
(iii) any action triggering an adjustment to the Conversion Rate pursuant to
this Section 3, then, in each case, the Corporation shall cause to be filed with
the transfer agent or agents for the Series H Stock, and shall cause to be
mailed, first-class postage prepaid, to the holders of record of the outstanding
shares of Series H Stock, at least fifteen (15) days prior to the applicable
record date for any such transaction (or if no record date will be established,
the effective date thereof), a notice stating (x) the date, if any, on which a
record is to be taken for the purpose of any such transaction (or if no record
date will be established, the date as of which holders of record of Common Stock
entitled to participate in such transaction are determined), and (y) the
expected effective date thereof. Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in this Section 3.11.
4. Redemption or Exchange.
----------------------
4.1 (a) The Corporation may, at its sole option, subject to
Section 2.2 hereof, from time to time on and after September 5, 1999, in the
case of clause (i) of Section 4.1(b), and on and after September 5, 2000, in the
case of clause (ii) or (iii) of Section 4.1(b), redeem, out of funds legally
available therefor, or, as provided below, exchange shares of Common Stock for,
all or (in the case of Section 4.1(b)(i), any part) of the outstanding shares of
this Series. The redemption price for each share of this Series called for
redemption pursuant to clause (i) of
<PAGE>
26
Section 4.1(b) shall be the Liquidation Value together with an amount equal to
the accrued and unpaid dividends to the date fixed for redemption (hereinafter
collectively referred to as the "Redemption Price"). The exchange price for
each share of this Series called for exchange pursuant to clause (ii) of Section
4.1(b) shall be a number of shares of Common Stock equal to the Conversion Rate,
together with, at the option of the Corporation, either (x) cash or (y) a number
of shares of Common Stock, valued at the Closing Price on the Trading Day
immediately preceding the date fixed for exchange, equal, in either case, to the
aggregate amount of accrued and unpaid dividends on the Series H Stock to the
date fixed for exchange (provided that any dividends that are in arrears must be
paid in cash) (hereinafter collectively referred to as the "Exchange Price").
(b) On the date fixed for redemption or exchange the
Corporation shall, at its option, effect either
(i) a redemption of the shares of this Series to be
redeemed by way of payment, out of funds legally available therefor, of
cash equal to the aggregate Redemption Price for the shares of this Series
then being redeemed;
(ii) an exchange of the shares of this Series for the
Exchange Price in shares of Common Stock (provided that the Corporation (A)
---------
shall be entitled to deliver cash (1) in lieu of any fractional share of
Common Stock (determined in a manner consistent with Section 3.3) and (2)
equal to accrued and unpaid dividends to the date fixed for exchange in
lieu of shares of Common Stock and (B) shall be required to deliver cash in
respect of any dividends that are in arrears); or
(iii) any combination thereof with respect to each share
of this Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and (iii) of
Section 4.1(b), the Corporation shall be entitled to effect an exchange of
shares of Series H Stock for Common Stock or other shares of Capital Stock of
the Corporation only to the extent that duly and validly issued, fully paid and
nonassessable shares of Common Stock (or such other shares of Capital Stock)
shall be available for issuance (including delivery of previously issued shares
of Common
<PAGE>
27
Stock held in the Corporation's treasury on the date fixed for exchange). The
Corporation shall comply with Sections 3.9 and 3.10 with respect to shares of
Common Stock or other shares of Capital Stock of the Corporation that would be
issuable upon exchange of shares of this Series. Certificates for shares of
Common Stock issued in exchange for surrendered shares of this Series pursuant
to this Section 4.1 shall be made available by the Corporation not later than
the fifth Trading Day following the date for exchange.
4.2 In the event that fewer than all the outstanding shares of
this Series are to be redeemed pursuant to Section 4.1(b)(i), the number of
shares to be redeemed from each holder of shares of this Series shall be
determined by the Corporation by lot or pro rata or by any other method as may
be determined by the Board of Directors in its sole discretion to be equitable,
and the certificate of the Corporation's Secretary or an Assistant Secretary
filed with the transfer agent or transfer agents for this Series in respect of
such determination by the Board of Directors shall be conclusive.
4.3 In the event the Corporation shall redeem or exchange shares
of this Series pursuant to Section 4.1, notice of such redemption or exchange
shall be given by first class mail, postage prepaid, mailed not less than
fifteen (15) nor more than sixty (60) days prior to the date fixed for
redemption or exchange, as the case may be, to each record holder of the shares
to be redeemed or exchanged, at such holder's address as the same appears on the
books of the Corporation. Each such notice shall state: (i) whether the shares
of this Series are to be redeemed or exchanged; (ii) the time and date as of
which the redemption or exchange shall occur; (iii) the total number of shares
of this Series to be redeemed or exchanged and, if fewer than all the shares
held by such holder are to be redeemed, the number of such shares to be redeemed
from such holder; (iv) the Redemption Price or the Exchange Price, as the case
may be; (v) that shares of this Series called for redemption or exchange may be
converted at any time prior to the time and date fixed for redemption or
exchange (unless the Corporation shall, in the case of a redemption, default in
payment of the Redemption Price or, in the case of an exchange, fail to exchange
the shares of this Series for the applicable number of shares of Common Stock
and any cash portion of the Exchange Price or shall exercise its right to
rescind such redemption pursuant to Section 4.5, in which
<PAGE>
28
case such right of conversion shall not terminate at such time and date); (vi)
the applicable Conversion Price and Conversion Rate; (vii) the place or places
where certificates for such shares are to be surrendered for payment of the
Redemption Price, in the case of redemption, or for delivery of certificates
representing the shares of Common Stock and the payment of any cash portion of
the Exchange Price, in the case of exchange; and (viii) that dividends on the
shares of this Series to be redeemed or exchanged will cease to accrue on such
redemption or exchange date.
4.4 If notice of redemption or exchange shall have been given by
the Corporation as provided in Section 4.3, dividends on the shares of this
Series so called for redemption or exchange shall cease to accrue, such shares
shall no longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders with respect to shares so called for redemption or
exchange (except (i) in the case of redemption, the right to receive from the
Corporation the Redemption Price without interest and in the case of exchange,
the right to receive from the Corporation the Exchange Price without interest
and (ii) the right to convert such shares in accordance with Section 3) shall
cease (including any right to receive dividends otherwise payable on any
Dividend Payment Date that would have occurred after the time and date of
redemption or exchange) either (i) in the case of a redemption or exchange
pursuant to Section 4.1, from and after the time and date fixed in the notice of
redemption or exchange as the time and date of redemption or exchange (unless
the Corporation shall (x) in the case of a redemption, default in the payment of
the Redemption Price, (y) in the case of an exchange, fail to exchange the
applicable number of shares of Common Stock and any cash portion of the Exchange
Price or (z) exercise its right to rescind such redemption pursuant to Section
4.5, in which case such rights shall not terminate at such time and date) or
(ii) if the Corporation shall so elect and state in the notice of redemption or
exchange, from and after the time and date (which date shall be the date fixed
for redemption or exchange or an earlier date not less than fifteen (15) days
after the date of mailing of the redemption or exchange notice) on which the
Corporation shall irrevocably deposit with a designated bank or trust company
doing business in the Borough of Manhattan, City and State of New York, as
paying agent, money sufficient to pay at the office of such paying agent, on the
redemption date, the Redemption Price, in the case of
<PAGE>
29
redemption, or certificates representing the shares of Common Stock to be so
exchanged and any cash portion of the Exchange Price, in the case of an
exchange. Any money or certificates so deposited with any such paying agent
that shall not be required for such redemption or exchange because of the
exercise of any right of conversion or otherwise shall be returned to the
Corporation forthwith. Upon surrender (in accordance with the notice of
redemption or exchange) of the certificate or certificates for any shares of
this Series to be so redeemed or exchanged (properly endorsed or assigned for
transfer, if the Corporation shall so require and the notice of redemption or
exchange shall so state), such shares shall be redeemed or exchanged by the
Corporation at the Redemption Price or the Exchange Price, as applicable, as set
forth in Section 4.1 (unless the Corporation shall have exercised its right to
rescind such redemption pursuant to Section 4.5). In case fewer than all the
shares represented by any such certificate are to be redeemed, a new certificate
shall be issued representing the unredeemed shares (or fractions thereof as
provided in Section 8.4), without cost to the holder thereof, together with the
amount of cash, if any, in lieu of fractional shares other than those issuable
in accordance with Section 8.4. Subject to applicable escheat laws, any moneys
so set aside by the Corporation in the case of redemption and unclaimed at the
end of one year from the redemption date shall revert to the general funds of
the Corporation, after which reversion the holders of such shares so called for
redemption or exchange shall look only to the general funds of the Corporation
for the payment of the Redemption Price or the Exchange Price, as applicable,
without interest. Any interest accrued on funds so deposited shall be paid to
the Corporation from time to time.
4.5 In the event that a Redemption Rescission Event shall occur
following any day on which a notice of redemption shall have been given pursuant
to Section 4.3 but at or prior to the earlier of (a) the time and date fixed for
redemption as set forth in such notice of redemption and (b) the time and date
at which the Corporation shall have irrevocably deposited funds or certificates
with a designated bank or trust company pursuant to Section 4.4, the Corporation
may, at its sole option, at any time prior to the earliest of (i) the close of
business on that day which is two (2) Trading Days following such Redemption
Rescission Event, (ii) the time and date fixed for redemption as set forth in
such notice
<PAGE>
30
and (iii) the time and date on which the Corporation shall have irrevocably
deposited such funds with a designated bank or trust company, rescind the
redemption to which such notice of redemption shall have 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 Corporation 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 Corporation shall have no obligation to redeem
shares of this Series called for redemption pursuant to such notice of
redemption or to pay the redemption price therefor and all rights of holders of
shares of this Series shall be restored as if such notice of redemption had not
been given. The Corporation shall give notice of any such rescission by one of
the means specified in Section 8.2 as promptly as practicable, but in no event
later than the close of business on that date which is five (5) Trading Days
following the Rescission Date to each record holder of shares of this Series at
the close of business on the Rescission Date and to any other Person or entity
that was a record holder of shares of this Series and that shall have
surrendered shares of this Series for conversion following the giving of notice
of the subsequently rescinded redemption. Each notice of rescission shall (w)
state that the redemption described in the notice of redemption has been
rescinded, (x) state that any Converting Holder shall be entitled to rescind the
conversion of shares of this Series surrendered for conversion following the day
on which notice of redemption was given but prior to the close of business on
the later of (1) the Trading Day next succeeding the date on which public
announcement of the rescission of such redemption shall have been made and (2)
the Trading Day on which the Corporation's notice of rescission is deemed given
pursuant to Section 8.2, (y) be accompanied by a form prescribed by the
Corporation to be used by any Converting Holder rescinding the conversion of
shares so surrendered for conversion (and instructions for the completion and
delivery of such form, including instructions with respect to payments that may
be required to accompany such delivery shall be in accordance with Section 3.5)
and (z) state that such form must be properly completed and received by the
Corporation no later than the close of business on a date that shall be ten (10)
Trading Days following the date of the mailing of such notice of rescission is
deemed given pursuant to Section 8.2.
<PAGE>
31
4.6 The shares of this Series shall not be subject to the
provisions of Section 5 of Article IV of the Certificate of Incorporation.
5. Pro Rata Repurchase.
-------------------
5.1 Upon a Pro Rata Repurchase, each holder of shares of this
Series shall have the right to require that the Corporation repurchase, out of
funds legally available therefor, a Pro Rata Portion (as defined below) of the
shares of such holder, or any lesser number requested by the holder, at a price
per share equal to the highest price per share of Common Stock paid in the Pro
Rata Repurchase multiplied by the Conversion Rate then in effect plus an amount
equal to the accrued but unpaid dividends on such shares to the date of
repurchase.
5.2 At any time prior to or within thirty (30) days following any
Pro Rata Repurchase, the Corporation shall mail a notice to each holder of
shares of this Series stating:
(a) that a Pro Rata Repurchase will occur or has occurred
and that such holder will have (upon such Pro Rata Repurchase) or has the
right to require the Corporation to repurchase such holder's shares in an
amount not in excess of the Pro Rata Portion at a repurchase price in cash
determined as set forth above plus an amount equal to accrued and unpaid
dividends, if any, to the date of repurchase;
(b) the repurchase date for the Series H Stock (which shall
be no earlier than fifteen (15) days nor later than sixty (60) days from
the date such notice is mailed); and
(c) the instructions determined by the Corporation,
consistent with this Section, that a holder must follow in order to have
its shares repurchased.
5.3 Holders electing to have any shares repurchased will be
required to surrender such shares, with an appropriate form duly completed, to
the Corporation at the address specified in the notice at least five (5) days
prior to the repurchase date. Holders will be entitled to withdraw their
election if the Corporation receives, not later than three (3) days prior to the
repurchase date, a
<PAGE>
32
telegram, telex, facsimile transmission or letter setting forth the name of the
holder, the certificate numbers of the shares delivered for purchase by the
holder and a statement that such holder is withdrawing his election to have such
shares repurchased. Holders will have such additional withdrawal and other
rights as may be required pursuant to applicable law.
5.4 On the repurchase date, the Corporation shall (i) pay the
repurchase price plus an amount equal to accrued and unpaid dividends as
provided in Section 5.1, if any, to the holders entitled thereto and (ii) issue
to such holders any equity securities of the Corporation (other than Common
Stock) that would at the time be issuable upon conversion of the shares of
Series H Stock that are then being repurchased pursuant hereto.
5.5 The Board of Directors will not approve any tender or
exchange offer by the Corporation or a third party for shares of Common Stock or
recommend that the holders of Common Stock accept any offer or tender their
shares into any offer unless a Pro Rata Portion of the shares of this Series of
all holders are entitled to be tendered into such offer at a price not less than
the price per share for shares of Common Stock pursuant to such offer multiplied
by the Conversion Rate then in effect plus an amount equal to accrued but unpaid
dividends on such shares to the date of payment for such shares in such tender
or exchange offer.
5.6 For purposes hereof, "Pro Rata Portion" with respect to the
shares of this Series held by any holder shall mean all the shares of this
Series then owned by such holder times a fraction, the numerator of which is the
number of outstanding shares of Common Stock (a) purchased in the applicable Pro
Rata Repurchase or (b) for which a tender or exchange offer referred to in
Section 5.5 is made, as the case may be, and the denominator of which is the
number of outstanding shares of Common Stock immediately prior to such Pro Rata
Repurchase or the commencement of such tender or exchange offer, as the case may
be.
<PAGE>
33
6. Voting. The shares of this Series shall have no voting rights
------
except as required by law or as set forth below.
6.1 (a) So long as any shares of this Series remain outstanding,
unless a greater percentage shall then be required by law, the Corporation shall
not, without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of shares of this Series representing at least
66-2/3% of the aggregate voting power of shares of this Series then outstanding
(i) authorize any Senior Stock or reclassify (by merger, consolidation or
otherwise) any Junior Stock or Parity Stock as Senior Stock, (ii) merge into or
consolidate with any Person where the surviving or continuing corporation will
have any authorized Senior Stock other than capital stock corresponding to
shares of Senior Stock existing immediately before such merger or consolidation)
or (iii) amend, alter or repeal (by operation of law or otherwise) any of the
provisions of the Certificate or the Certificate of Incorporation, so as in any
such case to adversely affect the voting powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions of the shares of this Series.
(b) No consent of holders of shares of this Series shall be
required for (i) the creation of any indebtedness of any kind of the
Corporation, (ii) the authorization or issuance of any class of Junior Stock or
Parity Stock, (iii) the authorization, designation or issuance of additional
shares of Series H Stock or (iv) subject to Section 6.1(a), the authorization or
issuance of any other shares of Preferred Stock.
6.2 (a) If and whenever at any time or times dividends payable
on shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the Board
of Directors shall be increased by two and the holders of shares of this Series,
together with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six quarterly dividend
periods, shall have the exclusive right, voting separately
<PAGE>
34
as a class with such other series, to elect two directors of the Corporation.
(b) Such voting right may be exercised initially either by
written consent or at a special meeting of the holders of the Preferred Stock
having such voting right, called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at each such annual meeting until such time as all dividends in
arrears on the shares of this Series shall have been paid in full and all
dividends payable on the shares of this Series on four subsequent consecutive
Dividend Payment Dates shall have been paid in full on such dates or funds shall
have been set aside for the payment thereof, at which time such voting right and
the term of the directors elected pursuant to Section 6.2(a) shall terminate.
(c) At any time when such voting right shall have vested in
holders of shares of such series of Preferred Stock described in Section 6.2(a),
and if such right shall not already have been exercised by written consent, a
proper officer of the Corporation may call, and, upon the written request,
addressed to the Secretary of the Corporation, of the record holders of shares
representing ten percent (10%) of the voting power of the shares then
outstanding of such Preferred Stock having such voting right, shall call, a
special meeting of the holders of such Preferred Stock having such voting right.
Such meeting shall be held at the earliest practicable date upon the notice
required for annual meetings of stockholders at the place for holding annual
meetings of stockholders, or, if none, at a place designated by the Board of
Directors. Notwithstanding the provisions of this Section 6.2(c), no such
special meeting shall be called during a period within 60 days immediately
preceding the date fixed for the next annual meeting of stockholders.
(d) At any meeting held for the purpose of electing
directors at which the holders of such Preferred Stock shall have the right to
elect directors as provided herein, the presence in Person or by proxy of the
holders of shares representing more than fifty percent (50%) in voting power of
the then outstanding shares of such Preferred Stock having such right shall be
required and shall be sufficient to constitute a quorum of such class for the
election of directors by such class.
<PAGE>
35
(e) Any director elected by holders of Preferred Stock
pursuant to the voting right created under this Section 6.2 shall hold office
until the next annual meeting of stockholders (unless such term has previously
terminated pursuant to Section 6.2(b)) and any vacancy in respect of any such
director shall be filled only by vote of the remaining director so elected, or
if there be no such remaining director, by the holders of such Preferred Stock,
entitled to elect such director or directors by written consent or at a special
meeting called in accordance with the procedures set forth in Section 6.2(c),
or, if no special meeting is called or written consent executed, at the next
annual meeting of stockholders. Upon any termination of such voting right,
subject to applicable law, the term of office of all directors elected by
holders of such Preferred Stock voting separately as a class pursuant to this
Section 6.2 shall terminate.
(f) In exercising the voting rights set forth in this
Section 6.2, each share of this Series shall have a number of votes equal to its
Liquidation Value.
7. Liquidation Rights.
------------------
7.1 Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of this
Series shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, in preference to the holders of, and
before any payment or distribution shall be made on, Junior Stock, the amount of
$100 per share (the "Liquidation Value"), plus an amount equal to all accrued
and unpaid dividends to the date of final distribution.
7.2 Neither the sale, exchange or other conveyance (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or consolidation of
the Corporation into or with any other corporation, or the merger or
consolidation of any other corporation into or with the Corporation, shall be
deemed to be a dissolution, liquidation or winding up, voluntary or involuntary,
for the purposes of this Section 7.
7.3 After the payment to the holders of the shares of this Series
of full preferential amounts provided for in this Section 7, the holders of this
Series as such
<PAGE>
36
shall have no right or claim to any of the remaining assets of the Corporation.
7.4 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 7.1, no such distribution shall be made on account
of any shares of any Parity Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of this Series, ratably, in proportion to the full distributable amounts
for which holders of all Parity Stock are entitled upon such dissolution,
liquidation or winding up.
8. Other Provisions.
----------------
8.1 All notices from the Corporation to the holders shall be
given by one of the methods specified in Section 8.2. With respect to any notice
to a holder of shares of this Series required to be provided hereunder, neither
failure to give such notice, nor any defect therein or in the transmission
thereof, to any particular holder shall affect the sufficiency of the notice or
the validity of the proceedings referred to in such notice with respect to the
other holders or affect the legality or validity of any distribution, right,
warrant, reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any such action. Any
notice that was mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives the notice.
8.2 All notices and other communications hereunder shall be
deemed given (i) on the first Trading Day following the date received, if
delivered personally, (ii) on the Trading Day following timely deposit with an
overnight courier service, if sent by overnight courier specifying next day
delivery and (iii) on the first Trading Day that is at least five days following
deposit in the mails, if sent by first class mail to (x) a holder at its last
address as it appears on the transfer records or registry for the Series H Stock
and (y) the Corporation at the following address (or at such other address as
the Corporation shall specify in a notice pursuant to this
<PAGE>
37
Section): TW Inc., 75 Rockefeller Plaza, New York, New York 10019, Attention:
General Counsel.
8.3 Any shares of this Series that have been converted, redeemed,
exchanged or otherwise acquired by the Corporation shall, after such conversion,
redemption, exchange or acquisition, as the case may be, be retired and promptly
cancelled and the Corporation shall take all appropriate action to cause such
shares to obtain the status of authorized but unissued shares of Preferred
Stock, without designation as to series, until such shares are once more
designated as part of a particular series by the Board of Directors. The
Corporation may cause a certificate setting forth a resolution adopted by the
Board of Directors that none of the authorized shares of this Series are
outstanding to be filed with the Secretary of State of the State of Delaware.
When such certificate becomes effective, all matters set forth in the
Certificate shall be eliminated from the Certificate of Incorporation and the
shares of Preferred Stock designated hereby as Series H Stock shall have the
status of authorized and unissued shares of Preferred Stock and may be reissued
as part of any new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors.
8.4 The shares of this Series shall be issuable in whole shares
or, if authorized by the Board of Directors, in any fraction of a whole share so
authorized or any integral multiple of such fraction.
8.5 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such record holder shall be deemed the holder of such shares for all
purposes.
8.6 All notice periods referred to in the Certificate shall
commence on the date of the mailing of the applicable notice.
<PAGE>
38
8.7 Certificates for shares of this Series shall bear such
legends as the Corporation shall from time to time deem appropriate.
IN WITNESS WHEREOF, TW INC. has caused this certificate to be signed
this [ ] day of [ ], 1996.
TW INC.,
By:
---------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 3.1(j)
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES I
CONVERTIBLE PREFERRED STOCK
OF
TW INC.
------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
-------------------
TW INC. (the "Corporation"), a corporation organized and existing by virtue
of the General Corporation Law of the State of Delaware (the "DGCL"), does
hereby certify that the following resolution was duly adopted by action of the
Board of Directors of the Corporation (the "Board of Directors") at a meeting
duly held on [ ], 1996.
RESOLVED that pursuant to the authority expressly granted to and vested in
the Board of Directors by the provisions of Section 2 of Article IV of the
Restated Certificate of Incorporation of the Corporation, as amended from time
to time (the "Certificate of Incorporation"), and Section 151(g) of the DGCL,
the Board of Directors hereby creates, from the authorized shares of Preferred
Stock, par value $.10 per share ("Preferred Stock"), of the Corporation
authorized to be issued pursuant to the Certificate of Incorporation, a series
of Preferred Stock, and hereby fixes the voting powers, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, of the shares of such
series as follows:
The series of Preferred Stock hereby established shall consist of 7,000,000
shares designated as Series I
<PAGE>
2
Convertible Preferred Stock. The rights, preferences and limitations of such
series shall be as follows:
1. Definitions. As used herein, the following terms shall have the indicated
-----------
meanings:
1.1 "Accrued Dividend Amount" shall mean the aggregate amount of accrued
and unpaid dividends on a share of Series I Stock to and including the
Conversion Date, except that if the Conversion Date shall occur after a Record
Date and prior to a related Dividend Payment Date, the Accrued Dividend Amount
shall not include any accrued and unpaid dividends for the period from and after
the most recent Dividend Payment Date.
1.2 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.3 "Capital Stock" shall mean any and all shares of corporate stock of a
Person (however designated and whether representing rights to vote, rights to
participate in dividends or distributions upon liquidation or otherwise with
respect to such Person, or any division or subsidiary thereof, or any joint
venture, partnership, corporation or other entity).
1.4 "Certificate" shall mean the certificate of the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of Series I
Convertible Preferred Stock filed with respect to this resolution with the
Secretary of State of the State of Delaware pursuant to Section 151 of the DGCL.
1.5 "Change of Control" and "Change of Control Date" shall have the
following meanings: "Change of Control" shall mean the occurrence of one or both
of the following events: (a) individuals who would constitute a majority of the
members of the Board of Directors elected at any meeting of stockholders or by
written consent (without regard to any members of the Board of Directors elected
pursuant to the terms of any series of Preferred Stock) shall be elected to the
Board of Directors and the election or the nomination for election by the
Corporation's stockholders of such directors was not approved by a vote of
<PAGE>
3
at least a majority of the directors in office immediately prior to such
election (in which event "Change of Control Date" shall mean the date of such
election) or (b) a Person or group of Persons acting in concert as a
partnership, limited partnership, syndicate or other group within the meaning of
Rule 13d-3 under the Exchange Act (the "Acquiring Person") shall, as a result of
a tender or exchange offer, open market purchases, privately negotiated
purchases, share repurchases or redemptions or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
40% or more of the outstanding shares of Common Stock (in which event "Change of
Control Date" shall mean the date of the event resulting in such 40% ownership).
1.6 "Closing Price" of the Common Stock shall mean the last reported sale
price of the Common Stock (regular way) as shown on the Composite Tape of the
NYSE, 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 the Common Stock is not listed
or admitted to trading on the NYSE, on the principal national securities
exchange on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securities exchange, the last
reported sale price of the Common Stock, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, in either case as
reported by NASDAQ.
1.7 "Common Dividend Deficiency" shall be applicable in the event that a
Conversion Date shall fall after a record date and prior to the related payment
date for a regularly scheduled cash dividend on the Common Stock (the "Common
Dividend Payment Date"), and in such event shall mean the product of (i) the
Conversion Rate, (ii) the amount per share of Common Stock of the regularly
scheduled cash dividend for which the record date has been set but a payment
date has not yet occurred and (ii) a fraction (A) the numerator of which is the
number of calendar days from and excluding the Conversion Date (or in the event
the Conversion Date falls after a Record Date and on or prior to a related
Dividend Payment Date, from and excluding the Dividend Payment Date) to and
including the Common Dividend Payment Date and (B) the denominator of which is
91 (provided that such fraction shall not be greater than one (1)).
1.8 "Common Dividend Excess" shall be applicable in all circumstances
where a Common Dividend
<PAGE>
4
Deficiency is not applicable, and in such event shall mean the product of (i)
the Conversion Rate, (ii) the regular quarterly cash dividend per share, if any,
paid by the Corporation on the Common Stock (the "Historical Dividend") on the
most recent dividend payment date for the Common Stock (the "Prior Dividend
Payment Date") occurring during the four months immediately preceding the
Conversion Date and (iii) a fraction (A) the numerator of which is the number of
calendar days from and excluding (1) the Prior Dividend Payment Date to and
including (2) the Conversion Date (or in the event the Conversion Date falls
after a Record Date and on or prior to a related Dividend Payment Date, to and
including the Dividend Payment Date) and (B) the denominator of which is 91 days
(provided that in no event shall the fraction be greater than one (1)).
1.9 "Common Stock" shall mean the class of Common Stock, par value $.01
per share, of the Corporation authorized at the date of the Certificate, or any
other class of stock resulting from (x) successive changes or reclassifications
of such Common Stock consisting of changes in par value, or from par value to no
par value, (y) a subdivision or combination or (z) any other changes for which
an adjustment is made under Section 3.6(a), and in any such case including any
shares thereof authorized after the date of the Certificate, together with any
associated rights to purchase other securities of the Corporation that are at
the time represented by the certificates representing such shares of Common
Stock.
1.10 "Conversion Date" shall have the meaning set forth in Section 3.5
hereof.
1.11 "Conversion Price" at any time shall mean the Liquidation Value per
share divided by the Conversion Rate in effect at such time (rounded to the
nearest one hundredth of a cent).
1.12 "Conversion Rate" shall have the meaning set forth in Section 3.1
hereof.
1.13 "Converting Holder" shall have the meaning set forth in Section 3.5
hereof.
1.14 "Corporation" shall mean TW Inc., a Delaware corporation, and any of
its successors by operation of law, including by merger, consolidation or sale
or
<PAGE>
5
conveyance of all or substantially all of its property and assets.
1.15 "Current Market Price" of the Common Stock on any date shall mean
the average of the daily Closing Prices per share of the Common Stock for the
five (5) consecutive Trading Days ending on the Trading Day immediately
preceding the applicable record date, conversion date, redemption date or
exchange date referred to in Section 3 or Section 4.
1.16 "Dividend Payment Date" shall have the meaning set forth in Section
2.1 hereof.
1.17 "DGCL" shall mean the General Corporation Law of the State of
Delaware.
1.18 "Exchange Act" shall mean Securities Exchange Act of 1934, as
amended.
1.19 "Exchange Price" shall have the meaning set forth in Section 4.1
hereof.
1.20 "Junior Stock" shall mean the Common Stock, the Series A Stock, the
Series LMC Stock, the Series LMCN-V Stock and the shares of any other class or
series of Capital Stock of the Corporation that, by the terms of the Certificate
of Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be junior to the
Series I Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
1.21 "Liquidation Value" shall have the meaning set forth in Section 7.1
hereof.
1.22 "NASDAQ" shall mean the Nasdaq Stock Market.
1.23 "Net Dividend Amount" shall have the meaning set forth in Section 3.1
hereof.
1.24 "NYSE" shall mean the New York Stock Exchange, Inc.
<PAGE>
6
1.25 "Parity Stock" shall mean the Series D Stock, the Series E Stock, the
Series F Stock, the Series G Stock, the Series H Stock, the Series J Stock, the
Series L Stock, the Series M Stock and the shares of any other class or series
of Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall, in the event that
the stated dividends thereon are not paid in full, be entitled to share ratably
with the Series I Stock in the payment of dividends, including accumulations, if
any, in accordance with the sums that would be payable on such shares if all
dividends were declared and paid in full, or shall, in the event that the
amounts payable thereon on liquidation are not paid in full, be entitled to
share ratably with the Series I Stock in any distribution of assets other than
by way of dividends in accordance with the sums that would be payable in such
distribution if all sums payable were discharged in full; provided, however,
-------- -------
that the term "Parity Stock" shall be deemed to refer (i) in Section 2.2 hereof,
to any stock that is Parity Stock in respect of dividend rights; (ii) in Section
7 hereof, to any stock that is Parity Stock in respect of the distribution of
assets; and (iii) in Sections 6.2 and 6.3 hereof, to any stock that is Parity
Stock in respect of either dividend rights or the distribution of assets and
that, pursuant to the Certificate of Incorporation or any instrument in which
the Board of Directors, acting pursuant to authority granted in the Certificate
of Incorporation, shall so designate, is entitled to vote with the holders of
Series I Stock.
1.26 "Person" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
1.27 "Preferred Stock" shall mean the class of Preferred Stock, par value
$.10 per share, of the Corporation authorized at the date of the Certificate,
including any shares thereof authorized after the date of the Certificate.
1.28 "Pro Rata Portion" shall have the meaning set forth in Section 5.6
hereof.
1.29 "Pro Rata Repurchase" shall mean the purchase of shares of Common
Stock by the Corporation or by
<PAGE>
7
any of its subsidiaries, whether for cash or other property or securities of the
Corporation, which purchase is subject to Section 13(e) of the Exchange Act or
is made pursuant to an offer made available to all holders of Common Stock, but
excluding any purchase made in open market transactions that satisfies the
conditions of clause (b) of Rule 10b-18 under the Exchange Act or has been
designed (as reasonably determined by the Board of Directors) to prevent such
purchase from having a material effect on the trading market of the Common
Stock. The "Effective Date" of a Pro Rata Repurchase shall mean the applicable
expiration date (including all extensions thereof) of any tender or exchange
offer that is a Pro Rata Repurchase or the date of purchase with respect to any
Pro Rata Repurchase that is not a tender or exchange offer.
1.30 "Record Date" shall have the meaning set forth in Section 2.1 hereof.
1.31 "Redemption Price" shall have the meaning set forth in Section 4.1
hereof.
1.32 "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 are
registered and listed for trading (or, if shares of Common Stock are not
registered and listed for trading on any such exchange, in the over-the-counter
market) for more than six-and-one-half (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
shares of this Series 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
earlier of (x) the time and date fixed for redemption in such notice and (y) the
time and date at which the Corporation shall have irrevocably deposited funds
with a designated bank or trust company pursuant to Section 4.4 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 notice of redemption is given, 20%),
measured from the close of
<PAGE>
8
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 on or prior to the
earlier of the dates specified in clauses (x) and (y) above, (c) a declaration
of a banking moratorium or any suspension of payments in respect of banks by
Federal or state 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 that in the reasonable judgment of the
Corporation could have a material adverse effect on the market for the Common
Stock.
1.33 "Rescission Date" shall have the meaning set forth in Section 4.5
hereof.
1.34 "Senior Stock" shall mean the shares of any class or series of
Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series I Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
1.35 "Series A Stock" shall mean the series of Preferred Stock authorized
and designated as Series A Participating Preferred Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.36 "Series D Stock" shall mean the series of Preferred Stock authorized
and designated as Series D Convertible Preferred Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.37 "Series E Stock" shall mean the series of Preferred Stock authorized
and designated as Series E Convertible Preferred Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.38 "Series F Stock" shall mean the series of Preferred Stock authorized
and designated as Series F
<PAGE>
9
Convertible Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after the date of the Certificate.
1.39 "Series G Stock" shall mean the series of Preferred Stock authorized
and designated as Series G Convertible Preferred Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.40 "Series H Stock" shall mean the series of Preferred Stock authorized
and designated as Series H Convertible Preferred Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.41 "Series I Stock" and "this Series" shall mean the series of Preferred
Stock authorized and designated as the Series I Convertible Preferred Stock,
including any shares thereof authorized and designated after the date of the
Certificate
1.42 "Series J Stock" shall mean the series of Preferred Stock authorized
and designated as Series J Convertible Preferred Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.43 "Series L Stock" shall mean the series of Preferred Stock authorized
and designated as 10-1/4% Series L Exchangeable Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.44 "Series LMC Stock" shall mean the series of Series Common Stock
authorized and designated as Series LMC Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.45 "Series LMCN-V Stock" shall mean the series of Series Common Stock
authorized and designated as Series LMCN-V Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.46 "Series M Stock" shall mean the series of Preferred Stock authorized
and designated as 10-1/4%
<PAGE>
10
Series M Exchangeable Preferred Stock at the date of the Certificate, including
any shares thereof authorized and designated after the date of the Certificate.
1.47 "Surrendered Shares" shall have the meaning set forth in Section 3.5
hereof.
1.48 "Trading Day" shall mean, so long as the Common Stock 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 is not listed or admitted to
trading on the NYSE, a day on which the principal national securities exchange
on which the Common Stock is listed is open for the transaction of business, or,
if the Common Stock 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.
2. Cash Dividends.
--------------
2.1 The holders of the outstanding Series I Stock shall be entitled to
receive quarter-annual dividends, as and when declared by the Board of Directors
out of funds legally available therefor. Each quarter-annual dividend shall be
an amount per share equal to (i) in the case of each Dividend Payment Date (as
defined below) occurring on or prior to October 2, 1999, the greater of (A)
$.9375 per $100 of Liquidation Value of Series I Stock (which is equivalent to
$3.75 per annum), and (B) an amount per $100 of Liquidation Value of Series I
Stock equal to the product of (1) the Conversion Rate and (2) the aggregate per
share amount of regularly scheduled dividends paid in cash on the Common Stock
during the period from but excluding the immediately preceding Dividend Payment
Date to and including such Dividend Payment Date (the "Preferred Dividend
Amount"), and (ii) in the case of each Dividend Payment Date occurring
thereafter, an amount per $100 of Liquidation Value of Series I Stock equal to
the product of (1) the Conversion Rate and (2) the aggregate per share amount of
regularly scheduled dividends paid in cash on the Common Stock during the period
from but excluding the immediately preceding Dividend Payment Date to and
including such Dividend Payment Date. All dividends shall be payable in cash on
or about the first day of March, June, September and December in each year,
beginning on the first such date that is more than 15 days after the date of
issuance of the relevant shares of Series I Stock, as fixed by the Board of
Directors, or such other dates as are fixed by the Board of
<PAGE>
11
Directors (provided that October 2, 1999, shall be a Dividend Payment Date)
(each a "Dividend Payment Date"), to the holders of record of Series I Stock at
the close of business on or about the Trading Day next preceding such first day
of March, June, September and December (or October 2, 1999) as the case may be,
as fixed by the Board of Directors, or such other dates as are fixed by the
Board of Directors (each a "Record Date"). Subject to the next sentence, in the
case of dividends payable in respect of periods prior to October 2, 1999, (i)
such dividends shall accrue on each share on a daily basis, whether or not there
are unrestricted funds legally available for the payment of such dividends and
whether or not earned or declared, and (ii) any such dividends that become
payable for any partial dividend period shall be computed on the basis of the
actual days elapsed in such period. Notwithstanding the preceding sentence, the
amount accruing and payable in respect of the first dividend on the Series I
Stock payable after the date of the Certificate shall equal the Preferred
Dividend Amount. From and after October 2, 1999, dividends on the Series I
Stock (determined as to amount as provided herein) shall accrue to the extent,
but only to the extent, that regularly scheduled cash dividends are declared by
the Board of Directors on the Common Stock with a payment date after October 2,
1999 (or, in the case of Series I Stock originally issued after October 2, 1999,
after the Dividend Payment Date next preceding such date of original issuance).
All dividends that accrue in accordance with the foregoing provisions shall be
cumulative from and after the day immediately succeeding the date of issuance of
the relevant shares of Series I Stock. The amount payable to each holder of
record on any Dividend Payment Date shall be rounded to the nearest cent.
2.2 Except as hereinafter provided in this Section 2.2, unless all
dividends on the outstanding shares of Series I Stock and any Parity Stock that
shall have accrued and become payable as of any date shall have been paid, or
declared and funds set apart for payment thereof, no dividend or other
distribution (payable other than in shares of Junior Stock) shall be paid to the
holders of Junior Stock or Parity Stock, and no shares of Series I Stock, Parity
Stock or Junior Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries (except by conversion into or exchange
for Junior Stock), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund for the purchase or redemption of any
Series I Stock, Junior Stock
<PAGE>
12
or Parity Stock. When dividends are not paid in full upon the shares of this
Series and any Parity Stock, all dividends declared upon shares of this Series
and all Parity Stock shall be declared pro rata so that the amount of dividends
declared per share on this Series and all such Parity Stock shall in all cases
bear to each other the same ratio that accrued dividends per share on the shares
of this Series and all such Parity Stock bear to each other. No interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on this Series that may be in arrears.
2.3 In case the Corporation shall at any time distribute (other than a
distribution in liquidation of the Corporation) to the holders of its shares of
Common Stock any assets or property, including debt or equity securities of the
Corporation (other than Common Stock subject to a distribution or
reclassification covered by Section 3.6(a)) or of any other Person (including
common stock of such Person) or cash (but excluding regularly scheduled cash
dividends payable on shares of Common Stock), or in case the Corporation shall
at any time distribute (other than a distribution in liquidation of the
Corporation) to such holders rights, options or warrants to subscribe for or
purchase shares of Common Stock (including shares held in the treasury of the
Corporation), or rights, options or warrants to subscribe for or purchase any
other security or rights, options or warrants to subscribe for or purchase any
assets or property (in each case, whether of the Corporation or otherwise, but
other than any distribution of rights to purchase securities of the Corporation
if the holder of shares of this Series would otherwise be entitled to receive
such rights upon conversion of shares of this Series for Common Stock; provided,
--------
however, that if such rights are subsequently redeemed by the Corporation, such
- -------
redemption shall be treated for purposes of this Section 2.3 as a cash dividend
(but not a regularly scheduled cash dividend) on the Common Stock), the
Corporation shall simultaneously distribute such assets, property, securities,
rights, options or warrants pro rata to the holders of Series I Stock on the
record date fixed for determining holders of Common Stock entitled to
participate in such distribution (or, if no such record date shall be
established, the effective time thereof) in an amount equal to the amount that
such holders of Series I Stock would have been entitled to receive had their
shares of Series I Stock been converted into Common Stock immediately prior to
such record date (or effective time).
<PAGE>
13
In the event of a distribution to holders of Series I Stock pursuant to this
Section 2.3, such holders shall be entitled to receive fractional shares or
interests only to the extent that holders of Common Stock are entitled to
receive the same. The holders of Series I Stock on the applicable record date
(or effective time) shall be entitled to receive in lieu of such fractional
shares or interests the same consideration as is payable to holders of Common
Stock with respect thereto. If there are no fractional shares or interests
payable to holders of Common Stock, the holders of Series I Stock on the
applicable record date (or effective time) shall receive in lieu of such
fractional shares or interests the fair value thereof as determined by the Board
of Directors.
2.4 If a distribution is made in accordance with the provisions of Section
2.3, anything in Section 3 to the contrary notwithstanding, no adjustment
pursuant to Section 3 shall be effected by reason of the distribution of such
assets, property, securities, rights, options or warrants or the subsequent
modification, exercise, expiration or termination of such securities, rights,
options or warrants.
2.5 In the event that the holders of Common Stock are entitled to make any
election with respect to the kind or amount of securities or other property
receivable by them in any distribution that is subject to Section 2.3, the kind
and amount of securities or other property that shall be distributable to the
holders of the Series I Stock shall be based on (i) the election, if any, made
by the record holder (as of the date used for determining the holders of Common
Stock entitled to make such election) of the largest number of shares of Series
I Stock in writing to the Corporation on or prior to the last date on which a
holder of Common Stock may make such an election or (ii) if no such election is
timely made, an assumption that such holder failed to exercise any such rights
(provided that if the kind or amount of securities or other property is not the
same for each nonelecting holder, then the kind and amount of securities or
other property receivable by holders of the Series I Stock shall be based on the
kind or amount of securities or other property receivable by a plurality of
shares held by the nonelecting holders of Common Stock). Concurrently with the
mailing to holders of Common Stock of any document pursuant to which such
holders may make an election of the type referred to in this Section, the
Corporation shall mail a copy thereof to the record holders
<PAGE>
14
of the Series I Stock as of the date used for determining the holders of record
of Common Stock entitled to such mailing.
3. Conversion Rights.
-----------------
3.1 Each holder of a share of this Series shall have the right at any time
or as to any share of this Series called for redemption or exchange, at any time
prior to the close of business on the date fixed for redemption or exchange
(unless the Corporation defaults in the payment of the Redemption Price or fails
to exchange the shares of this Series for the applicable number of shares of
Common Stock and any cash portion of the Exchange Price or exercises its right
to rescind such redemption pursuant to Section 4.5, in which case such right
shall not terminate at the close of business on such date), to convert such
share into (i) a number of shares of Common Stock equal to 2.08264 shares of
Common Stock for each share of this Series, subject to adjustment as provided in
this Section 3 (such rate, as so adjusted from time to time, is herein called
the "Conversion Rate") plus (ii) a number of shares of Common Stock equal to
(A) (1) the Accrued Dividend Amount minus (2) the Common
-----
Dividend Excess, if applicable, or plus (3) the Common Dividend Deficiency,
----
if applicable (the "Net Dividend Amount"), divided by
-------
(B) the Closing Price of the Common Stock on the last Trading
Day prior to the Conversion Date;
provided, however, that in the event that the Net Dividend Amount is a negative
- -------- -------
number, the number of shares deliverable upon conversion of a share of Series I
Stock shall be equal to
(I) the number of shares determined pursuant to clause (i) minus
-----
(II) a number of shares equal to (x) the absolute value of the
Net Dividend Amount divided by (y) the Closing Price of the Common Stock on
----------
the last Trading Day prior to the Conversion Date;
and provided further that, in the event that the Net Dividend Amount is a
- -------------------------
positive number, the Corporation shall have the right to deliver cash equal to
the Net Dividend
<PAGE>
15
Amount or any portion thereof, in which case its obligation to deliver shares of
Common Stock pursuant to clause (ii) shall be reduced by a number of shares
equal to (x) the aggregate amount of cash so delivered divided by (y) the
----------
Closing Price of the Common Stock on the last Trading Day prior to the
Conversion Date, unless the Corporation shall deliver cash equal to the entire
Net Dividend Amount, in which case its entire obligation under clause (ii) shall
be discharged. The obligations of the Corporation to issue the Common Stock or
make the cash payments provided by this Section 3.1 shall be absolute whether or
not any accrued dividend by which such issuance or payment is measured has been
declared by the Board of Directors and whether or not the Corporation would have
adequate surplus or net profits to pay such dividend if declared or is otherwise
restricted from making such dividend.
3.2 Except as provided in this Section 3, no adjustments in respect of
payments of dividends on shares surrendered for conversion or any dividend on
the Common Stock issued upon conversion shall be made upon the conversion of any
shares of this Series (it being understood that if the Conversion Date for
shares of Series I Stock occurs after a Record Date and on or prior to a
Dividend Payment Date, the holder of record on such Record Date shall be
entitled to receive the dividend payable with respect to such shares on the
related Dividend Payment Date pursuant to Section 2.1 hereof).
3.3 The Corporation may, but shall not be required to, in connection with
any conversion of shares of this Series, issue a fraction of a share of Common
Stock, and if the Corporation shall determine not to issue any such fraction,
the Corporation shall, subject to Section 3.6(c), make a cash payment (rounded
to the nearest cent) equal to such fraction multiplied by the Closing Price of
the Common Stock on the last Trading Day prior to the Conversion Date.
3.4 Any holder of shares of this Series electing to convert such shares
into Common Stock shall surrender the certificate or certificates for such
shares at the office of the transfer agent or agents therefor (or at such other
place as the Corporation may designate by notice to the holders of shares of
this Series) during regular business hours, duly endorsed to the Corporation or
in blank, or accompanied by instruments of transfer to the Corporation or in
blank, or in form satisfactory to the Corporation, and shall give written notice
to the
<PAGE>
16
Corporation at such office that such holder elects to convert such shares of
this Series. The Corporation shall, as soon as practicable (subject to Section
3.6(d)) after such deposit of certificates for shares of this Series,
accompanied by the written notice above prescribed, issue and deliver at such
office to the holder for whose account such shares were surrendered, or to his
nominee, certificates representing the number of shares of Common Stock and the
cash, if any, to which such holder is entitled upon such conversion.
3.5 Conversion shall be deemed to have been made as of the date (the
"Conversion Date") that certificates for the shares of this Series to be
converted, and the written notice prescribed in Section 3.4 are received by the
transfer agent or agents for this Series; and the Person entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such Common Stock on such date. Notwithstanding anything
to the contrary contained herein, in the event the Corporation shall have
rescinded a redemption of shares of this Series pursuant to Section 4.5, any
holder of shares of this Series that shall have surrendered shares of this
Series for conversion following the day on which notice of the subsequently
rescinded redemption shall have been given but prior to the close of business on
the later of (a) the Trading Day next succeeding the date on which public
announcement of the rescission of such redemption shall have been made and (b)
the Trading Day on which the notice of rescission required by Section 4.5 is
deemed given pursuant to Section 8.2 (a "Converting Holder"), may rescind the
conversion of such shares surrendered for conversion by (i) properly completing
a form prescribed by the Corporation and mailed to holders of shares of this
Series (including Converting Holders) with the Corporation'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 Exchange Act) of shares of this Series that the
beneficial ownership (within the meaning of such Rule) of such shares shall not
have changed from the date on which such shares were surrendered for conversion
to the date of such certification and (ii) delivering such form to the
Corporation no later than the close of business on that date which is ten (10)
Trading Days following the date on which the Corporation's notice of rescission
is deemed given pursuant to Section 8.2. The delivery of such form by a
Converting Holder shall be
<PAGE>
17
accompanied by (x) any certificates representing shares of Common Stock issued
to such Converting Holder upon a conversion of shares of this Series that shall
be rescinded by the proper delivery of such form (the "Surrendered Shares"), (y)
any securities, evidences of indebtedness or assets (other than cash)
distributed by the Corporation to such Converting Holder by reason of such
Converting Holder's being a record holder of Surrendered Shares and (z) payment
in New York Clearing House funds or other funds acceptable to the Corporation of
an amount equal to the sum of (I) any cash such Converting Holder may have
received in lieu of the issuance of fractional shares upon conversion and (II)
any cash paid or payable by the Corporation to such Converting Holder by reason
of such Converting Holder being a record holder of Surrendered Shares. Upon
receipt by the Corporation 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 or made by such Converting Holder to the
Corporation as set forth above, the Corporation shall instruct the transfer
agent or agents for shares of Common Stock and shares of this Series to cancel
any certificates representing Surrendered Shares (which Surrendered Shares shall
be deposited in the treasury of the Corporation) and reissue certificates
representing shares of this Series to such Converting Holder (which shares of
this Series shall be deemed to have been outstanding at all times during the
period following their surrender for conversion). The Corporation shall, as
promptly as practicable, and in no event more than five (5) 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 or made, pay to the Converting Holder or as otherwise
directed by such Converting Holder any dividend or other payment made on such
shares during the period from the time such shares shall have been surrendered
for conversion to the rescission of such conversion. All questions as to the
validity, form, eligibility (including time or receipt) and acceptance of any
form submitted to the Corporation to rescind the conversion of shares of this
Series, including questions as to the proper completion or execution of any such
form or any certification contained therein, shall be resolved by the
Corporation, whose determination shall be final and binding. The Corporation
shall not be required to deliver certificates for shares of Common Stock while
the stock transfer books for such stock or for this Series are duly closed for
any purpose or during any period commencing at a
<PAGE>
18
Redemption Rescission Event and ending at either (i) the time and date at which
the Corporation's right of rescission shall expire pursuant to Section 4.5 if
the Corporation shall not have exercised such right or (ii) the close of
business on that day which is ten (10) Trading Days following the date on which
notice of rescission pursuant to Section 4.4 is deemed given pursuant to Section
8.2 if the Corporation shall have exercised such right of rescission, but
certificates for shares of Common Stock shall be delivered as soon as
practicable after the opening of such books or the expiration of such period.
3.6 The Conversion Rate shall be adjusted from time to time as follows for
events occurring after the date of the Certificate:
(a) In case the Corporation shall, at any time or from time to
time while any of the Series I Stock is outstanding, (i) pay a dividend in
shares of its Common Stock, (ii) combine its outstanding shares of Common
Stock into a smaller number of shares, (iii) subdivide its outstanding
shares of Common Stock or (iv) reclassify (other than by way of a merger
that is subject to Section 3.7) its shares of Common Stock, then the
Conversion Rate in effect immediately before such action shall be adjusted
so that immediately following such event the holders of the Series I Stock
shall be entitled to receive upon conversion or exchange thereof the kind
and amount of shares of Capital Stock of the Corporation that they would
have owned or been entitled to receive upon or by reason of such event if
such shares of Series I Stock had been converted or exchanged immediately
before the record date (or, if no record date, the effective date) for such
event (it being understood that any distribution of cash or of Capital
Stock (other than Common Stock), including any distribution of Capital
Stock (other than Common Stock) that shall accompany a reclassification of
the Common Stock, shall be subject to Section 2.3 rather than this Section
3.6(a)). An adjustment made pursuant to this Section 3.6(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 3.6(a),
in the event that the holders of Common Stock are entitled to make any
election with respect to
<PAGE>
19
the kind or amount of securities receivable by them in any transaction that
is subject to this Section 3.6(a) (including any election that would result
in all or a portion of the transaction becoming subject to Section 2.3),
the kind and amount of securities that shall be distributable to the
holders of the Series I Stock shall be based on (i) the election, if any,
made by the record holder (as of the date used for determining the holders
of Common Stock entitled to make such election) of the largest number of
shares of Series I Stock in writing to the Corporation on or prior to the
last date on which a holder of Common Stock may make such an election or
(ii) if no such election is timely made, an assumption that such holder
failed to exercise any such rights (provided that if the kind or amount of
securities is not the same for each nonelecting holder, then the kind and
amount of securities receivable shall be based on the kind or amount of
securities receivable by a plurality of nonelecting holders of Common
Stock). Concurrently with the mailing to holders of Common Stock of any
document pursuant to which such holders may make an election of the type
referred to in this Section, the Corporation shall mail a copy thereof to
the record holders of the Series I Stock as of the date used for
determining the holders of record of Common Stock entitled to such mailing.
(b) In case a Change of Control shall occur, the Conversion Rate
in effect immediately prior to the Change of Control Date shall be
increased (but not decreased) by multiplying such rate by a fraction as
follows: (i) in the case of a Change of Control specified in Section
1.5(a), a fraction in which the numerator is the Conversion Price prior to
adjustment pursuant hereto and the denominator is the Current Market Price
of the Common Stock at the Change of Control Date, (ii) in the case of a
Change of Control specified in Section 1.5(b), the greater of the following
fractions: (x) a fraction the numerator of which is the highest price per
share of Common Stock paid by the Acquiring Person in connection with the
transaction giving rise to the Change of Control or in any transaction
within six months prior to or after the Change of Control Date (the
"Highest Price"), and the denominator of which is the Current Market Price
of the Common Stock as of the date (but not earlier than six months prior
to the Change of Control Date) on which the first public announcement is
made by the
<PAGE>
20
Acquiring Person that it intends to acquire or that it has acquired 40% or
more of the outstanding shares of Common Stock (the "Announcement Date") or
(y) a fraction the numerator of which is the Conversion Price prior to
adjustment pursuant hereto and the denominator of which is the Current
Market Price of the Common Stock on the Announcement Date and (iii) in the
case where there co-exists a Change of Control specified in both Section
1.5(a) and Section 1.5(b), the greatest of the fractions determined
pursuant to clauses (i) and (ii). Such adjustment shall become effective
immediately after the Change of Control Date and shall be made, in the case
of clauses (ii) and (iii) above, successively for six months thereafter in
the event and at the time of any increase in the Highest Price after the
Change of Control Date; provided, however, that no such successive
-------- -------
adjustment shall be made with respect to the Conversion Rate of the shares
of this Series in respect of any event occurring after the Conversion Date.
(c) The Corporation shall be entitled to make such additional
adjustments in the Conversion Rate, in addition to those required by
subsections 3.6(a) and 3.6(b), as shall be necessary in order that any
dividend or distribution in Common Stock or any subdivision,
reclassification or combination of shares of Common Stock referred to
above, shall not be taxable to the holders of Common Stock for United
States Federal income tax purposes so long as such additional adjustments
pursuant to this Section 3.6(c) do not decrease the Conversion Rate.
(d) In any case in which this Section 3.6 shall require that any
adjustment be made effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for five (5)
Trading Days following the occurrence of the event that necessitates the
filing of the statement referred to in Section 3.6(f)) issuing to the
holder of any shares of this Series converted after such record date (i)
the shares of Common Stock and other Capital Stock of the Corporation
issuable upon such conversion over and above (ii) the shares of Common
Stock and other Capital Stock of the Corporation issuable upon such
conversion on the basis of the Conversion Rate prior to adjustment;
provided, however, that the Corporation shall deliver to such holder a due
-------- -------
<PAGE>
21
bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring
such adjustment.
(e) All calculations under this Section 3 shall be made to the
nearest cent, one-hundredth of a share or, in the case of the Conversion
Rate, one hundred-thousandth. Notwithstanding any other provision of this
Section 3, the Corporation shall not be required to make any adjustment of
the Conversion Rate unless such adjustment would require an increase or
decrease of at least 1.00000% of such Conversion Rate. Any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment that, together with any
adjustment or adjustments so carried forward, shall amount to an increase
or decrease of at least 1.00000% in such rate. Any adjustments under this
Section 3 shall be made successively whenever an event requiring such an
adjustment occurs.
(f) Whenever an adjustment in the Conversion Rate is required,
the Corporation shall forthwith place on file with its transfer agent or
agents for this Series a statement signed by a duly authorized officer of
the Corporation, stating the adjusted Conversion Rate determined as
provided herein. Such statements shall set forth in reasonable detail such
facts as shall be necessary to show the reason for and the manner of
computing such adjustment. Promptly after the adjustment of the Conversion
Rate, the Corporation shall mail a notice thereof to each holder of shares
of this Series.
(g) In the event that at any time as a result of an adjustment
made pursuant to this Section 3, the holder of any share of this Series
thereafter surrendered for conversion shall become entitled to receive any
shares of Capital Stock of the Corporation other than shares of Common
Stock, the conversion rate of such other shares so receivable upon
conversion of any such share of this Series 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 contained in
subparagraphs (a) through (f) and (h) of this Section 3.6, and the
provisions of Section 3.1 through 3.5 and 3.7 through 3.10 shall apply on
like or similar
<PAGE>
22
terms to any such other shares 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 3.6 (i)
if the effect thereof would be to reduce the Conversion Price below the par
value of the Common Stock or (ii) subject to Section 3.6(c) hereof, with
respect to any share of Series I Stock that is converted, prior to the time
such adjustment otherwise would be made.
3.7 In case after the date of the Certificate (a) any consolidation or
merger to which the Corporation is a party, other than a merger or consolidation
in which the Corporation is the surviving or continuing corporation and that
does not result in any 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,
or as a result of a subdivision or combination) in, outstanding shares of Common
Stock or (b) any sale or conveyance of all or substantially all of the property
and assets of the Corporation, then lawful provision shall be made as part of
the terms of such transaction whereby the holder of each share of Series I Stock
shall have the right thereafter, during the period such share shall be
convertible or exchangeable, to convert such share into or have such share
exchanged for the kind and amount of shares of stock or other securities and
property receivable upon such consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock into which such shares of this
Series could have been converted or exchanged immediately prior to such
consolidation, merger, sale or conveyance, subject to adjustment that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 3 (based on (i) the election, if any, made in writing to the
Corporation by the record holder (as of the date used for determining holders of
Common Stock entitled to make such election) of the largest number of shares of
Series I Stock on or prior to the last date on which a holder of Common Stock
may make an election regarding the kind or amount of securities or other
property receivable by such holder in such transaction or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable shall be based
<PAGE>
23
upon the kind and amount of securities or other property receivable by a
plurality of the nonelecting holders of Common Stock)). In the event that any
of the transactions referred to in clauses (a) or (b) involves the distribution
of cash (or property other than equity securities) to a holder of Common Stock,
lawful provision shall be made as part of the terms of the transaction whereby
the holder of each share of Series I Stock on the record date fixed for
determining holders of Common Stock entitled to receive such cash or property
(or if no such record date is established, the effective date of such
transaction) shall be entitled to receive the amount of cash or property that
such holder would have been entitled to receive had such holder converted his
shares of Series I Stock into Common Stock immediately prior to such record date
(or effective date) (based on the election or nonelection made by the record
holder of the largest number of shares of Series I Stock, as provided above).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election regarding the kind or amount
of securities or other property that will be receivable by such holder in any
transaction described in clause (a) or (b) of the first sentence of this Section
3.7, the Corporation shall mail a copy thereof to the holders of the Series I
Stock as of the date used for determining the holders of record of Common Stock
entitled to such mailing. The Corporation shall not enter into any of the
transactions referred to in clauses (a) or (b) of the preceding sentence unless
effective provision shall be made in the certificate or articles of
incorporation or other constituent documents of the Corporation or the entity
surviving the consolidation or merger, if other than the Corporation, or the
entity acquiring the Corporation's assets, as the case may be, so as to give
effect to the provisions set forth in this Section 3.7. The provisions of this
Section 3.7 shall apply similarly to successive consolidations, mergers, sales
or conveyances. For purposes of this Section 3.7 the term "Corporation" shall
refer to the Corporation (as defined in Section 1.14) as constituted immediately
prior to the merger, consolidation or other transaction referred to in this
Section.
3.8 The Corporation shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued stock, for the
purpose of effecting the conversion of the shares of this Series, such number of
its duly authorized shares of Common Stock (or, if applicable, any other shares
of Capital Stock of the
<PAGE>
24
Corporation) as shall from time to time be sufficient to effect the conversion
of all outstanding shares of this Series into such Common Stock (or such other
shares of Capital Stock) at any time (assuming that, at the time of the
computation of such number of shares, all such Common Stock (or such other
shares of Capital Stock) would be held by a single holder); provided, however,
-------- -------
that nothing contained herein shall preclude the Corporation from satisfying its
obligations in respect of the conversion of the shares by delivery of purchased
shares of Common Stock (or such other shares of Capital Stock) that are held in
the treasury of the Corporation. All shares of Common Stock (or such other
shares of Capital Stock of the Corporation) that shall be deliverable upon
conversion of the shares of this Series shall be duly and validly issued, fully
paid and nonassessable. For purposes of this Section 3, any shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Corporation.
3.9 If any shares of Common Stock or other shares of Capital Stock of
the Corporation that would be issuable upon conversion of shares of this Series
hereunder require registration with or approval of any governmental authority
before such shares may be issued upon conversion, the Corporation will in good
faith and as expeditiously as possible cause such shares to be duly registered
or approved, as the case may be. The Corporation will use commercially
reasonable efforts to list the shares of (or depositary shares representing
fractional interests in) Common Stock or other shares of Capital Stock of the
Corporation required to be delivered upon conversion of shares of this Series
prior to such delivery upon the principal national securities exchange upon
which the outstanding Common Stock or such other shares of Capital Stock is
listed at the time of such delivery.
3.10 The Corporation shall pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock or
other shares of Capital Stock of the Corporation on conversion of shares of this
Series pursuant hereto. The Corporation shall not, however, be required to pay
any tax that is payable in respect of any transfer involved in the issue or
delivery of Common Stock or such other shares of Capital Stock in a name other
than that in which the shares of this Series 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 Corporation the amount of such tax, or
<PAGE>
25
has established, to the satisfaction of the Corporation, that such tax has been
paid.
3.11 In case of (i) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, (ii) any Pro Rata Repurchase or
(iii) any action triggering an adjustment to the Conversion Rate pursuant to
this Section 3, then, in each case, the Corporation shall cause to be filed with
the transfer agent or agents for the Series I Stock, and shall cause to be
mailed, first-class postage prepaid, to the holders of record of the outstanding
shares of Series I Stock, at least fifteen (15) days prior to the applicable
record date for any such transaction (or if no record date will be established,
the effective date thereof), a notice stating (x) the date, if any, on which a
record is to be taken for the purpose of any such transaction (or if no record
date will be established, the date as of which holders of record of Common Stock
entitled to participate in such transaction are determined), and (y) the
expected effective date thereof. Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in this Section 3.11.
4. Redemption or Exchange.
----------------------
4.1 (a) The Corporation may, at its sole option, subject to Section
2.2 hereof, from time to time on and after October 2, 1999, redeem, out of funds
legally available therefor, or, as provided below, exchange shares of Common
Stock for, all or (in the case of Section 4.1(b)(i), any part) of the
outstanding shares of this Series. The redemption price for each share of this
Series called for redemption pursuant to clause (i) of Section 4.1(b) shall be
the Liquidation Value together with an amount equal to the accrued and unpaid
dividends to the date fixed for redemption (hereinafter collectively referred to
as the "Redemption Price"). The exchange price for each share of this Series
called for exchange pursuant to clause (ii) of Section 4.1(b) shall be a number
of shares of Common Stock equal to the Conversion Rate, together with, at the
option of the Corporation, either (x) cash or (y) a number of shares of Common
Stock, valued at the Closing Price on the Trading Day immediately preceding the
date fixed for exchange, equal, in either case, to the aggregate amount of
accrued and unpaid dividends on the Series I Stock to the date fixed for
exchange (provided that any dividends
<PAGE>
26
that are in arrears must be paid in cash) (hereinafter collectively referred to
as the "Exchange Price").
(b) On the date fixed for redemption or exchange the
Corporation shall, at its option, effect either
(i) a redemption of the shares of this Series to be
redeemed by way of payment, out of funds legally available therefor, of
cash equal to the aggregate Redemption Price for the shares of this Series
then being redeemed;
(ii) an exchange of the shares of this Series for the
Exchange Price in shares of Common Stock (provided that the Corporation (A)
---------
shall be entitled to deliver cash (1) in lieu of any fractional share of
Common Stock (determined in a manner consistent with Section 3.3) and (2)
equal to accrued and unpaid dividends to the date fixed for exchange in
lieu of shares of Common Stock and (B) shall be required to deliver cash in
respect of any dividends that are in arrears); or
(iii) any combination thereof with respect to each
share of this Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and (iii) of Section 4.1(b), the
Corporation shall be entitled to effect an exchange of shares of Series I Stock
for Common Stock or other shares of Capital Stock of the Corporation only to the
extent that duly and validly issued, fully paid and nonassessable shares of
Common Stock (or such other shares of Capital Stock) shall be available for
issuance (including delivery of previously issued shares of Common Stock held in
the Corporation's treasury on the date fixed for exchange). The Corporation
shall comply with Sections 3.9 and 3.10 with respect to shares of Common Stock
or other shares of Capital Stock of the Corporation that would be issuable upon
exchange of shares of this Series. Certificates for shares of Common Stock
issued in exchange for surrendered shares of this Series pursuant to this
Section 4.1 shall be made available by the Corporation not later than the fifth
Trading Day following the date for exchange.
4.2 In the event that fewer than all the outstanding shares of this
Series are to be redeemed
<PAGE>
27
pursuant to Section 4.1(b)(i), the number of shares to be redeemed from each
holder of shares of this Series shall be determined by the Corporation by lot or
pro rata or by any other method as may be determined by the Board of Directors
in its sole discretion to be equitable, and the certificate of the Corporation's
Secretary or an Assistant Secretary filed with the transfer agent or transfer
agents for this Series in respect of such determination by the Board of
Directors shall be conclusive.
4.3 In the event the Corporation shall redeem or exchange shares of
this Series pursuant to Section 4.1, notice of such redemption or exchange shall
be given by first class mail, postage prepaid, mailed not less than fifteen (15)
nor more than sixty (60) days prior to the date fixed for redemption or
exchange, as the case may be, to each record holder of the shares to be redeemed
or exchanged, at such holder's address as the same appears on the books of the
Corporation. Each such notice shall state: (i) whether the shares of this
Series are to be redeemed or exchanged; (ii) the time and date as of which the
redemption or exchange shall occur; (iii) the total number of shares of this
Series to be redeemed or exchanged and, if fewer than all the shares held by
such holder are to be redeemed, the number of such shares to be redeemed from
such holder; (iv) the Redemption Price or the Exchange Price, as the case may
be; (v) that shares of this Series called for redemption or exchange may be
converted at any time prior to the time and date fixed for redemption or
exchange (unless the Corporation shall, in the case of a redemption, default in
payment of the Redemption Price or, in the case of an exchange, fail to exchange
the shares of this Series for the applicable number of shares of Common Stock
and any cash portion of the Exchange Price or shall exercise its right to
rescind such redemption pursuant to Section 4.5, in which case such right of
conversion shall not terminate at such time and date); (vi) the applicable
Conversion Price and Conversion Rate; (vii) the place or places where
certificates for such shares are to be surrendered for payment of the Redemption
Price, in the case of redemption, or for delivery of certificates representing
the shares of Common Stock and the payment of any cash portion of the Exchange
Price, in the case of exchange; and (viii) that dividends on the shares of this
Series to be redeemed or exchanged will cease to accrue on such redemption or
exchange date.
<PAGE>
28
4.4 If notice of redemption or exchange shall have been given by the
Corporation as provided in Section 4.3, dividends on the shares of this Series
so called for redemption or exchange shall cease to accrue, such shares shall no
longer be deemed to be outstanding, and all rights of the holders thereof as
stockholders with respect to shares so called for redemption or exchange (except
(i) in the case of redemption, the right to receive from the Corporation the
Redemption Price without interest and in the case of exchange, the right to
receive from the Corporation the Exchange Price without interest and (ii) the
right to convert such shares in accordance with Section 3) shall cease
(including any right to receive dividends otherwise payable on any Dividend
Payment Date that would have occurred after the time and date of redemption or
exchange) either (i) in the case of a redemption or exchange pursuant to Section
4.1, from and after the time and date fixed in the notice of redemption or
exchange as the time and date of redemption or exchange (unless the Corporation
shall (x) in the case of a redemption, default in the payment of the Redemption
Price, (y) in the case of an exchange, fail to exchange the applicable number of
shares of Common Stock and any cash portion of the Exchange Price or (z)
exercise its right to rescind such redemption pursuant to Section 4.5, in which
case such rights shall not terminate at such time and date) or (ii) if the
Corporation shall so elect and state in the notice of redemption or exchange,
from and after the time and date (which date shall be the date fixed for
redemption or exchange or an earlier date not less than fifteen (15) days after
the date of mailing of the redemption or exchange notice) on which the
Corporation shall irrevocably deposit with a designated bank or trust company
doing business in the Borough of Manhattan, City and State of New York, as
paying agent, money sufficient to pay at the office of such paying agent, on the
redemption date, the Redemption Price, in the case of redemption, or
certificates representing the shares of Common Stock to be so exchanged and any
cash portion of the Exchange Price, in the case of an exchange. Any money or
certificates so deposited with any such paying agent that shall not be required
for such redemption or exchange because of the exercise of any right of
conversion or otherwise shall be returned to the Corporation forthwith. Upon
surrender (in accordance with the notice of redemption or exchange) of the
certificate or certificates for any shares of this Series to be so redeemed or
exchanged (properly endorsed or assigned for transfer, if the Corporation shall
so require and the notice of redemption or
<PAGE>
29
exchange shall so state), such shares shall be redeemed or exchanged by the
Corporation at the Redemption Price or the Exchange Price, as applicable, as set
forth in Section 4.1 (unless the Corporation shall have exercised its right to
rescind such redemption pursuant to Section 4.5). In case fewer than all the
shares represented by any such certificate are to be redeemed, a new certificate
shall be issued representing the unredeemed shares (or fractions thereof as
provided in Section 8.4), without cost to the holder thereof, together with the
amount of cash, if any, in lieu of fractional shares other than those issuable
in accordance with Section 8.4. Subject to applicable escheat laws, any moneys
so set aside by the Corporation in the case of redemption and unclaimed at the
end of one year from the redemption date shall revert to the general funds of
the Corporation, after which reversion the holders of such shares so called for
redemption or exchange shall look only to the general funds of the Corporation
for the payment of the Redemption Price or the Exchange Price, as applicable,
without interest. Any interest accrued on funds so deposited shall be paid to
the Corporation from time to time.
4.5 In the event that a Redemption Rescission Event shall occur
following any day on which a notice of redemption shall have been given pursuant
to Section 4.3 but at or prior to the earlier of (a) the time and date fixed for
redemption as set forth in such notice of redemption and (b) the time and date
at which the Corporation shall have irrevocably deposited funds or certificates
with a designated bank or trust company pursuant to Section 4.4, the Corporation
may, at its sole option, at any time prior to the earliest of (i) the close of
business on that day which is two (2) Trading Days following such Redemption
Rescission Event, (ii) the time and date fixed for redemption as set forth in
such notice and (iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or trust company,
rescind the redemption to which such notice of redemption shall have 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 Corporation 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 Corporation shall have no obligation to redeem
shares of
<PAGE>
30
this Series called for redemption pursuant to such notice of redemption or to
pay the redemption price therefor and all rights of holders of shares of this
Series shall be restored as if such notice of redemption had not been given.
The Corporation shall give notice of any such rescission by one of the means
specified in Section 8.2 as promptly as practicable, but in no event later than
the close of business on that date which is five (5) Trading Days following the
Rescission Date to each record holder of shares of this Series at the close of
business on the Rescission Date and to any other Person or entity that was a
record holder of shares of this Series and that shall have surrendered shares of
this Series for conversion following the giving of notice of the subsequently
rescinded redemption. Each notice of rescission shall (w) state that the
redemption described in the notice of redemption has been rescinded, (x) state
that any Converting Holder shall be entitled to rescind the conversion of shares
of this Series surrendered for conversion following the day on which notice of
redemption was given but prior to the close of business on the later of (1) the
Trading Day next succeeding the date on which public announcement of the
rescission of such redemption shall have been made and (2) the Trading Day on
which the Corporation's notice of rescission is deemed given pursuant to Section
8.2, (y) be accompanied by a form prescribed by the Corporation to be used by
any Converting Holder rescinding the conversion of shares so surrendered for
conversion (and instructions for the completion and delivery of such form,
including instructions with respect to payments that may be required to
accompany such delivery shall be in accordance with Section 3.5) and (z) state
that such form must be properly completed and received by the Corporation no
later than the close of business on a date that shall be ten (10) Trading Days
following the date of the mailing of such notice of rescission is deemed given
pursuant to Section 8.2.
4.6 The shares of this Series shall not be subject to the provisions
of Section 5 of Article IV of the Certificate of Incorporation.
5. Pro Rata Repurchase.
-------------------
5.1 Upon a Pro Rata Repurchase, each holder of shares of this Series
shall have the right to require that the Corporation repurchase, out of funds
legally available therefor, a Pro Rata Portion (as defined below) of the shares
of such holder, or any lesser number requested by
<PAGE>
31
the holder, at a price per share equal to the highest price per share of Common
Stock paid in the Pro Rata Repurchase multiplied by the Conversion Rate then in
effect plus an amount equal to the accrued but unpaid dividends on such shares
to the date of repurchase.
5.2 At any time prior to or within thirty (30) days following any Pro
Rata Repurchase, the Corporation shall mail a notice to each holder of shares of
this Series stating:
(a) that a Pro Rata Repurchase will occur or has occurred and
that such holder will have (upon such Pro Rata Repurchase) or has the right
to require the Corporation to repurchase such holder's shares in an amount
not in excess of the Pro Rata Portion at a repurchase price in cash
determined as set forth above plus an amount equal to accrued and unpaid
dividends, if any, to the date of repurchase;
(b) the repurchase date for the Series I Stock (which shall be
no earlier than fifteen (15) days nor later than sixty (60) days from the
date such notice is mailed); and
(c) the instructions determined by the Corporation, consistent
with this Section, that a holder must follow in order to have its shares
repurchased.
5.3 Holders electing to have any shares repurchased will be required
to surrender such shares, with an appropriate form duly completed, to the
Corporation at the address specified in the notice at least five (5) days prior
to the repurchase date. Holders will be entitled to withdraw their election if
the Corporation receives, not later than three (3) days prior to the repurchase
date, a telegram, telex, facsimile transmission or letter setting forth the name
of the holder, the certificate numbers of the shares delivered for purchase by
the holder and a statement that such holder is withdrawing his election to have
such shares repurchased. Holders will have such additional withdrawal and other
rights as may be required pursuant to applicable law.
5.4 On the repurchase date, the Corporation shall (i) pay the
repurchase price plus an amount equal to accrued and unpaid dividends as
provided in Section 5.1, if
<PAGE>
32
any, to the holders entitled thereto and (ii) issue to such holders any equity
securities of the Corporation (other than Common Stock) that would at the time
be issuable upon conversion of the shares of Series I Stock that are then being
repurchased pursuant hereto.
5.5 The Board of Directors will not approve any tender or exchange
offer by the Corporation or a third party for shares of Common Stock or
recommend that the holders of Common Stock accept any offer or tender their
shares into any offer unless a Pro Rata Portion of the shares of this Series of
all holders are entitled to be tendered into such offer at a price not less than
the price per share for shares of Common Stock pursuant to such offer multiplied
by the Conversion Rate then in effect plus an amount equal to accrued but unpaid
dividends on such shares to the date of payment for such shares in such tender
or exchange offer.
5.6 For purposes hereof, "Pro Rata Portion" with respect to the
shares of this Series held by any holder shall mean all the shares of this
Series then owned by such holder times a fraction, the numerator of which is the
number of outstanding shares of Common Stock (a) purchased in the applicable Pro
Rata Repurchase or (b) for which a tender or exchange offer referred to in
Section 5.5 is made, as the case may be, and the denominator of which is the
number of outstanding shares of Common Stock immediately prior to such Pro Rata
Repurchase or the commencement of such tender or exchange offer, as the case may
be.
6. Voting. The shares of this Series shall have no voting rights
------
except as required by law or as set forth below.
6.1 Each share of this Series shall be entitled to vote together with
holders of the shares of Common Stock (and any other class or series that may
similarly be entitled to vote with the shares of Common Stock) as a single class
upon all matters upon which holders of Common Stock are entitled to vote. In
any such vote, the holders of this Series shall be entitled to two (2) votes per
$100 of Liquidation Value of Series I Stock, subject to adjustment at the same
time and in the same manner as each adjustment of the Conversion Rate pursuant
to Section 3, so that the holders of this Series shall be entitled following
such adjustment to the number of votes equal to the number of votes such holders
were entitled to under this
<PAGE>
33
Section 6.1 immediately prior to such adjustment multiplied by a fraction (x)
the numerator of which is the Conversion Rate as adjusted pursuant to Section 3
and (y) the denominator of which is the Conversion Rate immediately prior to
such adjustment.
6.2 (a) So long as any shares of this Series remain outstanding,
unless a greater percentage shall then be required by law, the Corporation shall
not, without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of shares of this Series representing at least
66-2/3% of the aggregate voting power of shares of this Series then outstanding
(i) authorize any Senior Stock or reclassify (by merger, consolidation or
otherwise) any Junior Stock or Parity Stock as Senior Stock, (ii) merge into or
consolidate with any Person where the surviving or continuing corporation will
have any authorized Senior Stock other than capital stock corresponding to
shares of Senior Stock existing immediately before such merger or consolidation)
or (iii) amend, alter or repeal (by operation of law or otherwise) any of the
provisions of the Certificate or the Certificate of Incorporation, so as in any
such case to adversely affect the voting powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions of the shares of this Series.
(b) No consent of holders of shares of this Series shall be
required for (i) the creation of any indebtedness of any kind of the
Corporation, (ii) the authorization or issuance of any class of Junior Stock or
Parity Stock, (iii) the authorization, designation or issuance of additional
shares of Series I Stock or (iv) subject to Section 6.2(a), the authorization or
issuance of any other shares of Preferred Stock.
6.3 (a) If and whenever at any time or times dividends payable on
shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the Board
of Directors shall be increased by two and the holders of shares of this Series,
together with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six quarterly dividend
<PAGE>
34
periods, shall have the exclusive right, voting separately as a class with such
other series, to elect two directors of the Corporation.
(b) Such voting right may be exercised initially either by written
consent or at a special meeting of the holders of the Preferred Stock having
such voting right, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at each
such annual meeting until such time as all dividends in arrears on the shares of
this Series shall have been paid in full and all dividends payable on the shares
of this Series on four subsequent consecutive Dividend Payment Dates shall have
been paid in full on such dates or funds shall have been set aside for the
payment thereof, at which time such voting right and the term of the directors
elected pursuant to Section 6.3(a) shall terminate.
(c) At any time when such voting right shall have vested in holders
of shares of such series of Preferred Stock described in Section 6.3(a), and if
such right shall not already have been exercised by written consent, a proper
officer of the Corporation may call, and, upon the written request, addressed to
the Secretary of the Corporation, of the record holders of shares representing
ten percent (10%) of the voting power of the shares then outstanding of such
Preferred Stock having such voting right, shall call, a special meeting of the
holders of such Preferred Stock having such voting right. Such meeting shall be
held at the earliest practicable date upon the notice required for annual
meetings of stockholders at the place for holding annual meetings of
stockholders, or, if none, at a place designated by the Board of Directors.
Notwithstanding the provisions of this Section 6.3(c), no such special meeting
shall be called during a period within 60 days immediately preceding the date
fixed for the next annual meeting of stockholders.
(d) At any meeting held for the purpose of electing directors at
which the holders of such Preferred Stock shall have the right to elect
directors as provided herein, the presence in Person or by proxy of the holders
of shares representing more than fifty percent (50%) in voting power of the then
outstanding shares of such Preferred Stock having such right shall be required
and shall be sufficient to constitute a quorum of such class for the election of
directors by such class.
<PAGE>
35
(e) Any director elected by holders of Preferred Stock pursuant
to the voting right created under this Section 6.3 shall hold office until the
next annual meeting of stockholders (unless such term has previously terminated
pursuant to Section 6.3(b)) and any vacancy in respect of any such director
shall be filled only by vote of the remaining director, by the holders of such
Preferred Stock, entitled to elect such director or directors by written consent
or at a special meeting called in accordance with the procedures set forth in
Section 6.3(c), or, if no special meeting is called or written consent executed,
at the next annual meeting of stockholders. Upon any termination of such voting
right, subject to applicable law, the term of office of all directors elected by
holders of such Preferred Stock voting separately as a class pursuant to this
Section 6.3 shall terminate.
(f) In exercising the voting rights set forth in this Section
6.3, each share of this Series shall have a number of votes equal to its
Liquidation Value.
7. Liquidation Rights.
------------------
7.1 Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of this
Series shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, in preference to the holders of, and
before any payment or distribution shall be made on, Junior Stock, the amount of
$100 per share (the "Liquidation Value"), plus an amount equal to all accrued
and unpaid dividends to the date of final distribution.
7.2 Neither the sale, exchange or other conveyance (for cash, shares
of stock, securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation of the
Corporation into or with any other corporation into or with the Corporation,
shall be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this Section 7.
7.3 After the payment to the holders of the shares of this Series of
full preferential amounts provided for in this Section 7, the holders of this
Series as such shall have no right or claim to any of the remaining assets of
the Corporation.
<PAGE>
36
7.4 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 7.1, no such distribution shall be made on account
of any shares of any Parity Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of this Series, ratably, in proportion to the full distributable amounts
for which holders of all Parity Stock are entitled upon such dissolution,
liquidation or winding up.
8. Other Provisions.
----------------
8.1 All notices from the Corporation to the holders shall be given by
one of the methods specified in Section 8.2. With respect to any notice to a
holder of shares of this Series required to be provided hereunder, neither
failure to give such notice, nor any defect therein or in the transmission
thereof, to any particular holder shall affect the sufficiency of the notice or
the validity of the proceedings referred to in such notice with respect to the
other holders or affect the legality or validity of any distribution, right,
warrant, reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any such action. Any
notice that was mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives the notice.
8.2 All notices and other communications hereunder shall be deemed
given (i) on the first Trading Day following the date received, if delivered
personally, (ii) on the Trading Day following timely deposit with an overnight
courier service, if sent by overnight courier specifying next day delivery and
(iii) on the first Trading Day that is at least five days following deposit in
the mails, if sent by first class mail to (x) a holder at its last address as it
appears on the transfer records or registry for the Series I Stock and (y) the
Corporation at the following address (or at such other address as the
Corporation shall specify in a notice pursuant to this Section): TW Inc., 75
Rockefeller Plaza, New York, New York 10019, Attention: General Counsel.
<PAGE>
37
8.3 Any shares of this Series that have been converted, redeemed,
exchanged or otherwise acquired by the Corporation shall, after such conversion,
redemption, exchange or acquisition, as the case may be, be retired and promptly
cancelled and the Corporation shall take all appropriate action to cause such
shares to obtain the status of authorized but unissued shares of Preferred
Stock, without designation as to series, until such shares are once more
designated as part of a particular series by the Board of Directors. The
Corporation may cause a certificate setting forth a resolution adopted by the
Board of Directors that none of the authorized shares of this Series are
outstanding to be filed with the Secretary of State of the State of Delaware.
When such certificate becomes effective, all matters set forth in the
Certificate shall be eliminated from the Certificate of Incorporation and the
shares of Preferred Stock designated hereby as Series I Stock shall have the
status of authorized and unissued shares of Preferred Stock and may be reissued
as part of any new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors.
8.4 The shares of this Series shall be issuable in whole shares or,
if authorized by the Board of Directors, in any fraction of a whole share so
authorized or any integral multiple of such fraction.
8.5 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such record holder shall be deemed the holder of such shares for all
purposes.
8.6 All notice periods referred to in the Certificate shall commence
on the date of the mailing of the applicable notice.
<PAGE>
38
8.7 Certificates for shares of this Series shall bear such legends as
the Corporation shall from time to time deem appropriate.
IN WITNESS WHEREOF, TW INC. has caused this certificate to be signed
this [ ] day of [ ], 1996.
TW INC.,
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT 3.1(k)
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES J
NON-VOTING PARTICIPATING
CONVERTIBLE PREFERRED STOCK
OF
TIME WARNER INC.
____________________
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
____________________
TIME WARNER INC., a corporation organized and existing by virtue of the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that the following resolution was duly adopted by action of the
Board of Directors of the Corporation (the "Board of Directors") at a meeting
duly held on September 22, 1995.
RESOLVED that pursuant to the authority expressly granted to and vested in
the Board of Directors by the provisions of Section 2 of Article IV of the
Restated Certificate of Incorporation of the Corporation, as amended from time
to time (the "Certificate of Incorporation"), and Section 151(g) of the General
Corporation Law of the State of Delaware (the "DGCL"), the Board of Directors
hereby creates, from the authorized shares of Preferred Stock, par value $1.00
per share (the "Preferred Stock"), of the Corporation authorized to be issued
pursuant to the Certificate of Incorporation, a series of Preferred Stock, and
hereby fixes the voting powers, designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, of the shares of such series as follows:
The series of Preferred Stock hereby established shall consist of [ ]
shares designated as Series J Non-Voting Participating Convertible Preferred
Stock. The number of shares constituting such series may be increased
<PAGE>
2
or decreased from time to time by a resolution or resolutions of the Board of
Directors. The rights, preferences and limitations of such series shall be as
follows:
1. Definitions. As used herein, the following terms shall have the
-----------
indicated meanings:
1.1 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.2 "Capital Stock" shall mean any and all shares of corporate stock
of a Person (however designated and whether representing rights to vote, rights
to participate in dividends or distributions upon liquidation or otherwise with
respect to such Person, or any division or subsidiary thereof, or any joint
venture, partnership, corporation or other entity).
1.3 "Certificate" shall mean the Certificate of the Voting Powers,
Designations, Preferences and Relative, Participating, Optional or Other Special
Rights, and Qualifications, Limitations or Restrictions Thereof, of Series J
Non-Voting Participating Convertible Preferred Stock filed with respect to this
resolution with the Secretary of State of the State of Delaware pursuant to
Section 151 of the DGCL.
1.4 "Certificate of Incorporation" shall mean the Restated Certificate
of Incorporation of the Corporation, as amended from time to time.
1.5 "Closing Price" of the Common Stock shall mean the last reported
sale price of the Common Stock (regular way) as shown on the Composite Tape of
the NYSE, 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 the Common Stock is not listed
or admitted to trading on the NYSE, on the principal national securities
exchange on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securities exchange, the last
reported sale price of the Common Stock, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, in either case as
reported by NASDAQ.
<PAGE>
3
1.6 "Common Stock" shall mean the class of Common Stock, par value $1.00
per share, of the Corporation authorized at the date of the Certificate, or any
other class of stock resulting from (x) successive changes or reclassifications
of such Common Stock consisting of changes in par value, or from par value to no
par value, (y) a subdivision or combination or (z) any other changes for which
an adjustment is made under Section 2.4(a) hereof, and in any such case
including any shares thereof authorized after the date of the Certificate,
together with any associated rights to purchase other securities of the
Corporation which are at the time represented by the certificates representing
such shares of Common Stock.
1.7 "Communications Laws" shall mean the Communications Act of 1934
(as amended and supplemented from time to time and any successor statute or
statutes regulating telecommunications companies) and the rules and regulations
(and interpretations thereof and determinations with respect thereto)
promulgated, issued or adopted from time to time by the Federal Communications
Commission (the "FCC"). All references herein to Communications Laws shall
include as of any relevant date in question the Communications Laws as then in
effect (including any Communications Law or part thereof the effectiveness of
which is then stayed) or promulgated with a delayed effective date.
1.8 "Conversion Date" shall have the meaning set forth in Section 3.5
hereof.
1.9 "Corporation" shall mean Time Warner Inc., a Delaware corporation,
and any of its successors by operation of law, including by merger or
consolidation.
1.10 "DGCL" shall mean the General Corporation Law of the State of
Delaware.
1.11 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1 hereof.
1.12 "Effective Time of the Merger" shall have the meaning given to
such term in the Merger Agreement.
1.13 "Formula Number" shall have the meaning set forth in Section 2.1
hereof.
<PAGE>
4
1.14 "Junior Stock" shall mean the Common Stock, the Series A Stock and
the shares of any other class or series of Capital Stock of the Corporation
which, by the terms of the Certificate of Incorporation or of the instrument by
which the Board of Directors, acting pursuant to authority granted in the
Certificate of Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall be junior to the shares of this Series in respect of
the right to receive dividends or to participate in any distribution of assets
other than by way of dividends.
1.15 "LMC Agreement" shall mean the Agreement dated as of September 22,
1995, among the Corporation, Liberty Media Corporation, a Delaware corporation
("LMC Parent"), and certain subsidiaries of LMC Parent listed under
"Subsidiaries of LMC Parent" on the signature pages thereto, as the same may be
amended from time to time.
1.16 "Merger Agreement" shall mean the Agreement and Plan of Merger dated
as of September 22, 1995, among the Corporation, Time Warner Acquisition Corp.,
a Delaware corporation and a wholly owned subsidiary of the Corporation, and
Turner Broadcasting System, Inc., a Georgia corporation, as the same may be
amended from time to time.
1.17 "NASDAQ" shall mean The Nasdaq Stock Market.
1.18 "NYSE" shall mean the New York Stock Exchange, Inc.
1.19 "Parity Stock" shall mean the Series K Stock and the shares of any
other class or series of Capital Stock of the Corporation which, by the terms of
the Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall, in the event that the stated dividends thereon are not paid in
full, be entitled to share ratably with the shares of this Series in the payment
of dividends in accordance with the sums which would be payable on such shares
if all dividends were declared and paid in full, or shall, in the event that the
amounts payable thereon in liquidation are not paid in full, be entitled to
share ratably with the shares of this Series in any distribution of assets other
than by way of
<PAGE>
5
dividends in accordance with the sums which would be payable in such
distribution if all sums payable were discharged in full; provided, however,
-------- -------
that the term "Parity Stock" shall be deemed to refer in Section 5.4 hereof to
any stock which is Parity Stock in respect of the distribution of assets.
1.20 "Permitted Transferee" shall mean any Liberty Party, as such term is
defined in the LMC Agreement.
1.21 "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
1.22 "Preferred Stock" shall mean the class of Preferred Stock, par value
$1.00 per share, of the Corporation authorized at the date of the Certificate,
including any shares thereof authorized after the date of the Certificate.
1.23 "Record Date" shall have the meaning set forth in Section 2.1 hereof.
1.24 "Senior Stock" shall mean the Series B Stock, the Series C Stock, the
Series D Stock, the Series E Stock, the Series F Stock, the Series G Stock, the
Series H Stock and the shares of any class or series of Capital Stock of the
Corporation which, by the terms of the Certificate of Incorporation or of the
instrument by which the Board of Directors, acting pursuant to authority granted
in the Certificate of Incorporation, shall fix the relative rights, preferences
and limitations thereof, shall be senior to the shares of this Series in respect
of the right to receive dividends or to participate in any distribution of
assets other than by way of dividends.
1.25 "Series A Stock" shall mean the series of Preferred Stock authorized
and designated as Series A Participating Cumulative Preferred Stock at the date
of the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.26 "Series B Stock" shall mean the series of Preferred Stock authorized
and designated as Series B 6.40% Preferred Stock at the date of the Certificate,
including any shares thereof authorized and designated after the date of the
Certificate.
<PAGE>
6
1.27 "Series C Stock" shall mean the series of Preferred Stock authorized
and designated as Series C Convertible Preferred Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.28 "Series D Stock" shall mean the series of Preferred Stock authorized
and designated as Series D Convertible Preferred Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.29 "Series E Stock" shall mean the series of Preferred Stock authorized
and designated as the Series E Convertible Preferred Stock issued or issuable
pursuant to the Agreement and Plan of Merger dated as of February 6, 1995, among
Cablevision Industries Corporation, Alan Gerry, the Corporation and TW CVI
Acquisition Sub (the "Cablevision Merger Agreement"), including any shares
thereof authorized and designated after the date of the Certificate.
1.30 "Series F Stock" shall mean the series of Preferred Stock authorized
and designated as the Series F Convertible Preferred Stock issued or issuable
pursuant to the Cablevision Merger Agreement, including any shares thereof
authorized and designated after the date of the Certificate.
1.31 "Series G Stock" shall mean the series of Preferred Stock authorized
and designated as the Series G Convertible Preferred Stock issued or issuable
pursuant to the Restructuring Agreement, dated as of August 31, 1995, among the
Corporation, ITOCHU Corporation and ITOCHU Entertainment Inc. and the
Restructuring Agreement dated as of August 31, 1995, between the Corporation and
Toshiba Corporation (together, the "Restructuring Agreements"), including any
shares thereof authorized and designated after the date of the Certificate.
1.32 "Series H Stock" shall mean the series of Preferred Stock authorized
and designated as the Series H Convertible Preferred Stock issued or issuable
pursuant to the Restructuring Agreements, including any shares thereof
authorized and designated after the date of the Certificate.
1.33 "Series I Stock" shall mean the series of Preferred Stock authorized
and designated as the Series I Convertible Preferred Stock issued or issuable
pursuant to
<PAGE>
7
the Restructuring Agreements, including any shares thereof authorized and
designated after the date of the Certificate.
1.34 "Series J Stock" and "this Series" shall mean the series of
Preferred Stock authorized and designated as Series J Non-Voting Participating
Convertible Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after the date of the Certificate.
1.35 "Series K Stock" shall mean the series of Preferred Stock
authorized and designated as Series K Voting Participating Convertible Preferred
Stock at the date of the Certificate, including any shares thereof authorized
and designated after the date of the Certificate.
1.36 "Trading Day" shall mean, so long as the Common Stock 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 is not listed or admitted to
trading on the NYSE, a day on which the principal national securities exchange
on which the Common Stock is listed is open for the transaction of business, or,
if the Common Stock is not so listed or admitted for trading on any national
securities exchange, a day on which the National Market System of NASDAQ is open
for the transaction of business.
2. Dividends.
---------
2.1 The holders of shares of this Series shall be entitled to receive
dividends, if, as and when declared by the Board of Directors, out of funds
legally available therefor, payable on such dates as may be set by the Board of
Directors for payment of cash dividends on the Common Stock (each such date
being referred to herein as a "Dividend Payment Date"), in cash, in an amount
per share equal to the product of (i) the Formula Number in effect as of such
Dividend Payment Date multiplied by (ii) the amount of the regularly scheduled
-------------
cash dividend to be paid on one share of Common Stock on such Dividend Payment
Date; provided, however, dividends on the shares of this Series shall be payable
-------- -------
pursuant to this Section 2.1 only to the extent that regularly scheduled cash
dividends are declared and paid on the Common Stock. As used herein, the
"Formula Number" shall initially be 1,000, which shall be adjusted from time to
time pursuant to Section 2.4 hereof. The
<PAGE>
8
dividends payable on any Dividend Payment Date shall be paid to the holders of
record of shares of this Series at the close of business on the record date for
the related regularly scheduled cash dividend on the Common Stock (each such
date being referred to herein as a "Record Date"). The amount of dividends that
are paid to each holder of record on any Dividend Payment Date shall be rounded
to the nearest cent.
2.2 In case the Corporation shall at any time distribute (other than a
distribution in liquidation of the Corporation) to the holders of its shares of
Common Stock any assets or property, including evidences of indebtedness or
securities of the Corporation (other than Common Stock subject to a distribution
or reclassification covered by Section 2.4 hereof) or of any other Person
(including common stock of such Person) or cash (but excluding regularly
scheduled cash dividends payable on shares of Common Stock) or in case the
Corporation shall at any time distribute (other than a distribution in
liquidation of the Corporation) to such holders rights, options or warrants to
subscribe for or purchase shares of Common Stock (including shares held in the
treasury of the Corporation), or rights, options or warrants to subscribe for or
purchase any other security or rights, options or warrants to subscribe for or
purchase any assets or property (in each case, whether of the Corporation or
otherwise, but other than any distribution of rights to purchase securities of
the Corporation if the holder of shares of this Series would otherwise be
entitled to receive such rights upon conversion of shares of this Series for
Common Stock pursuant to Section 3 hereof; provided, however, that if such
-------- -------
rights are subsequently redeemed by the Corporation, such redemption shall be
treated for purposes of this Section 2.2 as a cash dividend (but not a regularly
scheduled cash dividend) on the Common Stock), the Corporation shall
simultaneously distribute such assets, property, securities, rights, options or
warrants to the holders of shares of this Series on the record date fixed for
determining the holders of Common Stock entitled to participate in such
distribution (or, if no such record date shall be established, the effective
time thereof) in an amount per share of this Series equal to the amount that a
holder of one share of this Series would have been entitled to receive had such
share of this Series been converted into Common Stock immediately prior to such
record date (or effective time). In the event of a distribution to holders of
shares of this Series pursuant to this Section 2.2, such
<PAGE>
9
holders shall be entitled to receive fractional shares or interests only to the
extent that holders of Common Stock are entitled to receive the same. The
holders of shares of this Series on the applicable record date (or effective
time) shall be entitled to receive in lieu of such fractional shares or
interests the same consideration as is payable to holders of Common Stock with
respect thereto. If there are no fractional shares or interests payable to
holders of Common Stock, the holders of shares of this Series on the applicable
record date (or effective time) shall receive in lieu of such fractional shares
or interests the fair value thereof as determined by the Board of Directors.
2.3 In the event that the holders of Common Stock are entitled to make
any election with respect to the kind or amount of securities or other property
receivable by them in any distribution that is subject to Section 2.2 hereof,
the kind and amount of securities or other property that shall be distributable
to the holders of shares of this Series shall be based on (i) the election, if
any, made by the holder of record (as of the date used for determining the
holders of Common Stock entitled to make such election) of the largest number of
shares of this Series in writing to the Corporation on or prior to the last date
on which a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
--------
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable by holders of shares of this Series
shall be based on the kind or amount of securities or other property receivable
by a plurality of the shares held by the nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to in
this Section 2.3, the Corporation shall mail a copy thereof to the holders of
record of shares of this Series as of the date used for determining the holders
of record of Common Stock entitled to such mailing, which document shall be used
by the holders of record of shares of this Series to make such an election.
2.4 The Formula Number shall be adjusted from time to time as follows,
whether or not any shares of
<PAGE>
10
this Series have been issued by the Corporation, for events occurring on or
after [ ]: 1/
-
(a) In case the Corporation shall (i) pay a dividend in shares
of its Common Stock, (ii) combine its outstanding shares of Common Stock
into a smaller number of shares, (iii) subdivide its outstanding shares of
Common Stock or (iv) reclassify (other than by way of a merger or
consolidation that is subject to Section 3.6 hereof) its shares of Common
Stock, then the Formula Number in effect immediately before such event
shall be appropriately adjusted so that immediately following such event
the holders of shares of this Series shall be entitled to receive upon
conversion thereof the kind and amount of shares of Capital Stock of the
Corporation which they would have owned or been entitled to receive upon or
by reason of such event if such shares of this Series had been converted
immediately before the record date (or, if no record date, the effective
date) for such event (it being understood that any distribution of cash or
Capital Stock (other than Common Stock) that shall accompany a
reclassification of the Common Stock, shall be subject to Section 2.2
hereof rather than this Section 2.4(a)). An adjustment made pursuant to
this Section 2.4(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 2.4(a), in the event that the holders of Common Stock are entitled
to make any election with respect to the kind or amount of securities
receivable by them in any transaction that is subject to this Section
2.4(a) (including any election that would result in all or a portion of the
transaction becoming subject to Section 2.2 hereof), the kind and amount of
securities that shall be distributable to the holders of shares of this
Series shall be based on (i) the election, if any, made by the holder of
record (as of the date used for determining the holders of Common Stock
entitled to make such election) of the largest number of shares of this
Series in writing to the Corporation on or prior
- -----------------
1/Insert the date of filing of the Certificate or the relevant effective time.
- -
<PAGE>
11
to the last date on which a holder of Common Stock may make such an
election or (ii) if no such election is timely made, an assumption that
such holder failed to exercise any such rights (provided that if the kind
or amount of securities is not the same for each nonelecting holder, then
the kind and amount of securities receivable shall be based on the kind or
amount of securities receivable by a plurality of nonelecting holders of
Common Stock). Concurrently with the mailing to holders of Common Stock of
any document pursuant to which such holders may make an election of the
type referred to in this Section 2.4(a), the Corporation shall mail a copy
thereof to the holders of record of shares of this Series as of the date
used for determining the holders of record of Common Stock entitled to such
mailing, which document shall be used by the holders of record of shares of
this Series to make such an election.
(b) The Corporation shall be entitled to make such additional
adjustments in the Formula Number, in addition to those required by Section
2.4(a) hereof as shall be necessary in order that any dividend or
distribution in Common Stock or any subdivision, reclassification or
combination of shares of Common Stock referred to above, shall not be
taxable to the holders of Common Stock for United States Federal income tax
purposes, so long as such additional adjustments pursuant to this Section
2.4(b) do not decrease the Formula Number.
(c) All calculations under this Section 2 and Section 3 hereof
shall be made to the nearest cent, one-hundredth of a share or, in the case
of the Formula Number, one hundred-thousandth. Notwithstanding any other
provision of this Section 2.4, the Corporation shall not be required to
make any adjustment of the Formula Number unless such adjustment would
require an increase or decrease of at least one percent (1%) of the Formula
Number. Any lesser adjustment shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment that,
together with any adjustment or adjustments so carried forward, shall
amount to an increase or decrease of at least one percent (1%) of the
Formula Number. Any adjustments under this Section 2.4 shall be made
successively whenever an event requiring such an adjustment occurs.
<PAGE>
12
(d) Promptly after an adjustment in the Formula Number is required,
the Corporation shall provide written notice to each of the holders of
shares of this Series, which notice shall state the adjusted Formula
Number.
(e) If a distribution is made in accordance with the provisions
of Section 2.2 hereof, anything in this Section 2.4 to the contrary
notwithstanding, no adjustment pursuant to this Section 2.4 shall be
effected by reason of the distribution of such assets, property,
securities, rights, options or warrants or the subsequent modification,
exercise, expiration or termination of such securities, rights, options or
warrants.
3. Conversion at the Option of the Holder.
---------------------------------------
3.1 Each holder of a share of this Series shall have the right at
any time to convert such share of this Series into either: (i) a number of
shares of Common Stock per share of this Series equal to the Formula Number in
effect on the Conversion Date or (ii) one share of Series K Stock per share of
this Series; provided, however, that such holder may convert shares of this
-------- -------
Series only to the extent that the ownership by such holder or its designee of
the shares of Common Stock or Series K Stock issuable upon such conversion would
not violate the Communications Laws.
3.2 No adjustments in respect of payments of dividends on shares
of this Series surrendered for conversion or any dividend on the Common Stock or
Series K Stock issued upon conversion shall be made upon the conversion of any
shares of this Series (it being understood that if the Conversion Date for
shares of this Series occurs after the Record Date and prior to the Dividend
Payment Date of any such dividend, the holders of record on such Record Date
shall be entitled to receive the dividend payable with respect to such shares on
the related Dividend Payment Date pursuant to Section 2.1 hereof).
3.3 The Corporation may, but shall not be required to, in
connection with any conversion of shares of this Series into shares of Common
Stock, issue a fraction of a share of Common Stock, and if the Corporation shall
determine not to issue any such fraction, the Corporation shall make a cash
payment (rounded to the nearest cent)
<PAGE>
13
equal to such fraction multiplied by the Closing Price of the Common Stock on
-------------
the last Trading Day prior to the Conversion Date. The Corporation shall issue
a fraction of a share of Series K Stock in order to effect a conversion of a
fraction of a share of this Series into Series K Stock.
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock or Series K Stock shall surrender the certificate or
certificates for such shares at the principal executive office of the
Corporation (or at such other place as the Corporation may designate by notice
to the holders of shares of this Series) during regular business hours, duly
endorsed to the Corporation or in blank, or accompanied by instruments of
transfer to the Corporation or in blank, or in form satisfactory to the
Corporation, and shall give written notice to the Corporation at such office
that such holder elects to convert such shares of this Series, which notice
shall state whether the shares of this Series delivered for conversion shall be
converted into shares of Common Stock or shares of Series K Stock. If any such
certificate or certificates shall have been lost, stolen or destroyed, the
holder shall, in lieu of delivering such certificate or certificates, deliver to
the Corporation (or such other place) an indemnification agreement and bond
satisfactory to the Corporation. The Corporation shall, as soon as practicable
(subject to Section 3.8 hereof) after such deposit of certificates for shares of
this Series or delivery of the indemnification agreement and bond, accompanied
by the written notice above prescribed, issue and deliver at such office (or
such other place) to the holder for whose account such shares were surrendered,
or a designee of such holder, certificates representing either (i) the number of
shares of Common Stock and the cash, if any, or (ii) the number of shares of
Series K Stock, as the case may be, to which such holder is entitled upon such
conversion. Each share of Common Stock delivered to a holder or its designee as
a result of conversion of shares of this Series pursuant to this Section 3 shall
be accompanied by any rights associated generally with each other share of
Common Stock outstanding as of the Conversion Date.
3.5 Conversion shall be deemed to have been made as of the date
(the "Conversion Date") that the certificate or certificates for the shares of
this Series to be converted and the written notice prescribed in Section 3.4
hereof are received by the Corporation; and the Person entitled to receive the
Common Stock or Series K
<PAGE>
14
Stock issuable upon such conversion shall be treated for all purposes as the
holder of record of such Common Stock or Series K Stock, as the case may be, on
such date. The Corporation shall not be required to deliver certificates for
shares of Common Stock or Series K Stock while the stock transfer books for such
stock or for this Series are duly closed for any purpose, but certificates for
shares of Common Stock or Series K Stock, as the case may be, shall be delivered
as soon as practicable after the opening of such books.
3.6 In the event that on or after [ ] 2/, whether or not
-
any shares of this Series have been issued by the Corporation, either (a) any
consolidation or merger to which the Corporation is a party, other than a merger
or consolidation in which the Corporation is the surviving or continuing
corporation and which does not result in any 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, or as a result of a subdivision or combination) in,
outstanding shares of Common Stock or (b) any sale or conveyance of all or
substantially all of the property and assets of the Corporation, then lawful
provision shall be made as part of the terms of such transaction whereby the
holder of each share of this Series shall have the right thereafter, during the
period such share shall be convertible, to convert such share into the kind and
amount of shares of stock or other securities and property receivable upon such
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock into which such shares of this Series could have been converted
immediately prior to such consolidation, merger, sale or conveyance, subject to
adjustment which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 2.4 hereof and this Section 3 (based on (i)
the election, if any, made in writing to the Corporation by the holder of record
(as of the date used for determining holders of Common Stock entitled to make
such election) of the largest number of shares of this Series on or prior to the
last date on which a holder of Common Stock may make an election regarding the
kind or amount of securities or other property receivable by such holder in such
transaction or (ii) if no such election is timely made, an assumption that such
holder failed to
- -----------------
2/ Insert the date of filing of the Certificate or the relevant effective time.
- -
<PAGE>
15
exercise any such rights (provided that if the kind or amount of securities or
other property is not the same for each nonelecting holder, then the kind and
amount of securities or other property receivable shall be based upon the kind
and amount of securities or other property receivable by a plurality of the
nonelecting holders of Common Stock)). In the event that any of the
transactions referred to in clause (a) or (b) of the first sentence of this
Section 3.6 involves the distribution of cash or property (other than equity
securities) to a holder of Common Stock, lawful provision shall be made as part
of the terms of the transaction whereby the holder of each share of this Series
on the record date fixed for determining holders of Common Stock entitled to
receive such cash or property (or if no such record date is established, the
effective date of such transaction) shall be entitled to receive the amount of
cash or property that such holder would have been entitled to receive had such
holder converted his shares of this Series into Common Stock immediately prior
to such record date (or effective date) (based on the election or nonelection
made by the holder of record of the largest number of shares of this Series, as
provided above). Concurrently with the mailing to holders of Common Stock of
any document pursuant to which such holders may make an election regarding the
kind or amount of securities or other property that will be receivable by such
holders in any transaction described in clause (a) or (b) of the first sentence
of this Section 3.6, the Corporation shall mail a copy thereof to the holders of
record of the shares of this Series as of the date used for determining the
holders of record of Common Stock entitled to such mailing, which document shall
be used by the holders of shares of this Series to make such an election. The
Corporation shall not enter into any of the transactions referred to in clauses
(a) or (b) of the first sentence of this Section 3.6 unless effective provision
shall be made in the certificate or articles of incorporation or other
constituent documents of the Corporation or the entity surviving the
consolidation or merger, if other than the Corporation, or the entity acquiring
the Corporation's assets, as the case may be, so as to give effect to the
provisions set forth in this Section 3.6. The provisions of this Section 3.6
shall apply similarly to successive consolidations, mergers, sales or
conveyances. For purposes of this Section 3.6, the term "Corporation" shall
refer to the Corporation as constituted immediately prior to the merger,
consolidation or other transaction referred to in this Section 3.6.
<PAGE>
16
3.7 The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued
stock, for the purpose of effecting the conversion of the shares of this Series,
such number of its duly authorized shares of Common Stock and Series K Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of this Series into shares of Common Stock or Series K Stock
at any time (assuming that, at the time of the computation of such number of
shares, all such Common Stock or Series K Stock would be held by a single
holder); provided, however, that nothing contained herein shall preclude the
-------- -------
Corporation from satisfying its obligations in respect of the conversion of the
shares by delivery of purchased shares of Common Stock or Series K Stock that
are held in the treasury of the Corporation. All shares of Common Stock or
Series K Stock that shall be deliverable upon conversion of the shares of this
Series shall be duly and validly issued, fully paid and nonassessable. For
purposes of this Section 3, any shares of this Series at any time outstanding
shall not include shares held in the treasury of the Corporation.
3.8 In any case in which Section 2.4 hereof shall require that
any adjustment be made effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for five (5) Trading
Days following the occurrence of the event which necessitates the notice
referred to in Section 2.4(d) hereof) issuing to the holder of any shares of
this Series converted after such record date (i) the shares of Common Stock
issuable upon such conversion over and above (ii) the shares of Common Stock
issuable upon such conversion on the basis of the Formula Number prior to
adjustment; provided, however, that the Corporation 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.
3.9 If any shares of Common Stock or Series K Stock that would be
issuable upon conversion pursuant to this Section 3 require registration with or
approval of any governmental authority before such shares may be issued upon
conversion (other than any such registration or approval required to avoid a
violation of the Communications Laws), the Corporation will in good faith and as
expeditiously as possible cause such shares to be duly registered or approved,
as the case may be. The Corporation will use commercially reasonable efforts to
list the shares of (or
<PAGE>
17
depositary shares representing fractional interests in) Common Stock required to
be delivered upon conversion of shares of this Series prior to such delivery
upon the principal national securities exchange, if any, upon which the
outstanding Common Stock is listed at the time of such delivery. Nothing in the
Certificate shall require the Corporation to register under the Securities Act
of 1933, as amended, or the securities laws of any state or any other
jurisdiction, any shares of Series K Stock or, except as provided in the
Registration Rights Agreement (as defined in the LMC Agreement), any shares of
Common Stock issued upon conversion pursuant to this Section 3.
3.10 The Corporation shall pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock or
Series K Stock on conversion of shares of this Series pursuant hereto. The
Corporation shall not, however, be required to pay any tax which is payable in
respect of any transfer involved in the issue or delivery of Common Stock or
Series K Stock in a name other than that in which the shares of this Series 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 Corporation the
amount of such tax, or has established, to the satisfaction of the Corporation,
that such tax has been paid.
3.11 In case of (i) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation or (ii) any action triggering an
adjustment to the Formula Number pursuant to Section 2.4 hereof or Section 3.6
hereof, then, in each case, the Corporation shall cause to be mailed, first-
class postage prepaid, to the holders of record of the outstanding shares of
this Series, at least fifteen (15) days prior to the applicable record date for
any such transaction (or if no record date will be established, the effective
date thereof), a notice stating (x) the date, if any, on which a record is to be
taken for the purpose of any such transaction (or, if no record date will be
established, the date as of which holders or record of Common Stock entitled to
participate in such transaction are determined), and (y) the expected effective
date thereof. Failure to give such notice or any defect therein shall not
affect the legality or validity of the proceedings described in this Section
3.11.
<PAGE>
18
4. Voting.
-------
4.1 The shares of this Series shall have no rights to vote in the
election of directors or with respect to any other matter except as expressly
provided in this Section 4 or as required by law.
4.2 So long as any shares of this Series remain outstanding, unless a
greater percentage shall then be required by law, the Corporation shall not,
without the affirmative vote at a meeting or the written consent with or without
a meeting of the holders of shares of this Series representing at least 66-2/3%
of the aggregate voting power of shares of this Series then outstanding, amend,
alter or repeal any of the provisions of the Certificate, or the Certificate of
Incorporation, so as in any such case to adversely affect the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of this Series.
4.3 So long as any shares of this Series remain outstanding, the
Corporation shall not, without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of shares of this Series
representing 100% of the aggregate voting power of shares of this Series then
outstanding, amend, alter or repeal the provisions of Section 7.8 hereof.
4.4 No consent of holders of shares of this Series shall be required
for (i) the creation of any indebtedness of any kind of the Corporation, (ii)
the authorization or issuance of any class or series of Junior Stock, Parity
Stock or Senior Stock, (iii) the authorization of any increase or decrease in
the number of shares constituting this Series or (iv) the approval of any
amendment to the Certificate of Incorporation that would increase or decrease
the aggregate number of authorized shares of Preferred Stock or Common Stock,
except to the extent expressly required by the DGCL.
5. Liquidation Rights.
-------------------
5.1 Upon the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, no distribution shall be made to
the holders of shares of Junior Stock (either as to dividends or upon
<PAGE>
19
liquidation, dissolution or winding up) unless, prior thereto, the holders of
shares of this Series shall have received an amount equal to the greater of (i)
$.01 per whole share of this Series or (ii) an aggregate amount per share equal
to the product of the Formula Number then in effect multiplied by the aggregate
-------------
amount to be distributed per share to holders of Common Stock.
5.2 Neither the sale, exchange or other conveyance (for cash, shares
of stock, securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation of the
Corporation into or with any other corporation, or the merger or consolidation
of any other corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for the
purposes of this Section 5.
5.3 After the payment to the holders of the shares of this Series of
full preferential amounts provided for in this Section 5, the holders of this
Series as such shall have no right or claim to any of the remaining assets of
the Corporation.
5.4 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders and the
holders of all Parity Stock are entitled, no such distribution shall be made on
account of any shares of any Parity Stock upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on account of
the shares of this Series, ratably, in proportion to the full distributable
amounts for which holders of all Parity Stock are entitled upon such
dissolution, liquidation or winding up.
6. Transfer Restrictions.
----------------------
6.1 Without the prior written consent of the Corporation, no holder
of shares of this Series shall offer, sell, transfer, pledge, encumber or
otherwise dispose of, or agree to offer, sell, transfer, pledge, encumber or
otherwise dispose of, any shares of this Series or interests in any shares of
this Series except to a Permitted
<PAGE>
20
Transferee that shall agree that, prior to such Permitted Transferee ceasing to
be a Permitted Transferee, such Permitted Transferee must transfer ownership of
any shares of this Series, and all interests therein, held by such Permitted
Transferee to the initial holder who received such shares pursuant to the LMC
Agreement. For the avoidance of doubt, the preceding sentence is not intended
to prohibit a holder of shares of this Series from entering into, or offering to
enter into, any arrangement under which such holder agrees to promptly convert
shares of this Series and sell, transfer or otherwise dispose of the Common
Stock issuable upon such conversion.
6.2 Certificates for shares of this Series shall bear such legends as
the Corporation shall from time to time deem appropriate.
7. Other Provisions.
-----------------
7.1 All notices from the Corporation to the holders of shares of this
Series shall be given by one of the methods specified in Section 7.2 hereof.
With respect to any notice to a holder of shares of this Series required to be
provided hereunder, neither failure to give such notice, nor any defect therein
or in the transmission thereof, to any particular holder shall affect the
sufficiency of the notice or the validity of the proceedings referred to in such
notice with respect to the other holders or affect the legality or validity of
any distribution, right, warrant, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any such action. Any notice which was mailed in the manner herein provided
shall be conclusively presumed to have been duly given whether or not the holder
receives the notice.
7.2 All notices and other communications hereunder shall be deemed
given (i) on the first Trading Day following the date received, if delivered
personally, (ii) on the Trading Day following timely deposit with an overnight
courier service, if sent by overnight courier specifying next day delivery and
(iii) on the first Trading Day that is at least five days following deposit in
the mails, if sent by first class mail to (x) a holder at its last address as it
appears on the transfer records or registry for the shares of this Series and
(y) the Corporation at the following address (or at such other
<PAGE>
21
address as the Corporation shall specify in a notice pursuant to this Section
7.2): Time Warner Inc., 75 Rockefeller Plaza, New York, New York 10019,
Attention: General Counsel.
7.3 Any shares of this Series which have been converted or otherwise
acquired by the Corporation shall, after such conversion or acquisition, as the
case may be, be retired and promptly cancelled and the Corporation shall take
all appropriate action to cause such shares to obtain the status of authorized
but unissued shares of Preferred Stock, without designation as to series, until
such shares are once more designated as part of a particular series by the Board
of Directors. The Corporation may cause a certificate setting forth a
resolution adopted by the Board of Directors that none of the authorized shares
of this Series are outstanding to be filed with the Secretary of State of the
State of Delaware. When such certificate becomes effective, all references to
this Series shall be eliminated from the Certificate of Incorporation and the
shares of Preferred Stock designated hereby as Series J Non-Voting Participating
Convertible Preferred Stock shall have the status of authorized and unissued
shares of Preferred Stock and may be reissued as part of any new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors.
7.4 The shares of this Series shall be issuable in whole shares, in
such fraction of a whole share as may be required in order to effect any
exchange of shares of Common Stock for shares of this Series required by the
terms of the LMC Agreement or, if authorized by the Board of Directors (or any
authorized committee thereof), in any other fraction of a whole share so
authorized.
7.5 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such holder of record shall be deemed the holder of such shares for
all purposes.
7.6 All notice periods referred to in the Certificate shall commence
on the date of the mailing of the applicable notice.
7.7 Any registered holder of shares of this Series may proceed to
protect and enforce its rights by any available remedy by proceeding at law or
in equity to
<PAGE>
22
protect and enforce any such rights, whether for the specific enforcement of any
provision in the Certificate or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
7.8 The shares of this Series shall not be subject to redemption at
the option of the Corporation, including pursuant to Section 5 of Article IV of
the Certificate of Incorporation (or any equivalent provision in any further
amendment to or restatement of the Certificate of Incorporation).
IN WITNESS WHEREOF, Time Warner Inc. has caused this certificate to be
signed and attested this [ ] day of [ ].
TIME WARNER INC.,
by
----------------------------
Name:
Title:
Attest: ______________________
Name:
Title:
<PAGE>
EXHIBIT 3.1(l)
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF
10 1/4% SERIES L EXCHANGEABLE
PREFERRED STOCK
OF
TW INC.
--------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
--------------
TW INC. (the "Corporation"), a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware (the "DGCL"),
does hereby certify that the following resolution was duly adopted by action of
the Board of Directors of the Corporation (the "Board of Directors") at a
meeting duly held on [ ], 1996.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $.10 per share (the "Preferred Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series as follows:
The series of Preferred Stock hereby established shall consist of
[9,000,000] shares designated as 10 1/4% Series L Exchangeable Preferred Stock
(such series being hereinafter referred to as "Series L Stock" or "this
<PAGE>
2
Series"). The rights, preferences and limitations of the Series L Stock shall
be as follows:
1. Definitions. As used herein, the following terms shall have the
------------
following meanings:
1.1 "Accrued Dividends" shall mean, with respect to any share of
this Series, as of any specified date, the accrued and unpaid dividends on such
share.
1.2 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.3 "Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in the City of New York are
authorized or required by law or executive order to close.
1.4 "Certificate" shall mean the certificate of the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of 10
1/4% Series L Exchangeable Preferred Stock filed with respect to this resolution
with the Secretary of State of the State of Delaware pursuant to Section 151 of
the DGCL.
1.5 "Change of Control" shall mean:
(i) whenever, in any three-year period, a majority of the
members of the Board of Directors elected during such three-year period shall
have been so elected against the recommendation of the management of the
Corporation or the Board of Directors in office immediately prior to such
election; it being understood that for purposes of this clause (i) a member of
such Board of Directors shall be deemed to have been elected against the
recommendation of such Board of Directors if his or her initial election occurs
as a result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than such Board of Directors; or
<PAGE>
3
(ii) whenever any Person shall acquire (whether by merger,
consolidation, sale, assignment, lease, transfer or otherwise, in one
transaction or any related series of transactions) or otherwise beneficially own
voting securities of the Corporation that represent in excess of 50% of the
voting power of all outstanding voting securities of the Corporation generally
entitled to vote for the election of directors, if such Person had acquired or
publicly announced its intention to initially acquire ten percent or more of
such voting securities in a transaction that had not, within 30 days after the
date of such acquisition or public announcement, been approved by the management
of the Corporation.
1.6 "Common Stock" shall mean the class of Common Stock, par
value $.01 per share, of the Corporation or any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or as a
result of a subdivision or combination.
1.7 "Debt Exchange" shall mean the exchange of Series L Stock for
Senior Subordinated Debentures pursuant to Section 5.
1.8 "DGCL" shall mean the General Corporation Law of the State
of Delaware.
1.9 "Dividend Payment Date" shall mean March 30, June 30,
September 30 and December 30 of each year, commencing on the first such date to
occur after the Issue Date.
1.10 "Dividend Record Date" shall mean, with respect to each
Dividend Payment Date, the fifteenth day immediately preceding such Dividend
Payment Date.
1.11 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.12 "Exchange Date" shall mean the date upon which the Debt
Exchange occurs.
1.13 "Initial Issue Date" shall mean the first date on which
shares of Series L Stock are issued in exchange for shares of Series M Preferred
Stock.
<PAGE>
4
1.14 "Issue Date" shall mean, with respect to each share of
Series L Stock, the date upon which such share is first issued.
1.15 "Junior Stock" shall mean the Common Stock, the Series A
Participating Cumulative Preferred Stock and the shares of any other class or
series of stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be junior to the
Series L Stock in respect of the right to receive dividends or to participate in
any other distribution of assets.
1.16 "Liquidation Preference" shall mean, with respect to each
share of Series L Stock, $1,000.
1.17 "Mandatory Redemption Date" shall mean July 1, 2011.
1.18 "Mandatory Redemption Price Per Share" shall mean, with
respect to each share of Series L Stock to be redeemed, an amount equal to the
Liquidation Preference thereof, plus Accrued Dividends thereon.
1.19 "Nationally Recognized Investment Banking Firm" shall mean
an investment banking firm having a national reputation in the United States
that shall have experience in securities rating matters and that shall be
approved by a majority of the members of the Board of Directors who are not
officers or employees of the Corporation or its subsidiaries, including TWE.
1.20 "Optional Redemption Price Per Share" shall mean, as of any
date, the price at which the Corporation may, at its option, redeem one share of
Series L Stock pursuant to Section 3.1.
1.21 "Parity Stock" shall mean the shares of the Corporation's
Series D Convertible Preferred Stock, Series E Convertible Preferred Stock,
Series F Convertible Preferred Stock, Series G Convertible Preferred Stock,
Series H Convertible Preferred Stock, Series I Convertible Preferred Stock,
Series J Convertible Preferred Stock and any other class or series of stock of
the Corporation that, by the terms of the Certificate of Incorporation or of the
instrument by which the Board of Directors, acting pursuant
<PAGE>
5
to authority granted in the Certificate of Incorporation, shall fix the relative
rights, preferences and limitations thereof, shall, in the event that the stated
dividends thereon are not paid in full, be entitled to share ratably with the
Series L Stock in the payment of dividends, including accumulations, if any, in
accordance with the sums that would be payable on such shares if all dividends
were declared and paid in full, or shall, in the event that the amounts payable
thereon in liquidation are not paid in full, be entitled to share ratably with
the Series L Stock in any other distribution of assets in accordance with the
sums that would be payable in such distribution if all sums payable were
discharged in full; provided, however, that the term "Parity Stock" shall be
-------- -------
deemed to refer (i) in Section 2.3 hereof, to any stock that is Parity Stock in
respect of dividend rights; (ii) in Section 9 hereof, to any stock that is
Parity Stock in respect of the distribution of assets; and (iii) in Section 8.1
hereof, to any stock that is Parity Stock in respect of either dividend rights
or the distribution of assets and that, pursuant to the Certificate of
Incorporation or any instrument in which the Board of Directors, acting pursuant
to authority granted in the Certificate of Incorporation, shall so designate, is
entitled to vote as part of the Voting Rights Class.
1.22 "Person" shall mean any individual, corporation, general
partnership, limited partnership, limited liability partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization or government or any agency or political subdivision
thereof.
1.23 "Rating Confirmation" shall mean either (i) a confirmation
from each of Moody's Investors Service, Inc. or any successor to its rating
agency business ("Moody's") and Standard and Poor's Corporation or any successor
to its rating agency business ("S&P") that any contemplated redemption or
exchange by the Corporation would not result in a downgrade of its rating of the
Corporation's senior unsecured long-term debt, or (ii) a good faith
determination by the Board of Directors or any committee thereof (after
consultation with a Nationally Recognized Investment Banking Firm) that any
contemplated redemption or exchange by the Corporation should not result in a
downgrade in the rating of the Corporation's senior unsecured long-term debt by
either Moody's or S&P.
<PAGE>
6
1.24 "Senior Stock" shall mean the shares of any class or series
of stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series L Stock in respect of the right to receive dividends or to participate in
any other distribution of assets.
1.25 "Senior Subordinated Debentures" shall mean the 10 1/4%
Senior Subordinated Debentures 2011 issued by the Corporation, as the case may
be, pursuant to the Senior Subordinated Indenture.
1.26 "Senior Subordinated Indenture", shall mean an indenture
substantially in the form filed as an exhibit to the Current Report on Form 8-K
dated April 11, 1996, of the corporation named "Time Warner Inc." on such date.
1.27 "Series M Preferred Stock" shall mean the Corporation's
10 1/4% Series M Exchangeable Preferred Stock in exchange for which shares of
this Series were first issued.
1.28 "TWE" shall mean Time Warner Entertainment Company, L.P., a
Delaware limited partnership.
1.29 "Voting Rights Triggering Event" shall mean the failure of
the Corporation to (i) pay dividends on the Series L Stock in cash, or to the
extent permitted by its terms, by the issuance of additional shares of Series L
Stock, for more than six consecutive quarterly dividend periods or (ii)
discharge any redemption or exchange obligation with respect to the Series L
Stock.
2. Dividends.
----------
2.1 The holders of outstanding shares of Series L Stock shall be
entitled, when, as and if declared by the Board of Directors out of funds
legally available therefor, to receive dividends on each outstanding share of
Series L Stock. Each quarter-annual dividend shall be an amount per share
(rounded to the nearest $.01) equal to $25.625 per $1,000 Liquidation Preference
of Series L Stock and shall be payable on each Dividend Payment Date, to the
holders of record of Series L Stock at the close of business
<PAGE>
7
on the Dividend Record Date applicable to such Dividend Payment Date, commencing
on the first Dividend Payment Date following the Initial Issue Date. Such
dividends shall be cumulative and shall accrue on a day-to-day basis, whether or
not earned or declared, from and after the Issue Date applicable to each share
of this Series. Dividends on the Series L Stock that are not declared and paid
when due will compound quarterly on each Dividend Payment Date at the dividend
rate. Dividends payable for any partial dividend period shall be computed on
the basis of actual days elapsed over a 365- (or 366-) day year.
2.2 With respect to any periods ending on or prior to June 30, 2006,
dividends may, at the option of the Corporation, be paid on any Dividend Payment
Date either in cash or by issuing fully paid and nonassessable shares of Series
L Stock with an aggregate Liquidation Preference equal to the amount of such
dividends (or, in connection with a Debt Exchange, by issuing Senior
Subordinated Debentures with an aggregate principal amount equal to the amount
of such dividends as provided in Section 5.1). Thereafter, dividends payable on
any Dividend Payment Date shall be paid only in cash.
2.3 Except as hereinafter provided in this Section 2.3, no full
dividends or other distributions may be declared or paid or set apart for
payment on Series L Stock or any other Parity Stock, and no Parity Stock,
including the Series L Stock, may be repurchased, exchanged, redeemed or
otherwise acquired by the Corporation, nor may funds be set apart for payment
with respect thereto, unless full cumulative dividends shall have been paid or
set apart for such payment on, and all applicable redemption, exchange and
repurchase obligations shall have been satisfied with respect to, all
outstanding shares of Series L Stock and such other Parity Stock; provided,
--------
however, that dividends or distributions may be made on Parity Stock if they are
- -------
payable in Junior Stock, and Parity Stock may be converted into or exchanged for
Parity Stock (having no greater preference upon liquidation) or Junior Stock;
and provided further that if the Company shall have satisfied all applicable
-------- -------
redemption, exchange and repurchase obligations with respect to all outstanding
shares of Series M Preferred Stock and other Parity Stock, but if full dividends
are not so paid, the Series L Stock shall share dividends with all other Parity
Stock, so that the amount of dividends declared per share on Series L Stock and
all such other Parity Stock shall in all cases bear to each other the same ratio
that
<PAGE>
8
full cumulative dividends per share on the shares of Series L Stock and all such
other Parity Stock bear to each other. No dividends or other distributions may
be paid or set apart for such payment on Junior Stock, and no Junior Stock may
be repurchased, redeemed, exchanged or otherwise acquired nor may funds be set
apart for payment with respect thereto, if full cumulative dividends have not
been paid on, or any applicable redemption, exchange or repurchase obligations
shall not have been satisfied with respect to, the Series L Stock and all other
Parity Stock; provided, however, that dividends or distributions may be made on
-------- -------
Junior Stock if they are payable-in-kind in additional shares of, or warrants,
rights, calls or options exercisable for or convertible into additional shares
of Junior Stock; and provided further that Junior Stock may be converted into or
-------- -------
exchanged for Junior Stock.
2.4 Holders of shares of Series L Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on the Series L Stock. No interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series L Stock that may be in arrears (it being
understood that compounding of unpaid dividends shall not constitute money in
lieu of interest).
2.5 To the extent that the amount of any quarter-annual dividend
payable to a holder of Series L Stock (in respect of all shares held by such
holder) that is payable in additional shares of Series L Stock, valued at the
Liquidation Preference thereof, does not equal a whole number of shares of
Series L Stock, such fractional amount shall be paid in cash to such holder of
Series L Stock.
3. Optional Redemption.
--------------------
3.1 At any time on or after July 1, 2006, the Corporation may, at
its sole option, subject to the provisions of Sections 2.3 and 3.2, redeem, out
of funds legally available therefor, all or any part of the outstanding shares
of Series L Stock. The redemption prices for each share of Series L Stock called
for redemption during the 12-month periods commencing on July 1 of the years set
forth below shall be the amount (expressed as a percentage of the Liquidation
Preference thereof) set forth opposite such years, plus Accrued Dividends
thereon to the redemption date.
<PAGE>
9
Period Percentage of Liquidation Preference
2006 105.125%
2007 103.844%
2008 102.563%
2009 101.281%
2010 and thereafter 100.000%
3.2 No optional redemption shall be effected unless the
Corporation shall have obtained a Rating Confirmation with respect to such
redemption.
4. Mandatory Redemption.
---------------------
4.1 On the Mandatory Redemption Date, the Corporation shall
redeem, out of funds legally available therefor, each of the then outstanding
shares of Series L Stock as of the Mandatory Redemption Date at the Mandatory
Redemption Price Per Share.
4.2 Upon the redemption of all of the outstanding shares of
Series L Stock on the Mandatory Redemption Date pursuant to Section 4.1, the
Corporation's obligations with respect thereto will be discharged.
5. Debt Exchange.
--------------
5.1 On any Dividend Payment Date, subject to the provisions of
Sections 2.3 and 5.2, the Corporation may, at its sole option, exchange, out of
funds legally available therefor, each of the shares of Series L Stock, in whole
but not in part, for Senior Subordinated Debentures having an aggregate
principal amount equal to the Liquidation Preference on the Series L Stock plus
Accrued Dividends thereon. Notwithstanding the foregoing, the Corporation may
not exercise such exchange option unless all Accrued Dividends in respect of
shares of Series L Stock surrendered to the Corporation upon exchange shall have
been paid either in cash or, in respect of Accrued Dividends relating to any
Dividend Payment Date prior to July 1, 2006, at the option of the Corporation,
in cash, additional shares of Series L Stock or Senior Subordinated Debentures
having a principal amount equal to such amount.
5.2 No Debt Exchange shall be effected unless the Corporation
shall have obtained a Rating Confirmation with respect to the Debt Exchange.
<PAGE>
10
5.3 Upon the Debt Exchange, the Corporation shall issue Senior
Subordinated Debentures only in denominations of $1,000 and integral multiples
thereof and shall pay cash in lieu of issuing Senior Subordinated Debentures in
principal amounts of less than $1,000.
5.4 Prior to giving notice of its intention to effect the Debt
Exchange, the Corporation shall execute and deliver with a bank or trust company
selected by the Corporation, the Senior Subordinated Indenture.
6. Procedure for Redemption or Exchange.
-------------------------------------
6.1 In the event the Corporation shall elect or be required to
redeem or exchange shares of Series L Stock pursuant to Sections 3, 4 or 5
hereof, notice of such redemption or exchange shall be given by first-class
mail, not less than 30 nor more than 60 days prior to the redemption or exchange
date, to each record holder of the shares to be redeemed or exchanged, at such
holder's address as the same appears on the books of the Corporation. Each such
notice shall state: (i) whether the redemption or exchange is pursuant to
Section 3, 4 or 5 hereof; (ii) the time and date as of which the redemption or
exchange shall occur; (iii) the total number of shares of Series L Stock to be
redeemed or exchanged and, if fewer than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such holder; (iv)
in the case of a redemption, the redemption price; (v) the place or places where
certificates for such shares are to be surrendered for payment of the redemption
price in the case of a redemption, or for delivery of Senior Subordinated
Debentures in the case of the Debt Exchange; (vi) that dividends on the shares
to be redeemed will cease to accrue on such redemption or exchange date unless
the Corporation defaults in the payment of the redemption price or fails to
satisfy its exchange obligation; and (vii) in the case of redemption, the name
of any bank or trust company, if any, performing the duties referred to in
Section 6.3.
6.2 On or before any redemption or exchange date, each holder of
shares of Series L Stock to be redeemed or exchanged shall surrender the
certificate or certificates representing such shares of Series L Stock to the
Corporation, in the manner and at the place designated in the notice of
redemption or exchange, and on the redemption or exchange date, the full
redemption price or Senior Subordinated Debentures in the principal amount
specified in
<PAGE>
11
Section 5.1, as the case may be, for such shares of Series L Stock shall be paid
or delivered to the Person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
returned to authorized but unissued shares. Upon surrender (in accordance with
the notice of redemption or exchange) of the certificate or certificates
representing any shares to be so redeemed or exchanged (properly endorsed or
assigned for transfer, if the Corporation shall so require and the notice of
redemption or exchange shall so state), such shares shall be redeemed by the
Corporation at the redemption price or exchanged by the Corporation for Senior
Subordinated Debentures in the principal amount specified in Section 5.1. If
fewer than all the shares represented by any such certificate are to be
redeemed, a new certificate shall be issued representing the unredeemed shares,
without cost to the holder thereof, together with the amount of cash, if any, in
lieu of fractional shares.
6.3 If a notice of redemption or exchange shall have been given
as provided in Section 6.1, dividends on the shares of Series L Stock so called
for redemption or exchange shall cease to accrue, such shares shall no longer be
deemed to be outstanding, and all rights of the holders thereof as stockholders
of the Corporation with respect to shares so called for redemption or exchange
(except the right to receive from the Corporation the redemption price or the
Senior Subordinated Debentures without interest) shall cease (including any
right to receive dividends otherwise payable on any Dividend Payment Date that
would have occurred after the time and date of redemption or exchange) either
(i) from and after the time and date fixed in the notice of redemption or
exchange as the time and date of redemption or exchange (unless the Corporation
shall default in the payment of the redemption price or shall fail to satisfy
its exchange obligation, in which case such rights shall not terminate at such
time and date) or (ii) if the Corporation shall so elect and state in the notice
of redemption, from and after the time and date (which date shall be the date
fixed for redemption or an earlier date not less than 30 days after the date of
mailing of the redemption notice) on which the Corporation shall irrevocably
deposit in trust for the holders of the shares to be redeemed with a designated
bank or trust company doing business in the Borough of Manhattan, City and State
of New York, as paying agent, money sufficient to pay at the office of such
paying agent, on the redemption date, the redemption price. Any money so
deposited with any such paying agent
<PAGE>
12
that shall not be required for such redemption shall be returned to the
Corporation forthwith. Subject to applicable escheat laws, any moneys so set
aside by the Corporation and unclaimed at the end of one year from the
redemption date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption shall look
only to the general funds of the Corporation for the payment of the redemption
price without interest. Any interest accrued on funds so deposited shall be
paid to the Corporation from time to time.
6.4 In the event that fewer than all the outstanding shares of
Series L Stock are to be redeemed, the shares to be redeemed shall be determined
pro rata or by lot, as determined by the Corporation, except that the
Corporation may redeem such shares held by any holder of fewer than 100 shares
(or shares held by holders who would hold fewer than 100 shares as a result of
such redemption), as may be determined by the Corporation.
7. Change of Control.
------------------
7.1 Upon the occurrence of a Change of Control of the
Corporation, the Corporation shall make an offer (the "Change of Control Offer")
to each holder of Series L Stock to repurchase, out of funds legally available
therefor, all or any part of such holder's Series L Stock at a purchase price
per share in cash equal to 101% of the Liquidation Preference thereof, plus an
amount equal to all Accrued Dividends thereon to the date of purchase. The
Change of Control Offer must be made within 30 days following a Change of
Control, shall remain open for at least 30 and not more than 40 days and shall
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
applicable securities laws and regulations.
7.2 In the event the Corporation shall be required to make a
Change of Control Offer pursuant to Section 7.1 hereof, notice of such Change of
Control Offer shall be given by first-class mail, to each record holder of
shares of Series L Stock, at such holder's address as the same appears on the
books of the Corporation. Each such notice shall state: (i) that a Change of
Control has occurred; (ii) the last day on which the Change of Control Offer may
be accepted (the "Expiration Date"); (iii) the repurchase price; (iv) the name
and address of the paying
<PAGE>
13
agent; and (v) the procedures that holders must follow to accept the Change of
Control Offer.
7.3 On or before the Expiration Date, each holder of shares of
Series L Stock wishing to accept the Change of Control Offer shall surrender the
certificate or certificates representing such shares of Series L Stock that such
holder wishes to have repurchased to the Corporation, in the manner and at the
place designated in the notice described in Section 7.2, and on the repurchase
date, the full repurchase price for such shares of Series L Stock shall be
payable to the Person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be returned to
authorized but unissued shares. Upon surrender (in accordance with the notice
described in Section 7.2) of the certificate or certificates representing any
shares to be so repurchased (properly endorsed or assigned for transfer, if the
Corporation shall so require and the notice of a Change of Control Offer shall
so state), such shares shall be repurchased by the Corporation at the repurchase
price. In case fewer than all the shares represented by any such certificate are
to be repurchased, a new certificate shall be issued representing the non-
repurchased shares, without cost to the holder thereof, together with the amount
of cash, if any, in lieu of fractional shares.
8. Voting.
-------
8.1 The shares of Series L Stock shall have no voting rights
except as required by law or as set forth below:
(a) If and whenever at any time or times, a Voting Rights
Triggering Event occurs, then the number of directors constituting the Board of
Directors shall be increased by two (without duplication of any such increase in
directorships required under the terms of any other Parity Stock) and the
holders of shares of Series L Stock, voting or consenting, as the case may be,
together as a class with the holders of any shares of Parity Stock entitled to
vote thereon and as to which (i) dividends are in arrears or unpaid in an
aggregate amount equal to or exceeding the amount of dividends payable thereon
for six quarterly dividend periods or (ii) redemption or exchange obligations
have not been satisfied (together with the Series L Stock, the "Voting Rights
Class"), will be entitled
<PAGE>
14
to elect two directors of the Corporation to fill the newly created
directorships.
(b) Such voting rights may be exercised initially either by
written consent or at a special meeting of the holders of the shares of the
Voting Rights Class, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at each
such annual meeting until such time as all dividends in arrears on the shares of
this Series shall have been paid in full and/or all redemption or exchange
obligations have been satisfied, as applicable, at which time or times such
voting rights and the term of the directors elected pursuant to Section 8.1(a)
shall terminate.
(c) At any time when such voting rights shall have vested in
holders of shares of the Voting Rights Class described in Section 8.1(a), and if
such rights shall not already have been exercised by written consent, a proper
officer of the Corporation may call, and, upon the written request of the record
holders of shares representing twenty-five percent (25%) of the voting power of
the shares then outstanding of the Voting Rights Class, addressed to the
Secretary of the Corporation, shall call a special meeting of the holders of
shares of Voting Rights Class. Such meeting shall be held at the earliest
practicable date upon the notice required for annual meetings of stockholders at
the place for holding annual meetings of stockholders of the Corporation, or, if
none, at a place designated by the Board of Directors. Notwithstanding the
provisions of this Section 8.1(c), no such special meeting shall be called
during a period within the 60 days immediately preceding the date fixed for the
next annual meeting of stockholders.
(d) At any meeting held for the purpose of electing
directors at which the holders of the Voting Rights Class shall have the right
to elect directors as provided herein, the presence in person or by proxy of the
holders of shares representing more than fifty percent (50%) in voting power of
the then outstanding shares of the Voting Rights Class shall be required and
shall be sufficient to constitute a quorum of such class for the election of
directors by such class.
(e) Any director elected pursuant to the voting rights
created under this Section 8.1 shall hold office until the next annual meeting
of stockholders (unless
<PAGE>
15
such term has previously terminated pursuant to Section 8.1(b)) and any vacancy
in respect of any such director shall be filled only by vote of the remaining
director so elected by holders of the Voting Rights Class, or if there be no
such remaining director, by the holders of shares of the Voting Rights Class by
written consent or at a special meeting called in accordance with the procedures
set forth in this Section 8, or, if no such special meeting is called or written
consent executed, at the next annual meeting of stockholders. Upon any
termination of such voting rights, the term of office of all directors elected
pursuant to this Section 8 shall terminate.
(f) So long as any shares of Series L Stock remain
outstanding, unless a greater percentage shall then be required by law, the
Corporation shall not, without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of shares of Series L Stock
representing at least a majority of the outstanding shares of Series L Stock
voting or consenting, as the case may be, separately as one class, (i) create,
authorize or issue any Senior Stock or (ii) amend the Certificate or the
Certificate of Incorporation so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of shares of Series L Stock.
The holders of at least a majority of the outstanding shares of Series L Stock,
voting or consenting, as the case may be, separately as one class, may waive
compliance with any provision of the Certificate.
(g) In exercising the voting rights set forth in this
Section 8.1, each share of Series L Stock shall have a number of votes equal to
its Liquidation Preference.
8.2 Except as set forth in Section 8.1, the Corporation may (a)
create, authorize or issue any shares of Junior Stock or Parity Stock or (b)
increase or decrease the amount of authorized capital stock of any class,
including any preferred stock, without the consent of the holders of Series L
Stock, voting or consenting separately as a class, and in taking the actions
specified in (a) and (b) the Corporation shall not be deemed to have affected
adversely the rights, preferences, privileges or voting rights of holders of
shares of Series L Stock.
9. Liquidation Rights.
-------------------
<PAGE>
16
9.1 In the event of any liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary, the holders of the shares of
Series L Stock shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders up to their Liquidation Preference of
$1,000 per share plus Accrued Dividends thereon in preference to the holders of,
and before any distribution is made on, any Junior Stock, including, without
limitation on any Common Stock.
9.2 Neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or consolidation of
the Corporation into or with any other corporation, or the merger or
consolidation of any other corporation into or with the Corporation, shall be
deemed to be a liquidation, dissolution or winding up, voluntary or involuntary,
for the purposes of this Section 9.
9.3 After the payment to the holders of the shares of Series L
Stock of full preferential amounts provided for in this Section 9, the holders
of Series L Stock as such shall have no right or claim to any of the remaining
assets of the Corporation.
9.4 In the event the assets of the Corporation available for
distribution to the holders of shares of Series L Stock upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 9.1, no such distribution shall be made on account
of any shares of any Parity Stock upon such liquidation, dissolution or winding
up unless proportionate distributable amounts shall be paid on account of the
shares of Series L Stock, ratably, in proportion to the full distributable
amounts for which holders of all Parity Stock are entitled upon such
liquidation, dissolution or winding up.
10. Merger, Consolidation and Sale of Assets. Subject to the next
-----------------------------------------
sentence, without the affirmative vote or consent of the holders of at least a
majority of the outstanding shares of Series L Stock, voting or consenting, as
the case may be, separately as one class, the Corporation may not consolidate or
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or
<PAGE>
17
substantially all of its assets to, any Person unless: (a) the Person formed by
such consolidation or merger (if other than the Corporation) or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made shall be a corporation organized or existing under the laws of the
United States or any State thereof or the District of Columbia; (b) each share
of Series L Stock shall be converted into or exchanged for and shall become a
share of such successor, transferee or resulting corporation or a parent
corporation of such corporation, having in respect of such successor, transferee
or resulting corporation or parent corporation substantially the same powers,
preferences and relative participating, optional or other special rights, and
the qualifications, limitations or restrictions thereon, that the Series L Stock
had immediately prior to such transaction; and (c) immediately after giving
effect to such transaction, no Voting Rights Triggering Event shall have
occurred or be continuing.
11. Transfer Agent and Registrar. The transfer agent and registrar
-----------------------------
(the "Transfer Agent") for Series L Stock shall be ChaseMellon Shareholder
Services L.L.C. The Corporation may, in its sole discretion, remove the
Transfer Agent with 10 days' prior written notice to the Transfer Agent and
appoint a successor Transfer Agent prior to such removal.
12. Covenant to Report. Notwithstanding that the Corporation may not
-------------------
be subject to the reporting requirements of Section 13 or Section 15(d) of the
Exchange Act, the Corporation will provide the Transfer Agent and the holders of
Series L Stock with all information, documents and reports specified in Section
13 and Section 15(d) of the Exchange Act.
13. Other Provisions.
-----------------
13.1 With respect to any notice to a holder of shares of Series
L Stock required to be provided hereunder, neither failure to mail such notice,
nor any defect therein or in the mailing thereof, to any particular holder shall
affect the sufficiency of the notice or the validity of the proceedings referred
to in such notice with respect to the other holders or affect the legality or
validity of any distribution, right, warrant, reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any such action. Any notice that was mailed in
<PAGE>
18
the manner herein provided shall be conclusively presumed to have been duly
given whether or not the holder receives the notice.
13.2 Shares of Series L Stock issued and reacquired will, upon
compliance with the applicable requirements of the DGCL, have the status of
authorized but unissued shares of Preferred Stock of the Corporation
undesignated as to series and may with any and all other authorized but unissued
shares of Preferred Stock of the Corporation be designated or redesignated and
issued or reissued, as the case may be, as part of any series of Preferred Stock
of the Corporation, except that any issuance or reissuance of shares of Series L
Stock must be in compliance with the Certificate.
13.3 The shares of Series L Stock shall be issuable in whole
shares.
13.4 The Corporation shall be entitled to recognize the
exclusive right of a person registered on its records as the holder of shares of
Series L Stock for all purposes.
13.5 All notice periods referred to herein shall commence on the
date of the mailing of the applicable notice.
IN WITNESS WHEREOF, TW Inc. has caused this certificate to be signed
and attested this [ ] day of [ ], 1996.
TW INC.
By:
--------------------------
Name:
Title:
<PAGE>
Exhibit 3.1(m)
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF
10 1/4% SERIES M EXCHANGEABLE
PREFERRED STOCK
OF
TW INC.
--------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
--------------
TW INC. (the "Corporation"), a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware (the "DGCL"),
does hereby certify that the following resolution was duly adopted by action of
the Board of Directors of the Corporation (the "Board of Directors") at a
meeting duly held on [ ], 1996.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $.10 per share (the "Preferred Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series as follows:
The series of Preferred Stock hereby established shall consist of
15,200,000 shares designated as 10 1/4% Series M Exchangeable Preferred Stock
(such series being hereinafter referred to as "Series M Stock" or "this
<PAGE>
2
Series"). The rights, preferences and limitations of the Series M Stock shall
be as follows:
1. Definitions. As used herein, the following terms shall have the
------------
following meanings:
1.1. "Accrued Dividends" shall mean, with respect to any share of
this Series, as of any specified date, the accrued and unpaid dividends on such
share.
1.2. "Applicable Series B Redemption Date" shall mean, with respect
to any Mandatory Redemption Date, the Series B Redemption Date occurring one
year and one day prior to such Mandatory Redemption Date.
1.3. "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.4. "Board of Representatives of TWE" shall mean the Board of
Representatives of TWE (as defined in the TWE Partnership Agreement).
1.5. "Business Day" shall mean any day other than a Saturday, Sunday
or other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
1.6. "Certificate" shall mean the certificate of the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of 10 1/4%
Series M Exchangeable Preferred Stock filed with respect to this resolution with
the Secretary of State of the State of Delaware pursuant to Section 151 of the
DGCL.
1.7. "Change of Control" shall mean:
(i) whenever, in any three-year period, a majority of the members
of the Board of Directors elected during such three-year period shall have
been so elected against the recommendation of the management of the
Corporation or the Board of Directors in office immediately prior to such
election; it being understood that for purposes of this clause (i) a member
of such Board of Directors shall be deemed to have been elected against the
recommendation of such Board of Directors
<PAGE>
3
if his or her initial election occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than such Board of Directors; or
(ii) whenever any Person shall acquire (whether by merger,
consolidation, sale, assignment, lease, transfer or otherwise, in one
transaction or any related series of transactions) or otherwise
beneficially own voting securities of the Corporation that represent in
excess of 50% of the voting power of all outstanding voting securities of
the Corporation generally entitled to vote for the election of directors,
if such Person had acquired or publicly announced its intention to
initially acquire ten percent or more of such voting securities in a
transaction that had not, within 30 days after the date of such acquisition
or public announcement, been approved by the management of the Corporation.
1.8. "Common Stock" shall mean the class of Common Stock, par value
$.01 per share, of the Corporation or any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or as a result of a
subdivision or combination.
1.9. "Cumulative Priority Capital of the TWE Series B Interests"
shall mean, as of any date, the excess of (a) the sum of (i) the aggregate B
Contributions (as defined in the TWE Partnership Agreement) of the Corporation
(and its subsidiaries) and (ii) the aggregate cumulative B Returns (as defined
in the TWE Partnership Agreement) of the Corporation (and its subsidiaries) as
of such date, over (b) the sum of all distributions theretofore made to the
Corporation (and its subsidiaries) with respect to the TWE Series B Interests
pursuant to the TWE Partnership Agreement.
1.10. "DGCL" shall mean the General Corporation Law of the State of
Delaware.
1.11. "Dividend Payment Date" shall mean March 30, June 30, September
30 and December 30 of each
<PAGE>
4
year, commencing on the first such date to occur following the Issue Date (the
"First Dividend Payment Date").
1.12. "Dividend Record Date" shall mean, with respect to each
Dividend Payment Date, the twentieth day immediately preceding such Dividend
Payment Date.
1.13. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.14. "Excluded Tax Distributions" shall mean, with respect to any
period, all Tax Distributions made by TWE during such period other than Included
Tax Distributions.
1.15. "Final Redemption Date" shall mean July 1, 2016.
1.16. "Included Tax Distributions" shall mean, with respect to any
period, Tax Distributions made by TWE during such period with respect to the TWE
Series B Interests, but only if the total distributions made by TWE during such
period with respect to the TWE Series B Interests exceed such Tax Distributions.
1.17. "Insolvency Distribution Date", shall mean the date of the
completion of the liquidation, winding up or dissolution of TWE upon the
Insolvency of TWE, including the distribution of all of the cash and non-cash
assets to the partners of TWE.
1.18. "Insolvency of TWE" shall mean:
(i) the entry by a court having jurisdiction in the premises of
(a) a decree or order for relief in respect of TWE in an involuntary case
or proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (b) a decree or order adjudging TWE
a bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
TWE under any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of TWE or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such
decree or order for relief or
<PAGE>
5
any such other decree or order under either clause (a) or (b) above
unstayed and in effect for a period of 60 consecutive days; or
(ii) the commencement by TWE of a voluntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of TWE in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by it
of a petition or answer or consent seeking reorganization or relief under
any applicable federal or state law, or the consent by it to the filing of
such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of TWE or of any substantial part of its property, or the making
by it of a general assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due, or the adoption of a resolution by the Board of
Representatives of TWE to take any of the foregoing actions.
1.19. "Insolvency Redemption Amount" shall mean an amount equal to
the lesser of (i) the sum of (a) the Pro Rata Percentage as of the Insolvency
Distribution Date, multiplied by the sum of cash distributions and non-cash
distributions (the value of which shall be determined pursuant to a TWE
Insolvency Valuation) received by the Corporation (and its subsidiaries) with
respect to its TWE Series B Interests and its TWE Junior Interests in connection
with such liquidation, winding up or dissolution in accordance with the TWE
Partnership Agreement, and (b) an amount equal to the aggregate dividends
payable during the period from the Insolvency Distribution Date to the
Insolvency Redemption Date on the shares of Series M Stock outstanding from time
to time during such period and (ii) the aggregate Liquidation Preference of the
outstanding shares of Series M Stock plus Accrued Dividends thereon.
1.20. "Insolvency Redemption Amount Per Share" shall mean an amount
equal to (i) the Insolvency Redemption
<PAGE>
6
Amount divided by (ii) the number of shares of Series M Stock outstanding on the
Insolvency Redemption Date.
1.21. "Insolvency Redemption Date", shall mean the day that is one
year and one day following the Insolvency Distribution Date.
1.22. "Issue Date" shall mean, with respect to each share of Series M
Stock, the date upon which such share is first issued.
1.23. "Junior Stock" shall mean the Common Stock, the Series A
Participating Cumulative Preferred Stock and the shares of any other class or
series of stock of the Corporation created after the Initial Issue Date that, by
the terms of the Certificate of Incorporation or of the instrument by which the
Board of Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall be junior to the Series M Stock in respect of the right to
receive dividends or to participate in any other distribution of assets.
1.24. "Liquidation Preference" shall mean, with respect to each share
of Series M Stock, $1,000.
1.25. "Mandatory Redemption Amount" shall mean an amount equal to (i)
the Pro Rata Percentage (determined as of June 30, 2015, without giving effect
to the Series B Redemption occurring on such date) multiplied by the amount (as
determined by a TWE Valuation) that the Corporation (and its subsidiaries) would
have received in accordance with the TWE Partnership Agreement with respect to
its TWE Series B Interests and its TWE Junior Interests, had TWE sold all of its
assets and liquidated on June 30, 2015, plus (ii) the aggregate dividends
payable from July 1, 2015 to July 1, 2016 on the shares of Series M Stock from
time to time outstanding during such period.
1.26. "Mandatory Redemption Amount Per Share" shall mean an amount
equal to (i) the Mandatory Redemption Amount divided by (ii) the number of
shares of Series M Stock outstanding on the Final Redemption Date.
1.27. "Mandatory Redemption Date" shall mean July 1 of each of 2012,
2013, 2014 and 2015.
<PAGE>
7
1.28. "Mandatory Redemption Price Per Share" shall mean an amount
equal to the Liquidation Preference of each share of Series M Stock to be
redeemed, plus Accrued Dividends thereon.
1.29. "Material Contribution of Assets" shall mean a contribution to
TWE in a single transaction or a series of related transactions of Relevant
Assets, the fair market value of which (net of associated debt) is in excess of
$1,000,000,000 (as determined by the Board of Directors in good faith).
1.30. "Nationally Recognized Investment Banking Firm" shall mean an
investment banking firm having a national reputation in the United States that
shall have experience in valuation or securities rating matters, as the case may
be, and that shall be approved by a majority of the members of the Board of
Directors who are not officers or employees of the Corporation or its
subsidiaries, including TWE.
1.31. "Optional Redemption Price Per Share" shall mean, as of any
date, the price at which the Corporation may, at its option, redeem one share of
the Series M Stock pursuant to Section 3.1.
1.32. "Parity Stock" shall mean the shares of the Corporation's
Series D Convertible Preferred Stock, Series E Convertible Preferred Stock,
Series F Convertible Preferred Stock, Series G Convertible Preferred Stock,
Series H Convertible Preferred Stock, Series I Convertible Preferred Stock,
Series J Convertible Preferred Stock and any other class or series of stock of
the Corporation created after the Initial Issue Date that, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall, in the event that the stated dividends thereon are not paid in
full, be entitled to share ratably with the Series M Stock in the payment of
dividends, including accumulations, if any, in accordance with the sums which
would be payable on such shares if all dividends were declared and paid in full,
or shall, in the event that the amounts payable thereon in liquidation are not
paid in full, be entitled to share ratably with the Series M Stock in any other
distribution of assets in accordance with the sums that would be payable in such
distribution if all sums payable were discharged in
<PAGE>
8
full; provided, however, that the term "Parity Stock" shall be deemed to refer
-------- -------
(i) in Section 2.3 hereof, to any stock that is Parity Stock in respect of
dividend rights; (ii) in Section 10 hereof, to any stock that is Parity Stock in
respect of the distribution of assets; and (iii) in Section 9.1 hereof, to any
stock that is Parity Stock in respect of either dividend rights or the
distribution of assets and that, pursuant to the Certificate of Incorporation or
any instrument in which the Board of Directors, acting pursuant to authority
granted in the Certificate of Incorporation, shall so designate, is entitled to
vote as part of the Voting Rights Class.
1.33. "Person" shall mean any individual, corporation, general
partnership, limited partnership, limited liability partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization or government or any agency or political subdivision
thereof.
1.34. "Pro Rata Percentage" shall mean, as of any date, a fraction,
the numerator of which shall be the aggregate Liquidation Preference of the
outstanding shares of Series M Stock as of such date, plus Accrued Dividends
thereon, and the denominator of which shall be the Cumulative Priority Capital
of the TWE Series B Interests as of such date. In calculating the Pro Rata
Percentage in connection with the mandatory redemption on the Final Redemption
Date or upon an Insolvency of TWE, the Cumulative Priority Capital of the TWE
Series B Interests shall be increased by the sum of all Tax Distributions (other
than Included Tax Distributions) made by TWE to the Corporation (and its
subsidiaries) following April 11, 1996, with respect to the TWE Series B
Interests.
1.35. "Rating Confirmation" shall mean either (i) a confirmation from
each of Moody's Investors Service, Inc. or any successor to its rating agency
business ("Moody's") and Standard and Poor's Corporation or any successor to its
rating agency business ("S&P") that any contemplated redemption or exchange by
the Corporation would not result in a downgrade of its rating of the
Corporation's senior unsecured long-term debt, or (ii) a good faith
determination by the Board of Directors or any committee thereof (after
consultation with a Nationally Recognized Investment Banking Firm) that any
contemplated redemption or exchange by the Corporation should not result in a
downgrade in the rating
<PAGE>
9
of the Corporation's senior unsecured long-term debt by either Moody's or S&P.
1.36. "Redeemable Number" shall mean, with respect to any Mandatory
Redemption Date, a number (rounded down to the nearest whole number) of shares
of Series M Stock equal to (i) the Pro Rata Percentage (as of the Applicable
Series B Redemption Date without giving effect to the Series B Redemption
occurring on such date) of the amount of (a) cash distributions received by the
Corporation (and its subsidiaries) in respect of the Series B Redemption
occurring on the Applicable Series B Redemption Date, plus (b) cash
distributions received by the Corporation in respect of its TWE Junior Interests
from the Applicable Series B Redemption Date to such Mandatory Redemption Date,
divided by (ii) the Liquidation Preference per share of Series M Stock plus
Accrued Dividends thereon; provided, however, that in no event shall the
-------- -------
Redeemable Number exceed 20%, 25%, 33 1/3% and 50% of the number of shares of
Series M Stock outstanding on the Mandatory Redemption Dates occurring on July 1
of 2012, 2013, 2014 and 2015, respectively.
1.37. "Relevant Assets" shall mean filmed entertainment or
programming assets currently owned by the Corporation or any of its subsidiaries
(other than TWE) or that the Corporation or any of its subsidiaries (other than
TWE) currently has an agreement to acquire.
1.38. "Reorganization of TWE" shall mean (i) any merger or
consolidation of TWE or any sale of all or substantially all of the assets of
TWE, (ii) the liquidation, winding up or dissolution of TWE other than as a
result of the Insolvency of TWE, (iii) the making of any distributions, in cash
or other property (other than cash distributions in accordance with the TWE
Partnership Agreement), on the partnership interests in TWE from and after April
11, 1996, having an aggregate fair market value (together with any such prior
distributions) in excess of $500,000,000 as determined by the Board of Directors
in good faith, (iv) any transaction or series of related transactions that
results in a sale or transfer of 10% or more of the total assets of TWE
(excluding asset swaps and contributions to subsidiaries or joint ventures,
other than joint ventures with any partner of TWE as of the Initial Issue Date
that is not a subsidiary of the Company) unless such sale or transfer is made at
fair market value, the proceeds of such sale or transfer are substantially in
cash
<PAGE>
10
and such cash is used to repay debt or is reinvested in the business of TWE, (v)
any transfer in the beneficial ownership of a class of partnership interests in
TWE that would result in the Corporation (directly or indirectly) owning (after
giving effect to any reductions permitted by clauses (a) or (b) of this clause
(v)) less than 90% or more than 110% of its percentage ownership interest in
such class of partnership interests in TWE as of April 11, 1996, other than any
change resulting from (a) cash distributions in accordance with the TWE
Partnership Agreement or (b) the issuance of partnership interests in TWE upon
exercise of the U S WEST Option, (vi) any material reduction in voting or
management rights of the Corporation (and its subsidiaries) in TWE, (vii) any
issuance of additional partnership interests in TWE that rank senior to the TWE
Series B Interests (other than (a) the TWE Contingent Interests, (b) partnership
interests in TWE issued upon exercise of the U S WEST Option or (c) partnership
interests in TWE having a fair market value (together with any such prior
issuances) no greater than $500,000,000, as determined by the Board of Directors
in good faith, issued in connection with any contribution of assets to TWE), it
being understood that allocations of income or accretion with respect to the
capital accounts associated with the outstanding partnership interests in TWE
shall not be considered issuances of additional partnership interests in TWE,
(viii) any amendment to the TWE Partnership Agreement (other than an amendment
to effectuate an issuance of partnership interests in TWE permitted by clause
(vii)(c) above) that adversely affects the allocation of income or payment of
distributions to, or priority capital rate of return or priority of, the TWE
Series B Interests or (ix) the date that is six months following the occurrence
of a Material Contribution of Assets that does not otherwise result in the
occurrence of an event specified in clauses (i) through (viii) above.
1.39. "Reorganization Redemption/Exchange Date" means, with respect
to any Reorganization of TWE, the first Dividend Payment Date following the 90th
day after such Reorganization of TWE; provided, however, that if such first
-------- -------
Dividend Payment Date occurs on or prior to the 30th day following such 90th
day, then the Reorganization Redemption/Exchange Date means the second Dividend
Payment Date following the 90th day after such Reorganization of TWE.
<PAGE>
11
1.40. "Reorganization Redemption Price Per Share" shall mean, with
respect to each share of Series M Stock, (i) (a) 110% of the Liquidation
Preference thereof, plus (b) Accrued Dividends thereon, or (ii) if the Series M
Stock may be redeemed at the option of the Corporation at such time, the
Optional Redemption Price Per Share then in effect.
1.41. "Senior Stock" shall mean the shares of any class or series of
stock of the Corporation created after the Initial Issue Date that, by the terms
of the Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall be senior to the Series M Stock in respect of the right to
receive dividends or to participate in any other distribution of assets.
1.42. "Series B Redemption" shall mean each distribution with respect
to the TWE Series B Interests in accordance with Section 8.4(c)(ii) of the TWE
Partnership Agreement.
1.43. "Series B Redemption Date" shall mean June 30 of each of 2011,
2012, 2013, 2014 and 2015.
1.44. "Series L Stock" shall mean the Corporation's 10-1/4% Series L
Exchangeable Preferred Stock that may be issued after the Initial Issue Date
upon a Reorganization of TWE pursuant to Section 6.1(i), and that shall have the
voting powers, designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions as are
set forth in a certificate of designations substantially in the form attached
hereto as Exhibit A. 1/
-
1.45. "Tax Distributions" shall mean cash distributions made to the
Corporation (and its subsidiaries) pursuant to Section 8.5 of the TWE
Partnership Agreement.
1.46. "TWE" shall mean Time Warner Entertainment Company, L.P., a
Delaware limited partnership.
1.47. "TWE Contingent Interests" shall mean the partnership interests
in TWE associated with the C Sub-
- ---------------------
1/ Note: Series L Stock certificate of designations to be included as
- ----
Exhibit A.
<PAGE>
12
Accounts and the D Sub-Accounts (each as defined in the TWE Partnership
Agreement) of the Corporation (and its subsidiaries).
1.48. "TWE Insolvency Valuation" shall mean the average of the
determinations of two Nationally Recognized Investment Banking Firms with
respect to the fair market value, as of the Insolvency Distribution Date, of
each non-cash distribution from TWE received by the Corporation (and its
subsidiaries) upon a liquidation, winding up or dissolution of TWE upon the
Insolvency of TWE. The Nationally Recognized Investment Banking Firms shall be
selected by the Corporation within 30 days following the Insolvency Distribution
Date and shall render their opinions within 90 days following the Insolvency
Distribution Date. For purposes of the foregoing, (i) the fair market value of
such non-cash distributions shall be based on the price at which such property
would be sold in an arm's-length transaction between a willing buyer and a
willing seller, and to the extent such property comprises an operating business,
it shall be valued on a going concern basis; and (ii) such value shall be
increased by the sum of all Tax Distributions (other than Included Tax
Distributions) made by TWE to the Corporation (and its subsidiaries) following
April 11, 1996, with respect to the TWE Series B Interests.
1.49. "TWE Junior Interests" shall mean the TWE Residual Interests
together with the TWE Contingent Interests.
1.50. "TWE Partnership Agreement" shall mean that certain Agreement
of Limited Partnership, dated as of October 29, 1991, as the same may be amended
from time to time.
1.51. "TWE Residual Interests" shall mean the partnership interests
in TWE associated with the Common Sub-Accounts (as defined in the TWE
Partnership Agreement) of the Corporation (and its subsidiaries).
1.52. "TWE Series A Interests" shall mean the partnership interests
in TWE associated with the A Sub-Accounts (as defined in the TWE Partnership
Agreement) of the Corporation (and its subsidiaries).
1.53. "TWE Series B Interests" shall mean the partnership interests
in TWE associated with the B Sub-
<PAGE>
13
Accounts (as defined in the TWE Partnership Agreement) of the Corporation (and
its subsidiaries).
1.54. "TWE Valuation" shall mean the average of the determinations of
two Nationally Recognized Investment Banking Firms with respect to the fair
market value of the assets of TWE as of June 30, 2015 (without giving effect to
the Series B Redemption or any distribution in respect of the TWE Junior
Interests occurring on such date). The Nationally Recognized Investment Banking
Firms shall be selected by the Corporation by September 28, 2015 and shall
render their opinions by November 27, 2015. For purposes of the foregoing, (i)
the fair market value of the assets of TWE shall be determined on a going
concern basis, assuming that each division of TWE is sold in a separate arm's-
length transaction between a willing buyer and a willing seller; and (ii) such
value shall be increased by the sum of all Tax Distributions (other than
Included Tax Distributions) made by TWE to the Corporation (and its
subsidiaries) following April 11, 1996, with respect to the TWE Series B
Interests.
1.55. "U S WEST Option" shall mean the option granted to U S WEST,
Inc., a Delaware corporation, to increase its share of the partnership interests
in TWE pursuant to the Option Agreement, dated as of September 15, 1992, between
TWE and U S WEST, Inc.
1.56. "Voting Rights Triggering Event" shall mean the failure of the
Corporation to (i) pay dividends on the Series M Stock in cash, or to the extent
permitted by its terms, by the issuance of additional shares of Series M Stock,
for more than six consecutive quarterly dividend periods or (ii) discharge any
redemption or exchange obligation with respect to the Series M Stock.
2. Dividends.
----------
2.1. The holders of shares of the outstanding Series M Stock shall be
entitled, when, as and if declared by the Board of Directors out of funds
legally available therefor, to receive dividends on each outstanding share of
Series M Stock. Except as otherwise provided in this Section 2.1, each quarter-
annual dividend shall be an amount per share (rounded to the nearest $.01) equal
to $25.625 per $1,000 Liquidation Preference of Series M Stock (the "Preferred
Dividend Amount") and shall be payable on each Dividend Payment Date, to the
holders of record of Series M Stock at the close of business on the Dividend
Record Date
<PAGE>
14
applicable to such Dividend Payment Date, commencing on the First Dividend
Payment Date. Such dividends shall be cumulative and shall accrue on a day-to-
day basis, whether or not earned or declared, from and after the Issue Date
applicable to each share of this Series. Dividends on the Series M Stock that
are not declared and paid when due will compound quarterly on each Dividend
Payment Date at the dividend rate. Dividends payable for any partial dividend
period shall be computed on the basis of actual days elapsed over a 365- (or
366-) day year. Notwithstanding the foregoing, the amount accruing and payable
in respect of the first dividend on the Series M Stock payable after the date of
the Certificate shall equal the Preferred Dividend Amount.
2.2. Dividends may, at the option of the Corporation, be paid on any
Dividend Payment Date either in cash or by issuing fully paid and nonassessable
shares of Series M Stock with an aggregate Liquidation Preference equal to the
amount of such dividends; provided, however, that dividends payable on any
-------- -------
Dividend Payment Date shall be paid (i) in cash, to the extent of an amount
equal to the Pro Rata Percentage as of the Preceding Dividend Record Date
multiplied by the amount of cash distributions, other than Excluded Tax
Distributions, if any, received by the Corporation (and its subsidiaries) with
respect to its TWE Series B Interests and TWE Junior Interests on or after the
Preceding Dividend Record Date to but not including, the current Dividend Record
Date, and (ii) in Series M Stock or cash, at the Corporation's option, to the
extent of any balance.
2.3. Except as hereinafter provided in this Section 2.3, no full
dividends or other distributions may be declared or paid or set apart for
payment on Series M Stock or any other Parity Stock, and no Parity Stock,
including the Series M Stock, may be repurchased, exchanged, redeemed or
otherwise acquired by the Corporation, nor may funds be set apart for payment
with respect thereto, unless full cumulative dividends shall have been paid or
set apart for such payment on, and all applicable redemption, exchange and
repurchase obligations shall have been satisfied with respect to, all
outstanding shares of Series M Stock and such other Parity Stock; provided,
--------
however, that dividends or distributions may be made on Parity Stock if they are
- -------
payable in Junior Stock, and Parity Stock may be converted into or exchanged for
Parity Stock (having no greater preference upon liquidation) or Junior Stock;
and provided
--------
<PAGE>
15
further that if the Company shall have satisfied all applicable redemption,
- -------
exchange and repurchase obligations with respect to all outstanding shares of
Series M Stock and other Parity Stock, but if full dividends are not so paid,
the Series M Stock shall share dividends with all other Parity Stock, so that
the amount of dividends declared per share on Series M Stock and all such other
Parity Stock shall in all cases bear to each other the same ratio that full
cumulative dividends per share on the shares of Series M Stock and all such
other Parity Stock bear to each other. No dividends or other distributions may
be paid or set apart for such payment on Junior Stock, and no Junior Stock may
be repurchased, exchanged, redeemed or otherwise acquired nor may funds be set
apart for payment with respect thereto, if full cumulative dividends have not
been paid on, or any applicable redemption, exchange or repurchase obligations
shall not have been satisfied with respect to, the Series M Stock and all other
Parity Stock; provided, however, that dividends or distributions may be made on
-------- -------
Junior Stock if they are payable-in-kind in additional shares of, or warrants,
rights, calls or options exercisable for or convertible into additional shares
of, Junior Stock; and provided further that Junior Stock may be converted into
-------- -------
or exchanged for Junior Stock.
2.4. Holders of shares of Series M Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on the Series M Stock. No interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series M Stock that may be in arrears (it being
understood that the compounding of unpaid dividends shall not constitute money
in lieu of interest).
2.5. To the extent that the amount of any quarter-annual dividend
payable to a holder of Series M Stock (in respect of all shares held by such
holder) that is payable in additional shares of Series M Stock, valued at the
Liquidation Preference thereof, does not equal a whole number of shares of
Series M Stock, such fractional amount shall be paid in cash to such holder of
Series M Stock.
3. Optional Redemption.
--------------------
3.1. At any time on or after July 1, 2006, the Corporation may, at
its sole option, subject to the provisions of Sections 2.3 and 3.2, redeem, out
of funds
<PAGE>
16
legally available therefor, all or any part of the outstanding shares of Series
M Stock. The redemption prices for each share of Series M Stock called for
redemption during the 12-month periods commencing on July 1 of the years set
forth below shall be the amount (expressed as a percentage of the Liquidation
Preference thereof) set forth opposite such years, plus Accrued Dividends
thereon to the redemption date.
<TABLE>
<CAPTION>
Period Percentage of Liquidation Preference
------ -------------------------------------
<S> <C>
2006 105.125%
2007 103.844%
2008 102.563%
2009 101.281%
2010 and thereafter 100.000%
</TABLE>
3.2. No optional redemption shall be effected unless the Corporation
shall have obtained a Rating Confirmation with respect to such redemption.
4. Mandatory Redemption.
---------------------
4.1. On each Mandatory Redemption Date, the Corporation shall redeem,
out of funds legally available therefor, the Redeemable Number of shares of
Series M Stock with respect to such Mandatory Redemption Date at the Mandatory
Redemption Price Per Share.
4.2. On the Final Redemption Date, the Corporation shall redeem, out
of funds legally available therefor, each of the then outstanding shares of
Series M Stock at the lesser of the Mandatory Redemption Amount Per Share and
the Mandatory Redemption Price Per Share; provided, however, that if the
-------- -------
Corporation does not obtain a TWE Valuation within 120 days following the final
Series B Redemption Date, the Corporation shall redeem, out of funds legally
available therefor, such shares at the Mandatory Redemption Price Per Share; and
provided further that, if the TWE Series B Interests have been fully redeemed in
- -------- -------
accordance with the TWE Partnership Agreement, the Corporation shall redeem, out
of funds legally available therefor, such shares at the Mandatory Redemption
Price Per Share.
4.3. Upon the redemption of all of the outstanding shares of Series M
Stock on the Final Redemption
<PAGE>
17
Date pursuant to Section 4.2, the Corporation's obligations with respect thereto
will be discharged.
5. Redemption upon Insolvency of TWE.
----------------------------------
5.1. In the event of a liquidation, winding up or dissolution of TWE
upon the Insolvency of TWE, the Corporation shall redeem, out of funds legally
available therefor, each of the outstanding shares of Series M Stock on the
Insolvency Redemption Date at the Insolvency Redemption Amount Per Share.
5.2. Upon such redemption, the Corporation's obligation with respect
to the Series M Stock will be discharged.
6. Reorganization of TWE.
----------------------
6.1. In the event of a Reorganization of TWE, on the Reorganization
Redemption/Exchange Date, the Corporation shall either (at its election) (i)
exchange each outstanding share of Series M Stock for shares of Series L Stock
having an aggregate liquidation preference of $1,000 plus the Accrued Dividends
on such share of Series M Stock so exchanged (the "Reorganization Exchange") or
(ii) redeem, out of funds legally available therefor, each outstanding share of
Series M Stock at the Reorganization Redemption Price Per Share (the
"Reorganization Redemption"); provided, however, that the Corporation may not
-------- -------
effect a Reorganization Redemption prior to July 1, 2011 unless the Corporation
shall have obtained a Rating Confirmation with respect to such Reorganization
Redemption; and provided, further, that the Corporation may not effect a
-------- -------
Reorganization Exchange on or after July 1, 2011. Within 90 days after a
Reorganization of TWE, the Corporation shall make a public announcement that a
Reorganization of TWE has occurred and as to whether it will effect a
Reorganization Exchange or Reorganization Redemption.
6.2. The Corporation shall be entitled to effect a Reorganization
Exchange only to the extent that upon issuance of shares of Series L Stock such
shares shall be duly authorized and validly issued, fully paid and nonassessable
shares of Series L Stock. Certificates for shares of Series L Stock issued in
exchange for surrendered shares of this Series pursuant to a Reorganization
Exchange shall be made available by the Corporation not later than
<PAGE>
18
the fifth Business Day following the Reorganization Redemption/Exchange Date.
6.3. Prior to giving notice of its intention to effect a
Reorganization Exchange, the Corporation shall execute and file with the
Secretary of State of the State of Delaware a certificate of designations
substantially in the form of Exhibit A hereto relating to the Series L Stock,
with such changes as may be required by law or that would not adversely affect
the interests of the holders of the Series L Stock.
6.4. To the extent that in connection with a Reorganization Exchange
any holder of Series M Stock shall be entitled to receive, in respect of all of
its shares of Series M Stock, a number of shares of Series L Stock that does not
equal a whole number of shares, then such holder shall receive cash in lieu of
such fractional amount.
7. Procedure for Redemption or Exchange.
-------------------------------------
7.1. In the event the Corporation shall elect or be required to
redeem or exchange shares of Series M Stock pursuant to Sections 3, 4, 5 or 6
hereof, notice of such redemption or exchange shall be given by first-class
mail, not less than 30 nor more than 60 days prior to the redemption or exchange
date, to each record holder of the shares to be redeemed or exchanged, at such
holder's address as the same appears on the books of the Corporation. Each such
notice shall state: (i) whether the redemption or exchange is pursuant to
Section 3, 4, 5 or 6 hereof; (ii) the time and date as of which the redemption
or exchange shall occur; (iii) the total number of shares of Series M Stock to
be redeemed or exchanged and, if fewer than all the shares held by such holder
are to be redeemed, the number of such shares to be redeemed from such holder;
(iv) in the case of a redemption, the redemption price; (v) the place or places
where certificates for such shares are to be surrendered for payment of the
redemption price in the case of a redemption, or for delivery of certificates
representing shares of Series L Stock in the case of an exchange; (vi) that
dividends on the shares to be redeemed will cease to accrue on such redemption
or exchange date unless the Corporation defaults in the payment of the
redemption price or fails to satisfy its exchange obligation; and (vii) in the
case of redemption, the name of any bank or trust company, if any, performing
the duties referred to in Section 7.3.
<PAGE>
19
7.2. On or before any redemption or exchange date, each holder of
shares of Series M Stock to be redeemed or exchanged shall surrender the
certificate or certificates representing such shares of Series M Stock to the
Corporation, in the manner and at the place designated in the notice of
redemption or exchange, and on the redemption or exchange date, the full
redemption price or shares of Series L Stock, as the case may be, for such
shares of Series M Stock shall be paid or delivered to the Person whose name
appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be returned to authorized but unissued shares.
Upon surrender (in accordance with the notice of redemption or exchange) of the
certificate or certificates representing any shares to be so redeemed or
exchanged (properly endorsed or assigned for transfer, if the Corporation shall
so require and the notice of redemption or exchange shall so state), such shares
shall be redeemed by the Corporation at the redemption price or exchanged by the
Corporation for shares of Series L Stock. If fewer than all the shares
represented by any such certificate are to be redeemed, a new certificate shall
be issued representing the unredeemed shares, without cost to the holder
thereof, together with the amount of cash, if any, in lieu of fractional shares.
7.3. If a notice of redemption or exchange shall have been given as
provided in Section 7.1, dividends on the shares of Series M Stock so called for
redemption shall cease to accrue, such shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as stockholders of the
Corporation with respect to shares so called for redemption or exchange (except
the right to receive from the Corporation the redemption price or the Series L
Stock without interest) shall cease (including any right to receive dividends
otherwise payable on any Dividend Payment Date that would have occurred after
the time and date of redemption or exchange) either (i) from and after the time
and date fixed in the notice of redemption or exchange as the time and date of
redemption or exchange (unless the Corporation shall default in the payment of
the redemption price or shall fail to satisfy its exchange obligation, in which
case such rights shall not terminate at such time and date) or (ii) if the
Corporation shall so elect and state in the notice of redemption, from and after
the time and date (which date shall be the date fixed for redemption or an
earlier date not less than 30 days after the date of mailing of the redemption
notice) on which the Corporation shall irrevocably deposit in trust for the
<PAGE>
20
holders of the shares to be redeemed with a designated bank or trust company
doing business in the Borough of Manhattan, City and State of New York, as
paying agent, money sufficient to pay at the office of such paying agent, on the
redemption date, the redemption price. Any money so deposited with any such
paying agent that shall not be required for such redemption shall be returned to
the Corporation forthwith. Subject to applicable escheat laws, any moneys so
set aside by the Corporation and unclaimed at the end of one year from the
redemption date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption shall look
only to the general funds of the Corporation for the payment of the redemption
price without interest. Any interest accrued on funds so deposited shall be
paid to the Corporation from time to time.
7.4. In the event that fewer than all the outstanding shares of
Series M Stock are to be redeemed, the shares to be redeemed shall be determined
pro rata or by lot, as determined by the Corporation, except that the
Corporation may redeem such shares held by any holder of fewer than 100 shares
(or shares held by holders who would hold fewer than 100 shares as a result of
such redemption), as may be determined by the Corporation.
8. Change of Control.
------------------
8.1. Upon the occurrence of a Change of Control of the Corporation,
the Corporation shall make an offer (the "Change of Control Offer") to each
holder of Series M Stock to repurchase, out of funds legally available therefor,
all or any part of such holder's Series M Stock at a purchase price per share in
cash equal to 101% of the Liquidation Preference thereof, plus an amount equal
to all Accrued Dividends thereon to the date of purchase. The Change of Control
Offer must be made within 30 days following a Change of Control, shall remain
open for at least 30 and not more than 40 days and shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other applicable
securities laws and regulations.
8.2. In the event the Corporation shall be required to make a Change
of Control Offer pursuant to Section 8.1 hereof, notice of such Change of
Control Offer shall be given by first-class mail, to each record holder of
shares of Series M Stock, at such holder's address as the same appears on the
books of the Corporation. Each such
<PAGE>
21
notice shall state: (i) that a Change of Control has occurred; (ii) the last day
on which the Change of Control Offer may be accepted (the "Expiration Date");
(iii) the repurchase price; (iv) the name and address of the paying agent; and
(v) the procedures that holders must follow to accept the Change of Control
Offer.
8.3. On or before the Expiration Date, each holder of shares of
Series M Stock wishing to accept the Change of Control Offer shall surrender the
certificate or certificates representing such shares of Series M Stock that such
holder wishes to have repurchased to the Corporation, in the manner and at the
place designated in the notice described in Section 8.2, and on the repurchase
date, the full repurchase price for such shares of Series M Stock shall be
payable to the Person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be returned to
authorized but unissued shares. Upon surrender (in accordance with the notice
described in Section 8.2) of the certificate or certificates representing any
shares to be so repurchased (properly endorsed or assigned for transfer, if the
Corporation shall so require and the notice of a Change of Control Offer shall
so state), such shares shall be repurchased by the Corporation at the repurchase
price. In case fewer than all the shares represented by any such certificate
are to be repurchased, a new certificate shall be issued representing the non-
repurchased shares, without cost to the holder thereof, together with the amount
of cash, if any, in lieu of fractional shares.
9. Voting.
-------
9.1. The shares of Series M Stock shall have no voting rights except
as required by law or as set forth below:
(a) If and whenever at any time or times, a Voting Rights
Triggering Event occurs, then the number of directors constituting the Board of
Directors shall be increased by two (without duplication of any such increase in
directorships required under the terms of any other Parity Stock) and the
holders of shares of Series M Stock, voting or consenting, as the case may be,
together as a class with the holders of any shares of Parity Stock entitled to
vote thereon and as to which (i) dividends are in arrears or unpaid in an
aggregate amount equal to or exceeding the amount of dividends payable thereon
for six
<PAGE>
22
quarterly dividend periods or (ii) redemption or exchange obligations have not
been satisfied (together with the Series M Stock, the "Voting Rights Class"),
will be entitled to elect two directors of the Corporation to fill the newly
created directorships.
(b) Such voting rights may be exercised initially either by
written consent or at a special meeting of the holders of the shares of the
Voting Rights Class, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at each
such annual meeting until such time as all dividends in arrears on the shares of
this Series shall have been paid in full and/or all redemption or exchange
obligations have been satisfied, as applicable, at which time or times such
voting rights and the term of the directors elected pursuant to Section 9.1(a)
shall terminate.
(c) At any time when such voting rights shall have vested in
holders of shares of the Voting Rights Class described in Section 9.1(a), and if
such rights shall not already have been exercised by written consent, a proper
officer of the Corporation may call, and, upon the written request of the record
holders of shares representing twenty-five percent (25%) of the voting power of
the shares then outstanding of the Voting Rights Class, addressed to the
Secretary of the Corporation, shall call a special meeting of the holders of
shares of Voting Rights Class. Such meeting shall be held at the earliest
practicable date upon the notice required for annual meetings of stockholders at
the place for holding annual meetings of stockholders of the Corporation, or, if
none, at a place designated by the Board of Directors. Notwithstanding the
provisions of this Section 9.1(c), no such special meeting shall be called
during a period within the 60 days immediately preceding the date fixed for the
next annual meeting of stockholders.
(d) At any meeting held for the purpose of electing
directors at which the holders of the Voting Rights Class shall have the right
to elect directors as provided herein, the presence in person or by proxy of the
holders of shares representing more than fifty percent (50%) in voting power of
the then outstanding shares of the Voting Rights Class shall be required and
shall be sufficient to constitute a quorum of such class for the election of
directors by such class.
<PAGE>
23
(e) Any director elected pursuant to the voting rights
created under this Section 9.1 shall hold office until the next annual meeting
of stockholders (unless such term has previously terminated pursuant to Section
9.1(b)) and any vacancy in respect of any such director shall be filled only by
vote of the remaining director so elected by holders of the Voting Rights Class,
or if there be no such remaining director, by the holders of shares of the
Voting Rights Class by written consent or at a special meeting called in
accordance with the procedures set forth in this Section 9, or, if no such
special meeting is called or written consent executed, at the next annual
meeting of stockholders. Upon any termination of such voting rights, the term of
office of all directors elected pursuant to this Section 9 shall terminate.
(f) So long as any shares of Series M Stock remain
outstanding, unless a greater percentage shall then be required by law, the
Corporation shall not, without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of shares of Series M Stock
representing at least a majority of the outstanding shares of Series M Stock
voting or consenting, as the case may be, separately as one class, (i) create,
authorize or issue any Senior Stock or (ii) amend the Certificate or the
Certificate of Incorporation so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of shares of Series M Stock.
The holders of at least a majority of the outstanding shares of Series M Stock,
voting or consenting, as the case may be, separately as one class, may waive
compliance with any provision of the Certificate.
(g) In exercising the voting rights set forth in this
Section 9.1, each share of Series M Stock shall have a number of votes equal to
its Liquidation Preference.
9.2. Except as set forth in Section 9.1, the Corporation may (a)
create, authorize or issue any shares of Junior Stock or Parity Stock or (b)
increase or decrease the amount of authorized capital stock of any class,
including any preferred stock, without the consent of the holders of Series M
Stock, voting or consenting separately as a class, and in taking the actions
specified in (a) and (b) the Corporation shall not be deemed to have affected
adversely the rights, preferences, privileges or voting rights of holders of
shares of Series M Stock.
<PAGE>
24
10. Liquidation Rights.
-------------------
10.1. In the event of any liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary, the holders of the shares of
Series M Stock shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders up to their Liquidation Preference of
$1,000 per share plus Accrued Dividends thereon in preference to the holders of,
and before any distribution is made on, any Junior Stock, including, without
limitation on any Common Stock.
10.2. Neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or consolidation of
the Corporation into or with any other corporation, or the merger or
consolidation of any other corporation into or with the Corporation, shall be
deemed to be a liquidation, dissolution or winding up, voluntary or involuntary,
for the purposes of this Section 10.
10.3. After the payment to the holders of the shares of Series M
Stock of full preferential amounts provided for in this Section 10, the holders
of Series M Stock as such shall have no right or claim to any of the remaining
assets of the Corporation.
10.4. In the event the assets of the Corporation available for
distribution to the holders of shares of Series M Stock upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 10.1, no such distribution shall be made on account
of any shares of any Parity Stock upon such liquidation, dissolution or winding
up unless proportionate distributable amounts shall be paid on account of the
shares of Series M Stock, ratably, in proportion to the full distributable
amounts for which holders of all Parity Stock are entitled upon such
liquidation, dissolution or winding up.
11. Merger, Consolidation and Sale of Assets. Subject to the next
-----------------------------------------
sentence, without the affirmative vote or consent of the holders of at least a
majority of the outstanding shares of Series M Stock, voting or consenting, as
the case may be, separately as one class, the Corporation
<PAGE>
25
may not consolidate or merge with or into, or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets to, any
Person unless: (a) the Person formed by such consolidation or merger (if other
than the Corporation) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made shall be a corporation
organized or existing under the laws of the United States or any State thereof
or the District of Columbia; (b) each share of Series M Stock shall be converted
into or exchanged for and shall become a share of such successor, transferee or
resulting corporation or a parent corporation of such corporation, having in
respect of such successor, transferee or resulting corporation or parent
corporation substantially the same powers, preferences and relative
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereon, that the Series M Stock had immediately
prior to such transaction; and (c) immediately after giving effect to such
transaction, no Voting Rights Triggering Event shall have occurred or be
continuing.
12. Transfer Agent and Registrar. The transfer agent and registrar
-----------------------------
(the "Transfer Agent") for the Series M Stock shall be ChaseMellon Shareholder
Services L.L.C. The Corporation may, in its sole discretion, remove the
Transfer Agent with 10 days' prior written notice to the Transfer Agent and
appoint a successor Transfer Agent prior to such removal.
13. Covenant to Report. Notwithstanding that the Corporation may not
-------------------
be subject to the reporting requirements of Section 13 or Section 15(d) of the
Exchange Act, the Corporation will provide the Transfer Agent and the holders of
Series M Stock with all information, documents and reports specified in Section
13 and Section 15(d) of the Exchange Act.
14. Other Provisions.
-----------------
14.1. With respect to any notice to a holder of shares of Series M
Stock required to be provided hereunder, neither failure to mail such notice,
nor any defect therein or in the mailing thereof, to any particular holder shall
affect the sufficiency of the notice or the validity of the proceedings referred
to in such notice with respect to the other holders or affect the legality or
validity of any distribution, right, warrant, reclassification, consolidation,
merger, conveyance, transfer, dissolution,
<PAGE>
26
liquidation or winding up, or the vote upon any such action. Any notice that
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given whether or not the holder receives the notice.
14.2. Shares of Series M Stock issued and reacquired will, upon
compliance with the applicable requirements of the DGCL, have the status of
authorized but unissued shares of Preferred Stock of the Corporation
undesignated as to series and may with any and all other authorized but unissued
shares of Preferred Stock of the Corporation be designated or redesignated and
issued or reissued, as the case may be, as part of any series of Preferred Stock
of the Corporation, except that any issuance or reissuance of shares of Series M
Stock must be in compliance with the Certificate.
14.3. The shares of Series M Stock shall be issuable in whole shares.
14.4. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its records as the holder of shares of Series M
Stock for all purposes.
14.5. All notice periods referred to herein shall commence on the
date of the mailing of the applicable notice.
IN WITNESS WHEREOF, TW Inc. has caused this certificate to be signed
and attested this [ ] day of [ ], 1996.
TW INC.
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
TW INC.
Incorporated under the Laws of the State of Delaware
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I: Offices 1
Registered Office.................................................... 1
Other Offices........................................................ 1
ARTICLE II: Meetings of Stockholders 1
Place of Meeting..................................................... 1
Annual Meetings...................................................... 1
Special Meetings..................................................... 2
Notice of Meetings................................................... 2
Quorum............................................................... 3
Adjournments......................................................... 3
Order of Business.................................................... 4
List of Stockholders................................................. 6
Voting............................................................... 6
Inspectors........................................................... 8
Public Announcements................................................. 8
ARTICLE III: Board of Directors 9
General Powers....................................................... 9
Number, Qualification and Election................................... 9
Notification of Nominations.......................................... 10
Quorum and Manner of Acting.......................................... 13
Place of Meeting..................................................... 13
Regular Meetings..................................................... 13
Special Meetings..................................................... 14
Notice of Meetings................................................... 14
Rules and Regulations................................................ 14
Participation in Meeting by Means of
Communications Equipment............................................. 15
Action without Meeting............................................... 15
Resignations......................................................... 15
Removal of Directors................................................. 15
Vacancies............................................................ 15
Compensation......................................................... 16
Independent Directors................................................ 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV: Committees of the Board of Directors 18
Establishment of Committees of the Board of
Directors; Election of Members of Committees
of the Board of Directors; Functions of
Committees of the Board of Directors............................. 18
Procedure; Meetings; Quorum........................................... 18
ARTICLE V: Officers 20
Number; Term of Office................................................ 20
Removal............................................................... 21
Resignation........................................................... 21
Vacancies............................................................. 21
Chairman of the Board................................................. 21
Chief Executive Officer............................................... 22
The President......................................................... 22
Chief Operating Officer............................................... 23
Vice-Chairman of the Board............................................ 23
Chairman of the Executive Committee................................... 24
Chief Financial Officer............................................... 24
Vice-Presidents....................................................... 24
Treasurer............................................................. 25
Controller............................................................ 25
Secretary............................................................. 25
Assistant Treasurers and Assistant
Secretaries...................................................... 26
ARTICLE VI: Indemnification 27
Right to Indemnification.............................................. 27
Insurance, Contracts and Funding...................................... 28
Indemnification Not Exclusive Right................................... 28
Advancement of Expenses; Procedures; Presumptions
and Effect of Certain Proceedings; Remedies...................... 29
Severability.......................................................... 35
Indemnification of Employees Serving
as Directors..................................................... 36
Indemnification of Employees and Agents............................... 37
ARTICLE VII: Capital Stock 38
Certificates for Shares............................................... 38
Transfer of Shares.................................................... 38
Registered Stockholders and Addresses
of Stockholders.................................................. 39
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Lost, Destroyed and Mutilated Certificates............................ 40
Regulations........................................................... 41
Fixing Date for Determination of
Stockholders of Record........................................... 41
Transfer Agents and Registrars........................................ 41
ARTICLE VIII: Seal 42
ARTICLE IX: Fiscal Year 42
ARTICLE X: Waiver of Notice 42
ARTICLE XI: Amendments 43
ARTICLE XII: Miscellaneous 43
Execution of Documents................................................ 43
Deposits.............................................................. 44
Checks................................................................ 44
Proxies in Respect of Stock or Other
Securities of Other Corporations................................. 44
Subject to Law and Certificate of
Incorporation.................................................... 45
</TABLE>
iii
<PAGE>
ARTICLE I
Offices
-------
SECTION 1. Registered Office. The registered office of TW Inc.
-----------------
(hereinafter called the Corporation) in the State of Delaware shall be at 32
Loockerman Square, Suite L-100, Dover, Delaware 19901 and the registered agent
shall be The Prentice-Hall Corporation System, Inc., or such other office or
agent as the Board of Directors of the Corporation (the "Board") shall from time
to time select.
SECTION 2. Other Offices. The Corporation may also have an office or
-------------
offices, and keep the books and records of the Corporation, except as may
otherwise be required by law, at such other place or places, either within or
without the State of Delaware, as the Board may from time to time determine or
the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
------------------------
SECTION 1. Place of Meeting. All meetings of the stockholders of the
----------------
Corporation (the "stockholders") shall be held at the office of the Corporation
or at such other places, within or without the State of Delaware, as may from
time to time be fixed by the Board.
SECTION 2. Annual Meetings. The annual meeting of the stockholders
---------------
for the election of directors and for the transaction of such other business as
may properly come before the meeting
-1-
<PAGE>
shall be held on such date and at such hour as shall from time to time be fixed
by the Board. Any previously scheduled annual meeting of the stockholders may
be postponed by action of the Board taken prior to the time previously scheduled
for such annual meeting of stockholders.
SECTION 3. Special Meetings. Except as otherwise required by law or
----------------
the Restated Certificate of Incorporation of the Corporation (the "Certificate")
and subject to the rights of the holders of any series of Preferred Stock or
Series Common Stock or any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation, special meetings of the
stockholders for any purpose or purposes may be called by the Chairman, either
Co-Chief Executive Officer, or the President or a majority of the entire Board.
Only such business as is specified in the notice of any special meeting of the
stockholders shall come before such meeting.
SECTION 4. Notice of Meetings. Except as otherwise provided by law,
------------------
written notice of each meeting of the stockholders, whether annual or special,
shall be given, either by personal delivery or by mail, not less than 10 nor
more than 60 days before the date of the meeting to each stockholder of record
entitled to notice of the meeting. If mailed, such notice shall be deemed given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. Each such notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the
-2-
<PAGE>
meeting is called. Notice of any meeting of stockholders shall not be required
to be given to any stockholder who shall attend such meeting in person or by
proxy without protesting, prior to or at the commencement of the meeting, the
lack of proper notice to such stockholder, or who shall waive notice thereof as
provided in Article X of these By-laws. Notice of adjournment of a meeting of
stockholders need not be given if the time and place to which it is adjourned
are announced at such meeting, unless the adjournment is for more than 30 days
or, after adjournment, a new record date is fixed for the adjourned meeting.
SECTION 5. Quorum. Except as otherwise provided by law or by the
------
Certificate, the holders of a majority of the votes entitled to be cast by the
stockholders entitled to vote generally, present in person or by proxy, shall
constitute a quorum at any meeting of the stockholders; provided, however, that
-------- -------
in the case of any vote to be taken by classes, the holders of a majority of the
votes entitled to be cast by the stockholders of a particular class, present in
person or by proxy, shall constitute a quorum of such class.
SECTION 6. Adjournments. The chairman of the meeting or the holders
------------
of a majority of the votes entitled to be cast by the stockholders who are
present in person or by proxy may adjourn the meeting from time to time whether
or not a quorum is present. In the event that a quorum does not exist with
respect to any vote to be taken by a particular class, the chairman of the
meeting or the holders of a majority of the votes entitled to be cast by the
stockholders of such class who are present in person or by proxy
-3-
<PAGE>
may adjourn the meeting with respect to the vote(s) to be taken by such class.
At any such adjourned meeting at which a quorum may be present, any business may
be transacted which might have been transacted at the meeting as originally
called.
SECTION 7. Order of Business. At each meeting of the stockholders,
-----------------
the Chairman or, in the absence of the Chairman, the President, or in the
absence of both the Chairman and the President, such person as shall be selected
by the Board shall act as chairman of the meeting. The order of business at
each such meeting shall be as determined by the chairman of the meeting. The
chairman of the meeting shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts and things as are
necessary or desirable for the proper conduct of the meeting, including, without
limitation, the establishment of procedures for the maintenance of order and
safety, limitations on the time allotted to questions or comments on the affairs
of the Corporation, restrictions on entry to such meeting after the time
prescribed for the commencement thereof, and the opening and closing of the
voting polls.
At any annual meeting of stockholders, only such business shall be
conducted as shall have been brought before the annual meeting (i) by or at the
direction of the chairman of the meeting or (ii) by any stockholder who is a
holder of record at the time of the giving of the notice provided for in this
Section 7, who is entitled to vote at the meeting and who complies with the
procedures set forth in this Section 7.
-4-
<PAGE>
For business properly to be brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation (the "Secretary"). To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 70 days nor
more than 90 days prior to the anniversary date of the immediately preceding
annual meeting; provided, however, that in the event that the date of the annual
-------- -------
meeting is more than 30 days earlier or more than 60 days later than such
anniversary date, notice by the stockholder to be timely must be so delivered or
received not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 70th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made. To be in proper written form, a
stockholder's notice to the Secretary shall set forth in writing as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business; (iii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder; and (iv) any material interest
of the stockholder in such business. The foregoing notice requirements shall be
deemed satisfied by a stockholder if the stockholder has notified the
Corporation of his or her intention to
-5-
<PAGE>
present a proposal at an annual meeting and such stockholder's proposal has been
included in a proxy statement that has been prepared by management of the
Corporation to solicit proxies for such annual meeting; provided, however, that
-------- -------
if such stockholder does not appear or send a qualified representative to
present such proposal at such annual meeting, the Corporation need not present
such proposal for a vote at such meeting, notwithstanding that proxies in
respect of such vote may have been received by the Corporation. Notwithstanding
anything in the By-laws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
Section 7. The chairman of an annual meeting shall, if the facts warrant,
determine that business was not properly brought before the annual meeting in
accordance with the provisions of this Section 7 and, if he should so determine,
he shall so declare to the annual meeting and any such business not properly
brought before the annual meeting shall not be transacted.
SECTION 8. List of Stockholders. It shall be the duty of the
--------------------
Secretary or other officer who has charge of the stock ledger to prepare and
make, at least 10 days before each meeting of the stockholders, a complete list
of the stockholders entitled to vote thereat, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in such stockholder's name. Such list shall be produced and kept available at
the times and places required by law.
SECTION 9. Voting. Except as otherwise provided by law or by the
------
Certificate, each stockholder of record of any series of
-6-
<PAGE>
Preferred Stock or Series Common Stock shall be entitled at each meeting of
stockholders to such number of votes, if any, for each share of such stock as
may be fixed in the Certificate or in the resolution or resolutions adopted by
the Board providing for the issuance of such stock, and each stockholder of
record of Common Stock shall be entitled at each meeting of stockholders to one
vote for each share of such stock, in each case, registered in such
stockholder's name on the books of the Corporation:
(1) on the date fixed pursuant to Section 6 of Article VII of these
By-laws as the record date for the determination of stockholders entitled
to notice of and to vote at such meeting; or
(2) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice of such
meeting is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may
authorize not in excess of three persons to act for such stockholder by proxy.
Any such proxy shall be delivered to the secretary of such meeting at or prior
to the time designated for holding such meeting, but in any event not later than
the time designated in the order of business for so delivering such proxies. No
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period.
At each meeting of the stockholders, all corporate actions to be taken
by vote of the stockholders (except as
-7-
<PAGE>
otherwise required by law and except as otherwise provided in the Certificate or
these By-laws) shall be authorized by a majority of the votes cast by the
stockholders entitled to vote thereon who are present in person or represented
by proxy, and where a separate vote by class is required, a majority of the
votes cast by the stockholders of such class who are present in person or
represented by proxy shall be the act of such class.
Unless required by law or determined by the chairman of the meeting to
be advisable, the vote on any matter, including the election of directors, need
not be by written ballot. In the case of a vote by written ballot, each ballot
shall be signed by the stockholder voting, or by such stockholder's proxy, and
shall state the number of shares voted.
SECTION 10. Inspectors. The chairman of the meeting shall appoint
----------
two or more inspectors to act at any meeting of stockholders. Such inspectors
shall perform such duties as shall be required by law or specified by the
chairman of the meeting. Inspectors need not be stockholders. No director or
nominee for the office of director shall be appointed such inspector.
SECTION 11. Public Announcements. For purpose of Section 7 of this
--------------------
Article II and Section 3 of Article III, "public announcement" shall mean
disclosure (i) in a press release reported by the Dow Jones News Service,
Reuters Information Service or any similar or successor news wire service or
(ii) in a writing distributed generally to stockholders and in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Sections 13, 14 or 15(d) of the Securities
-8-
<PAGE>
Exchange Act of 1934 or any successor provisions thereto.
ARTICLE III
Board of Directors
------------------
SECTION 1. General Powers. The business and affairs of the
--------------
Corporation shall be managed by or under the direction of the Board, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate directed or required to be
exercised or done by the stockholders.
SECTION 2. Number, Qualification and Election. Except as otherwise
----------------------------------
fixed by or pursuant to the provisions of Article IV of the Certificate relating
to the rights of the holders of any series of Preferred Stock or Series Common
Stock or any class or series of stock having preference over the Common Stock as
to dividends or upon liquidation, the number of directors of the Corporation
shall be determined from time to time by the Board by the affirmative vote of
directors constituting at least a majority of the entire Board; provided that
the number thereof may not be less than three.
The directors, other than those who may be elected by the holders of
shares of any series of Preferred Stock or Series Common Stock or any class or
series of stock having a preference over the Common Stock of the Corporation as
to dividends or upon liquidation pursuant to the terms of Article IV of the
Certificate or any resolution or resolutions providing for the issuance of such
stock adopted by the Board, shall be classified, with respect to the time
-9-
<PAGE>
for which they severally hold office, into three classes as nearly equal in
number as possible, with each class to hold office until its successors are
elected and qualified. If the number of directors is changed by the Board, any
newly created directorships or any decrease in directorships shall be so
apportioned among the classes as to make all classes as nearly equal as
possible; provided, however, that no decrease in the number of directors shall
shorten the term of any incumbent director. Subject to the rights of the
holders of any series of Preferred Stock or Series Common Stock or any class or
series of stock having a preference over the Common Stock of the Corporation as
to dividends or upon liquidation, at each such annual meeting of the
stockholders, the successors of the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election.
Each director shall be at least 21 years of age. Directors need not be
stockholders of the Corporation.
In any election of directors, the persons receiving a plurality of the
votes cast, up to the number of directors to be elected in such election, shall
be deemed elected.
SECTION 3. Notification of Nominations. Subject to the rights of the
---------------------------
holders of any series of Preferred Stock or Series Common Stock or any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation, nominations for the election of directors may be made by the
Board or by any stockholder who is a stockholder of record at the time of
-10-
<PAGE>
giving of the notice of nomination provided for in this Section 3 and who is
entitled to vote for the election of directors. Any stockholder of record
entitled to vote for the election of directors at a meeting may nominate persons
for election as directors only if timely written notice of such stockholder's
intent to make such nomination is given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation (i) with respect to an election
to be held at an annual meeting of stockholders, not less than 70 nor more than
90 days prior to the anniversary date of the immediately preceding annual
meeting; provided, however, that in the event that the date of the annual
-------- -------
meeting is more than 30 days earlier or more than 60 days later than such
anniversary date, notice by the stockholder to be timely must be so delivered or
received not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 70th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made and (ii) with respect to an election to
be held at a special meeting of stockholders for the election of directors, not
earlier than the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees to be elected at such meeting.
Each such notice shall set forth: (a) the name and
-11-
<PAGE>
address of the stockholder who intends to make the nomination and of the person
or persons to be nominated; (b) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all arrangements
or understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the Board; and (e) the consent of each nominee to serve as a
director of the Corporation if so elected. The chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure. Only such persons who are nominated in accordance with
the procedures set forth in this Section 3 shall be eligible to serve as
directors of the Corporation.
Notwithstanding anything in the immediately preceding paragraph of
this Section 3 to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation at an annual meeting of
stockholders is increased and there is no public announcement naming all of the
nominees for directors or specifying the size of the increased Board of
Directors made by the Corporation at least 70 days prior to the
-12-
<PAGE>
first anniversary of the preceding year's annual meeting, a shareholder's notice
required by this Section 3 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to or mailed to and received by the secretary at the principal
executive offices of the Corporation not later than the close of business on the
10th day following the day on which such public announcement is first made by
the Corporation.
SECTION 4. Quorum and Manner of Acting. Except as otherwise provided
---------------------------
by law, the Certificate or these By-laws, a majority of the entire Board shall
constitute a quorum for the transaction of business at any meeting of the Board,
and, except as so provided, the vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. The
chairman of the meeting or a majority of the directors present may adjourn the
meeting to another time and place whether or not a quorum is present. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
SECTION 5. Place of Meeting. The Board may hold its meetings at such
----------------
place or places within or without the State of Delaware as the Board may from
time to time determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
SECTION 6. Regular Meetings. Regular meetings of the Board shall be
----------------
held at such times and places as the Board shall from time to time by resolution
determine. If any day fixed for a
-13-
<PAGE>
regular meeting shall be a legal holiday under the laws of the place where the
meeting is to be held, the meeting which would otherwise be held on that day
shall be held at the same hour on the next succeeding business day.
SECTION 7. Special Meetings. Special meetings of the Board shall be
----------------
held whenever called by the Chairman, either Co-Chief Executive Officer, or the
President or by a majority of the directors.
SECTION 8. Notice of Meetings. Notice of regular meetings of the
------------------
Board or of any adjourned meeting thereof need not be given. Notice of each
special meeting of the Board shall be given by overnight delivery service or
mailed to each director, in either case addressed to such director at such
director's residence or usual place of business, at least two days before the
day on which the meeting is to be held or shall be sent to such director at such
place by telegraph or telecopy or be given personally or by telephone, not later
than the day before the meeting is to be held, but notice need not be given to
any director who shall, either before or after the meeting, submit a signed
waiver of such notice or who shall attend such meeting without protesting, prior
to or at its commencement, the lack of notice to such director. Every such
notice shall state the time and place but need not state the purpose of the
meeting.
SECTION 9. Rules and Regulations. The Board may adopt such rules and
---------------------
regulations not inconsistent with the provisions of law, the Certificate or
these By-laws for the conduct of its meetings and management of the affairs of
the Corporation as the
-14-
<PAGE>
Board may deem proper.
SECTION 10. Participation in Meeting by Means of Communications
---------------------------------------------------
Equipment. Any one or more members of the Board or any committee thereof may
- ---------
participate in any meeting of the Board or of any such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at such meeting.
SECTION 11. Action without Meeting. Any action required or permitted
----------------------
to be taken at any meeting of the Board or any committee thereof may be taken
without a meeting if all of the members of the Board or of any such committee
consent thereto in writing and the writing or writings are filed with the
minutes or proceedings of the Board or of such committee.
SECTION 12. Resignations. Any director of the Corporation may at any
------------
time resign by giving written notice to the Board, the Chairman, the President
or the Secretary. Such resignation shall take effect at the time specified
therein or, if the time be not specified therein, upon receipt thereof; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 13. Removal of Directors. Directors may be removed only as
--------------------
provided in Section 4 of Article VI of the Certificate.
SECTION 14. Vacancies. Subject to the rights of the holders of any
---------
series of Preferred Stock or Series Common Stock or
-15-
<PAGE>
any class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation, any vacancies on the Board
resulting from death, resignation, removal or other cause shall only be filled
by the Board by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board, or by a sole
remaining director, and newly created directorships resulting from any increase
in the number of directors shall be filled by the Board, or if not so filled, by
the stockholders at the next annual meeting thereof or at a special meeting
called for that purpose in accordance with Section 3 of Article II of these By-
laws. Any director elected in accordance with the preceding sentence of this
Section 14 shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified.
SECTION 15. Compensation. Each director, in consideration of such
------------
person serving as a director, shall be entitled to receive from the Corporation
such amount per annum and such fees (payable in cash or stock) for attendance at
meetings of the Board or of committees of the Board, or both, as the Board shall
from time to time determine. In addition, each director shall be entitled to
receive from the Corporation reimbursement for the reasonable expenses incurred
by such person in connection with the performance of such person's duties as a
director. Nothing contained in this Section shall preclude any director from
serving the Corporation or any of its subsidiaries in any other capacity
-16-
<PAGE>
and receiving proper compensation therefor.
SECTION 16. Independent Directors.
---------------------
(a) Independence of Members of Board of Directors at Time of
--------------------------------------------------------
Nomination. At the time that the Board determines the slate of directors for
- ----------
election at an Annual Meeting of Stockholders, a majority of the members of the
Board, assuming the election of the nominated slate and taking into account
resignations effective on or prior to such Annual Meeting, shall be determined
by the Board to be eligible to be classified as independent directors.
(b) Directors Elected to Fill Vacancies on the Board or Newly
---------------------------------------------------------
Created Directorships. If the Board elects directors between Annual Meetings of
- ----------------------
Stockholders to fill vacancies or newly created directorships, the majority of
all directors holding office immediately after such elections shall be
determined by the Board to be eligible to be classified as independent
directors.
(c) Determination of Independence of Directors. In its
------------------------------------------
determination of a director's eligibility to be classified as an independent
director pursuant to this Section 16, the Board shall consider, among such other
factors as it may in any case deem relevant, that the director: (i) has not been
employed by the Corporation as an executive officer within the past three years;
(ii) is not a paid adviser or consultant to the Corporation and derives no
financial benefit from any entity as a result of advice or consultancy provided
to the Corporation by such entity; (iii) is not an executive officer, director
or significant stockholder of
-17-
<PAGE>
a significant customer or supplier of the Corporation; (iv) has no personal
services contract with the Corporation; (v) is not an executive officer or
director of a tax-exempt entity receiving a significant part of its annual
contributions from the Corporation; (vi) is not a member of the immediate family
of any director who is not considered an independent director; and (vii) is free
of any other relationship that would interfere with the exercise of independent
judgment by such director.
ARTICLE IV
Committees of the Board of Directors
------------------------------------
SECTION 1. Establishment of Committees of the Board of Directors;
----------------------------------------------------------------
Election of Members of Committees of the Board of Directors; Functions of
- -------------------------------------------------------------------------
Committees of the Board of Directors. The Board may, in accordance with and
- ------------------------------------
subject to the General Corporation Law of the State of Delaware, from time to
time establish committees of the Board to exercise such powers and authorities
of the Board, and to perform such other functions, as the Board may from time to
time determine.
SECTION 2. Procedure; Meetings; Quorum. Regular meetings of
---------------------------
committees of the Board, of which no notice shall be necessary, may be held at
such times and places as shall be fixed by resolution adopted by a majority of
the members thereof. Special meetings of any committee of the Board shall be
called at the request of any member thereof. Notice of each special meeting of
any committee of the Board shall be sent by overnight delivery service, or
mailed to each member thereof, in either case addressed
-18-
<PAGE>
to such member at such member's residence or usual place of business, at least
two days before the day on which the meeting is to be held or shall be sent to
such member at such place by telegraph or telecopy or be given personally or by
telephone, not later than the day before the meeting is to be held, but notice
need not be given to any member who shall, either before or after the meeting,
submit a signed waiver of such notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of such notice to such
member. Any special meeting of any committee of the Board shall be a legal
meeting without any notice thereof having been given, if all the members thereof
shall be present thereat and no member shall protest the lack of notice to such
member. Notice of any adjourned meeting of any committee of the Board need not
be given. Any committee of the Board may adopt such rules and regulations not
inconsistent with the provisions of law, the Certificate or these By-laws for
the conduct of its meetings as such committee of the Board may deem proper. A
majority of the members of any committee of the Board shall constitute a quorum
for the transaction of business at any meeting, and the vote of a majority of
the members thereof present at any meeting at which a quorum is present shall be
the act of such committee. Each committee of the Board shall keep written
minutes of its proceedings and shall report on such proceedings to the Board.
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<PAGE>
ARTICLE V
Officers
--------
SECTION 1. Number; Term of Office. The officers of the Corporation
----------------------
shall be such officers, which may include a Chairman of the Board, Chief
Executive Officer or Co-Chief Executive Officers, President, Chief Operating
Officer, Chairman of the Executive Committee and one or more Vice Chairmen and
Vice Presidents (including, without limitation, Assistant, Executive, Senior
and Group Vice Presidents) and a Treasurer, Secretary and Controller and such
other officers or agents with such titles and such duties as the Board may from
time to time determine, each to have such authority, functions or duties as in
these By-laws provided or as the Board may from time to time determine, and each
to hold office for such term as may be prescribed by the Board and until such
person's successor shall have been chosen and shall qualify, or until such
person's death or resignation, or until such person's removal in the manner
hereinafter provided. The Chairman, the Chief Executive Officers, the Vice-
Chairmen, the Chairman of the Executive Committee, and the President, if any,
shall be elected from among the directors. One person may hold the offices and
perform the duties of any two or more of said officers; provided, however, that
-------- -------
no officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law, the Certificate or these By-laws
to be executed, acknowledged or verified by two or more officers. The Board may
from time to time authorize any officer to appoint and remove any such other
officers and agents and to prescribe their powers and
-20-
<PAGE>
duties. The Board may require any officer or agent to give security for the
faithful performance of such person's duties.
Except as otherwise provided by these By-laws, any reference to the
Chairman or Chief Executive Officer in these By-laws shall be deemed to mean, if
there are Co-Chairmen or Co-Chief Executive Officers, either Co-Chairmen or
either Co-Chief Executive Officer, each of whom may severally exercise the full
powers and authorities of the office of Chairman or Chief Executive Officer, as
the case may be.
SECTION 2. Removal. Any officer may be removed, either with or
-------
without cause, by the Board at any meeting thereof called for the purpose or,
except in the case of any officer elected by the Board, by any superior officer
upon whom such power may be conferred by the Board.
SECTION 3. Resignation. Any officer may resign at any time by giving
-----------
notice to the Board, the Chairman or the Secretary. Any such resignation shall
take effect at the date of receipt of such notice or at any later date specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 4. Vacancies. A vacancy in any office because of death,
---------
resignation, removal or any other cause may be filled for the unexpired portion
of the term in the manner prescribed in these By-laws for election to such
office.
SECTION 5. Chairman of the Board. The Chairman shall, if present,
---------------------
preside at meetings of the Board and, if present, preside at meetings of the
stockholders, and, if present and in the
-21-
<PAGE>
absence of the Chairman of the Executive Committee, preside at meetings of the
Executive Committee. The Chairman may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments. The
Chairman shall, when requested, counsel with and advise the other officers of
the Corporation and shall perform such other duties as he may agree with the
Chief Executive Officer or as the Board may from time to time determine.
SECTION 6. Chief Executive Officer. The Chief Executive Officer
-----------------------
shall have general supervision and direction of the business and affairs of the
Corporation, subject to the control of the Board. The Chief Executive Officer
may sign and execute in the name of the Corporation deeds, mortgages, bonds,
contracts or other instruments. The Chief Executive Officer shall, when
requested, counsel with and advise the other officers of the Corporation and
shall perform such other duties as the Board may from time to time determine.
SECTION 7. The President. The President shall perform such senior
-------------
executive duties as the Board shall from time to time determine. The President
shall, if present and in the absence of the Chairman, preside at meetings of the
stockholders and, if present and in the absence of the Chairman, preside at
meetings of the Board and, if present and in the absence of the Chairman of the
Executive Committee and the Chairman of the Board, preside at meetings of the
Executive Committee. The President may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments. The
President shall, when
-22-
<PAGE>
requested, counsel with and advise the other officers of the Corporation and
shall perform such other duties as he may agree with the Chief Executive Officer
or as the Board may from time to time determine.
SECTION 8. Chief Operating Officer. The Chief Operating Officer
-----------------------
shall perform such senior duties in connection with the operations of the
Corporation as the Board or the Chief Executive Officer shall from time to time
determine. The Chief Operating Officer may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts and other instruments. The Chief
Operating Officer, shall, when requested, counsel with and advise the other
officers of the Corporation and shall perform such other duties as he may agree
with the Chief Executive Officer or as the Board may from time to time
determine.
SECTION 9. Vice-Chairman of the Board. In the absence of the
--------------------------
Chairman of the Board and the President, the Vice-Chairman of the Board (the
"Vice Chairman") if one shall have been elected, or if there shall be more than
one, a Vice-Chairman as designated by the Chairman or the President, or, in the
absence of such designation, as designated by the Board, shall, if present,
preside at meetings of the Board. The Vice Chairman may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other instruments.
The Vice Chairman shall, when requested, counsel with and advise the other
officers of the Corporation and shall perform such other duties as he may agree
with the Chief Executive Officer or as the Board may from time to time
determine.
-23-
<PAGE>
SECTION 10. Chairman of the Executive Committee. The Chairman of the
-----------------------------------
Executive Committee shall, if present, preside at meetings of the Executive
Committee. The Chairman of the Executive Committee shall perform such other
duties as the Board or the Executive Committee may from time to time determine.
The Chairman of the Executive Committee shall, when requested, counsel with and
advise the other officers of the Corporation and shall perform such other duties
as he may agree with the Chief Executive Officer or as the Board may from time
to time determine.
SECTION 11. Chief Financial Officer. The Chief Financial Officer of
-----------------------
the Corporation, if one shall have been elected, shall perform all the powers
and duties of the office of the chief financial officer and in general have
overall supervision of the financial operations of the Corporation. The Chief
Financial Officer may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments. The Chief Financial Officer
shall, when requested, counsel with and advise the other officers of the
Corporation and shall perform such other duties as he may agree with the Chief
Executive Officer or as the Board may from time to time determine.
SECTION 12. Vice-Presidents. Any Vice-President shall have such
---------------
powers and duties as shall be prescribed by his superior officer or the Board.
Any Vice-President may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments. The Vice President shall,
when requested, counsel with and advise the other officers of the Corporation
and shall perform such other duties as he may agree with the Chief
-24-
<PAGE>
Executive Officer or as the Board may from time to time determine.
SECTION 13. Treasurer. The Treasurer, if one shall have been
---------
elected, shall supervise and be responsible for all the funds and securities of
the Corporation; the deposit of all moneys and other valuables to the credit of
the Corporation in depositories of the Corporation; borrowings and compliance
with the provisions of all indentures, agreements and instruments governing such
borrowings to which the Corporation is a party; the disbursement of funds of the
Corporation and the investment of its funds; and in general shall perform all of
the duties incident to the office of the Treasurer. The Treasurer may sign and
execute in the name of the Corporation deeds, mortgages, bonds, contracts or
other instruments. The Treasurer shall, when requested, counsel with and advise
the other officers of the Corporation and shall perform such other duties as he
may agree with the Chief Executive Officer or as the Board may from time to time
determine.
SECTION 14. Controller. The Controller shall be the chief accounting
----------
officer of the Corporation. The Controller may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts or other instruments. The
Controller shall, when requested, counsel with and advise the other officers of
the Corporation and shall perform such other duties as he may agree with the
Chief Executive Officer or the Chief Financial Officer or as the Board may from
time to time determine.
SECTION 15. Secretary. It shall be the duty of the Secretary to act
---------
as secretary at all meetings of the Board, of the committees of the Board and
of the stockholders and to record the
-25-
<PAGE>
proceedings of such meetings in a book or books to be kept for that purpose; the
Secretary shall see that all notices required to be given by the Corporation are
duly given and served; the Secretary shall be custodian of the seal of the
Corporation and shall affix the seal or cause it to be affixed to all
certificates of stock of the Corporation (unless the seal of the Corporation on
such certificates shall be a facsimile, as hereinafter provided) and to all
documents, the execution of which on behalf of the Corporation under its seal is
duly authorized in accordance with the provisions of these By-laws; the
Secretary shall have charge of the books, records and papers of the Corporation
and shall see that the reports, statements and other documents required by law
to be kept and filed are properly kept and filed; and in general shall perform
all of the duties incident to the office of Secretary. The Secretary shall,
when requested, counsel with and advise the other officers of the Corporation
and shall perform such other duties as he may agree with the Chief Executive
Officer or as the Board may from time to time determine.
SECTION 16. Assistant Treasurers and Assistant Secretaries. Any
----------------------------------------------
Assistant Treasurers and Assistant Secretaries shall perform such duties as
shall be assigned to them by the Board. Any Assistant Treasurer or Assistant
Secretary shall perform such duties as shall be assigned to them by the
Treasurer or Secretary, respectively, or by the Chairman of the Board or by the
Chief Executive Officer.
-26-
<PAGE>
ARTICLE VI
Indemnification
---------------
SECTION 1. Right to Indemnification. The Corporation, to the fullest
------------------------
extent permitted by applicable law as then in effect, shall indemnify any person
who is or was a director or officer of the Corporation and who is or was
involved in any manner (including, without limitation, as a party or a witness)
or is threatened to be made so involved in any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without limitation, any action, suit
or proceedings by or in the right of the Corporation to procure a judgment in
its favor) (a "Proceeding") by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including, without limitation, any employee benefit plan) (a "Covered Entity")
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such Proceeding; provided, however, that the foregoing shall not apply to a
-------- -------
director or officer of the Corporation with respect to a Proceeding that was
commenced by such director or officer unless the proceeding was commenced after
a Change in Control (as hereinafter defined in Section 4(e) of this Article).
Any director or officer of the Corporation entitled to indemnification as
provided in this Section 1 is hereinafter called
-27-
<PAGE>
an "Indemnitee". Any right of an Indemnitee to indemnification shall be a
contract right and shall include the right to receive, prior to the conclusion
of any Proceeding, payment of any expenses incurred by the Indemnitee in
connection with such proceeding, consistent with the provisions of applicable
law as then in effect and the other provisions of this Article.
SECTION 2. Insurance, Contracts and Funding. The Corporation may
--------------------------------
purchase and maintain insurance to protect itself and any director, officer,
employee or agent of the Corporation or of any Covered Entity against any
expenses, judgments, fines and amounts paid in settlement as specified in
Section 1 of this Article or incurred by any such director, officer, employee or
agent in connection with any Proceeding referred to in Section 1 of this
Article, to the fullest extent permitted by applicable law as then in effect.
The Corporation may enter into contracts with any director, officer, employee or
agent of the Corporation or of any Covered Entity in furtherance of the
provisions of this Article and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided or authorized in this Article.
SECTION 3. Indemnification Not Exclusive Right. The right of
-----------------------------------
indemnification provided in this Article shall not be exclusive of any other
rights to which an Indemnitee may otherwise be entitled, and the provisions of
this Article shall inure to the benefit of the heirs and legal representatives
of any Indemnitee under this Article and shall be applicable to Proceedings
commenced
-28-
<PAGE>
or continuing after the adoption of this Article, whether arising from acts or
omissions occurring before or after such adoption.
SECTION 4. Advancement of Expenses; Procedures; Presumptions and
-----------------------------------------------------
Effect of Certain Proceedings; Remedies. In furtherance, but not in limitation
- ---------------------------------------
of the foregoing provisions, the following procedures, presumptions and remedies
shall apply with respect to advancement of expenses and the right to
indemnification under this Article:
(a) Advancement of Expenses. All reasonable expenses (including
-----------------------
attorney's fees) incurred by or on behalf of the Indemnitee in connection with
any Proceeding shall be advanced to the Indemnitee by the Corporation within 20
days after the receipt by the Corporation of a statement or statements from the
Indemnitee requesting such advance or advances from time to time, whether prior
to or after final disposition of such Proceeding. Such statement or statements
shall reasonably evidence the expenses incurred by the Indemnitee and, if
required by law at the time of such advance, shall include or be accompanied by
an undertaking by or on behalf of the Indemnitee to repay the amounts advanced
if ultimately it should be determined that the Indemnitee is not entitled to be
indemnified against such expenses pursuant to this Article.
(b) Procedure for Determination of Entitlement to
---------------------------------------------
Indemnification. (i) To obtain indemnification under this Article, an Indemnitee
- ---------------
shall submit to the Secretary a written request, including such documentation
and information as is reasonably available to the Indemnitee and reasonably
necessary to
-29-
<PAGE>
determine whether and to what extent the Indemnitee is entitled to
indemnification (the "Supporting Documentation"). The determination of the
Indemnitee's entitlement to indemnification shall be made not later than 60 days
after receipt by the Corporation of the written request for indemnification
together with the Supporting Documentation. The Secretary shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
the Indemnitee has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification under this
Article shall be determined in one of the following ways: (A) by a majority vote
of the Disinterested Directors (as hereinafter defined in Section 4(e) of this
Article), whether or not they constitute a quorum of the Board; (B) by a written
opinion of Independent Counsel (as hereinafter defined in Section 4(e) of this
Article) if (x) a Change in Control (as hereinafter defined in Section 4(e) of
this Article) shall have occurred and the Indemnitee so requests or (y) there
are no Disinterested Directors or a majority of such Disinterested Directors so
directs; (C) by the stockholders of the Corporation; or (D) as provided in
Section 4(c) of this Article.
(iii) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 4(b)
(ii) of this Article, a majority of the Disinterested Directors shall select the
Independent Counsel, but only an Independent Counsel to which the Indemnitee
does not reasonably object; provided, however, that if a Change in Control shall
-------- -------
have occurred, the Indemnitee shall select such Independent Counsel, but
-30-
<PAGE>
only an Independent Counsel to which a majority of the Disinterested Directors
does not reasonably object.
(c) Presumptions and Effect of Certain Proceedings. Except as
----------------------------------------------
otherwise expressly provided in this Article, if a Change in Control shall have
occurred, the Indemnitee shall be presumed to be entitled to indemnification
under this Article (with respect to actions or omissions occurring prior to such
Change in Control) upon submission of a request for indemnification together
with the Supporting Documentation in accordance with Section 4(b)(i) of this
Article, and thereafter the Corporation shall have the burden of proof to
overcome that presumption in reaching a contrary determination. In any event, if
the person or persons empowered under Section 4(b) of this Article to determine
entitlement to indemnification shall not have been appointed or shall not have
made a determination within 60 days after receipt by the Corporation of the
request therefor, together with the Supporting Documentation, the Indemnitee
shall be deemed to be, and shall be, entitled to indemnification unless (A) the
Indemnitee misrepresented or failed to disclose a material fact in making the
request for indemnification or in the Supporting Documentation or (B) such
indemnification is prohibited by law. The termination of any Proceeding
described in Section 1 of this Article, or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
----
contendere or its equivalent, shall not, of itself, adversely affect the right
- ----------
of the Indemnitee to indemnification or create a presumption that the Indemnitee
did not act in good faith and in a manner which the Indemnitee
-31-
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal proceeding, that the Indemnitee had
reasonable cause to believe that such conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a
----------------------
determination is made pursuant to Section 4(b) of this Article that the
Indemnitee is not entitled to indemnification under this Article, (A) the
Indemnitee shall be entitled to seek an adjudication of entitlement to such
indemnification either, at the Indemnitee's sole option, in (x) an appropriate
court of the State of Delaware or any other court of competent jurisdiction or
(y) an arbitration to be conducted by a single arbitrator pursuant to the rules
of the American Arbitration Association; (B) any such judicial proceeding or
arbitration shall be de novo and the Indemnitee shall not be prejudiced by
-- ----
reason of such adverse determination; and (C) if a Change in Control shall have
occurred, in any such judicial proceeding or arbitration, the Corporation shall
have the burden of proving that the Indemnitee is not entitled to
indemnification under this Article (with respect to actions or omissions
occurring prior to such Change in Control).
(ii) If a determination shall have been made or deemed to have
been made, pursuant to Section 4(b) or (c) of this Article, that the Indemnitee
is entitled to indemnification, the Corporation shall be obligated to pay the
amounts constituting such indemnification within five days after such
determination has been made or deemed to have been made and shall be
conclusively bound by such determination unless (A) the Indemnitee
misrepresented or
-32-
<PAGE>
failed to disclose a material fact in making the request for indemnification or
in the Supporting Documentation or (B) such indemnification is prohibited by
law. In the event that (X) advancement of expenses is not timely made pursuant
to Section 4(a) of this Article or (Y) payment of indemnification is not made
within five days after a determination of entitlement to indemnification has
been made or deemed to have been made pursuant to Section 4(b) or (c) of this
Article, the Indemnitee shall be entitled to seek judicial enforcement of the
Corporation's obligation to pay to the Indemnitee such advancement of expenses
or indemnification. Notwithstanding the foregoing, the Corporation may bring an
action, in an appropriate court in the State of Delaware or any other court of
competent jurisdiction, contesting the right of the Indemnitee to receive
indemnification hereunder, due to the occurrence of an event described in sub-
clause (A) or (B) of this clause (ii) (a "Disqualifying Event"); provided,
--------
however, that in any such action the Corporation shall have the burden of
- -------
proving the occurrence of such Disqualifying Event.
(iii) The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 4(d) that
the procedures and presumptions of this Article are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Article.
(iv) In the event that the Indemnitee, pursuant to this Section
4(d), seeks a judicial adjudication of an award in arbitration to enforce
rights under, or to recover damages for
-33-
<PAGE>
breach of, this Article, the Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any expenses
actually and reasonably incurred by the Indemnitee if the Indemnitee prevails in
such judicial adjudication or arbitration. If it shall be determined in such
judicial adjudication or arbitration that the Indemnitee is entitled to receive
part but not all of the indemnification or advancement of expenses sought, the
expenses incurred by the Indemnitee in connection with such judicial
adjudication or arbitration shall be prorated accordingly.
(e) Definitions. For purposes of this Section 4:
-----------
(i) "Authorized Officer" means any one of the Chairman, the
President, a Vice Chairman, the Chief Financial Officer, any Vice President or
the Secretary of the Corporation.
(ii) "Change in Control" means the occurrence of any of the
following (w) any merger or consolidation of the Corporation in which the
Corporation is not the continuing or surviving corporation or pursuant to which
shares of the Corporation's Common Stock would be converted into cash,
securities or other property, other than a merger of the Corporation in which
the holders of the Corporation's Common Stock immediately prior to the merger
have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, (x) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, the assets of the Corporation, or the liquidation or
dissolution of the Corporation, (y) any person (as such term is defined in
Section
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<PAGE>
4(c) of Article V of the Certificate of Incorporation) shall become an
Interested Stockholder (as defined therein) without the prior consent of the
Board, or (z) during any period of two consecutive years, individuals who at the
beginning of such period who shall have constituted the entire Board shall have
ceased for any reason to constitute a majority thereof unless the election, or
the nomination for election by the Corporation's stockholders, of each new
director shall have been approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.
(iii) "Disinterested Director" means a director of the
Corporation who is not or was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.
(iv) "Independent Counsel" means a law firm or a member of a
law firm that neither presently is, nor in the past five years has been,
retained to represent: (x) the Corporation or the Indemnitee in any matter
material to either such party or (y) any other party to the Proceeding giving
rise to a claim for indemnification under this Article. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing under the
law of the State of Delaware, would have a conflict of interest in representing
either the Corporation or the Indemnitee in an action to determine the
Indemnitee's rights under this Article.
SECTION 5. Severability. If any provision or provisions of this
------------
Article shall be held to be invalid, illegal or
-35-
<PAGE>
unenforceable for any reason whatsoever: (a) the validity, legality and
enforceability of the remaining provisions of this Article (including, without
limitation, all portions of any paragraph of this Article containing any such
provision held to be invalid, illegal or unenforceable, that are not themselves
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby; and (b) to the fullest extent possible, the provisions of this Article
(including, without limitation, all portions of any paragraph of this Article
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or enforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
SECTION 6. Indemnification of Employees Serving as Directors. The
-------------------------------------------------
Corporation, to the fullest extent permitted by applicable law as then in
effect, shall indemnify any person who is or was an employee of the Corporation
and who is or was involved in any manner (including, without limitation, as a
party or a witness) or is threatened to be made so involved in any threatened,
pending or completed Proceeding by reason of the fact that such employee is or
was serving (a) as a director of a corporation in which the Corporation had at
the time of such service, directly or indirectly, a 50 percent or greater equity
interest (a "Subsidiary Director") and (b) at the written request of an
Authorized Officer, as a director of another corporation in which the
Corporation had at the time of such service, directly or indirectly, a less than
50 percent equity interest (or no equity interest at all) or in a
-36-
<PAGE>
capacity equivalent to that of a director for any partnership, joint venture,
trust or other enterprise (including, without limitation, any employee benefit
plan) in which the Corporation has an interest (a "Requested Employee"), against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such Subsidiary Director or
Requested Employee in connection with such Proceeding. The Corporation may also
advance expenses incurred by any such Subsidiary Director or Requested Employee
in connection with any such Proceeding, consistent with the provisions of
applicable law as then in effect.
SECTION 7. Indemnification of Employees and Agents. Notwithstanding
---------------------------------------
any other provision or provisions of this Article, the Corporation, to the
fullest extent permitted by applicable law as then in effect, may indemnify any
person other than a director or officer of the Corporation, a Subsidiary
Director or a Requested Employee, who is or was an employee or agent of the
Corporation and who is or was involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so involved in
any threatened, pending or completed Proceeding by reason of the fact that such
person is or was a director, officer, employee or agent of a Covered Entity
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such Proceeding. The Corporation may also advance expenses incurred by
such employee or agent in connection with any such Proceeding, consistent with
the provisions of applicable law
-37-
<PAGE>
as then in effect.
ARTICLE VII
Capital Stock
-------------
SECTION 1. Certificates for Shares. Certificates representing shares
-----------------------
of stock of each class of the Corporation, whenever authorized by the Board,
shall be in such form as shall be approved by the Board. The certificates
representing shares of stock of each class shall be signed by, or in the name
of, the Corporation by the Chairman or the President, a Vice Chairman or any
Vice-President and by the Secretary or any Assistant Secretary or the Treasurer
or any Assistant Treasurer of the Corporation, and sealed with the seal of the
Corporation, which may be a facsimile thereof. Any or all such signatures may
be facsimiles if countersigned by a transfer agent or registrar. Although any
officer, transfer agent or registrar whose manual or facsimile signature is
affixed to such a certificate ceases to be such officer, transfer agent or
registrar before such certificate has been issued, it may nevertheless be issued
by the Corporation with the same effect as if such officer, transfer agent or
registrar were still such at the date of its issue.
The stock ledger and blank share certificates shall be kept by the
Secretary or by a transfer agent or by a registrar or by any other officer or
agent designated by the Board.
SECTION 2. Transfer of Shares. Transfers of shares of stock of each
------------------
class of the Corporation shall be made only on the books of the Corporation by
the holder thereof, or by such holder's
-38-
<PAGE>
attorney thereunto authorized by a power of attorney duly executed and filed
with the Secretary or a transfer agent for such stock, if any, and on surrender
of the certificate or certificates for such shares properly endorsed or
accompanied by a duly executed stock transfer power (or by proper evidence of
succession, assignment or authority to transfer) and the payment of any taxes
thereon; provided, however, that the Corporation shall be entitled to recognize
-------- -------
and enforce any lawful restriction on transfer. The person in whose name shares
are registered on the books of the Corporation shall be deemed the owner thereof
for all purposes as regards the Corporation; provided, however, that whenever
-------- -------
any transfer of shares shall be made for collateral security and not absolutely,
and written notice thereof shall be given to the Secretary or to such transfer
agent, such fact shall be stated in the entry of the transfer. No transfer of
shares shall be valid as against the Corporation, its stockholders and creditors
for any purpose, except to render the transferee liable for the debts of the
Corporation to the extent provided by law, until it shall have been entered in
the stock records of the Corporation by an entry showing from and to whom
transferred.
SECTION 3. Registered Stockholders and Addresses of Stockholders.
-----------------------------------------------------
The Corporation shall be entitled to recognize the exclusive right of a person
registered on its records as the owner of shares of stock to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments a person registered on its records as the owner of shares of stock,
and shall not be bound to recognize any equitable or other claim to or
-39-
<PAGE>
interest in such share or shares of stock on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
Each stockholder shall designate to the Secretary or transfer agent of
the Corporation an address at which notices of meetings and all other corporate
notices may be served or mailed to such person, and, if any stockholder shall
fail to designate such address, corporate notices may be served upon such person
by mail directed to such person at such person's post office address, if any, as
the same appears on the stock record books of the Corporation or at such
person's last known post office address.
SECTION 4. Lost, Destroyed and Mutilated Certificates. The holder of
------------------------------------------
any share of stock of the Corporation shall immediately notify the Corporation
of any loss, theft, destruction or mutilation of the certificate therefor; the
Corporation may issue to such holder a new certificate or certificates for
shares, upon the surrender of the mutilated certificate or, in the case of loss,
theft or destruction of the certificate, upon satisfactory proof of such loss,
theft or destruction; the Board, or a committee designated thereby, or the
transfer agents and registrars for the stock, may, in their discretion, require
the owner of the lost, stolen or destroyed certificate, or such person's legal
representative, to give the Corporation a bond in such sum and with such surety
or sureties as they may direct to indemnify the Corporation and said transfer
agents and registrars against any claim that may be made on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new
-40-
<PAGE>
certificate.
SECTION 5. Regulations. The Board may make such additional rules and
-----------
regulations as it may deem expedient concerning the issue and transfer of
certificates representing shares of stock of each class of the Corporation and
may make such rules and take such action as it may deem expedient concerning the
issue of certificates in lieu of certificates claimed to have been lost,
destroyed, stolen or mutilated.
SECTION 6. Fixing Date for Determination of Stockholders of Record.
-------------------------------------------------------
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
or any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other action. A determination of stockholders entitled to notice
of or to vote at a meeting of the stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board may fix a new record date for the
-------- -------
adjourned meeting.
SECTION 7. Transfer Agents and Registrars. The Board may appoint, or
------------------------------
authorize any officer or officers to appoint, one or more transfer agents and
one or more registrars.
-41-
<PAGE>
ARTICLE VIII
Seal
----
The Board shall provide a corporate seal, which shall be in the form
of a circle and shall bear the full name of the Corporation and the words and
figures of "Corporate Seal Delaware 1983", or such other words or figures as the
Board may approve and adopt. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
Fiscal Year
-----------
The fiscal year of the Corporation shall end on the 31st day of
December in each year.
ARTICLE X
Waiver of Notice
----------------
Whenever any notice whatsoever is required to be given by these By-
laws, by the Certificate or by law, the person entitled thereto may, either
before or after the meeting or other matter in respect of which such notice is
to be given, waive such notice in writing, which writing shall be filed with or
entered upon the records of the meeting or the records kept with respect to such
other matter, as the case may be, and in such event such notice need not be
given to such person and such waiver shall be deemed equivalent to such notice.
-42-
<PAGE>
ARTICLE XI
Amendments
----------
Any By-law (other than this Article XI) may be adopted, repealed,
altered or amended by a majority of the entire Board at any meeting thereof,
provided that such proposed action in respect thereof shall be stated in the
notice of such Meeting. The stockholders of the Corporation shall have the
power to amend, alter or repeal any provision of these By-laws only to the
extent and in the manner provided in the Certificate.
ARTICLE XII
Miscellaneous
-------------
SECTION 1. Execution of Documents. The Board or any committee
----------------------
thereof shall designate the officers, employees and agents of the Corporation
who shall have power to execute and deliver deeds, contracts, mortgages, bonds,
debentures, notes, checks, drafts and other orders for the payment of money and
other documents for and in the name of the Corporation and may authorize
(including authority to redelegate) by written instrument to other officers,
employees or agents of the Corporation. Such delegation may be by resolution or
otherwise and the authority granted shall be general or confined to specific
matters, all as the Board or any such committee may determine. In the absence
of such designation referred to in the first sentence of this Section, the
officers of the Corporation shall have such power so referred to, to the extent
incident to the normal performance of their duties.
-43-
<PAGE>
SECTION 2. Deposits. All funds of the Corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board or any committee thereof or any officer of the
Corporation to whom power in respect of financial operations shall have been
delegated by the Board or any such committee or in these By-laws shall select.
SECTION 3. Checks. All checks, drafts and other orders for the
------
payment of money out of the funds of the Corporation, and all notes or other
evidences of indebtedness of the Corporation, shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board or of any committee thereof or by any officer of the
Corporation to whom power in respect of financial operations shall have been
delegated by the Board or any such committee thereof or as set forth in these
By-laws.
SECTION 4. Proxies in Respect of Stock or Other Securities of Other
--------------------------------------------------------
Corporations. The Board or any committee thereof shall designate the officers
- ------------
of the Corporation who shall have authority from time to time to appoint an
agent or agents of the Corporation to exercise in the name and on behalf of the
Corporation the powers and rights which the Corporation may have as the holder
of stock or other securities in any other corporation or other entity, and to
vote or consent in respect of such stock or securities; such designated officers
may instruct the person or persons so appointed as to the manner of exercising
such powers and rights; and such designated officers may execute or cause to be
executed in the name and on behalf of the Corporation and under its
-44-
<PAGE>
corporate seal, or otherwise, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the Corporation
may exercise its said powers and rights.
SECTION 5. Subject to Law and Certificate of Incorporation. All
-----------------------------------------------
powers, duties and responsibilities provided for in these By-laws, whether or
not explicitly so qualified, are qualified by the provisions of the Certificate
and applicable laws.
-45-
<PAGE>
EXHIBIT 4.1
================================================================================
RIGHTS AGREEMENT
Dated as of [ ], 1996
between
TW INC.
(To be renamed "Time Warner Inc.")
and
CHASEMELLON SHAREHOLDER SERVICES L.L.C.
as Rights Agent
================================================================================
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. Certain Definitions................................................................... 1
2. Appointment of Rights Agent........................................................... 15
3. Issue of Rights and Right Certificates................................................ 16
4. Form of Right Certificates............................................................ 18
5. Execution, Countersignature and Registration.......................................... 18
6. Transfer, Split-up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates; Uncertificated Rights................... 19
7. Exercise of Rights; Expiration Date of Rights......................................... 20
8. Cancelation and Destruction of Right Certificates..................................... 23
9. Reservation and Availability of Preferred Shares...................................... 23
10. Preferred Shares Record Date.......................................................... 25
11. Adjustments in Rights After There Is an Acquiring Person; Exchange of Rights for
Shares; Business Combinations......................................................... 25
12. Certain Adjustments................................................................... 31
13. Certificate of Adjustment............................................................. 32
14. Additional Covenants.................................................................. 33
15. Fractional Rights and Fractional Shares............................................... 33
16. Rights of Action...................................................................... 35
17. Transfer and Ownership of Rights and Right Certificates............................... 35
18. Right Certificate Holder Not Deemed a Stockholder..................................... 36
19. Concerning the Rights Agent........................................................... 36
20. Merger or Consolidation or Change of Rights Agent..................................... 36
21. Duties of Rights Agent................................................................ 37
22. Change of Rights Agent................................................................ 40
23. Issuance of Additional Rights and Right Certificates.................................. 42
24. Redemption and Termination............................................................ 42
25. Notices............................................................................... 43
26. Supplements and Amendments............................................................ 44
27. Successors............................................................................ 45
</TABLE>
<PAGE>
Contents, p. 2
<TABLE>
<S> <C> <C>
28. Benefits of Rights Agreement; Determinations and Actions by the
Board of Directors, etc............................................................... 45
29. Severability.......................................................................... 46
30. Governing Law......................................................................... 46
31. Counterparts; Effectiveness........................................................... 46
32. Descriptive Headings.................................................................. 47
</TABLE>
Exhibits
- --------
A Certificate of Designation
B Form of Right Certificate
<PAGE>
RIGHTS AGREEMENT dated as of [ ], 1996, between TW INC.,
a Delaware corporation, which will be renamed "Time Warner Inc."
(the "Company"), and CHASEMELLON SHAREHOLDER SERVICES L.L.C., as
Rights Agent (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one Right (as hereinafter defined) for each share of Common Stock,
par value $.01 per share, of the Company (the "Common Stock") outstanding at the
Close of Business (as hereinafter defined) on the date hereof (the "Record
Date"), and has authorized the issuance of one Right (as such number may
hereafter be adjusted pursuant to the provisions of this Rights Agreement) with
respect to each share of Common Stock that shall become outstanding between the
Record Date and the earliest of the Distribution Date, the Redemption Date or
the Expiration Date (as such terms are hereinafter defined); provided, however,
-------- -------
that Rights may be issued with respect to shares of Common Stock that shall
become outstanding after the Distribution Date and prior to the earlier of the
Redemption Date or the Expiration Date in accordance with the provisions of
Section 23. Each Right shall initially represent the right to purchase one one-
thousandths (1/1,000ths) of a share of Series A Participating Cumulative
Preferred Stock, par value $.10 per share, of the Company (the "Preferred
Shares"), having the powers, rights and preferences set forth in the Certificate
of Designation attached as Exhibit A.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
SECTION 1. Certain Definitions. For purposes of this Rights
--------------------
Agreement, the following terms have the meanings indicated:
"Acquiring Person" shall mean, as of any time, any Person who or
----------------
which, alone or together with all Affiliates and Associates of such Person,
shall be the Beneficial Owner of more than 15% of the Common Shares outstanding
as of such time, other than (a) the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or any of its Subsidiaries, or any Person
holding Common Shares for or pursuant to the terms of any such employee benefit
plan, or
<PAGE>
2
(b) any Person who or which, alone or together with one or more of its
Affiliates or Associates, becomes or became the Beneficial Owner of more than
15% of the Common Shares outstanding as of such time pursuant to a Qualifying
Offer. Notwithstanding the foregoing, the term "Acquiring Person" shall not
include any Person who or which as of any time becomes the Beneficial Owner of
more than 15% of the Common Shares outstanding as of such time (i) solely as the
result of a change in the number of Common Shares outstanding since the most
recent preceding date on which such Person acquired Beneficial Ownership of any
Common Shares or (ii) solely as the result of the acquisition by such Person or
one or more of its Affiliates or Associates of Beneficial Ownership of
additional Common Shares if such acquisition was made in the good faith belief
that such acquisition would not cause either the number of Common Shares
beneficially owned by such Person, together with its Affiliates and Associates,
to exceed 15% of the Common Shares outstanding at the time of such acquisition
or otherwise cause a Distribution Date or the adjustment provided in Section
11(a) to occur and such good faith belief was based on the good faith reliance
on information contained in publicly filed reports or documents of the Company
which were inaccurate or out-of-date or (iii) solely as the result of the
acquisition of beneficial ownership of any Common Shares by any of such Person's
Affiliates or Associates who or which are not Controlled Related Parties of such
Person or (iv) solely as the result of any transaction or event pursuant to
which any Person who or which beneficially owns any Common Shares and was not
previously an Affiliate or Associate of such Person becomes an Affiliate or
Associate of such Person or (v) solely as the result of the acquisition by such
Person or one or more of its Affiliates or Associates of Beneficial Ownership of
additional Common Shares if such acquisition was made in the good faith belief
that such acquisition would not cause the number of Common Shares beneficially
owned by such Person, together with its Affiliates and Associates, to exceed 15%
of the Common Shares outstanding at the time of such acquisition or otherwise
cause a Distribution Date or the adjustment provided in Section 11(a) to occur
and such good faith belief was based on the good faith reliance on inaccurate or
out-of-date information concerning the number of Common Shares beneficially
owned by any Affiliates or Associates of such Person who or which are not
Controlled Related Parties of such Person; provided, however, that in the case
of any of-------- -------clauses (i) through (v), the percentage of the Common
Shares outstanding represented by the number of Common Shares beneficially owned
by such Person is
<PAGE>
3
reduced to 15% or less within the applicable cure period. For purposes of the
immediately preceding sentence, the "applicable cure period" shall be the period
commencing on (and including) the date that such Person becomes aware that the
number of Common Shares beneficially owned by such Person exceeds 15% of the
Common Shares outstanding (except that if such Person has separately agreed in
writing with the Company to notify the Company once such Person becomes aware of
such fact, the cure period shall commence on (and include) the date of receipt
by such Person of written notice from the Company that the number of Common
Shares beneficially owned by such Person exceeds, as of the date such notice is
given, 15% of the Common Shares outstanding as of such date) and ending upon the
Close of Business on (i) the fifth Business Day after such date in the case of
any Person described in clause (i) or (ii) of the immediately preceding sentence
or (ii) the tenth Business Day after such date in the case of any Person
described in clause (iii), (iv) or (v) of the immediately preceding sentence;
provided, however, that if such reduction would require the disposition by such
- -------- -------
Person or any of its Affiliates or Associates of any Common Shares and such
Person notifies the Company in writing that, in such Person's good faith belief,
such disposition within such period could not reasonably be accomplished without
violation of applicable law or could reasonably be accomplished only for
consideration or on terms materially disadvantageous as compared to the
consideration or terms on which such disposition could be accomplished during
some longer period of time, then such period shall be extended for such time as
the directors of the Company whose approval would be required to redeem the
Rights under Section 24 shall reasonably deem to be required in order to prevent
such violation of applicable law or shall reasonably deem to be sufficient to
minimize such disadvantageous effect (as the case may be), subject to the
condition that such Person shall during the cure period, as extended (or until
such earlier time at which such Person, together with its Affiliates and
Associates, otherwise ceases to beneficially own more than 15% of the
outstanding Common Shares), diligently and in good faith proceed to effect the
required disposition as expeditiously as reasonably practicable and comply with
any arrangements regarding the voting of a number of Common Shares beneficially
owned by such Person, together with its Affiliates and Associates, equal to the
number so required to be disposed of pending completion of such disposition as
such directors of the Company shall request (including arrangements not to vote
such number of
<PAGE>
4
Common Shares or only to vote such number of Common Shares in a manner approved
by such directors of the Company). For purposes of this definition, the
determination of whether any Person (other than a director of the Company, in
his or her capacity as a director of the Company) acted in "good faith" shall be
conclusively determined in good faith by those directors of the Company whose
approval would be required to redeem the Rights under Section 24.
"Affiliate" and "Associate", when used with reference to any Person,
--------- ---------
shall have the respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
of this Rights Agreement.
A Person shall be deemed the "Beneficial Owner" of, and shall be
----------------
deemed to "beneficially own", and shall be deemed to have "Beneficial Ownership"
---------------- --------------------
of, any securities:
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to "beneficially own" within the meaning of Rule 13d-3
of the General Rules and Regulations under the Exchange Act, as in effect
on the date of this Rights Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has: (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (written or oral), or upon the exercise of
conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a Person shall
-------- -------
not be deemed under this clause (A) to be the Beneficial Owner of, or to
beneficially own, or to have Beneficial Ownership of, any securities
tendered pursuant to a tender or exchange offer made by or on behalf of
such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange thereunder; or
(B) the right to vote pursuant to any agreement, arrangement or
understanding (written or oral); provided, however, that a Person shall not
-------- -------
be deemed under this clause (B) to be the Beneficial Owner of, or to
beneficially own, any security if (1) the agreement, arrangement or
understanding (written or oral) to vote such security arises solely from a
revocable proxy or consent given to such Person in response to a public
proxy or consent
<PAGE>
solicitation made pursuant to, and in accordance with, the
applicable rules and regulations under the Exchange Act and (2) the
beneficial ownership of such security is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (written or
oral) for the purpose of acquiring, holding, voting or disposing of any
Common Shares, any other securities of the Company generally entitled to
vote together with the Common Shares or any rights, warrants, options or
other securities exercisable or exchangeable for, or convertible into,
Common Shares or other securities of the Company generally entitled to vote
together with the Common Shares.
A Person shall also be deemed to be the "Beneficial Owner" of, and to
"beneficially own", and to have "Beneficial Ownership" of, Common Shares of the
Company if such Person is the Beneficial Owner of, or beneficially owns, or has
Beneficial Ownership of (as the case may be), any other securities of the
Company (whether or not convertible into or exchangeable for Common Shares)
generally entitled to vote together with the Common Shares. If the preceding
sentence is applicable in any case, such Person shall be deemed by virtue of
Beneficial Ownership of such other securities to be the "Beneficial Owner" of,
and to "beneficially own", and to have "Beneficial Ownership" of, that number of
Common Shares of the Company equal to the greater of (x) the number of votes
entitled to be cast in respect of such other securities upon any matter being
voted upon by the holders of Common Shares and the holders of such other
securities, voting together as a single class, and (y) if applicable, the number
of Common Shares of the Company issuable upon conversion in full into, or
exchange in full for, Common Shares of the Company of such other securities.
In the event any Common Shares are subject to a voting trust approved
by the directors of the Company whose approval would be required to redeem the
Rights under Section 24, then (x) the trustee or trustees under such voting
trust shall be deemed not to be the "Beneficial Owner" of any such Common Shares
and (y) each beneficiary of
<PAGE>
6
such voting trust shall be deemed to be the "Beneficial Owner" of all such
Common Shares.
Notwithstanding the foregoing, (a) no Person ordinarily engaged in business as
an underwriter of securities shall be deemed to be the "Beneficial Owner" of, to
"beneficially own", or to have any "Beneficial Ownership" of, any securities
acquired in a bona fide firm commitment underwriting pursuant to an underwriting
agreement with the Company; and (b) no Person shall be deemed to be the
"Beneficial Owner" of, to "beneficially own", or to have any "Beneficial
Ownership" of, any securities by reason of such Person or any of such Person's
Affiliates or Associates having the right to acquire (whether such right is
exercisable immediately or only after the passage of time) such securities
pursuant to a right of first refusal, right of first offer or similar agreement,
arrangement or understanding (written or oral) granted by another Person (the
"subject Person") (I) that does not provide any direct or indirect limitations
or restrictions on the ability of the subject Person to exercise (or refrain
from exercising) any voting rights associated with such securities or contain
any other agreement, arrangement or understanding with respect to such voting
rights, (II) that does not contain any incentive for the subject Person to
support or oppose any particular Business Combination or otherwise to exercise
(or refrain from exercising) any voting rights associated with such securities
in a manner advantageous to such Person or any of such Person's Affiliates or
Associates and (III) prior written notice of which shall have been given to the
Company.
"Book Value", when used with reference to Common Shares issued by any
----------
Person, shall mean the amount of equity of such Person applicable to each Common
Share, determined (i) in accordance with generally accepted accounting
principles in effect on the date as of which such Book Value is to be
determined, (ii) using all the consolidated assets and all the consolidated
liabilities of such Person on the date as of which such Book Value is to be
determined, except that no value shall be included in such assets for goodwill
arising from consummation of a business combination, and (iii) after giving
effect to (A) the exercise of all rights, options and warrants to purchase such
Common Shares (other than the Rights), and the conversion of all securities
convertible into such Common Shares, at an exercise or conversion price, per
Common Share, which is less than such Book Value before giving effect to such
exercise or
<PAGE>
7
conversion (whether or not exercisability or convertibility is conditioned upon
occurrence of a future event), (B) all dividends and other distributions on the
capital stock of such Person declared prior to the date as of which such Book
Value is to be determined and to be paid or made after such date, and (C) any
other agreement, arrangement or understanding (written or oral), or transaction
or other action prior to the date as of which such Book Value is to be
determined which would have the effect of thereafter reducing such Book Value.
"Business Combination" shall have the meaning set forth in Section
--------------------
11(c)(I).
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
------------
and Friday which is not a day on which banking institutions in the Borough of
Manhattan, The City of New York, are authorized or obligated by law or executive
order to close.
"Certificate of Designation" shall mean the Certificate of Designation
--------------------------
of Series A Participating Cumulative Preferred Stock setting forth the powers,
preferences, rights, qualifications, limitations and restrictions of such series
of Preferred Stock of the Company, a copy of which is attached as Exhibit A.
"Close of Business" on any given date shall mean 5:00 p.m., New York
-----------------
City time, on such date; provided, however, that, if such date is not a Business
-------- --------
Day, "Close of Business" shall mean 5:00 p.m., New York City time, on the next
succeeding Business Day.
"Common Shares", when used with reference to the Company prior to a
-------------
Business Combination, shall mean the shares of Common Stock of the Company or
any other shares of capital stock of the Company into which the Common Stock
shall be reclassified or changed. "Common Shares", when used with reference to
any Person (other than the Company prior to a Business Combination), shall mean
shares of capital stock of such Person (if such Person is a corporation) of any
class or series, or units of equity interests in such Person (if such Person is
not a corporation) of any class or series, the terms of which do not limit (as a
maximum amount and not merely in proportional terms) the amount of dividends or
income payable or distributable on such class or series or the amount of assets
distributable on such class or series upon
<PAGE>
8
any voluntary or involuntary liquidation, dissolution or winding up of such
Person and do not provide that such class or series is subject to redemption at
the option of such Person, or any shares of capital stock or units of equity
interests into which the foregoing shall be reclassified or changed; provided,
--------
however, that, if at any time there shall be more than one such class or series
- -------
of capital stock or equity interests of such Person, "Common Shares" of such
Person shall include all such classes and series substantially in the proportion
of the total number of shares or other units of each such class or series
outstanding at such time.
"Common Shares outstanding" or "outstanding Common Shares" when used
------------------------- -------------------------
in this Section 1 in the definition of "Acquiring Person" and when used in
Section 3(b), with respect to any Person who is, as of any time, the Beneficial
Owner of, beneficially owns, or has Beneficial Ownership of, any specified
percentage of "Common Shares outstanding" or "outstanding Common Shares", shall
mean the sum of (i) all Common Shares and any other securities generally
entitled to vote together with the Common Shares (in the case of such other
securities, counted as a number of Common Shares equal to the greater of (x) the
number of votes entitled to be cast in respect of such other securities upon any
matter being voted upon by the holders of Common Shares and the holders of such
other voting securities, voting together as a single class and (y) if
applicable, the number of Common Shares issuable upon conversion in full into,
or exchangeable in full for, Common Shares of such other securities) actually
issued as of such time, except Common Shares or such other securities, if any,
then owned by the Company or any Subsidiary of the Company which, under the laws
of the jurisdiction of incorporation of the Company, could not then be voted at
a meeting of the holders of Common Shares called for the purpose of electing
directors of the Company plus (ii) the maximum aggregate number of Common Shares
and such other securities which would be issued upon the exercise in full of all
then outstanding options, warrants and rights, however denominated (but in each
case only if issued by the Company or any of its Subsidiaries, and excluding the
Rights and excluding any securities included in clause (i) of this calculation),
to subscribe for, purchase or otherwise acquire any Common Shares or such other
securities, and the conversion into, or exchange for, Common Shares or such
other securities in full of all then outstanding securities of the Company or
any of its Subsidiaries that are convertible into or exchangeable
<PAGE>
9
for Common Shares or such other securities (excluding any securities included in
clause (i) of this calculation), in each case with or without payment of
additional consideration in cash or property, whether or not such options,
warrants, rights or securities are then exercisable, convertible or
exchangeable, as the case may be, regardless of whether or not any of such
Common Shares or such other securities would be deemed to be outstanding under
generally accepted accounting principles for purposes of determining book value
or net income per share and regardless of whether or not any of such Common
Shares or such other securities would be deemed to be outstanding under
paragraph (d)(1)(i) of Rule 13d-3 of the General Rules and Regulations under the
Exchange Act (either as in effect on the date of this Rights Agreement or as
subsequently amended) or under any other rule, regulation or statute for
the purpose of computing the percentage of Common Shares outstanding owned by
any particular Person as of any time or for any other purpose.
"Common Stock" shall have the meaning set forth in the introductory
------------
paragraph of this Rights Agreement.
"Company" shall have the meaning set forth in the heading of this
-------
Rights Agreement; provided, however, that if there is a Business Combination,
-------- -------
"Company" shall have the meaning set forth in Section 11(c)(III).
The term "control" with respect to any Person shall mean the power to
-------
direct the management and policies of such Person, directly or indirectly, by or
through stock ownership, agency or otherwise, or pursuant to or in connection
with an agreement, arrangement or understanding (written or oral) with one or
more other Persons by or through stock ownership, agency or otherwise; and the
terms "controlling" and "controlled" shall have meanings correlative to the
foregoing.
"Controlled Related Party" means, when used with respect to any
------------------------
specified Person, each Affiliate or Associate of such Person if such Person
possesses, directly or indirectly, by or through stock ownership, agency or
otherwise, or pursuant to or in connection with an agreement, arrangement or
understanding (written or oral) with one or more other persons, the power to
direct decisions regarding the acquisition, disposition or voting by such
Affiliate or Associate of Common Shares or rights to acquire or vote Common
Shares.
<PAGE>
10
"Distribution Date" shall have the meaning set forth in Section 3(b).
-----------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as in
------------
effect on the date in question, unless otherwise specifically provided.
"Exchange Consideration" shall have the meaning set forth in Section
----------------------
11(b)(I).
"Expiration Date" shall have the meaning set forth in Section 7(a).
---------------
"Major Part", when used with reference to the assets of the Company
----------
and its Subsidiaries as of any date, shall mean assets (i) having a fair market
value aggregating 50% or more of the total fair market value of all the assets
of the Company and its Subsidiaries (taken as a whole) as of the date in
question, (ii) accounting for 50% or more of the total value (net of
depreciation and amortization) of all the assets of the Company and its
Subsidiaries (taken as a whole) as would be shown on a consolidated or combined
balance sheet of the Company and its Subsidiaries as of the date in question,
prepared in accordance with generally accepted accounting principles then in
effect, or (iii) accounting for 50% or more of the total amount of earnings
before interest, taxes, depreciation and amortization or revenues of the Company
and its Subsidiaries (taken as a whole) as would be shown on, or derived from, a
consolidated or combined statement of income of the Company and its Subsidiaries
for the period of 12 months ending on the last day of the Company's monthly
accounting period next preceding the date in question, prepared in accordance
with generally accepted accounting principles then in effect.
"Market Value", when used with reference to Common Shares on any date,
------------
shall be deemed to be the average of the daily closing prices, per share, of
such Common Shares for the period which is the shorter of (1) 30 consecutive
Trading Days immediately prior to the date in question or (2) the number of
consecutive Trading Days beginning on the Trading Day immediately after the date
of the first public announcement of the event requiring a determination of the
Market Value and ending on the Trading Day immediately prior to the record date
of such event; provided, however, that, in the event that the Market Value of
-------- -------
such Common Shares is to be determined in whole or in part during a period
following the announcement by the issuer of such Common
<PAGE>
11
Shares of any action of the type described in Section 12(a) that would require
an adjustment thereunder, then, and in each such case, the Market Value of such
Common Shares shall be appropriately adjusted to reflect the effect of such
action on the market price of such Common Shares. The closing price for each
Trading Day shall be the closing price quoted on the composite tape for
securities listed on the New York Stock Exchange, or, if such securities are not
quoted on such composite tape or if such securities are not listed on such
exchange, on the principal United States securities exchange registered under
the Exchange Act (or any recognized foreign stock exchange) on which such
securities are listed, or, if such securities are not listed on any such
exchange, the average of the closing bid and asked quotations with respect to a
share of such securities on the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or such other system then in use, or if
no such quotations are available, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in such
securities selected by the Board of Directors of the Company. If on any such
Trading Day no market maker is making a market in such securities, the closing
price of such securities on such Trading Day shall be deemed to be the fair
value of such securities as determined in good faith by the Board of Directors
of the Company (whose determination shall be described in a statement filed with
the Rights Agent and shall be binding on the Rights Agent, the holders of Rights
and all other Persons); provided, however, that for the purpose of determining
-------- -------
the closing price of the Preferred Shares for any Trading Day on which there is
no such market maker for the Preferred Shares the closing price on such Trading
Day shall be deemed to be the Formula Number (as defined in the Certificate of
Designation) times the closing price of the Common Shares of the Company on such
Trading Day.
"Person" shall mean an individual, corporation, partnership, joint
------
venture, association, trust, unincorporated organization or other entity.
"Preferred Shares" shall have the meaning set forth in the
----------------
introductory paragraph of this Rights Agreement. Any reference in this Rights
Agreement to Preferred Shares shall be deemed to include any authorized fraction
of a Preferred Share, unless the context otherwise requires.
<PAGE>
12
"Principal Party" shall mean the Surviving Person in a Business
---------------
Combination; provided, however, that, if such Surviving Person is a direct or
-------- -------
indirect Subsidiary of any other Person, "Principal Party" shall mean the Person
which is the ultimate parent of such Surviving Person and which is not itself a
Subsidiary of another Person. In the event ultimate control of such Surviving
Person is shared by two or more Persons, "Principal Party" shall mean that
Person that is immediately controlled by such two or more Persons.
"Purchase Price" with respect to each Right shall mean $150, as such
--------------
amount may from time to time be adjusted as provided herein, and shall be
payable in lawful money of the United States of America. All references herein
to the Purchase Price shall mean the Purchase Price as in effect at the time in
question.
"Qualifying Offer" shall mean an all-cash tender offer for all
----------------
outstanding Common Shares which meets all of the following requirements:
(1) on or prior to the date such offer is commenced within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under the
Exchange Act, such Person has, and has provided to the Company, firm
written commitments from responsible financial institutions, which have
been accepted by such Person (or one of its Affiliates), to provide,
subject only to customary terms and conditions, funds for such offer which,
when added to the amount of cash and cash equivalents which such Person
then has available and has irrevocably committed in writing to the Company
to utilize for purposes of such offer, will be sufficient to pay for all
Common Shares outstanding on a fully diluted basis pursuant to the offer
and the second-step transaction required by clause (v) below and all
related expenses, together with copies of all written materials prepared by
such Person for such financial institutions in connection with obtaining
such financing commitments;
(2) after the consummation of such offer, such Person, alone or
together with any of its Affiliates and Associates, owns Common Shares
representing a majority of the then outstanding Common Shares;
(3) such offer remains open for at least 45 Business Days; provided,
--------
however, that (x) if there
-------
<PAGE>
13
is any increase in the price of such offer, such offer must remain open for
at least an additional 20 Business Days after the last such increase, (y)
such offer must remain open for at least 20 Business Days after the date
that any bona fide alternative offer is made which, in the opinion of one
or more investment banking firms designated by the Company, provides for
consideration per share in excess of that provided for in such offer, and
(z) such offer must remain open for at least 20 Business Days after the
date on which such Person reduces the per share price offered in accordance
with clause (5)(y) below; provided further, however, that such offer need
---------------- -------
not remain open, as a result of this clause (3), beyond (i) the time which
any other offer satisfying the criteria for a Qualifying Offer is then
required to be kept open under this clause (3), or (ii) the scheduled
expiration date, as such date may be extended by public announcement on or
prior to the then scheduled expiration date, of any other tender or
exchange offer for Common Shares with respect to which the Board of
Directors has agreed to redeem the Rights immediately prior to acceptance
for payment of Common Shares thereunder (unless such other offer is
terminated prior to its expiration without any Common Shares having been
purchased thereunder);
(4) such offer is accompanied by a written opinion, in customary
form, of a nationally recognized investment banking firm which is addressed
to the holders of Common Shares other than such Person and states that the
price to be paid to holders pursuant to the offer is fair from a financial
point of view to such holders and includes any written presentation of such
firm showing the analysis and range of values underlying such conclusions;
and
(5) prior to or on the date that such offer is commenced within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under the
Exchange Act, such Person makes an irrevocable written commitment to the
Company (x) to consummate a transaction or transactions promptly upon the
completion of such offer, whereby all Common Shares not purchased in such
offer will be acquired at the same price per share paid in such offer,
subject only to the condition that the Board of Directors shall have
granted any approvals required to enable such Person to consummate such
transaction or transactions following consummation of
<PAGE>
14
such offer without obtaining the vote of any other stockholder, (y) that
such Person will not make any amendment to the original offer which reduces
the per share price offered (other than a reduction to reflect any dividend
declared by the Company after the commencement of such offer or any
material change in the capital structure of the Company initiated by the
Company after the commencement of such offer, whether by way of
recapitalization, reorganization, repurchase or otherwise), changes the
form of consideration offered, or reduces the number of shares being sought
or which is in any other respect materially adverse to the Company's
stockholders, and (z) that neither such Person nor of any its Affiliates or
Associates will make any offer for any equity securities of the Company for
a period of six months after the commencement of the original offer if such
original offer does not result in the tender of the number of Common Shares
required to be purchased pursuant to clause (2) above, unless another
tender offer by another party for all outstanding Common Shares is
commenced that (a) constitutes a Qualifying Offer or (b) is approved by the
Board of Directors of the Company (in which event, any new offer by such
Person or of any of its Affiliates or Associates must be at a price no less
than that provided for in such approved offer).
"Record Date" shall have the meaning set forth in the introductory
-----------
paragraph of this Rights Agreement.
"Redemption Date" shall have the meaning set forth in Section 24(a).
---------------
"Redemption Price" with respect to each Right shall mean $.01, as such
----------------
amount may from time to time be adjusted in accordance with Section 12. All
references herein to the Redemption Price shall mean the Redemption Price as in
effect at the time in question.
"Registered Common Shares" shall mean Common Shares which are, as of
------------------------
the date of consummation of a Business Combination, and have continuously been
for the 12 months immediately preceding such date, registered under Section 12
of the Exchange Act.
"Right Certificate" shall mean a certificate evidencing a Right in
-----------------
substantially the form attached as Exhibit B.
<PAGE>
15
"Rights" shall mean the rights to purchase Preferred Shares (or other
------
securities) as provided in this Rights Agreement.
"Securities Act" shall mean the Securities Act of 1933, as in effect
--------------
on the date in question, unless otherwise specifically provided.
"Subsidiary" shall mean a Person, at least a majority of the total
----------
outstanding voting power (being the power under ordinary circumstances (and not
merely upon the happening of a contingency) to vote in the election of directors
of such Person (if such Person is a corporation) or to participate in the
management and control of such Person (if such Person is not a corporation)) of
which is owned, directly or indirectly, by another Person or by one or more
other Subsidiaries of such other Person or by such other Person and one or more
other Subsidiaries of such other Person.
"Surviving Person" shall mean (1) the Person which is the continuing
----------------
or surviving Person in a consolidation or merger specified in Section
11(c)(I)(i) or 11(c)(I)(ii) or (2) the Person to which the Major Part of the
assets of the Company and its Subsidiaries is sold, leased, exchanged or
otherwise transferred or disposed of in a transaction specified in Section
11(c)(I)(iii); provided, however, that, if the Major Part of the assets of the
-------- -------
Company and its Subsidiaries is sold, leased, exchanged or otherwise transferred
or disposed of in one or more related transactions specified in Section
11(c)(I)(iii) to more than one Person, the "Surviving Person" in such case shall
mean the Person that acquired assets of the Company and/or its Subsidiaries with
the greatest fair market value in such transaction or transactions.
"Trading Day" shall mean a day on which the principal national
-----------
securities exchange (or principal recognized foreign stock exchange, as the case
may be) on which any securities or Rights, as the case may be, are listed or
admitted to trading is open for the transaction of business or, if the
securities or Rights in question are not listed or admitted to trading on any
national securities exchange (or recognized foreign stock exchange, as the case
may be), a Business Day.
SECTION 2. Appointment of Rights Agent. The Company hereby appoints
----------------------------
the Rights Agent to act as agent for
<PAGE>
16
the Company in accordance with the terms and conditions hereof, and the Rights
Agent hereby accepts such appointment. The Company may from time to time appoint
one or more co-Rights Agents as it may deem necessary or desirable (the term
"Rights Agent" being used herein to refer, collectively, to the Rights Agent
together with any such co-Rights Agents). In the event the Company appoints one
or more co-Rights Agents, the respective duties of the Rights Agent and any co-
Rights Agents shall be as the Company shall determine.
SECTION 3. Issue of Rights and Right Certificates. (a) One Right
---------------------------------------
shall be associated with each Common Share outstanding on the Record Date, each
additional Common Share that shall become outstanding between the Record Date
and the earliest of the Distribution Date, the Redemption Date or the Expiration
Date and each additional Common Share with which Rights are issued after the
Distribution Date but prior to the earlier of the Redemption Date or the
Expiration Date as provided in Section 23; provided, however, that, if the
-------- -------
number of outstanding Rights are combined into a smaller number of outstanding
Rights pursuant to Section 12(a), the appropriate fractional Right determined
pursuant to such Section shall thereafter be associated with each such Common
Share.
(b) Until the earlier of (i) such time as the Company learns that a
Person has become an Acquiring Person or (ii) the Close of Business on such
date, if any, as may be designated by the Board of Directors of the Company
following the commencement of, or first public disclosure of an intent to
commence, a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any of
its Subsidiaries, or any Person holding Common Shares for or pursuant to the
terms of any such employee benefit plan and other than a Qualifying Offer) for
outstanding Common Shares, if upon consummation of such tender or exchange offer
such Person could be the Beneficial Owner of more than 15% of the outstanding
Common Shares (the Close of Business on the earlier of such dates being the
"Distribution Date"), (x) the Rights will be evidenced by the certificates for
Common Shares registered in the names of the holders thereof and not by separate
Right Certificates and (y) the Rights, including the right to receive Right
Certificates, will be transferable only in connection with the transfer of
Common Shares. As soon as practicable after the Distribution Date, the Rights
Agent will send, by first-class, postage-prepaid
<PAGE>
17
mail, to each record holder of Common Shares as of the Distribution Date, at the
address of such holder shown on the records of the Company, a Right Certificate
evidencing one whole Right for each Common Share (or for the number of Common
Shares with which one whole Right is then associated if the number of Rights per
Common Share held by such record holder has been adjusted in accordance with the
proviso in Section 3(a)). If the number of Rights associated with each Common
Share has been adjusted in accordance with the proviso in Section 3(a), at the
time of distribution of the Right Certificates the Company may make any
necessary and appropriate rounding adjustments so that Right Certificates
representing only whole numbers of Rights are distributed and cash is paid in
lieu of any fractional Right in accordance with Section 15(a). As of and after
the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(c) With respect to any certificate for Common Shares, until the
earliest of the Distribution Date, the Redemption Date or the Expiration Date,
the Rights associated with the Common Shares represented by any such certificate
shall be evidenced by such certificate alone, the registered holders of the
Common Shares shall also be the registered holders of the associated Rights and
the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
(d) Certificates issued for Common Shares after the Record Date
(including, without limitation, upon transfer or exchange of outstanding Common
Shares), but prior to the earliest of the Distribution Date, the Redemption Date
or the Expiration Date, may have printed on, written on or otherwise affixed to
them the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement dated as of [ ],
1996, as it may be amended from time to time (the "Rights Agreement"),
between Time Warner Inc., which was known on such date as "TW Inc." (the
"Company"), and ChaseMellon Shareholder Services L.L.C., as Rights Agent
(the "Rights Agent"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices
of the Company. Under certain circumstances, as set forth in
<PAGE>
18
the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Rights Agent will mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written request
therefor. Rights beneficially owned by Acquiring Persons or their
Affiliates or Associates (as such terms are defined in the Rights
Agreement) and by any subsequent holder of such Rights are null and void
and nontransferable.
Notwithstanding this paragraph (d), the omission of a legend shall not affect
the enforceability of any part of this Rights Agreement or the rights of any
holder of Rights.
SECTION 4. Form of Right Certificates. The Right Certificates (and
---------------------------
the form of election to purchase and form of assignment to be printed on the
reverse side thereof) shall be in substantially the form set forth as Exhibit B
and may have such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Rights Agreement, or as
may be required to comply with any applicable law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any stock exchange on
which the Rights may from time to time be listed, or to conform to usage.
Subject to the provisions of Sections 7, 11 and 23, the Right Certificates,
whenever issued, shall be dated as of the Distribution Date, and on their face
shall entitle the holders thereof to purchase such number of Preferred Shares as
shall be set forth therein for the Purchase Price set forth therein, subject to
adjustment from time to time as herein provided.
SECTION 5. Execution, Countersignature and Registration. (a) The
---------------------------------------------
Right Certificates shall be executed on behalf of the Company by the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Treasurer or a Vice President (whether preceded by any additional
title) of the Company, either manually or by facsimile signature, and have
affixed thereto the Company's seal or a facsimile thereof which shall be
attested by the Secretary, an Assistant Secretary or a Vice President (whether
preceded by any additional title, provided that such Vice President shall not
have also executed the Right Certificates) of the Company, either manually or by
facsimile signature. The Right Certificates
<PAGE>
19
shall be manually countersigned by the Rights Agent and shall not be valid or
obligatory for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such an officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates may nevertheless
be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such an officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of execution of such Right Certificate, shall be a proper officer of
the Company to sign such Right Certificate, although at the date of execution of
this Rights Agreement any such person was not such an officer of the Company.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office in New York, New York, books for
registration and transfer of the Right Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced by each of the Right Certificates,
the certificate number of each of the Right Certificates and the date of each of
the Right Certificates.
SECTION 6. Transfer, Split-Up, Combination and Exchange of Right
-----------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates;
- ----------------------------------------------------------------------
Uncertificated Rights. (a) Subject to the provisions of Sections 7(e) and 15,
- ----------------------
at any time after the Distribution Date, and at or prior to the Close of
Business on the earlier of the Redemption Date or the Expiration Date, any Right
Certificate or Right Certificates may be transferred, split-up, combined or
exchanged for another Right Certificate or Right Certificates representing, in
the aggregate, the same number of Rights as the Right Certificate or Right
Certificates surrendered then represented. Any registered holder desiring to
transfer, split-up, combine or exchange any Right Certificate shall make such
request in writing delivered to the Rights Agent and shall surrender the Right
Certificate or Right Certificates to be transferred, split-up, combined or
exchanged at the principal office of the Rights Agent; provided, however, that
-------- -------
neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any Right
<PAGE>
20
Certificate surrendered for transfer until the registered holder shall have
completed and signed the certification contained in the form of assignment on
the reverse side of such Right Certificate and shall have provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon the Rights Agent shall, subject to Sections 7(e)
and 15, countersign and deliver to the Person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split-up,
combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a valid Right Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will make a new
Right Certificate of like tenor and deliver such new Right Certificate to the
Rights Agent for delivery to the registered owner in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
(c) Notwithstanding any other provision hereof, the Company and the
Rights Agent may amend this Rights Agreement to provide for uncertificated
Rights in addition to or in place of Rights evidenced by Right Certificates.
SECTION 7. Exercise of Rights; Expiration Date of Rights. (a)
----------------------------------------------
Subject to Section 7(e) and except as otherwise provided herein (including
Section 11), each Right shall entitle the registered holder thereof, upon
exercise thereof as provided herein, to purchase for the Purchase Price, at any
time after the Distribution Date and at or prior to the earlier of (i) the Close
of Business on January 20, 2004 (the Close of Business on such date being the
"Expiration Date"), or (ii) the Redemption Date, one one-thousandths
(1/1,000ths) of a Preferred Share, subject to adjustment from time to time as
provided in Sections 11 and 12.
<PAGE>
21
(b) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date, upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent
in New York, New York, together with payment of the Purchase Price for each one
one-thousandths (1/1,000ths) of a Preferred Share as to which the Rights are
exercised, at or prior to the earlier of (i) the Expiration Date or (ii) the
Redemption Date.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the Preferred Shares to be purchased together
with an amount equal to any applicable transfer tax, in lawful money of the
United States of America, in cash or by certified check or money order payable
to the order of the Company, the Rights Agent shall thereupon (i) either (A)
promptly requisition from any transfer agent of the Preferred Shares (or make
available, if the Rights Agent is the transfer agent) certificates for the
number of Preferred Shares to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests or (B) if the
Company shall have elected to deposit the Preferred Shares with a depositary
agent under a depositary arrangement, promptly requisition from the depositary
agent depositary receipts representing the number of one one-thousandths
(1/1,000ths) of a Preferred Share to be purchased (in which case certificates
for the Preferred Shares to be represented by such receipts shall be deposited
by the transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with all such requests, (ii) when appropriate,
promptly requisition from the Company the amount of cash to be paid in lieu of
issuance of fractional shares in accordance with Section 15, (iii) promptly
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt promptly deliver such cash to or
upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise fewer than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights
<PAGE>
22
equivalent to the Rights remaining unexercised shall be issued by the Rights
Agent and delivered to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 15.
(e) Notwithstanding anything in this Rights Agreement to the
contrary, any Rights that are at any time beneficially owned by an Acquiring
Person or any Affiliate or Associate of an Acquiring Person shall be null and
void and nontransferable, and any holder of any such Right (including any
purported transferee or subsequent holder) shall not have any right to exercise
or transfer any such Right.
(f) Notwithstanding anything in this Rights Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder of any Right
Certificates upon the occurrence of any purported exercise as set forth in this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Right Certificate surrendered for such exercise and (ii)
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
(g) The Company may temporarily suspend, for a period of time not to
exceed 90 calendar days after the Distribution Date, the exercisability of the
Rights in order to prepare and file a registration statement under the
Securities Act, on appropriate form, with respect to the Preferred Shares
purchasable upon exercise of the Rights and permit such registration statement
to become effective; provided, however, that no such suspension shall remain
-------- -------
effective after, and the Rights shall without any further action by the Company
or any other Person become exercisable immediately upon, the effectiveness of
such registration statement. Upon any such suspension, the Company shall issue
a public announcement stating that the exercisability of the Rights has been
temporarily suspended and shall issue a further public announcement at such time
as the suspension is no longer in effect. Notwithstanding any provision herein
to the contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification under the blue sky or securities laws of such
jurisdiction shall not
<PAGE>
23
have been obtained or the exercise of the Rights shall not be permitted under
applicable law.
SECTION 8. Cancellation and Destruction of Right Certificates. All
---------------------------------------------------
Right Certificates surrendered or presented for the purpose of exercise,
transfer, split-up, combination or exchange shall, and any Right Certificate
representing Rights that have become null and void and nontransferable pursuant
to Section 7(e) surrendered or presented for any purpose shall, if
surrendered or presented to the Company or to any of its agents, be delivered to
the Rights Agent for cancellation or in canceled form, or, if surrendered or
presented to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
this Rights Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel and retire,
any Right Certificate purchased or acquired by the Company. The Rights Agent
shall deliver all canceled Right Certificates to the Company, or shall, at the
written request of the Company, destroy such canceled Right Certificates, and in
such case shall deliver a certificate of destruction thereof to the Company.
SECTION 9. Reservation and Availability of Preferred Shares. (a)
-------------------------------------------------
The Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares or any authorized
and issued Preferred Shares held in its treasury, free from preemptive rights or
any right of first refusal, a number of Preferred Shares sufficient to permit
the exercise in full of all outstanding Rights.
(b) In the event that there shall not be sufficient Preferred Shares
issued but not outstanding or authorized but unissued to permit the exercise or
exchange of Rights in accordance with Section 11, the Company covenants and
agrees that it will take all such action as may be necessary to authorize
additional Preferred Shares for issuance upon the exercise or exchange of Rights
pursuant to Section 11; provided, however, that if the Company is unable to
-------- -------
cause the authorization of additional Preferred Shares, then the Company shall,
or in lieu of seeking any such authorization, the Company may, to the extent
necessary and permitted by applicable law and any agreements or instruments in
effect prior to the Distribution Date to which it is a party, (A) upon surrender
of a Right, pay cash equal to the Purchase Price in lieu of
<PAGE>
24
issuing Preferred Shares and requiring payment therefor, (B) upon due exercise
of a Right and payment of the Purchase Price for each Preferred Share as to
which such Right is exercised, issue equity securities having a value equal to
the value of the Preferred Shares which otherwise would have been issuable
pursuant to Section 11, which value shall be determined by a nationally
recognized investment banking firm selected by the Board or (C) upon due
exercise of a Right and payment of the Purchase Price for each Preferred
Share as to which such Right is exercised, distribute a combination of Preferred
Shares, cash and/or other equity and/or debt securities having an aggregate
value equal to the value of the Preferred Shares which otherwise would have been
issuable pursuant to Section 11, which value shall be determined by a nationally
recognized investment banking firm selected by the Board. To the extent that any
legal or contractual restrictions (pursuant to agreements or instruments in
effect prior to the Distribution Date to which it is party) prevent the Company
from paying the full amount payable in accordance with the foregoing sentence,
the Company shall pay to holders of the Rights as to which such payments are
being made all amounts which are not then restricted on a pro rata basis as such
payments become permissible under such legal or contractual restrictions until
such payments have been paid in full.
(c) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Preferred Shares delivered upon
exercise or exchange of Rights shall, at the time of delivery of the
certificates for such Preferred Shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(d) So long as the Preferred Shares issuable upon the exercise or
exchange of Rights are to be listed on any national securities exchange, the
Company covenants and agrees to use its best efforts to cause, from and after
such time as the Rights become exercisable or exchangeable, all Preferred Shares
reserved for such issuance to be listed on such securities exchange upon
official notice of issuance upon such exercise or exchange.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all Federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of Right Certificates or
of any Preferred Shares or Common Shares or other securities
<PAGE>
25
upon the exercise or exchange of the Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a Person other than, or in respect of the
issuance or delivery of certificates for the Preferred Shares or Common Shares
or other securities, as the case may be, in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or exchange or to issue or deliver any certificates for Preferred
Shares or Common Shares or other securities, as the case may be, upon the
exercise or exchange of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Right Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
SECTION 10. Preferred Shares Record Date. Each Person in whose name
-----------------------------
any certificate for Preferred Shares or Common Shares or other securities is
issued upon the exercise or exchange of Rights shall for all purposes be deemed
to have become the holder of record of the Preferred Shares or Common Shares or
other securities, as the case may be, represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of any Purchase Price (and any
applicable transfer taxes) was made; provided, however, that, if the date of
-------- -------
such surrender and payment is a date upon which the transfer books of the
Company for the Preferred Shares or Common Shares or other securities, as the
case may be, are closed, such Person shall be deemed to have become the record
holder of such Preferred Shares or Common Shares or other securities, as the
case may be, on, and such certificate shall be dated, the next succeeding
Business Day on which the transfer books of the Company for the Preferred Shares
or Common Shares or other securities, as the case may be, are open.
SECTION 11. Adjustments in Rights After There Is an Acquiring Person;
---------------------------------------------------------
Exchange of Rights for Shares; Business Combinations. (a) Upon a Person
- -----------------------------------------------------
becoming an Acquiring Person, proper provision shall be made so that each holder
of a Right, except as provided in Section 7(e), shall thereafter have a right to
receive, upon exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, such number of one one-thousandths (1/1,000ths)
of a Preferred Share as shall equal the result obtained by multiplying the
Purchase Price by a fraction,
<PAGE>
26
the numerator of which is the number of one one-thousandths (1/1,000ths) of a
Preferred Share for which a Right is then exercisable and the denominator of
which is 50% of the Market Value of the Common Shares on the date on which a
Person becomes an Acquiring Person. As soon as practicable after a Person
becomes an Acquiring Person (provided the Company shall not have elected to make
the exchange permitted by Section 11(b)(I) for all outstanding Rights), the
Company covenants and agrees to use its best efforts to:
(I) prepare and file a registration statement under the Securities
Act, on an appropriate form, with respect to the Preferred Shares
purchasable upon exercise of the Rights;
(II) cause such registration statement to become effective as soon as
practicable after such filing;
(III) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date; and
(IV) qualify or register the Preferred Shares purchasable upon
exercise of the Rights under the blue sky or securities laws of such
jurisdictions as may be necessary or appropriate.
(b) (I) The Board of Directors of the Company may, at its option, at
any time after a Person becomes an Acquiring Person, mandatorily exchange all or
part of the then outstanding and exercisable Rights (which shall not include
Rights that shall have become null and void and nontransferable pursuant to the
provisions of Section 7(e)) for consideration per Right consisting of one-half
of the securities that would be issuable at such time upon the exercise of one
Right in accordance with Section 11(a) or, if applicable, Section 9(b) (the
consideration issuable per Right pursuant to this Section 11(b)(I) being the
"Exchange Consideration"). The Board of Directors of the Company may, at its
option, issue, in substitution for Preferred Shares, Common Shares in an amount
per Preferred Share equal to the Formula Number (as defined in the Certificate
of Designation) if there are sufficient Common Shares issued but not outstanding
or authorized but unissued. If the Board of Directors of the Company elects to
exchange all the Rights for Exchange Consideration pursuant to this Section
11(b)(I) prior to the physical distribution of the
<PAGE>
27
Rights Certificates, the Corporation may distribute the Exchange Consideration
in lieu of distributing Right Certificates, in which case for purposes of this
Rights Agreement holders of Rights shall be deemed to have simultaneously
received and surrendered for exchange Right Certificates on the date of such
distribution.
(II) Any action of the Board of Directors of the Company ordering
the exchange of any Rights pursuant to Section 11(b)(I) shall be irrevocable
and, immediately upon the taking of such action and without any further action
and without any notice, the right to exercise any such Right pursuant to Section
11(a) shall terminate and the only right thereafter of a holder of such Right
shall be to receive the Exchange Consideration in exchange for each such Right
held by such holder or, if the Exchange Consideration shall not have been paid
or issued, to exercise any such Right pursuant to Section 11(c)(I). The Company
shall promptly give public notice of any such exchange; provided, however, that
-------- -------
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange
to all holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the
exchange of the Rights for the Exchange Consideration will be effected and, in
the event of any partial exchange, the number of Rights which will be exchanged.
Any partial exchange shall be effected pro rata based on the number of Rights
(other than Rights which shall have become null and void and nontransferable
pursuant to the provisions of Section 7(e)) held by each holder of Rights.
(c) (I) In the event that, following a Distribution Date, directly
or indirectly, any transactions specified in the following clause (i), (ii) or
(iii) of this Section 11(c) (each such transaction being a "Business
Combination") shall be consummated:
(i) the Company shall consolidate with, or merge with and into, any
Acquiring Person or any Affiliate or Associate of an Acquiring Person;
(ii) any Acquiring Person or any Affiliate or Associate of an
Acquiring Person shall merge with
<PAGE>
28
and into the Company and, in connection with such merger, all or part of
the Common Shares shall be changed into or exchanged for capital stock or
other securities of the Company or of any Acquiring Person or Affiliate or
Associate of an Acquiring Person or cash or any other property; or
(iii) the Company shall sell, lease, exchange or otherwise transfer
or dispose of (or one or more of its Subsidiaries shall sell, lease,
exchange or otherwise transfer or dispose of), in one or more transactions,
the Major Part of the assets of the Company and its Subsidiaries (taken as
a whole) to any Acquiring Person or any Affiliate or Associate of an
Acquiring Person,
then, in each such case, proper provision shall be made so that each holder of a
Right, except as provided in Section 7(e), shall thereafter have the right to
receive, upon the exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, the securities specified below (or, at such
holder's option, the securities specified in Section 11(a)):
(A) If the Principal Party in such Business Combination has
Registered Common Shares outstanding, each Right shall thereafter represent
the right to receive, upon the exercise thereof for the Purchase Price in
accordance with the terms of this Rights Agreement, such number of
Registered Common Shares of such Principal Party, free and clear of all
liens, encumbrances or other adverse claims, as shall have an aggregate
Market Value equal to the result obtained by multiplying the Purchase Price
by two;
(B) If the Principal Party involved in such Business Combination does
not have Registered Common Shares outstanding, each Right shall thereafter
represent the right to receive, upon the exercise thereof for the Purchase
Price in accordance with the terms of this Rights Agreement, at the
election of the holder of such Right at the time of the exercise thereof,
any of:
(1) such number of Common Shares of the Surviving Person in such
Business Combination as shall have an aggregate Book Value immediately
after giving effect to such Business Combination
<PAGE>
29
equal to the result obtained by multiplying the Purchase Price by two;
(2) such number of Common Shares of the Principal Party in such
Business Combination (if the Principal Party is not also the Surviving
Person in such Business Combination) as shall have an aggregate Book
Value immediately after giving effect to such Business Combination
equal to the result obtained by multiplying the Purchase Price by two;
(2) such number of Common Shares of the Principal Party in such
Business Combination (if the Principal Party is not also the Surviving
Person in such Business Combination) as shall have an aggregate Book
Value immediately after giving effect to such Business Combination
equal to the result obtained by multiplying the Purchase Price by two;
or
(3) if the Principal Party in such Business Combination is an
Affiliate of one or more Persons which has Registered Common Shares
outstanding, such number of Registered Common Shares of whichever of
such Affiliates of the Principal Party has Registered Common Shares
with the greatest aggregate Market Value on the date of consummation
of such Business Combination as shall have an aggregate Market Value
on the date of such Business Combination equal to the result obtained
by multiplying the Purchase Price by two.
(II) The Company shall not consummate any Business Combination unless
each issuer of Common Shares for which Rights may be exercised, as set forth in
this Section 11(c), shall have sufficient authorized Common Shares that have not
been issued or reserved for issuance (and which shall, when issued upon exercise
thereof in accordance with this Rights Agreement, be validly issued, fully paid
and nonassessable and free of preemptive rights, rights of first refusal or any
other restrictions or limitations on the transfer or ownership thereof) to
permit the exercise in full of the Rights in accordance with this Section 11(c)
and unless prior thereto:
(i) a registration statement under the Securities Act on an
appropriate form, with respect to the Rights and the Common Shares of such
issuer purchasable upon exercise of the Rights, shall be effective under
the Securities Act; and
(ii) the Company and each such issuer shall have:
(A) executed and delivered to the Rights Agent a
supplemental agreement providing for the assumption by such issuer of
the obligations set
<PAGE>
30
forth in this Section 11(c) (including the obligation of such issuer
to issue Common Shares upon the exercise of Rights in accordance with
the terms set forth in Sections 11(c)(I) and 11(c)(III)) and further
providing that such issuer, at its own expense, will use its best
efforts to:
(1) cause a registration statement under the Securities Act
on an appropriate form, with respect to the Rights and the Common
Shares of such issuer purchasable upon exercise of the Rights, to
remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the Expiration Date;
(2) qualify or register the Rights and the Common Shares of
such issuer purchasable upon exercise of the Rights under the
blue sky or securities laws of such jurisdictions as may be
necessary or appropriate; and
(3) list the Rights and the Common Shares of such issuer
purchasable upon exercise of the Rights on each national
securities exchange on which the Common Shares were listed prior
to the consummation of the Business Combination or, if the Common
Shares were not listed on a national securities exchange prior to
the consummation of the Business Combination, on a national
securities exchange;
(B) furnished to the Rights Agent a written opinion of
independent counsel stating that such supplemental agreement is a
valid, binding and enforceable agreement of such issuer; and
(C) filed with the Rights Agent a certificate of a nationally
recognized firm of independent accountants setting forth the number of
Common Shares of such issuer which may be purchased upon the exercise
of each Right after the consummation of such Business Combination.
(III) After consummation of any Business Combination and subject to
the provisions of
<PAGE>
31
Section 11(c)(II), (i) each issuer of Common Shares for which Rights may be
exercised as set forth in this Section 11(c) shall be liable for, and shall
assume, by virtue of such Business Combination, all the obligations and duties
of the Company pursuant to this Rights Agreement, (ii) the term "Company" shall
thereafter be deemed to refer to such issuer, (iii) each such issuer shall take
such steps in connection with such consummation as may be necessary to
assure that the provisions hereof (including the provisions of Sections 11(a)
and 11(c)) shall thereafter be applicable, as nearly as reasonably may be, in
relation to its Common Shares thereafter deliverable upon the exercise of the
Rights, and (iv) the number of Common Shares of each such issuer thereafter
receivable upon exercise of any Right shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions of Sections 11 and 12 and the provisions of Section 7, 9 and 10 with
respect to the Preferred Shares shall apply, as nearly as reasonably may be, on
like terms to any such Common Shares.
SECTION 12. Certain Adjustments. (a) To preserve the actual or
--------------------
potential economic value of the Rights, if at any time after the date of this
Rights Agreement there shall be any change in the Common Shares or the Preferred
Shares, whether by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, combinations or exchanges of securities, split-ups,
split-offs, spin-offs, liquidations, other similar changes in capitalization,
any distribution or issuance of cash, assets, evidences of indebtedness or
subscription rights, options or warrants to holders of Common Shares or
Preferred Shares, as the case may be (other than distribution of the Rights or
regular quarterly cash dividends) or otherwise, then, in each such event the
Board of Directors of the Company shall make such appropriate adjustments in the
number of Preferred Shares (or the number and kind of other securities) issuable
upon exercise of each Right, the Purchase Price and Redemption Price in effect
at such time and the number of Rights outstanding at such time (including the
number of Rights or fractional Rights associated with each Common Share) such
that following such adjustment such event shall not have had the effect of
reducing or limiting the benefits the holders of the Rights would have had
absent such event.
(b) If, as a result of an adjustment made pursuant to Section 12(a),
the holder of any Right
<PAGE>
32
thereafter exercised shall become entitled to receive any securities other than
Preferred Shares, thereafter the number of such securities so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions of
Sections 11 and 12 and the provisions of Sections 7, 9 and 10 with respect to
the Preferred Shares shall apply, as nearly as reasonably may be, on like terms
to any such other securities.
(c) All Rights originally issued by the Company subsequent to any
adjustment made to the amount of Preferred Shares or other securities relating
to a Right shall evidence the right to purchase, for the Purchase Price, the
adjusted number and kind of securities purchasable from time to time hereunder
upon exercise of the Rights, all subject to further adjustment as provided
herein.
(d) Irrespective of any adjustment or change in the Purchase Price or
the number of Preferred Shares or number or kind of other securities issuable
upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the terms which were expressed in the
initial Right Certificates issued hereunder.
(e) In any case in which action taken pursuant to Section 12(a)
requires that an adjustment be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the Preferred Shares and/or other securities, if any, issuable upon such
exercise over and above the Preferred Shares and/or other securities, if any,
issuable before giving effect to such 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 securities upon the
occurrence of the event requiring such adjustment.
SECTION 13. Certificate of Adjustment. Whenever an adjustment is
--------------------------
made as provided in Section 11 or 12, the Company shall (a) promptly prepare a
certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment (b) promptly file with the Rights Agent and with
each transfer agent for the Preferred Shares a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate (or,
<PAGE>
33
prior to the Distribution Date, of the Common Shares) in accordance with Section
25. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained.
SECTION 14. Additional Covenants. (a) Notwithstanding any other
---------------------
provision of this Rights Agreement, no adjustment to the number of Preferred
Shares (or fractions of a share) or other securities for which a Right is
exercisable or the number of Rights outstanding or associated with each Common
Share or any similar or other adjustment shall be made or be effective if such
adjustment would have the effect of reducing or limiting the benefits the
holders of the Rights would have had absent such adjustment, including, without
limitation, the benefits under Sections 11 and 12, unless the terms of this
Rights Agreement are amended so as to preserve such benefits.
(b) The Company covenants and agrees that, after the Distribution
Date, except as permitted by Section 26, it will not take (or permit any
Subsidiary of the Company to take) any action if at the time such action is
taken it is intended or reasonably foreseeable that such action will reduce or
otherwise limit the benefits the holders of the Rights would have had absent
such action, including, without limitation, the benefits under Sections 11 and
12. Any action taken by the Company during any period after any Person becomes
an Acquiring Person but prior to the Distribution Date shall be null and void
unless such action could be taken under this Section 14(b) from and after the
Distribution Date. The Company shall not consummate any Business Combination if
any issuer of Common Shares for which Rights may be exercised after such
Business Combination in accordance with Section 11(c) shall have taken any
action that reduces or otherwise limits the benefits the holders of the Rights
would have had absent such action, including, without limitation, the benefits
under Sections 11 and 12.
SECTION 15. Fractional Rights and Fractional Shares. (a) The
----------------------------------------
Company may, but shall not be required to, issue fractions of Rights or
distribute Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, the Company may pay to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 15(a), the
<PAGE>
34
current market value of a whole Right shall be the closing price of the Rights
(as determined pursuant to the second and third sentences of the definition of
Market Value contained in Section 1) for the Trading Day immediately prior to
the date on which such fractional Rights would have been otherwise issuable.
(b) The Company may, but shall not be required to, issue fractions of
Preferred Shares upon exercise of the Rights or distribute certificates which
evidence fractional Preferred Shares. In lieu of fractional Preferred Shares,
the Company may elect to (i) utilize a depository arrangement as provided by the
terms of the Preferred Shares or (ii) in the case of a fraction of a Preferred
Share (other than one one-thousandths (1/1,000ths) of a Preferred Share or any
integral multiple thereof), pay to the registered holders of Right Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one Preferred Share, if any
are outstanding and publicly traded (or the Formula Number times the current
market value of one Common Share if the Preferred Shares are not outstanding and
publicly traded). For purposes of this Section 15(b), the current market value
of a Preferred Share (or Common Share) shall be the closing price of a Preferred
Share (or Common Share) (as determined pursuant to the second and third
sentences of the definition of Market Value contained in Section 1) for the
Trading Day immediately prior to the date of such exercise. If, as a result of
an adjustment made pursuant to Section 12(a), the holder of any Right thereafter
exercised shall become entitled to receive any securities other than Preferred
Shares, the provisions of this Section 15(b) shall apply, as nearly as
reasonably may be, on like terms to such other securities.
(c) The Company may, but shall not be required to, issue fractions of
Common Shares upon exchange of Rights pursuant to Section 11(b), or to
distribute certificates which evidence fractional Common Shares. In lieu of
such fractional Common Shares, the Company may pay to the registered holders of
the Right Certificates with regard to which such fractional Common Shares would
otherwise be issuable an amount in cash equal to the same fraction of the
current Market Value of one Common Share as of the date on which a Person became
an Acquiring Person.
(d) The holder of Rights by the acceptance of the Rights expressly
waives his right to receive any fractional
<PAGE>
35
Rights or any fractional shares upon exercise of a Right except as provided in
this Section 15.
SECTION 16. Rights of Action. (a) All rights of action in respect
-----------------
of this Rights Agreement are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares) may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Rights Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Rights Agreement and shall be entitled to
specific performance of the obligations of any Person under, and injunctive
relief against actual or threatened violations of the obligations of any Person
subject to, this Rights Agreement.
(b) Any holder of Rights who prevails in an action to enforce the
provisions of this Rights Agreement shall be entitled to recover the reasonable
costs and expenses, including attorneys' fees, incurred in such action.
SECTION 17. Transfer and Ownership of Rights and Right Certificates.
--------------------------------------------------------
(a) Prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares.
(b) After the Distribution Date, the Right Certificates will be
transferable, subject to Section 7(e), only on the registry books of the Rights
Agent if surrendered at the principal office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer.
(c) The Company and the Rights Agent may deem and treat the Person in
whose name a Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and
<PAGE>
36
of the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated certificate for Common
Shares made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
SECTION 18. Right Certificate Holder Not Deemed a Stockholder. No
--------------------------------------------------
holder, as such, of any Right Certificate shall be entitled to vote or receive
dividends or be deemed, for any purpose, the holder of the Preferred Shares or
of any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company,
including, without limitation, any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders, or to receive dividends or other
distributions or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
SECTION 19. Concerning the Rights Agent. (a) The Company agrees to
----------------------------
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Rights Agreement and the exercise and performance of its
duties hereunder.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Rights Agreement in reliance upon any Right
Certificate or certificate for the Common Shares or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
<PAGE>
37
SECTION 20. Merger or Consolidation or Change of Rights Agent. (a)
--------------------------------------------------
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Rights Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided that such corporation would be eligible for
--------
appointment as a successor Rights Agent under the provisions of Section 22. In
case, at the time such successor Rights Agent shall succeed to the agency
created by this Rights Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and, in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and, in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Rights Agreement.
SECTION 21. Duties of Rights Agent. The Rights Agent undertakes the
-----------------------
duties and obligations imposed by this Rights Agreement upon the following terms
and conditions, by all of which the Company and the holders of Right
Certificates (or, prior to the Distribution Date, of the Common Shares), by
their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the
<PAGE>
38
opinion of such counsel shall be full and complete authorization and protection
to the Rights Agent as to any action taken, suffered or omitted by it in good
faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person) be
proved or established by the Company prior to taking, refraining from taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Officer, the Chief Financial Officer, a Vice President (whether
preceded by any additional title), the Treasurer or the Secretary of the Company
and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Rights Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or wilful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except as to its countersignature thereof) or be required
to verify the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Rights Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Rights Agreement or in any Right
Certificate; nor shall it be responsible for any adjustment required under the
provisions of Section 11 or 12 or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect
<PAGE>
39
to the exercise of Rights evidenced by Right Certificates after actual notice of
any such adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares or Common Shares to be issued pursuant to this Rights Agreement
or any Right Certificate or as to whether any Preferred Shares or Common Shares
will, when so issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
the Chief Operating Officer, a Vice President (whether preceded by any
additional title), the Secretary or the Treasurer of the Company, in connection
with its duties and it shall not be liable for any action taken or suffered to
be taken by it in good faith in accordance with instructions of any such
officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Rights Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct
<PAGE>
40
provided reasonable care was exercised in the selection and continued
employment thereof.
(j) The Company agrees to indemnify and to hold the Rights Agent
harmless against any loss, liability, damage or expense (including reasonable
fees and expenses of legal counsel) which the Rights Agent may incur resulting
from its actions as Rights Agent pursuant to this Rights Agreement; provided,
--------
however, that the Rights Agent shall not be indemnified or held harmless with
- -------
respect to any such loss, liability, damage or expense incurred by the Rights
Agent as a result of, or arising out of, its own negligence, bad faith or wilful
misconduct. In no case shall the Company be liable with respect to any action,
proceeding, suit or claim against the Rights Agent unless the Rights Agent shall
have notified the Company, by letter or by facsimile confirmed by letter, of the
assertion of any action, proceeding, suit or claim against the Rights Agent,
promptly after the Rights Agent shall have notice of any such assertion of an
action, proceeding, suit or claim or have been served with the summons or other
first legal process giving information as to the nature and basis of the action,
proceeding, suit or claim. The Company shall be entitled to participate at its
own expense in the defense of any such action, proceeding, suit or claim, and,
if the Company so elects, the Company shall assume the defense of any such
action, proceeding, suit or claim. In the event that the Company assumes such
defense, the Company shall not thereafter be liable for the fees and expenses of
any additional counsel retained by the Rights Agent, so long as the Company
shall retain counsel satisfactory to the Rights Agent, in the exercise of its
reasonable judgment, to defend such action, proceeding, suit or claim. The
Rights Agent agrees not to settle any litigation in connection with any action,
proceeding, suit or claim with respect to which it may seek indemnification from
the Company without the prior written consent of the Company.
SECTION 22. Change of Rights Agent. The Rights Agent or any
-----------------------
successor Rights Agent may resign and be discharged from its duties under this
Rights Agreement upon 30 days' notice in writing mailed to the Company and to
each transfer agent of the Common Shares and the Preferred Shares by registered
or certified mail, and to the holders of the Right Certificates (or, prior to
the Distribution Date, of the Common Shares) by first-class mail. The Company
may remove the Rights Agent or any successor Rights Agent upon 30 days' notice
in writing, mailed to the Rights Agent or
<PAGE>
41
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Shares and the Preferred Shares by registered or certified mail, and to
the holders of the Right Certificates (or, prior to the Distribution Date, of
the Common Shares) by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(or, prior to the Distribution Date, of the Common Shares) (who shall, with such
notice, submit his Right Certificate or, prior to the Distribution Date, the
certificate representing his Common Shares, for inspection by the Company), then
the registered holder of any Right Certificate (or, prior to the Distribution
Date, of the Common Shares) may apply to any court of competent jurisdiction for
the appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a corporation organized
and doing business under the laws of the United States or of the State of New
York (or of any other state of the United States so long as such corporation is
authorized to conduct a stock transfer or corporate trust business in the State
of New York), in good standing, having a principal office in the State of New
York, which is authorized under such laws to exercise stock transfer or
corporate trust powers and is subject to supervision or examination by Federal
or state authority and which has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $50,000,000; provided that the
--------
principal transfer agent for the Common Shares shall in any event be qualified
to be the Rights Agent. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares and the Preferred Shares, and mail a notice thereof in writing
to the registered holders of the Right Certificates (or, prior to the
Distribution Date, of the Common Shares). Failure to
<PAGE>
42
give any notice provided for in this Section 22, however, or any defect therein
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.
SECTION 23. Issuance of Additional Rights and Right Certificates.
-----------------------------------------------------
Notwithstanding any of the provisions of this Rights Agreement or of the Rights
to the contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change made in accordance with the provisions of this
Rights Agreement. In addition, in connection with the issuance or sale of Common
Shares following the Distribution Date and prior to the earlier of the
Redemption Date and the Expiration Date, the Company (a) shall, with respect to
Common Shares so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement, or upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Company, and (b) may,
in any other case, if deemed necessary or appropriate by the Board of Directors
of the Company, issue Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that (i) no
-------- -------
such Right Certificate shall be issued if, and to the extent that, the Company
shall be advised by counsel that such issuance would create a significant risk
of material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued, and (ii) no such Right Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
SECTION 24. Redemption and Termination. (a) The Board of Directors
---------------------------
of the Company may, at its option, at any time prior to the earlier of (i) such
time as a Person becomes an Acquiring Person and (ii) the Expiration Date, order
the redemption of all, but not fewer than all, the then outstanding Rights at
the Redemption Price (the date of such redemption being the "Redemption Date"),
and the Company, at its option, may pay the Redemption Price either in cash or
Common Shares or other securities of the Company deemed by the Board of
Directors of the Company, in the exercise of its sole discretion, to be at least
equivalent in value to the Redemption Price; provided, however, that, in
-------- -------
addition to any other limitations contained herein on the right to redeem
outstanding Rights (including the occurrence
<PAGE>
43
of any event or the expiration of any period after which the Rights may no
longer be redeemed), for the 120-day period after any date of a change
(resulting from a proxy or consent solicitation) in a majority of the Board of
Directors of the Company in office at the commencement of such solicitation, the
Rights may only be redeemed if (A) there are directors then in office who were
in office at the commencement of such solicitation and (B) the Board of
Directors of the Company, with the concurrence of a majority of such directors
then in office, determines that such redemption is, in their judgment, in the
best interests of the Company and its stockholders.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, and without any further action
and without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price. Within 10 Business Days after the action of the Board of
Directors of the Company ordering the redemption of the Rights, the Company
shall give notice of such redemption to the holders of the then outstanding
Rights by mailing such notice to all such holders at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Shares. Each such notice of redemption will state the method by which payment of
the Redemption Price will be made. The notice, if mailed in the manner herein
provided, shall be conclusively presumed to have been duly given, whether or not
the holder of Rights receives such notice. In any case, failure to give such
notice by mail, or any defect in the notice, to any particular holder of Rights
shall not affect the sufficiency of the notice to other holders of Rights.
SECTION 25. Notices. Notices or demands authorized by this
--------
Agreement to be given or made by the Rights Agent or by the holder of a Right
Certificate (or, prior to the Distribution Date, of the Common Shares) to or on
the Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Rights Agent) as follows:
<PAGE>
44
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Attention: General Counsel
Subject to the provisions of Section 22, any notice or demand authorized by this
Rights Agreement to be given or made by the Company or by the holder of a Right
Certificate (or, prior to the Distribution Date, of the Common Shares) to or on
the Rights Agent shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Company) as follows:
ChaseMellon Shareholder Services L.L.C.
85 Challenger Road, 4th Floor
Ridgefield Park, New Jersey 07660
Attention: [Patricia Hoffmann]
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to any holder of a Right Certificate (or, prior
to the Distribution Date, of the Common Shares) shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed to such holder at
the address of such holder as shown on the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the transfer agent
for the Common Shares.
SECTION 26. Supplements and Amendments. At any time prior to the
---------------------------
Distribution Date and subject to the last sentence of this Section 26, the
Company may, and the Rights Agent shall if the Company so directs, supplement or
amend any provision of this Rights Agreement (including, without limitation, the
date on which the Distribution Date shall occur, the time during which the
Rights may be redeemed pursuant to Section 24 or any provision of the
Certificate of Designation) without the approval of any holder of the Rights.
From and after the Distribution Date and subject to applicable law, the Company
may, and the Rights Agent shall if the Company so directs, amend this Rights
Agreement without the approval of any holders of Right Certificates (i) to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision of this Rights
Agreement or (ii) to make any other provisions in regard to matters or questions
arising hereunder which the Company may deem
<PAGE>
45
necessary or desirable and which shall not adversely affect the interests of the
holders of Right Certificates (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person). Any supplement or amendment adopted during
any period after any Person has become an Acquiring Person but prior to the
Distribution Date shall be null and void unless such supplement or amendment
could have been adopted under the prior sentence from and after the
Distribution Date. Any supplement or amendment to this Rights Agreement duly
approved by the Company that does not amend Sections 19, 20, 21 or 22 in a
manner adverse to the Rights Agent shall become effective immediately upon
execution by the Company, whether or not also executed by the Rights Agent.
Notwithstanding anything contained in this Rights Agreement to the contrary,
during the 120-day period after any date of a change (resulting from a proxy or
consent solicitation) in a majority of the Board of Directors of the Company in
office at the commencement of such solicitation, this Rights Agreement may be
supplemented or amended only if (A) there are directors then in office who were
in office at the commencement of such solicitation and (B) the Board of
Directors of the Company, with the concurrence of a majority of such directors
then in office, determines that such supplement or amendment is, in their
judgment, in the best interests of the Company and its stockholders and, after
the Distribution Date, the holders of the Right Certificates. In addition,
notwithstanding anything to the contrary contained in this Rights Agreement, no
supplement or amendment to this Rights Agreement shall be made which (a) reduces
the Redemption Price (except as required by Section 12(a)) or (b) provides for
an earlier Expiration Date.
SECTION 27. Successors. All the covenants and provisions of this
-----------
Rights Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 28. Benefits of Rights Agreement; Determinations and Actions
--------------------------------------------------------
by the Board of Directors, etc. (a) Nothing in this Rights Agreement shall be
- -------------------------------
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, of the Common Shares) any legal or equitable right, remedy or claim under
this Rights Agreement; but this Rights Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and
<PAGE>
46
the registered holders of the Right Certificates (and, prior to the
Distribution Date, of the Common Shares).
(b) Except as explicitly otherwise provided in this Rights Agreement,
the Board of Directors of the Company shall have the exclusive power and
authority to administer this Rights Agreement and to exercise all rights and
powers specifically granted to the Board of Directors of the Company or to the
Company, or as may be necessary or advisable in the administration of this
Rights Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Rights Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Rights Agreement (including, without limitation, a determination to redeem or
not redeem the Rights or to amend this Rights Agreement and a determination of
whether an offer constitutes a Qualifying Offer and whether there is an
Acquiring Person).
(c) Nothing contained in this Rights Agreement shall be deemed to be
in derogation of the obligation of the Board of Directors of the Company to
exercise its fiduciary duty. Without limiting the foregoing, nothing contained
herein shall be construed to suggest or imply that the Board of Directors shall
not be entitled to reject any Qualifying Offer or any other tender offer, or to
recommend that holders of Common Shares reject any Qualifying Offer or any other
tender offer, or to take any other action (including, without limitation, the
commencement, prosecution, defense or settlement of any litigation and the
submission of additional or alternative offers or other proposals) with respect
to any Qualifying Offer or any other tender offer that the Board of Directors
believes is necessary or appropriate in the exercise of such fiduciary duty.
SECTION 29. Severability. If any term, provision, covenant or
-------------
restriction of this Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Rights
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
SECTION 30. Governing Law. This Rights Agreement and each Right
--------------
Certificate issued hereunder shall be deemed to be a contract made under the law
of the State of Delaware and for all purposes shall be governed by and construed
in
<PAGE>
47
accordance with the law of such State applicable to contracts to be made and
performed entirely within such State.
SECTION 31. Counterparts; Effectiveness. This Rights Agreement may
----------------------------
be executed in any number of counterparts and each of such counterparts shall
for all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument. This Rights Agreement shall
be effective as of the Close of Business on the date hereof.
SECTION 32. Descriptive Headings. Descriptive headings of the
---------------------
several Sections of this Rights Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
of this Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed as of the day and year first above written.
TW INC.,
by
__________________________
Name: Peter R. Haje
Title: Executive Vice
President
CHASEMELLON SHAREHOLDER SERVICES L.L.C.,
as Rights Agent,
by
____________________________
Name:
Title:
<PAGE>
EXHIBIT A
CERTIFICATE OF THE VOTING POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL
RIGHTS, AND QUALIFICATIONS, LIMITATIONS
OR RESTRICTIONS THEREOF, OF SERIES A
PARTICIPATING CUMULATIVE
PREFERRED STOCK OF
TW INC.
____________________
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
____________________
TW INC. (the "Corporation"), a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware (the "DGCL"),
DOES HEREBY CERTIFY THAT THE FOLLOWING RESOLUTION WAS DULY ADOPTED BY ACTION OF
the Board of Directors of the Corporation (the "Board of Directors") at a
meeting duly held on [___], 1996.
Resolved that pursuant to the authority expenssly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(G) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $.10 per share ("Preffered Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixed the voting powers,
designations,
<PAGE>
2
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, of the shares of such
series as follows:
SECTION 1. Designation and Number of Shares. The shares of such
---------------------------------
series shall be designated as "Series A Participating Cumulative Preferred
Stock" ("Series A Stock"). The number of shares initially constituting the
Series A Stock shall be 8,000,000; provided, however, that, if more than a total
-------- -------
of 8,000,000 shares of Series A Stock shall be issuable upon the exercise of
Rights (the "Rights") issued pursuant to the Rights Agreement dated as of
[DATE], 1996, between the Corporation and ChaseMellon Shareholder Services
L.L.C., as Rights Agent (the "RIGHTS Agreement"), the Board of Directors,
pursuant to Section 151(g) of the DGCL, shall direct by resolution or
resolutions that a certificate be properly executed, acknowledged, filed and
recorded, in accordance with the provisions of Section 103 thereof, providing
for the total number of shares of Series A Stock authorized to be issued to be
increased (to the extent that the Certificate of Incorporation then permits) to
the largest number of whole shares (rounded up to the nearest whole number)
issuable upon exercise of such Rights.
SECTION 2. Dividends or Distributions. (a) Subject to the prior and
---------------------------
superior rights of the holders of shares of any other series of Preferred Stock
or other class of capital stock of the Corporation ranking prior and superior to
the shares of Series A Stock with respect to dividends, the holders of shares of
the Series A Stock shall be entitled to receive, when, as and if declared by the
Board of Directors, out of the assets of the Corporation legally available
therefor, (1) quarterly dividends payable in cash on the last day of each fiscal
quarter in each year, or such other dates as the Board of Directors shall
approve (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or a fraction of a
<PAGE>
3
share of Series A Stock, in the amount of $.01 per whole share (rounded to the
nearest cent) less the amount of all cash dividends declared on the Series A
Stock pursuant to the following clause (2) since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Stock (the total of which shall not, in any event, be less than zero)
and (2) dividends payable in cash on the payment date for each cash dividend
declared on the common stock, par value $.01 per share ("Common Stock"), of the
Corporation in an amount per whole share (rounded to the nearest cent) equal to
the Formula Number (as hereinafter defined) then in effect times the cash
dividends then to be paid on each share of Common Stock. In addition, if the
Corporation shall pay any dividend or make any distribution on the Common Stock
payable in assets, securities or other forms of noncash consideration (other
than dividends or distributions solely in shares of Common Stock), then, in each
such case, the Corporation shall simultaneously pay or make on each outstanding
whole share of Series A Stock a dividend or distribution in like kind equal to
the Formula Number then in effect times such dividend or distribution on each
share of the Common Stock. As used herein, the "Formula Number" shall be 1,000;
provided, however, that, if at any time after the date of this Certificate, the
- -------- -------
Corpora tion shall (i) declare or pay any dividend on the Common Stock payable
in shares of Common Stock or make any distri bution on the Common Stock in
shares of Common Stock, (ii) subdivide (by a stock split or otherwise) the
outstand ing shares of Common Stock into a larger number of shares of Common
Stock or (iii) combine (by a reverse stock split or otherwise) the outstanding
shares of Common Stock into a smaller number of shares of Common Stock, then in
each such event the Formula Number shall be adjusted to a number determined by
multiplying the Formula Number in effect immediately prior to such event by a
fraction, the numerator of which is the number of shares of Common Stock that
are outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that are outstanding immediately prior to such
event (and rounding the result to the nearest whole number); and provided
--------
further, that, if at any time after the date of this Certificate, the
- -------
Corporation shall issue any shares of its capital stock in a merger,
reclassification, or change of the outstanding shares of Common Stock, then in
each such event the Formula Number shall be appropriately
<PAGE>
4
adjusted to reflect such merger, reclassification or change so that each share
of Preferred Stock continues to be the economic equivalent of a Formula Number
of shares of Common Stock prior to such merger, reclassification or change.
(b) The Corporation shall declare a dividend or distribution on the
Series A Stock as provided in Section 2(a) immediately prior to or at the same
time it declares a dividend or distribution on the Common Stock (other than a
dividend or distribution solely in shares of Common Stock); provided, however,
-------- -------
that, in the event no dividend or distribution (other than a dividend or
distribution in shares of Common Stock) shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $.01 per share on the
Series A Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Stock entitled to receive a
dividend or distribution declared thereon, which record date shall be the same
as the record date for any corresponding dividend or distribution on the Common
Stock.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Stock from and after the Quarterly Dividend Payment Date next
preceding the date of original issue of such shares of Series A Stock; provided,
--------
however, that dividends on such shares that are originally issued after the
- -------
record date for the determination of holders of shares of Series A Stock
entitled to receive a quarterly dividend and on or prior to the next succeeding
Quarterly Dividend Payment Date shall begin to accrue and be cumulative from and
after such Quarterly Dividend Payment Date. Notwithstanding the foregoing,
dividends on shares of Series A Stock that are originally issued prior to the
record date for the determination of holders of shares of Series A Stock
entitled to receive a quarterly dividend on the first Quarterly Dividend Payment
Date shall be calculated as if cumulative from and after the last day of the
fiscal quarter next preceding the date of original issuance of such shares.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such
<PAGE>
5
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
(d) So long as any shares of the Series A Stock are outstanding, no
dividends or other distributions shall be declared, paid or distributed, or set
aside for payment or distribution, on the Common Stock unless, in each case, the
dividend required by this Section 2 to be declared on the Series A Stock shall
have been declared.
(e) The holders of the shares of Series A Stock shall not be entitled
to receive any dividends or other distributions except as provided herein.
SECTION 3. Voting Rights. The holders of shares of Series A Stock
--------------
shall have the following voting rights:
(a) Each holder of Series A Stock shall be entitled to a number of
votes equal to the Formula Number then in effect, for each share of Series A
Stock held of record on each matter on which holders of the Common Stock or
stockholders generally are entitled to vote, multiplied by the maximum number of
votes per share that any holder of the Common Stock or stockholders generally
then have with respect to such matter (assuming any holding period or other
requirement to vote a greater number of shares is satisfied).
(b) Except as otherwise provided herein or by applicable law, the
holders of shares of Series A Stock and the holders of shares of Common Stock
shall vote together as one class for the election of directors and on all other
matters submitted to a vote of stockholders.
(c) If, at the time of any annual meeting of stockholders for the
election of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Stock are in default,
the number of directors constituting the Board of Directors shall be increased
by two. In addition to voting together with the holders of Common Stock for the
election of other directors, the holders of record of the Series A Stock, voting
separately as a class to the exclusion of the holders of Common Stock, shall be
entitled at said meeting
<PAGE>
6
of stockholders (and at each subsequent annual meeting of stockholders), unless
all dividends in arrears have been paid or declared and set apart for payment
prior thereto, to vote for the election of two directors, the holders of any
Series A Stock being entitled to cast a number of votes per share of Series A
Stock equal to the Formula Number. Until the default in payments of all
dividends that permitted the election of said directors shall cease to exist,
any director who shall have been so elected pursuant to the next preceding
sentence may be removed at any time, either with or without cause, only by the
affirmative vote of the holders of the shares of Series A Stock at the time
entitled to cast a majority of the votes entitled to be cast for the election of
any such director at a special meeting of such holders called for that purpose,
and any vacancy thereby created may be filled by the vote of such holders. If
and when such default shall cease to exist, the holders of the Series A Stock
shall be divested of the foregoing special voting rights, subject to revesting
in the event of each and every subsequent like default in payments of dividends.
Upon the termination of the foregoing special voting rights, the terms of office
of all persons who may have been elected directors pursuant to said special
voting rights shall forthwith terminate, and the number of directors
constituting the Board of Directors shall be reduced by two. The voting rights
granted by this Section 3(c) shall be in addition to any other voting rights
granted to the holders of the Series A Stock in this Section 3.
(d) Except as provided herein, in Section 11 or by applicable law,
holders of Series A Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for authorizing or taking any
corporate action.
SECTION 4. Certain Restrictions. (a) Whenever quarterly dividends
---------------------
or other dividends or distributions payable on the Series A Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise
<PAGE>
7
acquire for consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Stock, except
dividends paid ratably on the Series A Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Stock; provided,
--------
however, that the Corporation may at any time redeem, purchase or otherwise
-------
acquire shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Stock, or any shares of stock ranking on a parity with the Series
A Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective
series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. Liquidation Rights. Upon the liquidation, dissolution or
-------------------
winding up of the Corporation,
<PAGE>
8
whether voluntary or involuntary, no distribution shall be made (1) to the
holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Stock unless, prior
thereto, the holders of shares of Series A Stock shall have received an amount
equal to the accrued and unpaid dividends and distributions thereon, whether or
not declared, to the date of such payment, plus an amount equal to the greater
of (x) $.01 per whole share or (y) an aggregate amount per share equal to the
Formula Number then in effect times the aggregate amount to be distributed per
share to holders of Common Stock or (2) to the holders of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Stock, except distributions made ratably on the Series A Stock
and all other such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up.
SECTION 6. Consolidation, Merger, etc. In case the Corporation shall
---------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, then in any such case the then
outstanding shares of Series A Stock shall at the same time be similarly
exchanged or changed into an amount per share equal to the Formula Number then
in effect times the aggregate amount of stock, securities, cash or any other
property (payable in kind), as the case may be,
into which or for which each share of Common Stock is exchanged or changed. In
the event both this Section 6 and Section 2 appear to apply to a transaction,
this Section 6 will control.
SECTION 7. No Redemption; No Sinking Fund. (a) The shares of Series
-------------------------------
A Stock shall not be subject to redemption by the Corporation or at the option
of any holder of Series A Stock except as set forth in Section 5 of Article IV
of the Certificate of Incorporation; provided, however, that the Corporation may
-------- -------
purchase or otherwise acquire outstanding shares of Series A Stock in the open
market or by offer to any holder or holders of shares of Series A Stock.
<PAGE>
9
(b) The shares of Series A Stock shall not be subject to or entitled
to the operation of a retirement or sinking fund.
SECTION 8. Ranking. The Series A Stock shall rank junior to all
--------
other series of Preferred Stock, unless the Board of Directors shall
specifically determine otherwise in fixing the powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
and restrictions thereof.
SECTION 9. Fractional Shares. The Series A Stock shall be issuable
------------------
upon exercise of the Rights issued pursuant to the Rights Agreement in whole
shares or in any fraction of a share that is one one-thousandths (1/1,000ths) of
a share or any integral multiple of such fraction that shall entitle the holder,
in proportion to such holder's fractional shares, to receive dividends, exercise
voting rights, participate in distributions and to have the benefit of all other
rights of holders of Series A Stock. In lieu of fractional shares, the
Corporation, prior to the first issuance of a share or a fraction of a share of
Series A Stock, may elect (1) to make a cash payment as provided in the Rights
Agreement for fractions of a share other than one one-thousandths (1/1,000ths)
of a share or any integral multiple thereof or (2) to issue depository receipts
evidencing such authorized fraction of a share of Series A Stock pursuant to an
appropriate agreement between the Corporation and a depository selected by the
Corporation; provided, however, that such agreement shall provide that the
-------- -------
holders of such depository receipts shall have all the rights, privileges and
preferences to which they are entitled as holders of the Series A Stock.
SECTION 10. Reacquired Shares. Any shares of Series A Stock
------------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their retirement become authorized but unissued shares of
Preferred Stock, without designation as to series until such shares are once
more designated as part of a particular series by the Board of Directors
pursuant to the provisions of Section 2 of Article IV of the Certificate of
Incorporation.
<PAGE>
10
SECTION 11. Amendment. None of the powers, preferences and relative,
----------
participating, optional and other special rights of the Series A Stock as
provided herein or in the Certificate of Incorporation shall be amended in any
manner that would alter or change the powers, preferences, rights or privileges
of the holders of Series A Stock so as to affect them adversely without the
affirmative vote of the holders of at least 66-2/3% of the outstanding shares of
Series A Stock, voting as a separate class; provided, however, that no such
-------- -------
amendment approved by the holders of at least 66-2/3% of the outstanding shares
of Series A Stock shall be deemed to apply to the powers, preferences, rights or
privileges of any holder of shares of Series A Stock originally issued upon
exercise of the Rights after the time of such approval without the approval of
such holder.
IN WITNESS WHEREOF, TW INC. has caused this Certificate to be duly
executed in its corporate name on this [_____] day of [____] 1996.
TW INC.,
by
__________________________
Name:
Title:
<PAGE>
EXHIBIT B
[Form of Right Certificate]
Certificate No. [R]-
___________ Rights
NOT EXERCISABLE AFTER JANUARY 20, 2004, OR EARLIER IF REDEEMED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $.01 PER RIGHT, ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT) AND BY ANY SUBSEQUENT HOLDER OF SUCH
RIGHTS ARE NULL AND VOID AND NONTRANSFERABLE.
Right Certificate
TIME WARNER INC.
This certifies that , or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of [ ], 1996 (the "Rights Agreement"), between
Time Warner Inc., a Delaware corporation formerly known as "TW Inc." (the
"Company"), and ChaseMellon Shareholder Services L.L.C., as Rights Agent (the
"Rights Agent"), unless the Rights evidenced hereby shall have been previously
redeemed by the Company, to purchase from the Company at any time after the
Distribution Date (as defined in the Rights Agreement) and prior to 5:00 p.m.,
New York City time, on January 20, 2004 (the "Expiration Date"), at the
principal office of the Rights Agent, or its successors as Rights Agent, in the
City of New York, one one-thousandths (1/1,000ths) of a fully paid,
nonassessable share of Series A Participating Cumulative Preferred Stock, par
value $1.00 per share, of the Company (the "Preferred Shares"), at a purchase
price per one one-thousandths (1/1,000ths) of a share equal to $150 (the
"Purchase Price") payable in cash, upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly executed.
<PAGE>
2
The Purchase Price and the number and kind of shares which may be
purchased upon exercise of each Right evidenced by this Right Certificate, as
set forth above, are the Purchase Price and the number and kind of shares which
may be so purchased as of [ ]. As provided in the Rights Agreement, the
Purchase Price and the number and kind of shares which may be purchased upon the
exercise of each Right evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
If the Rights evidenced by this Right Certificate are at any time
beneficially owned by an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights Agreement), such
Rights shall be null and void and nontransferable and the holder of any such
Right (including any purported transferee or subsequent holder) shall not have
any right to exercise or transfer any such Right.
This Right Certificate is subject to all the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
reference to the Rights Agreement is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Right Certificates. Copies
of the Rights Agreement are on file at the above-mentioned office of the Rights
Agent and are also available from the Company upon written request.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal stock transfer or corporate trust office of the
Rights Agent, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number and kind of shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Right Certificate may be redeemed by the Company at its option
at a redemption price
<PAGE>
3
(in cash or shares of Common Stock or other securities of the Company deemed by
the Board of Directors to be at least equivalent in value) of $.01 per Right
(which amount shall be subject to adjustment as provided in the Rights
Agreement) at any time prior to the earlier of (i) such time as a Person becomes
an Acquiring Person and (ii) the Expiration Date; provided, however, that, for
-------- -------
the 120-day period after any date of a change (resulting from a proxy or consent
solicitation) in a majority of the Board of Directors of the Company in office
at the commencement of such solicitation, the Rights may only be redeemed if (A)
there are directors then in office who were in office at the commencement of
such solicitation and (B) the Board of Directors of the Company, with the
concurrence of a majority of such directors then in office, determines that such
redemption is, in their judgment, in the best interests of the Company and its
stockholders.
The Company may, but shall not be required to, issue fractions of
Preferred Shares or distribute certificates which evidence fractions of
Preferred Shares upon the exercise of any Right or Rights evidenced hereby. In
lieu of issuing fractional shares, the Company may elect to make a cash payment
as provided in the Rights Agreement for fractions of a share other than one one-
thousandths (1/1,000ths) of a share or any integral multiple thereof or to issue
certificates or utilize a depository arrangement as provided in the terms of the
Rights Agreement and the Preferred Shares.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company, including, without limitation,
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or other distributions or subscription rights, or otherwise, until the
Right or Rights evidenced by this Right Certificate shall have been exercised as
provided in accordance with the provisions of the Rights Agreement.
<PAGE>
4
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of:
TIME WARNER INC.,
by
Name:
Title:
Attest:
_________________________
Name:
Title:
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES L.L.C.,
as Rights Agent,
by
_____________________
Authorized Officer
<PAGE>
5
[On Reverse Side of Right Certificate]
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed by the registered holder if
such holder desires to exercise the Rights
represented by this Right Certificate.)
To the Rights Agent:
The undersigned hereby irrevocably elects to exercise ________________
Rights represented by this Right Certificate to purchase the Preferred Shares
(or other shares) issuable upon the exercise of such Rights and requests that
certificates for such shares be issued in the name of:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right
<PAGE>
6
Certificate for the balance remaining of such Rights shall be registered in the
name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: __________, 19__
___________________________________
Signature
Signature Guaranteed:
NOTICE
------
The signature on the foregoing Form of Election to Purchase must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE>
Exhibit 5.1
[Letterhead of]
CRAVATH, SWAINE & MOORE
September 6, 1996
TW Inc.
-------
Dear Sirs:
We have acted as counsel for TW Inc., a Delaware corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended, of shares of its Common Stock, par value $.01 per share (the
"Common Stock"), and shares of its Preferred Stock, par value $.10 per share
(the "Preferred Stock" and, together with the Common Stock, the "Shares"), which
registration is to be effected pursuant to a Registration Statement on Form S-4
(the "Registration Statement") filed the same date as the date of this opinion.
We have examined such corporate records, certificates and other
documents as we have considered necessary or appropriate for the purposes of
this opinion. In such examination, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals
and the conformity to the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the Company has
the corporate power and authority under the General Corporation Law of the State
of Delaware and under its Certificate of Incorporation and By-Laws to issue the
Shares, that the Shares will be validly authorized shares of Common Stock or
Preferred Stock, as applicable,
<PAGE>
2
and when issued and paid for, will be legally issued, fully paid and
nonassessable.
We hereby consent to be named in the Registration Statement, and in
the prospectus which constitutes a part thereof, as the attorneys who will pass
upon legal matters in connection with the sale of the Shares, and to the filing
of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Cravath, Swaine & Moore
TW Inc.
75 Rockefeller Plaza
New York, NY 10019
<PAGE>
Exhibit 8.1
[LETTERHEAD OF CRAVATH, SWAINE & MOORE APPEARS HERE]
September 6, 1996
Time Warner Inc./Turner Broadcasting System, Inc.
-------------------------------------------------
Ladies and Gentlemen:
We have acted as your counsel in connection with the transactions
contemplated by the Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement") dated as of September 22, 1995, as amended as of August 8,
1996 among Time Warner Inc., a Delaware corporation ("Time Warner"), TW Inc., a
Delaware corporation and a direct wholly owned subsidiary of Time Warner
("Holdco"), Time Warner Acquisition Corp., a Delaware corporation and a direct
wholly owned subsidiary of Holdco ("Delaware Sub"), TW Acquisition Corp., a
Georgia corporation and a direct wholly owned subsidiary of Holdco ("Georgia
Sub"), and Turner Broadcasting System, Inc., a Georgia corporation ("TBS").
Pursuant to the Merger Agreement, Delaware Sub will be merged with and into Time
Warner and Georgia Sub will be merged with and into TBS. In that connection we
have participated in the preparation of a registration statement under the
Securities Act of 1933, as amended, on Form S-4 (the "Registration Statement"),
including a Joint Proxy Statement/Prospectus (the "Proxy Statement").
Capitalized terms not otherwise defined herein shall have the meanings specified
in the Proxy Statement.
We have examined the Merger Agreement, the TCI Arrangements, the
Proxy Statement, the representation letters of New Time Warner, TW Merger Corp.,
TBS Merger Corp., Time Warner and TBS and certain shareholder certificates from
the Turner Shareholders and certain subsidiaries of LMC (the "Representation
Letters") delivered
<PAGE>
2
to us for purposes of this opinion, and such other documents and corporate
records as we have deemed necessary or appropriate for purposes of this opinion.
In addition, we have assumed (i) the Transaction will be consummated in the
manner contemplated in the Proxy Statement and in accordance with the provisions
of the Merger Agreement, (ii) the statements concerning the Transaction set
forth in the Proxy Statement are accurate and complete and (iii) the
representations made to us in the Representation Letters are accurate and
complete.
Based upon and subject to the foregoing, the description of the Federal
income tax consequences to certain holders of outstanding shares of Time Warner
Capital Stock contained in the Proxy Statement under the heading (and the
subheadings thereof) "The Transaction--Federal Income Tax Consequences--Time
Warner Merger" (including the discussion contained in the second paragraph
thereof), represents our opinion, subject to the qualifications set forth
therein.
Our opinion is limited to the tax matters specifically covered hereby.
This opinion is being provided solely for the benefit of Time Warner and
holders of Time Warner Capital Stock. No other person or party shall be
entitled to rely on this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this Firm in the sections
captioned "The Transaction--Federal Income Tax Consequences" and "Legal Matters"
in the Proxy Statement constituting a part of the Registration Statement. In
giving this consent we do not thereby admit that we come within the category of
person whose consent is required under Section 7 of the Securities
<PAGE>
3
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019 /s/ Cravath, Swaine & Moore
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM APPEARS HERE]
September 6, 1996
Turner Broadcasting System, Inc.
One CNN Center
Box 105366
Atlanta, Georgia 30348-5366
Re: Time Warner Inc./Turner Broadcasting
System, Inc., Registration Statement
on Form S-4
----------------------------------------
Ladies and Gentlemen:
We have acted as your counsel in connection with the transactions
contemplated by the Amended and Restated Agreement and Plan of Merger dated as
of September 22, 1995, as amended as of August 8, 1996 (the "Merger Agreement"),
among Time Warner Inc., a Delaware corporation ("Time Warner"), TW Inc., a
Delaware corporation and a direct wholly owned subsidiary of Time Warner
("Holdco"), Time Warner Acquisition Corp., a Delaware corporation and a direct
wholly owned subsidiary of Holdco ("Delaware Sub"), TW Acquisition Corp., a
Georgia corporation and a direct wholly owned subsidiary of Holdco ("Georgia
Sub"), and Turner Broadcasting System, Inc., a Georgia corporation ("TBS").
Pursuant to the Merger Agreement, Delaware Sub will be merged with and into Time
Warner and Georgia Sub will be merged with and into TBS. The terms of the
Mergers and related transactions are described in the Registration Statement on
Form S-4 (the "Registration Statement"), filed today with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"),
including a Joint Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus")./1/ You have requested our opinion regarding the
discussion set forth in the section of the Proxy Statement/Prospectus entitled
"THE
- ---------------------
/1/ All capitalized terms used herein that are not defined shall have the
meaning set forth in the Proxy Statement/Prospectus.
<PAGE>
Turner Broadcasting System, Inc.
September 6, 1996
Page 2
TRANSACTION--Federal Income tax Consequences--TBS Merger" and with respect to
the Federal income tax consequences of the TBS Merger.
In rendering our opinion, we have examined and relied upon the
accuracy and completeness of the information set forth in the Merger Agreement,
the Proxy Statement/Prospectus, the representation letters of New Time Warner,
Time Warner, Delaware Corp., Georgia Corp., and TBS, certain shareholder
certificates from the Turner Shareholders and certain subsidiaries of LMC, and
such other documents as we have deemed necessary or appropriate. In our
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic copies
thereof, and the authenticity of the originals of such latter documents. Our
opinion is conditioned on, among other things, the initial and continuing
accuracy of the information, statements, and representations set forth in the
documents referred to above, and on the assumption that the Transaction will
occur in a manner and form consistent with the descriptions set forth in such
documents.
Based upon and subject to the foregoing, the description of the
Federal income tax consequences to certain holders of outstanding shares of TBS
Capital Stock contained in the section of the Proxy Statement/Prospectus
entitled "THE TRANSACTION--Federal Income Tax Consequences--TBS Merger" (and the
subheadings thereof) represents our opinion, subject to the qualifications set
forth therein.
We express no opinion with respect to the matters addressed in this
letter other than as set forth above.
We are furnishing this opinion to you solely in connection with the
TBS Merger and it is not to be relied upon, circulated, quoted or otherwise
referred to by any other person for any other purpose without our prior written
consent. This opinion is expressed as of the date hereof, and we disclaim any
undertaking to advise you of any subsequent changes of the matters stated,
represented, or assumed herein or any subsequent changes in applicable law.
<PAGE>
Turner Broadcasting System, Inc.
September 6, 1996
Page 3
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to Skadden, Arps, Slate, Meagher &
Flom in the sections captioned "THE TRANSACTION--Federal Income Tax
Consequences--TBS Merger" and "Legal Matters" in the Proxy Statement/Prospectus
included in the Registration Statement. In giving this consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Act or the rules or regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom
<PAGE>
EXHIBIT 12.1
TIME WARNER
RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------
SIX MONTHS
PRO FORMA ENDED
----------------------------------- JUNE 30, YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED YEAR ENDED ----------- --------------------------------------
JUNE 30, 1996(a) DECEMBER 31, 1995(a) 1996 1995 1995 1994 1993 1992 1991
---------------- ----------------- ---- ---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Net income (loss) before income taxes
and extraordinary item.............. $(126) $ (98) $(80) $ 33 $ 2 $ 89 $ 81 $ 320 $ 52
Interest expense...................... 533 1,089 471 429 877 769 698 729 912
Amortization of capitalized interest.. 10 15 1 2 2 2 -- 19 23
Portion of rents representative of an
interest factor..................... 44 91 29 26 57 52 54 85 78
Preferred stock dividend requirements
of majority-owned subsidiaries...... 36 67 36 -- 11 -- -- -- --
Adjustment for partially-owned
subsidiaries and 50%-owned
companies........................... 396 649 396 356 691 665 663 97 73
Undistributed losses of less than 50%-
owned companies..................... 17 104 30 34 117 82 47 56 56
---------------- ----------------- ---- ---- ------ ------ ------ ------ ------
Total earnings.................... $ 910 $1,917 $883 $880 $1,757 $1,659 $1,543 $1,306 $1,194
================ ================= ==== ==== ====== ====== ====== ====== ======
FIXED CHARGES:
Interest expense...................... $ 533 $1,089 $471 $429 $ 877 $ 769 $ 698 $ 729 $ 912
Capitalized interest.................. 11 21 2 2 4 2 -- 15 17
Portions of rents representative of an
interest factor..................... 44 91 29 26 57 52 54 85 78
Preferred stock dividend requirements
of majority-owned subsidiaries...... 36 67 36 -- 11 -- -- -- --
Adjustment for partially-owned
subsidiaries and 50%-owned
companies........................... 305 655 305 359 697 668 664 81 45
---------------- ----------------- ---- ---- ------ ------ ------ ------ ------
Total fixed charges............... $ 929 $1,923 $843 $816 $1,646 $1,491 $1,416 $ 910 $1,052
================ ================= ==== ==== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges
(deficiency in the coverage of fixed
charges by earnings before fixed
charges)............................ $ (19) $ (6) 1.0x 1.1x 1.1x 1.1x 1.1x 1.4x 1.1x
================ ================= ==== ==== ====== ====== ====== ====== ======
</TABLE>
- ------------------
(a) The pro forma ratio of earnings to fixed charges of Time Warner for the six
months ended June 30, 1996 gives effect to the Series K Refinancing, the
1996 Convertible Debt Refinancing and the TBS Transaction as if the
transactions occurred at the beginning of 1995. The pro forma ratio of
earnings to fixed charges of Time Warner for the year ended December 31,
1995 gives effect to the ITOCHU/Toshiba Transaction, the Cable
Transactions, the Debt Refinancings, the Asset Sale Transactions, and the
TBS Transaction as if the transactions occurred at the beginning of such
period.
<PAGE>
EXHIBIT 12.2
TIME WARNER
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------
SIX MONTHS
PRO FORMA ENDED
----------------------------------- JUNE 30, YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED YEAR ENDED ------------ --------------------------------------
JUNE 30, 1996(a) DECEMBER 31, 1995(a) 1996 1995 1995 1994 1993 1992 1991
---------------- ----------------- ------ ---- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Net income (loss) before income taxes
and extraordinary item.............. $(126) $ (98) $ (80) $ 33 $ 2 $ 89 $ 81 $ 320 $ 52
Interest expense...................... 533 1,089 471 429 877 769 698 729 912
Amortization of capitalized interest.. 10 15 1 2 2 2 -- 19 23
Portion of rents representative of an
interest factor..................... 44 91 29 26 57 52 54 85 78
Preferred stock dividend requirements
of majority-owned subsidiaries...... 36 67 36 -- 11 -- -- -- --
Adjustment for partially-owned
subsidiaries and 50%-owned
companies........................... 396 649 396 356 691 665 663 97 73
Undistributed losses of less than 50%-
owned companies..................... 17 104 30 34 117 82 47 56 56
---------------- ----------------- ------ ---- ------ ------ ------ ------ -------
Total earnings.................... $ 910 $1,917 $ 883 $880 $1,757 $1,659 $1,543 $1,306 $ 1,194
================ ================= ====== ==== ====== ====== ====== ====== =======
FIXED CHARGES:
Interest expense...................... $ 533 $1,089 $ 471 $429 $ 877 $ 769 $ 698 $ 729 $ 912
Capitalized interest.................. 11 21 2 2 4 2 -- 15 17
Portions of rents representative of an
interest factor..................... 44 91 29 26 57 52 54 85 78
Preferred stock dividend requirements
of majority-owned subsidiaries...... 36 67 36 -- 11 -- -- -- --
Adjustment for partially-owned
subsidiaries and 50%-owned
companies........................... 305 655 305 359 697 668 664 81 45
Pretax income necessary to cover
preferred stock dividend
requirements........................ 249 438 167 14 72 20 218 905 1,382
---------------- ----------------- ------ ---- ------ ------ ------ ------ -------
Total combined fixed charges
and preferred stock dividends... $1,178 $2,361 $1,010 $830 $1,718 $1,511 $1,634 $1,815 $ 2,434
================ ================= ====== ==== ====== ====== ====== ====== =======
Ratio of earnings to combined fixed
charges and preferred stock dividend
requirements (deficiency in the
coverage of combined fixed charges
and preferred stock dividends by
earnings before fixed charges and
preferred stock dividends).......... $ (268) $ (444) $ (127) 1.1x 1.0x 1.1x $ (91) $ (509) $(1,240)
================ ================= ====== ==== ====== ====== ====== ====== =======
</TABLE>
- ------------------
(a) The pro forma ratio of earnings to combined fixed charges and preferred
stock dividends of Time Warner for the six months ended June 30, 1996 gives
effect to the Series K Refinancing, the 1996 Convertible Debt Refinancing
and the TBS Transaction as if the transactions occurred at the beginning of
1995. The pro forma ratio of earnings to combined fixed charges and
preferred stock dividends of Time Warner for the year ended December 31,
1995 gives effect to the ITOCHU/Toshiba Transaction, the Cable
Transactions, the Debt Refinancings, the Asset Sale Transactions and the
TBS Transaction as if the transactions occurred at the beginning of such
period.
<PAGE>
EXHIBIT 12.3
TWE
RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------- -----------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Net income before income taxes and
extraordinary item........................ $207 $ 96 $ 183 $201 $272 $210 $132
Interest expense............................. 239 296 571 563 573 436 479
Amortization of capitalized interest......... 17 16 33 25 19 18 22
Portion of rents representative of an
interest factor........................... 31 27 58 47 39 33 27
Adjustment for partially-owned subsidiaries
and 50%-owned companies................... 108 48 175 24 22 80 30
Undistributed losses of less than 50%-owned
companies................................. 15 20 76 58 14 40 58
---- ---- ------ ---- ---- ---- ----
Total earnings..................... $617 $503 $1,096 $918 $939 $817 $748
==== ==== ====== ==== ==== ==== ====
FIXED CHARGES:
Interest expense............................. $239 $296 $ 571 $563 $573 $436 $479
Capitalized interest......................... 17 16 33 25 20 15 17
Portion of rents representative of an
interest factor........................... 31 27 58 47 39 33 27
Adjustment for partially-owned subsidiaries
and 50%-owned companies................... 16 13 27 24 22 80 31
---- ---- ------ ---- ---- ---- ----
Total fixed charges................ $303 $352 $ 689 $659 $654 $564 $554
==== ==== ====== ==== ==== ==== ====
Ratio of earnings to fixed charges................. 2.0x 1.4x 1.6x 1.4x 1.4x 1.4x 1.4x
==== ==== ====== ==== ==== ==== ====
</TABLE>
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" in the
Joint Proxy Statement/Prospectus of Time Warner Inc. ("Time Warner") and Turner
Broadcasting System, Inc. ("TBS") that is made a part of the Registration
Statement on Form S-4 of Time Warner for the registration of capital stock of
its wholly owned subsidiary, TW Inc., in connection with the merger of Time
Warner and TBS and to the incorporation by reference therein of (i) our reports
dated February 6, 1996, with respect to the consolidated financial statements
and schedules of Time Warner and Time Warner Entertainment Company, L.P., and
our report dated March 3, 1995 with respect to the combined financial statements
of the Time Warner Service Partnerships, incorporated by reference from Time
Warner's Annual Report on Form 10-K for the year ended December 31, 1995, as
amended by Time Warner's Form 10-KA, dated June 27, 1996, and (ii) our report
dated March 8, 1996, with respect to the consolidated financial statements and
schedule of Cablevision Industries Corporation and Subsidiaries, and our reports
dated July 28, 1995, with respect to the financial statements of Newhouse
Broadcasting Cable Division of Newhouse Broadcasting Corporation and
Subsidiaries and Vision Cable Division of Vision Cable Communications, Inc. and
Subsidiaries, from Time Warner's Current Report on Form 8-K dated August 14,
1996, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
New York, New York
September 3, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus of Time Warner Inc. and Turner Broadcasting System, Inc.
that is made a part of the Registration Statement on Form S-4 of Time Warner
Inc. of our report dated February 5, 1996, which appears on page 53 of Turner
Broadcasting System, Inc.'s 1995 Annual Report to Shareholders, which is
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 1995. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears on page 43 of such
Annual Report in Form 10-K. We also consent to the reference to us under the
heading Experts in such Joint Proxy Statement/Prospectus.
Price Waterhouse LLP
Atlanta, Georgia
September 3, 1996
<PAGE>
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 the Joint Proxy
Statement/Prospectus of Time Warner Inc. and Turner Broadcasting System, Inc.
that is made part of the Registration Statement on Form S-4 of Time Warner Inc.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
September 3, 1996
<PAGE>
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of Time Warner Inc. of our report dated April 20,1995, with respect to
the consolidated financial statements of KBLCOM Incorporated appearing in the
Form 8-K of Time Warner Inc. dated August 14, 1996 and to the reference to us
under the heading "Experts" in the Joint Proxy Statement/Prospectus of Time
Warner Inc. and Turner Broadcasting System, Inc., which is part of such
Registration Statement.
DELOITTE & TOUCHE LLP
Houston, Texas
September 3, 1996
<PAGE>
Exhibit 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus of Time Warner Inc. and Turner Broadcasting System, Inc.
that is made a part of the Registration Statement on Form S-4 of Time Warner
Inc. of our report on the Paragon Communications financial statements and
schedule dated January 19, 1995, except as to Note 6, which is as of January 27,
1995, which appears on page F-82 of the Annual Report on Form 10-K of Time
Warner Entertainment Company, L.P. for the year ended December 31, 1994, which
is incorporated by reference in the Time Warner Inc. Annual Report on Form 10-K
for the year ended December 31, 1994. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Denver, Colorado
September 3, 1996
<PAGE>
Exhibit 23.8
CONSENT OF R. E. TURNER
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ R. E. Turner
---------------------------
R. E. Turner
Date: August 28, 1996
<PAGE>
Exhibit 23.9
CONSENT OF MERV ADELSON
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ Merv Adelson
-------------------------
Merv Adelson
Date: August 8, 1996
<PAGE>
Exhibit 23.10
CONSENT OF LAWRENCE B. BUTTENWIESER
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ Lawrence B. Buttenwieser
----------------------------
Lawrence B. Buttenwieser
Date: August 8, 1996
<PAGE>
Exhibit 23.11
CONSENT OF BEVERLY SILLS GREENOUGH
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ Beverly Sills Greenough
---------------------------
Beverly Sills Greenough
Date: August 8, 1996
<PAGE>
Exhibit 23.12
CONSENT OF CARLA A. HILLS
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ Carla A. Hills
-------------------------
Carla A. Hills
Date: August 8, 1996
<PAGE>
Exhibit 23.13
CONSENT OF DAVID T. KEARNS
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ David T. Kearns
-------------------------
David T. Kearns
Date: August 8, 1996
<PAGE>
Exhibit 23.14
CONSENT OF REUBEN MARK
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ Reuben Mark
-------------------------
Reuben Mark
Date: August 8, 1996
<PAGE>
Exhibit 23.15
CONSENT OF MICHAEL A. MILES
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ Michael A. Miles
-------------------------
Michael A. Miles
Date: August 8, 1996
<PAGE>
Exhibit 23.16
CONSENT OF J. RICHARD MUNRO
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ J. Richard Munro
----------------------------
J. Richard Munro
Date: August 8, 1996
<PAGE>
Exhibit 23.17
CONSENT OF RICHARD D. PARSONS
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ Richard D. Parsons
-------------------------
Richard D. Parsons
Date: August 8, 1996
<PAGE>
Exhibit 23.18
CONSENT OF DONALD S. PERKINS
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ Donald S. Perkins
-------------------------
Donald S. Perkins
Date: August 8, 1996
<PAGE>
Exhibit 23.19
CONSENT OF RAYMOND S. TROUBH
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ Raymond S. Troubh
---------------------------
Raymond S. Troubh
Date: August 8, 1996
<PAGE>
Exhibit 23.20
CONSENT OF FRANCIS T. VINCENT, JR.
The undersigned hereby consents to the inclusion of his/her name in the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement on Form
S-4 as a person to become a director of TW Inc. (to be renamed "Time Warner
Inc.") upon consummation of the mergers of (i) Time Warner Acquisition Corp.
into Time Warner Inc. and (ii) TW Acquisition Corp. into Turner Broadcasting
System, Inc.
Signature: /s/ Francis T. Vincent, Jr.
---------------------------
Francis T. Vincent, Jr.
Date: August 8, 1996
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of TW Inc., a Delaware corporation (the "Corporation"), hereby
constitutes and appoints RICHARD J. BRESSLER, PETER R. HAJE, GERALD M. LEVIN,
JOHN A. LABARCA, PHILIP R. LOCHNER, JR. AND THOMAS W. MCENERNEY, and each of
them, his true and lawful attorneys-in-fact and agents, with full power to act
without the others, for him and in his name, place and stead, in any and all
capacities, to sign a Registration Statement on Form S-4 or other appropriate
form and any and all amendments to any such Registration Statement (including
post-effective amendments), to be filed with the Securities and Exchange
Commission in connection with the registration under the provisions of the
Securities Act of 1933, as amended, of the shares of common stock, par value
$0.01 per share, of the Corporation (including any associated preferred stock
purchase rights) and the shares of preferred stock par value $.10 per share, of
the Corporation, to be issued in connection with transactions contemplated by
the Amended and Restated Agreement and Plan of Merger dated as of September 22,
1995, among the Corporation, Time Warner Inc., Time Warner Acquisition Corp., TW
Acquisition Corp. and Turner Broadcasting System, Inc., as amended by Amendment
No. 1 thereto dated as of August 8, 1996, with power where appropriate to affix
thereto the corporate seal of the Corporation and to attest said seal, and to
file any such Registration Statement, including a form of prospectus, and any
and all amendments and post-effective amendments to any such Registration
Statement, with all exhibits thereto, and any and all documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he 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.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has hereunto set his name as of
the 29th day of August, 1996.
(i) Principal Executive Officer and Director:
/s/ Gerald M. Levin
- -------------------
Gerald M. Levin
President and Director
(ii) Principal Financial Officer:
/s/ Richard J. Bressler
- -----------------------
Richard J. Bressler
Senior Vice President and
Chief Financial Officer
(iii) Principal Accounting Officer:
/s/ John A. LaBarca
- -------------------
John A. LaBarca
Vice President and
Controller
(iv) Director:
/s/ Thomas W. McEnerney
- -----------------------
Thomas W. McEnerney
<PAGE>
P
R
O
X
Y
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TIME WARNER INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
TIME WARNER INC. FOR THE SPECIAL MEETING OF STOCKHOLDERS ON OCTOBER 10, 1996
The undersigned hereby constitutes and appoints Richard J. Bressler, Peter
R. Haje and Philip R. Lochner, Jr., and each of them, its true and lawful
agents and proxies, with full power of substitution in each, to attend the
Special Meeting of Stockholders of TIME WARNER INC. on October 10, 1996, and
any postponement or adjournment thereof, and to vote on the matters
indicated all the shares of stock of Time Warner Inc. which the undersigned
would be entitled to vote if personally present.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD
ON THE REVERSE SIDE AND RETURN IT PROMPTLY
USING THE ENCLOSED REPLY ENVELOPE.
(CONTINUED ON REVERSE SIDE)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
Please mark
your votes
[X] this way
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
FORAGAINST
ABSTAIN
1. Approval of the Amended and
Restated Agreement and Plan
of Merger, as amended.
2. In their discretion, upon such
other matters as may properly
come before the Meeting or
any postponement or
adjournment thereof.
MEETING ATTENDANCE
Please mark this box if you plan
to attend the Special Meeting. [ ]
--
| ADDRESS CHANGE
Please mark this box if you have
indicated an address change.
RECEIPT IS HEREBY ACKNOWLEDGED OF THE TIME WARNER INC.
NOTICE OF SPECIAL MEETING AND JOINT PROXY
STATEMENT/PROSPECTUS.
Signature(s) ___________________________ Date _______________________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TIME WARNER EMPLOYEES' STOCK OWNERSHIP PLAN
CONFIDENTIAL VOTING INSTRUCTIONS
INSTRUCTIONS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
TIME WARNER INC. FOR THE SPECIAL MEETING OF STOCKHOLDERS ON OCTOBER 10, 1996
Under the provisions of the Trust relating to the Time Warner Employees'
Stock Ownership Plan ("TESOP"), which includes accounts transferred from the
Time Incorporated Payroll-Based Employee Stock Ownership Plan ("PAYSOP") and
the WCI Employee Stock Ownership Plan ("WCI ESOP"), The Chase Manhattan
Bank, or any successor organization ("Chase"), as Trustee, is required to
request your confidential instructions as to how the shares of Time Warner
Common Stock attributable to your accounts under TESOP are to be voted at
the Time Warner Special Meeting of Stockholders scheduled to be held on
October 10, 1996. Your instructions to Chase will not be divulged or
revealed to anyone at Time Warner Inc. If Chase does not receive your
instructions on or prior to October 7, 1996, (a) the shares allocated to
your PAYSOP and WCI ESOP accounts, if any, will not be voted and (b) all
other shares allocated to your TESOP accounts will be voted at the Special
Meeting in the same proportion as shares for which Chase has received voting
instructions with respect to other participants' TESOP accounts (excluding
PAYSOP and WCI ESOP accounts).
PLEASE MARK, SIGN AND DATE THIS INSTRUCTION
CARD ON THE REVERSE SIDE AND RETURN IT
PROMPTLY USING THE ENCLOSED ENVELOPE.
(CONTINUED ON REVERSE SIDE)
<PAGE>
THE UNDERSIGNED HEREBY INSTRUCTS CHASE, AS TRUSTEE, TO DIRECT THE VOTE AS
FOLLOWS AT THE TIME WARNER SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER
10, 1996 AND AT ANY ADJOURNMENT THEREOF, OF ALL SHARES OF TIME WARNER COMMON
STOCK ATTRIBUTABLE TO THE UNDERSIGNED'S ACCOUNTS UNDER TESOP (INCLUDING PAYSOP
AND WCI ESOP ACCOUNTS).
[X]
Please mark
your votes
this way
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
FOR AGAINST ABSTAIN
1. Approval of the amended and [ ] [ ] [ ]
restated Agreement and Plan
of Merger, as amended.
2. To grant discretionary authority to
management persons regarding
such other matters as may properly
come before the Meeting or any
postponement or adjournment
thereof.
MEETING ATTENDANCE
Please mark this box if you plan
to attend the Special Meeting. [ ]
--
|
RECEIPT IS HEREBY ACKNOWLEDGED OF THE TIME WARNER INC.
NOTICE OF SPECIAL MEETING AND JOINT PROXY
STATEMENT/PROSPECTUS.
Signature(s) ___________________________ Date _______________________________
NOTE: Please sign exactly as name appears hereon.
<PAGE>
CONFIDENTIAL VOTING INSTRUCTIONS
TIME WARNER EMPLOYEES' SAVINGS PLAN ("SAVINGS PLAN")
TIME WARNER THRIFT PLAN ("THRIFT PLAN")
CABLE EMPLOYEES SAVINGS PLAN ("CABLE PLAN")
INSTRUCTIONS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE TIME WARNER
INC. SPECIAL MEETING OF STOCKHOLDERS ON OCTOBER 10, 1996.
Under the provisions of the Trusts relating to these three Plans, Fidelity
Management Trust Company ("Fidelity"), as Trustee, is required to request your
confidential instructions as to how your proportionate interest in the shares of
Time Warner Common Stock (an "interest") held in the Time Warner Common Stock
Fund under any of those Plans is to be voted at the Special Meeting of
Stockholders scheduled to be held on October 10, 1996. Your instructions to
Fidelity will not be divulged or revealed to anyone at Time Warner Inc. If
Fidelity does not receive your instructions on or prior to October 7, 1996, your
interest, if any, in the Time Warner Common Stock Fund (a) attributable to
accounts transferred from the Time Incorporated Payroll-Based Employee Stock
Ownership Plan ("PAYSOP") to the Cable Plan will not be voted and (b)
attributable to the remainder of your Cable Plan account,if any, and any other
Plan accounts will be voted at the Special Meeting in the same proportion as
interests for which Fidelity has received voting instructions with respect to
other participants' Time Warner Common Stock Fund accounts maintained in such
respective Plan (excluding PAYSOP accounts in the Cable Plan).
This instruction must be signed
exactly as name appears hereon.
__________________________________
__________________________________
Signature(s) Date
(CONTINUED ON REVERSE SIDE)
<PAGE>
The undersigned hereby instructs Fidelity, as Trustee, to vote as follows by
proxy at the Special Meeting of Stockholders of Time Warner Inc. to be held on
October 10, 1996 and at any adjournment thereof, the undersigned's proportionate
interest in the shares of Time Warner Common Stock held in the Time Warner
Common Stock Fund under each of the Plans (including PAYSOP accounts in the
Cable Plan), if any.
THE TIME WARNER INC. BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
---
1. Approval of the amended and restated Agreement and Plan of Merger, as
amended.
FOR [_] AGAINST [_] ABSTAIN [_]
2. To grant discretionary voting authority to management persons regarding
such other matters as may properly come before the meeting or any
postponement or adjournment thereof.
Please check this box if you plan to attend the meeting. [_]
PLEASE SIGN AND DATE ON REVERSE SIDE
<PAGE>
EXHIBIT 99.3
- --------------------------------------------------------------------------------
TURNER BROADCASTING SYSTEM, INC.
CLASS A COMMON STOCK PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS, OCTOBER 10, 1996
The undersigned hereby appoints R. E. TURNER, STEVEN W. KORN, and WAYNE H.
PACE, and each of them, proxies with full power of substitution, to represent
and to vote as set forth herein all the shares of Class A Common Stock of
Turner Broadcasting System, Inc. ("TBS") held of record by the undersigned at
the close of business on August 26, 1996, at the Special Meeting of
Shareholders to be held at the Time & Life Building, 1271 Avenue of the
Americas, New York, New York 10020, commencing at 2:00 p.m., local time, on
Thursday, October 10, 1996, and any adjournment or postponement thereof.
1. Proposal to approve an Amended and Restated Agreement and Plan of Merger
dated as of September 22, 1995, as amended, among Time Warner Inc., TBS, TW
Inc., Time Warner Acquisition Corp. and TW Acquisition Corp.
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
2. In their discretion, the proxies are authorized to vote as described in the
Joint Proxy Statement/Prospectus and upon such other business as may
properly come before the meeting or any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" ITEM 1.
PLEASE SIGN EXACTLY AS NAME APPEARS
ON STOCK CERTIFICATE
PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
If stock is held in the name of two or
more persons, all must sign. When sign-
ing as attorney, executor, administra-
tor, trustee, or guardian, please give
full title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer.
If a partnership, please sign in part-
nership name by authorized person.
Dated: _________________________________
________________________________________
Signature
________________________________________
Signature If Held Jointly
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.4
- --------------------------------------------------------------------------------
TURNER BROADCASTING SYSTEM, INC.
CLASS B COMMON STOCK PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS, OCTOBER 10, 1996
The undersigned hereby appoints R. E. TURNER, STEVEN W. KORN, and WAYNE H.
PACE, and each of them, proxies with full power of substitution, to represent
and to vote as set forth herein all the shares of Class B Common Stock of
Turner Broadcasting System, Inc. ("TBS") held of record by the undersigned at
the close of business on August 26, 1996, at the Special Meeting of
Shareholders to be held at the Time & Life Building, 1271 Avenue of the
Americas, New York, New York 10020, commencing at 2:00 p.m., local time, on
Thursday, October 10, 1996, and any adjournment or postponement thereof.
1. Proposal to approve an Amended and Restated Agreement and Plan of Merger
dated as of September 22, 1995, as amended, among Time Warner Inc., TBS, TW
Inc., Time Warner Acquisition Corp. and TW Acquisition Corp.
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
2. In their discretion, the proxies are authorized to vote as described in the
Joint Proxy Statement/Prospectus and upon such other business as may
properly come before the meeting or any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" ITEM 1.
PLEASE SIGN EXACTLY AS NAME APPEARS
ON STOCK CERTIFICATE
PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
If stock is held in the name of two or
more persons, all must sign. When sign-
ing as attorney, executor, administra-
tor, trustee, or guardian, please give
full title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer.
If a partnership, please sign in part-
nership name by authorized person.
Dated: _________________________________
________________________________________
Signature
________________________________________
Signature If Held Jointly
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.5
- --------------------------------------------------------------------------------
TURNER BROADCASTING SYSTEM, INC.
CLASS C CONVERTIBLE PREFERRED STOCK PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS, OCTOBER 10, 1996
The undersigned hereby appoints R. E. TURNER, STEVEN W. KORN, and WAYNE H.
PACE, and each of them, proxies with full power of substitution, to represent
and to vote as set forth herein all the shares of Class C Convertible Preferred
Stock of Turner Broadcasting System, Inc. ("TBS") held of record by the
undersigned at the close of business on August 26, 1996, at the Special Meeting
of Shareholders to be held at the Time & Life Building, 1271 Avenue of the
Americas, New York, New York 10020, commencing at 2:00 p.m., local time, on
Thursday, October 10, 1996, and any adjournment or postponement thereof.
1. Proposal to approve an Amended and Restated Agreement and Plan of Merger
dated as of September 22, 1995, as amended, among Time Warner Inc., TBS, TW
Inc., Time Warner Acquisition Corp. and TW Acquisition Corp.
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
2. In their discretion, the proxies are authorized to vote as described in the
Joint Proxy Statement/Prospectus and upon such other business as may
properly come before the meeting or any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" ITEM 1.
PLEASE SIGN EXACTLY AS NAME APPEARS
ON STOCK CERTIFICATE
PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
If stock is held in the name of two or
more persons, all must sign. When sign-
ing as attorney, executor, administra-
tor, trustee, or guardian, please give
full title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer.
If a partnership, please sign in part-
nership name by authorized person.
Dated: _________________________________
________________________________________
Signature
________________________________________
Signature If Held Jointly
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.6
TIME WARNER INC.
September 6, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Time Warner Meeting") of Time Warner Inc. ("Time Warner") to be held on
October 10, 1996, at 9:00 a.m., local time, at the Time & Life Building, 1271
Avenue of the Americas, New York, New York 10020.
At the Time Warner Meeting, you will be asked to approve and adopt an
Amended and Restated Agreement and Plan of Merger dated as of September 22,
1995, as amended as of August 8, 1996 (the "Merger Agreement"), that provides
for the combination of Time Warner and Turner Broadcasting System, Inc.
("TBS").
Upon completion of the transactions contemplated by the Merger Agreement
(the "Transaction"):
. Time Warner and TBS will each become a wholly owned subsidiary of a new
holding company to be renamed "Time Warner Inc." ("New Time Warner");
. each outstanding share of Time Warner Common Stock will be converted into
one share of New Time Warner Common Stock;
. each outstanding share of each series of Time Warner Preferred Stock will
be converted into one share of a substantially identical series of New
Time Warner Preferred Stock; and
. each outstanding share of TBS Class A Common Stock and TBS Class B Common
Stock will be converted into the right to receive 0.75 of a share of New
Time Warner Common Stock and each outstanding share of TBS Class C
Convertible Preferred Stock will be converted into the right to receive
4.80 shares of New Time Warner Common Stock.
Detailed descriptions of the Merger Agreement and the Transaction are set
forth in the accompanying Joint Proxy Statement/Prospectus, which you should
read carefully.
Your Board of Directors has determined that the Transaction is in the best
interests of the stockholders of Time Warner. Accordingly, the Board has
approved the Merger Agreement and recommends that all Time Warner stockholders
vote for the approval and adoption of the Merger Agreement. I believe that the
Transaction will generate significant opportunities for growth. Our new
enterprise will have unsurpassed capacity to create and deliver the highest
quality news, information and entertainment to every corner of the globe.
Your vote is important. Approval of the Transaction requires the affirmative
vote of the holders of a majority in voting power of all outstanding shares of
Time Warner Common Stock and Time Warner voting Preferred Stock, voting
together as a single class. FAILURE TO VOTE OR TO RETURN YOUR PROXY CARD WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE TRANSACTION. THEREFORE, WHETHER OR
NOT YOU PLAN TO ATTEND THE TIME WARNER MEETING IN PERSON AND REGARDLESS OF THE
NUMBER OF SHARES YOU OWN, I URGE YOU TO COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY CARD OR VOTING INSTRUCTION CARD AND RETURN IT IN THE ENCLOSED PREPAID
ENVELOPE AS SOON AS POSSIBLE. As a holder of record, you may, of course,
attend the Time Warner Meeting and vote in person, even if you have previously
returned your proxy card.
Sincerely yours,
Gerald M. Levin
Chairman of the Board and Chief
Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
<PAGE>
EXHIBIT 99.7
TIME WARNER INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 10, 1996
----------------
A Special Meeting of Stockholders (the "Time Warner Meeting") of Time Warner
Inc., a Delaware corporation ("Time Warner"), will be held starting at 9:00
a.m., local time, on October 10, 1996, at the Time & Life Building, 1271
Avenue of the Americas, New York, New York 10020. Attendance at the Time
Warner Meeting will be limited to stockholders of record on August 26, 1996,
or their proxies, beneficial owners having evidence of ownership on that date
and invited guests of Time Warner.
The purposes of the Time Warner Meeting are:
1. To consider and vote upon a proposal (the "TW Merger Proposal") to
approve and adopt an Amended and Restated Agreement and Plan of Merger
dated as of September 22, 1995, as amended as of August 8, 1996 (as so
amended, the "Merger Agreement"), among Time Warner, Turner Broadcasting
System, Inc., a Georgia corporation ("TBS"), TW Inc., a Delaware
corporation and currently a wholly owned subsidiary of Time Warner ("New
Time Warner"), Time Warner Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of New Time Warner ("TW Merger Corp."), and TW
Acquisition Corp., a Georgia corporation and a wholly owned subsidiary of
New Time Warner ("TBS Merger Corp."); and
2. To transact such other business as may properly come before the Time
Warner Meeting or any adjournment or postponement thereof.
The Merger Agreement contemplates, among other things, that TW Merger Corp.
will be merged into Time Warner (the "Time Warner Merger") and TBS Merger
Corp. will be merged into TBS (the "TBS Merger" and, together with the Time
Warner Merger, the "Mergers"), with the result that (a) Time Warner and TBS
will each become a wholly owned subsidiary of New Time Warner, (b) each
outstanding share of Time Warner Common Stock, par value $1.00 per share
("Time Warner Common Stock"), other than shares held directly or indirectly by
Time Warner, will be converted into one share of New Time Warner Common Stock,
par value $.01 per share ("New Time Warner Common Stock"), (c) each
outstanding share of each series of Time Warner Preferred Stock, par value
$1.00 per share ("Time Warner Preferred Stock"), other than shares held
directly or indirectly by Time Warner and shares with respect to which
appraisal rights are properly exercised, will be converted into one share of a
substantially identical series of New Time Warner Preferred Stock, par value
$.10 per share ("New Time Warner Preferred Stock"), (d) each outstanding share
of TBS Class A Common Stock, par value $.0625 per share ("TBS Class A Common
Stock"), and each outstanding share of TBS Class B Common Stock, par value
$.0625 per share ("TBS Class B Common Stock"), other than shares held directly
or indirectly by Time Warner or New Time Warner or in the treasury of TBS and
shares with respect to which dissenters' rights are properly exercised, will
be converted into the right to receive 0.75 of a share of New Time Warner
Common Stock and (e) each outstanding share of TBS Class C Convertible
Preferred Stock, par value $.125 per share ("TBS Class C Preferred Stock" and,
together with TBS Class A Common Stock and TBS Class B Common Stock, "TBS
Capital Stock"), other than shares held directly or indirectly by Time Warner
or New Time Warner or in the treasury of TBS and shares with respect to which
dissenters' rights are properly exercised, will be converted into the right to
receive 4.80 shares of New Time Warner Common Stock.
The transactions contemplated by the Merger Agreement are referred to herein
as the "Transaction." Upon consummation of the Mergers, New Time Warner will
be renamed "Time Warner Inc." The terms of the Merger Agreement, the New Time
Warner Common Stock and the New Time Warner Preferred Stock to be issued in
connection therewith are described in detail in the accompanying Joint Proxy
Statement/Prospectus.
To ensure that your vote will be counted, please complete, sign and date the
enclosed proxy card or voting instruction and return it promptly in the
enclosed postage paid envelope, whether or not you plan to attend the Time
Warner Meeting. You may revoke your proxy in the manner described in the
accompanying Joint Proxy Statement/Prospectus at any time before it is voted
at the Time Warner Meeting.
<PAGE>
Holders of Time Warner Preferred Stock who do not vote in favor of the TW
Merger Proposal and who otherwise comply with the applicable statutory
procedures of Section 262 of the General Corporation Law of the State of
Delaware (the "DGCL") will be entitled to appraisal rights under Section 262
of the DGCL. A summary of the provisions of Section 262 of the DGCL, including
a summary of the requirements with which holders of Time Warner Preferred
Stock desiring to assert appraisal rights must comply, is contained in the
accompanying Joint Proxy Statement/Prospectus under the heading "The
Transaction--Appraisal and Dissenters' Rights." The entire text of Section 262
of the DGCL is attached as Appendix D-1 to the Joint Proxy
Statement/Prospectus.
All stockholders of record of Time Warner at the close of business on August
26, 1996, the record date for the Time Warner Meeting, are entitled to notice
of the Time Warner Meeting, and all holders of record of shares of Time Warner
Common Stock and the Series D Convertible Preferred Stock, Series E
Convertible Preferred Stock, Series F Convertible Preferred Stock, Series G
Convertible Preferred Stock, Series I Convertible Preferred Stock and Series J
Convertible Preferred Stock of Time Warner (collectively, "Time Warner Voting
Preferred Stock") at the close of business on such record date, are entitled
to vote at the Time Warner Meeting or at any postponement or adjournment
thereof. Approval of the TW Merger Proposal requires the affirmative vote of
the holders of a majority in voting power of all outstanding shares of Time
Warner Common Stock and Time Warner Voting Preferred Stock, voting together as
a single class.
By Order of the Board of Directors,
Peter R. Haje
Secretary
New York, New York
September 6, 1996
IMPORTANT
Whether or not you plan to attend the Time Warner Meeting in person, please
complete, sign, date and return the enclosed proxy card or voting instruction
card as soon as possible. A return envelope is provided for your convenience.
You may revoke your proxy at any time before it is voted by delivering to the
Secretary of Time Warner at 75 Rockefeller Plaza, New York, New York, 10019,
Attention: Secretary, a signed notice of revocation or a later dated signed
proxy card or by attending the Time Warner Meeting and voting in person. No
stockholder of record may appoint more than three persons to act as his or her
proxy at the Time Warner Meeting.
DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.
<PAGE>
EXHIBIT 99.8
TURNER BROADCASTING SYSTEM, INC.
September 6, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"TBS Meeting") of Turner Broadcasting System, Inc. ("TBS") to be held on
October 10, 1996 at 2:00 p.m., local time, at the Time & Life Building, 1271
Avenue of the Americas, New York, New York 10020.
At the TBS Meeting you will be considering and voting upon a matter of great
importance to TBS: the combination of TBS and Time Warner Inc. ("Time
Warner"), which will create the largest media and entertainment company in the
world. In this merger, TBS and Time Warner will each become a wholly owned
subsidiary of a new holding company that will be renamed "Time Warner Inc."
("New Time Warner").
If the transaction is approved by the shareholders of TBS and the
stockholders of Time Warner, and is effected, each outstanding share of TBS
Class A Common Stock and TBS Class B Common Stock will be converted into the
right to receive 0.75 of a share of common stock of New Time Warner ("New Time
Warner Common Stock") and each outstanding share of TBS Class C Convertible
Preferred Stock (each of which is convertible into six shares of TBS Class B
Common Stock) will be converted into the right to receive 4.80 shares of New
Time Warner Common Stock. Each outstanding share of common stock of Time
Warner will be converted into one share of New Time Warner Common Stock and
each outstanding share of each series of preferred stock of Time Warner will
be converted into one share of a substantially identical series of preferred
stock of New Time Warner.
The attached Joint Proxy Statement/Prospectus provides you with detailed
information regarding the transaction. I urge you to read it carefully.
Your Board of Directors (with certain directors not present or abstaining on
the basis that they were interested directors with respect to the transaction)
has unanimously approved the transaction and has determined that the
transaction is fair to and in the best interests of TBS and its shareholders,
and recommends that all TBS shareholders vote for the approval of the
transaction.
Whether or not you are personally able to attend the TBS Meeting, please
complete, sign, date and return the enclosed proxy card as soon as possible.
This action will not limit the right of any record holder who desires to
attend the TBS Meeting to vote in person at the TBS Meeting.
Very truly yours,
R.E. Turner
Chairman of the Board and President
<PAGE>
EXHIBIT 99.9
TURNER BROADCASTING SYSTEM, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
OCTOBER 10, 1996
A Special Meeting of Shareholders (the "TBS Meeting") of Turner Broadcasting
System, Inc. ("TBS") will be held at the Time & Life Building, 1271 Avenue of
the Americas, New York, New York 10020, on October 10, 1996, commencing at
2:00 p.m., local time, for the following purposes:
1. To consider and vote upon a proposal (the "TBS Merger Proposal") to
approve an Amended and Restated Agreement and Plan of Merger dated as of
September 22, 1995, as amended as of August 8, 1996 (as so amended, the
"Merger Agreement"), among Time Warner Inc. ("Time Warner"), TBS, TW Inc.,
currently a wholly owned subsidiary of Time Warner ("New Time Warner"),
Time Warner Acquisition Corp., a wholly owned subsidiary of New Time Warner
("TW Merger Corp."), and TW Acquisition Corp., a wholly owned subsidiary of
New Time Warner ("TBS Merger Corp."). The Merger Agreement provides, among
other things, for the following transactions:
(a) the merger of TBS Merger Corp. into TBS (the "TBS Merger"), in
which each share of Class A Common Stock, par value $.0625 per share,
of TBS ("TBS Class A Common Stock") and each share of Class B Common
Stock, par value $.0625 per share, of TBS ("TBS Class B Common Stock"
and, together with the TBS Class A Common Stock, "TBS Common Stock")
outstanding immediately prior to the effective time of the TBS Merger,
other than shares held directly or indirectly by Time Warner or New
Time Warner or in the treasury of TBS and shares with respect to which
dissenters' rights are properly exercised, will be converted into the
right to receive 0.75 of a share of Common Stock, par value $.01 per
share, of New Time Warner ("New Time Warner Common Stock"), and each
share of Class C Convertible Preferred Stock, par value $.125 per
share, of TBS ("TBS Class C Preferred Stock" and, together with TBS
Common Stock, "TBS Capital Stock") outstanding immediately prior to the
effective time of the TBS Merger, other than shares held directly or
indirectly by Time Warner or New Time Warner or in the treasury of TBS
and shares with respect to which dissenters' rights are properly
exercised, will be converted into the right to receive 4.80 shares of
New Time Warner Common Stock; and
(b) the merger of TW Merger Corp. into Time Warner (the "Time Warner
Merger" and, together with the TBS Merger, the "Mergers"), in which
each share of Common Stock, par value $1.00 per share, of Time Warner
outstanding immediately prior to the effective time of such merger,
other than shares held directly or indirectly by Time Warner, will be
converted into one share of New Time Warner Common Stock, and each
outstanding share of each series of preferred stock of Time Warner,
other than shares held directly or indirectly by Time Warner and shares
with respect to which appraisal rights are properly exercised, will be
converted into one share of a substantially identical series of
preferred stock of New Time Warner.
The transactions contemplated by the Merger Agreement are referred to
herein as the "Transaction." As a result of the Transaction, Time Warner
and TBS will each become a wholly owned subsidiary of New Time Warner. Upon
consummation of the Mergers, New Time Warner will be renamed "Time Warner
Inc."
2. To consider and transact such other business as may properly come
before the TBS Meeting or any adjournment or postponement thereof.
Only holders of record of shares of TBS Class A Common Stock, TBS Class B
Common Stock and TBS Class C Preferred Stock at the close of business on
August 26, 1996, the record date for the TBS Meeting fixed by the TBS Board of
Directors, are entitled to notice of and to vote at the TBS Meeting and any
<PAGE>
adjournment or postponement thereof. A list of such shareholders will be
available for inspection by any shareholder of TBS at the TBS Meeting.
Approval of the TBS Merger Proposal by the holders of TBS Capital Stock
requires the affirmative vote of (a) a majority of the voting power of the
outstanding shares of TBS Capital Stock, voting together as a single group,
(b) a majority of the voting power of the outstanding shares of TBS Common
Stock, voting together as a single group, and (c) a majority of the
outstanding shares of TBS Class C Preferred Stock, voting as a separate class.
MR. TURNER, TIME WARNER AND LIBERTY MEDIA CORPORATION HAVE AGREED, SUBJECT
TO THE SATISFACTION OR WAIVER OF CERTAIN CONDITIONS, TO VOTE OR CAUSE TO BE
VOTED ALL SHARES OF TBS CAPITAL STOCK OWNED BY THEM AND CERTAIN OF THEIR
AFFILIATES IN FAVOR OF THE TBS MERGER PROPOSAL. ACCORDINGLY (ASSUMING THE
SATISFACTION OR WAIVER OF SUCH CONDITIONS), APPROVAL OF THE TBS MERGER
PROPOSAL BY TBS SHAREHOLDERS IS ASSURED, REGARDLESS OF THE VOTE OF ANY OTHER
SHAREHOLDER OF TBS.
Holders of TBS Capital Stock who do not vote in favor of the TBS Merger
Proposal and who otherwise comply with the provisions of Article 13 of the
Georgia Business Corporation Code (the "GBCC") are entitled to assert
dissenters' rights and to obtain payment of the fair value of their shares if
the Transaction is consummated. A summary of the provisions of Article 13 of
the GBCC, including a summary of the requirements with which shareholders
desiring to dissent must comply, is contained in the accompanying Joint Proxy
Statement/Prospectus under the heading "The Transaction--Appraisal and
Dissenters' Rights." The entire text of Article 13 of the GBCC is attached as
Appendix D-2 to the Joint Proxy Statement/Prospectus.
The Transaction is of great importance to TBS and its shareholders. The
accompanying Joint Proxy Statement/Prospectus describes the Transaction in
detail. Please read the Joint Proxy Statement/Prospectus carefully and then
complete, sign and date the enclosed proxy card and return it in the enclosed
envelope.
Your prompt response will be appreciated. If you plan to attend the TBS
Meeting and your shares are held in the name of a broker or other nominee,
please bring a proxy or letter from the broker or nominee confirming your
ownership of shares. Only TBS shareholders and their proxies and invited
guests of TBS will be admitted to the TBS Meeting.
By Order of the Board of Directors
Steven W. Korn
Secretary
Atlanta, Georgia
September 6, 1996
IMPORTANT
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE TBS MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE WHICH HAS
BEEN PROVIDED. IN THE EVENT YOU ARE ABLE TO ATTEND THE TBS MEETING, YOU MAY
REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.
<PAGE>
EXHIBIT 99.10
MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
September 5, 1996
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
We hereby consent to the use in the Registration Statement, and
in the related Prospectus, of TW, Inc. ("Parent") on Form S-4, covering the
securities of Parent to be issued in connection with the mergers of TW
Acquisition Corp. with and into Turner Broadcasting System, Inc. ("TBS") and of
Time Warner Acquisition Corp. with and into Time Warner Inc. ("Time Warner"),
and in the related Joint Proxy Statement of TBS and Time Warner, of our opinion
dated August 8, 1996 appearing as Appendix C-1 to such Joint Proxy
Statement/Prospectus, to the description therein of such opinion and of our
presentation to the board of directors of Time Warner on August 8, 1996; and to
the references therein to us under the headings "Summary -- The Time Warner
Meeting -- Opinion of Financial Advisor to Time Warner," "The Transaction --
Background," "The Transaction -- Recommendation of the Time Warner Board; Time
Warner's Reasons for the Transaction" and "The Transaction -- Opinion of Time
Warner's Financial Advisor." In giving the foregoing consent, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, and rules and regulations
promulgated thereunder, nor do we admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "experts" as
used in the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission thereunder.
MORGAN STANLEY & CO. INCORPORATED
<PAGE>
EXHIBIT 99.11
CONSENT
OF
CS FIRST BOSTON CORPORATION
We hereby consent to (i) the inclusion of our opinion letter to the
Board of Directors of Turner Broadcasting System, Inc. ("TBS") as Appendix C-2
to the Joint Proxy Statement/Prospectus of TBS and Time Warner, Inc. ("Time
Warner") relating to the proposed merger transaction involving TBS and Time
Warner, and (ii) references made to our firm and such opinion in such joint
Proxy Statement/Prospectus under the captions entitled "SUMMARY - Opinions of
Financial Advisors to TBS," "THE TRANSACTION - Background," "THE TRANSACTION -
Recommendation of the TBS Board; TBS's Reasons for the Transaction," "THE
TRANSACTION - Opinions of TBS's Financial Advisors - Opinion of CS First
Boston" and "The Transaction - Certain Fees and Expenses." In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under, and we do not admit that we are "experts" for
purposes of, the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
CS FIRST BOSTON CORPORATION
September 5, 1996
<PAGE>
Exhibit 99.12
We hereby consent to the use of our opinion letter dated August 8, 1996
to the Board of Directors of Turner Broadcasting System, Inc. ("TBS") included
as Appendix C-3 to the Proxy Statement/Prospectus which forms a part of the
Registration Statement on Form S-4 relating to the proposed merger transaction
involving TBS and Time Warner Inc. and to the references to our firm and such
opinion in such Proxy Statement/Prospectus under the captions entitled
"Summary--Opinions of Financial Advisors to TBS," "The Transaction--Background,"
"The Transaction--Recommendation of the TBS Board; TBS's Reasons for the
Transaction," "The Transaction--Opinions of TBS's Financial Advisors--Opinion of
Merrill Lynch" and "The Transaction--Certain Fees and Expenses." In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
September 6, 1996
