<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934 for the quarterly period ended June 30, 1998, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934 for the transition period from ________ to __________.
Commission file number 1-12259
TIME WARNER INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3527249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - $.01 par value 542,242,060
Series LMCN-V Common Stock - $.01 par value 57,061,942
------------------------------------------- ---------------
Description of Class Shares Outstanding
as of July 31, 1998
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TIME WARNER INC. AND
TIME WARNER ENTERTAINMENT COMPANY, L.P.
INDEX TO FORM 10-Q
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PAGE
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TIME
WARNER TWE
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PART I. FINANCIAL INFORMATION
Management's discussion and analysis of results of operations and financial condition..... 1 41
Consolidated balance sheets at June 30, 1998 and December 31, 1997........................ 18 51
Consolidated statements of operations for the three and six months ended
June 30, 1998 and 1997............................................................... 19 52
Consolidated statements of cash flows for the six months ended June 30, 1998
and 1997............................................................................. 20 53
Consolidated statement of shareholders' equity and partnership capital.................... 21 54
Notes to consolidated financial statements................................................ 22 55
Supplementary information................................................................. 33
PART II. OTHER INFORMATION.................................................................... 62
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TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Time Warner Inc. ("Time Warner" or the "Company") classifies its
business interests into four fundamental areas: Entertainment, consisting
principally of interests in recorded music and music publishing, filmed
entertainment, television production and television broadcasting; Cable
Networks, consisting principally of interests in cable television programming;
Publishing, consisting principally of interests in magazine publishing, book
publishing and direct marketing; and Cable, consisting principally of interests
in cable television systems. A majority of Time Warner's interests in filmed
entertainment, television production, television broadcasting and cable
television systems, and a portion of its interests in cable television
programming, are held through Time Warner Entertainment Company, L.P. ("TWE").
Time Warner owns general and limited partnership interests in TWE consisting of
74.49% of the pro rata priority capital ("Series A Capital") and residual equity
capital ("Residual Capital"), and 100% of the senior priority capital ("Senior
Capital") and junior priority capital ("Series B Capital"). The remaining 25.51%
limited partnership interests in the Series A Capital and Residual Capital of
TWE are held by a subsidiary of MediaOne Group, Inc. ("MediaOne"), formerly U S
WEST, Inc. Time Warner does not consolidate TWE and certain related companies
(the "Entertainment Group") for financial reporting purposes because of certain
limited partnership rights related to TWE's interest in certain cable television
systems. Capitalized terms are as defined and described in the accompanying
consolidated financial statements, or elsewhere herein.
USE OF EBITA
Time Warner evaluates operating performance based on several factors,
of which the primary financial measure is operating income before noncash
amortization of intangible assets ("EBITA"). Consistent with management's
financial focus on controlling capital spending, EBITA measures operating
performance after charges for depreciation. In addition, EBITA eliminates the
uneven effect across all business segments of considerable amounts of noncash
amortization of intangible assets recognized in business combinations accounted
for by the purchase method, including the $14 billion acquisition of Warner
Communications Inc. in 1989, the $6.2 billion acquisition of Turner Broadcasting
System, Inc. in 1996 and the $2.3 billion of cable acquisitions in 1996 and
1995. The exclusion of noncash amortization charges is also consistent with
management's belief that Time Warner's intangible assets, such as cable
television and sports franchises, music catalogues and copyrights, film and
television libraries and the goodwill associated with its brands, are generally
increasing in value and importance to Time Warner's business objective of
creating, extending and distributing recognizable brands and copyrights
throughout the world. As such, the following comparative discussion of the
results of operations of Time Warner and the Entertainment Group includes, among
other factors, an analysis of changes in business segment EBITA. However, EBITA
should be considered in addition to, not as a substitute for, operating income,
net income and other measures of financial performance reported in accordance
with generally accepted accounting principles.
1
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TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
RESULTS OF OPERATIONS
As more fully described herein, Time Warner's and the Entertainment
Group's 1998 operating results have been affected by certain cable-related
transactions, including (i) the transfer of cable television systems (or
interests therein) serving approximately 650,000 subscribers that were formerly
owned by subsidiaries of Time Warner to the TWE-Advance/Newhouse Partnership
("TWE-A/N"), subject to approximately $1 billion of debt, in exchange for common
and preferred partnership interests therein, as well as certain related
transactions (collectively, the "TWE-A/N Transfers"), (ii) the transfer of TWE's
and TWE-A/N's direct broadcast satellite operations and related assets to
Primestar, Inc., a separate holding company (the "Primestar Roll-up
Transaction") and (iii) the sale or exchange of certain cable television
systems. The effects of these transactions are described elsewhere herein.
EBITA and operating income for Time Warner and the Entertainment Group
for the three and six months ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------- --------------------------------
EBITA OPERATING INCOME EBITA OPERATING INCOME
--------------- ---------------- ------------- ----------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ----- ----- ------ ---- ---- ------- -----
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TIME WARNER:
Publishing............................... $176 $157 $168 $149 $261 $233 $244 $216
Music.................................... 96 106 25 32 189 224 50 82
Cable Networks-TBS....................... 198 165 148 115 351 279 251 184
Filmed Entertainment-TBS................. 38 29 18 10 23 35 (17) (6)
Cable.................................... 74 104 26 35 148 209 46 70
Intersegment elimination................. (1) 4 (1) 4 (20) (7) (20) (7)
---- ---- ---- ---- ---- ---- ---- ----
Total.................................... $581 $565 $384 $345 $952 $973 $554 $539
==== ==== ==== ==== ==== ==== ==== ====
ENTERTAINMENT GROUP:
Filmed Entertainment-Warner Bros......... $122 $110 $ 89 $ 80 $241 $215 $175 $154
Broadcasting-The WB Network.............. (23) (19) (24) (19) (61) (39) (63) (39)
Cable Networks-HBO....................... 113 98 113 98 222 189 222 189
Cable (a)................................ 374 243 278 168 681 502 491 351
---- ---- ---- ---- ---- ---- ---- ----
Total.................................... $586 $432 $456 $327 $1,083 $867 $825 $655
==== ==== ==== ==== ==== ==== ==== ====
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(a) Includes net pretax gains relating to the sale or exchange of certain cable
television systems of approximately $70 million in the second quarter of
1998, and approximately $84 million and $24 million in the six months ended
June 30, 1998 and 1997, respectively.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Time Warner had revenues of $3.672 billion and net income of $101
million ($.04 income per common share after preferred dividend requirements) for
the three months ended June 30, 1998, compared to revenues of $3.193 billion and
net income of $30 million ($.09 loss per common share after preferred dividend
requirements) for the three months ended June 30, 1997. Time Warner's equity in
the pretax income of the Entertainment Group was $166 million for the three
months ended June 30, 1998, compared to $108 million for the three months ended
June 30, 1997.
2
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<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
Time Warner's net income increased to $101 million for the three months
ended June 30, 1998, compared to $30 million for the three months ended June 30,
1997. As discussed more fully below, this increase principally resulted from an
overall increase in business segment operating income, higher income from Time
Warner's equity in the pretax income of the Entertainment Group and lower
interest expense associated with Time Warner's debt reduction efforts and the
TWE-A/N Transfers. Time Warner's equity in the pretax income of the
Entertainment Group includes $70 million ($.05 per common share) of net pretax
gains recognized by TWE in 1998 relating to the sale or exchange of certain
cable television systems.
The Entertainment Group had revenues of $2.853 billion and net income
of $156 million for the three months ended June 30, 1998, compared to revenues
of $2.731 billion and net income of $89 million for the three months ended June
30, 1997. As discussed more fully below, the Entertainment Group's net income
increased in 1998 as compared to 1997 principally due to an overall increase in
operating income generated by its business segments (including the positive
effect of the TWE-A/N Transfers and the $70 million of net gains noted above),
offset in part by an increase in interest expense and minority interest expense
related to the TWE-A/N Transfers.
The relationship between income before income taxes and income tax
expense of Time Warner is principally affected by the amortization of goodwill
and certain other financial statement expenses that are not deductible for
income tax purposes. Income tax expense of Time Warner includes all income taxes
related to its allocable share of partnership income and its equity in the
income tax expense of corporate subsidiaries of the Entertainment Group.
TIME WARNER
Publishing. Revenues increased to $1.136 billion, compared to $1.053
billion in the second quarter of 1997. EBITA increased to $176 million from $157
million. Operating income increased to $168 million from $149 million. Revenues
benefited from increases in magazine advertising and circulation revenues,
offset in part by a decrease in direct marketing revenues. Contributing to the
revenue gains were increases achieved by People, Time, Fortune and In Style.
EBITA and operating income increased principally as a result of the revenue
gains and, to a lesser extent, cost savings.
Music. Revenues increased to $905 million, compared to $822 million in
the second quarter of 1997. EBITA decreased to $96 million from $106 million.
Operating income decreased to $25 million from $32 million. Revenues benefited
from an increase in domestic and international recorded music sales principally
relating to higher compact disc sales of new releases from popular established
artists and movie soundtracks. At the end of June 1998, the Music division had a
leading domestic market share of 20%, as measured by SoundScan. Despite the
revenue increase, EBITA and operating income declined principally as a result of
lower results from direct marketing activities.
Cable Networks-TBS. Revenues increased to $906 million, compared to
$750 million in the second quarter of 1997. EBITA increased to $198 million from
$165 million. Operating income increased to $148 million from $115 million.
Revenues benefited from a significant increase in subscription revenues, as well
as an increase in advertising revenues. The increase in subscription revenues
principally related to the conversion of TBS Superstation from an
advertiser-supported broadcast superstation to a copyright-paid, cable
television service, which allows TBS Superstation to charge cable operators for
the right to carry its cable television programming. Subscription revenues also
increased as a result of an increase in subscriptions, primarily at TNT, CNN,
Cartoon Network and Turner
3
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<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
Classic Movies, and higher rates. The increase in advertising revenues was due
to a strong overall advertising market for most of the division's major branded
networks, including TNT, Cartoon Network and CNN Headline News. EBITA and
operating income increased principally as a result of the revenue gains and cost
savings.
Filmed Entertainment-TBS. Revenues increased to $504 million, compared
to $337 million in the second quarter of 1997. EBITA increased to $38 million
from $29 million. Operating income increased to $18 million from $10 million.
Revenues benefited from an increase in worldwide theatrical revenues and a
significant increase in syndication sales resulting from the renewal by existing
television station customers of second-cycle broadcasting rights for Seinfeld,
offset in part by lower worldwide home video revenues. EBITA and operating
income increased principally as a result of the revenue gains, offset in part by
film write-offs relating to disappointing results for theatrical releases of
Castle Rock Entertainment.
Cable. Revenues decreased to $242 million, compared to $250 million in
the second quarter of 1997. EBITA decreased to $74 million from $104 million.
Operating income decreased to $26 million from $35 million. The Cable division's
1998 operating results were negatively affected by the TWE-A/N Transfers.
Excluding the effect of the TWE-A/N Transfers, revenues benefited from an
increase in basic cable subscribers, increases in regulated cable rates as
permitted under Time Warner Cable's "social contract" with the Federal
Communications Commission ("FCC") and an increase in advertising revenues.
Similarly excluding the effect of the TWE-A/N Transfers, EBITA and operating
income increased principally as a result of the revenue gains, offset in part by
higher depreciation related to capital spending.
Interest and Other, Net. Interest and other, net, decreased to $283
million in the second quarter of 1998, compared to $303 million in the second
quarter of 1997. Interest expense decreased to $222 million, compared to $256
million in the second quarter of 1997, principally due to lower average debt
levels associated with the Company's debt reduction efforts and the TWE-A/N
Transfers. Other expense, net, increased to $61 million in the second quarter of
1998 from $47 million in the second quarter of 1997, principally because of
lower investment-related income relating to the absence of a gain on the sale of
an investment recognized in 1997.
ENTERTAINMENT GROUP
Filmed Entertainment-Warner Bros. Revenues increased to $1.330 billion,
compared to $1.257 billion in the second quarter of 1997. EBITA increased to
$122 million from $110 million. Operating income increased to $89 million from
$80 million. Revenues benefited from increases in worldwide television
production and distribution, home video and consumer products licensing
operations, offset in part by lower worldwide theatrical revenues. EBITA and
operating income benefited principally from the revenue gains, as well as a gain
on the sale of certain assets.
Broadcasting - The WB Network. Revenues increased to $61 million,
compared to $29 million in the second quarter of 1997. EBITA decreased to a loss
of $23 million from a loss of $19 million. Operating losses increased to $24
million from $19 million. Revenues increased as a result of improved television
ratings and the addition of a fourth night of prime-time programming in January
1998, but were offset by higher programming costs associated with the expanded
programming schedule. Operating losses increased primarily as a result of a
lower allocation of losses to a limited partner in the network. In October 1998,
The WB Network plans to expand its prime-time
4
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TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
programming schedule to five nights a week. Due to the start-up nature of this
national broadcast operation, losses are expected to continue.
Cable Networks-HBO. Revenues increased to $509 million, compared to
$487 million in the second quarter of 1997. EBITA and operating income increased
to $113 million from $98 million. Revenues benefited primarily from an increase
in subscriptions. EBITA and operating income increased principally as a result
of the revenue gains and, to a lesser extent, cost savings.
Cable. Revenues increased to $1.084 billion, compared to $1.066 billion
in the second quarter of 1997. EBITA increased to $374 million from $243
million. Operating income increased to $278 million from $168 million. The Cable
division's 1998 operating results were affected by the TWE-A/N Transfers and the
deconsolidation of its direct broadcast satellite operations in connection with
the Primestar Roll-up Transaction. Excluding the effect of the TWE-A/N Transfers
and the Primestar Roll-up Transaction, revenues benefited from an increase in
basic cable subscribers, increases in regulated cable rates as permitted under
Time Warner Cable's "social contract" with the FCC and an increase in
advertising revenues. Similarly excluding the effect of the TWE-A/N Transfers
and Primestar Roll-up Transaction, EBITA and operating income increased
principally as a result of the revenue gains and higher net gains relating to
the sale or exchange of certain cable television systems, offset in part by
higher depreciation related to capital spending.
Interest and Other, Net. Interest and other, net, was $183 million in
the second quarter of 1998, compared to $139 million in the second quarter of
1997. Interest expense increased to $132 million, compared to $120 million in
the second quarter of 1997, principally due to higher average debt levels
associated with the TWE-A/N Transfers. There was other expense, net, of $51
million in the second quarter of 1998, compared to $19 million in the second
quarter of 1997, principally due to higher losses from certain investments
accounted for under the equity method of accounting.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Time Warner had revenues of $6.809 billion and net income of $39
million ($.21 loss per common share after preferred dividend requirements) for
the six months ended June 30, 1998, compared to revenues of $6.227 billion,
income of $82 million before an extraordinary loss on the retirement of debt
($.13 loss per common share) and net income of $65 million ($.16 loss per common
share) for the six months ended June 30, 1997. Time Warner's equity in the
pretax income of the Entertainment Group was $273 million for the six months
ended June 30, 1998, compared to $426 million for the six months ended June 30,
1997.
Time Warner's net income decreased to $39 million for the six months
ended June 30, 1998 compared to $65 million for the six months ended June 30,
1997. As discussed more fully below, this decrease principally resulted from
lower, net pretax gains recognized by TWE in connection with the sale or
exchange of certain cable television systems in each year and the 1997 sale of
TWE's interest in E! Entertainment Television, Inc. ("E! Entertainment"). These
pretax gains amounted to approximately $84 million in 1998 ($.06 per common
share) and $274 million ($.29 per common share) in 1997. Excluding the effect of
these transactions, net income increased in 1998 principally as a result of an
overall increase in business segment operating income, higher income from Time
Warner's equity in the pretax income of the Entertainment Group, lower interest
expense associated with Time Warner's debt reduction
5
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TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
efforts and the TWE-A/N Transfers, and the absence of a $17 million
extraordinary loss on the retirement of debt recognized in 1997.
The Entertainment Group had revenues of $5.765 billion and net income
of $264 million for the six months ended June 30, 1998, compared to revenues of
$5.333 billion and net income of $407 million for the six months ended June 30,
1997. As discussed more fully below and as previously described above, the
Entertainment Group's net income decreased in 1998 as compared to 1997
principally due to lower, net pretax gains recognized in connection with the
sale or exchange of certain cable television systems in each year and the 1997
sale of TWE's interest in E! Entertainment. Excluding the effect of these
transactions, the Entertainment Group's net income increased in 1998 principally
as a result of an overall increase in operating income generated by its business
segments (including the positive effect of the TWE-A/N Transfers), offset in
part by an increase in interest expense and minority interest expense related to
the TWE-A/N Transfers.
The relationship between income before income taxes and income tax
expense of Time Warner is principally affected by the amortization of goodwill
and certain other financial statement expenses that are not deductible for
income tax purposes. Income tax expense of Time Warner includes all income taxes
related to its allocable share of partnership income and its equity in the
income tax expense of corporate subsidiaries of the Entertainment Group.
TIME WARNER
Publishing. Revenues increased to $2.084 billion, compared to $1.977
billion in the first six months of 1997. EBITA increased to $261 million from
$233 million. Operating income increased to $244 million from $216 million.
Revenues benefited from increases in magazine advertising and circulation
revenues, offset in part by a decrease in direct marketing revenues.
Contributing to the revenue gains were increases achieved by People, Time,
Fortune and In Style. EBITA and operating income increased principally as a
result of the revenue gains and, to a lesser extent, cost savings.
Music. Revenues increased to $1.793 billion, compared to $1.755 billion
in the first six months of 1997. EBITA decreased to $189 million from $224
million. Operating income decreased to $50 million from $82 million. Revenues
benefited from an increase in domestic recorded music sales, which more than
offset a marginal decrease in international recorded music sales. The increase
in domestic recorded music revenues principally related to higher compact disc
sales of new releases from popular established artists and movie soundtracks. At
the end of June 1998, the Music division had a leading domestic market share of
20%, as measured by SoundScan. Despite the revenue increase, EBITA and operating
income declined principally as a result of lower results from direct marketing
activities and the absence of certain one-time gains recognized in 1997.
Cable Networks-TBS. Revenues increased to $1.634 billion, compared to
$1.344 billion in the first six months of 1997. EBITA increased to $351 million
from $279 million. Operating income increased to $251 million from $184 million.
Revenues benefited from a significant increase in subscription revenues, as well
as an increase in advertising revenues. The increase in subscription revenues
principally related to the conversion of TBS Superstation from an
advertiser-supported broadcast superstation to a copyright-paid, cable
television service, which allows TBS Superstation to charge cable operators for
the right to carry its cable television programming. Subscription revenues also
increased as a result of an increase in subscriptions, primarily at TNT, CNN,
Cartoon
6
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<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
Network and Turner Classic Movies, and higher rates. The increase in advertising
revenues was due to a strong overall advertising market for most of the
division's major branded networks, including TNT, Cartoon Network, CNN and CNN
Headline News. EBITA and operating income increased principally as a result of
the revenue gains and cost savings.
Filmed Entertainment-TBS. Revenues increased to $876 million, compared
to $734 million in the first six months of 1997. EBITA decreased to $23 million
from $35 million. Operating losses increased to $17 million from $6 million.
Revenues benefited from a significant increase in syndication sales resulting
from the renewal by existing television station customers of second-cycle
broadcasting rights for Seinfeld, offset in part by lower worldwide theatrical
and home video revenues. Despite the revenue increase, EBITA and operating
income decreased principally as a result of film write-offs relating to
disappointing results for theatrical releases of Castle Rock Entertainment.
Cable. Revenues decreased to $490 million, compared to $492 million in
the first six months of 1997. EBITA decreased to $148 million from $209 million.
Operating income decreased to $46 million from $70 million. The Cable division's
1998 operating results were negatively affected by the TWE-A/N Transfers.
Excluding the effect of the TWE-A/N Transfers, revenues benefited from an
increase in basic cable subscribers, increases in regulated cable rates as
permitted under Time Warner Cable's "social contract" with the FCC and an
increase in advertising revenues. Similarly excluding the effect of the TWE-A/N
Transfers, EBITA and operating income increased principally as a result of the
revenue gains, offset in part by higher depreciation related to capital spending
and the absence of a gain on the sale of an investment recognized in 1997.
Interest and Other, Net. Interest and other, net, decreased to $566
million in the first six months of 1998, compared to $595 million in the first
six months of 1997. Interest expense decreased to $455 million, compared to $534
million in the first six months of 1997, principally due to lower average debt
levels associated with the Company's debt reduction efforts and the TWE-A/N
Transfers. Other expense, net, increased to $111 million in the first six months
of 1998 from $61 million in the first six months of 1997, principally because of
lower gains on foreign exchange contracts, lower investment-related income
relating to the absence of a gain on the sale of an investment recognized in
1997 and higher losses associated with the Company's asset securitization
program.
ENTERTAINMENT GROUP
Filmed Entertainment-Warner Bros. Revenues increased to $2.642 billion,
compared to $2.431 billion in the first six months of 1997. EBITA increased to
$241 million from $215 million. Operating income increased to $175 million from
$154 million. Revenues benefited from increases in worldwide television
production and distribution and consumer products licensing operations, offset
in part by lower worldwide theatrical and home video revenues. EBITA and
operating income benefited principally from the revenue gains.
Broadcasting - The WB Network. Revenues increased to $106 million,
compared to $53 million in the first six months of 1997. EBITA decreased to a
loss of $61 million from a loss of $39 million. Operating losses increased to
$63 million from $39 million. Revenues increased as a result of improved
television ratings and the addition of a fourth night of prime-time programming
in January 1998, but were offset by higher programming costs associated with the
expanded programming schedule. Operating losses increased primarily as a result
of a lower allocation of losses to a limited partner in the network. In October
1998, The WB Network plans to expand its prime-time
7
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<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
programming schedule to five nights a week. Due to the start-up nature of this
national broadcast operation, losses are expected to continue.
Cable Networks-HBO. Revenues increased to $1.021 billion, compared to
$970 million in the first six months of 1997. EBITA and operating income
increased to $222 million from $189 million. Revenues benefited primarily from
an increase in subscriptions. EBITA and operating income increased principally
as a result of the revenue gains and, to a lesser extent, cost savings.
Cable. Revenues increased to $2.237 billion, compared to $2.086 billion
in the first six months of 1997. EBITA increased to $681 million from $502
million. Operating income increased to $491 million from $351 million. The Cable
division's 1998 operating results were affected by the TWE-A/N Transfers and the
deconsolidation of its direct broadcast satellite operations in connection with
the Primestar Roll-up Transaction. Excluding the effect of the TWE-A/N Transfers
and Primestar Roll-up Transaction, revenues benefited from an increase in basic
cable subscribers, increases in regulated cable rates as permitted under Time
Warner Cable's "social contract" with the FCC and an increase in advertising
revenues. Similarly excluding the effect of the TWE-A/N Transfers and the
Primestar Roll-up Transaction, EBITA and operating income increased principally
as a result of the revenue gains and higher net gains relating to the sale or
exchange of certain cable television systems, offset in part by higher
depreciation related to capital spending.
Interest and Other, Net. Interest and other, net, was $347 million in
the first six months of 1998, compared to $11 million in the first six months of
1997. Interest expense increased to $273 million, compared to $236 million in
the first six months of 1997, principally due to higher average debt levels
associated with the TWE-A/N Transfers. There was other expense, net, of $74
million in the first six months of 1998, compared to other income, net, of $225
million in the first six months of 1997, principally due to the absence of an
approximate $250 million pretax gain on the sale of an interest in E!
Entertainment recognized in 1997 and higher losses from certain investments
accounted for under the equity method of accounting.
FINANCIAL CONDITION AND LIQUIDITY
JUNE 30, 1998
TIME WARNER
FINANCIAL CONDITION
At June 30, 1998, Time Warner had $9.9 billion of debt, $344 million of
cash and equivalents (net debt of $9.6 billion), $525 million of borrowings
against future stock option proceeds, $575 million of mandatorily redeemable
preferred securities of a subsidiary, $1.9 billion of Series M exchangeable
preferred stock (see "Planned Redemption of Series M Preferred Stock"
hereinafter) and $9.3 billion of shareholders' equity, compared to $11.8 billion
of debt, $645 million of cash and equivalents (net debt of $11.2 billion), $533
million of borrowings against future stock option proceeds, $575 million of
mandatorily redeemable preferred securities of a subsidiary, $1.9 billion of
Series M exchangeable preferred stock and $9.4 billion of shareholders' equity
at December 31, 1997. Net debt decreased principally as a result of the TWE-A/N
Transfers.
8
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<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
INVESTMENT IN TWE
Time Warner's investment in TWE at June 30, 1998 consisted of 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. Such priority capital interests
provide Time Warner (and with respect to the Series A Capital only, MediaOne)
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. Each level of priority capital interest provides for an annual rate of
return equal to or exceeding 8%, including an above-market 13.25% annual rate of
return (11.25% to the extent concurrently distributed) related to Time Warner's
Series B Capital interest, which, when taken together with Time Warner's
contributed capital, represented a cumulative priority Series B Capital interest
of $6.4 billion at June 30, 1998.
While the TWE partnership agreement contemplates the reinvestment of
significant partnership cash flows in the form of capital expenditures and
otherwise provides for certain other restrictions that are expected to limit
cash distributions on partnership interests for the foreseeable future, TWE
borrowed $579 million under its bank credit agreement in July 1998 and paid a
distribution to Time Warner relating to its Senior Capital interest. Time Warner
used the $579 million of proceeds to reduce bank debt. Time Warner's remaining
$584 million Senior Capital interest and any future undistributed partnership
income allocated thereto (based on an 8% annual rate of return) is required to
be distributed to Time Warner on July 1, 1999.
DEBT TRANSACTIONS
During the second quarter of 1998, Time Warner issued $600 million
principal amount of 6.875% debentures due 2018 and borrowed $550 million under
its bank credit agreement, which together offset the debt reduction associated
with the conversion of all $1.15 billion accreted amount of zero-coupon
convertible notes due 2013 (the "Zero-Coupon Convertible Notes") into 18.7
million shares of Time Warner common stock. The net proceeds therefrom have
been used to repurchase comon stock, including the repurchase of 9.1 million
shares of common stock in connection with the settlement of a forward purchase
contract to acquire such shares (see "Common Stock Repurchase Program"
hereinafter). These share repurchases partially offset the dilution resulting
from the conversion of the Zero-Coupon Convertible Notes.
In April 1998, Time Warner and TWE consummated three previously
announced transactions, consisting of the sale of TWE's 49% interest in Six
Flags Entertainment Corporation, the Primestar Roll-up Transaction and the sale
of certain cable television systems. As a result of these transactions, Time
Warner and TWE reduced debt by approximately $700 million in the aggregate, of
which $160 million relates to Time Warner and $540 million relates to TWE.
In February 1998, Time Warner Companies, Inc. ("TW Companies"), a
wholly owned subsidiary of Time Warner, repaid all of its $500 million principal
amount of 7.45% notes due February 1, 1998 at their maturity using proceeds
raised from the issuance of $500 million principal amount of 6.95% debentures
due January 15, 2028.
In early 1998, Time Warner transferred approximately $1 billion of debt
to TWE-A/N in connection with the TWE-A/N Transfers. The debt assumed by TWE-A/N
has been guaranteed by TWI Cable Inc., a wholly owned subsidiary of Time Warner,
and certain of its subsidiaries.
9
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<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
PLANNED REDEMPTION OF SERIES M PREFERRED STOCK
In July 1998, Time Warner announced its intention to redeem its
outstanding shares of 10 1/4% Series M exchangeable preferred stock ("Series M
Preferred Stock") on December 30, 1998, at a price equal to 110% of its $1.9
billion liquidation preference plus accumulated and accrued and unpaid
dividends, intending, based on current borrowing rates, to replace it with
lower-cost bank or public debt (the "Series M Refinancing"). Based on an
anticipated 300 to 400 basis point reduction in the interest rate of the debt to
be issued in comparison to the dividend rate of the Series M Preferred Stock,
and including a reduction in taxes associated with the tax-deductible nature of
the interest payments on the debt, Time Warner expects to realize approximately
$100 to $125 million of annual cash savings as a result of the Series M
Refinancing. As required pursuant to the terms of the Series M Preferred Stock,
Time Warner's principal credit rating agencies have confirmed that there will be
no impact on Time Warner's current credit ratings or ratings outlook as a result
of this refinancing. In connection with the Series M Refinancing, Time Warner
expects to record an estimated one-time reduction in earnings per common share
of approximately $.39 in the fourth quarter of 1998. This reduction will not
have any impact on net income and primarily results from treating the redemption
premium to be paid on the Series M Preferred Stock similarly to a preferred
dividend.
COMMON STOCK REPURCHASE PROGRAM
In March 1998, Toshiba Corporation and ITOCHU Corporation sold 9.1
million shares of Time Warner common stock to certain banks, after electing to
convert a portion of their Time Warner convertible preferred stock into common
stock. In a related transaction, Time Warner entered into a forward purchase
contract with affiliates of such banks that provided it with an option to
acquire an equal number of 9.1 million shares of its common stock. These
transactions will result in an aggregate $26 million of preferred dividend
savings for Time Warner through October 1999.
As previously described, in order to offset partially the dilutive
effect relating to the conversion of the Zero-Coupon Convertible Notes, Time
Warner exercised its option under the forward purchase contract in June 1998 and
repurchased 9.1 million shares of its common stock at an aggregate cost of $632
million, or $69.12 per common share.
In connection with these transactions and the conversion of the
Zero-Coupon Convertible Notes, Time Warner's Board of Directors authorized in
1998 an 18.7 million share increase in the Company's existing common stock
repurchase program that, along with previous authorizations, allows the Company
to repurchase, from time to time, up to 53.7 million shares of common stock. The
common stock repurchased under the program is expected to continue to be used to
satisfy a portion of the future share issuances related to the exercise of
existing employee stock options and the potential conversion of certain
convertible securities. Actual repurchases in any period will be subject to
market conditions. As of June 30, 1998, Time Warner had acquired 23.2 million
shares of its common stock in 1998 at an aggregate cost of $1.661 billion,
thereby increasing the cumulative shares purchased under this program to
approximately 40.8 million shares at an aggregate cost of $2.461 billion. Except
for repurchases of common stock using $1.1 billion of borrowings in the second
quarter of 1998 that offset a like-amount of debt reduction associated with the
conversion of the Zero-Coupon Convertible Notes into common stock, these
repurchases have been and are expected to continue to be funded with stock
option exercise proceeds and borrowings under Time Warner's Stock Option
Proceeds Credit Facility, as described more fully below.
10
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<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
In early 1998, Time Warner entered into a new five-year, $1.3 billion
revolving credit facility (the "Stock Option Proceeds Credit Facility"), which
replaced its previously existing facility. Borrowings under the Stock Option
Proceeds Credit Facility are principally used to fund stock repurchases and
future preferred dividend requirements on Time Warner's Series G, H, I and J
Preferred Stock. At June 30, 1998 and December 31, 1997, Time Warner had
outstanding borrowings against future stock option proceeds of $525 million and
$533 million, respectively.
CASH FLOWS
During the first six months of 1998, Time Warner's cash provided by
operations amounted to $889 million and reflected $952 million of EBITA from its
Publishing, Music, Cable Networks-TBS, Filmed Entertainment-TBS and Cable
businesses, $191 million of noncash depreciation expense, $132 million of
proceeds from Time Warner's asset securitization program and $298 million of
distributions from TWE, less $404 million of interest payments, $79 million of
income taxes, $38 million of corporate expenses and $163 million related to an
aggregate increase in working capital requirements, other balance sheet accounts
and noncash items. Cash provided by operations of $433 million for the first six
months of 1997 reflected $973 million of business segment EBITA, $181 million of
noncash depreciation expense and $203 million of distributions from TWE, less
$488 million of interest payments, $132 million of income taxes, $43 million of
corporate expenses and $261 million related to an aggregate increase in working
capital requirements, balance sheet accounts and noncash items.
Cash provided by investing activities was $93 million in the first six
months of 1998, compared to cash used by investing activities of $226 million in
the first six months of 1997, principally as a result of lower capital
expenditures and an increase in investment proceeds, partially offset by an
increase in cash used for investments and acquisitions. Cash used for
investments and acquisitions in 1998 was offset in part by the effect of
consolidating approximately $200 million of cash of Paragon Communications
("Paragon") in connection with the TWE-A/N Transfers. Capital expenditures
decreased to $228 million in the first six months of 1998, compared to $283
million in the first six months of 1997.
Cash used by financing activities was $1.283 billion in the first six
months of 1998, compared to $251 million in the first six months of 1997. During
the first six months of 1998, Time Warner had additional borrowings that offset
the noncash reduction of $1.15 billion of debt relating to the conversion of
the Zero-Coupon Convertible Notes into common stock. Time Warner principally
used the proceeds from such borrowings, together with $460 million of
proceeds received from the exercise of employee stock options, to repurchase
approximately 23.2 million shares of Time Warner common stock at an aggregate
cost of $1.661 billion. Time Warner also paid $265 million of dividends
in the first six months of 1998, compared to $167 million in the first
six months of 1997, reflecting its election in 1998 to pay dividends
on its Series M Preferred Stock in cash rather than in-kind. Cash used
by financing activities in 1997 principally resulted from the repurchase of
approximately 954 thousand shares of Time Warner common stock at an aggregate
cost of $36 million, the payment of $167 million of dividends and the repayment
of $86 million of borrowings against future stock option proceeds.
The assets and cash flows of TWE are restricted by certain borrowing
and partnership agreements and are unavailable to Time Warner except through the
payment of certain fees, reimbursements, cash distributions and loans, which are
subject to limitations. Under its bank credit agreement, TWE is permitted to
incur additional indebtedness
11
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TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
to make loans, advances, distributions and other cash payments to Time Warner,
subject to its individual compliance with the cash flow coverage and leverage
ratio covenants contained therein.
Management believes that Time Warner's operating cash flow, cash and
equivalents and additional borrowing capacity are sufficient to fund its capital
and liquidity needs for the foreseeable future without distributions and loans
from TWE above those permitted by existing agreements.
ENTERTAINMENT GROUP
FINANCIAL CONDITION
The Entertainment Group had $6.8 billion of debt, $72 million of cash
and equivalents (net debt of $6.7 billion), $225 million of preferred stock of a
subsidiary, $1.2 billion of Time Warner General Partners' Senior Capital and
$6.1 billion of partners' capital at June 30, 1998, compared to $6.0 billion of
debt, $322 million of cash and equivalents (net debt of $5.7 billion), $233
million of preferred stock of a subsidiary, $1.1 billion of Time Warner General
Partners' Senior Capital and $6.4 billion of partners' capital at December 31,
1997. Net debt of the Entertainment Group increased principally as a result of
the TWE-A/N Transfers.
CASH FLOWS
During the first six months of 1998, the Entertainment Group's cash
provided by operations amounted to $586 million and reflected $1.083 billion of
EBITA from its Filmed Entertainment-Warner Bros., Broadcasting-The WB Network,
Cable Networks-HBO and Cable businesses, $469 million of noncash depreciation
expense and $135 million of proceeds from TWE's asset securitization program,
less $260 million of interest payments, $39 million of income taxes, $36 million
of corporate expenses and $766 million related to an aggregate increase in
working capital requirements, other balance sheet accounts and noncash items.
Cash provided by operations of $416 million in the first six months of 1997
reflected $867 million of business segment EBITA and $449 million of noncash
depreciation expense, less $243 million of interest payments, $35 million of
income taxes, $36 million of corporate expenses and $586 million related to an
aggregate increase in working capital requirements, other balance sheet accounts
and noncash items.
Cash used by investing activities was $493 million in the first six
months of 1998, compared to $425 million in the first six months of 1997,
principally as a result of the effect of deconsolidating approximately $200
million of Paragon's cash in connection with the TWE-A/N Transfers that has been
included as a reduction of cash flows from investments and acquisitions, offset
in part by a $135 million increase in proceeds from the sale of investments.
Capital expenditures were $734 million in the first six months of 1998 and 1997.
Cash used by financing activities was $343 million in the first six
months of 1998, compared to cash provided by financing activities of $86 million
in the first six months of 1997, principally as a result of the absence of $243
million of aggregate net proceeds from the issuance of preferred stock of a
subsidiary in the first quarter of 1997 and a $95 million increase in
distributions paid to Time Warner, offset in part by an increase in debt used to
fund cash distributions to Time Warner.
12
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<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
Management believes that the Entertainment Group's operating cash flow,
cash and equivalents and additional borrowing capacity are sufficient to fund
its capital and liquidity needs for the foreseeable future.
CABLE CAPITAL SPENDING
Time Warner Cable has been engaged in a plan to upgrade the
technological capability and reliability of its cable television systems and
develop new services, which it believes will position the business for
sustained, long-term growth. Capital spending by Time Warner Cable, including
the cable operations of both Time Warner and TWE, amounted to $776 million in
the six months ended June 30, 1998, compared to $791 million in the six months
ended June 30, 1997. For the full year of 1998, cable capital spending is
expected to be comparable to 1997 levels, with approximately $800 million
budgeted for the remainder of 1998. Capital spending by Time Warner Cable is
expected to continue to be funded by cable operating cash flow. In exchange for
certain flexibility in establishing cable rate pricing structures for regulated
services that went into effect on January 1, 1996 and consistent with Time
Warner Cable's long-term strategic plan, Time Warner Cable agreed with the FCC
to invest a total of $4 billion in capital costs in connection with the upgrade
of its cable infrastructure, which is expected to be substantially completed
over a five-year period ending December 31, 2000. The agreement with the FCC
covers all of the cable operations of Time Warner Cable, including the owned or
managed cable television systems of Time Warner, TWE and TWE-A/N. Management
expects to continue to finance such level of investment through cable operating
cash flow and the development of new revenue streams from expanded programming
options, high-speed Internet access and other services.
CABLE FINANCING STRATEGY
Time Warner's and TWE's cable financing strategy is to continue to use
cable operating cash flow to finance the level of capital spending necessary to
upgrade the technological capability of its cable television systems and develop
new services, while pursuing opportunities to reduce either existing debt and/or
their share of future funding requirements related to the cable television
business and related ancillary businesses. Consistent with this strategy, Time
Warner, TWE and TWE-A/N have completed a series of transactions in 1998, as
discussed more fully below.
Business Telephony Reorganization
In July 1998, Time Warner, TWE and TWE-A/N completed a reorganization
of their business telephony operations (the "Business Telephony Reorganization")
by combining such operations into a single entity that is intended to be
self-financing. This entity, named Time Warner Telecom LLC ("TW Telecom"), is a
competitive local exchange carrier (CLEC) in selected metropolitan areas across
the United States where it offers a wide range of telephony services to business
customers. Time Warner, MediaOne and the Advance/Newhouse Partnership
("Advance/Newhouse"), a partner in TWE-A/N, own interests in TW Telecom of
61.95%, 18.88% and 19.17%, respectively. Time Warner's interest in TW Telecom
will be accounted for under the equity method of accounting because of certain
rights held by MediaOne and Advance/Newhouse.
Following the Business Telephony Reorganization, TW Telecom raised
approximately $400 million of cash in July 1998 through the issuance of public
notes that mature in 2008. Such notes are non-recourse to Time Warner
13
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<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
and the proceeds therefrom are expected to be used by TW Telecom to continue to
expand and develop its telephony networks and services. TW Telecom plans to
complete an initial public offering of a minority interest of common stock
in the second half of 1998, subject to market and other conditions.
Road Runner Joint Venture
In June 1998, Time Warner, TWE, TWE-A/N, MediaOne, Microsoft Corp.
("Microsoft") and Compaq Computer Corp. ("Compaq") formed a joint venture to
operate and expand Time Warner Cable's and MediaOne's existing high-speed
Internet access businesses (the "Road Runner'TM' Joint Venture"). In exchange
for contributing their existing high-speed Internet access businesses, Time
Warner received an 11.25% common equity interest in the Road Runner Joint
Venture, TWE received a 25% interest, TWE-A/N received a 32.5% interest and
MediaOne received a 31.25% interest. In exchange for Microsoft and Compaq
each contributing $212.5 million of cash to the Road Runner Joint Venture,
Microsoft and Compaq each received a preferred equity interest therein that
is convertible into a 10% common equity interest, which, upon conversion,
will dilute each of the common equity holders' interests accordingly. Each
of Time Warner's, TWE's and TWE-A/N's interest in the Road Runner Joint
Venture is being accounted for under the equity method of accounting.
The aggregate $425 million of capital contributed by Microsoft and
Compaq is expected to be used by the Road Runner Joint Venture to continue to
expand the roll out of high-speed Internet access services. In addition, as a
result of Time Warner Cable being a retailer of the Road Runner business in its
franchise areas whereby Time Warner Cable's technologically advanced,
high-capacity cable architecture will be used to provide these high-speed
Internet access services, Time Warner Cable will initially retain 70% of the
subscription revenues and 30% of the national advertising and transactional
revenues generated from the delivery of these on-line services to its cable
subscribers. Time Warner Cable's share of these revenues is expected to change
periodically to 75% of subscription revenues and 25% of national advertising and
transactional revenues by 2006.
Primestar Roll-up Transaction
In April 1998, TWE and Advance/Newhouse transferred the direct
broadcast satellite operations conducted by TWE and TWE-A/N (the "DBS
Operations") and the 31% partnership interest in Primestar Partners, L.P. held
by TWE-A/N ("Primestar" and collectively, the "Primestar Assets") to Primestar,
Inc. ("New Primestar"), a separate holding company. New Primestar owns the DBS
Operations and Primestar partnership interests formerly owned by TCI Satellite
Entertainment, Inc. and other previously existing partners of Primestar. In
exchange for contributing its interests in the Primestar Assets, TWE received an
approximate 24% equity interest in New Primestar and realized approximately $240
million of debt reduction. TWE deconsolidated the DBS Operations effective as of
April 1, 1998 and the equity interest in New Primestar received in this
transaction is being accounted for under the equity method of accounting.
TWE-A/N Transfers
In early 1998, Time Warner (through a wholly owned subsidiary)
contributed cable television systems (or interests therein) serving
approximately 650,000 subscribers to TWE-A/N, subject to approximately $1
billion of debt, in exchange for common and preferred partnership interests
therein, and completed certain related transactions.
14
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<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
The debt assumed by TWE-A/N has been guaranteed by TWI Cable and certain of its
subsidiaries. TWE-A/N is now owned 65.3% by TWE, 33.3% by Advance/Newhouse and
1.4% indirectly by Time Warner.
FILMED ENTERTAINMENT BACKLOG
Backlog represents the amount of future revenue not yet recorded from
cash contracts for the licensing of theatrical and television product for pay
cable, basic cable, network and syndicated television exhibition. Backlog of
Warner Bros. amounted to $2.225 billion at June 30, 1998 compared to $2.126
billion at December 31, 1997 (including amounts relating to the licensing of
film product to Time Warner's and TWE's cable television networks, collectively,
of $790 million and $719 million, respectively).
Because backlog generally relates to contracts for the licensing of
theatrical and television product which have already been produced, the
recognition of revenue for such completed product is principally only dependent
upon the commencement of the availability period for telecast under the terms of
the related licensing agreement. Cash licensing fees are collected periodically
over the term of the related licensing agreements or on an accelerated basis
using a $600 million securitization facility. The portion of backlog for which
cash has not already been received has significant off-balance sheet asset value
as a source of future funding. The backlog excludes advertising barter
contracts, which are also expected to result in the future realization of
revenues and cash through the sale of advertising spots received under such
contracts.
YEAR 2000 TECHNOLOGY PREPAREDNESS
Time Warner, together with its Entertainment Group and like most large
companies, depends on many different computer systems and other chip-based
devices for the continuing conduct of its business. Older computer programs,
computer hardware and chip-based devices may fail to recognize dates beginning
on January 1, 2000 as being valid dates, and as a result may fail to operate or
may operate improperly when such dates are introduced.
Time Warner's exposure to potential Year 2000 problems exists in two
general areas: technological operations in the sole control of the Company, and
technological operations dependent in some way on one or more third parties. The
majority of Time Warner's exposure to potential Year 2000 problems is in the
latter area. Failure to achieve high levels of Year 2000 compliance in either
area could have a material adverse impact on Time Warner.
In the former area, technological operations in the sole control of the
Company, Time Warner is engaged in a thorough process involving the
identification and remediation of affected technological functions. Time Warner
has generally completed the process of identifying significant potential Year
2000 difficulties and has an action plan in place to address them. At present,
it is anticipated that the action plan will be successfully completed in all
material respects in advance of January 1, 2000, and that its cost to the
Company will not be material.
In the latter area, technological operations dependent in some way on
one or more third parties, the situation is much less in Time Warner's ability
to predict or control, although Time Warner has in place an extensive system to
test for and attempt to resolve potential Year 2000 difficulties. The Company's
business is heavily dependent on third parties, many of whom are themselves
heavily dependent on technology. In some cases, the Company's third party
dependence is on vendors of technology who are themselves working towards
solutions to Year 2000 problems.
15
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<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
For example, in a situation endemic to the cable industry, much of the Company's
headend equipment that controls cable set-top boxes is presently not Year 2000
compliant. The box manufacturers are working with cable industry groups towards
a solution that is presently expected to be implemented successfully before the
end of 1999; however, that process is not within the Company's control. In other
cases, the Company's third party dependence is on suppliers of products or
services that are themselves computer-intensive. For example, if a television
broadcaster or cable programmer encounters Year 2000 problems that result in the
interruption of its signal, the Company will be unable to provide that signal to
its cable customers. Moreover, Time Warner is dependent, like all large
companies, on the continued functioning of basic, heavily computerized services
such as banking and telephony. Time Warner is making considerable efforts to
ensure that the third parties on which it is heavily reliant are Year 2000
compliant, but cannot predict the likelihood of such compliance occurring nor
the direct or indirect costs to the Company of non-compliance by those third
parties or of securing such services from compliant third parties. However, Time
Warner believes that it is in no worse position, and likely a better one, than
most U.S.-based companies of its size with respect to the potential for Year
2000 problems and their impact.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This filing, together
with management's public commentary related thereto, contains such
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, particularly statements anticipating future
growth in revenues, EBITA and cash flow and forecasting ongoing debt reduction.
Words such as "anticipate", "estimate", "expects", "projects", "intends",
"plans", "believes" and words and terms of similar substance used in connection
with any discussion of future operating or financial performance identify such
forward-looking statements. Those forward-looking statements are management's
present expectations of future events. As with any projection or forecast, they
are inherently susceptible to changes in circumstances, and the Company is under
no obligation to (and expressly disclaims any such obligation to) update or
alter its forward-looking statements despite such changes.
Time Warner operates in highly competitive, consumer driven and rapidly
changing media and entertainment businesses that are dependent on government
regulation and economic, political, social conditions in the countries in which
they operate, consumer demand for their products and services and (particularly
in view of technological changes) protection of their intellectual property
rights. Time Warner's actual results could differ materially from management's
expectations because of changes in such factors. Some of the other factors that
also could cause actual results to differ from those contained in the
forward-looking statements include those identified in Time Warner's other
filings and:
For Time Warner's cable business, more aggressive than expected competition
from new technologies and other types of video programming distributors,
including DBS; increases in government regulation of cable or equipment
rates or other terms of service (or any failure to reduce rate regulation
as is presently mandated by statute) or opposition to franchise renewals;
the failure of new equipment (such as digital set-top boxes) or services to
function properly, to appeal to enough consumers or to be delivered in a
timely fashion; and greater than expected increases in programming or other
costs.
16
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TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
For Time Warner's cable programming and television businesses, greater than
expected programming or production costs; public and cable operator
resistance to price increases to offset higher programming costs (and the
negative impact on premium programmers of increases in basic cable rates);
the sensitivity of advertising to economic cyclicality; and greater than
expected fragmentation of consumer viewership due to an increased number of
programming services or the increased popularity of alternatives to
television.
For Time Warner's film and television businesses, their ability to continue
to attract and select desirable talent and scripts at manageable costs;
increases in production costs generally; fragmentation of consumer leisure
and entertainment time (and its possible negative effects on the broadcast
and cable networks, which are significant customers of these businesses);
continued popularity of merchandising; and the uncertain impact of
technological developments such as DVD and the Internet.
For Time Warner's music business, its ability to continue to attract and
select desirable talent at manageable costs; the timely completion of
albums by major artists; the popular demand for particular artists and
albums; and the overall strength of global music sales.
For Time Warner's print media and publishing businesses, increases in paper
and distribution costs; the introduction and increased popularity of
alternative technologies for the provision of news and information, such as
the Internet; and fluctuations in advertiser and consumer spending.
In addition, Time Warner's overall financial strategy, including
improved financial ratios and a strengthened balance sheet, could be adversely
affected by increased interest rates, failure to meet earnings expectations,
Year 2000 compliance failures and changes in Time Warner's plans, strategies and
intentions.
17
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TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(MILLIONS, EXCEPT
PER SHARE AMOUNTS)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents....................................................................... $ 344 $ 645
Receivables, less allowances of $935 and $991 million...................................... 2,139 2,447
Inventories................................................................................ 810 830
Prepaid expenses........................................................................... 1,136 1,089
------ -------
Total current assets....................................................................... 4,429 5,011
Noncurrent inventories..................................................................... 1,807 1,766
Investments in and amounts due to and from Entertainment Group............................. 6,051 5,549
Other investments.......................................................................... 523 1,495
Property, plant and equipment.............................................................. 2,007 2,089
Music catalogues, contracts and copyrights................................................. 878 928
Cable television and sports franchises..................................................... 3,171 3,982
Goodwill................................................................................... 12,121 12,572
Other assets............................................................................... 863 771
------ -------
Total assets............................................................................... $31,850 $34,163
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........................................................................... $ 742 $ 912
Participations, royalties and programming costs payable.................................... 1,146 1,072
Debt due within one year................................................................... 21 8
Other current liabilities.................................................................. 2,105 2,379
------ -------
Total current liabilities.................................................................. 4,014 4,371
Long-term debt ............................................................................ 9,915 11,833
Borrowings against future stock option proceeds............................................ 525 533
Deferred income taxes...................................................................... 3,688 3,960
Unearned portion of paid subscriptions..................................................... 714 672
Other liabilities.......................................................................... 1,240 1,006
Company-obligated mandatorily redeemable preferred securities of a subsidiary
holding solely subordinated debentures of a subsidiary of the Company................... 575 575
Series M exchangeable preferred stock, $.10 par value, 1.9 million
shares outstanding and $1.903 billion liquidation preference............................ 1,859 1,857
SHAREHOLDERS' EQUITY
Preferred stock, $.10 par value, 29.7 and 35.4 million shares outstanding,
$2.970 and $3.539 billion liquidation preference........................................ 3 4
Series LMCN-V Common Stock, $.01 par value, 57.1 million shares outstanding................ 1 1
Common stock, $.01 par value, 541.7 and 519.0 million shares outstanding
(excluding 16.7 and 39.4 million treasury shares)....................................... 5 5
Paid-in capital............................................................................ 12,982 12,680
Accumulated deficit........................................................................ (3,671) (3,334)
------ -------
Total shareholders' equity................................................................. 9,320 9,356
------ -------
Total liabilities and shareholders' equity................................................. $31,850 $34,163
======= =======
</TABLE>
See accompanying notes.
18
<PAGE>
<PAGE>
TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues (a)....................................................... $3,672 $3,193 $6,809 $6,227
------ ------ ------ ------
Cost of revenues (a)(b)............................................ 2,077 1,603 3,964 3,453
Selling, general and administrative (a)(b)......................... 1,211 1,245 2,291 2,235
------ ------ ------ ------
Operating expenses................................................. 3,288 2,848 6,255 5,688
------ ------ ------ ------
Business segment operating income.................................. 384 345 554 539
Equity in pretax income of Entertainment Group (a)................. 166 108 273 426
Interest and other, net (a)........................................ (283) (303) (566) (595)
Corporate expenses (a)............................................. (19) (22) (38) (43)
------ ------ ------ ------
Income before income taxes......................................... 248 128 223 327
Income tax provision............................................... (147) (98) (184) (245)
------ ------ ------ ------
Income before extraordinary item................................... 101 30 39 82
Extraordinary loss on retirement of debt, net of $11 million
income tax benefit in 1997...................................... - - - (17)
------ ------ ------ ------
Net income......................................................... 101 30 39 65
Preferred dividend requirements.................................... (78) (79) (160) (157)
------ ------ ------ ------
Net income (loss) applicable to common shares...................... $ 23 $ (49) $ (121) $ (92)
====== ====== ====== ======
Basic and diluted loss per common share:
Income (loss) before extraordinary item............................ $ .04 $ (.09) $ (.21) $ (.13)
====== ====== ====== ======
Net income (loss).................................................. $ .04 $ (.09) $ (.21) $ (.16)
====== ====== ====== ======
Average common shares.............................................. 596.3 561.0 587.3 559.9
====== ====== ====== ======
</TABLE>
- --------------
(a) Includes the following income (expenses) resulting from transactions with
the Entertainment Group and other related companies for the three and six
months ended June 30, 1998, respectively, and for the corresponding periods
in the prior year: revenues-$102 million and $214 million in 1998, $73
million and $147 million in 1997; cost of revenues-$(70) million and $(137)
million in 1998, $(61) million and $(121) million in 1997; selling, general
and administrative-$(11) million and $(20) million in 1998, $3 million and
$8 million in 1997; equity in pretax income of Entertainment Group-$(15)
million and $(20) million in 1998, $13 million and $24 million in 1997;
interest and other, net-$(3) million and $(6) million in 1998, $(7) and
$(21) million in 1997; and corporate expenses-$18 million and $36 million in
each of 1998 and 1997.
<TABLE>
<S> <C> <C> <C> <C>
(b) Includes depreciation and amortization expense of:............. $ 293 $ 310 $ 589 $ 615
====== ====== ====== ======
</TABLE>
See accompanying notes.
19
<PAGE>
<PAGE>
TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------
1998 1997
-------- --------
(MILLIONS)
<S> <C> <C>
OPERATIONS
Net income.................................................................................. $ 39 $ 65
Adjustments for noncash and nonoperating items:
Extraordinary loss on retirement of debt.................................................... - 17
Depreciation and amortization............................................................... 589 615
Noncash interest expense.................................................................... 29 51
Excess (deficiency) of distributions over equity in pretax income of
Entertainment Group...................................................................... 25 (223)
Changes in operating assets and liabilities................................................. 207 (92)
------ -----
Cash provided by operations................................................................. 889 433
------ -----
INVESTING ACTIVITIES
Investments and acquisitions................................................................ (74) (56)
Capital expenditures........................................................................ (228) (283)
Investment proceeds......................................................................... 395 113
------ -----
Cash provided (used) by investing activities................................................ 93 (226)
------ -----
FINANCING ACTIVITIES
Borrowings.................................................................................. 1,603 1,039
Debt repayments............................................................................. (1,377) (1,094)
Borrowings against future stock option proceeds............................................. 525 -
Repayments of borrowings against future stock option proceeds............................... (533) (86)
Repurchases of Time Warner common stock..................................................... (1,661) (36)
Dividends paid.............................................................................. (265) (167)
Proceeds received from stock option and dividend reinvestment plans......................... 460 -
Other, principally financing costs.......................................................... (35) 93
------ -----
Cash used by financing activities........................................................... (1,283) (251)
------ -----
DECREASE IN CASH AND EQUIVALENTS............................................................ (301) (44)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD (A)............................................. 645 514
------ -----
CASH AND EQUIVALENTS AT END OF PERIOD....................................................... $ 344 $ 470
====== ======
</TABLE>
- ---------------
(a) Includes current and noncurrent cash and equivalents at December 31, 1996.
See accompanying notes.
20
<PAGE>
<PAGE>
TIME WARNER INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------
1998 1997
------ ------
(MILLIONS)
<S> <C> <C>
BALANCE AT BEGINNING OF YEAR................................................................ $9,356 $9,502
Net income.................................................................................. 39 65
Other comprehensive income (loss)........................................................... (22) (59)
------ ------
Comprehensive income (loss)................................................................. 17 6
Common stock dividends...................................................................... (106) (101)
Preferred stock dividends................................................................... (160) (157)
Repurchases of Time Warner common stock..................................................... (1,661) (36)
Issuance of common stock in connection with the conversion of the
zero-coupon convertible notes due 2013................................................... 1,150 -
Issuance of common stock in connection with the acquisition of
Turner Broadcasting System, Inc.......................................................... - 67
Other, principally shares issued pursuant to stock option, dividend
reinvestment and benefit plans........................................................... 724 142
------ ------
BALANCE AT JUNE 30,......................................................................... $9,320 $9,423
====== ======
</TABLE>
See accompanying notes.
21
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
Time Warner Inc. ("Time Warner" or the "Company") is the world's
leading media and entertainment company, whose principal business objective is
to create and distribute branded information and entertainment copyrights
throughout the world. Time Warner classifies its business interests into four
fundamental areas: Entertainment, consisting principally of interests in
recorded music and music publishing, filmed entertainment, television production
and television broadcasting; Cable Networks, consisting principally of interests
in cable television programming; Publishing, consisting principally of interests
in magazine publishing, book publishing and direct marketing; and Cable,
consisting principally of interests in cable television systems. A majority of
Time Warner's interests in filmed entertainment, television production,
television broadcasting and cable television systems, and a portion of its
interests in cable television programming, are held through Time Warner
Entertainment Company, L.P. ("TWE"). Time Warner owns general and limited
partnership interests in TWE consisting of 74.49% of the pro rata priority
capital ("Series A Capital") and residual equity capital ("Residual Capital"),
and 100% of the senior priority capital ("Senior Capital") and junior priority
capital ("Series B Capital"). The remaining 25.51% limited partnership interests
in the Series A Capital and Residual Capital of TWE are held by a subsidiary of
MediaOne Group, Inc. ("MediaOne"), formerly U S WEST, Inc. Time Warner does not
consolidate TWE and certain related companies (the "Entertainment Group") for
financial reporting purposes because of certain limited partnership rights
related to TWE's interest in certain cable television systems.
The operating results of Time Warner's various business interests are
presented herein as an indication of financial performance (Note 9). Except for
start-up losses incurred in connection with The WB Network, Time Warner's
principal business interests generate significant operating income and cash flow
from operations. The cash flow from operations generated by such business
interests is considerably greater than their operating income due to significant
amounts of noncash amortization of intangible assets recognized in various
acquisitions accounted for by the purchase method of accounting. Noncash
amortization of intangible assets recorded by Time Warner's business interests,
including the unconsolidated business interests of the Entertainment Group,
amounted to $327 million and $325 million for the three months ended June 30,
1998 and 1997, respectively, and $656 million and $646 million in the six months
ended June 30, 1998 and 1997, respectively.
BASIS OF PRESENTATION
The accompanying financial statements are unaudited but, in the opinion
of management, contain all the adjustments (consisting of those of a normal
recurring nature) considered necessary to present fairly the financial position
and the results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles applicable to interim
periods. The accompanying financial statements should be read in conjunction
with the audited consolidated financial statements of Time Warner for the year
ended December 31, 1997. Certain reclassifications have been made to the prior
year's financial statements to conform to the 1998 presentation.
22
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"), effective for years beginning after June 15, 1999, with early application
encouraged. The new rules establish standards requiring that all derivative
financial instruments, such as interest rate swap contracts and foreign exchange
contracts, be recognized and measured at fair value regardless of the purpose
or intent for holding them. Time Warner plans to adopt FAS 133 effective as of
July 1, 1998, and it is not expected that the adoption will have a material
effect on Time Warner's financial statements.
2. CABLE TRANSACTIONS
In addition to continuing to use cable operating cash flow to finance
the level of capital spending necessary to upgrade the technological capability
of their cable television systems and develop new services, Time Warner, TWE and
the TWE-Advance/Newhouse Partnership ("TWE-A/N") have completed a series of
transactions in 1998 related to the cable television business and related
ancillary businesses that either reduced existing debt and/or Time Warner's and
TWE's share of future funding requirements for such businesses. These
transactions are discussed more fully below.
BUSINESS TELEPHONY REORGANIZATION
In July 1998, in an effort to combine their business telephony
operations into a single entity that is intended to be self-financing, Time
Warner, TWE and TWE-A/N completed a reorganization of their business telephony
operations (the "Business Telephony Reorganization"), whereby (i) the operations
conducted by Time Warner, TWE and TWE-A/N were each contributed to a new holding
company named Time Warner Telecom LLC ("TW Telecom"), and then (ii) TWE's and
TWE-A/N's interests in TW Telecom were distributed to their partners, Time
Warner, MediaOne and the Advance/Newhouse Partnership ("Advance/Newhouse"). As a
result of the Business Telephony Reorganization, Time Warner, MediaOne and
Advance/Newhouse own interests in TW Telecom of 61.95%, 18.88% and 19.17%,
respectively. Time Warner's interest in TW Telecom will be accounted for under
the equity method of accounting because of certain rights held by MediaOne and
Advance/Newhouse.
TW Telecom is a competitive local exchange carrier (CLEC) in selected
metropolitan areas across the United States where it offers a wide range of
telephony services to business customers. Following the Business Telephony
Reorganization, TW Telecom raised approximately $400 million of cash in July
1998 through the issuance of public notes that mature in 2008. Such notes are
non-recourse to Time Warner and the proceeds therefrom are expected to be used
by TW Telecom to continue to expand and develop its telephony networks and
services.
ROAD RUNNER JOINT VENTURE
In June 1998, Time Warner, TWE, TWE-A/N, MediaOne, Microsoft Corp.
("Microsoft") and Compaq Computer Corp. ("Compaq") formed a joint venture to
operate and expand Time Warner Cable's and MediaOne's existing high-speed
Internet access businesses (the "Road Runner'TM' Joint Venture"). In exchange
for contributing their existing high-speed Internet access businesses, Time
Warner received a common equity interest in the Road Runner Joint Venture of
11.25%, TWE received a 25% interest, TWE-A/N received a 32.5% interest and
MediaOne received a 31.25% interest. In exchange for Microsoft and Compaq each
contributing $212.5 million of cash to the Road Runner Joint Venture, Microsoft
and Compaq each received a preferred equity interest therein that is convertible
into
23
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
a 10% common equity interest. Accordingly, on a fully diluted basis, the Road
Runner Joint Venture is owned 9% by Time Warner, 20% by TWE, 26% by TWE-A/N, 25%
by MediaOne, 10% by Microsoft and 10% by Compaq. Each of Time Warner's, TWE's
and TWE-A/N's interest in the Road Runner Joint Venture is being accounted for
under the equity method of accounting.
PRIMESTAR
In April 1998, TWE and Advance/Newhouse, a limited partner in TWE-A/N,
transferred the direct broadcast satellite operations conducted by TWE and
TWE-A/N (the "DBS Operations") and the 31% partnership interest in Primestar
Partners, L.P. held by TWE-A/N ("Primestar" and collectively, the "Primestar
Assets") to Primestar, Inc. ("New Primestar"), a separate holding company. New
Primestar owns the DBS Operations and Primestar partnership interests formerly
owned by TCI Satellite Entertainment, Inc. and other previously existing
partners of Primestar. In exchange for contributing its interests in the
Primestar Assets, TWE received an approximate 24% equity interest in New
Primestar and realized approximately $240 million of debt reduction. In partial
consideration for contributing its indirect interest in certain of the Primestar
Assets, Advance/Newhouse received an approximate 6% equity interest in New
Primestar. As a result of this transaction, effective as of April 1, 1998, TWE
deconsolidated the DBS Operations and the 24% equity interest in New Primestar
received in the transaction is being accounted for under the equity method of
accounting. This transaction is referred to herein as the "Primestar Roll-up
Transaction."
In a related transaction, Primestar also entered into an agreement in
June 1997 with The News Corporation Limited ("News Corp."), MCI
Telecommunications Corporation ("MCI") and American Sky Broadcasting LLC
("ASkyB"), pursuant to which New Primestar would acquire certain assets relating
to the high-power, direct broadcast satellite business of ASkyB (the "Primestar
ASkyB Transaction"). In exchange for such assets, ASkyB would receive non-voting
securities of New Primestar that would be convertible into non-voting common
stock of New Primestar and, accordingly, would reduce TWE's equity interest in
New Primestar to approximately 16% on a fully diluted basis. In May 1998, the
U.S. Department of Justice brought a civil action against Primestar, each of its
cable owners, including TWE, and News Corp. and MCI, to enjoin on antitrust
grounds the Primestar ASkyB Transaction. The parties have had discussions with
the U.S. Department of Justice in an attempt to restructure the transaction and
reach a resolution on such matters, but there can be no assurance that an
agreement can be reached or that necessary governmental and regulatory approvals
will be obtained.
TWE-A/N TRANSFERS
In early 1998, Time Warner (through a wholly owned subsidiary)
contributed cable television systems (or interests therein) serving
approximately 650,000 subscribers to TWE-A/N, subject to approximately $1
billion of debt, in exchange for common and preferred partnership interests
therein, and completed certain related transactions (collectively, the "TWE-A/N
Transfers"). The cable television systems transferred to TWE-A/N were formerly
owned by TWI Cable Inc. ("TWI Cable"), a wholly owned subsidiary of Time Warner,
and Paragon Communications ("Paragon"), a partnership formerly owning cable
television systems serving approximately 1 million subscribers that was wholly
owned by subsidiaries of Time Warner, with 50% beneficially owned in the
aggregate by TWE and TWE-A/N. The debt assumed by TWE-A/N has been guaranteed by
TWI Cable and certain of its subsidiaries, including Paragon.
24
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
As part of the TWE-A/N Transfers, TWE and TWE-A/N exchanged
substantially all of their respective beneficial interests in Paragon for an
equivalent share of Paragon's cable television systems (or interests therein)
serving approximately 500,000 subscribers, resulting in wholly owned
subsidiaries of Time Warner owning 100% of the restructured Paragon entity, with
less than 1% beneficially held for TWE. Accordingly, effective as of January 1,
1998, Time Warner has consolidated Paragon. Because this transaction represented
an exchange of TWE's and TWE-A/N's beneficial interests in Paragon for an
equivalent amount of its cable television systems, it did not have a significant
economic impact on Time Warner, TWE or TWE-A/N.
In connection with the TWE-A/N Transfers, Advance/Newhouse made a
capital contribution to TWE-A/N in order to maintain its 33.3% common
partnership interest therein. Accordingly, TWE-A/N is now owned 65.3% by TWE,
33.3% by Advance/Newhouse and 1.4% indirectly by Time Warner. The TWE-A/N
Transfers were accounted for effective as of January 1, 1998. Time Warner did
not recognize a gain or loss on the TWE-A/N Transfers. TWE has continued to
consolidate TWE-A/N and Time Warner has accounted for its interest in TWE-A/N
under the equity method of accounting.
On a pro forma basis, giving effect to the TWE-A/N Transfers as if they
had occurred at the beginning of 1997, Time Warner would have reported for the
three and six months ended June 30, 1997, respectively, revenues of $3.179
billion and $6.197 billion, depreciation expense of $88 million and $178
million, operating income before noncash amortization of intangible assets of
$535 million and $914 million, operating income of $331 million and $512
million, equity in the pretax income of the Entertainment Group of $108 million
and $424 million, income before extraordinary item of $31 million and $85
million ($.09 loss and $.13 loss per common share) and net income of $31 million
and $68 million ($.09 loss and $.16 loss per common share).
3. ENTERTAINMENT GROUP
Time Warner's investment in and amounts due to and from the
Entertainment Group at June 30, 1998 and December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- -------
(MILLIONS)
<S> <C> <C>
Investment in TWE........................................................................... $5,265 $5,577
Stock option related distributions due from TWE............................................. 671 417
Credit agreement debt due to TWE............................................................ (400) (400)
Other net liabilities due to TWE, principally related to home video distribution............ (213) (141)
------ ------
Investment in and amounts due to and from TWE............................................... 5,323 5,453
Investment in TWE-A/N and other Entertainment Group companies............................... 728 96
------ ------
Total....................................................................................... $6,051 $5,549
====== ======
</TABLE>
PARTNERSHIP STRUCTURE AND ALLOCATION OF INCOME
TWE is a Delaware limited partnership that was capitalized on June 30,
1992 to own and operate substantially all of the Filmed Entertainment-Warner
Bros., Cable Networks-HBO and Cable businesses previously owned by subsidiaries
of Time Warner. Time Warner, through its wholly owned subsidiaries, collectively
owns general and limited partnership interests in TWE consisting of 74.49% of
the Series A Capital and Residual Capital and 100%
25
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
of the Senior Capital and Series B Capital. The remaining 25.51% limited
partnership interests in the Series A Capital and Residual Capital of TWE are
owned by MediaOne. Certain Time Warner subsidiaries are the general partners of
TWE (the "Time Warner General Partners").
The TWE partnership agreement provides for special allocations of
income, loss and distributions of partnership capital, including priority
distributions in the event of liquidation. TWE reported net income of $263
million and $402 million in the six months ended June 30, 1998 and 1997,
respectively, no portion of which was allocated to the limited partnership
interests.
SUMMARIZED FINANCIAL INFORMATION OF THE ENTERTAINMENT GROUP
Set forth below is summarized financial information of the
Entertainment Group, which reflects the TWE-A/N Transfers effective as of
January 1, 1998 and the Primestar Roll-up Transaction effective as of April 1,
1998.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------
1998 1997 1998 1997
------- ------- ------ ------
(MILLIONS)
<S> <C> <C> <C> <C>
OPERATING STATEMENT INFORMATION
Revenues........................................................... $2,853 $2,731 $5,765 $5,333
Depreciation and amortization...................................... (356) (332) (727) (661)
Business segment operating income(1)............................... 456 327 825 655
Interest and other, net(2) ........................................ (183) (139) (347) (11)
Minority interest.................................................. (82) (56) (146) (164)
Income before income taxes ........................................ 173 114 296 444
Net income......................................................... 156 89 264 407
</TABLE>
- ------------------
(1) Includes net pretax gains relating to the sale or exchange of certain
cable television systems of approximately $70 million recognized in the
second quarter of 1998, and approximately $84 million and $24 million for
the six months ended June 30, 1998 and 1997, respectively.
(2) Includes a pretax gain of approximately $250 million recognized in the
first quarter of 1997 related to the sale of an interest in E!
Entertainment Television, Inc.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1998 1997
------ ------
(MILLIONS)
<S> <C> <C>
CASH FLOW INFORMATION
Cash provided by operations................................................................. $ 586 $ 416
Capital expenditures........................................................................ (734) (734)
Investments and acquisitions................................................................ (265) (62)
Investment proceeds......................................................................... 506 371
Borrowings.................................................................................. 503 428
Debt repayments............................................................................. (492) (323)
Issuance of preferred stock of subsidiary................................................... - 243
Capital distributions....................................................................... (298) (203)
Other financing activities, net............................................................. (56) (59)
Increase (decrease) in cash and equivalents................................................. (250) 77
</TABLE>
26
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------
(MILLIONS)
<S> <C> <C>
BALANCE SHEET INFORMATION
Cash and equivalents........................................................................ $ 72 $ 322
Total current assets........................................................................ 3,681 3,623
Total assets................................................................................ 22,160 20,739
Total current liabilities................................................................... 3,867 3,976
Long-term debt.............................................................................. 6,771 5,990
Minority interests.......................................................................... 1,477 1,210
Preferred stock of subsidiary............................................................... 225 233
Time Warner General Partners' Senior Capital................................................ 1,163 1,118
Partners' capital .......................................................................... 6,080 6,430
</TABLE>
CAPITAL DISTRIBUTIONS
The assets and cash flows of TWE are restricted by the TWE partnership
and credit agreements and are unavailable for use by the partners except through
the payment of certain fees, reimbursements, cash distributions and loans, which
are subject to limitations. At June 30, 1998 and December 31, 1997, the Time
Warner General Partners had recorded $671 million and $417 million,
respectively, of stock option related distributions due from TWE, based on
closing prices of Time Warner common stock of $85.44 and $62.00, respectively.
Time Warner is paid when the options are exercised. The Time Warner General
Partners also receive tax-related distributions from TWE on a current basis.
During the six months ended June 30, 1998, the Time Warner General Partners
received distributions from TWE in the amount of $298 million, consisting of
$138 of tax-related distributions and $160 of stock option related
distributions. During the six months ended June 30, 1997, the Time Warner
General Partners received distributions from TWE in the amount of $203 million,
consisting of $192 million of tax-related distributions and $11 million of stock
option related distributions. In July 1998, TWE borrowed $579 million under its
bank credit agreement and paid a distribution to the Time Warner General
Partners relating to their Senior Capital interests.
SIX FLAGS
In April 1998, TWE sold its remaining 49% interest in Six Flags
Entertainment Corporation ("Six Flags") to Premier Parks Inc. ("Premier"), a
regional theme park operator, for approximately $475 million of cash. TWE used
the net, after-tax proceeds from this transaction to reduce debt by
approximately $300 million. As part of the transaction, TWE will continue to
license its animated cartoon and comic book characters to Six Flags's theme
parks and will similarly license such rights to Premier's theme parks in the
United States and Canada under a long-term agreement covering an aggregate of
twenty-five existing and all future locations. A substantial portion of the gain
on this transaction has been deferred by TWE, principally as a result of its
continuing guarantees of certain significant long-term obligations of Six Flags
relating to the Six Flags Over Texas and Six Flags Over Georgia theme parks.
27
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
----------------- --------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- -----------
(MILLIONS)
<S> <C> <C> <C> <C>
Film costs:
Released, less amortization..................................... $106 $ 270 $ 68 $ 228
Completed and not released...................................... 8 - 88 48
In process and other............................................ - 172 - 141
Library, less amortization...................................... - 1,035 - 1,064
Programming costs, less amortization............................... 273 330 293 285
Magazines, books and recorded music................................ 423 - 381 -
---- ------ ---- ------
Total ............................................................ $810 $1,807 $830 $1,766
==== ====== ==== ======
</TABLE>
5. LONG-TERM DEBT
In July 1998, Time Warner reduced bank debt by $579 million using the
proceeds received from a distribution by TWE relating to its Senior Capital
interest.
During the second quarter of 1998, Time Warner issued $600 million
principal amount of 6.875% debentures due 2018 and borrowed $550 million under
its bank credit agreement, which together offset the debt reduction associated
with the conversion of all $1.15 billion accreted amount of zero-coupon
convertible notes due 2013 (the "Zero-Coupon Convertible Notes") into 18.7
million shares of Time Warner common stock. The net proceeds therefrom have
been used to repurchase common stock, including the repurchase of 9.1 million
shares of common stock in connection with the settlement of a forward purchase
contract to acquire such shares (Note 8). These share repurchases partially
offset the dilution resulting from the conversion of the Zero-Coupon Convertible
Notes.
In February 1998, Time Warner Companies, Inc. ("TW Companies"), a
wholly owned subsidiary of Time Warner, repaid all of its $500 million principal
amount of 7.45% notes due February 1, 1998 at their maturity using proceeds
raised from the issuance of $500 million principal amount of 6.95% debentures
due January 15, 2028.
In early 1998, Time Warner reduced debt by approximately $1 billion in
connection with the TWE-A/N Transfers (see Note 2). The debt assumed by TWE-A/N
has been guaranteed by TWI Cable and certain of its subsidiaries, including
Paragon.
An extraordinary loss of $17 million was recognized in the first
quarter of 1997 in connection with certain debt refinancings.
6. BORROWINGS AGAINST FUTURE STOCK OPTION PROCEEDS
In connection with Time Warner's common stock repurchase program, Time
Warner entered into a new five-year, $1.3 billion revolving credit facility (the
"Stock Option Proceeds Credit Facility") in early 1998, which replaced its
previously existing facility. Borrowings under the Stock Option Proceeds Credit
Facility are principally used to fund stock repurchases and future preferred
dividend requirements on Time Warner's Series G, H, I and J Preferred
28
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Stock. At June 30, 1998 and December 31, 1997, Time Warner had outstanding
borrowings against future stock option proceeds of $525 million and $533
million, respectively.
7. MANDATORILY REDEEMABLE PREFERRED SECURITIES
In December 1995, TW Companies issued approximately 23 million
Company-obligated mandatorily redeemable preferred securities of a wholly owned
subsidiary ("Preferred Trust Securities") for aggregate gross proceeds of $575
million. The sole assets of the subsidiary that is the obligor on the Preferred
Trust Securities are $592 million principal amount of 8 % subordinated
debentures of TW Companies due December 31, 2025. Cumulative cash distributions
are payable on the Preferred Trust Securities at an annual rate of 8 %. The
Preferred Trust Securities are mandatorily redeemable for cash on December 31,
2025, and TW Companies has the right to redeem the Preferred Trust Securities,
in whole or in part, on or after December 31, 2000, or in other certain
circumstances, in each case at an amount per Preferred Trust Security equal to
$25 plus accrued and unpaid distributions thereon.
Time Warner has certain obligations relating to the Preferred Trust
Securities which amount to a full and unconditional guaranty (on a subordinated
basis) of its subsidiary's obligations with respect thereto.
8. SHAREHOLDERS' EQUITY
In March 1998, Toshiba Corporation and ITOCHU Corporation sold 9.1
million shares of Time Warner common stock to certain banks, after electing to
convert a portion of their Time Warner convertible preferred stock into common
stock. In a related transaction, Time Warner entered into a forward purchase
contract with affiliates of such banks that provided it with an option to
acquire an equal number of 9.1 million shares of its common stock. These
transactions will result in an aggregate $26 million of preferred dividend
savings for Time Warner through October 1999.
In June 1998, in order to offset partially the dilutive effect relating
to the conversion of the Zero-Coupon Convertible Notes (Note 5), Time Warner
exercised its option under the forward purchase contract and repurchased 9.1
million shares of its common stock at an aggregate cost of $632 million, or
$69.12 per common share.
In connection with these transactions and the conversion of the
Zero-Coupon Convertible Notes, Time Warner's Board of Directors authorized in
1998 an 18.7 million share increase in the Company's existing common stock
repurchase program that, along with previous authorizations, allows the Company
to repurchase, from time to time, up to 53.7 million shares of common stock. The
common stock repurchased under the program is expected to continue to be used to
satisfy a portion of the future share issuances related to the exercise of
existing employee stock options and the potential conversion of certain
convertible securities. Actual repurchases in any period will be subject to
market conditions. As of June 30, 1998, Time Warner had acquired 23.2 million
shares of its common stock in 1998 at an aggregate cost of $1.661 billion,
thereby increasing the cumulative shares purchased under this program to
approximately 40.8 million shares at an aggregate cost of $2.461 billion. Except
for repurchases of common stock using $1.1 billion of borrowings in the second
quarter of 1998 that offset a like-amount of debt reduction associated with the
conversion of the Zero-Coupon Convertible Notes into common stock, these
repurchases have been and are expected to continue to be funded with stock
option exercise proceeds and borrowings under Time Warner's Stock Option
Proceeds Credit Facility, as described more fully below.
29
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
In May 1998, Time Warner issued approximately 2.9 million shares of its
common stock as a result of the conversion of approximately 1.3 million shares
of its Series J preferred stock.
9. SEGMENT INFORMATION
Time Warner classifies its businesses into four fundamental areas:
Entertainment, consisting principally of interests in recorded music and music
publishing, filmed entertainment, television production and television
broadcasting; Cable Networks, consisting principally of interests in cable
television programming; Publishing, consisting principally of interests in
magazine publishing, book publishing and direct marketing; and Cable, consisting
principally of interests in cable television systems. A majority of Time
Warner's interests in filmed entertainment, television production, television
broadcasting and cable television systems, and a portion of its interests in
cable television programming are held by the Entertainment Group. The
Entertainment Group is not consolidated for financial reporting purposes.
Information as to the operations of Time Warner and the Entertainment
Group in different business segments is set forth below based on the nature of
the products and services offered. Time Warner evaluates performance based on
several factors, of which the primary financial measure is business segment
operating income before noncash amortization of intangible assets ("EBITA"). The
operating results of Time Warner's and the Entertainment Group's cable segments
reflect the TWE-A/N Transfers effective as of January 1, 1998 and the Primestar
Roll-up Transaction effective as of April 1, 1998.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C>
REVENUES
Time Warner:
Publishing......................................................... $1,136 $1,053 $2,084 $1,977
Music.............................................................. 905 822 1,793 1,755
Cable Networks-TBS................................................. 906 750 1,634 1,344
Filmed Entertainment-TBS........................................... 504 337 876 734
Cable.............................................................. 242 250 490 492
Intersegment elimination........................................... (21) (19) (68) (75)
---- ----- ---- ------
Total.............................................................. $3,672 $3,193 $6,809 $6,227
====== ====== ====== ======
Entertainment Group:
Filmed Entertainment-Warner Bros................................... $1,330 $1,257 $2,642 $2,431
Broadcasting-The WB Network........................................ 61 29 106 53
Cable Networks-HBO................................................. 509 487 1,021 970
Cable.............................................................. 1,084 1,066 2,237 2,086
Intersegment elimination........................................... (131) (108) (241) (207)
---- ----- ---- ------
Total.............................................................. $2,853 $2,731 $5,765 $5,333
====== ====== ====== ======
</TABLE>
30
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C>
EBITA(1)
Time Warner:
Publishing......................................................... $ 176 $157 $ 261 $233
Music.............................................................. 96 106 189 224
Cable Networks-TBS................................................. 198 165 351 279
Filmed Entertainment-TBS........................................... 38 29 23 35
Cable.............................................................. 74 104 148 209
Intersegment elimination........................................... (1) 4 (20) (7)
---- ----- ---- ------
Total.............................................................. $ 581 $565 $ 952 $973
====== ====== ====== ======
Entertainment Group:
Filmed Entertainment-Warner Bros................................... $ 122 $110 $ 241 $215
Broadcasting-The WB Network........................................ (23) (19) (61) (39)
Cable Networks-HBO................................................. 113 98 222 189
Cable(2)........................................................... 374 243 681 502
---- ----- ---- ------
Total.............................................................. $ 586 $432 $1,083 $867
====== ====== ====== ======
</TABLE>
- ---------------
(1) EBITA represents business segment operating income before noncash
amortization of intangible assets. After deducting amortization of
intangible assets, Time Warner's business segment operating income for the
three and six months ended June 30, 1998, respectively, and for the
corresponding periods in the prior year was $384 million and $554 million in
1998, $345 million and $539 million in 1997. Similarly, business segment
operating income of the Entertainment Group for the three and six months
ended June 30, 1998, respectively, and for the corresponding periods in the
prior year was $456 million and $825 million in 1998, $327 million and $655
million in 1997.
(2) Includes net pretax gains relating to the sale or exchange of certain cable
television systems of approximately $70 million recognized in the second
quarter of 1998, and approximately $84 million and $24 million for the six
months ended June 30, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C>
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Time Warner:
Publishing......................................................... $ 19 $ 17 $ 38 $ 33
Music.............................................................. 19 19 38 41
Cable Networks-TBS................................................. 25 21 47 42
Filmed Entertainment-TBS........................................... 1 2 3 3
Cable.............................................................. 32 31 65 62
---- ----- ---- ------
Total.............................................................. $ 96 $ 90 $191 $181
====== ====== ====== ======
Entertainment Group:
Filmed Entertainment-Warner Bros................................... $ 38 $ 45 $ 78 $ 90
Broadcasting-The WB Network........................................ - 1 - 1
Cable Networks-HBO................................................. 5 5 10 10
Cable.............................................................. 183 176 381 348
---- ----- ---- ------
Total.............................................................. $226 $227 $469 $449
====== ====== ====== ======
</TABLE>
31
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C>
AMORTIZATION OF INTANGIBLE ASSETS(1)
Time Warner:
Publishing......................................................... $ 8 $ 8 $ 17 $ 17
Music.............................................................. 71 74 139 142
Cable Networks-TBS................................................. 50 50 100 95
Filmed Entertainment-TBS........................................... 20 19 40 41
Cable.............................................................. 48 69 102 139
---- ---- ---- ----
Total.............................................................. $197 $220 $398 $434
==== ==== ==== ====
Entertainment Group:
Filmed Entertainment-Warner Bros................................... $ 33 $30 $ 66 $61
Broadcasting-The WB Network........................................ 1 - 2 -
Cable Networks-HBO................................................. - - - -
Cable.............................................................. 96 75 190 151
---- ---- ---- ----
Total.............................................................. $130 $105 $258 $212
==== ==== ==== ====
</TABLE>
(1) Amortization includes amortization relating to all business combinations
accounted for by the purchase method, including the $14 billion
acquisition of Warner Communications Inc. in 1989, the $6.2 billion
acquisition of Turner Broadcasting System, Inc. in 1996 and the $2.3
billion of cable acquisitions in 1996 and 1995.
10. COMMITMENTS AND CONTINGENCIES
Pending legal proceedings are substantially limited to litigation
incidental to the businesses of Time Warner and alleged damages in connection
with class action lawsuits. In the opinion of management, the ultimate
resolution of these matters will not have a material effect on the consolidated
financial statements of Time Warner.
11. ADDITIONAL FINANCIAL INFORMATION
Additional financial information with respect to cash flows is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------
1998 1997
------ ------
(MILLIONS)
<S> <C> <C>
Interest expense............................................................................ $455 $534
Cash payments made for interest............................................................ 404 488
Cash payments made for income taxes......................................................... 122 166
Tax-related distributions received from TWE................................................. 138 192
Income tax refunds received................................................................. 43 34
</TABLE>
Noncash investing activities in the first six months of 1998 included
the TWE-A/N Transfers (Note 2). Noncash financing activities included the
conversion of $1.15 billion accreted amount of Zero Coupon Convertible Notes
into 18.7 million shares of common stock in the first six months of 1998 (Note
5) and the payment of $91 million of noncash dividends on the Series M Preferred
Stock in the first six months of 1997. During the six months ended June 30,
1998, Time Warner received $132 million of proceeds under its asset
securitization program.
32
<PAGE>
<PAGE>
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(UNAUDITED)
Time Warner Companies, Inc. ("TW Companies") and Turner Broadcasting
System, Inc. ("TBS" and, together with TW Companies, the "Guarantor
Subsidiaries") are wholly owned subsidiaries of Time Warner Inc. ("Time
Warner"). Time Warner, TW Companies and TBS have fully and unconditionally
guaranteed all of the outstanding publicly traded indebtedness of each other.
Set forth below are condensed consolidating financial statements of Time
Warner, including each of the Guarantor Subsidiaries, presented for the
information of each company's public debtholders. Separate financial statements
and other disclosures relating to the Guarantor Subsidiaries have not been
presented because management has determined that this information would not be
material to such debtholders. The following condensed consolidating financial
statements present the results of operations, financial position and cash flows
of (i) Time Warner, TW Companies and TBS (in each case, reflecting investments
in its consolidated subsidiaries under the equity method of accounting), (ii)
the direct and indirect non-guarantor subsidiaries of Time Warner and (iii) the
eliminations necessary to arrive at the information for Time Warner on a
consolidated basis. These condensed consolidating financial statements should be
read in conjunction with the accompanying consolidated financial statements of
Time Warner.
Consolidating Statement of Operations
For The Three Months Ended June 30, 1998
<TABLE>
<CAPTION>
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ --------- ------------
(millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues ................................... $ - $ - $198 $3,474 $ - $3,672
----- ------ ---- ------ ------ ------
Cost of revenues (1)........................ - - 100 1,977 - 2,077
Selling, general and administrative (1)..... - - 47 1,164 - 1,211
----- ----- ---- ------ ----- ------
Operating expenses.......................... - - 147 3,141 - 3,288
----- ----- ---- ------ ----- ------
Business segment operating income........... - - 51 333 - 384
Equity in pretax income of consolidated
subsidiaries............................. 279 397 99 - (775) -
Equity in pretax income of Entertainment
Group ................................... - - - 173 (7) 166
Interest and other, net..................... (12) (202) (40) (11) (18) (283)
Corporate expenses.......................... (19) (13) (4) (15) 32 (19)
----- ----- ----- ----- ----- ------
Income before income taxes.................. 248 182 106 480 (768) 248
Income tax provision........................ (147) (117) (60) (261) 438 (147)
----- ----- ----- ----- ----- -----
Net income.................................. $101 $ 65 $ 46 $ 219 $(330) $101
==== ===== ==== ====== ===== ====
(1) Includes depreciation and amortization
expense of:.......................... $ - $ - $ 2 $ 291 $ - $ 293
====== ====== ===== ====== ====== =====
</TABLE>
33
<PAGE>
<PAGE>
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Statement of Operations
For The Three Months Ended June 30, 1997
<TABLE>
<CAPTION>
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues ................................... $ - $ - $ 148 $3,045 $ - $3,193
----- ------ ----- ------ ------ ------
Cost of revenues (1)........................ - - 70 1,533 - 1,603
Selling, general and administrative (1)..... - - 49 1,196 - 1,245
----- ----- ----- ------ ----- ------
Operating expenses.......................... - - 119 2,729 - 2,848
----- ----- ----- ----- ----- -----
Business segment operating income........... - - 29 316 - 345
Equity in pretax income of consolidated
subsidiaries............................. 148 274 98 - (520) -
Equity in pretax income of Entertainment
Group ................................... - - - 114 (6) 108
Interest and other, net..................... 2 (195) (38) (59) (13) (303)
Corporate expenses.......................... (22) (14) (4) (16) 34 (22)
----- ------ ----- ----- ------ ------
Income (loss) before income taxes........... 128 65 85 355 (505) 128
Income tax provision........................ (98) (50) (51) (190) 291 (98)
----- ------ ----- ----- ------ -----
Net income (loss)........................... $ 30 $ 15 $ 34 $ 165 $(214) $ 30
===== ====== ===== ===== ===== =====
(1) Includes depreciation and amortization
expense of:.......................... $ - $ - $ 6 $ 304 $ - $ 310
====== ====== ====== ===== ====== =====
</TABLE>
34
<PAGE>
<PAGE>
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Statement of Operations
For The Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues ................................... $ - $ - $366 $6,443 $ - $6,809
----- ------ ---- ------ ------ ------
Cost of revenues (1)........................ - - 161 3,803 - 3,964
Selling, general and administrative (1)..... - - 97 2,194 - 2,291
----- ----- ---- ------ ----- ------
Operating expenses.......................... - - 258 5,997 - 6,255
----- ----- ---- ------ ----- ------
Business segment operating income........... - - 108 446 - 554
Equity in pretax income of consolidated
subsidiaries............................. 283 614 78 - (975) -
Equity in pretax income of Entertainment
Group ................................... - - - 296 (23) 273
Interest and other, net..................... (22) (387) (84) (51) (22) (566)
Corporate expenses.......................... (38) (26) (8) (31) 65 (38)
----- ------ ----- ----- ----- ------
Income before income taxes.................. 223 201 94 660 (955) 223
Income tax provision........................ (184) (135) (73) (367) 575 (184)
----- ----- ----- ----- ----- ----
Net income.................................. $ 39 $ 66 $ 21 $ 293 $(380) $ 39
====== ===== ===== ====== ===== =====
(1) Includes depreciation and amortization
expense of:.......................... $ - $ - $ 4 $ 585 $ - $589
====== ====== ===== ====== ====== ====
</TABLE>
35
<PAGE>
<PAGE>
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Statement of Operations
For The Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues ................................... $ - $ - $ 266 $5,961 $ - $6,227
----- ------ ----- ------ ------ ------
Cost of revenues (1)........................ - - 125 3,328 - 3,453
Selling, general and administrative (1)..... - - 91 2,144 - 2,235
----- ----- ----- ------ ----- ------
Operating expenses.......................... - - 216 5,472 - 5,688
----- ----- ----- ----- ----- ------
Business segment operating income........... - - 50 489 - 539
Equity in pretax income of consolidated
subsidiaries............................. 359 698 114 - (1,171) -
Equity in pretax income of Entertainment
Group ................................... - - - 444 (18) 426
Interest and other, net..................... 11 (377) (95) (121) (13) (595)
Corporate expenses.......................... (43) (28) (8) (32) 68 (43)
----- ------ ----- ----- ----- ------
Income (loss) before income taxes........... 327 293 61 780 (1,134) 327
Income tax provision........................ (245) (187) (63) (433) 683 (245)
----- ------ ----- ----- ------ ------
Income (loss) before extraordinary item..... 82 106 (2) 347 (451) 82
Extraordinary loss on retirement of debt,
net of tax............................... (17) (13) (4) (13) 30 (17)
------ ------ ------ ------ ------ ------
Net income (loss)........................... $ 65 $ 93 $ (6) $ 334 $ (421) $ 65
===== ===== ===== ===== ====== ====
(1) Includes depreciation and amortization
expense of:.......................... $ - $ - $ 11 $ 604 $ - $ 615
====== ====== ===== ===== ====== =====
</TABLE>
36
<PAGE>
<PAGE>
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Balance Sheet
June 30, 1998
<TABLE>
<CAPTION>
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents....................................... $ - $ 62 $ 16 $ 266 $ - $ 344
Receivables, net........................................... 16 53 129 1,945 (4) 2,139
Inventories................................................ - - 90 720 - 810
Prepaid expenses........................................... 15 4 6 1,117 (6) 1,136
----- ----- ----- ------- ------ -------
Total current assets....................................... 31 119 241 4,048 (10) 4,429
Noncurrent inventories..................................... - - 142 1,665 - 1,807
Investments in and amounts due to and from
consolidated subsidiaries............................... 16,295 14,730 9,798 - (40,823) -
Investments in and amounts due to and
from Entertainment Group................................ - 960 - 5,156 (65) 6,051
Other investments.......................................... 106 1 24 1,003 (611) 523
Property, plant and equipment, net......................... 57 - 45 1,905 - 2,007
Music catalogues, contracts and copyrights................. - - - 878 - 878
Cable television and sports franchises..................... - - - 3,171 - 3,171
Goodwill................................................... - - - 12,121 - 12,121
Other assets............................................... 75 134 120 542 (8) 863
------ ------ ------ ------- ------ -------
Total assets............................................... $16,564 $15,944 $10,370 $30,489 $(41,517) $31,850
======= ======= ======= ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................................... $ 25 $ - $ 11 $ 706 $ - $ 742
Participations, royalties and programming costs
payable................................................. - - 30 1,116 - 1,146
Debt due within one year................................... - - - 21 - 21
Other current liabilities.................................. 244 314 242 1,421 (116) 2,105
------ ------ ------ ------- ------- -------
Total current liabilities.................................. 269 314 283 3,264 (116) 4,014
Long-term debt ............................................ 593 7,336 747 1,239 - 9,915
Debt due to affiliates..................................... - - 1,647 158 (1,805) -
Borrowings against future stock option proceeds............ 525 - - - - 525
Deferred income taxes...................................... 3,688 3,525 243 3,768 (7,536) 3,688
Unearned portion of paid subscriptions..................... - - - 714 - 714
Other liabilities.......................................... 310 19 92 819 - 1,240
TW Companies-obligated mandatorily redeemable preferred
securities of a subsidiary holding solely subordinated
debentures of TW Companies.............................. - - - 575 - 575
Series M exchangeable preferred stock...................... 1,859 - - - - 1,859
Shareholders' equity
Due to (from) Time Warner and subsidiaries................. - (1,486) - (1,165) 2,651 -
Other shareholders' equity................................. 9,320 6,236 7,358 21,117 (34,711) 9,320
------- ------- ------ ------- ------- -------
Total shareholders' equity................................. 9,320 4,750 7,358 19,952 (32,060) 9,320
------- ------- ------ ------- ------- -------
Total liabilities and shareholders' equity................. $16,564 $15,944 $10,370 $30,489 $(41,517) $31,850
======= ======= ======= ======= ======== =======
</TABLE>
37
<PAGE>
<PAGE>
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents....................................... $ - $ 372 $ 9 $ 264 $ - $ 645
Receivables, net........................................... 34 82 9 2,350 (28) 2,447
Inventories................................................ - - 112 718 - 830
Prepaid expenses........................................... 21 14 5 1,063 (14) 1,089
----- ----- ----- ------ ------- ------
Total current assets....................................... 55 468 135 4,395 (42) 5,011
Noncurrent inventories..................................... - - 123 1,643 - 1,766
Investments in and amounts due to and from
consolidated subsidiaries............................... 16,189 14,995 9,950 - (41,134) -
Investments in and amounts due to and
from Entertainment Group................................ - 970 - 4,620 (41) 5,549
Other investments.......................................... 106 1 24 1,957 (593) 1,495
Property, plant and equipment, net......................... 68 - 48 1,973 - 2,089
Music catalogues, contracts and copyrights................. - - - 928 - 928
Cable television and sports franchises..................... - - - 3,982 - 3,982
Goodwill................................................... - - - 12,572 - 12,572
Other assets............................................... 54 124 118 483 (8) 771
------ ------ ------- ------- ------- -------
Total assets............................................... $16,472 $16,558 $10,398 $32,553 $(41,818) $34,163
======= ======= ======= ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................................... $ 24 $ - $ 11 $ 877 $ - $ 912
Participations, royalties and programming costs
payable................................................. - - 10 1,062 - 1,072
Debt due within one year................................... - - - 8 - 8
Other current liabilities.................................. 442 284 234 1,371 48 2,379
------ ------ ----- ------ ------- -------
Total current liabilities.................................. 466 284 255 3,318 48 4,371
Long-term debt ............................................ - 8,462 747 2,624 - 11,833
Debt due to affiliates..................................... - - 1,722 158 (1,880) -
Borrowings against future stock option proceeds............ 533 - - - - 533
Deferred income taxes...................................... 3,960 3,797 243 4,040 (8,080) 3,960
Unearned portion of paid subscriptions..................... - - - 672 - 672
Other liabilities.......................................... 300 20 90 596 - 1,006
TW Companies-obligated mandatorily redeemable
preferred securities of a subsidiary holding solely
subordinated debentures of TW Companies................. - - - 575 - 575
Series M exchangeable preferred stock...................... 1,857 - - - - 1,857
Shareholders' equity
Due to (from) Time Warner and subsidiaries................. - (2,195) - (256) 2,451 -
Other shareholders' equity................................. 9,356 6,190 7,341 20,826 (34,357) 9,356
----- ----- ----- ------ ------- -----
Total shareholders' equity................................. 9,356 3,995 7,341 20,570 (31,906) 9,356
------- ------- ------ ------- -------- ------
Total liabilities and shareholders' equity................. $16,472 $16,558 $10,398 $32,553 $(41,818) $34,163
======= ======= ======= ======= ======== =======
</TABLE>
38
<PAGE>
<PAGE>
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Statement of Cash Flows
For The Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net income................................................. $ 39 $ 66 $21 $293 $(380) $ 39
Adjustments for noncash and nonoperating items:
Depreciation and amortization.............................. - - 4 585 - 589
Noncash interest expense................................... - 29 - - - 29
Excess (deficiency) of distributions over equity in
pretax income of consolidated subsidiaries.............. 838 (313) 145 - (670) -
Excess of equity in pretax income of
Entertainment Group over distributions.................. - - - 2 23 25
Changes in operating assets and liabilities................ 160 91 (81) 81 (44) 207
----- ---- ---- ----- ----- ----
Cash provided by operations................................ 1,037 (127) 89 961 (1,071) 889
----- ---- ---- ---- ----- ----
INVESTING ACTIVITIES
Investments and acquisitions............................... (213) - - 139 - (74)
Advances to parents and consolidated subsidiaries.......... - (187) - (26) 213 -
Repayment of advances from consolidated subsidiaries....... 75 - - - (75) -
Capital expenditures....................................... - - (7) (221) - (228)
Investment proceeds........................................ - - - 395 - 395
----- ----- ----- ---- ----- ----
Cash provided (used) by investing activities............... (138) (187) (7) 287 138 93
----- ----- ----- ---- ----- ----
FINANCING ACTIVITIES
Borrowings................................................. 597 496 - 514 (4) 1,603
Debt repayments............................................ - (500) (75) (877) 75 (1,377)
Change in due to/from parent............................... - 21 - (883) 862 -
Borrowings against future stock option proceeds............ 525 - - - - 525
Repayments of borrowings against future stock
option proceeds......................................... (533) - - - - (533)
Repurchases of Time Warner common stock.................... (1,661) - - - - (1,661)
Dividends paid............................................. (265) - - - - (265)
Proceeds from the issuance of stock options and
dividend reinvestment................................... 460 - - - - 460
Other...................................................... (22) (13) - - - (35)
----- ------- ----- ----- ------ ------
Cash used by financing activities.......................... (899) 4 (75) (1,246) 933 (1,283)
----- ------- ------ ------- ------ -------
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS............................................. - (310) 7 2 - (301)
------ ------ ----- ------ ------ -------
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD..................................... - 372 9 264 - 645
----- ----- ----- ----- ------ -----
CASH AND EQUIVALENTS AT END OF PERIOD...................... $ - $ 62 $ 16 $ 266 $ - $ 344
====== ===== ===== ===== ====== =====
</TABLE>
39
<PAGE>
<PAGE>
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Statement of Cash Flows
For The Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net income (loss).......................................... $ 65 $ 93 $ (6) $334 $(421) $ 65
Adjustments for noncash and nonoperating items:
Extraordinary loss on retirement of debt................... 17 13 4 13 (30) 17
Depreciation and amortization.............................. - - 11 604 - 615
Noncash interest expense................................... - 49 2 - - 51
Excess of distributions over equity in pretax
income of consolidated subsidiaries..................... 668 147 194 - (1,009) -
Excess (deficiency) of equity in pretax income of
Entertainment Group over distributions.................. - - - (241) 18 (223)
Changes in operating assets and liabilities................ (49) (205) (88) 305 (55) (92)
----- ----- ----- ------ ---- ------
Cash provided (used) by operations......................... 701 97 117 1,015 (1,497) 433
---- ---- ---- ------ ------- -----
INVESTING ACTIVITIES
Investments and acquisitions............................... (14) - - (42) - (56)
Advance to parents and consolidated subsidiaries........... (571) - - - 571 -
Capital expenditures....................................... - - (2) (281) - (283)
Investment proceeds........................................ - - - 113 - 113
----- ---- ----- ----- ------ -----
Cash used by investing activities.......................... (585) - (2) (210) 571 (226)
------ ----- ------ ------ ------ -----
FINANCING ACTIVITIES
Borrowings................................................. - 699 571 340 (571) 1,039
Debt repayments............................................ - (105) (684) (305) - (1,094)
Change in due to/from parent............................... - (784) - (713) 1,497 -
Repayments of borrowings against
future stock option proceeds............................ (86) - - - - (86)
Repurchases of Time Warner common stock.................... (36) - - - - (36)
Dividends paid............................................. (167) - - - - (167)
Other...................................................... 113 (4) - (16) - 93
---- ----- ----- ------ ----- -----
Cash used by financing activities.......................... (176) (194) (113) (694) 926 (251)
------ ------ ------ ------ ---- ------
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS............................................. (60) (97) 2 111 - (44)
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD..................................... 62 137 - 315 - 514
----- ----- ------ ----- ----- -----
CASH AND EQUIVALENTS AT END OF PERIOD...................... $ 2 $ 40 $ 2 $ 426 $ - $ 470
====== ===== ====== ===== ====== =====
</TABLE>
40
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
TWE classifies its business interests into three fundamental areas:
Entertainment, consisting principally of interests in filmed entertainment,
television production and television broadcasting; Cable Networks, consisting
principally of interests in cable television programming; and Cable, consisting
principally of interests in cable television systems. TWE also manages the cable
properties owned by Time Warner and the combined cable television operations are
conducted under the name of Time Warner Cable. Capitalized terms are as defined
and described in the accompanying consolidated financial statements, or
elsewhere herein.
USE OF EBITA
TWE evaluates operating performance based on several factors, of which
the primary financial measure is operating income before noncash amortization of
intangible assets ("EBITA"). Consistent with management's financial focus on
controlling capital spending, EBITA measures operating performance after charges
for depreciation. In addition, EBITA eliminates the uneven effect across all
business segments of considerable amounts of noncash amortization of intangible
assets recognized in business combinations accounted for by the purchase method,
including Time Warner's $14 billion acquisition of Warner Communications Inc. in
1989 and $1.3 billion acquisition of the minority interest in American
Television and Communications Corporation in 1992. The exclusion of noncash
amortization charges is also consistent with management's belief that TWE's
intangible assets, such as cable television franchises, film and television
libraries and the goodwill associated with its brands, are generally increasing
in value and importance to TWE's business objective of creating, extending and
distributing recognizable brands and copyrights throughout the world. As such,
the following comparative discussion of the results of operations of TWE
includes, among other factors, an analysis of changes in business segment EBITA.
However, EBITA should be considered in addition to, not as a substitute for,
operating income, net income and other measures of financial performance
reported in accordance with generally accepted accounting principles.
RESULTS OF OPERATIONS
As more fully described herein, TWE's 1998 operating results have been
affected by certain cable-related transactions, including (i) the transfer of
cable television systems (or interests therein) serving approximately 650,000
subscribers that were formerly owned by subsidiaries of Time Warner to the
TWE-Advance/Newhouse Partnership ("TWE-A/N"), subject to approximately $1
billion of debt, in exchange for common and preferred partnership interests
therein, as well as certain related transactions (collectively, the "TWE-A/N
Transfers"), (ii) the transfer of TWE's and TWE-A/N's direct broadcast satellite
operations and related assets to Primestar, Inc., a separate holding company
(the "Primestar Roll-up Transaction") and (iii) the sale or exchange of certain
cable television systems. The effects of these transactions are described
elsewhere herein.
41
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
EBITA and operating income for TWE for the three and six months ended
June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
OPERATING OPERATING
EBITA INCOME EBITA INCOME
------------- ------------ ------------ ------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Filmed Entertainment-Warner Bros..................... $121 $103 $ 88 $ 73 $ 240 $209 $174 $148
Broadcasting-The WB Network.......................... (23) (19) (24) (19) (61) (39) (63) (39)
Cable Networks-HBO................................... 113 98 113 98 222 189 222 189
Cable(a)............................................. 374 243 278 168 681 502 491 351
--- --- --- --- --- --- --- ---
Total................................................ $585 $425 $455 $320 $1,082 $861 $824 $649
==== ==== ==== ==== ====== ==== ==== ====
</TABLE>
- ---------------
(a) Includes net pretax gains relating to the sale or exchange of certain
cable television systems of approximately $70 million in the second
quarter of 1998, and approximately $84 million and $24 million for the six
months ended June 30, 1998 and 1997, respectively.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997
TWE had revenues of $2.850 billion and net income of $155 million for
the three months ended June 30, 1998, compared to revenues of $2.728 billion and
net income of $82 million for the three months ended June 30, 1997. As discussed
more fully below, TWE's net income increased in 1998 as compared to 1997
principally due to an overall increase in operating income generated by its
business segments (including the positive effect of the TWE-A/N Transfers and
$70 million of net gains recognized by TWE in 1998 relating to the sale or
exchange of certain cable television systems), offset in part by an increase in
interest expense and minority interest expense related to the TWE-A/N Transfers.
As a U.S. partnership, TWE is not subject to U.S. federal and state
income taxation. Income and withholding taxes of $17 million and $25 million for
the three months ended June 30, 1998 and 1997, respectively, have been provided
for the operations of TWE's domestic and foreign subsidiary corporations.
Filmed Entertainment-Warner Bros. Revenues increased to $1.327 billion,
compared to $1.254 billion in the second quarter of 1997. EBITA increased to
$121 million from $103 million. Operating income increased to $88 million from
$73 million. Revenues benefited from increases in worldwide television
production and distribution, home video and consumer products licensing
operations, offset in part by lower worldwide theatrical revenues. EBITA and
operating income benefited principally from the revenue gains, as well as a gain
on the sale of certain assets.
Broadcasting - The WB Network. Revenues increased to $61 million,
compared to $29 million in the second quarter of 1997. EBITA decreased to a loss
of $23 million from a loss of $19 million. Operating losses increased to $24
million from $19 million. Revenues increased as a result of improved television
ratings and the addition of a fourth night of prime-time programming in January
1998, but were offset by higher programming costs associated with the expanded
programming schedule. Operating losses increased primarily as a result of a
lower allocation of losses to a limited partner in the network. In October 1998,
The WB Network plans to expand its prime-time programming schedule to five
nights a week. Due to the start-up nature of this national broadcast operation,
losses are expected to continue.
42
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Cable Networks-HBO. Revenues increased to $509 million, compared to
$487 million in the second quarter of 1997. EBITA and operating income increased
to $113 million from $98 million. Revenues benefited primarily from an increase
in subscriptions. EBITA and operating income increased principally as a result
of the revenue gains, and, to a lesser extent, cost savings.
Cable. Revenues increased to $1.084 billion, compared to $1.066 billion
in the second quarter of 1997. EBITA increased to $374 million from $243
million. Operating income increased to $278 million from $168 million. The Cable
division's 1998 operating results were affected by the TWE-A/N Transfers and the
deconsolidation of its direct broadcast satellite operations in connection with
the Primestar Roll-up Transaction. Excluding the effect of the TWE-A/N Transfers
and Primestar Roll-up Transaction, revenues benefited from an increase in basic
cable subscribers, increases in regulated cable rates as permitted under Time
Warner Cable's "social contract" with the Federal Communications Commission
("FCC") and an increase in advertising revenues. Similarly excluding the effect
of the TWE-A/N Transfers and Primestar Roll-up Transaction, EBITA and operating
income increased principally as a result of the revenue gains and higher net
gains relating to the sale or exchange of certain cable television systems,
offset in part by higher depreciation related to capital spending.
Interest and Other, Net. Interest and other, net, was $183 million in
the second quarter of 1998, compared to $139 million in the second quarter of
1997. Interest expense increased to $132 million, compared to $120 million in
the second quarter of 1997, principally due to higher average debt levels
associated with the TWE-A/N Transfers. There was other expense, net, of $51
million in the second quarter of 1998, compared to $19 million in the second
quarter of 1997, principally due to higher losses from certain investments
accounted for under the equity method of accounting.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
TWE had revenues of $5.760 billion and net income of $263 million for
the six months ended June 30, 1998, compared to revenues of $5.328 billion and
net income of $402 million for the six months ended June 30, 1997. As discussed
more fully below, TWE's net income decreased in 1998 as compared to 1997
principally due to lower, net pretax gains recognized in connection with the
sale or exchange of certain cable television systems in each year and the 1997
sale of TWE's interest in E! Entertainment Television, Inc. ("E!
Entertainment"). Excluding the effect of these transactions, TWE's net income
increased in 1998 principally as a result of an overall increase in operating
income generated by its business segments (including the positive effect of the
TWE-A/N Transfers), offset in part by an increase in interest expense and
minority interest expense related to the TWE-A/N Transfers.
As a U.S. partnership, TWE is not subject to U.S. federal and state
income taxation. Income and withholding taxes of $32 million and $37 million for
the six months ended June 30, 1998 and 1997, respectively, have been provided
for the operations of TWE's domestic and foreign subsidiary corporations.
Filmed Entertainment-Warner Bros. Revenues increased to $2.637 billion,
compared to $2.426 billion in the first six months of 1997. EBITA increased to
$240 million from $209 million. Operating income increased to $174 million from
$148 million. Revenues benefited from increases in worldwide television
production and
43
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
distribution and consumer products licensing operations, offset in part by
lower worldwide theatrical and home video revenues. EBITA and operating income
benefited principally from the revenue gains.
Broadcasting - The WB Network. Revenues increased to $106 million,
compared to $53 million in the first six months of 1997. EBITA decreased to a
loss of $61 million from a loss of $39 million. Operating losses increased to
$63 million from $39 million. Revenues increased as a result of improved
television ratings and the addition of a fourth night of prime-time programming
in January 1998, but were offset by higher programming costs associated with the
expanded programming schedule. Operating losses increased principally as a
result of a lower allocation of losses to a limited partner in the network. In
October 1998, The WB Network plans to expand its prime-time programming schedule
to five nights a week. Due to the start-up nature of this national broadcast
operation, losses are expected to continue.
Cable Networks-HBO. Revenues increased to $1.021 billion, compared to
$970 million in the first six months of 1997. EBITA and operating income
increased to $222 million from $189 million. Revenues benefited primarily from
an increase in subscriptions. EBITA and operating income increased principally
as a result of the revenue gains, and, to a lesser extent, cost savings.
Cable. Revenues increased to $2.237 billion, compared to $2.086 billion
in the first six months of 1997. EBITA increased to $681 million from $502
million. Operating income increased to $491 million from $351 million. The Cable
division's 1998 operating results were affected by the TWE-A/N Transfers and the
deconsolidation of its direct broadcast satellite operations in connection with
the Primestar Roll-up Transaction. Excluding the effect of the TWE-/AN Transfers
and Primestar Roll-up Transaction, revenues benefited from an increase in basic
cable subscribers, increases in regulated cable rates as permitted under Time
Warner Cable's "social contract" with the FCC and an increase in advertising
revenues. Similarly excluding the effect of the TWE-A/N Transfers and the
Primestar Roll-up Transaction, EBITA and operating income increased principally
as a result of the revenue gains and higher net gains relating to the sale or
exchange of certain cable television systems, offset in part by higher
depreciation related to capital spending.
Interest and Other, Net. Interest and other, net, was $347 million in
the first six months of 1998, compared to $10 million in the first six months of
1997. Interest expense increased to $273 million, compared to $235 million in
1997, principally due to higher average debt levels associated with the TWE-A/N
Transfers. There was other expense, net, of $74 million in the first six months
of 1998, compared to other income, net, of $225 million in the first six months
of 1997, principally due to the absence of an approximate $250 million pretax
gain on the sale of an interest in E! Entertainment recognized in 1997 and
higher losses from certain investments accounted for under the equity method of
accounting.
FINANCIAL CONDITION AND LIQUIDITY
JUNE 30, 1998
FINANCIAL CONDITION
TWE had $6.8 billion of debt, $72 million of cash and equivalents (net
debt of $6.7 billion), $225 million of preferred stock of a subsidiary, $1.2
billion of Time Warner General Partners' Senior Capital and $6.0
44
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
billion of partners' capital at June 30, 1998, compared to $6.0 billion of debt,
$322 million of cash and equivalents (net debt of $5.7 billion), $233 million of
preferred stock of a subsidiary, $1.1 billion of Time Warner General Partners'
Senior Capital and $6.3 billion of partners' capital at December 31, 1997. Net
debt increased principally as a result of the TWE-A/N Transfers.
DEBT TRANSACTIONS
In July 1998, TWE borrowed $579 million under its bank credit agreement
and paid a distribution to the Time Warner General Partners relating to their
Senior Capital interests.
In April 1998, TWE consummated two previously announced transactions,
consisting of the sale of TWE's 49% interest in Six Flags Entertainment
Corporation and the Primestar Roll-up Transaction. As a result of these
transactions, TWE reduced debt by approximately $540 million.
In early 1998, TWE-A/N assumed approximately $1 billion of debt from
TWI Cable Inc. ("TWI Cable"), a wholly owned subsidiary of Time Warner, in
connection with the TWE-A/N Transfers. The debt assumed by TWE-A/N has been
guaranteed by TWI Cable and certain of its subsidiaries.
CASH FLOWS
During the first six months of 1998, TWE's cash provided by operations
amounted to $586 million and reflected $1.082 billion of EBITA from its Filmed
Entertainment-Warner Bros., Broadcasting-The WB Network, Cable Networks-HBO and
Cable businesses, $469 million of noncash depreciation expense and $135 million
of proceeds from TWE's asset securitization program, less $260 million of
interest payments, $39 million of income taxes, $36 million of corporate
expenses, and $765 million related to an aggregate increase in working capital
requirements, other balance sheet accounts and noncash items. Cash provided by
operations of $416 million in the first six months of 1997 reflected $861
million of business segment EBITA and $440 million of noncash depreciation
expense, less $243 million of interest payments, $35 million of income taxes,
$36 million of corporate expenses and $571 million related to an aggregate
reduction in working capital requirements, other balance sheet accounts and
noncash items.
Cash used by investing activities was $493 million in the first six
months of 1998, compared to $425 million in the first six months of 1997,
principally as a result of the effect of deconsolidating approximately $200
million of cash of Paragon Communications in connection with the TWE-A/N
Transfers that has been included as a reduction of cash flows from investments
and acquisitions, offset in part by a $135 million increase in proceeds from the
sale of investments. Capital expenditures were $734 million in the first six
months of 1998 and 1997.
Cash used by financing activities was $343 million in the first six
months of 1998, compared to cash provided by financing activities of $86 million
in the first six months of 1997, principally as a result of the absence of $243
million of aggregate net proceeds from the issuance of preferred stock of a
subsidiary in the first quarter of 1997 and a $95 million increase in
distributions paid to Time Warner, offset in part by an increase in debt used to
fund cash distributions to Time Warner.
45
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Management believes that TWE's operating cash flow, cash and
equivalents and additional borrowing capacity are sufficient to fund its capital
and liquidity needs for the foreseeable future.
CABLE CAPITAL SPENDING
Time Warner Cable has been engaged in a plan to upgrade the
technological capability and reliability of its cable television systems and
develop new services, which it believes will position the business for
sustained, long-term growth. Capital spending by TWE's Cable division amounted
to $666 million in the six months ended June 30, 1998, compared to $662 million
the six months ended June 30, 1997. For the full year of 1998, cable capital
spending is expected to be comparable to 1997 levels, with approximately $700
million budgeted for the remainder of 1998. Capital spending by TWE's Cable
division is expected to continue to be funded by cable operating cash flow. In
exchange for certain flexibility in establishing cable rate pricing structures
for regulated services that went into effect on January 1, 1996 and consistent
with Time Warner Cable's long-term strategic plan, Time Warner Cable agreed with
the FCC to invest a total of $4 billion in capital costs in connection with the
upgrade of its cable infrastructure, which is expected to be substantially
completed over a five-year period ending December 31, 2000. The agreement with
the FCC covers all of the cable operations of Time Warner Cable, including the
owned or managed cable television systems of TWE, TWE-A/N and Time Warner.
Management expects to continue to finance such level of investment through cable
operating cash flow and the development of new revenue streams from expanded
programming options, high-speed Internet access and other services.
CABLE FINANCING STRATEGY
Time Warner's and TWE's cable financing strategy is to continue to use
cable operating cash flow to finance the level of capital spending necessary to
upgrade the technological capability of its cable television systems and develop
new services, while pursuing opportunities to reduce either existing debt and/or
their share of future funding requirements related to the cable television
business and related ancillary businesses. Consistent with this strategy, Time
Warner, TWE and TWE-A/N have completed a series of transactions in 1998, as
discussed more fully below.
Business Telephony Reorganization
In July 1998, Time Warner, TWE and TWE-A/N completed a reorganization
of their business telephony operations (the "Business Telephony Reorganization")
by combining such operations into a single entity that is intended to be
self-financing. This entity, named Time Warner Telecom LLC ("TW Telecom"), is a
competitive local exchange carrier (CLEC) in selected metropolitan areas across
the United States where it offers a wide range of telephony services to business
customers. Time Warner, MediaOne Group, Inc. ("MediaOne," formerly U S WEST,
Inc.) and the Advance/Newhouse Partnership ("Advance/Newhouse"), a limited
partner in TWE-A/N, own interests in TW Telecom of 61.95%, 18.88% and 19.17%,
respectively. As a result of the Business Telephony Reorganization, TWE and
TWE-A/N do not have continuing equity interests in these business telephony
operations.
46
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Road Runner Joint Venture
In June 1998, Time Warner, TWE, TWE-A/N, MediaOne, Microsoft Corp.
("Microsoft") and Compaq Computer Corp. ("Compaq") formed a joint venture to
operate and expand Time Warner Cable's and MediaOne's existing high-speed
Internet access businesses (the "Road Runner'TM' Joint Venture"). In exchange
for contributing their existing high-speed Internet access businesses, Time
Warner received an 11.25% common equity interest in the Road Runner Joint
Venture, TWE received a 25% interest, TWE-A/N received a 32.5% interest and
MediaOne received a 31.25% interest. In exchange for Microsoft and Compaq each
contributing $212.5 million of cash to the Road Runner Joint Venture, Microsoft
and Compaq each received a preferred equity interest therein that is convertible
into a 10% common equity interest which, upon conversion, will dilute each of
the common equity holders' interests accordingly. Each of TWE's and TWE-A/N's
interest in the Road Runner Joint Venture is being accounted for under the
equity method of accounting.
The aggregate $425 million of capital contributed by Microsoft and
Compaq is expected to be used by the Road Runner Joint Venture to continue to
expand the roll out of high-speed Internet access services. In addition, as a
result of Time Warner Cable being a retailer of the Road Runner business in its
franchise areas whereby Time Warner Cable's technologically advanced,
high-capacity cable architecture will be used to provide these high-speed
Internet access services, Time Warner Cable will initially retain 70% of the
subscription revenues and 30% of the national advertising and transactional
revenues generated from the delivery of these on-line services to its cable
subscribers. Time Warner Cable's share of these revenues is expected to change
periodically to 75% of subscription revenues and 25% of national advertising and
transactional revenues by 2006.
Primestar Roll-up Transaction
In April 1998, TWE and Advance/Newhouse transferred the direct
broadcast satellite operations conducted by TWE and TWE-A/N (the "DBS
Operations") and the 31% partnership interest in Primestar Partners, L.P. held
by TWE-A/N ("Primestar" and collectively, the "Primestar Assets") to Primestar,
Inc. ("New Primestar"), a separate holding company. New Primestar owns the DBS
Operations and Primestar partnership interests formerly owned by TCI Satellite
Entertainment, Inc. and other previously existing partners of Primestar. In
exchange for contributing its interests in the Primestar Assets, TWE received an
approximate 24% equity interest in New Primestar and realized approximately $240
million of debt reduction. TWE deconsolidated the DBS Operations effective as of
April 1, 1998 and the equity interest in New Primestar received in this
transaction is being accounted for under the equity method of accounting.
TWE-A/N Transfers
In early 1998, Time Warner (through a wholly owned subsidiary)
contributed cable television systems (or interests therein) serving
approximately 650,000 subscribers to TWE-A/N, subject to approximately $1
billion of debt, in exchange for common and preferred partnership interests
therein, and completed certain related transactions. The debt assumed by TWE-A/N
has been guaranteed by TWI Cable and certain of its subsidiaries. TWE-A/N is now
owned 65.3% by TWE, 33.3% by Advance/Newhouse and 1.4% indirectly by Time
Warner.
47
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
WARNER BROS. BACKLOG
Warner Bros.' backlog, representing the amount of future revenue not
yet recorded from cash contracts for the licensing of theatrical and television
product for pay cable, basic cable, network and syndicated television
exhibition, amounted to $2.225 billion at June 30, 1998, compared to $2.126
billion at December 31, 1997 (including amounts relating to TWE's cable
television networks of $222 million and $238 million, respectively, and to Time
Warner's cable television networks of $568 million and $481 million,
respectively).
Because backlog generally relates to contracts for the licensing of
theatrical and television product which have already been produced, the
recognition of revenue for such completed product is principally only dependent
upon the commencement of the availability period for telecast under the terms of
the related licensing agreement. Cash licensing fees are collected periodically
over the term of the related licensing agreements or on an accelerated basis
using a $600 million securitization facility. The portion of backlog for which
cash has not already been received has significant off-balance sheet asset value
as a source of future funding. The backlog excludes advertising barter
contracts, which are also expected to result in the future realization of
revenues and cash through the sale of advertising spots received under such
contracts.
YEAR 2000 TECHNOLOGY PREPAREDNESS
TWE, like most large companies, depends on many different computer
systems and other chip-based devices for the continuing conduct of its business.
Older computer programs, computer hardware and chip-based devices may fail to
recognize dates beginning on January 1, 2000 as being valid dates, and as a
result may fail to operate or may operate improperly when such dates are
introduced.
TWE's exposure to potential Year 2000 problems exists in two general
areas: technological operations in the sole control of TWE, and technological
operations dependent in some way on one or more third parties. The majority of
TWE's exposure to potential Year 2000 problems is in the latter area. Failure to
achieve high levels of Year 2000 compliance in either area could have a material
adverse impact on TWE.
In the former area, technological operations in the sole control of
TWE, TWE is engaged in a thorough process involving the identification and
remediation of affected technological functions. TWE has generally completed the
process of identifying significant potential Year 2000 difficulties and has an
action plan in place to address them. At present, it is anticipated that the
action plan will be successfully completed in all material respects in advance
of January 1, 2000, and that its cost to TWE will not be material.
In the latter area, technological operations dependent in some way on
one or more third parties, the situation is much less in TWE's ability to
predict or control, although TWE has in place an extensive system to test for
and attempt to resolve potential Year 2000 difficulties. TWE's business is
heavily dependent on third parties, many of whom are themselves heavily
dependent on technology. In some cases, TWE's third party dependence is on
vendors of technology who are themselves working towards solutions to Year 2000
problems. For example, in a situation endemic to the cable industry, much of
TWE's headend equipment that controls cable set-top boxes is presently not Year
2000 compliant. The box manufacturers are working with cable industry groups
towards a solution that is presently expected to be implemented successfully
before the end of 1999;
48
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
however, that process is not within TWE's control. In other cases, TWE's third
party dependence is on suppliers of products or services that are themselves
computer-intensive. For example, if a television broadcaster or cable programmer
encounters Year 2000 problems that result in the interruption of its signal, TWE
will be unable to provide that signal to its cable customers. Moreover, TWE is
dependent, like all large companies, on the continued functioning of basic,
heavily computerized services such as banking and telephony. TWE is making
considerable efforts to ensure that the third parties on which it is heavily
reliant are Year 2000 compliant, but cannot predict the likelihood of such
compliance occurring nor the direct or indirect costs to TWE of non-compliance
by those third parties or of securing such services from compliant third
parties. However, TWE believes that it is in no worse position, and likely a
better one, than most U.S.-based companies of its size with respect to the
potential for Year 2000 problems and their impact.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This filing, together
with management's public commentary related thereto, contains such
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, particularly statements anticipating future
growth in revenues, EBITA and cash flow and forecasting ongoing debt reduction.
Words such as "anticipate", "estimate", "expects", "projects", "intends",
"plans", "believes" and words and terms of similar substance used in connection
with any discussion of future operating or financial performance identify such
forward-looking statements. Those forward-looking statements are management's
present expectations of future events. As with any projection or forecast, they
are inherently susceptible to changes in circumstances, and TWE is under no
obligation to (and expressly disclaims any such obligation to) update or alter
its forward-looking statements despite such changes.
TWE operates in highly competitive, consumer driven and rapidly
changing media and entertainment businesses that are dependent on government
regulation and economic, political, social conditions in the countries in which
they operate, consumer demand for their products and services and (particularly
in view of technological changes) protection of their intellectual property
rights. TWE's actual results could differ materially from management's
expectations because of changes in such factors. Some of the other factors that
also could cause actual results to differ from those contained in the
forward-looking statements include those identified in TWE's other filings and:
For TWE's cable business, more aggressive than expected competition from
new technologies and other types of video programming distributors,
including DBS; increases in government regulation of cable or equipment
rates or other terms of service (or any failure to reduce rate regulation
as is presently mandated by statute) or opposition to franchise renewals;
the failure of new equipment (such as digital set-top boxes) or services to
function properly, to appeal to enough consumers or to be delivered in a
timely fashion; and greater than expected increases in programming or other
costs.
For TWE's cable programming and television businesses, greater than
expected programming or production costs; public and cable operator
resistance to price increases to offset higher programming costs (and the
negative impact on premium programmers of increases in basic cable rates);
the sensitivity of advertising to
49
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
economic cyclicality; and greater than expected fragmentation of consumer
viewership due to an increased number of programming services or the
increased popularity of alternatives to television.
For TWE's film and television businesses, their ability to continue to
attract and select desirable talent and scripts at manageable costs;
increases in production costs generally; fragmentation of consumer leisure
and entertainment time (and its possible negative effects on the broadcast
and cable networks, which are significant customers of these businesses);
continued popularity of merchandising; and the uncertain impact of
technological developments such as DVD and the Internet.
In addition, TWE's overall financial strategy, including improved
financial ratios and a strengthened balance sheet, could be adversely affected
by increased interest rates, failure to meet earnings expectations, Year 2000
compliance failures and changes in TWE's plans, strategies and intentions.
50
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- -------
(MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents........................................................................ $ 72 $ 322
Receivables, including $556 and $385 million due from Time Warner,
less allowances of $410 and $424 million................................................ 2,199 1,914
Inventories................................................................................. 1,226 1,204
Prepaid expenses............................................................................ 183 182
--- ---
Total current assets........................................................................ 3,680 3,622
Noncurrent inventories...................................................................... 2,364 2,254
Loan receivable from Time Warner............................................................ 400 400
Investments................................................................................. 543 315
Property, plant and equipment............................................................... 6,360 6,557
Cable television franchises................................................................. 4,061 3,063
Goodwill.................................................................................... 4,114 3,859
Other assets................................................................................ 631 661
------ ----
Total assets................................................................................ $22,153 $20,731
======= =======
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable............................................................................ $ 864 $ 1,123
Participations and programming costs payable................................................ 1,340 1,176
Debt due within one year.................................................................... 7 8
Other current liabilities, including $274 and $184 million due to Time Warner............... 1,653 1,667
------- ------
Total current liabilities................................................................... 3,864 3,974
Long-term debt.............................................................................. 6,771 5,990
Other long-term liabilities, including $740 and $477 million due to Time Warner............. 2,670 1,873
Minority interests.......................................................................... 1,477 1,210
Preferred stock of subsidiary holding solely a mortgage note of its parent.................. 225 233
Time Warner General Partners' Senior Capital................................................ 1,163 1,118
PARTNERS' CAPITAL
Contributed capital......................................................................... 7,537 7,537
Undistributed partnership earnings (deficit)................................................ (1,554) (1,204)
------ -----
Total partners' capital..................................................................... 5,983 6,333
------ -----
Total liabilities and partners' capital..................................................... $22,153 $20,731
======= =======
</TABLE>
See accompanying notes.
51
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -----------------
1998 1997 1998 1997
------------------- -----------------
(MILLIONS)
<S> <C> <C> <C> <C>
Revenues (a)....................................................... $2,850 $2,728 $5,760 $5,328
------ ------ ------ ------
Cost of revenues (a)(b)............................................ 1,806 1,782 3,752 3,447
Selling, general and administrative (a)(b)......................... 589 626 1,184 1,232
------ ------ ------ ------
Operating expenses................................................. 2,395 2,408 4,936 4,679
------ ------ ------ ------
Business segment operating income.................................. 455 320 824 649
Interest and other, net (a)........................................ (183) (139) (347) (10)
Minority interest.................................................. (82) (56) (146) (164)
Corporate services (a)............................................. (18) (18) (36) (36)
------ ------ ------ ------
Income before income taxes......................................... 172 107 295 439
Income taxes....................................................... (17) (25) (32) (37)
------ ------ ------ ------
Net income......................................................... $ 155 $ 82 $ 263 $ 402
====== ====== ====== ======
</TABLE>
- ---------------
(a) Includes the following income (expenses) resulting from transactions with
the partners of TWE and other related companies for the three and six
months ended June 30, 1998, respectively, and for the corresponding periods
in the prior year: revenues-$118 million and $247 million in 1998, $55
million and $121 million in 1997; cost of revenues-$(55) million and $(93)
million in 1998, $(26) million and $(36) million in 1997; selling, general
and administrative-$(3) million and $(2) million in 1998, $21 million and
$40 million in 1997; interest and other, net-$3 million and $5 million in
1998, $5 million and $17 million in 1997; and corporate services-$(18)
million and $(36) million in each of 1998 and 1997.
<TABLE>
<S> <C> <C> <C> <C>
(b) Includes depreciation and amortization expense of:............. $356 $328 $727 $652
==== ==== ==== ====
</TABLE>
See accompanying notes.
52
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------
1998 1997
---- ----
(MILLIONS)
<S> <C> <C>
OPERATIONS
Net income.................................................................................. $263 $ 402
Adjustments for noncash and nonoperating items:
Depreciation and amortization............................................................... 727 652
Changes in operating assets and liabilities................................................. (404) (638)
---- -----
Cash provided by operations................................................................. 586 416
---- -----
INVESTING ACTIVITIES
Investments and acquisitions................................................................ (265) (62)
Capital expenditures........................................................................ (734) (734)
Investment proceeds......................................................................... 506 371
---- -----
Cash used by investing activities........................................................... (493) (425)
---- -----
FINANCING ACTIVITIES
Borrowings.................................................................................. 503 428
Debt repayments............................................................................. (492) (323)
Issuance of preferred stock of subsidiary................................................... - 243
Capital distributions....................................................................... (298) (203)
Other....................................................................................... (56) (59)
---- -----
Cash provided (used) by financing activities................................................ (343) 86
---- -----
INCREASE (DECREASE) IN CASH AND EQUIVALENTS................................................. (250) 77
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................................................. 322 216
---- -----
CASH AND EQUIVALENTS AT END OF PERIOD....................................................... $ 72 $293
==== =====
</TABLE>
See accompanying notes.
53
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF PARTNERSHIP CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------
1998 1997
---- -----
(MILLIONS)
<S> <C> <C>
BALANCE AT BEGINNING OF YEAR................................................................ $6,333 $6,574
Net income.................................................................................. 263 402
Other comprehensive income (loss)........................................................... (16) (14)
----- -----
Comprehensive income........................................................................ 247 388
Distributions............................................................................... (552) (369)
Allocation of income to Time Warner General Partners' Senior Capital........................ (45) (62)
----- -----
BALANCE AT JUNE 30,......................................................................... $5,983 $6,531
====== ======
</TABLE>
See accompanying notes.
54
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
Time Warner Entertainment Company, L.P., a Delaware limited partnership
("TWE"), classifies its businesses into three fundamental areas: Entertainment,
consisting principally of interests in filmed entertainment, television
production and television broadcasting; Cable Networks, consisting principally
of interests in cable television programming; and Cable, consisting principally
of interests in cable television systems.
The operating results of TWE's various business interests are presented
herein as an indication of financial performance (Note 5). Except for start-up
losses incurred in connection with The WB Network, TWE's principal business
interests generate significant operating income and cash flow from operations.
The cash flow from operations generated by such business interests is
considerably greater than their operating income due to significant amounts of
noncash amortization of intangible assets recognized principally in Time Warner
Companies, Inc.'s ("Time Warner") $14 billion acquisition of Warner
Communications Inc. ("WCI") in 1989 and $1.3 billion acquisition of the minority
interest in American Television and Communications Corporation ("ATC") in 1992,
a portion of which cost was allocated to TWE upon the capitalization of the
partnership. Noncash amortization of intangible assets recorded by TWE's
businesses amounted to $130 million and $105 million in the three months ended
June 30, 1998 and 1997, respectively and $258 million and $212 million for the
six months ended June 30, 1998 and 1997, respectively.
Time Warner and certain of its wholly owned subsidiaries collectively
own general and limited partnership interests in TWE consisting of 74.49% of the
pro rata priority capital ("Series A Capital") and residual equity capital
("Residual Capital"), and 100% of the senior priority capital ("Senior Capital")
and junior priority capital ("Series B Capital"). The remaining 25.51% limited
partnership interests in the Series A Capital and Residual Capital of TWE are
held by a subsidiary of MediaOne Group, Inc. ("MediaOne"), formerly U S WEST,
Inc. Certain of Time Warner's subsidiaries are the general partners of TWE
("Time Warner General Partners").
BASIS OF PRESENTATION
The accompanying financial statements are unaudited but, in the opinion
of management, contain all the adjustments (consisting of those of a normal
recurring nature) considered necessary to present fairly the financial position
and the results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles applicable to interim
periods. The accompanying financial statements should be read in conjunction
with the audited consolidated financial statements of TWE for the year ended
December 31, 1997. Certain reclassifications have been made to the prior year's
financial statements to conform to the 1998 presentation.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"), effective for years beginning after June 15, 1999, with early application
encouraged. The new rules establish standards requiring that all derivative
financial instruments, such as foreign exchange contracts, be recognized and
measured at fair value regardless of the purpose or intent for holding them.
TWE plans to adopt FAS 133 effective as of July 1, 1998, and it is not expected
that the adoption will have a material effect on TWE's financial statements.
55
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
2. ACQUISITIONS AND DISPOSITIONS
CABLE TRANSACTIONS
In addition to continuing to use cable operating cash flow to finance
the level of capital spending necessary to upgrade the technological capability
of their cable television systems and develop new services, Time Warner, TWE and
the TWE-Advance/Newhouse Partnership ("TWE-A/N") have completed a series of
transactions in 1998 related to the cable television business and related
ancillary businesses that either reduced existing debt and/or TWE's share of
future funding requirements for such businesses. These transactions are
discussed more fully below.
BUSINESS TELEPHONY REORGANIZATION
In July 1998, in an effort to combine their business telephony
operations into a single entity that is intended to be self-financing, Time
Warner, TWE and TWE-A/N completed a reorganization of their business telephony
operations (the "Business Telephony Reorganization"), whereby (i) the operations
conducted by Time Warner, TWE and TWE-A/N were each contributed to a new holding
company named Time Warner Telecom LLC ("TW Telecom"), and then (ii) TWE's and
TWE-A/N's interests in TW Telecom were distributed to their partners, Time
Warner, MediaOne and Advance/Newhouse. TW Telecom is a competitive local
exchange carrier (CLEC) in selected metropolitan areas across the United States
where it offers a wide range of telephony services to business customers. As a
result of the Business Telephony Reorganization, Time Warner, MediaOne and
Advance/Newhouse own interests in TW Telecom of 61.95%, 18.88% and 19.17%,
respectively. TWE and TWE-A/N do not have continuing equity interests in these
business telephony operations. TWE and TWE-A/N recorded the distribution of
their business telephony operations to their respective partners based on the
approximate $235 million historical cost of the net assets.
ROAD RUNNER JOINT VENTURE
In June 1998, Time Warner, TWE, TWE-A/N, MediaOne, Microsoft Corp.
("Microsoft) and Compaq Computer Corp. ("Compaq") formed a joint venture to
operate and expand Time Warner Cable's and MediaOne's existing high-speed
internet access businesses (the "Road Runner'TM' Joint Venture"). In exchange
for contributing their existing high-speed Internet access businesses, Time
Warner received a common equity interest in the Road Runner Joint Venture of
11.25%, TWE received a 25% interest, TWE-A/N received a 32.5% interest and
MediaOne received a 31.25% interest. In exchange for Microsoft and Compaq each
contributing $212.5 million of cash to the Road Runner Joint Venture, Microsoft
and Compaq each received a preferred equity interest therein that is convertible
into a 10% common equity interest. Accordingly, on a fully diluted basis, the
Road Runner Joint Venture is owned 9% by Time Warner, 20% by TWE, 26% by
TWE-A/N, 25% by MediaOne, 10% by Microsoft and 10% by Compaq. Each of TWE's and
TWE-A/N's interest in the Road Runner Joint Venture is being accounted for under
the equity method of accounting.
Primestar
In April 1998, TWE and Advance/Newhouse, a limited partner in TWE-A/N,
transferred the direct broadcast satellite operations conducted by TWE and
TWE-A/N (the "DBS Operations") and the 31% partnership interest in
56
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Primestar Partners, L.P. held by TWE-A/N ("Primestar" and collectively, the
"Primestar Assets") to Primestar, Inc. ("New Primestar"), a separate holding
company. New Primestar owns the DBS Operations and Primestar partnership
interests formerly owned by TCI Satellite Entertainment, Inc. and other
previously existing partners of Primestar. In exchange for contributing its
interests in the Primestar Assets, TWE received an approximate 24% equity
interest in New Primestar and realized approximately $240 million of debt
reduction. In partial consideration for contributing its indirect interest in
certain of the Primestar Assets, Advance/Newhouse received an approximate 6%
equity interest in New Primestar. As a result of this transaction, effective as
of April 1, 1998, TWE deconsolidated the DBS Operations and the 24% equity
interest in New Primestar received in the transaction is being accounted for
under the equity method of accounting. This transaction is referred to herein as
the "Primestar Roll-up Transaction".
In a related transaction, Primestar also entered into an agreement in
June 1997 with The News Corporation Limited ("News Corp."), MCI
Telecommunications Corporation ("MCI") and American Sky Broadcasting LLC
("ASkyB"), pursuant to which New Primestar would acquire certain assets relating
to the high-power, direct broadcast satellite business of ASkyB (the "Primestar
ASkyB Transaction"). In exchange for such assets, ASkyB would receive non-voting
securities of New Primestar that would be convertible into non-voting common
stock of New Primestar and, accordingly, would reduce TWE's equity interest in
New Primestar to approximately 16% on a fully diluted basis. In May 1998, the
U.S. Department of Justice brought a civil action against Primestar, each of its
cable owners, including TWE, and News Corp. and MCI, to enjoin on antitrust
grounds the Primestar ASkyB Transaction. The parties have had discussions with
the U.S. Department of Justice in an attempt to restructure the transaction and
reach a resolution on such matters, but there can be no assurance that an
agreement can be reached or that necessary governmental and regulatory approvals
will be obtained.
TWE-A/N Transfers
In early 1998, Time Warner (through a wholly owned subsidiary)
contributed cable television systems (or interests therein) serving
approximately 650,000 subscribers to TWE-A/N, subject to approximately $1
billion of debt, in exchange for common and preferred partnership interests
therein, and completed certain related transactions (collectively, the "TWE-A/N
Transfers"). The cable television systems transferred to TWE-A/N were formerly
owned by TWI Cable Inc. ("TWI Cable"), a wholly owned subsidiary of Time Warner,
and Paragon Communications ("Paragon"), a partnership formerly owning cable
television systems serving approximately 1 million subscribers that was wholly
owned by subsidiaries of Time Warner, with 50% beneficially owned in the
aggregate by TWE and TWE-A/N. The debt assumed by TWE-A/N has been guaranteed by
TWI Cable and certain of its subsidiaries, including Paragon.
As part of the TWE-A/N Transfers, TWE and TWE-A/N exchanged
substantially all of their respective beneficial interests in Paragon for an
equivalent share of Paragon's cable television systems (or interests therein)
serving approximately 500,000 subscribers, resulting in wholly owned
subsidiaries of Time Warner owning 100% of the restructured Paragon entity, with
less than 1% beneficially held for TWE. Accordingly, effective as of January 1,
1998, Time Warner has consolidated Paragon. Because this transaction represented
an exchange of TWE's and TWE-A/N's beneficial interests in Paragon for an
equivalent amount of its cable television systems, it did not have a significant
economic impact on Time Warner, TWE or TWE-A/N.
57
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
In connection with the TWE-A/N Transfers, Advance/Newhouse made a
capital contribution to TWE-A/N in order to maintain its 33.3% common
partnership interest therein. Accordingly, TWE-A/N is now owned 65.3% by TWE,
33.3% by Advance/Newhouse and 1.4% indirectly by Time Warner. The TWE-A/N
Transfers were accounted for effective as of January 1, 1998. Time Warner did
not recognize a gain or loss on the TWE-A/N Transfers. TWE has continued to
consolidate TWE-A/N and Time Warner has accounted for its interest in TWE-A/N
under the equity method of accounting.
On a pro forma basis, giving effect to the TWE-A/N Transfers as if they
had occurred at the beginning of 1997, TWE would have reported for the three and
six months ended June 30, 1997, respectively, revenues of $2.742 billion and
$5.358 billion, depreciation expense of $225 million and $443 million, operating
income before noncash amortization of intangible assets of $455 million and $920
million, operating income of $334 million and $676 million, and net income of
$82 million and $400 million.
Sale or Exchange of Cable Television Systems
In 1998 and 1997, in an effort to enhance their geographic clustering of cable
television properties, TWE sold or exchanged various cable television systems.
As a result of these transactions, TWE recognized net, pretax gains of
approximately $70 million for the three months ended June 30, 1998, and
approximately $84 million and $24 million for the six months ended June 30, 1998
and 1997, respectively. Such amounts have been included in operating income in
the accompanying consolidated statement of operations.
SIX FLAGS
In April 1998, TWE sold its remaining 49% interest in Six Flags
Entertainment Corporation ("Six Flags") to Premier Parks Inc. ("Premier"), a
regional theme park operator, for approximately $475 million of cash. TWE used
the net, after-tax proceeds from this transaction to reduce debt by
approximately $300 million. As part of the transaction, TWE will continue to
license its animated cartoon and comic book characters to Six Flags's theme
parks and will similarly license such rights to Premier's theme parks in the
United States and Canada under a long-term agreement covering an aggregate of
twenty-five existing and all future locations. A substantial portion of the gain
on this transaction has been deferred principally as a result of TWE's
continuing guarantees of certain significant long-term obligations of Six Flags
relating to the Six Flags Over Texas and Six Flags Over Georgia theme parks.
E! ENTERTAINMENT TELEVISION, INC.
In March 1997, TWE sold its 58% interest in E! Entertainment
Television, Inc. A pretax gain of approximately $250 million relating to this
sale has been included in the accompanying consolidated statement of operations
for the six months ended June 30, 1997.
58
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
3. INVENTORIES
TWE's inventories consist of:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
---------------------- ---------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- ----------
(MILLIONS)
<S> <C> <C> <C> <C>
Film costs:
Released, less amortization..................................... $ 487 $ 686 $ 545 $ 658
Completed and not released...................................... 241 67 170 50
In process and other............................................ 59 701 27 595
Library, less amortization...................................... - 586 - 612
Programming costs, less amortization............................... 366 324 382 339
Merchandise........................................................ 73 - 80 -
------ ------ ------ ------
Total.............................................................. $1,226 $2,364 $1,204 $2,254
====== ====== ====== ======
</TABLE>
4. PARTNERS' CAPITAL
TWE is required to make distributions to reimburse the partners for
income taxes at statutory rates based on their allocable share of taxable
income, and to reimburse Time Warner for stock options granted to employees of
TWE based on the amount by which the market price of Time Warner Inc. common
stock exceeds the option exercise price on the exercise date or, with respect to
options granted prior to the TWE capitalization on September 30, 1992, the
greater of the exercise price and the $27.75 market price of Time Warner Inc.
common stock at the time of the TWE capitalization. TWE accrues a stock option
distribution and a corresponding liability with respect to unexercised options
when the market price of Time Warner Inc. common stock increases during the
accounting period, and reverses previously accrued stock option distributions
and the corresponding liability when the market price of Time Warner Inc. common
stock declines.
During the six months ended June 30, 1998, TWE accrued $138 million of
tax-related distributions and $414 million of stock option distributions, based
on closing prices of Time Warner common stock of $85.44 at June 30, 1998 and
$62.00 at December 31, 1997. During the six months ended June 30, 1997, TWE
accrued $192 million of tax-related distributions and $177 million of stock
option distributions as a result of an increase at that time in the market price
of Time Warner Inc. common stock. In the six months ended June 30, 1998, TWE
paid distributions to the Time Warner General Partners in the amount of $298
million, consisting of $138 million of tax-related distributions and $160
million of stock option related distributions. In the six months ended June 30,
1997, TWE paid the Time Warner General Partners distributions in the amount of
$203 million, consisting of $192 million of tax-related distributions and $11
million of stock option related distributions. In July 1998, TWE borrowed $579
million under its bank credit agreement and paid a distribution to the Time
Warner General Partners relating to their Senior Capital interests.
59
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
5. SEGMENT INFORMATION
TWE classifies its businesses into three fundamental areas:
Entertainment, consisting principally of interests in filmed entertainment,
television production and television broadcasting; Cable Networks, consisting
principally of interests in cable television programming; and Cable, consisting
principally of interests in cable television systems.
Information as to the operations of TWE in different business segments
is set forth below based on the nature of the products and services offered. TWE
evaluates performance based on several factors, of which the primary financial
measure is business segment operating income before noncash amortization of
intangible assets ("EBITA"). The operating results of TWE's cable segment
reflects the TWE-A/N Transfers effective as of January 1, 1998 and the Primestar
Roll-up Transaction effective as of April 1, 1998.
Information as to the operations of TWE in different business segments
is set forth below.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- ------------------
1998 1997 1998 1997
------- ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C>
REVENUES
Filmed Entertainment-Warner Bros................................... $1,327 $1,254 $2,637 $2,426
Broadcasting-The WB Network........................................ 61 29 106 53
Cable Networks-HBO................................................. 509 487 1,021 970
Cable.............................................................. 1,084 1,066 2,237 2,086
Intersegment elimination........................................... (131) (108) (241) (207)
------ ------ ------ ------
Total.............................................................. $2,850 $2,728 $5,760 $5,328
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- ------------------
1998 1997 1998 1997
------- ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C>
EBITA(1)
Filmed Entertainment-Warner Bros................................... $121 $103 $ 240 $209
Broadcasting-The WB Network........................................ (23) (19) (61) (39)
Cable Networks-HBO................................................. 113 98 222 189
Cable(2)........................................................... 374 243 681 502
---- ---- ------ ----
Total.............................................................. $585 $425 $1,082 $861
==== ==== ====== ====
</TABLE>
- ---------------
(1) EBITA represents business segment operating income before noncash
amortization of intangible assets. After deducting amortization of
intangible assets, TWE's business segment operating income for the three and
six months ended June 30, 1998, respectively, and for the corresponding
periods in the prior year was $455 million and $824 million in 1998 and $320
million and $649 million in 1997.
(2) Includes net pretax gains relating to the sale or exchange of certain cable
television systems of approximately $70 million recognized in the second
quarter of 1998, and approximately $84 million and $24 million for the six
months ended June 30, 1998 and 1997, respectively.
60
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Filmed Entertainment-Warner Bros................................... $ 38 $ 41 $ 78 $ 81
Broadcasting-The WB Network........................................ - 1 - 1
Cable Networks-HBO................................................. 5 5 10 10
Cable.............................................................. 183 176 381 348
---- ---- ---- ----
Total.............................................................. $226 $223 $469 $440
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
AMORTIZATION OF INTANGIBLE ASSETS (1)
Filmed Entertainment-Warner Bros................................... $ 33 $ 30 $ 66 $ 61
Broadcasting-The WB Network........................................ 1 - 2 -
Cable Networks-HBO................................................. - - - -
Cable.............................................................. 96 75 190 151
---- ---- ---- ----
Total.............................................................. $130 $105 $258 $212
==== ==== ==== ====
</TABLE>
- --------------
(1) Amortization includes amortization relating to all business combinations
accounted for by the purchase method, including Time Warner's $14 billion
acquisition of WCI in 1989 and $1.3 billion acquisition of the minority
interest in ATC in 1992.
6. COMMITMENTS AND CONTINGENCIES
Pending legal proceedings are substantially limited to litigation
incidental to the businesses of TWE. In the opinion of management, the ultimate
resolution of these matters will not have a material effect on the consolidated
financial statements of TWE.
7. ADDITIONAL FINANCIAL INFORMATION
Additional financial information with respect to cash flows is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------
1998 1997
---- ----
(MILLIONS)
<S> <C> <C>
Interest expense................................. $273 $235
Cash payments made for interest.................. 260 243
Cash payments made for income taxes, net......... 39 35
Noncash capital distributions.................... 414 177
</TABLE>
Noncash investing activities in the first six months of 1998 included
the TWE-A/N Transfers, the Primestar Roll-up Transaction and the exchange of
certain cable television systems (Note 2). During the six months ended June 30,
1998, TWE received $135 million of proceeds under its asset securitization
program.
61
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On May 12, 1998, the U.S. Department of Justice brought a civil action
in the United States District Court for the District of Columbia against
Primestar, Inc. ("Primestar"), each of its cable company owners, including TWE,
and The News Corporation Limited and MCI Telecommunications Corporation, to
enjoin on antitrust grounds Primestar's proposed acquisition of certain assets
relating to the high-power, direct broadcast satellite business of American Sky
Broadcasting LLC. For further information with respect to such proposed
acquisition, see Footnote 2 "Cable Transactions," to Time Warner's consolidated
financial statements included herein.
Reference is made to the fifteen TBS shareholder actions filed in
Georgia in connection with the TBS Transaction described on pages I-37 and I-38
of Time Warner's Annual Report on Form 10-K for the year ended December 31, 1997
(the "1997 Form 10-K"). On June 10, 1998, the Georgia Court of Appeal affirmed
the lower court's grant of defendants' motion for summary judgment on
plaintiffs' fourth amended complaint and defendants' motion for final judgment
on plaintiffs' third amended complaint. Plaintiffs have not sought reargument or
further appeal within the time allotted; this matter is therefore concluded.
On September 13, 1995, Francis Ford Coppola, Fred Fuchs and FFC, Inc.
("Coppola") filed a lawsuit in the Superior Court of California, County of Los
Angeles, against Warner Bros. entitled Coppola v. Warner Bros., alleging that
Warner Bros. unlawfully interfered with Coppola's efforts to develop with
another film studio a previously unproduced film project based on "Pinocchio."
Among other things, Coppola asked that the Court declare that any prior
agreement between Coppola and Warner Bros. to produce the film was void or that
it be rescinded. In 1997, the Court granted the plaintiffs' motion to declare
that any alleged agreement between Warner Bros. and Coppola was void under the
Copyright Act's statute of frauds provision. On June 1, 1998 the case went to
trial and on July 2, 1998, the jury found in Coppola's favor with respect to the
interference claims and awarded $20 million compensatory damages; on July 9,
1998, the jury awarded $60 million in punitive damages for these claims.
Warner Bros. intends to move for judgment notwithstanding the verdict and for
a new trial, which motions will be decided no later than 60 days after judgment
is entered. If the motions are denied, Warner Bros. intends to appeal the jury
verdict.
Reference is made to the litigation entitled Samuel D. Moore, et al. v.
American Federation of Television and Radio Artists, et al., described on pages
I-36 and I-37 of the 1997 Form 10-K. By Order dated June 22, 1998, the Court
granted plaintiffs' motion to certify its Order denying class certification for
appeal to the 11th Circuit Court of Appeals, and granted plaintiffs' motion for
entry of judgment pursuant to Rule 54(b) on the ERISA claims against the Record
Company Defendants. Based on the Court's Order, plaintiffs have filed a motion
with the 11th Circuit Court of Appeals seeking interlocutory review of the
Court's Order denying class certification, which motion was opposed by the
Record Company Defendants.
Reference is made to the purported class action entitled Ottinger &
Silvey, et. al., v. EMI Music Distribution, Inc., Sony Music Entertainment,
Inc., Warner Elektra Atlantic Corporation, UNI Distribution Corporation,
Bertelsmann Music Group, Inc., and Polygram Group Distribution, Inc. described
on page I-39 of the 1997 Form 10-K. On May 11, 1998, Warner Elektra Atlantic
Corporation and other defendants filed a motion to dismiss the complaint for
failure to state a cause of action.
62
<PAGE>
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
(a) The Annual Meeting of Stockholders of Time Warner was held on May
14, 1998 (the "1998 Annual Meeting").
(b) The following were elected directors of Time Warner at the 1998
Annual Meeting:
Merv Adelson
J. Carter Bacot
Stephen F. Bollenbach
John C. Danforth
Beverly Sills Greenough
Gerald Greenwald
Carla A. Hills
Gerald M. Levin
Reuben Mark
Michael A. Miles
Richard D. Parsons
R. E. Turner
Francis T. Vincent, Jr.
(c) The following matters were voted upon at the 1998 Annual Meeting:
(i) Election of directors for terms expiring in 1998:
<TABLE>
<CAPTION>
Broker
For Withheld Non-Votes
--- -------- ---------
<S> <C> <C> <C>
Merv Adelson 485,869,848 3,251,849 0
J. Carter Bacot 486,212,414 2,909,283 0
Stephen F. Bollenbach 486,209,353 2,912,344 0
John C. Danforth 486,116,915 3,004,782 0
Beverly Sills Greenough 485,838,218 3,283,479 0
Gerald Greenwald 486,256,067 2,865,630 0
Carla A. Hills 486,110,015 3,011,682 0
Gerald M. Levin 485,892,172 3,229,525 0
Reuben Mark 486,219,783 2,901,914 0
Michael A. Miles 486,004,035 3,117,662 0
Richard D. Parsons 486,152,557 2,969,140 0
R. E. Turner 486,166,621 2,955,076 0
Francis T. Vincent, Jr. 485,994,809 3,126,888 0
</TABLE>
(ii) Approval of the appointment of Ernst & Young LLP as
independent auditors of Time Warner for 1998:
<TABLE>
<CAPTION>
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
<S> <C> <C> <C>
487,219,458 521,459 810,159 0
</TABLE>
(d) Not applicable.
63
<PAGE>
<PAGE>
ITEM 5. OTHER INFORMATION.
Time Warner's By-laws establish an advance notice procedure with regard
to stockholder proposals to be brought before an annual meeting of stockholders
that are not included in Time Warner's proxy statement. To be presented at Time
Warner's 1999 annual meeting, notice of such a proposal must be received by the
Secretary of the Company after January 14, 1999 but no later than March 4, 1999
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 May 14, 1999, notice must be received not earlier than the 120th 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.
Stockholder proposals that the proponent wishes to have included in
Time Warner's proxy statement for consideration at the 1999 annual meeting are
covered by separate procedures as described in Time Warner's proxy statement for
its 1998 annual meeting and must generally be submitted to the Secretary of the
Company no later than November 23, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as a part of this report and such Exhibit Index is
incorporated herein by reference.
(b) Reports on Form 8-K.
No Current Report on Form 8-K was filed by Time Warner during the
quarter ended June 30, 1998.
64
<PAGE>
<PAGE>
TIME WARNER INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIME WARNER INC.
(Registrant)
By: /s/ Richard J. Bressler
------------------------------------
Name: Richard J. Bressler
Title: Executive Vice President and
Chief Financial Officer
Dated: August 10, 1998
<PAGE>
<PAGE>
EXHIBIT INDEX
Pursuant to Item 601 of Regulations S-K
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
4 Indenture dated as of June 1, 1998 among the Registrant, Time
Warner Companies, Inc., Turner Broadcasting System, Inc. and
The Chase Manhattan Bank, as Trustee.
27 Financial Data Schedule.
</TABLE>
<PAGE>
<PAGE>
================================================================================
TIME WARNER INC.,
TIME WARNER COMPANIES, INC.,
as Guarantor
TURNER BROADCASTING SYSTEM, INC.,
as Guarantor
and
THE CHASE MANHATTAN BANK,
Trustee
INDENTURE
Dated as of June 1, 1998
-----------------
Providing for Issuance of Senior Securities in Series
================================================================================
<PAGE>
<PAGE>
Table Showing Reflection in Indenture of Certain Provisions
of Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990
--------------------
Reflected in Indenture
<TABLE>
<CAPTION>
TIA Section
<S> <C>
'SS'310(a)(1)............................................................... 6.09
(a)(2)............................................................... 6.09
(a)(3)............................................................... Not Applicable
(a)(4)............................................................... Not Applicable
(a)(5)............................................................... 6.09
(b).................................................................. 6.08
'SS'311(a).................................................................. 6.13(a)
(b).................................................................. 6.13(b)
(b)(2)............................................................... 7.03(a)
..................................................................... 7.03(b)
'SS'312(a).................................................................. 7.01
..................................................................... 7.02(a)
(b).................................................................. 7.03(b)
(c).................................................................. 7.02(c)
'SS'313(a).................................................................. 7.03(a)
(b).................................................................. 7.03(b)
(c).................................................................. 7.03(a)
..................................................................... 7.03(b)
(d).................................................................. 7.03(c)
'SS'314(a)(1)............................................................... 7.04
(a)(2)............................................................... 7.04
(a)(3)............................................................... 7.04
(a)(4)............................................................... 10.04
(b).................................................................. Not Applicable
(c)(1)............................................................... 1.02
(c)(2)............................................................... 1.02
(c)(3)............................................................... Not Applicable
(d).................................................................. Not Applicable
(e).................................................................. 1.02
'SS'315(a).................................................................. 6.01(a)
..................................................................... 6.01(c)
(b).................................................................. 6.02
..................................................................... 7.03(a)
(c).................................................................. 6.01(b)
</TABLE>
<PAGE>
<PAGE>
2
<TABLE>
<S> <C>
(d).................................................................. 6.01
(d)(1)............................................................... 6.01(a)
(d)(2)............................................................... 6.01(c)(2)
(d)(3)............................................................... 6.01(c)(3)
(e).................................................................. 5.14
'SS'316(a).................................................................. 1.01
(a)(1)(A)............................................................ 5.02
..................................................................... 5.12
(a)(1)(B)............................................................ 5.13
(a)(2)............................................................... Not Applicable
(b).................................................................. 5.08
(c).................................................................. 1.04(d)
'SS'317(a)(1)............................................................... 5.03
(a)(2)............................................................... 5.04
(b).................................................................. 10.03
'SS' 318(a)................................................................. 1.07
</TABLE>
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Recitals of the Company................................................... 1
Agreements of the Parties................................................. 1
ARTICLE I
Definitions and Other Provisions of General Application
SECTION 1.01. Definitions........................................... 1
SECTION 1.02. Compliance Certificates and
Opinions........................................... 15
SECTION 1.03. Form of Documents Delivered to
Trustee............................................ 15
SECTION 1.04. Acts of Securityholders............................... 16
SECTION 1.05. Notices, etc., to Trustee and
Company............................................ 18
SECTION 1.06. Notices to Securityholders; Waiver.................... 19
SECTION 1.07. Conflict with Trust Indenture Act..................... 19
SECTION 1.08. Effect of Headings and Table of
Contents........................................... 19
SECTION 1.09. Successors and Assigns................................ 19
SECTION 1.10. Separability Clause................................... 20
SECTION 1.11. Benefits of Indenture................................. 20
SECTION 1.12. Governing Law......................................... 20
SECTION 1.13. Counterparts.......................................... 20
SECTION 1.14. Judgment Currency..................................... 20
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally....................................... 21
SECTION 2.02. Forms of Securities................................... 21
SECTION 2.03. Form of Trustee's Certificate of
Authentication..................................... 22
SECTION 2.04. Securities Issuable in the Form of a
Global Security.................................... 22
ARTICLE III
The Securities
SECTION 3.01. General Title; General Limitations;
Issuable in Series; Terms of
Particular Series.................................. 24
</TABLE>
i
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
SECTION 3.02. Denominations.......................................... 28
SECTION 3.03. Execution, Authentication and
Delivery and Dating................................. 28
SECTION 3.04. Temporary Securities................................... 30
SECTION 3.05. Registration, Transfer and
Exchange............................................ 31
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen
Securities.......................................... 33
SECTION 3.07. Payment of Interest; Interest Rights
Preserved........................................... 33
SECTION 3.08. Persons Deemed Owners.................................. 35
SECTION 3.09. Cancelation............................................ 35
SECTION 3.10. Computation of Interest................................ 36
SECTION 3.11. Delayed Issuance of Securities......................... 36
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of
Indenture........................................... 37
SECTION 4.02. Application of Trust Money............................. 38
SECTION 4.03. Defeasance Upon Deposit of Funds or
Government Obligations.............................. 39
SECTION 4.04. Reinstatement.......................................... 41
ARTICLE V
Remedies
SECTION 5.01. Events of Default...................................... 42
SECTION 5.02. Acceleration of Maturity; Rescission
and Annulment....................................... 45
SECTION 5.03. Collection of Indebtedness and Suits
for Enforcement by Trustee.......................... 47
SECTION 5.04. Trustee May File Proofs of Claim....................... 48
SECTION 5.05. Trustee May Enforce Claims Without
Possession of Securities............................ 49
SECTION 5.06. Application of Money Collected......................... 49
SECTION 5.07. Limitation on Suits.................................... 49
SECTION 5.08. Unconditional Right of Securityholders
To Receive Principal, Premium and
Interest............................................. 50
SECTION 5.09. Restoration of Rights and Remedies..................... 51
SECTION 5.10. Rights and Remedies Cumulative......................... 51
SECTION 5.11. Delay or Omission Not Waiver........................... 51
</TABLE>
ii
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5.12. Control by Securityholders............................. 51
SECTION 5.13. Waiver of Past Defaults................................ 52
SECTION 5.14. Undertaking for Costs.................................. 52
SECTION 5.15. Waiver of Stay or Extension Laws....................... 53
ARTICLE VI
The Trustee
SECTION 6.01. Certain Duties and Responsibilities.................... 53
SECTION 6.02. Notice of Defaults..................................... 54
SECTION 6.03. Certain Rights of Trustee.............................. 55
SECTION 6.04. Not Responsible for Recitals or
Issuance of Securities.............................. 56
SECTION 6.05. May Hold Securities.................................... 57
SECTION 6.06. Money Held in Trust.................................... 57
SECTION 6.07. Compensation and Reimbursement......................... 57
SECTION 6.08. Disqualification; Conflicting
Interests........................................... 58
SECTION 6.09. Corporate Trustee Required;
Eligibility......................................... 58
SECTION 6.10. Resignation and Removal................................ 59
SECTION 6.11. Acceptance of Appointment by
Successor.............................................. 61
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business.............................. 62
SECTION 6.13. Preferential Collection of Claims
Against Company..................................... 62
SECTION 6.14. Appointment of Authenticating Agent.................... 67
ARTICLE VII
Securityholders' Lists and Reports by Trustee and Company
SECTION 7.01. Company To Furnish Trustee Names and
Addresses of Securityholders........................ 69
SECTION 7.02. Preservation of Information;
Communications to Securityholders................... 70
SECTION 7.03. Reports by Trustee..................................... 71
SECTION 7.04. Reports by Company..................................... 71
ARTICLE VIII
Consolidation, Merger, Conveyance or Transfer
</TABLE>
iii
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
SECTION 8.01. Consolidation, Merger, Conveyance or
Transfer on Certain Terms............................ 72
SECTION 8.02. Successor Person Substituted............................ 73
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without
Consent of Securityholders........................... 73
SECTION 9.02. Supplemental Indentures with Consent
of Securityholders................................... 75
SECTION 9.03. Execution of Supplemental Indentures.................... 77
SECTION 9.04. Effect of Supplemental Indentures....................... 77
SECTION 9.05. Conformity with Trust Indenture Act..................... 77
SECTION 9.06. Reference in Securities to
Supplemental Indentures.............................. 77
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and
Interest............................................. 77
SECTION 10.02. Maintenance of Office or Agency......................... 78
SECTION 10.03. Money for Security Payments To Be Held
in Trust............................................. 78
SECTION 10.04. Statement as to Compliance.............................. 80
SECTION 10.05. Legal Existence......................................... 80
SECTION 10.06. Limitation on Liens..................................... 80
SECTION 10.07. Waiver of Certain Covenants............................. 84
ARTICLE XI
Redemption of Securities
SECTION 11.01. Applicability of Article................................ 84
SECTION 11.02. Election To Redeem; Notice to
Trustee................................................. 85
SECTION 11.03. Selection by Trustee of Securities To
Be Redeemed.......................................... 85
SECTION 11.04. Notice of Redemption.................................... 86
SECTION 11.05. Deposit of Redemption Price............................. 87
SECTION 11.06. Securities Payable on Redemption Date...................
SECTION 11.07. Securities Redeemed in Part............................. 88
</TABLE>
iv
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 11.08. Provisions with Respect to Any Sinking
Funds................................................ 88
SECTION 11.09. Rescission of Redemption................................ 90
ARTICLE XII
Conversion
SECTION 12.01. Conversion Privilege.................................... 91
SECTION 12.02. Conversion Procedure; Rescission of
Conversion; Conversion Price;
Fractional Shares.................................... 92
SECTION 12.03. Adjustment of Conversion Price for
Common Stock or Marketable
Securities........................................... 95
SECTION 12.04. Consolidation or Merger of the
Company............................................. 99
SECTION 12.05. Notice of Adjustment.................................... 100
SECTION 12.06. Notice in Certain Events................................ 100
SECTION 12.07. Company To Reserve Stock or other
Marketable Securities; Registration;
Listing.............................................. 101
SECTION 12.08. Taxes on Conversion..................................... 102
SECTION 12.09. Conversion After Record Date............................ 102
SECTION 12.10. Corporate Action Regarding Par Value
of Common Stock...................................... 103
SECTION 12.11. Company Determination Final............................. 103
SECTION 12.12. Trustee's Disclaimer.................................... 103
ARTICLE XIII
Guarantees
SECTION 13.01. Guarantees.............................................. 104
</TABLE>
v
<PAGE>
<PAGE>
1
THIS INDENTURE between TIME WARNER INC., a
Delaware corporation (hereinafter called the
"Company") having its principal office at 75
Rockefeller Plaza, New York, New York 10019, TIME
WARNER COMPANIES, INC., a Delaware corporation
("TWC"), TURNER BROADCASTING SYSTEM, INC., a Georgia
corporation ("TBS" and together with TWC, the
"Guarantors"), and THE CHASE MANHATTAN BANK, a New
York banking corporation, trustee (hereinafter called
the "Trustee"), is made and entered into as of the
1st day of June, 1998.
Recitals of the Company
The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance of its debentures, notes, bonds or
other evidences of indebtedness, to be issued in one or more fully registered
series.
All things necessary to make this Indenture a valid agreement
of the Company, TWC and TBS in accordance with its terms, have been done.
Agreements of the Parties
To set forth or to provide for the establishment of the terms
and conditions upon which the Securities are and are to be authenticated, issued
and delivered, and in consideration of the premises and the purchase of
Securities by the Holders thereof, it is mutually covenanted and agreed as
follows, for the equal and proportionate benefit of all Holders of the
Securities or of a series thereof, as the case may be:
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 1.01. Definitions. For all purposes of
this Indenture and of any indenture supplemental hereto,
<PAGE>
<PAGE>
2
except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act or by Commission rule under the Trust Indenture Act,
either directly or by reference therein, have the meanings assigned to
them herein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles and any
accounting rules or interpretations promulgated by the Commission as
are generally accepted in the United States of America at the date of
this Indenture; and
(4) all references in this instrument to designated
"Articles", "Sections" and other subdivisions are to the designated
Articles, Sections and other subdivisions of this instrument as
originally executed. The words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision.
Certain terms, used principally in Article VI, are defined in
that Article.
"Act", when used with respect to any Securityholder, has the
meaning specified in Section 1.04.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
<PAGE>
<PAGE>
3
"Authenticating Agent" means any Person authorized by the
Trustee to authenticate Securities under Section 6.14.
"Board of Directors" means (i) the board of directors of the
Company, (ii) any duly authorized committee of such board, (iii) any committee
of officers of the Company or (iv) any officer of the Company acting, in the
case of (iii) or (iv), pursuant to authority granted by the board of directors
of the Company or any committee of such board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means, with respect to any series of
Securities, unless otherwise specified in a Board Resolution and an Officer's
Certificate with respect to a particular series of Securities, each day which is
not a Saturday, Sunday or other day on which banking institutions in the
pertinent Place or Places of Payment or the city in which the Corporate Trust
Office is located are authorized or required by law or executive order to be
closed.
"Closing Price" of the Common Stock or other Marketable
Security, as the case may be, shall mean the last reported sale price of such
stock or other Marketable Security (regular way) as shown on the Composite Tape
of the NYSE (or, if such stock or other Marketable Security is not listed or
admitted to trading on the NYSE, on the principal national securities exchange
on which such stock or other Marketable Security is listed or admitted to
trading), or, in case no such sale takes place on such day, the average of the
closing bid and asked prices on the NYSE (or, if such stock or other Marketable
Security is not listed or admitted to trading on the NYSE, on the principal
national securities exchange on which such stock or other Marketable Security is
listed or admitted to trading), or, if it is not listed or admitted to trading
on any national securities exchange, the average of the closing bid and asked
prices as reported by the National Association of Securities Dealers Automated
Quotation System (NASDAQ), or if such stock or other Marketable Security is not
so reported, the average of the closing bid and asked prices as furnished by any
member of the National Association of Securities Dealers, Inc., selected from
time to time by the Company for that purpose.
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4
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, or, if at any time after the execution of this instrument such Commission
is not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Stock" shall mean the class of Common Stock, par value
$.01 per share, of the Company authorized at the date of this Indenture as
originally signed, or any other class of stock resulting from successive changes
or reclassifications of such Common Stock, and in any such case including any
shares thereof authorized after the date of this Indenture.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Company" shall
mean such successor.
"Company Request", "Company Order" and "Company Consent" mean
a written request, order or consent, respectively, signed in the name of the
Company by its Chairman of the Board, President or a Vice President, and by its
Treasurer, an Assistant Treasurer, Controller, an Assistant Controller,
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Net Worth" means, with respect to any Person, at
the date of any determination, the consolidated stockholders' or owners' equity
of the holders of capital stock or partnership interests of such Person and its
subsidiaries, determined on a consolidated basis in accordance with GAAP
consistently applied.
"Conversion Agent" means any Person authorized by the Company
to receive Securities to be converted into Common Stock or other Marketable
Securities on behalf of the Company. The Company initially authorizes the
Trustee to act as Conversion Agent for the Securities on its behalf. The Company
may at any time and from time to time authorize one or more Persons to act as
Conversion Agent in addition to or in place of the Trustee with respect to any
series of Securities issued under this Indenture.
"Conversion Price" means, with respect to any series of
Securities which are convertible into Common Stock or other Marketable
Securities, the price per share of
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5
Common Stock or the price per designated unit of other Marketable Security at
which the Securities of such series are so convertible as set forth in the Board
Resolution with respect to such series (or in any supplemental indenture entered
into pursuant to Section 9.01(9) with respect to such series), as the same may
be adjusted from time to time in accordance with Section 12.03 (or such
supplemental indenture).
"Converting Holder" shall have the meaning specified in
Section 12.02(c) of this Indenture.
"Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the date hereof is located at 450 West 33rd
Street, 15th Floor, New York, New York 10001.
"Current Market Price" on any date shall mean the average of
the daily Closing Prices per share of Common Stock or of such other Marketable
Securities for any thirty (30) consecutive Trading Days selected by the Company
prior to the day in question, which thirty (30) consecutive Trading Day period
shall not commence more than forty-five (45) Trading Days prior to the day in
question; provided that with respect to Section 12.03(3), the "Current Market
Price" of the Common Stock or of such other Marketable Securities shall mean the
average of the daily Closing Prices per share of common Stock or of such other
Marketable Securities for the five (5) consecutive Trading Days ending on the
date of the distribution referred to in Section 12.03(3) (or if such date shall
not be a Trading Day, on the Trading Day immediately preceding such date).
"Defaulted Interest" has the meaning specified in Section
3.07.
"Depository" means, unless otherwise specified by the Company
pursuant to either Section 2.04 or 3.01, with respect to Securities of any
series issuable or issued as a Global Security, The Depository Trust Company,
New York, New York, or any successor thereto registered as a clearing agency
under the Securities Exchange Act of 1934, as amended, or other applicable
statute or regulation.
"Discharged" has the meaning specified in Section 4.03.
"Event of Default" has the meaning specified in Article V.
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6
"Federal Bankruptcy Act" has the meaning specified in Section
5.01(6).
"GAAP" means generally accepted accounting principles as such
principles are in effect as of the date of this Indenture.
"Global Security", when used with respect to any series of
Securities issued hereunder, means a Security which is executed by the Company
and authenticated and delivered by the Trustee to the Depository or pursuant to
the Depository's instruction, all in accordance with this Indenture and an
indenture supplemental hereto, if any, or Board Resolution and pursuant to a
Company Request, which shall be registered in the name of the Depository or its
nominee and which shall represent, and shall be denominated in an amount equal
to the aggregate principal amount of, all of the Outstanding Securities of such
series or any portion thereof, in either case having the same terms, including,
without limitation, the same original issue date, date or dates on which
principal is due, and interest rate or method of determining interest.
"Guarantee" has the meaning specified in Section 13.01(a).
"Guarantors" means TBS and TWC.
"Holder", when used with respect to any Security, means a
Securityholder.
"Indenture" or "this Indenture" means this instrument as
originally executed or as it may from time to time be supplemented or amended by
one or more indentures supplemental hereto entered into pursuant to the
applicable provisions hereof and shall include the terms of particular series of
Securities established as contemplated by Section 3.01.
"Interest", when used with respect to an Original Issue
Discount Security which by its terms bears interest only after Maturity, means
interest payable after Maturity.
"Interest Payment Date", when used with respect to any series
of Securities, means the Stated Maturity of any installment of interest on those
Securities.
"Marketable Security" means any common stock, debt security or
other security of a Person which is (or will,
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7
upon distribution thereof, be) listed on the NYSE, the American Stock Exchange
or any national securities exchange registered under Section 6 of the Securities
Exchange Act of 1934, as amended, or approved for quotation in the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotations System or any similar system of automated dissemination of quotations
of securities prices in the United States or for which there is a recognized
market maker or trading market.
"Material Subsidiary" means any Person that is a Subsidiary if
at the end of the most recent fiscal quarter of the Company, the aggregate
amount, determined in accordance with GAAP consistently applied, of securities
of, loans and advances to, and other investments in, such Person held by the
Company and its other Subsidiaries exceeded 10% of the Company's Consolidated
Net Worth.
"Material U.S. Subsidiary" means any Material Subsidiary that
is organized under the laws of the United States of America or any political
subdivision thereof (including any State thereof or the District of Columbia).
"Maturity", when used with respect to any Securities, means
the date on which the principal of any such Security becomes due and payable as
therein or herein provided, whether on a Repayment Date, at the Stated Maturity
or by declaration of acceleration, call for redemption or otherwise.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, the President or a Vice President, and by the Treasurer,
an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary
or an Assistant Secretary of the Company, and delivered to the Trustee. Wherever
this Indenture requires that an Officers' Certificate be signed also by an
engineer or an accountant or other expert, such engineer, accountant or other
expert (except as otherwise expressly provided in this Indenture) may be in the
employ of the Company, and shall be acceptable to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may (except as otherwise expressly provided in this Indenture) be an employee of
or of counsel to the Company, which is delivered to the Trustee. Such counsel
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shall be acceptable to the Trustee, whose acceptance shall not be unreasonably
withheld.
"Original Issue Discount Security" means (i) any Security
which provides for an amount less than the principal amount thereof to be due
and payable upon a declaration of acceleration of the Maturity thereof, and (ii)
any other security which is issued with "original issue discount" within the
meaning of Section 1273(a) of the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Outstanding", when used with respect to Securities or
Securities of any series, means, as of the date of determination, all such
Securities theretofore authenticated and delivered under this Indenture, except:
(i) such Securities theretofore canceled by the
Trustee or delivered to the Trustee for cancelation;
(ii) such Securities for whose payment or redemption money in
the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent in trust for the Holders of such Securities; provided
that, if such Securities are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made; and
(iii) such Securities in exchange for or in lieu of which
other Securities have been authenticated and delivered pursuant to this
Indenture, or which shall have been paid pursuant to the terms of
Section 3.06 (except with respect to any such Security as to which
proof satisfactory to the Trustee is presented that such Security is
held by a Person in whose hands such Security is a legal, valid and
binding obligation of the Company).
In determining whether the Holders of the requisite principal amount of such
Securities Outstanding have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, (i) the principal amount of any Original
Issue Discount Security that shall be deemed to be Outstanding shall be the
amount of the principal thereof that would be due and payable as of the date of
the taking of such action upon a declaration of acceleration of the Maturity
thereof, and (ii) Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor shall be
disregarded
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9
and deemed not to be Outstanding. In determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which a Responsible Officer assigned
to the Corporate Trust Department of the Trustee knows to be owned by the
Company or any other obligor upon the Securities or any Affiliate of the Company
or such other obligor shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right to act as
owner with respect to such Securities and that the pledgee is not the Company or
any other obligor upon the Securities or any Affiliate of the Company or such
other obligor.
"Paying Agent" means any Person authorized by the Company to
pay the principal of (and premium, if any) or interest on any Securities on
behalf of the Company. The Company initially authorizes the Trustee to act as
Paying Agent for the Securities on its behalf. The Company may at any time and
from time to time authorize one or more Persons to act as Paying Agent in
addition to or in place of the Trustee with respect to any series of Securities
issued under this Indenture.
"Person" means any individual, corporation, , limited
liability company, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Place of Payment" means with respect to any series of
Securities issued hereunder the city or political subdivision so designated with
respect to the series of Securities in question in accordance with the
provisions of Section 3.01.
"Predecessor Securities" of any particular Security means
every previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this definition,
any Security authenticated and delivered under Section 3.06 in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.
"Redemption Date", when used with respect to any Security to
be redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
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10
"Redemption Price", when used with respect to any Security to
be redeemed, means the price specified in the Security at which it is to be
redeemed pursuant to this Indenture.
"Redemption Rescission Event" shall mean the occurrence of (a)
any general suspension of trading in, or limitation on prices for, securities on
the principal national securities exchange on which shares of Common Stock or
Marketable Securities are registered and listed for trading (or, if shares of
Common Stock or Marketable Securities are not registered and listed for trading
on any such exchange, in the over-the-counter market) for more than
six-and-one-half (6-1/2) consecutive trading hours, (b) any decline in either
the Dow Jones Industrial Average or the S&P's Index of 400 Industrial Companies
(or any successor index published by Dow Jones & Company, Inc. or S&P) by either
(i) an amount in excess of 10%, measured from the close of business on any
Trading Day to the close of business on the next succeeding Trading Day during
the period commencing on the Trading Day preceding the day notice of any
redemption of Securities is given (or, if such notice is given after the close
of business on a Trading Day, commencing on such Trading Day) and ending at the
time and date fixed for redemption in such notice or (ii) an amount in excess of
15% (or if the time and date fixed for redemption is more than 15 days following
the date on which such notice of redemption is given, 20%), measured from the
close of business on the Trading Day preceding the day notice of such redemption
is given (or, if such notice is given after the close of business on a Trading
Day, from such Trading Day) to the close of business on any Trading Day at or
prior-to the time and date fixed for redemption, (c) a declaration of a banking
moratorium or any suspension of payments in respect of banks by Federal or state
authorities in the United States or (d) the commencement of a war or armed
hostilities or other national or international calamity directly or indirectly
involving the United States which in the reasonable judgment of the Company
could have a material adverse effect on the market for the Common Stock or
Marketable Securities.
"Regular Record Date" for the interest payable on any Security
on any Interest Payment Date means the date specified in such Security as the
Regular Record Date.
"Repayment Date", when used with respect to any Security to be
repaid, means the date fixed for such repayment pursuant to such Security.
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11
"Repayment Price", when used with respect to any Security to
be repaid, means the price at which it is to be repaid pursuant to such
Security.
"Required Currency", when used with respect to any Security,
has the meaning set forth in Section 1.14.
"Responsible Officer", when used with respect to the Trustee,
means any officer of the Trustee with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"S&P" means Standard & Poor's Ratings Service or any successor
to the rating agency business thereof.
"Security" or "Securities" means any note or notes, bond or
bonds, debenture or debentures, or any other evidences of indebtedness, as the
case nay be, of any series authenticated and delivered from time to time under
this Indenture.
"Security Register" shall have the meaning specified in
Section 3.05.
"Security Registrar" means the Person who keeps the Security
Register specified in Section 3.05. The Company initially appoints the Trustee
to act as Security Registrar for the Securities on its behalf. The Company may
at any time and from time to time authorize any Person to act as Security
Registrar in place of the Trustee with respect to any series of Securities
issued under this Indenture.
"Securityholder" means a Person in whose name a security is
registered in the Security Register.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity" when used with respect to any Security or
any installment of principal thereof or interest thereon means the date
specified in such Security as the fixed date on which the principal of such
Security or such installment of principal or interest is due and payable.
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12
"Subsidiary" means, with respect to any Person, any
corporation more than 50% of the voting stock of which is owned directly or
indirectly by such Person, and any partnership, association, joint venture or
other entity in which such Person owns more than 50% of the equity interests or
has the power to elect a majority of the board of directors or other governing
body.
"TBS" means Turner Broadcasting System, Inc., a Georgia
corporation and wholly owned subsidiary of the Company, until a successor shall
have become such pursuant to the applicable provisions of this Indenture, and
thereafter "TBS" shall mean such successor.
"Trading Day" shall mean, with respect to the Common Stock or
a Marketable Security, so long as the common stock or such Marketable Security,
as the case may be, is listed or admitted to trading on the NYSE, a day on which
the NYSE is open for the transaction of business, or, if the Common Stock or
such Marketable Security, as the case may be, is not listed or admitted to
trading on the NYSE, a day on which the principal national securities exchange
on which the Common Stock or such Marketable Security, as the case may be, is
listed is open for the transaction of business, or, if the Common Stock or such
Marketable Security, as the case may be, is not so listed or admitted for
trading on any national securities exchange, a day on which NASDAQ is open for
the transaction of business.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939 as in force at the date as of which this instrument was executed;
provided, however, that, in the event the Trust Indenture Act of 1939 is amended
after such date, "Trust Indenture Act" or "TIA" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the Trustee in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean and include each Person who is then a Trustee hereunder. If
at any time there is more than one such Person, "Trustee" as used with respect
to the Securities of any series shall mean the Trustee with respect to
Securities of that series.
"TWC" means Time Warner Companies, Inc., a Delaware
corporation and wholly owned subsidiary of the Company, until a successor shall
have become such pursuant
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13
to the applicable provisions of this Indenture, and thereafter "TWC" shall mean
such successor.
"TWE" means Time Warner Entertainment Company, L.P., a
Delaware limited partnership and subsidiary of TWC.
"Vice President" when used with respect to the Company or the
Trustee means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president", including,
without limitation, an assistant vice president.
"Voting Stock", as applied to the stock of any corporation,
means stock of any class or classes (however designated) having by the terms
thereof ordinary voting power to elect a majority of the members of the board of
directors (or other governing body) of such corporation other than stock having
such power only by reason of the happening of a contingency.
"Works" means motion pictures, video, television, interactive
or multi-media programming, audio-visual works, sound recordings, books and
other literary or written material, any software, copyright or other
intellectual property related thereto, acquired directly or indirectly after the
date of this Indenture by purchase, business combination, production, creation
or otherwise, any component of the foregoing or rights with respect thereto, and
all improvements thereon, products and proceeds thereof and revenues derived
therefrom.
"Yield to Maturity" means the yield to maturity on a series of
Securities, calculated by the Company at the time of issuance of such series of
Securities, or, if applicable, at the most recent redetermination of interest on
such series, in accordance with accepted financial practice.
SECTION 1.02. Compliance Certificates and Opinions. Upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any (including
any covenants compliance with which constitutes a condition precedent), provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such Counsel all such
conditions precedent, if any (including any covenants compliance with which
constitutes a condition precedent), have been complied with, except that
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14
in the case of any such application or request as to which the furnishing of
such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than annual
statements of compliance provided pursuant to Section 10.04) shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.03. Form of Documents Delivered to Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons may certify or give an opinion as to the other matters, and any such
Person may certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel
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15
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company, unless such Counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 1.04. Acts of Securityholders. (a) Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by Securityholders or
Securityholders of any series may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Securityholders in
person or by an agent duly appointed in writing or may be embodied in or
evidenced by an electronic transmission which identifies the documents
containing the proposal on which such consent is requested and certifies such
Securityholders' consent thereto and agreement to be bound thereby; and, except
as herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee, and, where it is
hereby expressly required, to the Company. If any Securities are denominated in
coin or currency other than that of the United States, then for the purposes of
determining whether the Holders of the requisite principal amount of Securities
have taken any action as herein described, the principal amount of such
Securities shall be deemed to be that amount of United States dollars that could
be obtained for such principal amount on the basis of the spot rate of exchange
into United States dollars for the currency in which such Securities are
denominated (as evidenced to the Trustee by an Officers' Certificate) as of the
date the taking of such action by the Holders of such requisite principal amount
is evidenced to the Trustee as provided in the immediately preceding sentence.
If any Securities are Original Issue Discount Securities, then for the purposes
of determining whether the Holders of the requisite principal amount of
Securities have taken any action as herein described, the principal amount of
such Original Issue Discount Securities shall be deemed to be the amount of the
principal thereof that would be due and payable upon a declaration of
acceleration of the Maturity
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16
thereof as of the date the taking of such action by the Holders of such
requisite principal amount is evidenced to the Trustee as provided in the first
sentence of this Section 1.04(a). Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Securityholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 6.01)
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness to such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by an officer of a corporation or a member of a partnership, on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority. The fact and date of the
execution of any such instrument or writing, or the authority of the person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.
(c) The ownership of Securities shall be proved by the
Security Register.
(d) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, by Board Resolution, fix in advance a record date
for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other action, but the
Company shall have no obligation to do so. Such record date shall be the later
of 10 days prior to the first solicitation of such action or the date of the
most recent list of Holders furnished to the Trustee pursuant to Section 7.01.
If such a record date is fixed, such request, demand, authorization, direction,
notice, consent, waiver or other action may be given before or after the record
date, but only the Holders of record at the close of business on the record date
shall be deemed to be Holders for the purposes of determining whether Holders of
the requisite proportion of Securities outstanding have authorized or agreed or
consented to such request, demand, authorization, direction, notice, consent,
waiver or other
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17
action, and for that purpose the Securities outstanding shall be computed as of
the record date; provided that no such authorization, agreement or consent by
the Holders on the record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than six months
after the record date, and that no such authorization, agreement or consent may
be amended, withdrawn or revoked once given by a Holder, unless the Company
shall provide for such amendment, withdrawal or revocation in conjunction with
such solicitation of authorizations, agreements or consents or unless and to the
extent required by applicable law.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Security shall bind the
Holder of every Security issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done or suffered to
be done by the Trustee or the Company in reliance thereon whether or not
notation of such action is made upon such Security.
SECTION 1.05. Notices, etc., to Trustee and Company. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Securityholders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with:
(1) the Trustee by any Securityholder or by the Company shall
be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Department; or
(2) the Company by the Trustee or by any Securityholder shall
be sufficient for every purpose hereunder (except as provided in
Section 5.01(4) and (5) or, in the case of a request for repayment, as
specified in the Security carrying the right to repayment) if in
writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this instrument, Attention: Treasurer, or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 1.06. Notices to Securityholders; Waiver. Where this
Indenture or any Security provides for notice to Securityholders of any event,
such notice shall be sufficiently given (unless otherwise herein or in such
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18
Security expressly provided) if in writing and mailed, first-class postage
prepaid, to each Securityholder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Securityholders is given by mail, neither the failure to
mail such notice, nor any defect in any notice so mailed, to any particular
Securityholder shall affect the sufficiency of such notice with respect to other
Securityholders. Where this Indenture or any Security provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Securityholders shall be filed
with the Trustee, but such filing shall not be a condition precedent to the
validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or otherwise, it shall be impractical to
mail notice of any event to any Securityholder when such notice is required to
be given pursuant to any provision of this Indenture, then any method of
notification as shall be satisfactory to the Trustee and the Company shall be
deemed to be a sufficient giving of such notice.
SECTION 1.07. Conflict with Trust Indenture Act. If and to the
extent that any provision hereof limits, qualifies or conflicts with the duties
imposed by, or with another provision (an "incorporated provision") included in
this Indenture by operation of, any of Sections 310 to 318, inclusive, of the
Trust Indenture Act, such imposed duties or incorporated provision shall
control.
SECTION 1.08. Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.09. Successors and Assigns. All covenants and
agreements in this Indenture by the Company and the Guarantors shall bind their
respective successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause. In case any provision in
this Indenture or in the Securities shall be invalid, illegal or unenforceable,
the validity, legality
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19
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 1.11. Benefits of Indenture. Nothing in this Indenture
or in any Securities, express or implied, shall give to any Person, other than
the parties hereto and their successors hereunder, any Authenticating Agent or
Paying Agent, the Security Registrar and the Holders of Securities (or such of
them as may be affected thereby), any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 1.12. Governing Law. This Indenture shall be construed
in accordance with and governed by the laws of the State of New York.
SECTION 1.13. Counterparts. This instrument may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 1.14. Judgment Currency. The Company agrees, to the
fullest extent that it may effectively do so under applicable law, that (a) if
for the purpose of obtaining judgment in any court it is necessary to convert
the sum due in respect of the principal of, or premium or interest, if any, on
the Securities of any series (the "Required Currency") into a currency in which
a judgment will be rendered (the "Judgment Currency"), the rate of exchange used
shall be the rate at which in accordance with normal banking procedures the
Trustee could purchase in the City of New York the Required Currency with the
Judgment Currency on the New York Banking Day preceding that on which a final
unappealable judgment is given and (b) its obligations under this Indenture to
make payments in the Required Currency (i) shall not be discharged or satisfied
by any tender, or any recovery pursuant to any judgment (whether or not entered
in accordance with subsection (a)), in any currency other than the Required
Currency, except to the extent that such tender or recovery shall result in the
actual receipt, by the payee, of the full amount of the Required Currency
expressed to be payable in respect of such payments, (ii) shall be enforceable
as an alternative or additional cause of action for the purpose of recovering in
the Required Currency the amount, if any, by which such actual receipt shall
fall short of the full amount of the Required Currency so expressed to be
payable and (iii) shall not be affected by judgment being obtained for any other
sum due under this Indenture. For purposes of the foregoing,
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"New York Banking Day" means any day except a Saturday, Sunday or a legal
holiday in the City of New York or a day on which banking institutions in the
City of New York are authorized or required by law or executive order to close.
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally. The Securities shall have such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon,
as may be required to comply with the rules of any securities exchange, or as
may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of the Securities. Any portion of
the text of any Security may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities, subject, with respect to the Securities of any series, to the rules
of any securities exchange on which such Securities are listed.
SECTION 2.02. Forms of Securities. Each Security shall be in
one of the forms approved from time to time by or pursuant to a Board
Resolution, or established in one or more indentures supplemental hereto. Prior
to the delivery of a Security to the Trustee for authentication in any form
approved by or pursuant to a Board Resolution, the Company shall deliver to the
Trustee the Board Resolution by or pursuant to which such form of Security has
been approved, which Board Resolution shall have attached thereto a true and
correct copy of the form of Security which has been approved thereby or, if a
Board Resolution authorizes a specific officer or officers to approve a form of
Security, a certificate of such officer or officers approving the form of
Security attached thereto. Any form of Security approved by or pursuant to a
Board Resolution must be acceptable as to form to the Trustee, such acceptance
to be evidenced by the Trustee's authentication of Securities in that form or a
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21
certificate signed by a Responsible Officer of the Trustee and delivered to the
Company.
SECTION 2.03. Form of Trustee's Certificate of
Authentication. The form of Trustee's Certificate of Authentication for any
Security issued pursuant to this Indenture shall be substantially as follows:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, as
Trustee
by
-----------------------
Authorized Officer
SECTION 2.04. Securities Issuable in the Form of a Global
Security. (a) If the Company shall establish pursuant to Sections 2.02 and 3.01
that the Securities of a particular series are to be issued in whole or in part
in the form of one or more Global Securities, then the Company shall execute and
the Trustee or its agent shall, in accordance with Section 3.03 and the Company
Order delivered to the Trustee or its agent thereunder, authenticate and
deliver, such Global Security or Securities, which (i) shall represent, and
shall be denominated in an amount equal to the aggregate principal amount of,
the Outstanding Securities of such series to be represented by such Global
Security or Securities, or such portion thereof as the Company shall specify in
a Company Order, (ii) shall be registered in the name of the Depository for such
Global Security or Securities or its nominee, (iii) shall be delivered by the
Trustee or its agent to the Depository or pursuant to the Depository's
instruction and (iv) shall bear a legend substantially to the following effect:
"Unless this certificate is presented by an authorized representative of the
Depository to Issuer or its agent for registration of transfer, exchange, or
payment, and any certificate issued is registered in the name of the nominee of
the Depository or in such other name as is requested by an authorized
representative of the Depository (and any payment is made to the nominee of the
Depository or to such other entity as is requested by an authorized
representative of the Depository), ANY TRANSFER, PLEDGE, OR OTHER USE
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22
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, the nominee of the Depository, has an interest herein."
(b) Notwithstanding any other provision of this Section 2.04
or of Section 3.05, and subject to the provisions of paragraph (c) below, unless
the terms of a Global Security expressly permit such Global Security to be
exchanged in whole or in part for individual Securities, a Global Security may
be transferred, in whole but not in part and in the manner provided in Section
3.05, only to a nominee of the Depository for such Global Security, or to the
Depository, or a successor Depository for such Global Security selected or
approved by the Company, or to a nominee of such successor Depository.
(c) (i) If at any time the Depository for a Global Security
notifies the Company that it is unwilling or unable to continue as Depository
for such Global Security or if at any time the Depository for the Securities for
such series shall no longer be eligible or in good standing under the Securities
Exchange Act of 1934, as amended, or other applicable statute or regulation, the
Company shall appoint a successor Depository with respect to such Global
Security. If a successor Depository for such Global Security is not appointed by
the Company within 90 days after the Company receives such notice or becomes
aware of such ineligibility, the Company will execute, and the Trustee or its
agent, upon receipt of a Company Request for the authentication and delivery of
individual Securities of such series in exchange for such Global Security, will
authenticate and deliver, individual Securities of such series of like tenor and
terms in an aggregate principal amount equal to the principal amount of the
Global Security in exchange for such Global Security.
(ii) The Company may at any time and in its sole discretion
determine that the Securities of any series or portion thereof issued or
issuable in the form of one or more Global Securities shall no longer be
represented by such Global Security or Securities. In such event the Company
will execute, and the Trustee, upon receipt of a Company Request for the
authentication and delivery of individual Securities of such series in exchange
in whole or in part for such Global Security, will authenticate and deliver
individual Securities of such series of like tenor and terms in definitive form
in an aggregate principal amount equal to the principal amount of such Global
Security or Securities representing such series or portion thereof in exchange
for such Global Security or Securities.
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(iii) If specified by the Company pursuant to Sections 2.02
and 3.02 with respect to Securities issued or issuable in the form of a Global
Security, the Depository for such Global Security may surrender such Global
Security in exchange in whole or in part for individual Securities of such
series of like tenor and terms in definitive form on such terms as are
acceptable to the Company and such Depository. Thereupon the Company shall
execute, and the Trustee or its agent shall authenticate and deliver, without
service charge, (1) to each Person specified by such Depository a new Security
or Securities of the same series of like tenor and terms and of any authorized
denomination as requested by such Person in aggregate principal amount equal to
and in exchange for such Person's beneficial interest as specified by such
Depository in the Global Security; and (2) to such Depository a new Global
Security of like tenor and terms and in an authorized denomination equal to the
difference, if any, between the principal amount of the surrendered Global
Security and the aggregate principal amount of Securities delivered to Holders
thereof.
(iv) In any exchange provided for in any of the preceding
three paragraphs, the Company will execute and the Trustee or its agent will
authenticate and deliver individual Securities in definitive registered form in
authorized denominations. Upon the exchange of the entire principal amount of a
Global Security for individual Securities, such Global Security shall be
canceled by the Trustee or its agent. Except as provided in the preceding
paragraph, Securities issued in exchange for a Global Security pursuant to this
Section shall be registered in such names and in such authorized denominations
as the Depository for such Global Security, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Trustee or the
Security Registrar. The Trustee or the Security Registrar shall deliver at its
Corporate Trust Office such Securities to the Persons in whose names such
Securities are so registered.
ARTICLE III
The Securities
SECTION 3.01. General Title; General Limitations; Issuable in
Series; Terms of Particular Series. The aggregate principal amount of Securities
which may be authenticated and delivered and Outstanding under this Indenture is
not limited.
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The Securities may be issued in one or more series as from
time to time may be authorized by the Board of Directors. There shall be
established in or pursuant to a Board Resolution or in a supplemental indenture,
subject to Section 3.11, prior to the issuance of Securities of any such series:
(1) the title of the Securities of such series (which shall
distinguish the Securities of such series from Securities of any other
series);
(2) the Person to whom any interest on a Security of such
series shall be payable, if other than the Person in whose name that
Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest;
(3) the date or dates on which the principal of the Securities
of such series is payable;
(4) the rate or rates at which the Securities of such series
shall bear interest, if any, the date or dates from which such interest
shall accrue, the Interest Payment Dates on which any such interest
shall be payable and the Regular Record Date for any interest payable
on any Interest Payment Date;
(5) the place or places where the principal of and any premium
and interest on Securities of such series shall be payable;
(6) the period or periods within which, the Redemption Price
or Prices or the Repayment Price or Prices, as the case may be, at
which and the terms and conditions upon which Securities of such series
may be redeemed or repaid (including the applicability of Section
11.09), as the case may be, in whole or in part, at the option of the
Company or the Holder;
(7) the obligation, if any, of the Company to purchase
Securities of such series pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof and the period or
periods within which, the price or prices at which and the terms and
conditions upon which Securities of such series shall be purchased, in
whole or in part, pursuant to such obligation;
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25
(8) if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which Securities of such series
shall be issuable;
(9) provisions, if any, with regard to the conversion or
exchange of the Securities of such series, at the option of the Holders
thereof or the Company, as the case may be, for or into new Securities
of a different series, Common Stock or other securities and, if the
Securities of such series are convertible into common stock or other
Marketable Securities, the Conversion Price therefor;
(10) if other than U.S. dollars, the currency or currencies or
units based on or related to currencies in which the Securities of such
series shall be denominated and in which payments of principal of, and
any premium and interest on, such Securities shall or may be payable;
(11) if the principal of (and premium, if any) or interest, if
any, on the Securities of such series are to be payable, at the
election of the Company or a Holder thereof, in a coin or currency
(including a composite currency) other than that in which the
Securities are stated to be payable, the period or periods within
which, and the terms and conditions upon which, such election may be
made;
(12) if the amount of payments of principal of (and premium,
if any) or interest, if any, on the Securities of such series may be
determined with reference to an index based on a coin or currency
(including a composite currency) other than that in which the
Securities are stated to be payable, the manner in which such amounts
shall be determined;
(13) any limit upon the aggregate principal amount of the
Securities of such series which may be authenticated and delivered
under this Indenture (except for Securities authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of,
other Securities of such series pursuant to Section 3.04, 3.05, 3.06,
9.06, 11.07 and 12.02 and except for any Securities which, pursuant to
Section 3.03, are deemed never to have been authenticated and delivered
hereunder);
(14) provisions, if any, with regard to the exchange of
Securities of such series, at the option of
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26
the Holders thereof, for other Securities of the same series of the
same aggregate principal amount or of a different authorized series or
different authorized denomination or denominations, or both;
(15) provisions, if any, with regard to the appointment by the
Trustee of an Authenticating Agent in one or more places other than the
location of the office of the Trustee with power to act on behalf of
the Trustee and subject to its direction in the authentication and
delivery of the Securities of any one or more series in connection with
such transactions as shall be specified in the provisions of this
Indenture or in or pursuant to such Board Resolution or supplemental
indenture;
(16) the portion of the principal amount of Securities of the
series, if other than the principal amount thereof, which shall be
payable upon declaration of acceleration of the Maturity thereof
pursuant to Section 5.02 or provable in bankruptcy pursuant to Section
5.04;
(17) any Event of Default with respect to the Securities of
such series, if not set forth herein, and any additions, deletions or
other changes to the Events of Default set forth herein that shall be
applicable to the Securities of such series;
(18) any covenant solely for the benefit of the Securities of
such series and any additions, deletions or other changes to the
provisions of Article X or Section 1.01 or any definitions relating to
such Article that would otherwise be applicable to the Securities of
such series;
(19) if Section 4.03 of this Indenture shall not be applicable
to the Securities of such series and if Section 4.03 shall be
applicable to any covenant or Event of Default established in or
pursuant to a Board Resolution or in a supplemental indenture as
described above that has not already been established herein;
(20) if the Securities of such series shall be issued in whole
or in part in the form of a Global Security or Securities, the terms
and conditions, if any, upon which such Global Security or Securities
may be exchanged in whole or in part for other individual Securities;
and the Depository for such Global Security or Securities; and
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27
(21) any other terms of such series.
all upon such terms as may be determined in or pursuant to such Board Resolution
or supplemental indenture with respect to such series.
The form of the Securities of each series shall be established
pursuant to the provisions of this Indenture in or pursuant to the Board
Resolution or in the supplemental indenture creating such series. The Securities
of each series shall be distinguished from the Securities of each other series
in such manner, reasonably satisfactory to the Trustee, as the Board of
Directors may determine.
Unless otherwise provided with respect to Securities of a
particular series, the Securities of any series may only be issuable in
registered form, without coupons.
Any terms or provisions in respect of the Securities of any
series issued under this Indenture may be determined pursuant to this Section by
providing for the method by which such terms or provisions shall be determined.
SECTION 3.02. Denominations. The Securities of each series
shall be issuable in such denominations and currency as shall be provided in the
provisions of this Indenture or in or pursuant to the Board Resolution or the
supplemental indenture creating such series. In the absence of any such
provisions with respect to the Securities of any series, the Securities of that
series shall be issuable only in fully registered form in denominations of
$1,000 and any integral multiple thereof.
SECTION 3.03. Execution, Authentication and Delivery and
Dating. The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its President, one of its Vice Presidents or its
Treasurer under its corporate seal reproduced thereon and attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and
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28
delivery of such Securities or did not hold such offices at the date of such
Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication; and the Trustee shall, upon Company
Order, authenticate and deliver such Securities as in this Indenture provided
and not otherwise.
Prior to any such authentication and delivery, the Trustee
shall be entitled to receive, in addition to any Officers' Certificate and
Opinion of Counsel required to be furnished to the Trustee pursuant to Section
1.02, and the Board Resolution and any certificate relating to the issuance of
the series of Securities required to be furnished pursuant to Section 2.02, an
Opinion of Counsel stating that:
(1) all instruments furnished to the Trustee conform to the
requirements of the Indenture and constitute sufficient authority
hereunder for the Trustee to authenticate and deliver such Securities;
(2) the form and terms of such Securities have been
established in conformity with the provisions of this Indenture;
(3) all laws and requirements with respect to the execution
and delivery by the Company of such Securities have been complied with,
the Company has the corporate power to issue such Securities and such
Securities have been duly authorized and delivered by the Company and,
assuming due authentication and delivery by the Trustee, constitute
legal, valid and binding obligations of the Company enforceable in
accordance with their terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium or other
laws and legal principles affecting creditors' rights generally from
time to time in effect and to general equitable principles, whether
applied in an action at law or in equity) and entitled to the benefits
of this Indenture, equally and ratably with all other Securities, if
any, of such series Outstanding;
(4) the Indenture is qualified under the Trust Indenture Act;
and
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29
(5) such other matters as the Trustee may reasonably request;
and, if the authentication and delivery relates to a new series of Securities
created by an indenture supplemental hereto, also stating that all laws and
requirements with respect to the form and execution by the Company of the
supplemental indenture with respect to that series of Securities have been
complied with, the Company has corporate power to execute and deliver any such
supplemental indenture and has taken all necessary corporate action for those
purposes and any such supplemental indenture has been executed and delivered and
constitutes the legal, valid and binding obligation of the Company enforceable
in accordance with its terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium or other laws and
legal principles affecting creditors' rights generally from time to time in
effect and to general equitable principles, whether applied in an action at law
or in equity).
The Trustee shall not be required to authenticate such
Securities if the issue thereof will adversely affect the Trustee's own rights,
duties or immunities under the Securities and this Indenture.
Unless otherwise provided in the form of Security for any
series, all Securities shall be dated the date of their authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein executed by the Trustee by manual signature, and such certificate upon
any Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder. Notwithstanding
the foregoing, if any Security shall have been authenticated and delivered
hereunder but never issued and sold by the Company, and the Company shall
deliver such Security to the Trustee for cancelation as provided in Section
3.09, for all purposes of this Indenture such Security shall be deemed never to
have been authenticated and delivered hereunder and shall never be entitled to
the benefits of this Indenture.
SECTION 3.04. Temporary Securities. Pending the preparation of
definitive Securities of any series, the Company may execute, and, upon receipt
of the documents required by Section 3.03, together with a Company Order, the
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Trustee shall authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company
will cause definitive Securities of such series to be prepared without
unreasonable delay. After the preparation of definitive Securities, the
temporary Securities of such series shall be exchangeable for definitive
Securities of such series upon surrender of the temporary Securities of such
series at the office or agency of the Company in a Place of Payment, without
charge to the Holder; and upon surrender for cancelation of any one or more
temporary Securities the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of such series of authorized denominations and of like
tenor and terms. Until so exchanged the temporary Securities of such series
shall in all respects be entitled to the same benefits under this Indenture as
definitive Securities of such series.
SECTION 3.05. Registration, Transfer and Exchange. The Company
shall keep or cause to be kept a register or registers (herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities, or of Securities of a particular series, and of transfers of
Securities or of Securities of such series. Any such register shall be in
written form or in any other form capable of being converted into written form
within a reasonable time. At all reasonable times the information contained in
such register or registers shall be available for inspection by the Trustee at
the office or agency to be maintained by the Company as provided in Section
10.02. There shall be only one Security Register per series of Securities.
Subject to Section 2.04, upon surrender for registration of
transfer of any Security of any series at the office or agency of the Company
maintained for such purpose in a Place of Payment, the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of such series of any
authorized denominations,
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31
of a like aggregate principal amount and Stated Maturity and of like tenor and
terms.
Subject to Section 2.04, at the option of the Holder,
Securities of any series may be exchanged for other Securities of such series of
any authorized denominations, of a like aggregate principal amount and Stated
Maturity and of like tenor and terms, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Securityholder making the exchange is entitled
to receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed, by the Holder thereof
or his attorney duly authorized in writing.
Unless otherwise provided in the Security to be registered for
transfer or exchanged, no service charge shall be made on any Securityholder for
any registration of transfer or exchange of Securities, but the Company may
(unless otherwise provided in such Security) require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Security of any series during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of
redemption of Securities of such series selected for redemption under Section
11.03 and ending at the close of business on the date of such mailing, or (ii)
to register the transfer of or exchange any Security so selected for redemption
in whole or in part.
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None of the Company, the Trustee, any agent of the Trustee,
any Paying Agent or the Security Registrar will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests of a Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen
Securities. If (i) any mutilated Security is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and (ii) there is delivered to the
Company and the Trustee such Security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon its written request the Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Security, a new Security of like tenor, series, Stated
Maturity and principal amount, bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of the same series duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
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SECTION 3.07. Payment of Interest; Interest Rights Preserved.
Unless otherwise provided with respect to such Security pursuant to Section
3.01, interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of his having
been such Holder; and, except as hereinafter provided, such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in Clause
(1) or Clause (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names any such Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each such Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 nor less than 10 days prior to the date of the proposed payment and
not less than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the Company of
such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first class
postage prepaid, to the Holder of each such Security at his address as
it appears in the Security Register, not less than 10 days prior to
such Special Record Date. Notice of the
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proposed payment of such Defaulted Interest and the Special Record Date
therefor having been mailed as aforesaid, such Defaulted Interest shall
be paid to the Persons in whose names such Securities (or their
respective Predecessor Securities) are registered on such Special
Record Date and shall no longer be payable pursuant to the following
Clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which such Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the
Trustee.
If any installment of interest the Stated Maturity of which is
on or prior to the Redemption Date for any Security called for redemption
pursuant to Article XI is not paid or duly provided for on or prior to the
Redemption Date in accordance with the foregoing provisions of this Section,
such interest shall be payable as part of the Redemption Price of such
Securities.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 3.08. Persons Deemed Owners. The Company, the Trustee
and any agent of the Company or the Trustee may treat the Person in whose name
any Security is registered as the owner of such Security for the purpose of
receiving payment of principal of (and premium, if any), and (subject to Section
3.07) interest on, such Security and for all other purposes whatsoever, whether
or not such Security be overdue, and neither the Company, the Trustee nor any
agent of the Company or the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the
Security Registrar will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
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35
SECTION 3.09. Cancelation. All Securities surrendered for
payment, conversion, redemption, registration of transfer, exchange or credit
against a sinking fund shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and, if not already canceled, shall be
promptly canceled by it. The Company may at any time deliver to the Trustee for
cancelation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall be promptly canceled by the Trustee. No Security shall be
authenticated in lieu of or in exchange for any Securities canceled as provided
in this Section, except as expressly permitted by this Indenture. The Trustee
shall dispose of all canceled Securities in accordance with its standard
procedures and deliver a certificate of such disposition to the Company.
SECTION 3.10. Computation of Interest. Unless otherwise
provided as contemplated in Section 3.01, interest on the Securities shall be
calculated on the basis of a 360-day year of twelve 30-day months.
SECTION 3.11. Delayed Issuance of Securities. Notwithstanding
any contrary provision herein, if all Securities of a series are not to be
originally issued at one time, it shall not be necessary for the Company to
deliver to the Trustee an Officers' Certificate, Board Resolution, supplemental
indenture, opinion of counsel or Company Order otherwise required pursuant to
Sections 1.02, 2.02, 3.01 and 3.03 at or prior to the time of authentication of
each Security of such series if such documents are delivered to the Trustee or
its agent at or prior to the authentication upon original issuance of the first
Security of such series to be issued; provided that any subsequent request by
the Company to the Trustee to authenticate Securities of such series upon
original issuance shall constitute a representation and warranty by the Company
that as of the date of such request, the statements made in the Officers'
Certificate or other certificates delivered pursuant to Sections 1.02 and 2.02
shall be true and correct as if made on such date.
A Company Order, Officers' Certificate or Board Resolution or
supplemental indenture delivered by the Company to the Trustee in the
circumstances set forth in the preceding paragraph may provide that Securities
which are the subject thereof will be authenticated and delivered by the Trustee
or its agent on original issue from time to time in the aggregate principal
amount, if any, established for
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such series pursuant to such procedures acceptable to the Trustee as may be
specified from time to time by Company Order upon the telephonic, electronic or
written order of Persons designated in such Company Order, Officers'
Certificate, supplemental indenture or Board Resolution (any such telephonic or
electronic instructions to be promptly confirmed in writing by such Persons) and
that such Persons are authorized to determine, consistent with such Company
Order, Officers' Certificate, supplemental indenture or Board Resolution, such
terms and conditions of said Securities as are specified in such Company Order,
Officers' Certificate, supplemental indenture or Board Resolution.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect with respect to any series of
Securities (except as to any surviving rights of conversion or transfer or
exchange of Securities of such series expressly provided for herein or in the
form of Security for such series), and the Trustee, on receipt of a Company
Request and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture as to such series,
when:
(1) either
(A) all Securities of that series theretofore
authenticated and delivered (other than (i) Securities of such
series which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 3.06, and
(ii) Securities of such series for whose payment money in the
Required Currency has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as
provided in Section 10.03) have been delivered to the Trustee
canceled or for cancelation; or
(B) all such Securities of that series not
theretofore delivered to the Trustee canceled or for
cancelation:
(i) have become due and payable, or
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(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption within
one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for the purpose an amount in the Required Currency
sufficient to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee canceled or for
cancelation, for principal (and premium, if any) and interest to the
date of such deposit (in the case of Securities which have become due
and payable), or to the Stated Maturity or Redemption Date, as the case
may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company with respect to the Securities of such
series; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture with respect to the Securities of such
series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture with respect to
any series of Securities, the obligations of the Company to the Trustee with
respect to that series under Section 6.07 shall survive and the obligations of
the Company and the Trustee under Sections 3.05, 3.06, 4.02, 10.02 and 10.03
shall survive.
SECTION 4.02. Application of Trust Money. Subject to the
provisions of the last paragraph of Section 10.03, all money deposited with the
Trustee pursuant to Section 4.01 or Section 4.03 shall be held in trust and
applied by it, in accordance with the provisions of the series of Securities in
respect of which it was deposited and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal (and premium, if any) and interest for whose payment such money
has been
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38
deposited with the Trustee; but such money need not be segregated from other
funds except to the extent required by law.
Anything herein to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or securities deposited with and held by it as provided in Section 4.03
and this Section 4.02 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent satisfaction and discharge,
Discharge or covenant defeasance, provided that the Trustee shall not be
required to liquidate any securities in order to comply with the provisions of
this paragraph.
SECTION 4.03. Defeasance Upon Deposit of Funds or Government
Obligations. Unless pursuant to Section 3.01 provision is made that this Section
shall not be applicable to the Securities of any series, at the Company's
option, either (a) the Company shall be deemed to have been Discharged (as
defined below) from its obligations with respect to any series of Securities
after the applicable conditions set forth below have been satisfied or (b) the
Company shall cease to be under any obligation to comply with any term,
provision or condition set forth in Sections 10.05, and 10.06 and Article VIII
(and any other Sections or covenants applicable to such Securities that are
determined pursuant to Section 3.01 to be subject to this provision), and clause
(5) of Section 5.01 of this Indenture (and any other Events of Default
applicable to such Securities that are determined pursuant to Section 3.01 to be
subject to this provision) shall be deemed not to be an Event of Default, with
respect to any series of Securities at any time after the applicable conditions
set forth below have been satisfied:
(1) the Company shall have deposited or caused to be deposited
irrevocably with the Trustee as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of the Securities of such series (i) money in an amount, or
(ii) the equivalent in securities of the government which issued the
currency in which the Securities are denominated or government agencies
backed by the full faith and credit of such government which through
the payment of interest and principal in respect thereof in accordance
with their terms will provide, not later
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than one day before the due date of any payment, money in an amount, or
(iii) a combination of (i) and (ii), sufficient, in the opinion (with
respect to (ii) and (iii)) of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge each installment
of principal (including mandatory sinking fund payments) and any
premium of, interest on and any repurchase or redemption obligations
with respect to the outstanding Securities of such series on the dates
such installments of interest or principal or repurchase or redemption
obligations are due (before such a deposit, if the Securities of such
series are then redeemable or may be redeemed in the future pursuant to
the terms thereof, in either case at the option of the Company, the
Company may give to the Trustee, in accordance with Section 11.02, a
notice of its election to redeem all of the Securities of such series
at a future date in accordance with Article XI);
(2) no Event of Default or event (including such deposit)
which with notice or lapse of time would become an Event of Default
with respect to the Securities of such series shall have occurred and
be continuing on the date of such deposit;
(3) the Company shall have delivered to the Trustee (A) an
Opinion of Counsel to the effect that Holders of the Securities of such
series will not recognize income, gain or loss for Federal income tax
purposes as a result of the Company's exercise of its option under this
Section 4.03 and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been
the case if such option had not been exercised, and, in the case of
Securities being Discharged, accompanied by a ruling to that effect
from the Internal Revenue Service, unless, as set forth in such Opinion
of Counsel, there has been a change in the applicable federal income
tax law since the date of this Indenture such that a ruling from the
Internal Revenue Service is no longer required and (B) an Opinion of
Counsel, subject to such qualifications, exceptions, assumptions and
limitations as are reasonably deemed necessary by such counsel and are
reasonably satisfactory to counsel for the Trustee, to the effect that
the trust resulting from the deposit referred to in paragraph (1) above
does not violate the Investment Company Act of 1940;
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(4) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit referred to in paragraph
(1) above was not made by the Company with the intent of preferring the
Holders over other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company
or others; and
(5) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture with respect to the Securities of such
series have been complied with.
If the Company, at its option, with respect to a series of
Securities, satisfies the applicable conditions pursuant to either clause (a) or
(b) of the first sentence of this Section, then (x), in the event the Company
satisfies the conditions to clause (a) and elects clause (a) to be applicable,
each of TBS and TWC shall be deemed to have paid and discharged the entire
indebtedness represented by, and obligations under, its respective guarantee of
the Securities of such series and to have satisfied all the obligations under
this Indenture relating to the Securities of such series and (y) in either case,
each of TBS and TWC shall cease to be under any obligation to comply with any
term, provision or condition set forth in Article Eight (and any other covenants
applicable to such Securities that are determined pursuant to Section 3.01 to be
subject to this provision), and clause (5) of Section 5.01 (and any other Events
of Default applicable to such series of Securities that are determined pursuant
to Section 3.01 to be subject to this provision) shall be deemed not to be an
Event of Default with respect to such series of Securities at any time
thereafter.
"Discharged" means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by, and obligations
under, the Securities of such series and to have satisfied all the obligations
under this Indenture relating to the Securities of such series (and the Trustee,
on receipt of a Company Request and at the expense of the Company, shall execute
proper instruments acknowledging the same), except (A) the rights of Holders of
Securities to receive, from the trust fund described in clause (1) above,
payment of the principal and any premium of and any interest on such Securities
when such payments
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41
are due; (B) the Company's obligations with respect to such Securities under
Sections 3.05, 3.06, 4.02, 6.07, 10.02 and 10.03; (C) the Company's right of
redemption, if any, with respect to any Securities of such series pursuant to
Article XI, in which case the Company may redeem the Securities of such series
in accordance with Article XI by complying with such Article and depositing with
the Trustee, in accordance with Section 11.05, an amount of money sufficient,
together with all amounts held in trust pursuant to Section 4.02 with respect to
Securities of such series, to pay the Redemption Price of all the Securities of
such series to be redeemed; and (D) the rights, powers, trusts, duties and
immunities of the Trustee hereunder.
SECTION 4.04. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or securities in accordance with Section 4.02 of this
Indenture, by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's and, if applicable, the
Guarantors' obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 4.01 or
4.03 of this Indenture, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money or securities in accordance
with Section 4.02 of this Indenture; provided that, if the Company has made any
payment of principal of or interest on any Securities because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money or
securities held by the Trustee or Paying Agent.
ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default", wherever
used herein, means with respect to any series of Securities any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body), unless such event is either
inapplicable to a particular series or it is specifically deleted or modified in
or pursuant to the supplemental indenture or Board Resolution creating such
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42
series of Securities or in the form of Security for such series:
(1) default in the payment of any interest upon any Security
of that series when it becomes due and payable, and continuance of such
default for a period of 30 days; or
(2) default in the payment of the principal of (or premium, if
any, on) any Security of that series at its Maturity; or
(3) default in the payment of any sinking or purchase fund or
analogous obligation when the same becomes due by the terms of the
Securities of such series; or
(4) default under any bond, debenture, note, guarantee or
other evidence of indebtedness for money borrowed by the Company, TWC
or TBS (including a default with respect to Securities of any series
other than such series and any indebtedness for borrowed money
guaranteed by the Company) or under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the
Company, TWC or TBS (including this Indenture), whether such
indebtedness now exists or shall hereafter be created, which default
(i) shall constitute a failure to pay the principal of such
indebtedness having an outstanding principal amount in excess of $50
million in the aggregate when due and payable at the final (but not any
interim) maturity thereof after the expiration of any applicable grace
period with respect thereto and the holders of such indebtedness shall
not have waived such default or (ii) shall have resulted in such
indebtedness having an outstanding principal amount in excess of $50
million in the aggregate becoming or being declared due and payable
prior to the date on which it would otherwise have become due and
payable, in either case without such indebtedness having been
discharged, or such acceleration having been rescinded or annulled,
within a period of 60 days after there shall have been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities of such series, a written notice
specifying such default and requiring the Company, TWC or TBS to cause
such indebtedness to be discharged or cause such acceleration to be
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43
rescinded or annulled and stating that such notice is a "Notice of
Default" hereunder; or
(5) default in the performance, or breach, of any covenant or
warranty of the Company, TWC or TBS in this Indenture in respect of the
Securities of such series (other than a covenant or warranty in respect
of the Securities of such series a default in the performance of which
or the breach of which is elsewhere in this Section specifically dealt
with), all of such covenants and warranties in the Indenture which are
not expressly stated to be for the benefit of a particular series of
Securities being deemed in respect of the Securities of all series for
this purpose, and continuance of such default or breach for a period of
90 days after there has been given, by registered or certified mail, to
the Company (or, if applicable, TWC or TBS) by the Trustee or to the
Company (or, if applicable, TWC or TBS) and the Trustee by the Holders
of at least 25% in principal amount of the Outstanding Securities of
such series, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(6) the entry of an order for relief against the Company or
any Material U.S. Subsidiary thereof under Title 11, United States Code
(the "Federal Bankruptcy Act") by a court having jurisdiction in the
premises or a decree or order by a court having jurisdiction in the
premises adjudging the Company or any Material U.S. Subsidiary thereof
a bankrupt or insolvent under any other applicable Federal or State
law, or the entry of a decree or order approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company or any Material U.S. Subsidiary thereof
under the Federal Bankruptcy Act or any other applicable Federal or
State law, or appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or any Material
U.S. Subsidiary thereof or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a
period of 90 consecutive days; or
(7) the consent by the Company or any Material U.S. Subsidiary
thereof to the institution of bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or answer or consent
seeking
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reorganization or relief under the Federal Bankruptcy Act or any other
applicable Federal or State law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Company or any Material U.S. Subsidiary thereof or of any substantial
part of its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the taking
of corporate action by the Company or any Material U.S. Subsidiary
thereof in furtherance of any such action;
(8) any Guarantee shall for any reason cease to be, or be
asserted in writing by any Guarantor or the Company not to be, in full
force and effect, enforceable in accordance with its terms, except to
the extent contemplated by this Indenture and any such Guarantee; or
(9) any other Event of Default provided in the supplemental
indenture or Board Resolution under which such series of Securities is
issued or in the form of Security for such series.
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment. If an Event of Default described in paragraph (1), (2), (3), (4),
(5), (8) or (9) (if the Event of Default under paragraph (5) or (9) is with
respect to less than all series of Securities then Outstanding) of Section 5.01
occurs and is continuing with respect to any series, then and in each and every
such case, unless the principal of all the Securities of such series shall have
already become due and payable, either the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Securities of such series then
Outstanding hereunder (each such series acting as a separate class), by notice
in writing to the Company (and to the Trustee if given by Holders), may declare
the principal amount (or, if the Securities of such series are original Issue
Discount Securities, such portion of the principal amount as may be specified in
the terms of that series) of all the Securities of such series and all accrued
interest thereon to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Securities of such series contained to the
contrary notwithstanding. If an Event of Default described in paragraph (5) or
(9) (if the Event of Default under paragraph (5) or (9) is with respect to all
series of Securities then Outstanding), of
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Section 5.01 occurs and is continuing, then and in each and every such case,
unless the principal of all the Securities shall have already become due and
payable, either the Trustee or the Holders of not less than 25% in aggregate
principal amount of all the Securities then Outstanding hereunder (treated as
one class), by notice in writing to the Company (and to the Trustee if given by
Holders), may declare the principal amount (or, if any Securities are Original
Issue Discount Securities, such portion of the principal amount as may be
specified in the terms thereof) of all the Securities then Outstanding and all
accrued interest thereon to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Securities contained to the contrary
notwithstanding. If an Event of Default of the type set forth in subparagraph 6
or subparagraph 7 of Section 5.01 occurs and is continuing, the principal of and
any interest on the Securities then outstanding shall become immediately due and
payable.
At any time after such a declaration of acceleration has been
made with respect to the Securities of any or all series, as the case may be,
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in principal amount of the outstanding Securities of such series, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue installments of interest on the
Securities of such series;
(B) the principal of (and premium, if any, on) any
Securities of such series which have become due otherwise than
by such declaration of acceleration, and interest thereon at
the rate or rates prescribed therefor by the terms of the
Securities of such series, to the extent that payment of such
interest is lawful;
(C) interest upon overdue installments of interest at
the rate or rates prescribed therefor by the terms of the
Securities of such series to the extent that payment of such
interest is lawful; and
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(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel and all other amounts due the Trustee under Section
6.07; and
(2) all Events of Default with respect to such series of
Securities, other than the nonpayment of the principal of the
Securities of such series which have become due solely by such
acceleration, have been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee. The Company covenants that if:
(1) default is made in the payment of any installment of
interest on any Security of any series when such interest becomes due
and payable; or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof; or
(3) default is made in the payment of any sinking or purchase
fund or analogous obligation when the same becomes due by the terms of
the Securities of any series;
and any such default continues for any period of grace provided with respect to
the Securities of such series, the Company will, upon demand of the Trustee, pay
to it, for the benefit of the Holder of any such Security (or the Holders of any
such series in the case of Clause (3) above), the whole amount then due and
payable on any such Security (or on the Securities of any such series in the
case of Clause (3) above) for principal (and premium, if any) and interest, with
interest, to the extent that payment of such interest shall be legally
enforceable, upon the overdue principal (and premium, if any) and upon overdue
installments of interest, at such rate or rates as may be prescribed therefor by
the terms of any such Security (or of Securities of any such series in the case
of Clause (3) above); and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and
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counsel and all other amounts due the Trustee under Section 6.07.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, and may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Company or any other obligor upon the Securities of
such series and collect the money adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon such Securities, wherever situated.
If an Event of Default with respect to any series of
Securities occurs and is continuing, the Trustee may in its discretion proceed
to protect and enforce its rights and the rights of the Holders of Securities of
such series by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.04. Trustee May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company or any other obligor upon the Securities or
the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Securities shall then be
due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceedings or otherwise:
(i) to file and prove a claim for the whole amount of
principal (or portion thereof determined pursuant to Section 3.01(16)
to be provable in bankruptcy) (and premium, if any) and interest owing
and unpaid in respect of the Securities and to file such other papers
or documents as may be necessary and advisable in order to have the
claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel and all other amounts due the Trustee under Section
6.07) and of the Securityholders allowed in such judicial proceeding;
and
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(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each
Securityholder to make such payment to the Trustee and in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Securityholder, any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any, Securityholder in
any such proceeding.
SECTION 5.05. Trustee May Enforce Claims Without Possession of
Securities. All rights of action and claims under this Indenture or the
Securities of any series may be prosecuted and enforced by the Trustee without
the possession of any of the Securities of such series or the production thereof
in any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel and any other amounts due the Trustee under Section 6.07, be for the
ratable benefit of the Holders of the Securities of the series in respect of
which such judgment has been recovered.
SECTION 5.06. Application of Money Collected. Any money
collected by the Trustee with respect to a series of Securities pursuant to this
Article shall be applied in the following order, at the date or dates fixed by
the Trustee and, in case of the distribution of such money on account of
principal (or premium, if any) or interest, upon presentation of the Securities
of such series and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
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FIRST: To the payment of all amounts due the Trustee under
Section 6.07.
SECOND: To the payment of the amounts then due and unpaid upon
the Securities of that series for principal (and premium, if any) and interest,
in respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal (and premium, if any) and
interest, respectively.
SECTION 5.07. Limitation on Suits. No Holder of any Security
of any series shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the
Trustee of, a continuing Event of Default with respect to Securities of
such series;
(2) the Holders of not less than 25% in principal amount of
the outstanding Securities of such series shall have made written
request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of
a majority in principal amount of the Outstanding Securities of such
series;
it being understood and intended that no one or more Holders of Securities of
such series shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Indenture to affect, disturb or prejudice the
rights of any other Holders of Securities of such series, or to obtain or to
seek to obtain priority or preference over any other such Holders or to enforce
any right under this Indenture, except in the manner herein
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provided and for the equal and proportionate benefit of all the Holders of all
Securities of such series.
SECTION 5.08. Unconditional Right of Securityholders To
Receive Principal, Premium and Interest. Notwithstanding any other provisions in
this Indenture, the Holder of any Security shall have the right, which is
absolute and unconditional, to receive payment of the principal of (and premium,
if any) and (subject to Section 3.07) interest on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption or repayment, on the Redemption Date or Repayment Date, as the case
may be) and to institute suit for the enforcement of any such payment, and such
right shall not be impaired without the consent of such Holder.
SECTION 5.09. Restoration of Rights and Remedies. If the
Trustee or any Securityholder has instituted any proceeding to enforce any right
or remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, then and in every such case the Company, the Trustee
and the Securityholders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Securityholders shall
continue as though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. No right or
remedy herein conferred upon or reserved to the Trustee or to the
Securityholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder of any Security to exercise any right
or remedy accruing upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law to the Trustee
or to the Securityholders may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee or by the Securityholders, as the case
may be.
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SECTION 5.12. Control by Securityholders. The Holders of a
majority in principal amount of the Outstanding Securities of any series shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee with respect to the Securities of such series, provided
that:
(1) the Trustee shall have the right to decline to follow any
such direction if the Trustee, being advised by counsel, determines
that the action so directed may not lawfully be taken or would conflict
with this Indenture or if the Trustee in good faith shall, by a
Responsible Officer, determine that the proceedings so directed would
involve it in personal liability or be unjustly prejudicial to the
Holders not taking part in such direction, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 5.13. Waiver of Past Defaults. The Holders of not less
than a majority in principal amount of the Outstanding Securities of any series
may on behalf of the Holders of all the Securities of such series waive any past
default hereunder with respect to such series and its consequences, except a
default not theretofore cured:
(1) in the payment of the principal of (or premium, if any) or
interest on any Security of such series, or in the payment of any
sinking or purchase fund or analogous obligation with respect to the
Securities of such series, or
(2) in respect of a covenant or provision hereof which under
Article IX cannot be modified or amended without the consent of the
Holder of each Outstanding Security of such series.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs. All parties to this
Indenture agree, and each Holder of any Security by his acceptance thereof shall
be deemed to have agreed, that any court may in its discretion require, in any
suit for the
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52
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Securityholder, or
group of Securityholders, holding in the aggregate more than lot in principal
amount of the Outstanding Securities of any series to which the suit relates, or
to any suit instituted by any Securityholder for the enforcement of the payment
of the principal of (or premium, if any) or interest on an Security on or after
the respective Stated Maturities expressed in such Security (or, in the case of
redemption or repayment, on or after the Redemption Date or Repayment Date, as
the case may be).
SECTION 5.15. Waiver of Stay or Extension Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance
of this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE VI
The Trustee
SECTION 6.01. Certain Duties and Responsibilities. (a) Except
during the continuance of an Event of Default with respect to any series of
Securities:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture with
respect to the Securities of such series, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
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(2) in the absence of bad faith on its part, the Trustee may,
with respect to Securities of such series, conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture.
(b) In case an Event of Default with respect to any series of
Securities has occurred and is continuing, the Trustee shall exercise with
respect to the Securities of such series such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) this Subsection shall not be construed to limit the effect
of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Securities of any series relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture with respect to the Securities of such series; and
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall
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have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably
assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
SECTION 6.02. Notice of Defaults. Within 90 days after the
occurrence of any default hereunder with respect to Securities of any series,
the Trustee shall transmit by mail to all Securityholders of such series, as
their names and addresses appear in the Security Register, notice of such
default hereunder known to the Trustee, unless such default shall have been
cured or waived; provided, however, that, except in the case of a default in the
payment of the principal of (or premium, if any) or interest on any Security of
such series or in the payment of any sinking or purchase fund installment or
analogous obligation with respect to Securities of such series, the Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determine that the withholding
of such notice is in the interests of the Securityholders of such series; and
provided, further, that in the case of any default of the character specified in
Section 5.01(5) with respect to Securities of such series no such notice to
Securityholders of such series shall be given until at least 90 days after the
occurrence thereof. For the purpose of this Section, the term "default", with
respect to Securities of any series, means any event which is, or after notice
or lapse of time or both would become, an Event of Default with respect to
Securities of such series.
SECTION 6.03. Certain Rights of Trustee. Except as otherwise
provided in Section 6.01:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of
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the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(d) the Trustee may consult with counsel and the written
advice of such counsel or and Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Securityholders pursuant to this Indenture,
unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation,
it shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(h) the Trustee shall not be charged with knowledge of any
default (as defined in Section 6.02) or Event of Default with respect
to the Securities of any series for which it is acting as Trustee
unless
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either (1) a Responsible Officer of the Trustee assigned to the
Corporate Trust Department of the Trustee (or any successor division or
department of the Trustee) shall have actual knowledge of such default
or Event of Default or (2) written notice of such default or Event of
Default shall have been given to the Trustee by the Company or any
other obligor on such Securities or by any Holder of such Securities;
and
(i) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture.
SECTION 6.04. Not Responsible for Recitals or Issuance of
Securities. The recitals contained herein and in the Securities, except the
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Securities. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 6.05. May Hold Securities. The Trustee, any
Authenticating Agent, any Paying Agent, the Security Registrar, any Conversion
Agent or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.08 and 6.13, may otherwise deal with the Company or any Guarantor with the
same rights it would have if it were not Trustee, Authenticating Agent, Paying
Agent, Security Registrar, Conversion Agent or such other agent.
SECTION 6.06. Money Held in Trust. Subject to the provisions
of Section 10.03 hereof, all moneys in any currency or currency received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Company.
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SECTION 6.07. Compensation and Reimbursement. The Company
agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
As security for the performance of the obligations of the
Company under this Section the Trustee shall have a lien prior to the Securities
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (and premium, if any) or
interest on particular Securities.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 5.01(6) or (7), the
expenses and the compensation for the services are intended to constitute
expenses of administration under any bankruptcy law.
The Company's obligations under this Section 6.07 and any lien
arising hereunder shall survive the resignation or removal of any Trustee, the
discharge of the Company's obligations pursuant to Article IV of this Indenture
and/or the termination of this Indenture.
SECTION 6.08. Disqualification; Conflicting Interests. The
Trustee for the Securities of any series issued hereunder shall be subject to
the provisions of
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Section 310(b) of the Trust Indenture Act during the period of time provided for
therein. In determining whether the Trustee has a conflicting interest as
defined in Section 310(b) of the Trust Indenture Act with respect to the
Securities of any series, there shall be excluded this Indenture with respect to
Securities of any particular series of Securities other than that series.
Nothing herein shall prevent the Trustee from filing with the Commission the
application referred to in the second to last paragraph of Section 310(b) of the
Trust Indenture Act.
SECTION 6.09. Corporate Trustee Required; Eligibility. There
shall at all times be a Trustee hereunder with respect to each series of
Securities, which shall be either:
(i) a corporation organized and doing business under the laws
of the United States of America or of any State, authorized under such
laws to exercise corporate trust powers and subject to supervision or
examination by Federal or State authority, or
(ii) a corporation or other Person organized and doing
business under the laws of a foreign government that is permitted to
act as Trustee pursuant to a rule, regulation or order of the
Commission, authorized under such laws to exercise corporate trust
powers, and subject to supervision or examination by authority of such
foreign government or a political subdivision thereof substantially
equivalent to supervision or examination applicable to United States
institutional trustees;
in either case having a combined capital and surplus of at least $50,000,000. If
such corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. Neither the Company nor any
Person directly or indirectly controlling, controlled by, or under common
control with the Company shall serve as trustee for the Securities of any series
issued hereunder. If at any time the Trustee with respect to any series of
Securities shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect specified
in Section 6.10.
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SECTION 6.10. Resignation and Removal. (a) No resignation or
removal of the Trustee and no appointment of a successor Trustee pursuant to
this Article shall become effective until the acceptance of appointment by the
successor Trustee under Section 6.11.
(b) The Trustee may resign with respect to any series of
Securities at any time by giving written notice thereof to the Company. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed with respect to any series of
Securities at any time by Act of the Holders of a majority in principal amount
of the outstanding Securities of that series, delivered to the Trustee and to
the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 310(b) of
the Trust Indenture Act pursuant to Section 6.08 with respect to any
series of Securities after written request therefor by the Company or
by any Securityholder who has been a bona fide Holder of a Security of
that series for at least six months, unless the Trustee's duty to
resign is stayed in accordance with the provisions of Section 310(b) of
the Trust Indenture Act, or
(2) the Trustee shall cease to be eligible under Section 6.09
with respect to any series of Securities and shall fail to resign after
written request therefor by the Company or by any such Securityholder,
or
(3) the Trustee shall become incapable of acting with respect
to any series of Securities, or
(4) the Trustee shall be adjudged a bankrupt or insolvent or a
receiver of the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, with respect to the
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series, or in the case of Clause (4), with respect to all series, or (ii)
subject to Section 5.14, any Securityholder who has been a bona fide Holder of a
Security of such series for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee with
respect to the series, or, in the case of Clause (4), with respect to all
series.
(e) If the Trustee shall resign, be removed or become
incapable of acting with respect to any series of Securities, or if a vacancy
shall occur in the office of the Trustee with respect to any series of
Securities for any cause, the Company, by Board Resolution, shall promptly
appoint a successor Trustee for that series of Securities. If, within one year
after such resignation, removal or incapacity, or the occurrence of such
vacancy, a successor Trustee with respect to such series of Securities shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment, become the successor Trustee with respect to such series
and supersede the successor Trustee appointed by the Company with respect to
such series. If no successor Trustee with respect to such series shall have been
so appointed by the Company or the Securityholders of such series and accepted
appointment in the manner hereinafter provided, subject to Section 5.14, any
Securityholder who has been a bona fide Holder of a Security of that series for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee with respect to such series.
(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to any series and each appointment of a
successor Trustee with respect to any series by mailing written notice of such
event by first-class mail, postage prepaid, to the Holders of Securities of that
series as their names and addresses appear in the Security Register. Each notice
shall include the name of the successor Trustee and the address of its principal
Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor. Every
successor Trustee appointed hereunder shall execute, acknowledge and deliver to
the Company and to
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the predecessor Trustee an instrument accepting such appointment, and thereupon
the resignation or removal of the predecessor Trustee shall become effective
with respect to any series as to which it is resigning or being removed as
Trustee, and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the predecessor Trustee with respect to any such series; but, on request of
the Company or the successor Trustee, such predecessor Trustee shall, upon
payment of its reasonable charges, if any, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
predecessor Trustee, and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such predecessor trustee
hereunder with respect to all or any such series, subject nevertheless to its
lien, if any, provided for in Section 6.07. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
In case of the appointment hereunder of a successor Trustee
with respect to the Securities of one or more (but not all) series, the Company,
the predecessor Trustee and each successor Trustee with respect to the
Securities of any applicable series shall execute and deliver an indenture
supplemental hereto which shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and duties
of the predecessor Trustee with respect to the Securities of any series as to
which the predecessor Trustee is not being succeeded shall continue to be vested
in the predecessor Trustee, and shall add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be Trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee.
No successor Trustee with respect to any series of Securities
shall accept its appointment unless at the time of such acceptance such
successor Trustee shall be qualified and eligible with respect to that series
under this Article.
SECTION 6.12. Merger, Conversion, Consolidation or Succession
to Business. Any corporation into which the
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Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee, shall be the successor of
the Trustee hereunder, provided such corporation shall be otherwise qualified
and eligible under this Article, without the execution or filing of any paper or
any further act on the part of any of the parties hereto. In case any Securities
shall have been authenticated, but not delivered, by the Trustee then in office,
any successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the Securities so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 6.13. Preferential Collection of Claims Against
Company. (a) Subject to Subsection (b) of this Section, if the Trustee shall be
or shall become a creditor, directly or indirectly, secured or unsecured, of the
Company within three months prior to a default, as defined in Subsection (c) of
this Section, or subsequent to such a default, then, unless and until such
default shall be cured, the Trustee shall set apart and hold in a special
account for the benefit of the Trustee individually, the Holders of the
Securities and the holders of other indenture securities (as defined in
Subsection (c) of this Section):
(1) an amount equal to any and all reduction in the amount due
and owing upon any claim as such creditor in respect of principal or
interest, effected after the beginning of such three-month period and
valid as against the Company and its other creditors, except any such
reduction resulting from the receipt or disposition of any property
described in paragraph (2) of this Subsection, or from the exercise of
any right of set-off which the Trustee could have exercised if a
petition in bankruptcy had been filed by or against the Company upon
the date of such default; and
(2) all property received by the Trustee in respect of any
claim as such creditor, either as security therefor, or in satisfaction
or composition thereof, or otherwise, after the beginning of such
three-month period, or an amount equal to the proceeds of any such
property, if disposed of, subject, however, to the rights, if any, of
the Company and its other creditors in such property or such proceeds.
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Nothing herein contained, however, shall affect the right of the Trustee:
(A) to retain for its own account (i) payments made on account
of any such claim by any Person (other than the Company) who is liable
thereon, and (ii) the proceeds of the bona fide sale of any such claim
by the Trustee to a third Person, and (iii) distributions made in cash,
securities or other property in respect of claims filed against the
Company in bankruptcy or receivership or in proceedings for
reorganization pursuant to the Federal Bankruptcy Act or applicable
State law;
(B) to realize, for its own account, upon any property held by
it as security for any such claim, if such property was so held prior
to the beginning of such three-month period;
(C) to realize, for its own account, but only to the extent of
the claim hereinafter mentioned, upon any property held by it as
security for any such claim, if such claim was created after the
beginning of such three-month period and such property was received as
security therefor simultaneously with the creation thereof, and if the
Trustee shall sustain the burden of proving that at the time such
property was so received the Trustee had no reasonable cause to believe
that a default as defined in Subsection (c) of this Section would occur
within three months; or
(D) to receive payment on any claim referred to in paragraph
(B) or (C) or against the release of any property held as security for
such claim as provided in paragraph (B) or (C), as the case may be, to
the extent of the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property
substituted after the beginning of such three-month period for property held as
security at the time of such substitution shall, to the extent of the fair value
of the property released, have the same status as the property released, and, to
the extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any pre-existing claim of the Trustee as such creditor, such claim shall have
the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and
property held in such special account and the
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proceeds thereof shall be apportioned between the Trustee, the Securityholders
and the holders of other indenture securities in such manner that the Trustee,
the Securityholders and the holders of other indenture securities realize, as a
result of payments from such special account and payments of dividends on claims
filed against the Company in bankruptcy or receivership or in proceedings for
reorganization pursuant to the Federal Bankruptcy Act or applicable State law,
the same percentage of their respective claims, figured before crediting to the
claim of the Trustee anything on account of the receipt by it from the Company
of the funds and property in such special account and before crediting to the
respective claims of the Trustee and the Securityholders and the holders of
other indenture securities dividends on claims filed against the Company in
bankruptcy or receivership or in proceedings for reorganization pursuant to the
Federal Bankruptcy Act or applicable State law, but after crediting thereon
receipts on account of the indebtedness represented by their respective claims
from all sources other than from such dividends and from the funds and property
so held in such special account. As used in this paragraph, with respect to any
claim, the term "dividends" shall include any distribution with respect to such
claim, in bankruptcy or receivership or proceedings for reorganization pursuant
to the Federal Bankruptcy Act or applicable State law, whether such distribution
is made in cash, securities, or other property, but shall not include any such
distribution with respect to the secured portion, if any, of such claim. The
court in which such bankruptcy, receivership or proceedings for reorganization
is pending shall have jurisdiction (i) to apportion between the Trustee and the
Securityholders and the holders of other indenture securities, in accordance
with the provisions of this paragraph, the funds and property held in such
special account and proceeds thereof, or (ii) in lieu of such apportionment, in
whole or in part, to give to the provisions of this paragraph due consideration
in determining the fairness of the distributions to be made to the Trustee and
the Securityholders and the holders of other indenture securities with respect
to their respective claims, in which extent it shall not be necessary to
liquidate or to appraise the value of any securities or other property held in
such special account or as security for any such claim, or to make a specific
allocation of such distributions as between the secured and unsecured portions
of such claims, or otherwise to apply the provisions of this paragraph as a
mathematical formula.
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Any Trustee which has resigned or been removed after the
beginning of such three-month period shall be subject to the provisions of this
Subsection as though such resignation or removal had not occurred. If any
Trustee has resigned or been removed prior to the beginning of such three-month
period, it shall be subject to the provisions of this Subsection if and only if
the following conditions exist:
(i) the receipt of property or reduction of claim, which would
have given rise to the obligation to account, if such Trustee had
continued as Trustee, occurred after the beginning of such three-month
period; and
(ii) such receipt of property or reduction of claim occurred
within three months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection
(a) of this Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under
any indenture, or any security or securities having a maturity of one
year or more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court
of competent jurisdiction, or by this Indenture, for the purpose of
preserving any property which shall at any time be subject to the lien
of this Indenture or of discharging tax liens or other prior liens or
encumbrances thereon, if notice of such advances and of the
circumstances surrounding the making thereof is given to the
Securityholders at the time and in the manner provided in this
Indenture;
(3) disbursements made in the ordinary course of business in
the capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depository, or other similar
capacity;
(4) an indebtedness created as a result of services rendered
or premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in Subsection (c) of
this Section;
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66
(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(a) of the
Federal Reserve Act, as amended, which is directly or indirectly a
creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of
any drafts, bills of exchange, acceptances or obligations which fall
within the classification of self-liquidating paper as defined in
Subsection (c) of this Section.
(c) For the purposes of this Section only:
(1) The term "default" means any failure to make payment in
full of the principal of or interest on any of the Securities or upon
the other indenture securities when and as such principal or interest
becomes due and payable.
(2) The term "other indenture securities" means securities
upon which the Company is an obligor outstanding under any other
indenture (i) under which the Trustee is also trustee, (ii) which
contains provisions substantially similar to the provisions of this
Section, and (iii) under which a default exists at the time of the
apportionment of the funds and property held in such special account.
(3) The term "cash transaction" means any transaction in which
full payment for goods or securities sold is made within seven days
after delivery of the goods or securities in currency or in checks or
other orders drawn upon banks or bankers and payable upon demand.
(4) The term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security, provided the security
is received by the Trustee simultaneously with the creation of the
creditor relationship with the Company arising from the making,
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drawing, negotiating or incurring of the draft, bill of exchange,
acceptance or obligation.
(5) The term "Company" means any obligor upon the Securities.
SECTION 6.14. Appointment of Authenticating Agent. At any time
when any of the Securities remain Outstanding the Trustee, with the approval of
the Company, may appoint an Authenticating Agent or Agents with respect to one
or more series of Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities of such series issued upon original issuance,
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 3.06, and Securities so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as an
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and, if other than the Company itself, subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to the
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corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and, if other than the Company, to the
Company. The Trustee may at any time terminate the agency of an Authenticating
Agent by giving written notice thereof to such Authenticating Agent and, if
other than the Company, to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee, with the approval of the Company, may
appoint a successor Authenticating Agent which shall be acceptable to the
Company and shall mail written notice of such appointment by first-class mail,
postage prepaid, to all Holders of Securities of the series with respect to
which such Authenticating Agent will serve, as their names and addresses appear
in the Security Register. Any successor Authenticating Agent upon acceptance of
its appointment hereunder shall become vested with all the rights, powers and
duties of its predecessor hereunder, with like effect as if originally named as
an Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section, and
the Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 6.07.
If an appointment with respect to one or more series is made
pursuant to this Section, the Securities of such series may have endorsed
thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication in the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
as Trustee
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by
--------------------------------
As Authenticating Agent
by
--------------------------------
As Authorized Agent
ARTICLE VII
Securityholders' Lists and Reports by
Trustee and Company
SECTION 701. Company To Furnish Trustee Names and Addresses of
Securityholders. The Company will furnish or cause to be furnished to the
Trustee:
(1) semi-annually, not more than 15 days after December 15 and
June 15 in each year in such form as the Trustee may reasonably
require, a list of the names and addresses of the Holders of Securities
of each series as of such December 15 and June 15, as applicable, and
(2) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar for Securities of a series, no such list need be furnished with
respect to such series of Securities.
SECTION 7.02. Preservation of Information; Communications to
Securityholders. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders of Securities
contained in the most recent list furnished to the Trustee as provided in
Section 7.01 and the names and addresses of Holders of Securities received by
the Trustee in its capacity as Security Registrar, if so acting. The Trustee may
destroy any list furnished to it as provided in Section 7.01 upon receipt of a
new list so furnished.
(b) If three or more Holders of Securities of any series
(hereinafter referred to as "applicants") apply in
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writing to the Trustee, and furnish to the Trustee reasonable proof that each
such applicant has owned a Security of such series for a period of at least six
months preceding the date of such application, and such application states that
the applicants desire to communicate with other Holders of Securities of such
series or with the Holders of all Securities with respect to their rights under
this Indenture or under such Securities and is accompanied by a copy of the form
of proxy or other communication which such applicants propose to transmit, then
the Trustee shall, within five Business Days after the receipt of such
application, at its election, either:
(i) afford such applicants access to the information preserved
at the time by the Trustee in accordance with Section 7.02(a), or
(ii) inform such applicants as to the approximate number of
Holders of Securities of such series or all Securities, as the case may
be, whose names and addresses appear in the information preserved at
the time by the Trustee in accordance with Section 7.02(a), and as to
the approximate cost of mailing to such Securityholders the form of
proxy or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants
access to such information, the Trustee shall, upon the written request of such
applicants, mail to each Holder of a Security of such series or to all
Securityholders, as the case may be, whose names and addresses appear in the
information preserved at the time by the Trustee in accordance with Section
7.02(a), a copy of the form of proxy or other communication which is specified
in such request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless, within five days after such tender, the
Trustee shall mail to such applicants and file with the Commission, together
with a copy of the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be contrary to the best
interests of the Holders of Securities of such series or all Securityholders, as
the case may be, or would be in violation of applicable law. Such written
statement shall specify the basis of such opinion. If the Commission, after
opportunity for a hearing upon the objections specified in the written statement
so filed, shall enter an order refusing to sustain any of such objections or if,
after the entry of an order sustaining one or more of such
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71
objections, the Commission shall find, after notice and opportunity for hearing,
that all the objections so sustained have been met and shall enter an order so
declaring, the Trustee shall mail copies of such material to all Securityholders
of such series or all Securityholders, as the case may be, with reasonable
promptness after the entry of such order and the renewal of such tender;
otherwise the Trustee shall be relieved of any obligation or duty to such
applicants respecting their application.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders of Securities in
accordance with Section 7.02(b), regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Section 7.02(b).
SECTION 7.03. Reports by Trustee. (a) Within 60 days after May
15 of each year commencing with the first May 15 after the issuance of
Securities, the Trustee shall transmit by mail, at the Company's expense, to all
Holders as their names and addresses appear in the Security Register, as
provided in Trust Indenture Act 313(c), a brief report dated as of May 15 in
accordance with and with respect to the matters required by Trust Indenture Act
Section 313(a).
(b) The Trustee shall transmit by mail, at the Company's
expense, to all Holders as their names and addresses appear in the Security
Register, as provided in Trust Indenture Act 313(c), a brief report in
accordance with and with respect to the matters required by Trust Indenture Act
Section 313(b).
(c) A copy of each such report shall, at the time of such
transmission to Holders, be furnished to the Company and, in accordance with
Trust Indenture Act Section 313(d), be filed by the Trustee with each stock
exchange upon which the Securities are listed, and also with the Commission.
SECTION 7.04. Reports by Company. The Company shall file with
the Trustee, and transmit to Holders, such information, documents and other
reports, and such summaries thereof, as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant to such Act;
provided that any such information, documents or
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72
reports required to be filed with the Commission pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15
days after the same is so required to be filed with the Commission. The Company
also shall comply with the other provisions of Trust Indenture Act Section
314(a).
ARTICLE VIII
Consolidation, Merger, Conveyance or Transfer
SECTION 8.01. Consolidation, Merger, Conveyance or Transfer on
Certain Terms. None of the Company, TBS or TWC shall consolidate with or merge
into any other Person or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(1)(a) in the case of the Company, the Person formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer the properties and assets of the
Company substantially as an entirety shall be organized and existing
under the laws of the United States of America or any State thereof or
the District of Columbia, and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the
principal of (and premium, if any) and interest on all the Securities
and the performance of every covenant of this Indenture (as
supplemented from time to time) on the part of the Company to be
performed or observed; (b) in the case of either Guarantor, the Person
formed by such consolidation or into which such Guarantor is merged or
the Person which acquires by conveyance or transfer the properties and
assets of such Guarantor substantially as an entirety shall be either
(i) the Company or (ii) a Person organized and existing under the laws
of the United States of America or any State thereof or the District of
Columbia, and in the case of clause (ii), shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, the performance of every covenant
of this Indenture (as supplemented from time to time) on the part of
such Guarantor to be performed or observed;
(2) immediately after giving effect to such transaction, no
Event of Default, and no event which,
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after notice or lapse of time, or both, would become an Event of
Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an opinion of Counsel each stating that such
consolidation, merger, conveyance or transfer and such supplemental
indenture comply with this Article and that all conditions precedent
herein provided for relating to such transaction have been complied
with.
SECTION 8.02. Successor Person Substituted. Upon any
consolidation or merger, or any conveyance or transfer of the properties and
assets of the Company or either Guarantor substantially as an entirety in
accordance with Section 8.01, the successor Person formed by such consolidation
or into which the Company or such Guarantor is merged or to which such
conveyance or transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company or such Guarantor under this
Indenture with the same effect as if such successor had been named as the
Company or such Guarantor herein. In the event of any such conveyance or
transfer, the Company or such Guarantor, as the case may be, as the predecessor
shall be discharged from all obligations and covenants under this Indenture and
the Securities and may be dissolved, wound up or liquidated at any time
thereafter.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of
Securityholders. Without the consent of the Holders of any Securities, the
Company, when authorized by a Board Resolution, and the Trustee, at any time and
from time to time, may enter into one or more indentures supplemental hereto, in
form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation or
Person to the Company or any Guarantor, and the assumption by any such
successor of the respective covenants of the Company or any Guarantor
herein and in the Securities contained; or
(2) to add to the covenants of the Company or any
Guarantor, or to surrender any right or power herein
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conferred upon the Company or any Guarantor, for the benefit of the
Holders of the Securities of any or all series (and if such covenants
or the surrender of such right or power are to be for the benefit of
less than all series of Securities, stating that such covenants are
expressly being included or such surrenders are expressly being made
solely for the benefit of one or more specified series); or
(3) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture; or
(4) to add to this Indenture such provisions as may be
expressly permitted by the TIA, excluding, however, the provisions
referred to in Section 316(a)(2) of the TIA as in effect at the date as
of which this instrument was executed or any corresponding provision in
any similar federal statute hereafter enacted; or
(5) to establish any form of Security, as provided in Article
II and to provide for the issuance of any series of Securities as
provided in Article III and to set forth the terms thereof, and/or to
add to the rights of the Holders of the Securities of any series; or
(6) to evidence and provide for the acceptance of appointment
by another corporation as a successor Trustee hereunder with respect to
one or more series of Securities and to add to or change any of the
provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more than one
Trustee, pursuant to Section 6.11; or
(7) to add any additional Events of Default in respect of the
Securities of any or all series (and if such additional Events of
Default are to be in respect of less than all series of Securities,
stating that such Events of Default are expressly being included solely
for the benefit of one or more specified series); or
(8) to provide for the issuance of Securities in coupon as
well as fully registered form; or
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(9) to provide for the terms and conditions of conversion into
Common Stock or other Marketable Securities of the Securities of any
series which are convertible into Common Stock or other Marketable
Securities, if different from those set forth in Article XII; or
(10) to secure the Securities of any series pursuant to
Section 10.06 or otherwise.
No supplemental indenture for the purposes identified in
Clauses (2), (3), (5) or (7) above may be entered into if to do so would
adversely affect the rights of the Holders of Outstanding Securities of any
series in any material respect.
SECTION 9.02. Supplemental Indentures with Consent of
Securityholders. With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities of all series affected by such
supplemental indenture or indentures (acting as one class), by Act of said
Holders delivered to the Company and the Trustee (in accordance with Section
1.04 hereof), the Company, when authorized by a Board Resolution, and the
Trustee may enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of modifying in any manner the rights of
the Holders of the Securities of each such series under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(1) change the Maturity of the principal of, or the Stated
Maturity of any premium on, or any installment of interest on, any
Security, or reduce the principal amount thereof or the interest or any
premium thereon, or change the method of computing the amount of
principal thereof or interest thereon on any date or change any Place
of Payment where, or the coin or currency in which, any Security or any
premium or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Maturity or the Stated Maturity, as the case may be, thereof (or, in
the case of redemption or repayment, on or after the Redemption Date or
the Repayment Date, as the case may be), or alter the provisions of
this Indenture so as to affect adversely the terms, if any, of
conversion of any Securities into Common Stock or other securities; or
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(2) reduce the percentage in principal amount of the
Outstanding Securities of any series, the consent of whose Holders is
required for any such supplemental indenture, or the consent of whose
Holders is required for any waiver of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences, provided for in this Indenture; or
(3) modify any of the provisions of this Section, Section 5.13
or Section 10.07, except to increase any such percentage or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security
affected thereby;
(4) impair or adversely affect the right of any Holder to
institute suit for the enforcement of any payment on, or with respect
to, the Securities of any series on or after the Stated Maturity of
such Securities (or in the case of redemption, on or after the
Redemption Date);
(5) amend or modify Section 13.01 of this Indenture in any
manner adverse to the rights of the Holders of the Outstanding
Securities of any series.
For purposes of this Section 9.02, if the Securities of any
series are issuable upon the exercise of warrants, each holder of an unexercised
and unexpired warrant with respect to such series shall be deemed to be a Holder
of Outstanding Securities of such series in the amount issuable upon the
exercise of such warrant. For such purposes, the ownership of any such warrant
shall be determined by the Company in a manner consistent with customary
commercial practices. The Trustee for such series shall be entitled to rely on
an Officers' Certificate as to the principal amount of Securities of such series
in respect of which consents shall have been executed by holders of such
warrants.
A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been included
solely for the benefit of one or more particular series of Securities, or which
modifies the rights of the Holders of Securities of such with respect to such
covenant or other provision, shall be deemed not to affect the rights under this
Indenture of Holders of Securities of any other series.
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It shall not be necessary for any Act of Securityholders under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
SECTION 9.03. Execution of Supplemental Indentures. In
executing, or accepting the additional trusts created by, any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 6.01) shall be fully protected in relying upon, an Opinion
of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indentures. Upon the
execution of any supplemental indenture under this Article, this Indenture shall
be modified in accordance therewith, and such supplemental indenture shall form
a part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby to the extent provided therein.
SECTION 9.05. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of TIA as then in effect.
SECTION 9.06. Reference in Securities to Supplemental
Indentures. Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
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ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and Interest.
With respect to each series of Securities, the Company will duly and punctually
pay the principal of (and premium, if any) and interest on such Securities in
accordance with their terms and this Indenture, and will duly comply with all
the other terms, agreements and conditions contained in, or made in the
Indenture for the benefit of, the Securities of such series.
SECTION 10.02. Maintenance of Office or Agency. The Company
will maintain an office or agency in each Place of Payment where Securities may
be presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange, where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be served and where
any Securities with conversion privileges may be presented and surrendered for
conversion. The Company will give prompt written notice to the Trustee of the
location, and of any change in the location, of such office or agency. If at any
time the Company shall fail to maintain such office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee its agent to receive all
such presentations, surrenders, notices and demands.
Unless otherwise set forth in, or pursuant to, a Board
Resolution or Indenture supplemental hereto with respect to a series of
Securities, the Company hereby initially designates as the Place of Payment for
each series of Securities, the Borough of Manhattan, the City and State of New
York, and initially appoints the Trustee at its Corporate Trust Office as the
Company's office or agency for each such purpose in such city.
SECTION 10.03. Money for Security Payments To Be Held in
Trust. If the Company shall at any time act as its own Paying Agent for any
series of Securities, it will, on or before each due date of the principal of
(and premium, if any) or interest on, any of the Securities of such series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as
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herein provided, and will promptly notify the Trustee of its action or failure
to act.
Whenever the Company shall have one or more Paying Agents for
any series of Securities, it will, on or prior to each due date of the principal
of (and premium, if any) or interest on, any Securities of such series, deposit
with a Paying Agent a sum sufficient to pay the principal (and premium, if any)
or interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal (and premium, if any) or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the
Trustee for any series of Securities to execute and deliver to the Trustee an
instrument in which such Paying Agent shall agree with the Trustee, subject to
the provisions of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of principal of
(and premium, if any) or interest on Securities of such series in trust
for the benefit of the Persons entitled thereto until such sums shall
be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities of such series) in the making of
any such payment of principal (and premium, if any) or interest on the
Securities of such series; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture with respect to any series of
Securities or for any other purpose, pay, or by Company Order direct any Paying
Agent to pay, to the Trustee all sums held in trust by the Company or such
Paying Agent in respect of each and every series of Securities as to which it
seeks to discharge this Indenture or, if for any other purpose, all sums so held
in trust by the Company in respect of all Securities, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent;
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and, upon such payment by any Paying Agent to the Trustee, such Paying Agent
shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (and
premium, if any) or interest on any Security of any series and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall be paid to the Company on Company Request, or
(if then held by the Company) shall be discharged from such trust; and the
Holder of such Security shall thereafter as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease. The Trustee or such Paying
Agent, before being required to make any such repayment, may at the expense of
the Company mail to the Holders of the Securities as to which the money to be
repaid was held in trust, as their names and addresses appear in the Security
Register, a notice that such moneys remain unclaimed and that, after a date
specified in the notice, which shall not be less than 30 days from the date on
which the notice was first mailed to the Holders of the Securities as to which
the money to be repaid was held in trust, any unclaimed balance of such moneys
then remaining will be paid to the Company free of the trust formerly impressed
upon it.
SECTION 10.04. Statement as to Compliance. The Company and
each Guarantor will deliver to the Trustee, within 120 days after the end of
each fiscal year, a written statement signed by the principal executive officer,
principal financial officer or principal accounting officer of the Company or
such Guarantor, as applicable, stating that:
(1) a review of the activities of the Company or such
Guarantor, as applicable, during such year and of performance under
this Indenture and under the terms of the Securities has been made
under his supervision; and
(2) to the best of his knowledge, based on such review, the
Company or such Guarantor, as applicable, has fulfilled all its
obligations under this Indenture and has complied with all conditions
and covenants on its part contained in this Indenture through such
year, or, if there has been a default in the fulfillment of any such
obligation, covenant or condition, specifying
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each such default known to him and the nature and status thereof.
For the purpose of this Section 10.04, default and compliance
shall be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.
SECTION 10.05. Legal Existence. Subject to Article VIII the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect its legal existence.
SECTION 10.06. Limitation on Liens. Neither the Company nor
any Material Subsidiary of the Company shall incur, create, issue, assume,
guarantee or otherwise become liable for any indebtedness for money borrowed
that is secured by a lien on any asset now owned or hereafter acquired by it
unless the Company makes or causes to be made effective provision whereby the
Securities issued under this Indenture will be secured by such lien equally and
ratably with (or prior to) all other indebtedness thereby secured so long as any
such indebtedness shall be secured. The foregoing restriction does not apply to
the following:
(i) liens existing as of the date this Indenture;
(ii) liens created by Subsidiaries of the Company to secure
indebtedness of such Subsidiaries to the Company or to one or more
other Subsidiaries of the Company;
(iii) liens affecting property of a Person existing at the
time it becomes a Subsidiary of the Company or at the time it merges
into or consolidates with the Company or a Subsidiary of the Company or
at the time of a sale, lease or other disposition of all or
substantially all of the properties of such Person to the Company or
its Subsidiaries;
(iv) liens on property existing at the time of the acquisition
thereof or incurred to secure payment of all or a part of the purchase
price thereof or to secure indebtedness incurred prior to, at the time
of, or within one year after the acquisition thereof for the purpose of
financing all or part of the purchase price thereof;
(v) liens on any property to secure all or part of
the cost of improvements or construction thereon or
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indebtedness incurred to provide funds for such purpose in a principal
amount not exceeding the cost of such improvements or construction;
(vi) liens consisting of or relating to the sale, transfer or
financing of motion pictures, video and television programs, sound
recordings, books or rights with respect thereto to or with so-called
tax shelter groups or other third-party investors in connection with
the financing of such motion pictures, video and television
programming, sound recordings or books in the ordinary course of
business and the granting to the Company or any of its Subsidiaries of
rights to distribute such motion pictures, video and television
programming, sound recordings or books; provided, however, that no such
lien shall attach to any asset or right of the Company or its
Subsidiaries (other than (i) the motion pictures, video and television
programming, sound recordings, books or rights which were sold,
transferred to or financed by the tax shelter group or third-party
investors in question or the proceeds arising therefrom and (ii) the
stock or other equity interests of a Subsidiary substantially all of
the assets of which consist of such motion pictures, video and
television programming, sound recordings, books or rights and related
proceeds);
(vii) liens on shares of stock, indebtedness or other
securities of a Person that is not a Subsidiary of the Company;
(viii) liens on Works which either (1) existed in such Works
before the time of their acquisition and were not created in
anticipation thereof, or (2) were created solely for the purpose of
securing obligations to financiers, producers, distributors,
exhibitors, completion guarantors, inventors, copyright holders,
financial institutions or other participants incurred in the ordinary
course of business in connection with the acquisition, financing,
production, completion, distribution or exhibition of Works;
(ix) any lien on the office building and hotel complex located
in Atlanta, Georgia known as the CNN Center Complex, including the
parking decks for such complex (to the extent such parking decks are
owned or leased by the Company or its Subsidiaries), or any portion
thereof and all property rights therein and the products, revenues and
proceeds therefrom created as
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part of any mortgage financing or sale-leaseback of the CNN Center
Complex;
(x) liens on satellite transponders and all property rights
therein and the products, revenues and proceeds therefrom which secure
obligations incurred in connection with the acquisition, utilization or
operation of such satellite transponders or the refinancing of any such
obligations;
(xi) restrictions on the Atlanta National League Baseball
Club, Inc. and Atlanta Hawks, Ltd. and their respective assets imposed
by Major League Baseball or the Commissioner of Baseball, and the
National Basketball Association, respectively, including, without
limitation, restrictions on the transferability of the Company's or any
of its Subsidiary's interests therein;
(xii) liens on capital leases entered into after the date of
this Indenture provided that such liens extend only to the property or
assets that are the subject of such capital leases;
(xiii) liens resulting from progress payments or partial
payments under United States government contracts or subcontracts;
(xiv) other liens arising in connection with indebtedness of
the Company and its Subsidiaries in an aggregate principal amount for
the Company and its Subsidiaries not exceeding at the time such lien is
issued, created or assumed the greater of (A) 10% of the Consolidated
Net Worth of the Company and (B) $500 million; and
(xv) any extensions, renewal or replacement of any lien
referred to in the foregoing clauses (i) through (xiv) inclusive, or of
any indebtedness secured thereby; provided that the principal amount of
indebtedness secured thereby shall not exceed the principal amount of
indebtedness so secured at the time of such extension, renewal or
replacement, or at the time the lien was issued, created or assumed or
otherwise permitted, and that such extension, renewal or replacement
lien shall be limited to all or part of substantially the same property
which secured the lien extended, renewed or replaced (plus improvements
on such property).
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SECTION 10.07. Waiver of Certain Covenants. The Company may
omit in respect of any series of Securities, in any particular instance, to
comply with any covenant or condition set forth in Sections 10.05 or 10.06 or
set forth in a Board Resolution or supplemental indenture with respect to the
Securities of such series, unless otherwise specified in such Board Resolution
or supplemental indenture, if before or after the time for such compliance the
Holders of not less than a majority in principal amount of the Outstanding
Securities of all series affected by such waiver (voting as one class) shall, by
Act of such Securityholders delivered to the Company and the Trustee (in
accordance with Section 1.04 hereof), either waive such compliance in such
instance or generally waive compliance with such covenant or condition, but no
such waiver shall extend to or affect such covenant or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
covenant or condition shall remain in full force and effect. Nothing in this
Section 10.07 shall permit the waiver of compliance with any covenant or
condition set forth in such Board Resolution or supplemental indenture which, if
in the form of an indenture supplemental hereto, would not be permitted by
Section 9.02 without the consent of the Holder of each Outstanding Security
affected thereby.
ARTICLE XI
Redemption of Securities
SECTION 11.01. Applicability of Article. The Company may
reserve the right to redeem and pay before Stated Maturity all or any part of
the Securities of any series, either by optional redemption, sinking or purchase
fund or analogous obligation or otherwise, by provision therefor in the form of
Security for such series established and approved pursuant to Section 2.02 and
on such terms as are specified in such form or in the indenture supplemental
hereto with respect to Securities of such series as provided in Section 3.01.
Redemption of Securities of any series shall be made in accordance with the
terms of such Securities and, to the extent that this Article does not conflict
with such terns, the succeeding Sections of this Article. Notwithstanding
anything to the contrary in this Indenture, except in the case of redemption
pursuant to a sinking fund, the Trustee shall not make any payment in connection
with the redemption of Securities until the close of business on the Redemption
Date.
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SECTION 11.02. Election To Redeem; Notice to Trustee. The
election of the Company to redeem any Securities redeemable at the election of
the Company shall be evidenced by, or pursuant to authority granted by, a Board
Resolution. In case of any redemption at the election of the Company of less
than all of the Securities of any series, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities of such series and the Tranche (as defined
in Section 11.03) to be redeemed.
In the case of any redemption of Securities (i) prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities or elsewhere in this Indenture, or (ii) pursuant to an election of
the Company which is subject to a condition specified in the terms of such
Securities, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with such restriction or condition.
SECTION 11.03. Selection by Trustee of Securities To Be
Redeemed. If less than all the Securities of like tenor and terms of any series
(a "Tranche") are to be redeemed, the particular Securities to be redeemed shall
be selected not more than 60 days prior to the Redemption Date by the Trustee,
from the Outstanding Securities of such Tranche not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and
which may include provision for the selection for redemption of portions of the
principal of Securities of such Tranche of a denomination larger than the
minimum authorized denomination for Securities of that series. Unless otherwise
provided in the terms of a particular series of Securities, the portions of the
principal of Securities so selected for partial redemption shall be equal to the
minimum authorized denomination of the Securities of such series, or an integral
multiple thereof, and the principal amount which remains outstanding shall not
be less than the minimum authorized denomination for Securities of such series.
If less than all the Securities of unlike tenor and terms of a series are to be
redeemed, the particular Tranche of Securities to be redeemed shall be selected
by the Company.
If any convertible Security selected for partial redemption is
converted in part before the termination of the conversion right with respect to
the portion of the Security so selected, the converted portion of such Security
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shall be deemed (so far as may be) to be the portion selected for redemption.
Upon any redemption of fewer than all the Securities of a
series or Tranche, the Company and the Trustee may treat as Outstanding any
Securities surrendered for conversion during the period of fifteen days next
preceding the mailing of a notice of redemption, and need not treat as
Outstanding any Security authenticated and delivered during such period in
exchange for the unconverted portion of any Security converted in part during
such period.
The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption and, in the case of any Security selected
for partial redemption, the principal amount thereof to be redeemed.
Securities shall be excluded from eligibility for selection
for redemption if they are identified by registration and certificate number in
a written statement signed by an authorized officer of the Company and delivered
to the Trustee at least 60 days prior to the Redemption Date as being owned of
record and beneficially by, and not pledged or hypothecated by either, (a) the
Company or (b) an entity specifically identified in such written statement as
being an Affiliate of the Company.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Security redeemed or to be redeemed only in
part, to the portion of the principal of such Security which has been or is to
be redeemed.
SECTION 11.04. Notice of Redemption. Notice of redemption
shall be given by first-class mail, postage prepaid, mailed not less than 30 (or
15 if so provided in the Board Resolution establishing the relevant series) nor
more than 60 days prior to the Redemption Date, to each holder of Securities to
be redeemed, at his address appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
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(3) if less than all Outstanding Securities of any series are
to be redeemed, the identification (and, in the case of partial
redemption, the respective principal amounts) of the Securities to be
redeemed;
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security, and that interest, if
any, thereon shall cease to accrue from and after said date;
(5) the place where such Securities are to be surrendered for
payment of the Redemption Price, which shall be the office or agency of
the Company in the Place of Payment;
(6) that the redemption is on account of a sinking or purchase
fund, or other analogous obligation, if that be the case;
(7) if such Securities are convertible into Common Stock or
other securities, the Conversion Price or other conversion price and
the date on which the right to convert such Securities into Common
Stock or other securities will terminate; and
(8) if applicable, that the redemption may be rescinded by the
Company, at its sole option, pursuant to Section 11.09 of this
Indenture upon the occurrence of a Redemption Rescission Event.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company.
SECTION 11.05. Deposit of Redemption Price. On or prior to any
Redemption Date and subject to Section 11.09, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 10.03) an amount of
money sufficient to pay the Redemption Price of all the Securities which are to
be redeemed on that date. If any Security to be redeemed is converted into
Common Stock or other securities, any money so deposited with the Trustee or a
Paying Agent shall be paid to the Company upon Company Request or, if then so
segregated and held in trust by the Company, shall be discharged from such
trust.
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SECTION 11.06. Securities Payable on Redemption Date. Notice
of redemption having been given as aforesaid, the Securities so to be redeemed
shall, subject to Section 11.09, on the Redemption Date, become due and payable
at the Redemption Price therein specified and from and after such date (unless
the Company shall default in the payment of the Redemption Price) such
Securities shall cease to bear interest and any rights to convert such
Securities shall terminate. Upon surrender of such Securities for redemption in
accordance with the notice and subject to Section 11.09, such Securities shall
be paid by the Company at the Redemption Price. Unless otherwise provided with
respect to such Securities pursuant to Section 3.01, installments of interest
the Stated Maturity of which is on or prior to the Redemption Date shall be
payable to the Holders of such Securities registered as such on the relevant
Regular Record Dates according to their terms and the provisions of Section
3.07.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal shall, until paid, bear
interest from the Redemption Date at the rate borne by the Security, or as
otherwise provided in such Security.
SECTION 11.07. Securities Redeemed in Part. Any Security which
is to be redeemed only in part shall be surrendered at the office or agency of
the Company in the Place of Payment with respect to that series (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing) and the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge, a new Security or Securities of
the same series and Stated Maturity and of like tenor and terms, of any
authorized denomination as requested by such Holder in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.
SECTION 11.08. Provisions with Respect to Any Sinking Funds.
Unless the form or terms of any series of Securities shall provide otherwise, in
lieu of making all or any part of any mandatory sinking fund payment with
respect to such series of Securities in cash, the Company may at its option (1)
deliver to the Trustee for cancelation any Securities of such series theretofore
acquired by the Company or converted by the Holder thereof into Common Stock or
other securities, or (2) receive credit for any
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Securities of such series (not previously so credited) acquired by the Company
(including by way of optional redemption (pursuant to the sinking fund or
otherwise but not by way of mandatory sinking fund redemption) or converted by
the Holder thereof into Common Stock or other securities and theretofore
delivered to the Trustee for cancelation, and if it does so then (i) Securities
so delivered or credited shall be credited at the applicable sinking fund
Redemption Price with respect to Securities of such series, and (ii) on or
before the 60th day next preceding each sinking fund Redemption Date with
respect to such series of Securities, the Company will deliver to the Trustee
(A) an Officers' Certificate specifying the portions of such sinking fund
payment to be satisfied by payment of cash and by delivery or credit of
Securities of such series acquired by the Company or converted by the Holder
thereof, and (B) such Securities, to the extent not previously surrendered. Such
Officers' Certificate shall also state the basis for such credit and that the
Securities for which the Company elects to receive credit have not been
previously so credited and were not acquired by the Company through operation of
the mandatory sinking fund, if any, provided with respect to such Securities and
shall also state that no Event of Default with respect to Securities of such
series has occurred and is continuing. All Securities so delivered to the
Trustee shall be canceled by the Trustee and no Securities shall be
authenticated in lieu thereof.
If the sinking fund payment or payments (mandatory or
optional) with respect to any series of Securities made in cash plus any unused
balance of any preceding sinking fund payments with respect to Securities of
such series made in cash shall exceed $50,000 (or a lesser sum if the Company
shall so request), unless otherwise provided by the terms of such series of
Securities, that cash shall be applied by the Trustee on the sinking fund
Redemption Date with respect to Securities of such series next following the
date of such payment to the redemption of Securities of such series at the
applicable sinking fund Redemption Price with respect to Securities of such
series, together with accrued interest, if any, to the date fixed for
redemption, with the effect provided in Section 11.06. The Trustee shall select,
in the manner provided in Section 11.03, for redemption on such sinking fund
Redemption Date a sufficient principal amount of Securities of such series to
utilize that cash and shall thereupon cause notice of redemption of the
Securities of such series for the sinking fund to be given in the manner
provided in Section 11.04 (and with the effect provided in Section 11.06) for
the redemption of Securities in part at the option of the Company. Any sinking
fund moneys not so
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applied or allocated by the Trustee to the redemption of Securities of such
series shall be added to the next cash sinking fund payment with respect to
Securities of such series received by the Trustee and, together with such
payment, shall be applied in accordance with the provisions of this Section
11.08. Any and all sinking fund moneys with respect to Securities of any series
held by the Trustee at the Maturity of Securities of such series, and not held
for the payment or redemption of particular Securities of such series, shall be
applied by the Trustee, together with other moneys, if necessary, to be
deposited sufficient for the purpose, to the payment of the principal of the
Securities of such series at Maturity.
On or before each sinking fund Redemption Date provided with
respect to Securities of any series, the Company shall pay to the Trustee in
cash a sum equal to all accrued interest, if any, to the date fixed for
redemption on Securities to be redeemed on such sinking fund Redemption Date
pursuant to this Section 11.08.
SECTION 11.09. Rescission of Redemption. In the event that
this Section 11.09 is specified to be applicable to a series of Securities
pursuant to Section 3.01 and a Redemption Rescission Event shall occur following
any day on which a notice of redemption shall have been given pursuant to
Section 11.04 hereof but at or prior to the time and date fixed for redemption
as set forth in such notice of redemption, the Company may, at its sole option,
at any time prior to the earlier of (i) the close of business on that day which
is two Trading Days following such Redemption Rescission Event and (ii) the time
and date fixed for redemption as set forth in such notice, 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 Company shall be deemed to have made such announcement
if it shall issue a release to the Dow Jones New Service, Reuters Information
Services or any successor news wire service. From and after the making of such
announcement, the Company shall have no obligation to redeem Securities called
for redemption pursuant to such notice of redemption or to pay the Redemption
Price therefor and all rights of Holders of Securities shall be restored as if
such notice of redemption had not been given. As promptly as practicable
following the making of such announcement, the Company shall telephonically
notify the Trustee and the Paying Agent of such rescission. The Company shall
give notice of any such rescission by first-class mail, postage
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prepaid, mailed as promptly as practicable but in no event later than the close
of business on that day which is five Trading Days following the Rescission Date
to each Holder of Securities at the close of business on the Rescission Date, to
any other Person that was a Holder of Securities and that shall have surrendered
Securities for conversion following the giving of notice of the subsequently
rescinded redemption and to the Trustee and the Paying Agent. Each notice of
rescission shall (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 Securities surrendered for conversion
following the day on which notice of redemption was given but on or prior to the
date of the mailing of the Company's notice of rescission, (y) be accompanied by
a form prescribed by the Company to be used by any Converting Holder rescinding
the conversion of Securities so surrendered for conversion (and instructions for
the completion and delivery of such form, including instructions with respect to
any payment that may be required to accompany such delivery) and (z) state that
such form must be properly completed and received by the Company no later than
the close of business on a date that shall be 1.5 Trading Days following the
date of the mailing of such notice of rescission.
ARTICLE XII
Conversion
SECTION 12.01. Conversion Privilege. In the event that this
Article XII is specified to be applicable to a series of Securities pursuant to
Section 3.01, the Holder of a Security of such series shall have the right, at
such Holder's option, to convert, in accordance with the terms of such series of
Securities and this Article XII, all or any part (in a denomination of, unless
otherwise specified in a Board Resolution or supplemental indenture with Respect
to Securities of such series, $1,000 in principal amount or any integral
multiple thereof) of such Security into shares of Common Stock or other
Marketable Securities specified in such Board Resolution at any time or, as to
any Securities called for redemption, at any time prior to the time and date
fixed for such redemption (unless the Company shall default in the payment of
the Redemption Price, in which case such right shall not terminate at such time
and date).
SECTION 12.02. Conversion Procedure; Rescission of Conversion;
Conversion Price; Fractional Shares.
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(a) Each Security to which this Article is applicable shall be convertible at
the office of the Conversion Agent, and at such other place or places, if any,
specified in a Board Resolution with respect to the Securities of such series,
into fully paid and nonassessable shares (calculated to the nearest 1/100th of a
share) of Common Stock or other Marketable Securities. The Securities will be
converted into shares of Common Stock or such other Marketable Securities at the
Conversion Price therefor. No payment or adjustment shall be made in respect of
dividends on the Common Stock or such other Marketable Securities, or accrued
interest on a converted Security except as described in Section 12.09. The
Company may, but shall not be required, in connection with any conversion of
Securities, to issue a fraction of a share of Common Stock or of such other
Marketable Security, and, if the Company shall determine not to issue any such
fraction, the Company shall, subject to Section 12.03(4), make a cash payment
(calculated to the nearest cent) equal to such fraction multiplied by the
Closing Price of the Common Stock or such other Marketable Security on the last
Trading Day prior to the date of conversion.
(b) Before any Holder of a Security shall be entitled to
convert the same into Common Stock or other Marketable Securities, such Holder
shall surrender such Security duly endorsed to the Company or in blank, at the
office of the Conversion Agent or at such other place or places, if any,
specified in a Board Resolution with respect to the Securities of such series,
and shall give written notice to the Company at said office or place that he
elects to convert the same and shall state in writing therein the principal
amount of Securities to be converted and the name or names (with addresses) in
which he wishes the certificate or certificates for Common Stock or for such
other Marketable Securities to be issued; provided, however, that no Security or
portion thereof shall be accepted for conversion unless the principal amount of
such Security or such portion, when added to the principal amount of all other
Securities or portions thereof then being surrendered by the Holder thereof for
conversion, exceeds the then effective Conversion Price with respect thereto. If
more than one Security shall be surrendered for conversion at one time by the
same Holder, the number of full shares of Common Stock or such other Marketable
Securities which shall be deliverable upon conversion shall be computed on the
basis of the aggregate principal amount of the Securities (or specified portions
thereof to the extent permitted thereby) so surrendered. Subject to the next
succeeding sentence, the Company will, as soon as practicable thereafter, issue
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and deliver at said office or place to such Holder of a Security, or to his
nominee or nominees, certificates for the number of full shares of Common Stock
or other Marketable Security to which he shall be entitled as aforesaid,
together, subject to the last sentence of paragraph (a) above, with cash in lieu
of any fraction of a share to which he would otherwise be entitled. The Company
shall not be required to deliver certificates for shares of Common Stock or
other Marketable Securities while the stock transfer books for such stock or the
transfer books for such Marketable Securities, as the case may be, or the
Security Register are duly closed for any purpose, but certificates for shares
of Common Stock or other Marketable Securities shall be issued and delivered as
soon as practicable after the opening of such books or Security Register. A
Security shall be deemed to have been converted as of the close of business on
the date of the surrender of such Security for conversion as provided above, and
the person or persons entitled to receive the Common Stock or other Marketable
Securities issuable upon such conversion shall be treated for all purposes as
the record Holder or Holders of such Common Stock or other Marketable Securities
as of the close of business on such date. In case any Security shall be
surrendered for partial conversion, the Company shall execute and the Trustee
shall authenticate and deliver to or upon the written order of the Holder of the
Securities so surrendered, without charge to such Holder (subject to the
provisions of Section 12.08), a new Security or Securities in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Security.
(c) Notwithstanding anything to the contrary contained herein,
in the event the Company shall have rescinded a redemption of Securities
pursuant to Section 11.09 hereof, any Holder of Securities that shall have
surrendered Securities for conversion following the day on which notice of the
subsequently rescinded redemption shall have been given but prior to the later
of (a) the close of business on the Trading Day next succeeding the date on
which public announcement of the rescission of such redemption shall have been
made and (b) the date of the mailing of the notice of rescission required by
Section 11.09 hereof (a "Converting Holder") may rescind the conversion of such
Securities surrendered for conversion by (i) properly completing a form
prescribed by the Company and mailed to Holders of Securities (including
Converting Holders) with the Company's notice of rescission, which form shall
provide for the certification by any Converting Holder rescinding a conversion
on behalf of any beneficial owner
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(within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of
Securities that the beneficial ownership (within the meaning of such Rule) of
such Securities shall not have changed from the date on which such Securities
were surrendered for conversion to the date of such certification and (ii)
delivering such form to the Company no later than the close of business on that
date which is fifteen Trading Days following the date of the mailing of the
Company's notice of rescission. The delivery of such form by a Converting Holder
shall be accompanied by (x) any certificates representing shares of Common Stock
or other securities issued to such Converting Holder upon a conversion of
Securities that shall be rescinded by the proper delivery of such form (the
"Surrendered Securities"), (y) any securities, evidences of indebtedness or
assets (other than cash) distributed by the Company to such Converting Holder by
reason of such Converting Holder being a record holder of Surrendered Securities
and (z) payment in New York Clearing House funds or other funds acceptable to
the Company of an amount equal to the sum of (I) any cash such Converting Holder
may have received in lieu of the issuance of fractional Surrendered Securities
and (II) any cash paid or payable by the Company to such Converting Holder by
reason of such Converting Holder being a record holder of Surrendered
Securities. Upon receipt by the Company of any such form properly completed by a
Converting Holder and any certificates, securities, evidences of indebtedness,
assets or cash payments required to be returned by such Converting Holder to the
Company as set forth above, the Company shall instruct the transfer agent or
agents for shares of Common Stock or other securities to cancel any certificates
representing Surrendered Securities (which Surrendered Securities shall be
deposited in the treasury of the Company) and shall instruct the Registrar to
reissue certificates representing Securities to such Converting Holder (which
Securities shall be deemed to have been outstanding at all times during the
period following their surrender for conversion). The Company shall, as promptly
as practicable, and in no event more than five Trading Days following the
receipt of any such properly completed form and any such certificates,
securities, evidences of indebtedness, assets or cash payments required to be so
returned, pay to the Holder of Securities surrendered to the Company pursuant to
a rescinded conversion or as otherwise directed by such Holder any interest paid
or other payment made to Holders of Securities during the period from the time
such Securities shall have been surrendered for conversion to the rescission of
such conversion. All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of
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any form submitted to the Company to rescind the conversion of Securities,
including questions as to the proper completion or execution of any such form or
any certification contained therein, shall be resolved by the Company, whose
determination shall be final and binding.
SECTION 12.03. Adjustment of Conversion Price for Common Stock
or Marketable Securities. The Conversion Price with respect to any Security
which is convertible into Common Stock or other Marketable Securities shall be
adjusted from time to time as follows:
(1) In case the Company shall, at any time or from time to
time while any of such Securities are outstanding, (i) pay a dividend
in shares of its Common Stock or other Marketable Securities, (ii)
combine its outstanding shares of Common Stock or other Marketable
Securities into a smaller number of shares or securities, (iii)
subdivide its outstanding shares of Common Stock or other Marketable
Securities or (iv) issue by reclassification of its shares of Common
Stock or other Marketable Securities any shares of stock or other
Marketable Securities of the Company, then the Conversion Price in
effect immediately before such action shall be adjusted so that the
Holders of such Securities, upon conversion thereof into Common Stock
or other Marketable Securities immediately following such event, shall
be entitled to receive the kind and amount of shares of capital stock
of the Company or other Marketable Securities which they would have
owned or been entitled to receive upon or by reason of such event if
such Securities had been converted immediately before the record date
(or, if no record date, the effective date) for such event. An
adjustment made pursuant to this Section 12.03(1) shall become
effective retroactively immediately after the record date in the case
of a dividend or distribution and shall become effective retroactively
immediately after the effective date in the case of a subdivision,
combination or reclassification. For the purposes of this Section
12.03(1), each Holder of Securities shall be deemed to have failed to
exercise any right to elect the kind or amount of securities receivable
upon the payment of any such dividend, subdivision, combination or
reclassification (provided that if the kind or amount of securities
receivable upon such dividend, subdivision, combination or
reclassification is not the same for each nonelecting share, then the
kind and amount of securities or other property receivable upon such
dividend, subdivision, combination or
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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).
(2) In case the Company shall, at any time or from time to
time while any of such Securities are outstanding, issue rights or
warrants to all holders of shares of its Common Stock or other
Marketable Securities entitling them (for a period expiring within 45
days after the record date for such issuance) to subscribe for or
purchase shares of Common Stock or other Marketable Securities (or
securities convertible into shares of Common Stock or other Marketable
Securities) at a price per share less than the Current Market Price of
the Common Stock or other Marketable Securities at such record date
(treating the price per share of the securities convertible into Common
Stock or other Marketable Securities as equal to (x) the sum of (i) the
price for a unit of the security convertible into Common Stock or other
Marketable Securities plus (ii) any additional consideration initially
payable upon the conversion of such security into Common Stock or other
Marketable Securities divided by (y) the number of shares of Common
Stock or other Marketable Securities initially underlying such
convertible security), the Conversion Price with respect to such
Securities shall be adjusted so that it shall equal the price
determined by dividing the Conversion Price in effect immediately prior
to the date of issuance of such rights or warrants by a fraction, the
numerator of which shall be the number of shares of Common Stock or
other Marketable Securities outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock
or other Marketable Securities offered for subscription or purchase (or
into which the convertible securities so offered are initially
convertible), and the denominator of which shall be the number of
shares of Common Stock or other Marketable Securities outstanding on
the date of issuance of such rights or warrants plus the number of
shares or securities which the aggregate offering price of the total
number of shares or securities so offered for subscription or purchase
(or the aggregate purchase price of the convertible securities so
offered plus the aggregate amount of any additional consideration
initially payable upon conversion of such Securities into Common Stock
or other Marketable Securities) would purchase at such Current Market
Price of the Common Stock or other Marketable Securities. Such
adjustment shall become effective retroactively immediately after
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the record date for the determination of stockholders entitled to
receive such rights or warrants.
(3) In case the Company shall, at any time or from time to
time while any of such Securities are outstanding, distribute to all
holders of shares of its Common Stock or other Marketable Securities
(including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing
corporation and the Common Stock or other Marketable Securities are not
changed or exchanged) cash, evidences of its indebtedness, securities
or assets (excluding (i) regular periodic cash dividends in amounts, if
any, determined from time to time by the Board of Directors, (ii)
dividends payable in shares of Common Stock or other Marketable
Securities for which adjustment is made under Section 12.03(1) or (iii)
rights or warrants to subscribe for or purchase securities of the
Company (excluding those referred to in Section 12.03(2)), then in each
such case the Conversion Price with respect to such Securities shall be
adjusted so that it shall equal the price determined by dividing the
Conversion Price in effect immediately prior to the date of such
distribution by a fraction, the numerator of which shall be the Current
Market Price of the Common Stock or other Marketable Securities on the
record date referred to below, and the denominator of which shall be
such Current Market Price of the Common Stock or other Marketable
Securities less the then fair market value (as determined by the Board
of Directors of the Company, whose determination shall be conclusive)
of the portion of the cash or assets or evidences of indebtedness or
securities so distributed or of such subscription rights or warrants
applicable to one share of Common Stock or one other Marketable
Security (provided that such denominator shall never be less than 1.0);
provided, however, that no adjustment shall be made with respect to any
distribution of rights to purchase securities of the Company if a
Holder of Securities would otherwise be entitled to receive such rights
upon conversion at any time of such Securities into Common Stock or
other Marketable Securities unless such rights are subsequently
redeemed by the Company, in which case such redemption shall be treated
for purposes of this Section as a dividend on the Common Stock or other
Marketable Securities. Such adjustment shall become effective
retroactively immediately after the record date for the determination
of stockholders or holders of Marketable Securities entitled to receive
such
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distribution; and in the event that such distribution is not so made,
the Conversion Price shall again be adjusted to the Conversion Price
which would then be in effect if such record date had not been fixed.
(4) The Company shall be entitled to make such additional
adjustments in the Conversion Price, in addition to those required by
subsections 12.03(1), 12.03(2) and 12.03(3), as shall be necessary in
order that any dividend or distribution of Common Stock or other
Marketable Securities, any subdivision, reclassification or combination
of shares of Common Stock or other Marketable Securities or any
issuance of rights or warrants referred to above shall not be taxable
to the holders of Common Stock or other Marketable Securities for
United States Federal income tax purposes.
(5) In any case in which this Section 12.03 shall require that
any adjustment be made effective as of or retroactively immediately
following a record date, the Company may elect to defer (but only for
five (5) Trading Days following the filing of the statement referred to
in Section 12.05) issuing to the Holder of any Securities converted
after such record date the shares of Common Stock and other capital
stock of the Company or other Marketable Securities issuable upon such
conversion over and above the shares of Common Stock and other capital
stock of the Company or other Marketable Securities issuable upon such
conversion on the basis of the Conversion Price prior to adjustment;
provided, however, that the Company shall deliver to such Holder a due
bill or other appropriate instrument evidencing such Holder's right to
receive such additional shares upon the occurrence of the event
requiring such adjustment.
(6) All calculations under this Section 12.03 shall be made to
the nearest cent or one-hundredth of a share or security, with one-half
cent and .005 of a share, respectively, being rounded upward.
Notwithstanding any other provision of this Section 12.03, the Company
shall not be required to make any adjustment of the Conversion Price
unless such adjustment would require an increase or decrease of at
least 1% of such price. Any lesser adjustment shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at
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least 1% in such price. Any adjustments under this Section 12.03 shall
be made successively whenever an event requiring such an adjustment
occurs.
(7) In the event that at any time, as a result of an
adjustment made pursuant to this Section 12.03, the Holder of any
Security thereafter surrendered for conversion shall become entitled to
receive any shares of stock of or other Marketable Securities of the
Company other than shares of Common Stock or Marketable Securities into
which the Securities originally were convertible, the Conversion Price
of such other shares or Marketable Securities so receivable upon
conversion of any such Security shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock and
Marketable Securities contained in subparagraphs (1) through (6) of
this Section 12.03, and the provision of Sections 12.01, 12.02 and
12.04 through 12.09 with respect to the Common Stock or other
Marketable Securities shall apply on like or similar terms to any such
other shares or Marketable Securities and the determination of the
Board of Directors as to any such adjustment shall be conclusive.
(8) No adjustment shall be made pursuant to this Section (i)
if the effect thereof would be to reduce the Conversion Price below the
par value (if any) of the Common Stock or other Marketable Security, if
any, or (ii) subject to 12.03(5) hereof, with respect to any Security
that is converted prior to the time such adjustment otherwise would be
made.
SECTION 12.04. Consolidation or Merger of the Company. In case
of either (a) any consolidation or merger to which the Company is a party, other
than a merger or consolidation in which the Company is the surviving or
continuing corporation and which does not result in a reclassification of, or
change (other than a change in par value or from par value to no par value or
from no par value to par value, as a result of a subdivision or combination) in,
outstanding shares of Common Stock or other Marketable Securities or (b) any
sale or conveyance of all or substantially all of the property and assets of the
Company to another Person, then each Security then Outstanding shall be
convertible from and after such merger, consolidation, sale or conveyance of
property and assets into the kind and amount of shares of stock or other
securities and property (including cash) receivable upon such consolidation,
merger,
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sale or conveyance by a holder of the number of shares of Common Stock or other
Marketable Securities into which such Securities would have been converted
immediately prior to such consolidation, merger, sale or conveyance, subject to
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article XII (and assuming such holder of Common
Stock or other Marketable Securities failed to exercise his rights of election,
if any, as to the kind or amount of securities, cash or other property
(including cash) receivable upon such consolidation, merger, sale or conveyance
(provided that, if the kind or amount of securities, cash or other property
(including cash) receivable upon such consolidation, merger, sale or conveyance
is not the same for each nonelecting share, then the kind and amount of
securities, cash or other property (including cash) receivable upon such
consolidation, merger, sale or conveyance for each nonelecting share, shall be
deemed to be the kind and amount so receivable per share by a plurality of the
nonelecting shares or securities)). The Company shall not enter into any of the
transactions referred to in clause (a) or (b) of the preceding sentence unless
effective provision shall be made so as to give effect to the provisions set
forth in this Section 12.04. The provisions of this Section 12.04 shall apply
similarly to successive consolidations, mergers, sales or conveyances.
SECTION 12.05. Notice of Adjustment. Whenever an adjustment in
the Conversion Price with respect to a series of Securities is required:
(1) the Company shall forthwith place on file with the Trustee
and any Conversion Agent for such Securities a certificate of the
Treasurer of the Company, stating the adjusted Conversion Price
determined as provided herein and setting forth in reasonable detail
such facts as shall be necessary to show the reason for and the manner
of computing such adjustment, such certificate to be conclusive
evidence that the adjustment is correct; and
(2) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price shall
forthwith be mailed, first class postage prepaid, by the Company to the
Holders of record of such Outstanding Securities.
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SECTION 12.06. Notice in Certain Events. In case:
(1) of a consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is
required, or of the sale or conveyance to another person or entity or
group of persons or entities acting in concert as a partnership,
limited partnership, syndicate or other group (within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934) of all or
substantially all of the property and assets of the Company; or
(2) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(3) of any action triggering an adjustment of the Conversion
Price pursuant to this Article XII;
then, in each case, the Company shall cause to be filed with the Trustee and the
Agent for the applicable Securities, and shall cause to be mailed, first class
postage prepaid, to the Holders of record of applicable Securities, at least
fifteen (15) days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of any
distribution or grant of rights or warrants triggering an adjustment to the
Conversion Price pursuant to this Article XII, or, if a record is not to be
taken, the date as of which the holders of record of Common Stock or other
Marketable Securities entitled to such distribution, rights or warrants are to
be determined, or (y) the date on which any reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation or winding up triggering an
adjustment to the Conversion Price pursuant to this Article XII is expected to
become effective, and the date as of which it is expected that holders of Common
Stock or other Marketable Securities of record shall be entitled to exchange
their Common Stock or other Marketable Securities for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding up.
Failure to give such notice or any defect therein shall not
affect the legality or validity of the proceedings described in clause (1), (2)
or (3) of this Section.
SECTION 12.07. Company To Reserve Stock or other Marketable
Securities; Registration; Listing. (a) The Company shall at all times reserve
and keep available, free
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from preemptive rights, out of its authorized but unissued shares of Common
Stock or other Marketable Securities, for the purpose of effecting the
conversion of the Securities, such number of its duly authorized shares of
Common Stock or number or principal amount of other Marketable Securities as
shall from time to time be sufficient to effect the conversion of all applicable
outstanding Securities into such Common Stock or other Marketable Securities at
any time (assuming that, at the time of the computation of such number of shares
or securities, all such Securities would be held by a single Holder); provided,
however, that nothing contained herein shall preclude the Company from
satisfying its obligations in respect of the conversion of the Securities by
delivery of purchased shares of Common Stock or other Marketable Securities
which are held in the treasury of the Company. The Company shall from time to
time, in accordance with the laws of the State of Delaware, use its best efforts
to cause the authorized amount of the Common Stock or other Marketable
Securities to be increased if the aggregate of the authorized amount of the
Common Stock or other Marketable Securities remaining unissued and the issued
shares of such Common Stock or other Marketable Securities in its treasury
(other than any such shares reserved for issuance in any other connection) shall
not be sufficient to permit the conversion of all Securities.
(b) If any shares of Common Stock or other Marketable
Securities which would be issuable upon conversion of Securities hereunder
require registration with or approval of any governmental authority before such
shares or securities may be issued upon such conversion, the Company will in
good faith and as expeditiously as possible endeavor to cause such shares or
securities to be duly registered or approved, as the case may be. The Company
will endeavor to list the shares of Common Stock or other Marketable Securities
required to be delivered upon conversion of the Securities prior to such
delivery upon the principal national securities exchange upon which the
outstanding Common Stock or other Marketable Securities is listed at the time of
such delivery.
SECTION 12.08. Taxes on Conversion. The Company shall pay any
and all documentary, stamp or similar issue or transfer taxes that may be
payable in respect of the issue or delivery of shares of Common Stock or other
Marketable Securities on conversion of Securities pursuant hereto. The Company
shall not, however, be required to pay any such tax which may be payable in
respect of any transfer involved in the issue or delivery of shares of Common
Stock or other Marketable Securities or the portion, if any, of the
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Securities which are not so converted in a name other than that in which the
Securities so converted were registered, and no such issue or delivery shall be
made unless and until the person requesting such issue has paid to the Company
the amount of such tax or has established to the satisfaction of the Company
that such tax has been paid.
SECTION 12.09. Conversion After Record Date. If any Securities
are surrendered for conversion subsequent to the record date preceding an
Interest Payment Date but on or prior to such Interest Payment Date (except
Securities called for redemption on a Redemption Date between such record date
and Interest Payment Date), the Holder of such Securities at the close of
business on such record date shall be entitled to receive the interest payable
on such securities on such Interest Payment Date notwithstanding the conversion
thereof. Securities surrendered for conversion during the period from the close
of business on any record date next preceding any Interest Payment Date to the
opening of business on such Interest Payment Date shall (except in the case of
Securities which have been called for redemption on a Redemption Date within
such period) be accompanied by payment in New York Clearing House funds or other
funds acceptable to the Company of an amount equal to the interest payable on
such Interest Payment Date on the Securities being surrendered for conversion.
Except as provided in this Section 12.09, no adjustments in respect of payments
of interest on Securities surrendered for conversion or any dividends or
distributions or interest on the Common Stock or other Marketable Securities
issued upon conversion shall be made upon the conversion of any Securities.
SECTION 12.10. Corporate Action Regarding Par Value of Common
Stock. Before taking any action which would cause an adjustment reducing the
applicable Conversion Price below the then par value (if any) of the shares of
Common Stock or other Marketable Securities deliverable upon conversion of the
Securities, the Company will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock or other Marketable
Securities at such adjusted Conversion Price.
SECTION 12.11. Company Determination Final. Any determination
that the Company or the Board of Directors must make pursuant to this Article is
conclusive.
SECTION 12.12. Trustee's Disclaimer. The Trustee has no duty
to determine when an adjustment under this
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Article should be made, how it should be made or what it should be. The Trustee
makes no representation as to the validity or value of any securities or assets
issued upon conversion of Securities. The Trustee shall not be responsible for
the Company's failure to comply with this Article. Each Conversion Agent other
than the Company shall have the same protection under this Section as the
Trustee.
ARTICLE XIII
Guarantees
SECTION 13.01. Guarantees. (a) Each of TBS and TWC irrevocably
and unconditionally guarantees (each, a "Guarantee"), to each Holder of
Securities (including each Holder of Securities issued under the Indenture after
the date of this Indenture) and to the Trustee and its successors and assigns
(i) the full and punctual payment of principal of and interest on the Securities
when due, whether at maturity, by acceleration, by redemption or otherwise, and
all other monetary obligations of the Company under this Indenture (including
obligations to the Trustee) and the Securities and (ii) the full and punctual
performance within applicable grace periods of all other obligations of the
Company under this Indenture and the Securities. Each of TBS and TWC further
agrees that its obligations hereunder shall be unconditional irrespective of the
absence or existence of any action to enforce the same, the recovery of any
judgment against the Company or the other Guarantor (except to the extent such
judgment is paid) or any waiver or amendment of the provisions of this Indenture
or the Securities to the extent that any such action or any similar action would
otherwise constitute a legal or equitable discharge or defense of a guarantor
(except that each such waiver or amendment shall be effective in accordance with
its terms).
(b) Each of TBS and TWC further agrees that each Guarantee
constitutes a guarantee of payment, performance and compliance and not merely of
collection.
(c) Each of TBS and TWC further agrees to waive presentment
to, demand of payment from and protest to the Company of any of the Guarantees,
and also waives diligence, notice of acceptance of its Guarantee, presentment,
demand for payment, notice of protest for nonpayment, the filing of claims with
a court in the event of merger or bankruptcy of the Company and any right to
require a proceeding first against the Company or any other Person. The
obligations of
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TBS and TWC shall not be affected by any failure or policy on the part of the
Trustee to exercise any right or remedy under this Indenture or the Securities
of any series.
(d) The obligation of each of TBS and TWC to make any payment
hereunder may be satisfied by causing the Company to make such payment. If any
Holder of any Security or the Trustee is required by any court or otherwise to
return to the Company, TBS or TWC, or any custodian, trustee, liquidator or
other similar official acting in relation to any of the Company, TBS or TWC, any
amount paid by any of them to the Trustee or such Holder, the Guarantee of TBS
and the Guarantee of TWC, to the extent theretofore discharged, shall be
reinstated in full force and effect.
(e) Each of TBS and TWC also agrees to pay any and all costs
and expenses (including reasonable attorneys' fees) incurred by the Trustee or
any Holder of Securities in enforcing any of their respective rights under the
Guarantees.
(f) Any term or provision of this Indenture to the contrary
notwithstanding, the maximum aggregate amount of each of the Guarantees of TWC
and TBS shall not exceed the maximum amount that can be guaranteed by the
relevant Guarantor without rendering the relevant Guarantee under this Indenture
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally.
<PAGE>
<PAGE>
106
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the day and year first above written.
TIME WARNER INC.,
by /s/ Thomas W. McEnerney
----------------------------------
Name: Thomas W. McEnerney
Title: Vice President
Attest:
/s/ Susan A. Waxenberg
- --------------------------------
Name: Susan A. Waxenberg
Title: Assistant Secretary
TIME WARNER COMPANIES, INC.,
by /s/ Thomas W. McEnerney
----------------------------------
Name: Thomas W. McEnerney
Title: Vice President
Attest:
/s/ Susan A. Waxenberg
- --------------------------------
Name: Susan A. Waxenberg
Title: Assistant Secretary
TURNER BROADCASTING SYSTEM, INC.,
by /s/ Thomas W. McEnerney
----------------------------------
Name: Thomas W. McEnerney
Title: Vice President
Attest:
/s/ Marie N .White
- --------------------------------
Name: Marie N. White
Title: Asst, Secretary
<PAGE>
<PAGE>
107
THE CHASE MANHATTAN BANK, as Trustee
by /s/ R. Lorenzen
---------------------------------
Name: R. Lorenzen
Title: Senior Trust Officer
Attest:
/s/ L. O'Brien
- --------------------------------
Name: L. O'Brien
Title: Senior Trust Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Time Warner Inc. for the six months ended June 30, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 344
<SECURITIES> 0
<RECEIVABLES> 3,074
<ALLOWANCES> 935
<INVENTORY> 2,617
<CURRENT-ASSETS> 4,429
<PP&E> 3,150
<DEPRECIATION> 1,143
<TOTAL-ASSETS> 31,850
<CURRENT-LIABILITIES> 4,014
<BONDS> 9,915
<COMMON> 6
1,859
3
<OTHER-SE> 9,311
<TOTAL-LIABILITY-AND-EQUITY> 31,850
<SALES> 6,809
<TOTAL-REVENUES> 6,809
<CGS> 3,964
<TOTAL-COSTS> 3,964
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 455
<INCOME-PRETAX> 223
<INCOME-TAX> 184
<INCOME-CONTINUING> 39
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
