<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1995
REGISTRATION NOS. 33-60203 AND 33-60203-01
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
TIME WARNER INC. TIME WARNER
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) FINANCING TRUST
13-1388520 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(I.R.S. EMPLOYER IDENTIFICATION NO.) TO BE APPLIED FOR
DELAWARE (I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF DELAWARE
INCORPORATION OR ORGANIZATION) (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
</TABLE>
75 ROCKEFELLER PLAZA
NEW YORK, N.Y. 10019
(212) 484-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF EACH
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PETER R. HAJE
EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
TIME WARNER INC.
75 ROCKEFELLER PLAZA
NEW YORK, N.Y. 10019
(212) 484-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JOHN M. BRANDOW WILLIAM P. ROGERS, JR. FAITH D. GROSSNICKLE
DAVIS POLK & WARDWELL CRAVATH, SWAINE & MOORE SHEARMAN & STERLING
450 LEXINGTON AVENUE WORLDWIDE PLAZA 599 LEXINGTON AVENUE
NEW YORK, N.Y. 10017 825 EIGHTH AVENUE NEW YORK, N.Y. 10022
(212) 450-4000 NEW YORK, N.Y. 10019-7415 (212) 848-8015
(212) 474-1270
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC : As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [x]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION) [LOGO]
ISSUED JULY 19, 1995
12,057,561 PERCS'r'
$ PREFERRED EXCHANGEABLE REDEMPTION CUMULATIVE SECURITIES (PERCS)
TIME WARNER FINANCING TRUST
------------------------
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
TIME WARNER INC.
------------------------
ISSUE PRICE AND AMOUNT PAYABLE UPON REDEMPTION BASED ON
THE PER SHARE PRICE OF COMMON STOCK OF HASBRO, INC.
------------------------
EXCHANGEABLE AT THE OPTION OF TIME WARNER INC.
FOR SHARES OF COMMON STOCK OF HASBRO, INC.
------------------------
The $ Preferred Exchangeable Redemption Cumulative Securities (the
'PERCS') offered hereby evidence preferred undivided beneficial interests in the
assets of Time Warner Financing Trust, a statutory business trust formed under
the laws of the State of Delaware (the 'Trust'). Time Warner Inc., a Delaware
corporation ('Time Warner'), will directly or indirectly own all the common
securities (the 'Common Securities' and, together with the PERCS, the 'Trust
Securities') representing undivided beneficial interests in the assets of the
Trust. The Trust exists for the purpose of issuing the Trust Securities and
investing the proceeds thereof in an equivalent amount of % Subordinated Notes
due December 23, 1997 (the 'Subordinated Notes') of Time Warner. If, as a result
of a default with respect to the Subordinated Notes, the assets of the Trust are
insufficient to make payments of distributions or payments upon liquidation,
redemption of the Trust Securities or otherwise, the holders of the PERCS will
be entitled to be paid prior to the holders of the Common Securities with
respect to such payments.
Holders of the PERCS are entitled to receive cumulative cash distributions
of $ per PERCS per annum, accruing from the date of issue and payable quarterly
in arrears on the 30th day of March, June, September and December of each year,
commencing September 30, 1995. The payment of distributions, out of moneys held
by the Trust, and payments in liquidation of the Trust and upon the redemption
of the PERCS are guaranteed by Time Warner (the 'Guarantee') to the extent the
Trust has funds available therefor. See 'Description of the Guarantee'. The
obligations of Time Warner under the Guarantee are subordinate and junior in
right of payment to all other liabilities of Time Warner and pari passu with the
most senior preferred stock issued, from time to time, if any, by Time Warner.
The obligations of Time Warner under the Subordinated Notes are subordinate and
junior in right of payment to all of Time Warner's present and future Senior
Indebtedness (as defined herein to include Time Warner's outstanding
indebtedness
(Cover continued on next page)
------------------------
APPLICATION HAS BEEN MADE TO LIST THE PERCS ON THE NEW YORK STOCK EXCHANGE UNDER
THE SYMBOL 'THA'. TRADING OF THE PERCS ON THE NEW YORK STOCK EXCHANGE IS
EXPECTED TO COMMENCE WITHIN A 30-DAY PERIOD AFTER THE INITIAL
DELIVERY OF THE PERCS.
------------------------
SEE 'RISK FACTORS' ON PAGE 11 HEREOF FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CAREFULLY CONSIDERED BY A PROSPECTIVE PURCHASER OF THE PERCS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $ A PERCS
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE TRUST(1)(3)
------------ -------------- ------------------
<S> <C> <C> <C>
Per PERCS........................................................... $ $ (3) $
Total............................................................... $ $ (3) $
</TABLE>
- ------------
(1) Plus a proportionate amount of the accrued distributions on the PERCS,
if any, from the date of issue.
(2) The Trust and Time Warner have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933. See 'Underwriters'.
(3) Because the gross proceeds of the sale of the PERCS will be invested in
the Subordinated Notes, Time Warner has agreed to pay to the
Underwriters a commission of $ per PERCS (or $ in the
aggregate). See 'Underwriters'.
-----------------------------
The PERCS are offered subject to prior sale, when, as and if accepted by
the Underwriters named herein, and subject to approval of certain legal matters
by Davis Polk & Wardwell and Shearman & Sterling, counsel for the Underwriters.
It is expected that delivery of PERCS will be made on or about , 1995 at
the offices of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in New York funds.
------------------------
MORGAN STANLEY & CO.
INCORPORATED
, 1995
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
(Cover continued from previous page)
(including its 8 3/4% Convertible Subordinated Debentures due 2015), guarantees,
letters of credit and certain other obligations), which aggregated approximately
$10.1 billion at March 31, 1995. In addition to such Senior Indebtedness, Time
Warner's obligations under the Guarantee and the Subordinated Notes are
effectively subordinated to all liabilities (including indebtedness) of its
consolidated and unconsolidated subsidiaries, which aggregated approximately
$13.9 billion at March 31, 1995.
On December 23, 1997 (the 'Mandatory Redemption Date'), or, if such date is
not a Business Day (as defined herein), the next succeeding Business Day, each
of the outstanding PERCS will be redeemed by the Trust, in cash, at a price per
PERCS equal to (a) the lesser of (i) $54.41 and (ii) the Exchange Valuation
Price (as defined herein) as of the Trading Day (as defined herein) immediately
preceding December 17, 1997, of one share of Hasbro Common Stock (as defined
herein) plus (b) an amount equal to all accrued and unpaid distributions thereon
to but excluding the Mandatory Redemption Date. The foregoing is subject to Time
Warner's right (the 'Time Warner Exchange Right') to require the holders of the
PERCS to exchange on the Mandatory Redemption Date PERCS for a combination of
Hasbro Common Stock and cash consisting of (a) one share of Hasbro Common Stock
per PERCS (the 'Exchange Rate') in respect of the portion of each PERCS to be
exchanged for Exchange Property (as defined herein), (b) cash in respect of the
portion, if any, of each PERCS that is not to be exchanged for Exchange Property
and (c) an amount in cash per PERCS equal to all accrued and unpaid
distributions on the PERCS; provided, that if the Exchange Valuation Price of
the Hasbro Common Stock as of the Trading Day immediately preceding December 17,
1997 is greater than $54.41 per share, Time Warner shall deliver in exchange for
each PERCS (a) such number of shares of Hasbro Common Stock and cash, if any,
having an aggregate value as of the Trading Day immediately preceding December
17, 1997, equivalent to $54.41 per PERCS and (b) an amount in cash equal to all
accrued and unpaid distributions thereon. The Exchange Rate will be subject to
adjustment upon the occurrence of certain events affecting the Hasbro Common
Stock. See 'Description of the PERCS -- Effect of the LYONs on the Time Warner
Exchange Right' and ' -- Adjustment of Exchange Rate and Exchange Property'.
Subject to the exercise by Time Warner of the Time Warner Exchange Right,
at any time and from time to time prior to the Mandatory Redemption Date, the
Trust may call for redemption the outstanding PERCS, in whole or in part (any
such redemption date an 'Optional Redemption Date') under the circumstances
described herein. See 'Description of the PERCS -- Early Redemption of the
PERCS' and ' -- Time Warner Exchange Right'. Upon any such redemption, each
holder of PERCS will receive in exchange for each PERCS so called (a) cash in an
amount initially equal to $ per PERCS, declining by $ on each day following
the date of issue of the PERCS (the 'Issue Date') to $ on October 23, 1997, and
equal to $54.41 thereafter (the 'Call Price'), plus (b) cash in an amount equal
to all accrued and unpaid distributions on such PERCS.
Upon the occurrence of a Tax Event or an Investment Company Event (each as
defined herein) arising from certain changes in law or legal interpretation,
Time Warner may dissolve the Trust with the result that the Subordinated Notes
will be distributed to the holders of the Trust Securities on a Pro Rata Basis
(as defined herein), in lieu of any cash distribution. In certain limited
circumstances Time Warner also will have the right to redeem the Subordinated
Notes for cash with the result that the Trust will redeem the PERCS and the
Common Securities on a Pro Rata Basis for cash at the Special Redemption Price
(as defined herein), plus accrued and unpaid distributions thereon. If the
Subordinated Notes are distributed to the holders of the PERCS, Time Warner will
use its reasonable best efforts to have the Subordinated Notes listed on the New
York Stock Exchange. See 'Description of the PERCS -- Special Event Distribution
or Redemption'.
The opportunity for equity appreciation afforded by an investment in the
PERCS is limited because the Mandatory Redemption Price is capped at $54.41. In
the event that the Exchange Valuation Price of the Hasbro Common Stock as of the
Trading Day immediately preceding (i) December 17, 1997, in the case of
mandatory redemption, or (ii) the Optional Redemption Date or Special Redemption
Date, in the case of any early redemption or special redemption, exceeds $54.41,
owners of the PERCS will receive shares of Hasbro Common Stock for each PERCS on
a less than one-for-one basis or cash in an amount that will be less than the
then current market price of one share of Hasbro Common Stock. Because the price
of Hasbro Common Stock is subject to market fluctuations, the amount of cash and
the value of the Hasbro Common Stock received by an owner of PERCS upon
mandatory redemption or any special redemption may be more or less than the
amount paid for the PERCS.
Holders of the PERCS have no right to require the early redemption of the
PERCS or the exchange of the PERCS into shares of Hasbro Common Stock.
The Hasbro Common Stock is listed on the American Stock Exchange ('AMEX'),
under the symbol 'HAS'. On , 1995, the closing price of the Hasbro
Common Stock on the AMEX was $ per share. See 'Price Range and Dividend
History of Hasbro Common Stock'.
2
<PAGE>
NO PERSON IS AUTHORIZED BY TIME WARNER, THE TRUST, THE UNDERWRITERS OR ANY
DEALER TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
SO AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE PERCS, THE GUARANTEE
AND THE SUBORDINATED NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of the Offering.......................................................................... 4
Risk Factors..................................................................................... 10
Time Warner Inc.................................................................................. 13
Time Warner Financing Trust...................................................................... 13
Hasbro, Inc...................................................................................... 14
Price Range and Dividend History of Hasbro Common Stock.......................................... 16
Recent Developments.............................................................................. 17
Selected Historical and Pro Forma Financial Information.......................................... 19
Consolidated Capitalization...................................................................... 24
Use of Proceeds.................................................................................. 25
Description of the PERCS......................................................................... 26
Description of the Guarantee..................................................................... 44
Description of the Subordinated Notes............................................................ 46
Effect of Obligations Under the Subordinated Notes and the Guarantee............................. 52
Federal Income Tax Considerations................................................................ 54
ERISA Considerations............................................................................. 56
Underwriters..................................................................................... 57
Legal Matters.................................................................................... 57
Experts.......................................................................................... 57
Available Information............................................................................ 58
Documents Incorporated by Reference.............................................................. 59
Glossary of Terms................................................................................ 60
</TABLE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE PERCS OFFERED
HEREBY, THE HASBRO COMMON STOCK (AS DEFINED HEREIN), THE LYONS (AS DEFINED
HEREIN) OR OTHER SECURITIES OF TIME WARNER OR HASBRO, INC. AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE AMERICAN STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
SUMMARY OF THE OFFERING
The following summary of provisions relating to the PERCS is qualified in
its entirety by the more detailed information contained elsewhere or
incorporated by reference in this Prospectus. Prospective purchasers of PERCS
should carefully review such information. Certain capitalized terms used in this
summary or elsewhere in this Prospectus have the meanings ascribed to them in
the Glossary of Terms herein.
GENERAL
The PERCS represent preferred undivided beneficial interests in the Trust's
assets, which will consist of the Subordinated Notes. Subject to the exercise by
Time Warner of the Time Warner Exchange Right, the PERCS are mandatorily
redeemable for cash on December 23, 1997. In addition, the PERCS may be called
for redemption in cash (a) in whole or in part, at any time or from time to time
prior to the Mandatory Redemption Date at the Call Price in effect at such time
and (b) under certain circumstances, upon the occurrence of a Tax Event or
Investment Company Event at the Special Redemption Price in effect at such time,
in each case plus accrued and unpaid distributions thereon. See 'Description of
the PERCS -- Mandatory Redemption of the PERCS', ' -- Early Redemption of the
PERCS' and ' -- Special Event Distribution or Redemption'. The Common Securities
will be redeemed on a Pro Rata Basis with the PERCS in the case of a mandatory,
early or special redemption. Any redemption of the PERCS for cash is subject to
the exercise by Time Warner of the Time Warner Exchange Right to require the
holders of the PERCS subject to such redemption to exchange on the Mandatory
Redemption Date or the applicable Optional Redemption Date or Special Redemption
Date, as the case may be, PERCS for Hasbro Common Stock or other Exchange
Property as described herein under 'Description of the PERCS -- Time Warner
Exchange Right'.
DISTRIBUTIONS
The holders of the PERCS are entitled to receive cumulative cash
distributions of $ per PERCS per annum, or $ per quarter, accruing from
, 1995 (the 'Issue Date') and payable quarterly in arrears on the 30th
day of March, June, September and December of each year, commencing September
30, 1995, or, if any such date is not a Business Day, the next succeeding
Business Day when, as and if available for payment by the Property Trustee,
except as otherwise described herein. The first distribution payment will be for
the period from and excluding the Issue Date to but excluding September 30,
1995. Distributions (or amounts equal to accrued and unpaid distributions)
payable on the PERCS for any period shorter than a quarterly distribution period
will be computed on the basis of a 360-day year of twelve 30-day months and on
the basis of the actual number of days elapsed in any such 30-day month. See
'Description of the PERCS -- Distributions'.
MANDATORY REDEMPTION OF THE PERCS
Subject to the exercise by Time Warner of the Time Warner Exchange Right,
on the Mandatory Redemption Date each of the outstanding PERCS will be redeemed
by the Trust, in cash, at a price per PERCS equal to (a) the lesser of (i)
$54.41 and (ii) an amount equal to the Exchange Valuation Price as of the
Trading Day immediately preceding December 17, 1997, of one share of Hasbro
Common Stock (or, following the occurrence of an Exchange Adjustment Event, such
amount of other Exchange Property as relates to one PERCS at such time) (the
'Mandatory Redemption Price') plus (b) an amount equal to all accrued and unpaid
distributions on such PERCS to but excluding the Mandatory Redemption Date. The
Exchange Property will be subject to adjustment upon the occurrence of certain
events affecting the Hasbro Common Stock. See 'Description of the
PERCS -- Mandatory Redemption of the PERCS'. The Exchange Valuation Price of the
Hasbro Common Stock or other Exchange Property as of any Trading Day will be
determined on the basis of the average of the closing sale prices of such
Exchange Property for the five consecutive Trading Day period ending on and
including such Trading Day. See 'Description of the PERCS -- Time Warner
Exchange Right'.
4
<PAGE>
EARLY REDEMPTION OF THE PERCS
Subject to the exercise by Time Warner of the Time Warner Exchange Right,
at any time and from time to time prior to the Mandatory Redemption Date, upon
the call for redemption prior to maturity by Time Warner of the Subordinated
Notes, the Trust shall call for redemption outstanding Trust Securities having
an aggregate stated amount equal to the aggregate principal amount of the
Subordinated Notes so redeemed and deliver to the holders thereof in exchange
for each Trust Security so called cash in an amount equal to the Call Price in
effect on the Optional Redemption Date, plus cash in an amount equal to all
accrued and unpaid distributions thereon for the period to but excluding the
Optional Redemption Date. The 'Call Price' is initially equal to $ per Trust
Security, declining by $ on each day following the Issue Date (computed on
the basis of a 360-day year of twelve 30-day months) to $ on October 23,
1997, and equal to $54.41 thereafter. See 'Description of the PERCS -- Early
Redemption of the PERCS'. The stated amount of each Trust Security is equal to
the per PERCS Price to Public shown on the cover page hereof. The principal
amount of each Subordinated Note is equal to the Minimum Denomination thereof.
TIME WARNER EXCHANGE RIGHT
Time Warner has the right to require the holders of outstanding PERCS
subject to mandatory redemption on the Mandatory Redemption Date or called for
redemption on any Optional Redemption Date or Special Redemption Date to
exchange such PERCS for a combination of shares of Hasbro Common Stock or other
Exchange Property and cash. If Time Warner shall have exercised the Time Warner
Exchange Right in respect of the Mandatory Redemption Date, each PERCS shall be
exchanged for (a) Exchange Property in respect of the portion of such PERCS to
be exchanged for Exchange Property, based on the Exchange Rate in effect on the
Trading Day immediately preceding December 17, 1997, (b) cash in respect of the
portion, if any, of such PERCS that is not to be exchanged for Exchange Property
and (c) cash in an amount equal to all accrued and unpaid distributions on such
PERCS to but excluding the Mandatory Redemption Date; provided that if the
Exchange Valuation Price as of the Trading Day immediately preceding December
17, 1997, of the amount of Exchange Property that relates to one PERCS is
greater than $54.41 (based on the Exchange Rate in effect as of such date), Time
Warner shall deliver in exchange for each PERCS in respect of which it exercised
the Time Warner Exchange Right (a) (i) Exchange Property (valued on the basis of
its Exchange Valuation Price as of such Trading Day) and (ii) at the option of
Time Warner, cash, having an aggregate value equal to $54.41 per PERCS and (b)
cash in an amount equal to all accrued and unpaid distributions on such PERCS to
but excluding the Mandatory Redemption Date.
If Time Warner shall have exercised the Time Warner Exchange Right in
respect of any Optional Redemption Date or Special Redemption Date, each PERCS
to be redeemed on any such date shall be exchanged for (a)(i) Exchange Property
(valued on the basis of its Exchange Valuation Price as of the Trading Day
immediately preceding the applicable Optional Redemption Date or Special
Redemption Date) and (ii) at the option of Time Warner, cash, having an
aggregate value equal to the Call Price or the Special Redemption Price in
effect for each PERCS on such Optional Redemption Date or Special Redemption
Date, as the case may be, and (b) cash in an amount equal to all accrued and
unpaid distributions on such PERCS to but excluding the applicable Optional
Redemption Date or Special Redemption Date, as the case may be.
Time Warner will provide notice of any exercise of the Time Warner Exchange
Right to the Property Trustee no later than 11:59 p.m., New York time, (a) on
the second Business Day following December 17, 1997, in the case of PERCS
subject to mandatory redemption and (b) on the Business Day immediately
preceding the applicable Optional Redemption Date or Special Redemption Date, in
the case of PERCS subject to early redemption or special redemption.
In the event that the Subordinated Notes have been distributed to the
holders of the PERCS, Time Warner will have the right to require the holders of
such Subordinated Notes at maturity or upon any optional or special redemption
thereof to exchange their Subordinated Notes for a combination of
5
<PAGE>
Exchange Property and cash as described herein. See 'Description of the
Subordinated Notes -- Time Warner Exchange Right'.
EFFECT OF TIME WARNER'S OUTSTANDING LIQUID YIELD OPTION NOTES DUE 2012 ON THE
TIME WARNER EXCHANGE RIGHT
On December 10, 1992, Time Warner issued a series of Liquid Yield Option
Notes due 2012 (Zero Coupon - Senior) (the 'LYONs' and each $1,000 principal
amount at maturity thereof a 'LYON'). The LYONs are exchangeable at any time on
or prior to maturity at the option of the holders thereof for 7.301 shares of
Hasbro Common Stock per LYON (or, at Time Warner's option, cash in an equivalent
amount), subject to adjustment upon the occurrence of certain events. On
December 17, 1997, Time Warner has the right to redeem the LYONs for cash at a
price of $397.27 per LYON (equal to the accreted value of each LYON as of such
date). The redemption price as of December 17, 1997, is equivalent to $54.41 per
share of underlying Hasbro Common Stock, calculated by dividing the $397.27
accreted value per LYON as of such date by the 7.301 shares of Hasbro Common
Stock into which such LYON may be exchanged, which is also the maximum price
payable per PERCS upon the mandatory redemption of the PERCS. Certain actions
taken by Time Warner with respect to the LYONs, including any decision by Time
Warner to satisfy any exchanges of the LYONs in cash or Hasbro Common Stock,
could affect the likelihood of Time Warner's exercise of the Time Warner
Exchange Right. See 'Description of the PERCS -- Effect of the LYONs on the Time
Warner Exchange Right'.
Time Warner will provide a copy of the Prospectus Supplement (and related
Prospectus) dated December 10, 1992, relating to the LYONs to a holder of PERCS
without charge on written or oral request to Time Warner at its principal place
of business.
SPECIAL EVENT DISTRIBUTION OR REDEMPTION
Upon the occurrence and during the continuation of a Tax Event or an
Investment Company Event, Time Warner may dissolve the Trust with the result
that the Subordinated Notes will be distributed to the holders of the Trust
Securities on a Pro Rata Basis, in lieu of any cash distribution. In certain
limited circumstances Time Warner also will have the right to redeem the
Subordinated Notes for cash with the result that the Trust will redeem the Trust
Securities on a Pro Rata Basis for cash at the Special Redemption Price. Any
such redemption is subject to the exercise by Time Warner of the Time Warner
Exchange Right. If the Subordinated Notes are distributed to the holders of the
PERCS, Time Warner will use its reasonable best efforts to have the Subordinated
Notes listed on the New York Stock Exchange. See 'Description of the
PERCS -- Special Event Distribution or Redemption'.
Under current United States Federal income tax law, a distribution of
Subordinated Notes upon a Tax Event or Investment Company Event would not be a
taxable event to holders of the PERCS. Upon occurrence of a Tax Event or an
Investment Company Event, however, a dissolution of the Trust in which holders
of the PERCS receive cash or a redemption of the PERCS upon which holders
receive cash would be a taxable event to such holders to the extent of such cash
payment. See 'Federal Income Tax Considerations'.
There can be no assurance as to the market prices for the PERCS or the
Subordinated Notes that may be distributed in exchange for PERCS if a
dissolution or liquidation of the Trust were to occur. Accordingly, the PERCS
that an investor may purchase, whether pursuant to the offer made hereby or in
the secondary market, or the Subordinated Notes that a holder of PERCS may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the PERCS offered hereby.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any liquidation, dissolution, winding-up or termination of
the Trust, whether voluntary or involuntary, the holders of the Trust Securities
on the date of such liquidation, dissolution, winding-up or termination will be
entitled to be paid on a Pro Rata Basis out of the assets of the Trust the
Liquidation Distribution unless, in connection with such liquidation,
dissolution, winding-up or
6
<PAGE>
termination, Subordinated Notes in an aggregate principal amount equal to the
aggregate stated amount of, and bearing accrued and unpaid interest equal to
accrued and unpaid distributions on, the Trust Securities have been distributed
on a Pro Rata Basis (without giving effect to the proviso in the definition of
such term) to the holders of the Trust Securities. See 'Description of the
PERCS -- Liquidation Distribution Upon Dissolution'.
So long as the PERCS are outstanding and are not held entirely by Time
Warner, the Trust will not be permitted to voluntarily liquidate, dissolve,
wind-up or terminate on or prior to the Mandatory Redemption Date except as
described under 'Description of the PERCS -- Special Event Distribution or
Redemption' and ' -- Additional Information Relating to the Trust'.
THE GUARANTEE
The Guarantee guarantees to the holders of the PERCS the payment of (i) (A)
any accrued and unpaid distributions that are required to be paid on the PERCS
and (B) subject to the exercise by Time Warner of the Time Warner Exchange
Right, the Mandatory Redemption Price, any Optional Redemption Price and any
Special Redemption Price with respect to PERCS subject to mandatory redemption
or called for redemption by the Trust, but if and only to the extent that, in
each case, Time Warner has made a payment of interest or principal on the
Subordinated Notes, as the case may be, and (ii) upon a voluntary or involuntary
liquidation, dissolution, winding-up or termination of the Trust (other than in
connection with the distribution of Subordinated Notes to the holders of PERCS
or the redemption of all the PERCS upon the maturity or redemption of the
Subordinated Notes), the lesser of (A) the Liquidation Distribution, to the
extent the Trust has funds available therefor or (B) the amount of assets of the
Trust remaining available for distribution to holders of the PERCS upon such
liquidation, dissolution, winding up or termination. The Guarantee will be a
full and unconditional guarantee with respect to the PERCS from the time of
issuance of such PERCS but will not apply to any payment of distributions or
other payments due to the extent the Trust shall lack funds available therefor
as a result of a failure by Time Warner to make payments of interest or
principal on the Subordinated Notes. To the extent Time Warner were to default
on its obligation to pay amounts payable on the Subordinated Notes, the Trust
would lack available funds for the payment of distributions or amounts payable
on redemption of the Trust Securities and, in such event, holders of the PERCS
would not be able to rely on the Guarantee for payment of such amounts. Instead,
holders of the PERCS would rely on the enforcement by the Property Trustee of
its rights as registered holder of the Subordinated Notes against Time Warner
pursuant to the terms of the Subordinated Notes and may also vote to appoint a
Special Regular Trustee who shall have the same rights, powers and privileges as
the Regular Trustees.
Time Warner and the Trust believe that the above mechanisms and obligations
relating to the Guarantee and the Subordinated Notes, taken together, are
equivalent to a full and unconditional guarantee by Time Warner of payments due
on the PERCS. See 'Risk Factors -- Ranking of Obligations Under the Guarantee
and the Subordinated Notes', 'Description of the Guarantee', 'Description of the
Subordinated Notes' and 'Effect of Obligations Under the Subordinated Notes and
the Guarantee'.
SUBORDINATED NOTES
The Subordinated Notes will be issued as unsecured, subordinated
obligations of Time Warner, limited in aggregate principal amount to
approximately $ , such amount being the sum of (i) the aggregate
stated liquidation amount of the PERCS and (ii) the proceeds received by the
Trust upon the issuance to Time Warner of the Common Securities. The
Subordinated Notes will mature on December 23, 1997, and will bear interest at
an annual rate of % (or $ on each Minimum Denomination per annum,
which is equivalent to the annual distribution payments that are due with
respect to the PERCS), payable quarterly in arrears on the 30th day of March,
June, September and December, commencing on September 30, 1995.
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The amount payable upon maturity for each Minimum Denomination of the
Subordinated Notes will be equal to (a) the lesser of (i) $54.41 and (ii) the
Exchange Valuation Price of such amount of Exchange Property as relates to such
Minimum Denomination (based on the Exchange Rate in effect on the Trading Day
immediately preceding December 17, 1997) plus (b) an amount equal to all accrued
and unpaid interest thereon.
Time Warner shall have the right to redeem the Subordinated Notes, in whole
or in part, from time to time, upon not less than 20 nor more than 45 Business
Days' notice, at a redemption price initially equal to $ per Minimum
Denomination of Subordinated Notes, declining by $ on each day
following the Issue Date to $ on October 23, 1997, and equal to $54.41
thereafter, plus an amount equal to all accrued and unpaid interest thereon to
but excluding the redemption date. Time Warner may also, under certain limited
circumstances, redeem the Subordinated Notes in whole upon the occurrence of a
Tax Event or an Investment Company Event at the Special Redemption Price,
together with accrued and unpaid interest thereon. See 'Description of the
Subordinated Notes -- Special Event Distribution or Redemption'.
If the Subordinated Notes have been distributed to holders of the PERCS,
the payment of cash at maturity or upon early redemption or special redemption
is subject to the exercise by Time Warner of the Time Warner Exchange Right. See
'Description of the Subordinated Notes -- Time Warner Exchange Right'.
Because holders of PERCS may receive Subordinated Notes upon the occurrence
of a Tax Event or an Investment Company Event, prospective purchasers of PERCS
are also making an investment decision with respect to the Subordinated Notes
and should carefully review all the information regarding the Subordinated Notes
contained herein. See 'Description of the PERCS -- Special Event Distribution or
Redemption' and 'Description of the Subordinated Notes'.
RANKING OF OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED NOTES
Time Warner's obligations under the Guarantee will be subordinate and
junior in right of payment to all liabilities of Time Warner, pari passu with
the most senior preferred stock outstanding or issued, from time to time, if
any, by Time Warner and senior to the common stock of Time Warner. Time Warner's
obligations to make payments of the principal of and interest on the
Subordinated Notes will be subordinated in right of payment to the extent set
forth in the Indenture to the prior payment in full of all of Time Warner's
present and future Senior Indebtedness (as defined herein to include Time
Warner's outstanding indebtedness (including its 8 3/4% Convertible Subordinated
Debentures due 2015), guarantees, letters of credit and certain other
obligations), which aggregated approximately $10.1 billion at March 31, 1995. In
addition to such Senior Indebtedness, Time Warner's obligations under the
Guarantee and the Subordinated Notes are effectively subordinated to all
liabilities (including indebtedness) of its consolidated and unconsolidated
subsidiaries, which aggregated approximately $13.9 billion at March 31, 1995.
Time Warner's ability to service its indebtedness, including the Subordinated
Notes, is dependent primarily on the earnings of its consolidated subsidiaries
and TWE, and the distribution of such earnings to Time Warner. Certain
agreements between Time Warner and certain of its subsidiaries, affiliates,
partners or creditors limit distributions and other transfers of funds to Time
Warner. In addition, as a result of the acquisition by subsidiaries of Time
Warner of certain cable systems, certain subsidiaries of Time Warner expect to
have outstanding indebtedness and bank credit facilities that contain
limitations on the ability of such subsidiaries to make distributions or other
payments to Time Warner. See 'Risk Factors -- Ranking of Obligations Under the
Guarantee and the Subordinated Notes', 'Description of the Guarantee -- Status
of the Guarantee' and 'Description of the Subordinated Notes -- Subordination'.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PERCS
If (i) the Trust fails to pay distributions on the PERCS and such failure
continues unremedied for 60 days or fails to pay the Redemption Payment Amount
in respect of any PERCS or (ii) a Declaration Event of Default occurs and is
continuing, then the holders of the PERCS will be entitled, by majority
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vote, to appoint a Special Regular Trustee, who will have the same rights,
powers and privileges as the Regular Trustees. In addition, in the case of a
failure to make payments as described in (i) above, to the extent Time Warner
has made payments to the Trust in respect of the Subordinated Notes in amounts
sufficient to make such payments of distributions or Redemption Payment Amounts,
the Guarantee Trustee will be entitled to enforce against Time Warner, for the
benefit of the holders of PERCS, its rights as the holder of the Guarantee. In
the case of a Declaration Event of Default as described in (ii) above, the
Property Trustee will be entitled to enforce against Time Warner, for the
benefit of the holders of PERCS, its rights as a holder of the Subordinated
Notes. The holders of a majority in aggregate liquidation amount of the PERCS
also will have certain rights to direct the Property Trustee in pursuing its
remedies against Time Warner as issuer of the Subordinated Notes. If the
Property Trustee fails to enforce its rights under the Subordinated Notes, a
holder of PERCS may, 30 days after such holder's written request to the Property
Trustee to enforce such rights, institute a legal proceeding directly against
Time Warner to enforce such rights without first instituting any legal
proceeding against the Property Trustee or any other person or entity.
LIMITED VOTING RIGHTS
Holders of PERCS will have limited voting rights and, except for the rights
of holders of PERCS to appoint a Special Regular Trustee upon the occurrence of
certain events described herein, will not be entitled to vote to appoint, remove
or replace, or to increase or decrease the number of, Time Warner Trustees,
which voting rights are vested exclusively in the holder of the Common
Securities. See 'Description of the PERCS -- Voting Rights' and
' -- Modification of the Declaration'.
ADDITIONAL INFORMATION RELATING TO THE TRUSTEES
Pursuant to the Declaration, the number of Time Warner Trustees will
initially be five. Three of the Time Warner Trustees (the 'Regular Trustees')
will be persons who are employees or officers of, or affiliated with, Time
Warner. The fourth trustee will be The First National Bank of Chicago, a
financial institution unaffiliated with Time Warner that will serve as Property
Trustee under the Declaration, as indenture trustee with respect to the PERCS
for purposes of the Trust Indenture Act and as Guarantee Trustee with respect to
the Guarantee for purposes of the Trust Indenture Act. The fifth trustee will be
an individual that will serve as Delaware Trustee for purposes of the Trust Act.
Chemical Bank, a financial institution unaffiliated with Time Warner, will serve
as Indenture Trustee with respect to the Subordinated Notes. See 'Description of
the PERCS -- Additional Information Relating to the Trust'.
USE OF PROCEEDS
The proceeds to the Trust from the sale of the PERCS offered hereby will be
approximately $ . The Trust will invest the proceeds in the
Subordinated Notes of Time Warner, the proceeds of which will be used by Time
Warner to repurchase, redeem or otherwise repay outstanding indebtedness. The
weighted average interest rate on Time Warner's outstanding indebtedness as of
March 31, 1995, was approximately 8.3%. The weighted average maturity of Time
Warner's outstanding indebtedness as of March 31, 1995, was approximately 15
years.
LISTING
Application has been made to list the PERCS on the New York Stock Exchange
(the 'NYSE') under the symbol 'THA'. Trading of the PERCS on the NYSE is
expected to commence within a 30-day period after the initial delivery of the
PERCS.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with Time
Warner's financial statements, with the PERCS shown as Company obligated
mandatorily redeemable preferred securities of subsidiary.
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RISK FACTORS
Prospective holders of the PERCS should carefully consider, in addition to
the other information set forth elsewhere in this Prospectus, the following:
RELATIONSHIP OF THE PERCS AND HASBRO COMMON STOCK
The amount that a holder of the PERCS will receive on the Mandatory
Redemption Date or on any Special Redemption Date is not fixed, but is based on
the market price of Hasbro Common Stock at that time. Accordingly, the amount
receivable by such holder on the Mandatory Redemption Date or on any Special
Redemption Date may be lower than, equal to or greater than the price paid by
any holder for the PERCS.
In addition, the opportunity for equity appreciation afforded by an
investment in the PERCS is limited because the Mandatory Redemption Price is
capped at $54.41. In the event that the Exchange Valuation Price as of the
Trading Day immediately preceding December 17, 1997, for the amount of Hasbro
Common Stock or other Exchange Property that relates to one PERCS is greater
than $54.41 (based on the Exchange Rate in effect as of such Trading Day),
holders of the PERCS would receive, upon the exercise of the Time Warner
Exchange Right, Hasbro Common Stock or other Exchange Property for each PERCS on
a less than one-for-one basis or cash in an amount that will be less than the
then current market price of one share of Hasbro Common Stock.
The market price of the PERCS at any time will be affected primarily by
changes in the price of Hasbro Common Stock. Accordingly, the PERCS that an
investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, may trade at a discount to the price that such investor paid
to purchase such PERCS. As indicated in 'Price Range and Dividend History of
Hasbro Common Stock', the price of Hasbro Common Stock has been volatile during
certain recent periods and may exhibit more or less volatility during the term
of the PERCS.
Although the amount that holders of the PERCS are entitled to receive on
the Mandatory Redemption Date or on any Special Redemption Date is subject to
adjustment for certain events, such as stock splits and combinations, stock
dividends and certain other actions of Hasbro that modify its capital structure,
such amount is not adjusted for other events, such as offerings of Hasbro Common
Stock for cash or in connection with acquisitions, that may adversely affect the
price of Hasbro Common Stock. In addition, until such time, if any, as Time
Warner shall deliver shares of Hasbro Common Stock to holders of the PERCS,
holders of the PERCS will not be entitled to any rights with respect to Hasbro
Common Stock (including without limitation voting rights and the rights to
receive any dividends or other distributions in respect thereof).
NO AFFILIATION BETWEEN TIME WARNER AND HASBRO
Time Warner has no affiliation with Hasbro other than its stock ownership
and contractual relationships in the ordinary course of business and, therefore,
has no greater access to information relating to Hasbro than any other
shareholder. Although Time Warner has no reason to believe the information
concerning Hasbro included or referred to herein is not reliable, neither Time
Warner nor the Underwriters warrant that there have not occurred events, not yet
publicly disclosed by Hasbro, which would affect either the accuracy or the
completeness of the information concerning Hasbro included or referred to
herein. See 'Hasbro, Inc.'
RANKING OF OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED NOTES
Time Warner's obligations under the Guarantee will be subordinate and
junior in right of payment to all liabilities of Time Warner, pari passu with
the most senior preferred stock outstanding or issued, from time to time, if
any, by Time Warner and senior to the common stock of Time Warner. Time Warner's
obligation to make payments of the principal of and interest on the Subordinated
Notes will be subordinated in right of payment to the extent set forth in the
Indenture to the prior payment in full of all of Time Warner's present and
future Senior Indebtedness (as defined herein to include Time Warner's
outstanding indebtedness (including Time Warner's outstanding 8 3/4% Convertible
Subordi-
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nated Debentures due 2015), guarantees, letters of credit and certain other
obligations), which aggregated approximately $10.1 billion at March 31, 1995. In
addition to such Senior Indebtedness, Time Warner's obligations under the
Guarantee and the Subordinated Notes are effectively subordinated to all
liabilities (including indebtedness) of its consolidated and unconsolidated
subsidiaries, which aggregated approximately $13.9 billion at March 31, 1995.
The indebtedness of Time Warner's consolidated and unconsolidated subsidiaries
is expected to increase by approximately $2.5 billion as a result of the
Transactions referred to under 'Recent Developments -- Certain Transactions'. In
addition, Time Warner's subsidiaries may incur indebtedness and other
liabilities and have obligations to third parties. Because Time Warner is a
holding company, the claims of such third parties to the assets of Time Warner's
subsidiaries generally will be superior to those of Time Warner as a
stockholder. There are no terms in the Trust Securities, the Subordinated Notes,
the Indenture or the Guarantee that limit Time Warner's ability to incur
additional indebtedness, including indebtedness that ranks senior to the
Subordinated Notes and the Guarantee. See ' -- Holding Company Structure' below
and 'Description of the Guarantee -- Status of the Guarantee' and 'Description
of the Subordinated Notes -- Subordination'.
RIGHTS UNDER THE GUARANTEE AND THE SUBORDINATED NOTES
The Guarantee will be a full and unconditional guarantee with respect to
the PERCS from the time of issuance of such PERCS but will not apply to any
payment of distributions or other amounts due to the extent Time Warner has
failed to make a payment of principal or interest on the Subordinated Notes. To
the extent Time Warner were to default on its obligation to pay amounts payable
on the Subordinated Notes, the Trust would lack available funds for the payment
of distributions on or amounts payable on redemption of the Trust Securities
and, in such event, holders of the PERCS would not be able to rely on the
Guarantee for payment of such amounts. Instead, holders of the PERCS would rely
on the enforcement by the Property Trustee of its rights as registered holder of
the Subordinated Notes against Time Warner pursuant to the terms of the
Indenture and may also vote to appoint a Special Regular Trustee who shall have
the same rights, powers and privileges as the Regular Trustees. Time Warner and
the Trust believe that the above mechanisms and obligations relating to the
Guarantee and the Subordinated Notes, taken together, are equivalent to a full
and unconditional guarantee by Time Warner of payments due on the PERCS. See
'Description of the PERCS -- Additional Information Relating to the Trust',
'Description of the Guarantee' and 'Description of the Subordinated Notes'.
HOLDING COMPANY STRUCTURE
The Trust's ability to make distributions and other payments on the PERCS
is solely dependent upon Time Warner's making interest and other payments on the
Subordinated Notes deposited as trust assets as and when required. Time Warner
is a holding company and its assets consist primarily of investments in its
subsidiaries. Time Warner Entertainment Company, L.P. ('TWE'), in which Time
Warner owns indirectly a 63.27% interest, which is not consolidated with Time
Warner for financial reporting purposes, also has substantial indebtedness and
other liabilities. See 'Time Warner Inc.' Time Warner's rights and the rights of
its creditors, including holders of Subordinated Notes, to participate in the
distribution of assets of any person in which Time Warner owns an equity
interest (including subsidiaries and TWE) upon such person's liquidation or
reorganization will be subject to prior claims of the person's creditors,
including trade creditors, except to the extent that Time Warner may itself be a
creditor with recognized claims against such person (in which case the claims of
Time Warner would still be subject to the prior claims of any secured creditor
of such person and of any holder of indebtedness of such person that is senior
to that held by Time Warner). Accordingly, the holders of Subordinated Notes may
be deemed to be effectively subordinated to such claims.
Time Warner's ability to service its indebtedness, including the
Subordinated Notes, and perform under the Guarantee is dependent primarily upon
the earnings of its subsidiaries and TWE and the distribution or other payment
of such earnings to Time Warner. The TWE Agreement of Limited Partnership and
the bank credit facilities of TWE and certain subsidiaries of Time Warner limit
distributions and other transfers of funds to Time Warner. Generally,
distributions by TWE other than
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tax distributions are subject to restricted payments limitations and
availability under certain financial ratios applicable to TWE contained in
certain bank credit facilities. As a result of the acquisition by subsidiaries
of Time Warner of certain cable systems, certain subsidiaries of Time Warner
expect to have outstanding indebtedness and bank credit facilities that contain
limitations on the ability of such subsidiaries or affiliates to make
distributions or other payments to Time Warner. See 'Selected Historical and Pro
Forma Financial Information'.
SPECIAL EVENT DISTRIBUTION OR REDEMPTION
Upon the occurrence of a Special Event, the Trust shall be dissolved,
except in the limited circumstance described below, with the result that the
Subordinated Notes would be distributed to the holders of the Trust Securities
in connection with the liquidation of the Trust. In certain circumstances, Time
Warner will have the right to redeem the Subordinated Notes, in whole or in part
in lieu of a distribution of the Subordinated Notes by the Trust, in which event
the Trust will redeem the Trust Securities on a Pro Rata Basis to the same
extent as the Subordinated Notes are redeemed by Time Warner. A Special Event
includes a Tax Event and an Investment Company Event. See 'Description of the
PERCS -- Special Event Distribution or Redemption'.
Under current United States Federal income tax law, a distribution of
Subordinated Notes upon the dissolution of the Trust would not be a taxable
event to holders of the PERCS. Upon occurrence of a Special Event, however, a
dissolution of the PERCS in which holders of the PERCS receive cash would be a
taxable event to such holders. See 'Federal Income Tax
Considerations -- Distribution of Subordinated Notes to Holders of PERCS'.
There can be no assurance as to the market prices for the Subordinated
Notes that may be distributed in exchange for the PERCS if a dissolution or
liquidation of the Trust were to occur. Accordingly, the Subordinated Notes that
a holder of PERCS may receive on dissolution and liquidation of the Trust may
trade at a discount to the price that the investor paid to purchase such PERCS.
Because holders of PERCS may receive Subordinated Notes upon the occurrence of a
Special Event, prospective purchasers of PERCS are also making an investment
decision with regard to the Subordinated Notes and should carefully review all
the information regarding the Subordinated Notes contained herein. See
'Description of the PERCS -- Special Event Distribution or Redemption' and
'Description of the Subordinated Notes -- General'.
LIMITED VOTING RIGHTS
Holders of PERCS will have limited voting rights and, except for the rights
of holders of the PERCS to appoint a Special Regular Trustee upon the occurrence
of certain events described herein, will not be entitled to vote, to appoint,
remove or replace, or to increase or decrease the number of, Regular Trustees,
which voting rights are vested exclusively in the holder of the Common
Securities.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
Application has been made to list the PERCS on the NYSE. PERCS are novel
and innovative securities and there is currently no secondary market for the
PERCS. There can be no assurance that a secondary market will develop or, if a
secondary market does develop, that it will provide the holders of the PERCS
with liquidity of investment or that it will continue for the life of the PERCS.
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TIME WARNER INC.
Time Warner Inc. ('Time Warner') is the largest media and entertainment
company in the world. Its businesses are conducted in five principal areas:
Publishing, Music, Filmed Entertainment, Programming-HBO and Cable. Publishing
consists principally of the publication and distribution of magazines and books;
Music consists principally of the production and distribution of recorded music
and the ownership and administration of music copyrights; Filmed Entertainment
consists principally of the production and distribution of motion pictures and
television programming, the distribution of video cassettes and the ownership
and operation of retail stores and theme parks; Programming-HBO consists
principally of the production and distribution of pay television and cable
programming; and Cable consists principally of the operation of cable television
systems.
Time Warner was incorporated in the State of Delaware in August 1983 and is
the successor to a New York corporation that was originally organized in 1922.
Time Warner changed its name from Time Incorporated to Time Warner Inc.
following its acquisition of 59.3% of the common stock of Warner Communications
Inc. ('WCI') in July 1989. WCI became a wholly owned subsidiary of Time Warner
in January 1990 upon the completion of the merger of WCI and a subsidiary of
Time Warner.
Time Warner Entertainment Company, L.P. ('TWE'), was formed as a Delaware
limited partnership in 1992 to own and operate substantially all of the Filmed
Entertainment, Programming-HBO and Cable businesses owned and operated by Time
Warner prior to such date. Certain wholly owned subsidiaries of Time Warner (the
'Time Warner General Partners') collectively own 63.27% of the pro rata priority
capital and residual equity interests in TWE and wholly owned subsidiaries of
ITOCHU Corporation, Toshiba Corporation and U S WEST Inc. ('U S WEST') own pro
rata priority capital and residual equity interests in TWE of 5.61%, 5.61% and
25.51%, respectively. In addition, the Time Warner General Partners own priority
capital interests senior and junior to the pro rata priority capital interests.
TWE is the principal component of Time Warner's Entertainment Group, which
is not consolidated with Time Warner for financial reporting purposes. Certain
cable systems to be acquired as a result of the Transactions referred to in
'Recent Developments -- Certain Transactions' will be owned by consolidated
subsidiaries of Time Warner. The balance of Time Warner's cable systems are
owned by TWE or the TWE-A/N Partnership (as defined herein), in which TWE owns a
two-thirds interest. Accordingly, although TWE will manage substantially all the
cable systems owned by Time Warner, TWE and the TWE-A/N Partnership, the results
of operations of the cable systems owned by Time Warner's consolidated
subsidiaries will be included in Time Warner's consolidated results, while the
results of operations of the cable systems owned by TWE and the TWE-A/N
Partnership will be included in the consolidated results of the Entertainment
Group. See 'Selected Historical and Pro Forma Financial Information'.
Time Warner is a holding company and its assets consist primarily of
investments in its consolidated and unconsolidated subsidiaries, including TWE.
Time Warner's ability to service its indebtedness, including the Subordinated
Notes, is dependent primarily upon the earnings of its consolidated and
unconsolidated subsidiaries, including TWE, and the distribution or other
payment of such earnings to Time Warner. See 'Risk Factors -- Holding Company
Structure'.
As used in this Prospectus, unless the context otherwise requires, the
terms 'Company' and 'Time Warner' refer to Time Warner Inc. and its consolidated
and unconsolidated subsidiaries and includes TWE.
Time Warner's principal executive offices are located at 75 Rockefeller
Plaza, New York, NY 10019, and its telephone number is (212) 484-8000.
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TIME WARNER FINANCING TRUST
Time Warner Financing Trust (the 'Trust') is a statutory business trust
formed under the Delaware Business Trust Act (the 'Trust Act') pursuant to (i) a
declaration of trust dated as of June 9, 1995, as amended and restated as of
, 1995 (as so amended and restated, the 'Declaration'), executed by Time
Warner, as sponsor, and the Time Warner Trustees (as defined below) and (ii) the
filing of a certificate of trust with the Delaware Secretary of State on June 9,
1995. The Declaration will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the 'Trust Indenture Act'). Time Warner will
directly or indirectly acquire Common Securities in an aggregate liquidation
amount equal to 3% of the total capital of the Trust. The Trust exists for the
exclusive purposes of (i) issuing and selling the Trust Securities representing
undivided beneficial interests in the assets of the Trust, (ii) investing the
gross proceeds of the Trust Securities in the Subordinated Notes and (iii)
engaging in only those other activities necessary or incidental thereto. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the PERCS except that if, as a result of a default with respect to
the Subordinated Notes, the assets of the Trust are insufficient to make
payments in respect of distributions and payments upon liquidation, redemption
of the Trust Securities and otherwise, the rights of the holders of the Common
Securities will be subordinated to the rights of the holders of the PERCS. The
term of the Trust will expire on December 31, 1998, but may earlier terminate as
provided in the Declaration. The Trust's business and affairs will be conducted
by the trustees (the 'Time Warner Trustees') appointed by Time Warner, as the
direct or indirect holder of all the Common Securities. The holder of the Common
Securities will be entitled to appoint, remove or replace any of, or increase or
reduce the number of, the Time Warner Trustees. The duties and obligations of
such Time Warner Trustees shall be governed by the Declaration, the Trust Act
and the Trust Indenture Act.
The rights of the holders of the PERCS, including economic rights, rights
to information and voting rights, are as set forth in the Declaration, the Trust
Act and the Trust Indenture Act. See 'Description of the PERCS'.
The place of business and the telephone number of the Trust are the
principal executive offices and telephone number of Time Warner.
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HASBRO, INC.
According to publicly available documents, Hasbro, Inc. ('Hasbro'), a Rhode
Island corporation based in Pawtucket, Rhode Island, designs, manufactures and
markets a diverse line of toy products and related items throughout the world.
Included in its offerings are games and puzzles, preschool, boys' action and
girls' toys, dolls, plush products and infant products, including infant
apparel. Hasbro also licenses various tradenames, characters and other property
rights for use in connection with the sale by others of noncompeting toys and
non-toy products. Hasbro is subject to the informational requirements of the
Exchange Act. Accordingly, Hasbro files reports, proxy statements and other
information with the Commission. Copies of such reports, proxy statements and
other information may be inspected and copied at the Commission locations listed
under 'Available Information' and at the offices of the American Stock Exchange,
86 Trinity Place, New York, New York 10013.
THIS PROSPECTUS RELATES ONLY TO THE PERCS, THE GUARANTEE AND THE
SUBORDINATED NOTES OFFERED HEREBY AND DOES NOT RELATE TO THE HASBRO COMMON STOCK
OR OTHER SECURITIES OF HASBRO. ALL DISCLOSURES CONTAINED IN THIS PROSPECTUS
REGARDING HASBRO ARE DERIVED FROM THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN
THE PRECEDING PARAGRAPH. NONE OF THE TRUST, TIME WARNER OR THE UNDERWRITERS HAS
PARTICIPATED IN THE PREPARATION OF SUCH DOCUMENTS OR MADE ANY DUE DILIGENCE
INQUIRY WITH RESPECT TO HASBRO. NONE OF THE TRUST, TIME WARNER OR THE
UNDERWRITERS MAKES ANY REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS OR
ANY OTHER PUBLICLY AVAILABLE INFORMATION REGARDING HASBRO ARE ACCURATE OR
COMPLETE. FURTHERMORE, THERE CAN BE NO ASSURANCE THAT ALL EVENTS (INCLUDING
EVENTS THAT WOULD AFFECT THE ACCURACY OR COMPLETENESS OF THE PUBLICLY AVAILABLE
DOCUMENTS DESCRIBED IN THE PRECEDING PARAGRAPH) THAT WOULD AFFECT THE TRADING
PRICE OF HASBRO COMMON STOCK (AND THEREFORE THE ISSUE PRICE OF THE PERCS), HAVE
BEEN, OR THAT ANY SUCH EVENTS OCCURRING AFTER THE DATE HEREOF WILL BE, PUBLICLY
DISCLOSED. SUBSEQUENT DISCLOSURE OF ANY PRIOR EVENTS OR THE DISCLOSURE OF OR
FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS CONCERNING HASBRO COULD AFFECT THE
AMOUNT OF CASH OR THE VALUE OR NUMBER OF SHARES OF HASBRO COMMON STOCK OR OTHER
EXCHANGE PROPERTY RECEIVED BY HOLDERS OF PERCS ON ANY EXCHANGE OR REDEMPTION OF
PERCS AND THEREFORE THE TRADING PRICES OF THE PERCS.
An indirect wholly-owned subsidiary of Time Warner held an aggregate of
12,057,561 shares, or approximately 13.75% as of March 31, 1995, of the
outstanding shares of Hasbro Common Stock, with sole voting and investment power
over all of such shares. Time Warner is not an affiliate of Hasbro and does not
have any material non-public information concerning Hasbro, including
information concerning Hasbro's plans with respect to any events, such as an
offering of Hasbro Common Stock for cash, that could affect the price of the
PERCS.
In the event that the entire series of PERCS is exchanged for shares of
Hasbro Common Stock on a one-for-one basis, Time Warner would have no further
holdings of Hasbro Common Stock. However, Time Warner cannot predict its or any
other stockholder's ownership of Hasbro Common Stock at the time of any
redemption of PERCS. In addition, there can be no assurance of an active trading
market for the Hasbro Common Stock at any time in the future. Subject to any
applicable limitations imposed by law, regulation or other governmental
authority, Time Warner or entities related to Time Warner may consider disposing
of or acquiring additional shares of Hasbro Common Stock or other securities of
Hasbro through open-market transactions, privately negotiated transactions or
otherwise. However, Time Warner has no current intention to dispose of any of
its Hasbro Common Stock prior to the Mandatory Redemption Date.
Hasbro is not involved in the offering of the PERCS and has no obligations
with respect to the PERCS, including any obligation to take the interests of
Time Warner, the Trust or of holders of PERCS into consideration for any reason.
Hasbro will not receive any of the proceeds of the offering of the PERCS made
hereby and is not responsible for, and has not participated in, the
determination of the timing of, prices for or quantities of, the PERCS offered
hereby or the determination or calculation of the number of shares of Hasbro
Common Stock or amount of cash to be received by holders of PERCS upon any
redemption or exchange of PERCS. Hasbro is not involved with the administration,
marketing or trading of the PERCS and has no obligations with respect to the
amount of cash, Hasbro Common Stock or other Exchange Property to be paid to
holders of PERCS upon any redemption or exchange.
15
<PAGE>
PRICE RANGE AND DIVIDEND HISTORY
OF HASBRO COMMON STOCK
Hasbro Common Stock is listed and traded on the AMEX under the symbol
'HAS'. The following table sets forth, for the periods indicated, the high and
low sales prices on the AMEX for, and cash dividends declared on, the common
stock, par value $.50 per share, of Hasbro (the 'Hasbro Common Stock') as
reported by the AMEX.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
------------ ------------ ---------
<S> <C> <C> <C>
Fiscal Year ended December 31, 1993:
First Quarter......................................................... $ 34 7/8 $ 28 1/8 $ .05
Second Quarter........................................................ 38 3/8 30 3/8 .06
Third Quarter......................................................... 40 34 .06
Fourth Quarter........................................................ 40 1/8 35 1/8 .06
Fiscal Year ended December 31, 1994:
First Quarter......................................................... 36 5/8 33 3/8 .06
Second Quarter........................................................ 36 1/8 28 1/8 .07
Third Quarter......................................................... 32 1/8 28 3/8 .07
Fourth Quarter........................................................ 33 1/2 27 7/8 .07
Fiscal Year ending December 31, 1995:
First Quarter......................................................... 33 7/8 28 3/8 .07
Second Quarter........................................................ 35 1/4 31 3/8 .08
Third Quarter (through July 14, 1995)................................. 31 5/8 30 --
</TABLE>
On July 17, 1995, the last reported sales price for the Hasbro Common Stock
on the AMEX was $31 3/8.
The information presented in this Prospectus relating to sales prices and
dividends for Hasbro Common Stock is furnished as a matter of information only
and was obtained from publicly available sources. Fluctuations in or levels of
sales prices that have occurred in the past are not necessarily indicative of
fluctuations in or levels of the sales prices of Hasbro Common Stock that may
occur over the term of the PERCS.
Neither the Trust nor Time Warner makes any representation as to the amount
of dividends, if any, that Hasbro will pay in the future. Time Warner will be
entitled to retain any dividends that are received by Time Warner on its Hasbro
Common Stock. ALTHOUGH THE EXCHANGE RATE AND EXCHANGE PROPERTY WILL BE ADJUSTED
IN THE EVENT OF CERTAIN EXTRAORDINARY CASH DIVIDENDS ON THE HASBRO COMMON STOCK
AS DESCRIBED HEREIN, NO SUCH ADJUSTMENT WILL BE MADE WITH RESPECT TO ORDINARY
PERIODIC CASH DIVIDENDS.
16
<PAGE>
RECENT DEVELOPMENTS
CERTAIN TRANSACTIONS
As summarized below and more fully described in Time Warner's Current
Report on Form 8-K dated May 30, 1995, Time Warner has recently entered into or
consummated a number of transactions to acquire, operate or dispose of cable
television systems and certain other assets. These transactions will, among
other things, result in the acquisition of cable systems by subsidiaries of Time
Warner serving approximately 2.2 million subscribers and a 50% interest in
Paragon Communications ('Paragon'), which serves 967,000 subscribers (the other
50% interest in Paragon is already owned by TWE).
Time Warner (i) closed on May 2, 1995, its acquisition of Summit
Communications Group, Inc. ('Summit'), (ii) closed on July 6, 1995, its
acquisition of KBLCOM Incorporated ('KBLCOM'), a subsidiary of Houston
Industries Incorporated, and (iii) agreed on February 6, 1995, to acquire
Cablevision Industries Corporation ('CVI') and related companies (collectively,
the 'Acquisitions'). To acquire Summit, Time Warner issued approximately 1.55
million shares of its common stock, and approximately 3.26 million shares of a
new convertible preferred stock ('Series C Preferred Stock') and assumed $146
million of indebtedness. To acquire KBLCOM, Time Warner issued one million
shares of its common stock and 11 million shares of a new convertible preferred
stock ('Series D Preferred Stock') and assumed or incurred approximately $1.3
billion of indebtedness, including $111 million of Time Warner's allocable share
of Paragon's indebtedness. To acquire CVI and its related companies, Time Warner
will issue 2.5 million shares of its common stock and 6.5 million shares of new
convertible preferred stock (3.25 million shares of Series E Preferred Stock and
3.25 million shares of Series F Preferred Stock) and assume or incur
approximately $2 billion of debt of CVI and its related companies.
On April 1, 1995, TWE and the Advance/Newhouse Partnership
('Advance/Newhouse'), a New York general partnership between Newhouse
Broadcasting Corporation and a wholly-owned subsidiary of Advance Publications,
Inc., formed a New York general partnership known as the Time Warner
Entertainment-Advance/Newhouse Partnership (the 'TWE-A/N Partnership'), in which
TWE owns a two-thirds equity interest and is the managing partner. The TWE-A/N
Partnership was formed to own and operate cable television systems (or interests
therein) serving approximately 4.5 million subscribers and certain foreign cable
investments and programming investments (the 'TWE-A/N Transaction').
TWE (i) on June 23, 1995, recapitalized Six Flags Entertainment Corporation
('Six Flags'), sold 51% of its interest therein and granted certain licenses to
Six Flags and (ii) announced on May 18, 1995, the sale of 15 of its unclustered
cable television systems serving approximately 144,000 subscribers (the 'Asset
Sale Transactions'). The net proceeds from the Asset Sale Transactions will be
used to reduce outstanding indebtedness of TWE.
On June 30, 1995, Time Warner and TWE executed a five-year revolving credit
facility (the 'New Credit Agreement'), pursuant to which TWE, the TWE-A/N
Partnership and a wholly owned subsidiary of Time Warner are the borrowers. The
New Credit Agreement will enable such entities to refinance certain indebtedness
assumed from the companies acquired or to be acquired in the Acquisitions, to
refinance existing indebtedness of TWE and to finance the ongoing working
capital, capital expenditure and other corporate needs of each borrower (the
'1995 Debt Refinancing').
The Acquisitions, TWE-A/N Transaction, Asset Sale Transactions and 1995
Debt Refinancing are collectively referred to herein as the 'Transactions'. For
a further discussion of the Transactions, reference is made to Time Warner's
Current Report on Form 8-K dated May 30, 1995, which is incorporated herein by
reference.
17
<PAGE>
RECENT FINANCIAL PERFORMANCE
Time Warner had revenues of $1.907 billion and a net loss of $8 million
($.03 per common share) for the three months ended June 30, 1995, compared to
revenues of $1.667 billion and a net loss of $20 million ($.06 per common share)
for the three months ended June 30, 1994. Time Warner's equity in the pretax
income of the Entertainment Group was $84 million in the three months ended June
30, 1995, compared to $66 million in the three months ended June 30, 1994.
Time Warner had revenues of $3.724 billion and a net loss of $55 million
($.17 per common share) for the six months ended June 30, 1995, compared to
revenues of $3.225 billion and a net loss of $71 million ($.20 per common share)
for the six months ended June 30, 1994. Time Warner's equity in the pretax
income of the Entertainment Group was $106 million in the six months ended June
30, 1995, compared to $111 million in the six months ended June 30, 1994.
18
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
TIME WARNER SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information of Time Warner set forth
below has been derived from and should be read in conjunction with the
consolidated financial statements and other financial information of Time Warner
contained in Time Warner's Annual Report on Form 10-K for the year ended
December 31, 1994, and with the unaudited consolidated condensed financial
statements contained in Time Warner's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, which are incorporated herein by reference. The
selected historical financial information for all periods after 1992 reflect the
deconsolidation of the Entertainment Group, principally TWE, effective January
1, 1993. The selected historical financial information for 1992 and periods
prior to such date have not been changed; however, selected financial
information for 1992 retroactively reflecting the deconsolidation is presented
as supplementary information under the column heading 'restated' to facilitate
comparative analysis. Capitalized terms are as defined and described in such
historical financial statements, or elsewhere herein.
The selected historical financial information for 1993 reflects the
issuance of $6.1 billion of long-term debt and the use of $500 million of cash
and equivalents in 1993 for the exchange or redemption of preferred stock having
an aggregate liquidation preference of $6.4 billion. The selected historical
financial information for 1992 reflects the capitalization of TWE on June 30,
1992, and associated refinancings, and the acquisition of the 18.7% minority
interest in American Television and Communications Corporation ('ATC') as of
June 30, 1992, using the purchase method of accounting for business
combinations. Per common share amounts and average common shares have been
restated to give effect to the four-for-one common stock split that occurred on
September 10, 1992.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED DECEMBER 31,
MARCH 31, --------------------------------------------------------
--------------- RESTATED
1995 1994 1994 1993 1992 1992 1991 1990
------ ------ ------ ------ -------- ------- ------- -------
(MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT INFORMATION
Revenues........................................ $1,817 $1,558 $7,396 $6,581 $6,309 $13,070 $12,021 $11,517
Depreciation and amortization................... 112 105 437 424 384 1,172 1,109 1,138
Business segment operating income............... 138 112 713 591 529 1,343 1,154 1,114
Equity in pretax income of Entertainment
Group......................................... 22 45 176 281 226 -- -- --
Interest and other, net......................... 155 158 724 718 351 882 966 1,133
Net income (loss)(a)(b)......................... (47) (51) (91) (221) 86 86 (99) (227)
Net loss applicable to common shares (after
preferred dividends).......................... (50) (54) (104) (339) (542) (542) (692) (786)
Per share of common stock:
Net loss(a)(b)............................. $ (.13) $ (.14) $ (.27) $ (.90) $(1.46) $ (1.46) $ (2.40) $ (3.42)
Dividends.................................. $ .09 $ .08 $ .35 $ .31 $ .265 $ .265 $ .25 $ .25
Average common shares(b)........................ 379.5 378.6 378.9 374.7 371.0 371.0 288.2 229.9
Ratio of earnings to fixed charges (deficiency
in the coverage of fixed charges by earnings
before fixed charges)(c)...................... 1.0x 1.0x 1.1x 1.1x 1.4x 1.4x 1.1x $ (101)
Ratio of earnings to combined fixed charges and
preferred stock dividends (deficiency in the
coverage of combined fixed charges and
preferred stock dividends by earnings before
fixed charges and preferred stock
dividends)(c)................................. $ (3) 1.0x 1.1x $ (91) $ (506) $ (509) $(1,240) $(1,335)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
MARCH 31, RESTATED
1995 1994 1993 1992 1992 1991 1990
--------- ------- ------- -------- ------- ------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION
Investments in and amounts due to and from Entertainment
Group................................................... $ 5,443 $ 5,350 $ 5,627 $ 5,392 $ -- $ -- $ --
Total assets.............................................. 16,608 16,716 16,892 17,043 27,366 24,889 25,337
Long-term debt............................................ 9,001 8,839 9,291 2,897 10,068 8,716 11,184
Shareholders' equity:
Preferred stock liquidation preference............... 140 140 140 6,532 6,532 6,256 5,954
Equity applicable to common stock.................... 973 1,008 1,230 1,635 1,635 2,242 360
Total shareholders' equity........................... 1,113 1,148 1,370 8,167 8,167 8,498 6,314
</TABLE>
- ------------
(a) The net loss for the year ended December 31, 1993, includes an
extraordinary loss on the retirement of debt of $57 million ($.15 per
common share) and an unusual charge of $70 million ($.19 per common share)
from the effect of the new income tax law on Time Warner's deferred income
tax liability. The net loss for the year ended December 31, 1991, includes
a $36 million after-tax charge ($.12 per common share) relating to the
restructuring of the Publishing division.
(b) In August 1991, Time Warner completed the sale of 137.9 million shares of
common stock pursuant to a rights offering. Net proceeds of $2.558 billion
from the rights offering were used to reduce indebtedness under Time
Warner's bank credit agreement. If the rights offering had been completed
at the beginning of 1991, net loss for the year would have been reduced to
$33 million, or $1.70 per common share, and there would have been 369.3
million shares of common stock outstanding during the year.
(c) For purposes of the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends, earnings
were calculated by adding pretax income, interest expense, previously
capitalized interest amortized to expense, the portion of rents
representative of an interest factor, Time Warner's proportionate share of
such items for its partially-owned subsidiaries and 50%-owned companies,
and undistributed losses of less-than-50%-owned companies. Fixed charges
consist of interest expense, interest capitalized, the portion of rents
representative of an interest factor and Time Warner's proportionate share
of such items for partially-owned subsidiaries and 50%-owned companies.
Combined fixed charges and preferred stock dividends also include the
amount of pretax income necessary to cover preferred stock dividend
requirements. For periods in which earnings before fixed charges were
insufficient to cover fixed charges or combined fixed charges and preferred
stock dividends, the dollar amount of coverage deficiency, instead of the
ratio, is disclosed. Earnings as defined include significant noncash
charges for depreciation and amortization. Fixed charges for the three
months ended March 31, 1995, and 1994 and the year ended December 31, 1994,
include noncash interest expense of $57 million, $52 million and $219
million, respectively, relating to Time Warner's Redeemable Reset Notes due
2002 and its Liquid Yield Option Notes due 2012 and 2013.
20
<PAGE>
ENTERTAINMENT GROUP SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information of the Entertainment Group
set forth below has been derived from and should be read in conjunction with the
consolidated financial statements and other financial information of Time Warner
and TWE contained in Time Warner's Annual Report on Form 10-K for the year ended
December 31, 1994, and with the unaudited consolidated condensed financial
statements and other financial information of Time Warner and TWE contained in
Time Warner's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995, which are incorporated herein by reference. The selected historical
financial information for all periods after 1992 give effect to TWE's
consolidation of Six Flags effective as of January 1, 1993, as a result of the
1993 Six Flags acquisition. The selected historical financial information for
periods prior to such date has not been changed; however, selected financial
information for 1992 retroactively reflecting the consolidation is presented as
supplementary information under the column heading 'restated' to facilitate
comparative analysis. For periods prior to January 1, 1993, the Entertainment
Group is consolidated with Time Warner for financial reporting purposes and,
accordingly, is also reflected in Time Warner's summary historical financial
data.
The selected historical financial information for 1993 gives effect to the
admission of U S WEST as an additional limited partner of TWE as of September
15, 1993, and the issuance of $2.6 billion of TWE debentures during the year to
reduce indebtedness under the TWE credit agreement, and for 1992 gives effect to
the initial capitalization of TWE and associated refinancings as of the dates
such transactions were consummated and Time Warner's acquisition of the ATC
minority interest as of June 30, 1992, using the purchase method of accounting
and reflected in the consolidated financial statements of TWE under the pushdown
method of accounting.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED DECEMBER 31,
MARCH 31, -----------------------------------------------------
--------------- RESTATED
1995 1994 1994 1993 1992 1992 1991 1990
------ ------ ------ ------ -------- ------ ------ ------
(MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT INFORMATION
Revenues................................................. $2,073 $1,927 $8,509 $7,963 $7,251 $6,761 $6,068 $5,671
Depreciation and amortization............................ 230 216 959 909 857 788 733 775
Business segment operating income........................ 201 206 852 905 855 814 724 549
Interest and other, net.................................. 164 146 616 564 569 531 526 648
Net income(loss)(a)...................................... 11 41 136 207 173 173 103 (180)
TWE ratio of earnings to fixed charges (deficiency in the
coverage of fixed charges by earnings before fixed
charges)(b)............................................ 1.1x 1.4x 1.4x 1.4x 1.4x 1.4x 1.4x $ (138)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
MARCH 31, RESTATED
1995 1994 1993 1992 1992 1991 1990
--------- ------- ------- -------- ------- ------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION
Total assets.............................................. $19,043 $18,992 $18,202 $ 16,733 $15,886 $14,230 $14,415
Long-term debt............................................ 7,162 7,160 7,125 7,684 7,171 4,571 6,516
Time Warner General Partners' senior capital.............. 1,696 1,663 1,536 -- -- -- --
Partners' capital......................................... 6,463 6,491 6,228 6,483 6,483 6,717 5,809
</TABLE>
- ------------
(a) Net income for the year ended December 31, 1993, includes an extraordinary
loss on the retirement of debt of $10 million.
(b) For purposes of the ratio of earnings to fixed charges, earnings were
calculated by adding pretax income, interest expense, previously
capitalized interest amortized to expense, the portion of rents
representative of an interest factor, TWE's proportionate share of such
items for its partially-owned subsidiaries and 50%-owned companies, and
undistributed losses of less-than-50%-owned companies. Fixed charges
consist of interest expense, interest capitalized, the portion of rents
representative of an interest factor and TWE's proportionate share of such
items for partially-owned subsidiaries and 50%-owned companies. For periods
in which earnings before fixed charges were insufficient to cover fixed
charges, the dollar amount of coverage deficiency, instead of the ratio, is
disclosed. Earnings as defined include significant noncash charges for
depreciation and amortization.
21
<PAGE>
TIME WARNER AND ENTERTAINMENT GROUP SELECTED PRO FORMA FINANCIAL INFORMATION
The unaudited selected pro forma balance sheet information of Time Warner
and the Entertainment Group at March 31, 1995, set forth below gives effect to
the Asset Sale Transactions, the TWE-A/N Transaction and the 1995 Debt
Refinancing and, with respect to Time Warner only, also gives effect to the
Acquisitions in each case as if such transactions occurred at such date. The
unaudited selected pro forma operating statement information of Time Warner and
the Entertainment Group for the three months ended March 31, 1995, and the year
ended December 31, 1994, set forth below gives effect to each applicable
transaction as if it had occurred at the beginning of such periods. No pro forma
effect has been given in the information set forth below to the issuance by Time
Warner of its $500,000,000 7.75% Notes due 2005 (the '7.75% Notes') and of the
PERCS offered hereby and the use of the net proceeds therefrom to repurchase,
redeem or otherwise repay outstanding indebtedness because such transaction will
not have a material effect on Time Warner (see 'Consolidated Capitalization').
The selected pro forma financial information should be read in conjunction with
the 'Time Warner Inc. and the Entertainment Group Pro Forma Consolidated
Condensed Financial Statements' included in Time Warner's Current Report on Form
8-K dated May 30, 1995, which is incorporated herein by reference.
The selected pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the financial position or
operating results that would have occurred if the transactions given retroactive
effect therein had been consummated as of the dates indicated, nor is it
necessarily indicative of future financial conditions or operating results.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, 1995 DECEMBER 31, 1994
----------------------- -----------------------
TIME ENTERTAINMENT TIME ENTERTAINMENT
WARNER GROUP WARNER GROUP
------ ------------- ------ -------------
(MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C>
PRO FORMA OPERATING STATEMENT INFORMATION
Revenues................................................................... $2,025 $ 2,264 $8,217 $ 8,790
Depreciation and amortization.............................................. 232 270 918 1,040
Business segment operating income.......................................... 149 239 645 928
Equity in pretax income of Entertainment Group............................. 56 -- 217 --
Interest and other, net.................................................... 220 168 938 651
Net income (loss).......................................................... (59) 41 (263) 183
Net loss applicable to common shares (after preferred dividends)........... (81) -- (353) --
Per share of common stock:
Net loss.............................................................. (.21) -- (.92) --
Dividends............................................................. (.09) -- (.35) --
Average common shares...................................................... 384.6 -- 384.0 --
Time Warner and TWE ratio of earnings to fixed charges (deficiency in the
coverage of fixed charges by earnings before fixed charges)(a)........... $ (18) 1.6x $ (73) 1.7x
Time Warner deficiency in the coverage of combined fixed charges and
preferred stock dividends by earnings before fixed charges and preferred
stock dividends(a)....................................................... $ (55) -- $ (209) --
</TABLE>
- ------------
(a) For purposes of the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends, earnings
were calculated by adding pretax income, interest expense, previously
capitalized interest amortized to expense, the portion of rents
representative of an interest factor, the proportionate share for each of
Time Warner and TWE, respectively, of such items for its partially-owned
subsidiaries and 50%-owned companies, and undistributed losses of
less-than-50%-owned companies. Fixed charges consist of interest expense,
interest capitalized, the portion of rents representative of an interest
factor and the proportionate share for each of Time Warner and TWE,
respectively, of such items for partially-owned subsidiaries and 50%-owned
companies. Combined fixed charges and preferred stock dividends also
include the amount of pretax income necessary to cover preferred stock
dividend requirements. For periods in which earnings before fixed charges
were insufficient to cover fixed charges or combined fixed charges and
preferred stock dividends, the dollar amount of coverage deficiency,
instead of the ratio, is disclosed. Earnings as defined include significant
noncash charges for depreciation and amortization. Fixed charges for Time
Warner for the three months ended March 31, 1995, and the year ended
December 31, 1994, included noncash interest expense of $57 million and
$219 million, respectively, relating to Time Warner's Redeemable Reset
Notes due 2002 and its Liquid Yield Option Notes due 2012 and 2013.
22
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1995
-----------------------
TIME ENTERTAINMENT
WARNER GROUP
------ -------------
(MILLIONS)
<S> <C> <C>
PRO FORMA BALANCE SHEET INFORMATION
Investments in and amounts due to and from Entertainment Group....................................... $5,401 $ --
Total assets......................................................................................... 24,566 18,916
Long-term debt....................................................................................... 12,374 6,268
Shareholders' equity:
Preferred stock liquidation preference.......................................................... 2,240 --
Equity applicable to common stock............................................................... 1,200 --
Total shareholders' equity...................................................................... 3,440 --
Time Warner General Partners' senior capital......................................................... -- 1,696
Partners' capital.................................................................................... -- 6,421
</TABLE>
23
<PAGE>
CONSOLIDATED CAPITALIZATION
The consolidated historical and pro forma capitalization of Time Warner and
Time Warner's Entertainment Group, consisting principally of TWE, at March 31,
1995, is set forth below. The Entertainment Group is not consolidated with Time
Warner for financial reporting purposes. The consolidated pro forma
capitalization of Time Warner and the Entertainment Group gives effect to the
Asset Sale Transactions, the TWE-A/N Transaction and the 1995 Debt Refinancing
and, with respect to Time Warner only, also gives effect to the Acquisitions, in
each case as if such transactions occurred at such date. The consolidated pro
forma, as adjusted capitalization of Time Warner gives effect to the
Transactions, the issuance of the 7.75% Notes and the issuance of the PERCS
offered hereby, as if such transactions occurred at such date. Although the
proceeds to Time Warner of the issuance of the 7.75% Notes and of the PERCS
offered hereby will be used to reduce outstanding indebtedness of Time Warner,
Time Warner has not yet determined which indebtedness it will repurchase, redeem
or otherwise repay. See 'Use of Proceeds'. The pro forma capitalization is
presented for informational purposes only and is not necessarily indicative of
the future capitalization of Time Warner and the Entertainment Group.
<TABLE>
<CAPTION>
TIME WARNER INC. ENTERTAINMENT GROUP
------------------------------------ ---------------------
PRO PRO FORMA PRO
HISTORICAL FORMA AS ADJUSTED HISTORICAL FORMA
---------- ------- ----------- ---------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Long-term debt:
7.45% and 7.95% notes......................................... $ 1,000 $ 1,000 $ 1,000 $ -- $ --
Redeemable reset notes (8.7% yield)........................... 1,755 1,755 1,755 -- --
Zero coupon liquid yield option notes due 2012 (6.25%
yield)...................................................... 555 555 555 -- --
Zero coupon convertible notes (5% yield)...................... 982 982 982 -- --
8.75%, 9.125% and 9.15% Debentures............................ 2,248 2,248 2,248 -- --
8.75% Convertible subordinated debentures..................... 2,226 2,226 2,226 -- --
7.75% Notes due 2005.......................................... -- -- 497 -- --
Debt due to TWE (7.13% interest rate)(b)...................... 400 400 400 -- --
CVI 10 3/4% Senior notes...................................... -- 300 300 -- --
CVI 9 1/4% Senior debentures.................................. -- 200 200 -- --
Summit 10 1/2% Senior subordinated debentures................. -- 140 140 -- --
New credit agreement(c)....................................... -- 2,733 2,733 -- 1,682
TWE credit agreement (weighted average interest rate of
6.8%)(d)(e)................................................. -- -- -- 2,450 --
TWE commercial paper (weighted average interest rate of
6.5%)(e).................................................... -- -- -- 748 748
Six Flags 9.25% zero coupon notes(f).......................... -- -- -- 126 --
TWE 8 7/8%, 9 5/8% and 10.15% Notes(e)........................ -- -- -- 1,197 1,197
TWE 7 1/4%, 8 3/8% and 8 3/8% Debentures(e)................... -- -- -- 2,583 2,583
Other......................................................... 235 235 235 58 58
Reduction of debt with proceeds from the issuance of the 7.75%
Notes and of the PERCS offered hereby....................... -- -- ()(a) -- --
---------- ------- ----------- ---------- -------
Subtotal...................................................... 9,401 12,774 7,162 6,268
Reclassification of debt due to TWE to investments in and
amounts due to the Entertainment Group(b)................... (400) (400) (400) -- --
---------- ------- ----------- ---------- -------
Total long-term debt..................................... 9,001 12,374 7,162 6,268
Company obligated mandatorily redeemable preferred securities of
subsidiary(g).................................................... -- -- (a) -- --
Shareholders' equity:
Preferred stock liquidation preference........................ 140 2,240 2,240 -- --
Equity applicable to common stock............................. 973 1,200 1,200 -- --
---------- ------- ----------- ---------- -------
Total shareholders' equity.................................... 1,113 3,440 3,440 -- --
Time Warner General Partners' senior capital....................... -- -- -- 1,696 1,696
Partners' capital.................................................. -- -- -- 6,463 6,421
---------- ------- ----------- ---------- -------
Total capitalization............................................... $ 10,114 $15,814 $ $ 15,321 $14,385
---------- ------- ----------- ---------- -------
---------- ------- ----------- ---------- -------
</TABLE>
24
<PAGE>
(a) Although the proceeds to Time Warner of the issuance of the 7.75% Notes and
of the PERCS offered hereby will be used to reduce outstanding indebtedness
of Time Warner, Time Warner has not yet determined which indebtedness it
will repurchase, redeem or otherwise repay.
(b) Time Warner and TWE entered into a credit agreement in 1994 that allows
Time Warner to borrow up to $400 million from TWE through September 15,
2000. Outstanding borrowings from TWE bear interest at LIBOR plus 1% per
annum. Under TWE's bank credit agreement, TWE is permitted to loan to Time
Warner up to $1.5 billion. For financial reporting purposes, the $400
million of currently outstanding loans from TWE to Time Warner have been
reclassified and shown as a reduction in Time Warner's investments in and
amounts due to the Entertainment Group.
(c) The New Credit Agreement permits borrowings in an aggregate amount of up to
$8.3 billion. Borrowings are limited to $4 billion in the case of TWI
Cable, $5 billion in the case of the TWE-A/N Partnership and $8.3 billion
in the case of TWE, subject in each case to certain limitations and
adjustments. Such borrowings will bear interest at different rates for each
of the three borrowers, generally equal to LIBOR plus a margin ranging from
50 to 87.5 basis points based on the credit rating or financial leverage of
the applicable borrower. The New Credit Agreement contains certain
covenants for each borrower relating to, among other things, additional
indebtedness; liens on assets; cash flow coverage and leverage ratios; and
loans, advances, distributions and other cash payments or transfers of
assets from the borrowers to their respective partners or affiliates. See
'Recent Developments' and Time Warner's Current Report on Form 8-K dated
May 30, 1995, incorporated by reference herein for a description of the New
Credit Agreement.
(d) As of March 31, 1995, the TWE bank credit agreement provided for up to $5.2
billion of borrowings and consisted of a $4.2 billion revolving credit
facility with available credit reducing at June 30, 1995, and thereafter by
$200 million per quarter through June 30, 1996, by $125 million per quarter
from September 30, 1996, through September 30, 1999, and by $1.575 billion
at final maturity on December 31, 1999; and a $986 million term loan with
repayments of $66 million on June 30, 1995, $98 million per quarter
beginning September 30, 1995, through March 31, 1996, $27 million per
quarter beginning June 30, 1996, through June 30, 1999, $20 million on
September 30, 1999, and a final repayment of $255 million on December 31,
1999. Unused credit is available for general business purposes and to
support commercial paper borrowings. Outstanding borrowings under the
credit agreement generally bear interest at LIBOR plus 5/8% per annum.
(e) Guaranteed by certain subsidiaries of Time Warner which are the general
partners of TWE.
(f) Guaranteed by TWE.
(g) The sole assets of the subsidiary that is the obligor on the preferred
securities are the Subordinated Notes.
USE OF PROCEEDS
The proceeds to the Trust from the sale of the PERCS offered hereby will be
approximately $ . The Trust will invest the proceeds in Subordinated
Notes of Time Warner, the proceeds of which will be used by Time Warner to
repurchase, redeem or otherwise repay outstanding indebtedness. The weighted
average interest rate on Time Warner's outstanding indebtedness as of March 31,
1995, was approximately 8.3%. The weighted average maturity of Time Warner's
outstanding indebtedness as of March 31, 1995, was approximately 15 years.
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DESCRIPTION OF THE PERCS
The PERCS will be issued pursuant to the terms of the Declaration. The
Declaration will be qualified as an indenture under the Trust Indenture Act. The
First National Bank of Chicago will act as the indenture trustee (the 'Property
Trustee') with respect to the PERCS for purposes of compliance with the
provisions of the Trust Indenture Act. The terms of the PERCS will include those
stated in the Declaration and those made part of the Declaration by the Trust
Indenture Act. The following summary of the principal terms and provisions of
the PERCS does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the Declaration, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, the
Trust Act and the Trust Indenture Act. The Trust will provide a copy of the
Declaration, the Guarantee or the Indenture to a holder of PERCS without charge
on written request to the Trust at its principal place of business.
GENERAL
The Declaration authorizes the Regular Trustees to issue the PERCS on
behalf of the Trust, which represent preferred undivided beneficial interests in
the Trust's assets, which will consist of the Subordinated Notes. All the Common
Securities will be owned, directly or indirectly, by Time Warner. The PERCS rank
pari passu, and payments will be made thereon on a Pro Rata Basis (as defined
herein), with the Common Securities, except that if, as a result of a default
with respect to the Subordinated Notes, the assets of the Trust are insufficient
to make payments of distributions or payments upon liquidation, redemption of
the Trust Securities or otherwise, the rights of the holders of the Common
Securities to receive such payments will be subordinated to the rights of the
holders of the PERCS. The Declaration does not permit the issuance by the Trust
of any securities (other than the Trust Securities) or the incurrence by the
Trust of any indebtedness. Pursuant to the Declaration, the Property Trustee
will own and hold the Subordinated Notes for the benefit of the holders of the
Trust Securities.
DISTRIBUTIONS
The holders of the PERCS are entitled to receive cumulative cash
distributions of $ per PERCS per annum, or $ per quarter, accruing from
and including the Issue Date and payable quarterly in arrears on the 30th day of
March, June, September and December of each year, commencing September 30, 1995,
except as described below, but only if and to the extent that interest payments
are made in respect of the Subordinated Notes held by the Property Trustee. The
first distribution payment will be for the period from the Issue Date to but
excluding September 30, 1995. Distributions will cease to accrue in respect of
the PERCS on the Mandatory Redemption Date, or on the date of any earlier
redemption of the PERCS, unless either (a) the Trust defaults in the payment of
the Mandatory Redemption Price, the Call Price or the Special Redemption Price
(each of the foregoing a 'Redemption Payment Amount'), as the case may be, or
(b) if Time Warner has exercised the Time Warner Exchange Right, Time Warner
defaults in the delivery of the shares of Hasbro Common Stock or other Exchange
Property and any cash payable upon such exchange.
Distributions on the PERCS must be paid on the dates payable to the extent
that the Trust has funds available for the payment of such distributions in the
Property Account (as defined herein). Distributions in arrears for more than one
quarter will bear interest at the rate per annum of % (to the extent
permitted by law), compounded quarterly. Funds available for distribution to the
holders of the PERCS will be limited to payments received under the Subordinated
Notes deposited in the Trust as trust assets. See 'Description of the
Subordinated Notes'. To the extent Time Warner does not make interest payments
on the Subordinated Notes in full when due, the Property Trustee will not be
able to make distributions in full on the Trust Securities. Under the
Declaration, if and to the extent Time Warner does make interest payments on the
Subordinated Notes deposited in the Trust as trust assets, the Property Trustee
is obligated to make distributions on the Trust Securities on a Pro Rata Basis.
The term 'Pro Rata Basis' shall mean, with respect to any payment, pro rata to
each holder of Trust Securities according to the aggregate stated amount of the
Trust Securities held by such holder in relation to the aggregate stated amount
of all Trust Securities outstanding; provided, however, that if the assets of
the Trust are insufficient to make such payment in full as a result of a default
with respect to
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the Subordinated Notes, any funds available to make such payment shall be paid
(i) first to each holder of PERCS pro rata according to the aggregate stated
amount of the PERCS held by such holder in relation to the aggregate stated
amount of all the PERCS outstanding up to an aggregate amount equal to the
amount then owed to the holders of the PERCS and (ii) only after satisfaction of
all amounts owed to the holders of the PERCS, to each holder of Common
Securities pro rata according to the aggregate stated amount of the Common
Securities held by such holder in relation to the aggregate stated amount of all
the Common Securities outstanding.
Distributions on the PERCS will be payable to the holders thereof as they
appear on the books and records of the Trust on the relevant record dates, which
will be the March 15, June 15, September 15 and December 15 prior to the
relevant payment dates. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment will be made as described under
' -- Book-Entry System' below. Distributions payable on any PERCS that are not
punctually paid on the date on which they are due as a result of Time Warner
having failed to make the corresponding interest payment on the Subordinated
Notes will forthwith cease to be payable to the person in whose name such PERCS
is registered on the relevant record date, and such defaulted distribution
payment will instead be payable to the person in whose name such PERCS is
registered on the special record date established by the Regular Trustees, which
record date shall correspond to the special record date or other specified date
determined in accordance with the Indenture.
The amount of distributions payable for any full quarterly distribution
period will be computed on the basis of a 360-day year of twelve 30-day months.
Distributions (or amounts equal to accrued and unpaid distributions) payable on
the PERCS for any period shorter than a full quarterly distribution period will
be computed on the basis of a 360-day year of twelve 30-day months and on the
basis of the actual number of days elapsed in any such 30-day month. In the
event that any date on which distributions are payable on the PERCS is not a
Business Day, then payment of the distribution payable on such date will be made
on the next succeeding Business Day (and without any interest or other payment
in respect of any such delay), except that if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. A 'Business Day' shall mean any day other than a Saturday or
Sunday or any other day on which banking institutions in New York, New York are
authorized or required by law to close.
The payment of distributions on the PERCS out of moneys held by the Trust
is guaranteed by Time Warner on a subordinated basis as and to the extent set
forth under 'Description of the Guarantee'. The Guarantee is a full and
unconditional guarantee from the time of issuance of the PERCS but the Guarantee
covers distributions and other payments on the PERCS only if and to the extent
that Time Warner has made a payment to the Property Trustee of interest or
principal on the Subordinated Notes, as the case may be.
MANDATORY REDEMPTION OF THE PERCS
Subject to the exercise by Time Warner of the Time Warner Exchange Right,
on the Mandatory Redemption Date each of the Trust Securities then outstanding
will be redeemed by the Trust, in cash, at a price per Trust Security equal to
(a) the lesser of (i) $54.41 and (ii) the Exchange Valuation Price on the
Trading Day immediately preceding December 17, 1997, of such amount of Exchange
Property (which initially consists of one share of Hasbro Common Stock for each
PERCS) as relates to one PERCS at such time (the 'Mandatory Redemption Price')
plus (b) an amount equal to all accrued and unpaid distributions on such Trust
Security to but excluding the Mandatory Redemption Date. The Exchange Property
will be subject to adjustment upon the occurrence of certain events affecting
the Hasbro Common Stock, including certain events which result in the conversion
of the Hasbro Common Stock into other Exchange Property. See ' -- Adjustment of
Exchange Rate and Exchange Property' below. The Exchange Valuation Price of the
Hasbro Common Stock or other Exchange Property as of any Trading Day will be
determined on the basis of the average closing sale price of such Exchange
Property for the five consecutive Trading Day period ending on and including
such Trading Day. See ' -- Time Warner Exchange Right' below.
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Such mandatory redemption for cash is subject to the exercise by Time
Warner of the Time Warner Exchange Right, pursuant to which Time Warner may, at
its option, require the holders of the PERCS to exchange on the Mandatory
Redemption Date PERCS for a combination of Exchange Property and cash as
described below. See ' -- Time Warner Exchange Right' below.
As described below, the outstanding PERCS may be called for redemption in
whole or in part, at any time, prior to the Mandatory Redemption Date at the
Call Price. In addition, under certain limited circumstances, the PERCS will be
subject to redemption upon redemption by Time Warner of the Subordinated Notes
upon the occurrence and continuation of a Tax Event or an Investment Company
Event at the Special Redemption Price (as defined herein). See ' -- Early
Redemption of the PERCS' and ' -- Special Event Distribution or Redemption'
below.
The opportunity for equity appreciation afforded by an investment in the
PERCS is limited because the Mandatory Redemption Price is capped at $54.41. In
the event that the Exchange Valuation Price as of the Trading Day immediately
preceding December 17, 1997, for the amount of Exchange Property that relates to
one PERCS is greater than $54.41 (based on the Exchange Rate in effect as of
such Trading Day), holders of the PERCS would receive, upon the exercise of the
Time Warner Exchange Right, Hasbro Common Stock or other Exchange Property for
each PERCS on a less than one-for-one basis or cash in an amount that will be
less than the then current market price of one share of Hasbro Common Stock.
Because the price of the Hasbro Common Stock and any other Exchange
Property is subject to market fluctuations, the Mandatory Redemption Price
received by a holder of PERCS on the Mandatory Redemption Date (or any Special
Redemption Price received on any Special Redemption Date) may be more or less
than the amount paid for the PERCS.
The holders of PERCS have no right to require the early redemption of the
PERCS or the exchange of the PERCS into Exchange Property.
EARLY REDEMPTION OF THE PERCS
At any time and from time to time prior to the Mandatory Redemption Date,
upon the call for redemption prior to maturity by Time Warner of the
Subordinated Notes, the proceeds of such redemption shall be promptly applied to
redeem, and the Trust shall call for redemption, outstanding Trust Securities
having an aggregate stated amount equal to the aggregate principal amount of the
Subordinated Notes so redeemed and deliver to the holders thereof in exchange
for each Trust Security so called for redemption cash in an amount equal to the
Call Price in effect on the date of redemption (the 'Optional Redemption Date'),
plus cash in an amount equal to all accrued and unpaid distributions on such
Trust Security, whether or not declared, for the period to but excluding the
Optional Redemption Date. The Call Price is initially equal to $ per Trust
Security, declining by $ on each day following the Issue Date (computed on
the basis of a 360-day year of twelve 30-day months) to $ on October 23,
1997, and equal to $54.41 thereafter.
Such early redemption of PERCS for cash is subject to the exercise by Time
Warner of the Time Warner Exchange Right, pursuant to which Time Warner may, at
its option, require the holders of the PERCS called for early redemption to
exchange PERCS on any Optional Redemption Date for a combination of Exchange
Property and cash as described below. See ' -- Time Warner Exchange Right'
below.
If the Trust elects to call the PERCS for early redemption, the
appreciation, exclusive of accrued and unpaid distributions, realized on an
investment in the PERCS will, for any holder of PERCS called by the Trust, equal
the excess, if any, of (i) the amount of cash received as payment of the Call
Price over (ii) the price paid by such holder for such PERCS.
TIME WARNER EXCHANGE RIGHT
Time Warner has the right to require the holders of outstanding PERCS
subject to mandatory redemption on the Mandatory Redemption Date or called for
early redemption on any Optional Redemption Date or called for special
redemption on any Special Redemption Date to exchange their
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PERCS for a combination of shares of Hasbro Common Stock or other Exchange
Property and cash as described below. If Time Warner shall have exercised the
Time Warner Exchange Right in respect of the Mandatory Redemption Date, each
PERCS shall be exchanged for (a) Exchange Property in respect of the portion of
such PERCS to be exchanged for Exchange Property based on the Exchange Rate in
effect on the Trading Day immediately preceding December 17, 1997, (b) cash in
respect of the portion, if any, of such PERCS that is not to be exchanged for
Exchange Property, calculated by subtracting from the Mandatory Redemption Price
the value of the Exchange Property to be delivered (based on the Exchange
Valuation Price of such Exchange Property as of the Trading Day immediately
preceding December 17, 1997), and (c) cash in an amount equal to all accrued and
unpaid distributions on such PERCS to but excluding the Mandatory Redemption
Date; provided that if the Exchange Valuation Price as of the Trading Day
immediately preceding December 17, 1997, of the amount of Exchange Property that
relates to one PERCS is greater than $54.41 (based on the Exchange Rate in
effect as of such Trading Day), Time Warner shall deliver in exchange for each
PERCS (a) (i) Exchange Property (valued on the basis of its Exchange Valuation
Price as of such Trading Day) and (ii) at the option of Time Warner, cash,
having an aggregate value equal to $54.41 per PERCS and (b) cash in an amount
equal to all accrued and unpaid distributions on such PERCS to but excluding the
Mandatory Redemption Date.
If Time Warner shall have exercised the Time Warner Exchange Right in
respect of any Optional Redemption Date or Special Redemption Date, each PERCS
to be redeemed on any such date shall be exchanged for (a)(i) Exchange Property
(valued on the basis of its Exchange Valuation Price as of the Trading Day
immediately preceding the applicable Optional Redemption Date or Special
Redemption Date) and (ii) at the option of Time Warner, cash, having an
aggregate value equal to the Call Price or the Special Redemption Price in
effect for each PERCS on such Optional Redemption Date or Special Redemption
Date, as the case may be, and (b) cash in an amount equal to all accrued and
unpaid distributions on such PERCS to but excluding the applicable Optional
Redemption Date or Special Redemption Date, as the case may be.
In the event that Time Warner shall exercise the Time Warner Exchange Right
and elect to deliver Exchange Property with respect to only a portion of each
PERCS, each holder of PERCS to be redeemed shall be entitled to receive from
Time Warner for each PERCS held by such holder, the same types, amounts and
relative proportions of Exchange Property and cash as every other holder of
PERCS to be redeemed.
The 'Exchange Property' with respect to each PERCS on any date shall
consist of (i) initially, one share of Hasbro Common Stock (in the aggregate,
the 'Initial Shares'), (ii) any property (other than cash dividends and other
cash distributions paid by the issuer thereof that do not constitute
Extraordinary Cash Dividends and other than interest, if any, paid in respect
thereof) distributed in respect of the Initial Shares or other Exchange Property
and (iii) any property issued or distributed upon the exchange or conversion of
Exchange Property, including upon any reorganization, consolidation or merger or
any sale or transfer or lease of all or substantially all the assets of the
issuer of such Exchange Property; provided that Exchange Property shall not
include any property distributed in respect of other Exchange Property for which
an antidilution adjustment has been made pursuant to the Declaration.
In the case of a tender or exchange offer for all Exchange Property of a
particular type, the Exchange Property shall be deemed to include all cash or
other property paid by the offeror in the tender or exchange offer (in an amount
determined on the basis of the rate of exchange in such tender or exchange
offer), whether or not Time Warner tenders or exchanges such Exchange Property.
In the event of a partial tender or exchange offer with respect to Exchange
Property of a particular type, Exchange Property shall be deemed to include cash
or other property paid by the offeror in the tender or exchange offer in an
amount determined as if the offeror had purchased or exchanged Exchange Property
in the proportion in which all property of such type was purchased or exchanged
from the holders thereof; provided that if Time Warner tenders all its Exchange
Property of such type, the amount of cash or other property received that will
constitute Exchange Property will be determined on the basis of the amount of
such cash or other property actually received by Time Warner. Except as provided
above, in the event of a tender or exchange offer with respect to the Exchange
Property in
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which an offeree may elect to receive cash or other property, Exchange Property
shall be deemed to include the kind and amount of cash and other property
received by offerees who elect to receive cash.
The 'Exchange Valuation Price' of each item of property comprising the
Exchange Property on or as of any date means the average of the Purchase Sale
Prices (as defined below) of the applicable Exchange Property for the five
Trading Day period ending on and including such date, appropriately adjusted to
take into account the occurrence, during such period, of any Exchange Adjustment
Events with respect to such Exchange Property. The 'Purchase Sale Price' on any
date means the closing per share sale price for the applicable Exchange Property
(or, if no closing sale price is reported, the average of the bid and ask prices
or, if more than one in either case, the average of the average bid and average
ask prices) on such date as reported in the composite transactions for the
principal United States securities exchange on which such Exchange Property is
traded or, if such Exchange Property is not listed on a United States national
or regional securities exchange, as reported by NASDAQ, or, if such Exchange
Property is not reported by NASDAQ, the high per share bid price for such
Exchange Property in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or, if such bid price is not
available, the per unit market value of such Exchange Property on such date as
determined by a nationally recognized investment banking firm retained for such
purpose by Time Warner. Because the Exchange Valuation Price of the Exchange
Property is determined prior to the applicable Redemption Payment Date, holders
of PERCS (or, if the Subordinated Notes shall have been distributed to the
holders of the PERCS as described herein, Subordinated Notes) bear the market
risk with respect to the value of the Exchange Property to be received from the
date such Exchange Valuation Price is determined to such Redemption Payment
Date.
The 'Exchange Rate' means initially, when used with respect to PERCS, one
share of Hasbro Common Stock per PERCS, and when used with respect to
Subordinated Notes, one share of Hasbro Common Stock per Minimum Denomination of
Subordinated Notes, subject to certain antidilution adjustments described under
' -- Adjustment of Exchange Rate and Exchange Property' below. The Exchange Rate
for any other Exchange Property will be determined on the basis of the portion
of Hasbro Common Stock or other Exchange Property in respect of which such
Exchange Property is issued, distributed or exchanged.
The term 'Trading Day' means a day on which the AMEX (or any successor
thereto) or, to the extent that neither the Hasbro Common Stock nor any other
Exchange Property is listed on the AMEX, such other national securities
exchanges on which the Exchange Property is listed or, if none, the NYSE, is
open for the transaction of business.
Upon any exercise by Time Warner of the Time Warner Exchange Right, Time
Warner will provide notice to the Property Trustee no later than 11:59 p.m., New
York time, (a) on the second Business Day following December 17, 1997, in the
case of PERCS subject to mandatory redemption and (b) on the Business Day
immediately preceding the applicable Optional Redemption Date or Special
Redemption Date, in the case of PERCS subject to early redemption or special
redemption of (i) Time Warner's election to exercise the Time Warner Exchange
Right, (ii) if applicable, the respective portions of Exchange Property and cash
to be delivered and (iii) the Exchange Rate in effect on the Trading Day
immediately preceding December 17, 1997, or, in the case of an early redemption
or special redemption, the applicable Optional Redemption Date or Special
Redemption Date. Time Warner shall deliver any such Exchange Property and cash
to be delivered in exchange for the PERCS no later than the applicable Mandatory
Redemption Date, Optional Redemption Date or Special Redemption Date (each a
'Redemption Payment Date') or, if later, the time of delivery or transfer of
such PERCS to Time Warner. Time Warner will cause notice of such exercise of the
Time Warner Exchange Right to be published by means of the Dow Jones Business
Newswires Service promptly after providing notice of such exercise to the
Property Trustee.
In the event that Time Warner exercises the Time Warner Exchange Right,
delivery of the Exchange Property and cash to the holders of any PERCS to be
redeemed will be conditioned upon delivery or book-entry transfer of such PERCS
(together with necessary endorsements) to the Property Trustee at any time
(whether prior to, on or after the applicable Redemption Payment Date) after
notice of the exercise of the Time Warner Exchange Right is given to the
Property Trustee. In such
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event, such Exchange Property and cash with respect to such PERCS will be
delivered to each holder of PERCS to be redeemed no later than the later of (i)
the applicable Redemption Payment Date or (ii) the time of delivery or transfer
of such PERCS. If, following any exercise of the Time Warner Exchange Right, the
Property Trustee holds, in accordance with the terms of the Declaration, (a)
Exchange Property in respect of the portion of each PERCS to be exchanged for
Exchange Property, (b) cash in respect of the portion, if any, of each PERCS
that is not to be exchanged for Exchange Property, and (c) cash in an amount
equal to all accrued and unpaid distributions on all such PERCS to be redeemed
to the applicable Redemption Payment Date, then immediately after such
Redemption Payment Date, whether or not such PERCS are delivered to the Property
Trustee, (i) Time Warner will become the owner and record holder of such PERCS
and (ii) the holders of such PERCS shall have no further rights with respect to
the PERCS other than the right to receive the Exchange Property, together with
cash as described above, upon delivery of the PERCS. In the event that delivery
of the Exchange Property and cash, if any, due on any Redemption Payment Date in
respect of which Time Warner shall have exercised the Time Warner Exchange Right
is improperly withheld or is refused and not paid by the Property Trustee or by
Time Warner, distributions on such PERCS will continue to accrue from the
original Redemption Payment Date to the actual date of delivery, in which case
the actual delivery date will be considered the date fixed for redemption for
purposes of calculating the Redemption Payment Amount due on such date and thus
the amount of Exchange Property and cash to be delivered on such date.
Subject to the limitations set forth in the Underwriting Agreement (as
defined herein) and any other legal restrictions applicable thereto, Time Warner
may, at any time, pledge, transfer or sell all or any portion of the Hasbro
Common Stock or any other Exchange Property, including in a transaction with the
Underwriters or any of their affiliates. In the event of such a pledge, transfer
or sale, a holder's rights with respect to a PERCS will not be affected but it
would become more likely that Time Warner will not exercise the Time Warner
Exchange Right. See 'Underwriters'.
In the event of the bankruptcy, insolvency or liquidation of any subsidiary
of Time Warner that holds the Hasbro Common Stock (and/or other Exchange
Property) or of Time Warner, the Hasbro Common Stock and/or other Exchange
Property will be subject to the claims of the creditors of any such subsidiary
or of Time Warner.
No fractional shares of Hasbro Common Stock or other Exchange Property will
be issued upon the exercise by Time Warner of the Time Warner Exchange Right. In
lieu of any fractional share or other unit of Exchange Property otherwise
issuable in respect of any PERCS to be exchanged pursuant to the Time Warner
Exchange Right on any Redemption Payment Date, the holders of such PERCS shall
be entitled to receive an amount in cash equal to the same fraction of the
Exchange Valuation Price of the Hasbro Common Stock or such other Exchange
Property deliverable upon such exchange, determined as of the Trading Day
immediately preceding such date (or, in the case of a mandatory redemption, the
Trading Day immediately preceding December 17, 1997).
To the extent that PERCS are exchanged for Exchange Property and all such
Exchange Property cannot be distributed by the Depositary (as defined herein) to
its Participants (as defined herein) that hold PERCS without creating fractional
interests in the shares or units making up such Exchange Property, the
Depositary may, with the Trust's and Time Warner's consent, adopt such method as
it deems equitable and practicable for the purpose of effecting such
distribution, including the sale (at public or private sale) of such Exchange
Property representing in the aggregate such fractional interests at such place
or places and upon such terms as it may deem proper, and the net proceeds of any
such sale shall be distributed or made available for distribution to such
Participants that would otherwise have received such fractional interests. The
amount distributed in the foregoing cases will be reduced by any amount required
to be withheld by the Depositary on account of withholding taxes or otherwise
required pursuant to law, regulation or court process.
EFFECT OF THE LYONS ON THE TIME WARNER EXCHANGE RIGHT
On December 10, 1992, Time Warner issued the LYONs. The LYONs are
exchangeable at any time on or prior to maturity at the option of the holders
thereof for 7.301 shares of Hasbro Common Stock per LYON, subject to adjustment
upon the occurrence of certain events. Such exchange right is subject
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to Time Warner's right to pay cash equal to the then market value of the shares
of Hasbro Common Stock for which the LYONs are exchangeable in lieu, in whole or
in part, of delivering shares of Hasbro Common Stock. In addition, on December
17, 1997, (a) Time Warner has the right to redeem the LYONs for cash at a price
of $397.27 per LYON (equal to the accreted value of each LYON as of such date)
and (b) the holders of the LYONs have the option to require Time Warner to
purchase the LYONs for a purchase price equal to $397.27 per LYON, in the latter
case payable at the option of Time Warner in cash or shares of Hasbro Common
Stock at their then current market value (or any combination thereof). The
redemption price and the purchase price as of December 17, 1997, are both
equivalent to $54.41 per share of underlying Hasbro Common Stock, calculated by
dividing the $397.27 accreted value per LYON as of such date by the 7.301 shares
of Hasbro Common Stock into which such LYON may be exchanged, which is the
maximum price payable per PERCS upon the mandatory redemption of the PERCS.
If the closing sale price of Hasbro Common Stock on December 17, 1997, is
less than $54.41, it is unlikely that holders of the LYONs will elect to
exchange their LYONs (even if Time Warner were to call the LYONs for redemption
on such date) and it is likely that Time Warner will exercise the Time Warner
Exchange Right on the Mandatory Redemption Date in respect of the PERCS. If the
closing sale price of Hasbro Common Stock on any day on or prior to December 17,
1997, exceeds the price determined by dividing the accreted value of one LYON as
of such date by 7.301 (equal to $54.41 on December 17, 1997), it is possible,
and in the event that under such circumstances, Time Warner calls the LYONs for
redemption on December 17, 1997, it is likely, that the holders of the LYONs
will elect to exchange their LYONs. To the extent that Time Warner elects to
deliver Hasbro Common Stock to such exchanging holders in lieu of paying such
holders cash, it is likely that Time Warner will not exercise the Time Warner
Exchange Right on the Mandatory Redemption Date in respect of the PERCS.
To the extent that Time Warner elects to pay for any LYONs that are put to
Time Warner at the option of the holders thereof on December 17, 1997, by
delivering Hasbro Common Stock to such holders instead of cash, it is likely
that Time Warner will not exercise the Time Warner Exchange Right on the
Mandatory Redemption Date in respect of the PERCS.
It is Time Warner's intention to deliver the Hasbro Common Stock owned by
it to satisfy its obligations in respect of either the Subordinated Notes and
the PERCS or the LYONs.
ADJUSTMENT OF EXCHANGE RATE AND EXCHANGE PROPERTY
The Exchange Rate shall be adjusted (and, if applicable, the Exchange
Property shall be changed) upon (i) the distribution of a dividend on Exchange
Property in the same type of Exchange Property, (ii) the combination of Exchange
Property into a smaller number of shares or other units, (iii) the subdivision
of outstanding shares or other units of Exchange Property or (iv) the conversion
or reclassification of Exchange Property by issuance or exchange of other
securities. In such event, the Exchange Rate in effect immediately before such
event shall be adjusted (and, if applicable, the Exchange Property shall be
changed) to reflect the amount of cash or the kind and amount of property that a
holder of Exchange Property would have owned or been entitled to receive upon or
by reason of such event. The Exchange Rate will also be adjusted upon a
distribution of cash or other property (including rights, warrants or other
securities) on Exchange Property of a particular type (excluding (i) cash
dividends and other cash distributions paid by the issuer thereof other than
Extraordinary Cash Dividends, (ii) interest, if any, paid thereon by the issuer
thereof and (iii) dividends payable in Exchange Property for which adjustment is
made pursuant to the preceding sentence). Each of the above shall be referred to
as an 'Exchange Adjustment Event'. Notwithstanding the foregoing, Time Warner
shall be entitled, by notice to the Regular Trustees not later than the close of
business on the fifth Business Day following the date of any distribution
referred to in this paragraph (or if Time Warner is not aware of such
distribution, as soon as practicable after becoming so aware), to elect not to
have the foregoing antidilution adjustments apply, in which case the Exchange
Rate shall not be adjusted upon the occurrence of the Exchange Adjustment Event
as contemplated above. Instead the property distributed in respect of Exchange
Property shall constitute additional Exchange Property. As a result, any such
additional Exchange Property shall be valued as of the Trading Day immediately
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preceding December 17, 1997, in the case of a mandatory redemption, or as of the
Trading Day immediately preceding the applicable Optional Redemption Date or
Special Redemption Date, in the case of an early redemption or special
redemption, as the case may be.
If Hasbro or another issuer of Exchange Property is party to a
consolidation, merger or binding share exchange or a transfer of all or
substantially all of its assets, any Exchange Property consisting of securities
of such issuer will be changed into the kind and amount of securities, cash or
other assets which the holder of PERCS would have received if such PERCS had
been exchanged for Exchange Property immediately prior to any such transaction.
In the case where an issuer of Exchange Property is controlled by Time
Warner or an affiliate of Time Warner, the Exchange Rate shall also be adjusted
upon the issuance by such issuer of Exchange Property for a consideration that
is less than the Exchange Valuation Price of such Exchange Property at the time
of issuance, or the issuance by any such issuer of securities convertible into
or exchangeable or exercisable for Exchange Property for a consideration per
unit of such Exchange Property deliverable on such conversion, exchange or
exercise that is less than the Exchange Valuation Price of the Exchange Property
deliverable upon conversion, exchange or exercise at the time such convertible,
exchangeable or exercisable securities are issued. This adjustment will not
apply, however, in certain circumstances, including (a) an issuance of
securities in a bona fide public offering pursuant to a firm commitment
underwriting, (b) the issuance of securities in connection with an acquisition
to persons not affiliated with Time Warner and (c) certain options issued to
such issuer's employees under employee benefit plans. Hasbro is not an affiliate
of Time Warner. So long as Hasbro is not controlled by Time Warner or an
affiliate of Time Warner, the issuance by Hasbro of Exchange Property or
securities convertible into or exchangeable for Exchange Property, whether or
not issued or convertible or exchangeable at a price that is less than the
applicable Exchange Valuation Price of such Exchange Property, will not result
in an adjustment pursuant to the provisions described in this paragraph.
Accordingly, the issuance by Hasbro of Exchange Property or securities
convertible into or exchangeable for Exchange Property could result in dilution
of the amounts receivable by the holders of the PERCS, in cash upon redemption
of the PERCS or in Exchange Property upon the exercise by Time Warner of the
Time Warner Exchange Right.
SPECIAL EVENT DISTRIBUTION OR REDEMPTION
'Tax Event' means that the Regular Trustees shall have obtained an opinion
of nationally recognized independent tax counsel experienced in such matters (a
'Dissolution Tax Opinion') to the effect that, as a result of (a) any amendment
to, or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, (b) any amendment to, or change in, an
interpretation or application of such laws or regulations by any legislative
body, court, governmental agency or regulatory authority (including the
enactment of any legislation and the publication of any judicial decision or
regulatory determination), (c) any interpretation or pronouncement that provides
for a position with respect to such laws or regulations that differs from the
theretofore generally accepted position or (d) any action taken by any
governmental agency or regulatory authority, which amendment or change is
enacted, promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is taken, in each case on
or after the date of this Prospectus there is more than an insubstantial risk
that at such time or within 90 days of the date thereof (i) the Trust is, or
would be subject to United States Federal income tax with respect to income
accrued or received on the Subordinated Notes, (ii) less than 25% of the
interest payable on the Subordinated Notes is, or would be deductible by Time
Warner for United States Federal income tax purposes, (iii) the Trust is, or
would be subject to more than a de minimis amount of other taxes, duties or
other governmental charges or (iv) as a result of the issuance of the PERCS
and/or the Subordinated Notes, Time Warner (or an affiliate of Time Warner) is,
or would be treated as having disposed, for United States Federal income tax
purposes, of the Hasbro Common Stock owned by it.
'Investment Company Event' means that the Regular Trustees shall have
received an opinion of a nationally recognized independent counsel experienced
in such matters to the effect that, as a result of the occurrence of a change
in law or regulation or a written change in interpretation or application of
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law or regulation by any legislative body, court, governmental agency or
regulatory authority (a 'Change in 1940 Act Law'), there is more than an
insubstantial risk that the Trust is or will be considered an 'investment
company' that is required to be registered under the Investment Company Act
of 1940, as amended (the '1940 Act'), which Change in 1940 Act Law becomes
effective on or after the date of this Prospectus.
If, at any time, a Tax Event or an Investment Company Event (each a
'Special Event') shall occur and be continuing, the Regular Trustees shall
notify Time Warner thereof and Time Warner shall elect to either:
(a) direct the Regular Trustees to dissolve the Trust and cause
Subordinated Notes having an aggregate principal amount equal to the
aggregate stated amount of and accrued and unpaid interest equal to accrued
and unpaid distributions on, and having the same record date for payment
as, the Trust Securities outstanding at such time to be distributed to the
holders of the Trust Securities on a Pro Rata Basis, in liquidation of such
holders' interests in the Trust, within 90 days following the occurrence of
such Special Event; provided, however, that in the case of the occurrence
of a Tax Event, as a condition of any such dissolution and distribution,
the Regular Trustees shall have received an opinion of nationally
recognized independent tax counsel experienced in such matters (a 'No
Recognition Opinion'), which opinion may rely on any then applicable
published revenue ruling of the Internal Revenue Service, to the effect
that the holders of the PERCS will not recognize any gain or loss for
United States Federal income tax purposes as a result of such dissolution
of the Trust and distribution of the Subordinated Notes;
(b) subject to the exercise of the Time Warner Exchange Right, redeem
the Subordinated Notes in whole (and not in part), upon not less than 20
nor more than 45 Business Days' notice, within 90 days following the
occurrence of such Special Event (such date of redemption a 'Special
Redemption Date'), in which case the Trust shall (unless the Trust shall
have been dissolved) redeem in cash Trust Securities having an aggregate
stated amount equal to the principal amount of the Subordinated Notes so
redeemed, at a price per Trust Security (and per Minimum Denomination)
equal to (i) the lesser of (A) $54.41 and (B) an amount equal to the
Exchange Valuation Price on the Trading Day immediately preceding such
Special Redemption Date of the amount of Exchange Property that relates to
one Trust Security at such time (based on the Exchange Rate in effect as of
such Trading Day), plus (ii) an amount initially equal to $ per Trust
Security, declining by $ on each day following the Issue Date
(computed on the basis of a 360-day year of twelve 30-day months) to $0 on
October 23, 1997, and thereafter (such price, as it relates to the Trust
Securities and to the Subordinated Notes, the 'Special Redemption Price'),
plus an amount equal to all accrued and unpaid distributions on such Trust
Security to and including the Special Redemption Date; or
(c) in the case of a Tax Event, allow the Subordinated Notes and the
Trust Securities to remain outstanding and indemnify the Trust for all
taxes payable by it as a result of such Tax Event;
provided, that, if at the time there is available to the Trust the opportunity
to eliminate, within such 90-day period, the Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure, that has no adverse effect on the Trust,
Time Warner or the holders of the Trust Securities, the Trust will pursue such
measure in lieu of dissolution or redemption; provided further, that Time Warner
shall have no right to direct the Regular Trustees to dissolve the Trust or to
redeem the Subordinated Notes while the Regular Trustees are pursuing any such
ministerial action or reasonable measure unless the Special Event shall not have
been so eliminated by the 85th day following the occurrence thereof, in which
case Time Warner shall be permitted to so direct the Regular Trustees or to
provide notice to the holders of the redemption of the Subordinated Notes;
provided further, that if dissolution of the Trust and distribution of the
Subordinated Notes to the holders of the Trust Securities would eliminate the
condition causing the Tax Event or the Investment Company Event and all other
conditions to such dissolution and distribution have been satisfied, the Trust
will not be permitted to redeem Subordinated Notes at the Special Redemption
Price; and provided further, that Time Warner shall not be permitted to direct
the Regular Trustees to dissolve the Trust and distribute the Subordinated Notes
to the holders of the Trust Securities upon the occurrence of the condition
described in clause (ii) in the definition of 'Tax Event'
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above if, after giving effect to such dissolution and distribution, Time Warner
would not be permitted to deduct a greater percentage of the interest payable on
the Subordinated Notes than it had been permitted to deduct for United States
Federal income tax purposes prior to the occurrence of such Tax Event.
If Subordinated Notes are distributed to the holders of the PERCS, Time
Warner will use its reasonable best efforts to have the Subordinated Notes
listed on the NYSE or on such other exchange as the PERCS are then listed.
On the date of any distribution of Subordinated Notes, upon dissolution of
the Trust, (i) the PERCS will no longer be deemed to be outstanding, (ii)
neither the Trust nor Time Warner shall have any further obligation to the
holders of the PERCS with respect to the PERCS or under the Guarantee, (iii) the
Depositary or its nominee, as the record holder of the PERCS, will receive a
registered global certificate or certificates representing the Subordinated
Notes to be delivered upon such distribution and (iv) any certificates
representing PERCS not held by the Depositary or its nominee will be deemed to
represent Subordinated Notes having an aggregate principal amount equal to the
aggregate stated liquidated amount of, and accrued and unpaid interest equal to
accrued and unpaid distributions on, such PERCS, until such certificates are
presented to Time Warner or its agent for transfer or reissuance. Holders of
Subordinated Notes received as a result of any such dissolution and distribution
shall be entitled to receive on the next regularly scheduled Interest Payment
Date (as defined herein) interest accrued on the Subordinated Notes from and
including the last date as of which distributions were paid in respect of the
PERCS formerly held by such holders to but excluding such Interest Payment Date.
Any such distribution shall constitute satisfaction of all the Trust's
obligations with respect to the PERCS, including any obligation to pay accrued
and unpaid distributions thereon.
Under current United States Federal income tax law, a distribution of
Subordinated Notes upon the dissolution of the Trust would not be a taxable
event to holders of the PERCS. Upon occurrence of a Special Event, however, a
dissolution of the Trust in which holders of the PERCS receive cash would be a
taxable event to such holders. See 'Federal Income Tax Considerations'.
There can be no assurance as to the market prices for the PERCS or the
Subordinated Notes that may be distributed in exchange for PERCS if a
dissolution or liquidation of the Trust were to occur. Accordingly, the PERCS
that an investor may purchase, whether pursuant to the offer made hereby or in
the secondary market, or the Subordinated Notes that a holder of PERCS may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the PERCS offered hereby. Because
holders of PERCS may receive Subordinated Notes upon the occurrence of a Tax
Event or an Investment Company Event, prospective purchasers of PERCS are also
making an investment decision with regard to the Subordinated Notes and should
carefully review all the information regarding the Subordinated Notes contained
herein. See 'Description of the Subordinated Notes'.
REDEMPTION/DISTRIBUTION PROCEDURES
The Trust will provide notice (the 'Redemption/Distribution Notice') of any
redemption (excluding the mandatory redemption) of, or any distribution of the
Subordinated Notes in exchange for, the PERCS on a date not less than 20 nor
more than 45 Business Days prior to such redemption or distribution, as the case
may be, to all holders of PERCS to be redeemed or exchanged stating, among other
things, (i) the date of such redemption or of such distribution, as the case may
be, and (ii) in the case of any early or special redemption, the applicable Call
Price or Special Redemption Price, as the case may be. Such notice shall be
provided by mail to the holders of record of PERCS to be called or exchanged to
the address appearing for such holder in the books and records of the Trust.
Each holder of PERCS to be called or exchanged shall surrender the certificates
evidencing such PERCS to the Trust at the place designated in such notice and
shall be entitled to receive cash in respect of the applicable Redemption
Payment Amount or Subordinated Notes, as the case may be, and in the event Time
Warner shall have exercised the Time Warner Exchange Right, certificates for
shares of Hasbro Common Stock or other Exchange Property and, if so elected by
Time Warner, cash deliverable upon such exchange, in each case together with any
accrued and unpaid distributions, following such surrender and following the
date of such redemption.
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The Common Securities will be redeemed on a Pro Rata Basis with the PERCS
in the case of a mandatory redemption, early redemption or special redemption,
except that if, as a result of a default with respect to the Trust's assets, the
assets of the Trust are insufficient to make such payment, the PERCS will have a
priority over the Common Securities with respect to payment of the Call Price or
the Special Redemption Price, as the case may be, and any accrued and unpaid
distributions. Subject to the foregoing, if fewer than all outstanding Trust
Securities are to be redeemed, the Trust Securities will be redeemed on a Pro
Rata Basis. PERCS registered in the name of and held by DTC or its nominee will
be redeemed pro rata as described under ' -- Book-Entry System' below.
Payment of the Redemption Payment Amount of each PERCS, together with any
accrued and unpaid distributions on such PERCS, is conditioned upon delivery or
book-entry transfer of such PERCS (together with necessary endorsements) to the
Property Trustee at any time (whether prior to, on or after the relevant
Redemption Payment Date) after the Redemption/Distribution Notice is given (to
the extent such notice is required). See ' -- Book-Entry System' below. Payment
of the Redemption Payment Amount for such PERCS, together with any accrued and
unpaid distributions thereon, will be made by the delivery of cash no later than
the applicable Redemption Payment Date with respect to such PERCS or, if later,
the time of delivery or transfer of such PERCS. If the Property Trustee holds,
in accordance with the terms of the Declaration, money sufficient to pay the
Redemption Payment Amount of the PERCS, together with any accrued and unpaid
distributions thereon to the applicable Redemption Payment Date, on the
applicable Redemption Payment Date, then immediately prior to the close of
business on such Redemption Payment Date, the PERCS will cease to be outstanding
and distributions with respect to such PERCS will cease to accrue, whether or
not such PERCS are delivered to the Property Trustee, and all rights of the
holders of such PERCS shall terminate and lapse, other than the right to receive
the Redemption Payment Amount and any accrued and unpaid dividends (without any
interest thereon) upon delivery of the PERCS.
Unless Time Warner has exercised the Time Warner Exchange Right, provided
that Time Warner has paid to the Property Trustee the required amount of cash
due upon any optional redemption or special redemption or at the maturity of the
Subordinated Notes, the Trust will irrevocably deposit with the Depositary no
later than the close of business on the applicable Redemption Payment Date funds
sufficient to pay (a) the Redemption Payment Amount payable with respect to the
Trust Securities on such date and (b) an amount equal to any accrued and unpaid
distributions on the Trust Securities to be redeemed to and including such
Redemption Payment Date and will give the Depositary irrevocable instructions
and authority to pay such amount to the holders of the Trust Securities entitled
thereto. See ' -- Book-Entry System' below. In the event that any date fixed for
redemption of the Trust Securities is not a Business Day, then payment of the
Redemption Payment Amount (and any accrued and unpaid dividends) payable on such
date will be made on the next succeeding Business Day (and without any interest
or other payment in respect of any such delay), except that, if such Business
Day falls in the next calendar year such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Payment
Amount and any accrued and unpaid dividends due on any Redemption Payment Date
is improperly withheld or refused and not paid by the Property Trustee or by
Time Warner pursuant to the Guarantee, distributions on such PERCS will continue
to accrue, from the original Redemption Payment Date to the actual date of
payment, in which case the actual payment date will be considered the date fixed
for redemption for purposes of calculating the Redemption Payment Amount due on
such date.
Upon the date of dissolution of the Trust and distribution of Subordinated
Notes as a result of the occurrence of a Special Event, certificates
representing the PERCS (or book-entry interests) shall be deemed to represent
beneficial interests in the Subordinated Notes so distributed, and the PERCS
will no longer be deemed outstanding and may be canceled by the Regular
Trustees. The Subordinated Notes so distributed shall have an aggregate
principal amount equal to the aggregate liquidation amount of the PERCS so
distributed.
The Trust may not redeem fewer than all of the outstanding PERCS on any
Optional Redemption Date unless all accrued and unpaid distributions have been
or are concurrently being paid on all PERCS for all quarterly distribution
periods terminating on or prior to the applicable Optional Redemption Date. If
a partial redemption would result in the delisting of the PERCS by any national
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securities exchange on which the PERCS are then listed, Time Warner pursuant
to the Indenture will only redeem Subordinated Notes in whole and, as a
result, the Trust may only redeem the PERCS in whole.
Subject to the foregoing and to applicable law (including, without
limitation, United States Federal securities laws), Time Warner or its
affiliates may, at any time and from time to time, purchase outstanding PERCS by
tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any liquidation, dissolution, winding-up or termination of
the Trust (each a 'Liquidation Event'), whether voluntary or involuntary, the
holders of the Trust Securities on the date of such Liquidation Event will be
entitled to be paid on a Pro Rata Basis out of the assets of the Trust the
Liquidation Distribution unless, in connection with such Liquidation Event,
Subordinated Notes in an aggregate principal amount equal to the aggregate
stated amount of, and bearing accrued and unpaid interest in an amount equal to
the accrued and unpaid distributions on, the Trust Securities have been
distributed on a Pro Rata Basis (determined without regard to the proviso in the
definition of such term) to the holders of the Trust Securities in exchange
therefor. The 'Liquidation Distribution' will be equal to (a)(i) if such
Liquidation Event occurs at the stated maturity of the Subordinated Notes, the
Mandatory Redemption Price, (ii) if such Liquidation Event occurs in connection
with the optional redemption of the Subordinated Notes, the Call Price, (iii) if
such Liquidation Event occurs in connection with the special redemption of the
Subordinated Notes, the Special Redemption Price and (iv) if such Liquidation
Event occurs in connection with an acceleration of the Subordinated Notes in any
other circumstance, the Note Acceleration Price (as defined herein), in each
case plus (b) the amount of accrued and unpaid distributions on the Trust
Securities to but excluding the date of payment. In addition, in the event that
the assets of the Trust exceed the amount necessary to pay to all holders of the
Trust Securities the full amount of the Liquidation Distribution, such excess
will be paid to the holders of the Trust Securities on a Pro Rata Basis
(determined without regard to the proviso in the definition of such term).
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture for the Subordinated Notes (an
'Indenture Event of Default') will constitute an event of default under the
Declaration with respect to the Trust Securities (a 'Declaration Event of
Default'); provided that pursuant to the Declaration, the holder of the Common
Securities will be deemed to have waived any Declaration Event of Default with
respect to the Common Securities until all Declaration Events of Default with
respect to the PERCS have been cured, waived or otherwise eliminated. Until all
such Declaration Events of Default with respect to the PERCS have been so cured,
waived or otherwise eliminated, the Property Trustee will be deemed to be acting
solely on behalf of the holders of the PERCS, and only the holders of the PERCS
will have the right to direct the Property Trustee with respect to certain
matters under the Declaration and consequently the Indenture. In the event that
any Declaration Event of Default with respect to the PERCS is waived by the
holders of the PERCS as provided in the Declaration, the holders of Common
Securities pursuant to the Declaration have agreed that such waiver also
constitutes a waiver of such Declaration Event of Default with respect to the
Common Securities for all purposes under the Declaration without any further
act, vote or consent of the holders of the Common Securities. See ' -- Voting
Rights'.
Upon the occurrence of a Declaration Event of Default, the Property
Trustee, as the sole holder of the Subordinated Notes, will have the right under
the Indenture to declare the Subordinated Notes to be immediately due and
payable. In addition, the Property Trustee will have the power to exercise all
rights, powers and privileges of a holder of Subordinated Notes under the
Indenture. See 'Description of the Subordinated Notes'.
VOTING RIGHTS
Except as provided below under ' -- Modification of the Declaration', under
the Trust Act and the Trust Indenture Act and as otherwise required by law and
the Declaration, the holders of the PERCS will have no voting rights.
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If (i) the Trust fails to pay distributions in full on the PERCS and such
failure continues unremedied for 60 days or fails to pay the Redemption Payment
Amount in respect of any PERCS to be redeemed on the applicable Redemption
Payment Date, together with any accrued and unpaid distributions thereon to such
date or (ii) a Declaration Event of Default occurs and is continuing (each an
'Appointment Event'), then the holders of the PERCS, acting as a single class,
will be entitled by the majority vote of such holders to appoint a Special
Regular Trustee. In addition, in the case of a failure to make payments as
described in (i) above, to the extent Time Warner has made payments to the Trust
in respect of the Subordinated Notes in amounts sufficient to make such payments
of distributions or Redemption Payment Amounts, the Guarantee Trustee will be
entitled to enforce against Time Warner, for the benefit of the holders of
PERCS, its rights as the holder of the Guarantee. In the case of a Declaration
Event of Default as described in (ii) above, the Property Trustee will be
entitled to enforce against Time Warner, for the benefit of the holders of
PERCS, its rights as a holder of the Subordinated Notes. Any holder of PERCS
(other than Time Warner or any of its affiliates) shall be entitled to nominate
any person to be appointed as Special Regular Trustee. Not later than 30 days
after such right to appoint a Special Regular Trustee arises, the Regular
Trustees shall convene a meeting of the holders of PERCS for the purpose of
appointing a Special Regular Trustee. If the Regular Trustees fail to convene
such meeting within such 30-day period, the holders of PERCS representing not
less than 10% of the aggregate stated liquidation amount of the outstanding
PERCS will be entitled to convene such meeting. The record date of such meeting
will be the close of business on the Business Day next preceding the day on
which the notice of the meeting is sent to the holders of the PERCS. The
provisions of the Declaration relating to the convening and conduct of the
meetings of the holders will apply with respect to any such meeting. Any Special
Regular Trustee so appointed shall cease to be a Special Regular Trustee if the
Appointment Event pursuant to which the Special Regular Trustee was appointed
and all other Appointment Events cease to be continuing. Notwithstanding the
appointment of any Special Regular Trustee, Time Warner shall retain all its
rights under the Indenture.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Notes, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Subordinated
Notes, the Property Trustee shall request the written direction of the holders
of the Trust Securities with respect to such amendment, modification or
termination and shall vote with respect to such amendment, modification or
termination as directed by a majority in stated amount of the Trust Securities,
voting together as a single class; provided that where a consent under the
Indenture would require the consent or vote of a Super-Majority (as defined
below) or of each holder of Subordinated Notes affected thereby, the Property
Trustee may only give such consent at the direction of the holders of at least
the proportion in stated amount of the Trust Securities which the relevant
Super-Majority represents of the aggregate principal amount of the Subordinated
Notes outstanding or, if the consent of each holder is required, at the
direction of all the holders of the Trust Securities. The Property Trustee shall
be under no obligation to take any such action in accordance with the directions
of the holders of the Trust Securities unless the Property Trustee has obtained
an opinion of tax counsel to the effect that such action will not result in the
Trust being treated as an association taxable as a corporation or a partnership
for United States Federal income tax purposes and that, following such action,
each holder of Trust Securities will be treated as owning an undivided
beneficial interest in the Subordinated Notes.
Subject to the requirements of the second to last sentence of this
paragraph, the holders of a majority in aggregate stated amount of the PERCS
have the right to (a) on behalf of all holders of the PERCS, waive any past
default that may be waived under the Declaration and (b) direct the time, method
and place of conducting any proceeding for any remedy available to the Property
Trustee, or to direct the exercise of any trust or power conferred upon the
Property Trustee under the Declaration, including the right to direct the
Property Trustee, as the holder of the Subordinated Notes, to (i) exercise the
remedies available under the Indenture with respect to the Subordinated Notes,
(ii) waive any past Indenture Event of Default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Subordinated Notes shall be due and payable or (iv)
consent to any amendment, modification or termination of the Indenture or
the Subordinated Notes where such consent shall be required; provided that where
a consent or the taking of any action under the Indenture would require the
consent of more than a majority of the holders of the
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Subordinated Notes (a 'Super-Majority') affected thereby or of each holder of
Subordinated Notes affected thereby, only the holders of at least such Super-
Majority of the Trust Securities may direct the Property Trustee to give such
consent or, if the consent of each holder is required, at the direction of
all the holders of the Trust Securities. If the Property Trustee fails to
enforce its rights under the Declaration (including its rights as a holder
of the Subordinated Notes, any holder of Trust Securities may, after a period
of 30 days has elapsed from such holder's written request to the Property
Trustee to enforce such rights, institute a legal proceeding directly
against Time Warner to enforce the Property Trustee's rights under the
Declaration, without first instituting any legal proceeding against the Property
Trustee or any other person or entity. The Property Trustee shall notify all
holders of the Trust Securities of any notice of default received from the
Indenture Trustee with respect to the Subordinated Notes. Such notice shall
state that such Indenture Event of Default also constitutes a Declaration Event
of Default. The Property Trustee shall be under no obligation to take any action
described in clauses (i) through (iv) above unless the Property Trustee has
obtained an opinion of tax counsel to the effect that such action will not
result in the Trust being treated as an association taxable as a corporation or
a partnership for United States Federal income tax purposes and that, following
such action, each holder of Trust Securities will be treated as owning an
undivided beneficial interest in the Subordinated Notes. If the Property Trustee
fails to enforce its rights under the Declaration (including, without
limitation, its rights, powers and privileges as a holder of the Subordinated
Notes under the Indenture), any holder of Trust Securities may, after a period
of 30 days has elapsed from such holder's written request to the Property
Trustee to enforce such rights, institute a legal proceeding directly against
Time Warner to enforce the Property Trustee's rights under the Declaration,
without first instituting a legal proceeding against the Trust, the Property
Trustee or any other Person. Subject to the award by a court of competent
jurisdiction of legal fees in connection with any such legal proceeding, each
holder will be required to bear its own costs in connection with instituting a
legal proceeding directly against Time Warner, which costs may be significant.
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of the holders of the Trust Securities will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of PERCS may be given at a
separate meeting of holders of PERCS convened for such purpose, at a meeting of
all of the holders of Trust Securities or pursuant to written consent. The
Regular Trustees will cause a notice of any meeting at which holders of PERCS
are entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be mailed to each holder of record of PERCS.
Each such notice will include a statement setting forth (i) the date of such
meeting or the date by which such action is to be taken, (ii) a description of
any resolution proposed for adoption at such meeting on which such holders are
entitled to vote or of such matter upon which written consent is sought and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of PERCS will be required for (a) the Trust to redeem and cancel
PERCS or distribute Subordinated Notes in accordance with the Declaration or (b)
Time Warner to exercise the Time Warner Exchange Right.
Notwithstanding that holders of PERCS are entitled to vote or consent under
any of the circumstances described above, any of the PERCS at such time that are
owned by Time Warner or any entity directly or indirectly controlling or
controlled by, or under direct or indirect common control with, Time Warner
shall not be entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
The procedures by which holders of PERCS may exercise their voting rights
are described below. See ' -- Book-Entry System'.
Except in the limited circumstances described above in connection with the
appointment of a Special Regular Trustee, holders of the PERCS will have no
rights to increase or decrease the number of Time Warner Trustees or to appoint,
remove or replace the Regular Trustees, who may be appointed, removed or
replaced solely by Time Warner, as the holder of all the Common Securities.
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LISTING
Application has been made to list the PERCS on the NYSE under the symbol
'THA'. Trading of the PERCS on the NYSE is expected to commence within a 30-day
period after the initial delivery of the PERCS.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with Time
Warner's financial statements, with the PERCS shown as Company obligated
mandatorily redeemable preferred securities of subsidiary.
ADDITIONAL INFORMATION RELATING TO THE TRUST
Pursuant to the Declaration, the Trust shall terminate on the earliest of
(i) December 31, 1998, (ii) when all of the Trust Securities shall have been
called for redemption and the applicable Redemption Payment Amount therefor,
together with any accrued and unpaid distributions on such Trust Securities to
the applicable Redemption Payment Date, shall have been paid to the holders of
the Trust Securities in accordance with the terms of the Trust Securities or
(iii) when all of the Subordinated Notes shall have been distributed to the
holders of Trust Securities in exchange for all of the Trust Securities in
accordance with the terms of the Trust Securities. In addition, Time Warner will
have the right to terminate the Trust at any time if Time Warner shall be the
holder of all the outstanding PERCS as a result of the exercise of the Time
Warner Exchange Right or otherwise.
Pursuant to the Declaration, the number of Time Warner Trustees will
initially be five. Three of the Time Warner Trustees (the 'Regular Trustees')
will be persons who are employees or officers of, or affiliated with, Time
Warner. The fourth trustee will be a financial institution unaffiliated with
Time Warner that will serve as Property Trustee under the Declaration and as
indenture trustee with respect to the PERCS for purposes of the Trust Indenture
Act. The fifth Time Warner Trustee will be an individual resident in the State
of Delaware, meeting the requirements of the Trust Act (the 'Delaware Trustee').
The First National Bank of Chicago will act as the Property Trustee and its
affiliate will act as the Delaware Trustee until removed or replaced by the
holder of the Common Securities. The First National Bank of Chicago will also
act as indenture trustee with respect to the Guarantee (the 'Guarantee Trustee')
for purposes of the Trust Indenture Act. See 'Description of the Guarantee'. In
certain circumstances, the holders of a majority of the PERCS will be entitled
to appoint one additional Regular Trustee (a 'Special Regular Trustee'), who
need not be an officer or employee of, or otherwise affiliated with, Time
Warner. See 'Description of the PERCS -- Voting Rights'.
The Property Trustee will hold title to the Subordinated Notes for the
benefit of the holders of the Trust Securities and will have the power to
exercise all rights, powers and privileges under the Indenture (as defined
herein) as the holder of the Subordinated Notes. In addition, the Property
Trustee will maintain exclusive control of a segregated non-interest bearing
bank account (the 'Property Account') to hold all payments made in respect of
the Subordinated Notes for the benefit of the holders of Trust Securities. The
Property Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the PERCS. Subject to the right of
the holders of the PERCS to appoint a Special Regular Trustee, Time Warner, as
the direct or indirect holder of all the Common Securities, will have the right
to appoint, remove or replace any Time Warner Trustee and to increase or
decrease the number of Time Warner Trustees; provided that the number of Time
Warner Trustees shall be at least three, a majority of which shall be Regular
Trustees. Time Warner will pay all fees and expenses related to the Trust and
the offering of the Trust Securities. See 'Description of the Subordinated
Notes'.
The Declaration provides that Time Warner will pay for all debts and
obligations (other than with respect to the Trust Securities) and all costs and
expenses of the Trust, including any taxes and all costs and expenses with
respect thereto, to which the Trust may become subject, except for United States
withholding taxes. Time Warner has agreed that any person to whom such debts,
obligations, costs and expenses are owed and the Property Trustee will have
the right to enforce Time Warner's obligations
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in respect of such debts, obligations, costs and expenses directly against Time
Warner without first proceeding against the Trust.
MODIFICATION OF THE DECLARATION
The Declaration may be amended or modified if approved and executed by a
majority of the Regular Trustees; provided that if any proposed amendment
provides for, or the Regular Trustees otherwise propose to effect (i) any action
that would adversely affect the powers, preferences or special rights of the
Trust Securities, whether by way of amendment to the Declaration or otherwise or
(ii) the liquidation, dissolution, winding-up or termination of the Trust other
than pursuant to the terms of the Declaration, then the holders of the Trust
Securities as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of at least 66 2/3% in stated amount of the Trust Securities affected
thereby; provided however, that if any amendment or proposal referred to in
clause (i) above would adversely affect only the PERCS or only the Common
Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of 66 2/3% in stated amount of such class of Trust
Securities.
Notwithstanding the foregoing, (i) no amendment or modification may be made
to the Declaration unless the Regular Trustees shall have obtained (A) either a
ruling from the Internal Revenue Service or a written unqualified opinion of
nationally recognized independent tax counsel experienced in such matters to the
effect that such amendment will not result in the Trust being treated as an
association taxable as a corporation or a partnership for United States Federal
income tax purposes and that, following such action, each holder of Trust
Securities will be treated as owning an undivided beneficial interest in the
Subordinated Notes and (B) a written unqualified opinion of nationally
recognized independent counsel experienced in such matters to the effect that
such amendment will not cause the Trust to be an 'investment company' that is
required to be registered under the 1940 Act; (ii) certain specified provisions
of the Declaration may not be amended without the consent of all of the holders
of the Trust Securities, (iii) no amendment which adversely affects the rights,
powers and privileges of the Property Trustee shall be made without the consent
of the Property Trustee, (iv) Article IV of the Declaration relating to the
obligation of Time Warner to purchase the Common Securities and to pay certain
obligations and expenses of the Trust as described under 'Time Warner Financing
Trust' may not be amended without the consent of Time Warner, (v) the rights of
holders of Common Securities under Article V of the Declaration to increase or
decrease the number of, and to appoint, replace or remove, Trustees (other than
a Special Regular Trustee) shall not be amended without the consent of each
holder of Common Securities and (vi) the rights of holders of PERCS under the
Declaration to appoint or remove a Special Regular Trustee shall not be amended
without the consent of each holder of PERCS.
The Declaration further provides that it may be amended without the consent
of the holders of the Trust Securities to (i) cure any ambiguity, (ii) correct
or supplement any provision in this Declaration that may be defective or
inconsistent with any other provision of this Declaration, (iii) to add to the
covenants, restrictions or obligations of Time Warner and (iv) to conform to
changes in, or a change in interpretation or application of, certain 1940 Act
requirements by the Commission, which amendment does not adversely affect the
rights, preferences or privileges of the holders of the PERCS.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity. In addition, so
long as any PERCS are outstanding and are not held entirely by Time Warner, the
Trust may not voluntarily liquidate, dissolve, wind-up or terminate on or prior
to the Mandatory Redemption Date, except as described above under ' -- Special
Event Distribution or Redemption' and under ' -- Additional Information Relating
to the Trust'.
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BOOK-ENTRY SYSTEM
The Depository Trust Company ('DTC') will act as securities depository (the
'Depositary') for the PERCS. The PERCS will be issued only as fully-registered
securities registered in the name of Cede & Co., as DTC's nominee. One or more
fully-registered global PERCS certificates will be issued, representing in the
aggregate the total number of PERCS issued, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a 'banking organization' within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a 'clearing corporation' within the
meaning of the New York Uniform Commercial Code, and a 'clearing agency'
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ('Participants') deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations ('Direct Participants'). DTC is
owned by a number of its Direct Participants and by the NYSE, the AMEX and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ('Indirect Participants'). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of PERCS within the DTC system must be made by or through Direct
Participants, which will receive a credit for the PERCS on DTC's records. The
ownership interest of each actual purchaser of each PERCS (each a 'Beneficial
Owner') is in turn to be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from DTC of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased PERCS. Transfers of ownership interests in
the PERCS are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in PERCS, except in the
event that use of the book-entry system for the PERCS is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the PERCS; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such PERCS are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
PERCS are being redeemed, DTC will reduce pro rata (subject to adjustment to
eliminate fractional PERCS) the amount of the interest of each Direct
Participant in such PERCS to be redeemed.
In cases where a vote is required with respect to the PERCS, neither DTC
nor Cede & Co. will itself consent or vote. Under its usual procedures, DTC
would mail an Omnibus Proxy to the Trust as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the PERCS are credited on the record
date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the PERCS will be made to DTC. DTC's practice is
to credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participant and not of DTC, the Trust, the Time Warner Trustees or Time Warner,
subject to any statutory or regulatory requirements as may be in
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effect from time to time. Payment of distributions to DTC is the responsibility
of the Trust disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the PERCS at any time by giving reasonable notice to the Trust. Under
such circumstances, in the event that a successor securities depository is not
obtained, PERCS certificates are required to be printed and delivered.
Additionally, the Trust (with the consent of Time Warner) may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depository). In that event, certificates for the PERCS will be printed
and delivered. In each of the above circumstances, Time Warner will appoint a
paying agent with respect to the PERCS.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Trust believes to be reliable, but the
Trust, the Time Warner Trustees and Time Warner take no responsibility for the
accuracy thereof.
REMOVAL OF PERCS FROM BOOK-ENTRY SYSTEM
In the event that the PERCS do not remain in book-entry only form, payments
of distributions and payments on redemption of the PERCS will be payable, the
transfer of the PERCS will be registrable and PERCS will be exchangeable for
PERCS of other denominations of a like aggregate stated amount, at the principal
corporate trust office of the Property Trustee in The City of New York; provided
that payment of distributions may be made at the option of the Regular Trustees
on behalf of the Trust by check mailed to the address of the persons entitled
thereto and that the payment on redemption of any PERCS will be made only upon
surrender of such PERCS to the Property Trustee.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of the terms of the Guarantee that will be
issued by Time Warner for the benefit of the holders of PERCS. The Guarantee
will be qualified as an indenture under the Trust Indenture Act. The First
National Bank of Chicago will act as the Guarantee Trustee. The terms of the
Guarantee will be those set forth in such Guarantee and those made part of such
Guarantee by the Trust Indenture Act. The summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the form of Guarantee, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, and
the Trust Indenture Act. The Guarantee will be held by the Guarantee Trustee for
the benefit of the holders of the PERCS.
GENERAL
Pursuant to the Guarantee, Time Warner will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full to the holders of the
PERCS, the Guarantee Payments (as defined below), without duplication of amounts
paid by the Trust, as and when due, regardless of any defense, right of setoff
or counterclaim that the Trust may have or assert. The following payments or
distributions with respect to PERCS (the 'Guarantee Payments') to the extent not
paid by the Trust will be subject to the Guarantee (without duplication): (i)(A)
any accrued and unpaid distributions that are required to be paid on the PERCS
and (B) subject to the exercise by Time Warner of the Time Warner Exchange
Right, the Redemption Payment Amount with respect to PERCS subject to mandatory
redemption or called for redemption by the Trust, but if and only to the extent
that, in each case, Time Warner has made a payment to the Property Trustee of
interest or principal on the Subordinated Notes, as the case may be, and (ii)
upon a voluntary or involuntary liquidation, dissolution, winding-up or
termination of the Trust (other than in connection with the distribution of the
Subordinated Notes to the holders of PERCS or the redemption of all the PERCS
upon the maturity or redemption of the Subordinated Notes), the lesser of (A)
the Liquidation Distribution, to the extent the Trust has funds available
therefor and (B) the amount of assets of the Trust remaining available for
distribution to holders of the PERCS in liquidation of the Trust. Time Warner's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by Time Warner to the holders of PERCS or by causing the Trust
to pay such amounts to such holders.
The Guarantee will be a full and unconditional guarantee with respect to
the PERCS from the time of issuance of such PERCS but will not apply to any
payment of distributions or other amounts due to the extent the Trust shall lack
funds available therefor. To the extent Time Warner were to default on its
obligation to pay amounts payable on the Subordinated Notes, the Trust would
lack available funds for the payment of distributions on or amounts payable on
redemption of the Trust Securities and, in such event, holders of the PERCS
would not be able to rely on the Guarantee for payment of such amounts. See
'Description of the Subordinated Notes'.
CERTAIN COVENANTS OF TIME WARNER
Time Warner has covenanted that, so long as any PERCS remain outstanding,
if there shall have occurred any event that would constitute an event of default
under the Guarantee or the Declaration, Time Warner will not declare or pay any
dividend on, or make any distribution with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock;
provided, however, that the foregoing restriction does not apply to any stock
dividends paid by Time Warner where the dividend stock is of the same class as
that on which the dividend is being paid.
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of PERCS (in which case no vote will be required), the Guarantee may
be amended only with the prior approval of the holders of not less than 66 2/3%
in stated amount of the outstanding PERCS and only if the Guarantee Trustee
shall have obtained either a ruling from the Internal Revenue Service or a
written unqualified opinion of nationally recognized independent tax counsel
experienced in such matters to the effect that such action will not result in
the Trust being treated as an association taxable as a
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corporation or a partnership for United States Federal income tax purposes and
that, following such action, each holder of Trust Securities will be treated as
owning an undivided beneficial interest in the Subordinated Notes. All
guarantees and agreements contained in the Guarantee shall bind the successors,
assignees, receivers, trustees and representatives, including any successors
permitted in accordance with the Indenture, of Time Warner and shall inure to
the benefit of the holders of the PERCS then outstanding. See 'Description of
the Subordinated Notes -- Consolidation, Merger and Sale'.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of Time
Warner to perform any of its payment or other obligations thereunder. The
holders of a majority in stated amount of the PERCS have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee or to direct the exercise of any trust or power conferred
upon the Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee, any holder of
PERCS may, after a period of 30 days has elapsed from such holder's written
request to the Guarantee Trustee to enforce the Guarantee, institute a legal
proceeding directly against Time Warner to enforce the Guarantee Trustee's
rights under the Guarantee without first instituting a legal proceeding against
the Trust, the Guarantee Trustee or any other person or entity. Subject to the
award by a court of competent jurisdiction of legal fees in connection with any
such legal proceeding, each holder will be required to bear its own costs in
connection with instituting a legal proceeding directly against Time Warner,
which costs may be significant.
Time Warner will be required to provide annually to the Guarantee Trustee a
statement as to the performance by Time Warner of certain of its obligations
under the Guarantee and as to any default in such performance. Time Warner is
required to file annually with the Guarantee Trustee an officer's certificate as
to Time Warner's compliance with all conditions under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default, will undertake
to perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to a Guarantee, will be obligated to exercise the
same degree of care as a prudent individual would exercise in the conduct of his
or her own affairs. Subject to such provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of PERCS unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect (i) as
to any PERCS upon the exercise by Time Warner of the Time Warner Exchange Right
in connection with any redemption of such PERCS and payment of a combination of
the Exchange Property and cash, if any, with respect to such PERCS, together
with any accrued and unpaid distributions on such PERCS, (ii) as to any PERCS
upon payment by the Trust of the Redemption Payment Amount with respect to such
PERCS, together with any accrued and unpaid distributions on such PERCS, (iii)
as to all PERCS upon distribution of the Subordinated Notes held by the Trust to
the holders of the PERCS or (iv) as to all PERCS upon full payment of the
amounts payable in accordance with the Declaration upon liquidation of the
Trust. Notwithstanding the foregoing, the Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of PERCS must restore payment of any sums paid under the PERCS or the Guarantee.
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STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of Time Warner and
will rank (i) subordinate and junior in right of payment to all other
liabilities of Time Warner, including the Subordinated Notes, except those made
pari passu or subordinate by their terms, (ii) pari passu with the most senior
preferred or preference stock now or hereafter issued by Time Warner and with
any guarantee now or hereafter entered into by Time Warner in respect of any
preferred or preference stock of any affiliate of Time Warner and (iii) senior
to Time Warner's common stock. The terms of the PERCS provide that each holder
of PERCS by acceptance thereof agrees to the subordination provisions and other
terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
the guarantor to enforce its rights under the Guarantee without instituting a
legal proceeding against any other person or entity).
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
laws of the State of New York.
DESCRIPTION OF THE SUBORDINATED NOTES
Set forth below is a summary of the terms of the Subordinated Notes in
which the Trust will invest the proceeds from the issuance and sale of the Trust
Securities. The following description does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Subordinated
Notes Indenture, dated as of , 1995 (the 'Indenture'), between Time
Warner and Chemical Bank, as Trustee (the 'Indenture Trustee'), the form of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, and to the Trust Indenture Act. The terms of the
Subordinated Notes include those set forth in the Trust Indenture Act. Certain
capitalized terms are used herein as defined in the Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Subordinated Notes may be
distributed to the holders of the Trust Securities in liquidation of the Trust.
See 'Description of the PERCS -- Special Event Distribution or Redemption'. If
the Subordinated Notes are distributed to the holders of the PERCS, Time Warner
will use its best efforts to have the Subordinated Notes listed on the NYSE or
on such other national securities exchange or similar organization on which the
PERCS are then listed or quoted.
GENERAL
The Subordinated Notes will be issued as unsecured, subordinated
obligations of Time Warner, limited in aggregate principal amount to
approximately $ , such amount being the sum of (i) the aggregate Price to
Public shown on the cover page hereof for the PERCS and (ii) the proceeds
received by the Trust upon issuance of the Common Securities to Time Warner. The
Subordinated Notes will be issued in denominations equal to the per PERCS Price
to Public shown on the cover page hereof (the 'Minimum Denomination').
The Subordinated Notes are not subject to a sinking fund provision. The
entire principal amount of the Subordinated Notes will mature and become due and
payable, together with any accrued and unpaid interest thereon, on December 23,
1997 (the 'Maturity Date').
Subject to the exercise by Time Warner of the Time Warner Exchange Right
following the distribution of the Subordinated Notes to the holders of the PERCS
as described below under ' -- Time Warner Exchange Right', the amount payable
upon maturity for each Minimum Denomination of the Subordinated Notes will be
equal to (a) the lesser of (i) $54.41 and (ii) the Exchange Valuation Price on
the Trading Day immediately preceding December 17, 1997, of such amount of
Exchange Property as relates to each Minimum Denomination of Subordinated Notes
at such time (the 'Maturity Payment Amount') plus (b) an amount equal to all
accrued and unpaid interest on such Minimum Denomination
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to but excluding the Maturity Date. The amount of cash, if any, payable at
maturity of the Subordinated Notes will be subject to fluctuation based on the
Exchange Valuation Price of the Exchange Property.
If Subordinated Notes are distributed to holders of the PERCS in
liquidation of such holders' interests in the Trust, such Subordinated Notes
will initially be issued as one or more Global Securities (as defined herein).
As described herein, under certain limited circumstances, Subordinated Notes may
be issued in certificated form in exchange for a Global Note. See
' -- Book-Entry and Settlement' and ' -- Discontinuance of the Depositary's
Services' below. In the event that Subordinated Notes are issued in certificated
form, such Subordinated Notes will be in denominations equal to the Minimum
Denomination and integral multiples thereof and may be transferred or exchanged
at the offices described below. Payments on Subordinated Notes issued as a
Global Note will be made to DTC, a successor depository or, in the event that no
depositary is used, to a paying agent for the Subordinated Notes. In the event
Subordinated Notes are issued in certificated form, principal and interest will
be payable, the transfer of the Subordinated Notes will be registrable and
Subordinated Notes will be exchangeable for Subordinated Notes of other
authorized denominations of a like aggregate principal amount at the corporate
trust office of the Indenture Trustee in New York, New York; provided that
payment of interest may be made at the option of Time Warner by check mailed to
the address of the persons entitled thereto.
INTEREST
Each Minimum Denomination of Subordinated Notes shall bear interest at the
rate of % on the principal amount thereof per annum (or $ per annum,
which is equivalent to the annual distribution payments that are due with
respect to each PERCS) from and including the original date of issuance, payable
quarterly in arrears on the 30th day of March, June, September and December of
each year (each an 'Interest Payment Date'), commencing September 30, 1995, to
the person in whose name such Subordinated Note is registered, subject to
certain exceptions, at the close of business on the Business Day next preceding
such Interest Payment Date. The amount of interest payable on each Minimum
Denomination of Subordinated Notes on a periodic basis will be equal to the
amount of distributions payable on each PERCS for the same period. Interest
payable on any Subordinated Note that is not punctually paid or duly provided
for on any Interest Payment Date will forthwith cease to be payable to the
person in whose name such Subordinated Note is registered on the relevant record
date, and such defaulted interest will instead be payable to the person in whose
name such Subordinated Note is registered on the special record date or other
specified date determined in accordance with the Indenture.
The amount of interest payable for any full quarterly interest period will
be computed on the basis of a 360-day year of twelve 30-day months. Interest (or
amounts equal to accrued and unpaid interest) payable on the Subordinated Notes
for any period shorter than a full quarterly interest period will be computed on
the basis of a 360-day year of twelve 30-day months on the basis of the actual
number of days elapsed in such 30-day month. In the event that any date on which
interest is payable on the Subordinated Notes is not a Business Day, then
payment of the interest payable on such date will be made on the next succeeding
Business Day (without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
OPTIONAL REDEMPTION
Time Warner shall have the right to redeem the Subordinated Notes, in whole
or in part, from time to time, upon not less than 20 nor more than 45 Business
Days' notice, at a redemption price initially equal to $ per Minimum
Denomination of Subordinated Notes, declining by $ on each day following the
date of issue of the Subordinated Notes to $ on October 23, 1997, and equal
to $54.41 thereafter (the 'Note Call Price'), plus cash in an amount equal to
all accrued and unpaid interest on each Minimum Denomination of the Subordinated
Notes so called to but excluding the redemption date. If a partial redemption of
the PERCS resulting from a partial redemption of the Subordinated
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Notes would result in the delisting of the PERCS, Time Warner may only redeem
the Subordinated Notes in whole.
TIME WARNER EXCHANGE RIGHT
In the event that the Subordinated Notes have been distributed to the
holders of the PERCS, Time Warner will have the right to require the holders of
outstanding Subordinated Notes on the Maturity Date or any redemption date to
exchange such Subordinated Notes for a combination of shares of Hasbro Common
Stock or other Exchange Property and cash as described below. Such right shall
be exercisable only with respect to the Subordinated Notes held by former
holders of PERCS, or transferees of such holders or their transferees, and shall
not be exercisable with respect to Subordinated Notes held by Time Warner or
transferees of Time Warner or their transferees. If Time Warner shall exercise
the Time Warner Exchange Right in respect of the Maturity Date, each Minimum
Denomination of Subordinated Notes that shall have been distributed shall be
exchanged for (a) Exchange Property in respect of the portion of such Minimum
Denomination to be exchanged for Exchange Property based on the Exchange Rate in
effect on the Trading Day immediately preceding December 17, 1997, (b) cash in
respect of the portion, if any, of such Minimum Denomination that is not to be
exchanged for Exchange Property, calculated by subtracting from the Maturity
Payment Amount the value of the Exchange Property to be delivered (based on the
Exchange Valuation Price of such Exchange Property as of the Trading Day
immediately preceding December 17, 1997) and (c) cash in an amount equal to all
accrued and unpaid interest on such Minimum Denomination to but excluding the
Maturity Date; provided that if the Exchange Valuation Price as of the Trading
Day immediately preceding December 17, 1997, of the amount of Exchange Property
that relates to the Minimum Denomination is greater than $54.41 (based on the
Exchange Rate in effect as of such Trading Day), Time Warner shall deliver in
exchange for each Minimum Denomination of Subordinated Notes (a)(i) Exchange
Property (valued on the basis of its Exchange Valuation Price as of such Trading
Day) and (ii) at the option of Time Warner, cash, having an aggregate value
equal to $54.41 per Minimum Denomination of Subordinated Notes and (b) cash in
an amount equal to all accrued and unpaid interest on such Subordinated Notes to
but excluding the Maturity Date.
If Time Warner shall exercise the Time Warner Exchange Right in respect of
any optional redemption or special redemption of the Subordinated Notes, each
Minimum Denomination of Subordinated Notes to be redeemed on any such date shall
be exchanged for (a)(i) Exchange Property (valued on the basis of its Exchange
Valuation Price as of the Trading Day immediately preceding the applicable date
of redemption) and (ii) at the option of Time Warner, cash, having an aggregate
value equal to the Note Call Price or the Special Redemption Price in effect for
each Minimum Denomination on such date of redemption, and (b) cash in an amount
equal to all accrued and unpaid interest on such Subordinated Notes to but
excluding such date of redemption.
In accordance with the foregoing procedures, in the event that Time Warner
shall exercise the Time Warner Exchange Right and elect to deliver Exchange
Property with respect to only a portion of each Minimum Denomination of
Subordinated Notes, each holder of Subordinated Notes shall be entitled to
receive from Time Warner for each Minimum Denomination of Subordinated Notes
held by such holder, the same types, amounts and relative proportions of
Exchange Property and cash as every other holder of Subordinated Notes.
The Exchange Rate and Exchange Property will be subject to adjustment upon
the occurrence of an Exchange Adjustment Event. See 'Description of the
PERCS -- Time Warner Exchange Right' and ' -- Adjustment of Exchange Rate and
Exchange Property'.
SPECIAL EVENT DISTRIBUTION OR REDEMPTION
Upon the occurrence of a Tax Event or an Investment Company Event, Time
Warner will have the
right to elect to, under certain circumstances (a) dissolve the Trust (if it has
not previously been terminated) and cause the Subordinated Notes to be
distributed to the holders of the PERCS, (b) redeem the Subordinated Notes at
the Special Redemption Price plus accrued and unpaid interest thereon or (c) in
the case of a Tax Event, allow the Subordinated Notes to remain outstanding and
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indemnify the Trust (if it has not previously been terminated) for any taxes
payable by it as a result of such Tax Event. See 'Description of the
PERCS -- Special Event Distribution or Redemption'. Any redemption in accordance
with the foregoing provisions will be subject to the Time Warner Exchange Right.
SUBORDINATION
The payment of the principal of and interest on the Subordinated Notes will
be subordinated in right of payment to the extent set forth in the Indenture to
the prior payment in full in cash or cash equivalents of all of Time Warner's
present and future Senior Indebtedness (including Time Warner's outstanding
8 3/4% Convertible Subordinated Debentures due 2015), which aggregated
approximately $10.1 billion at March 31, 1995. In addition to such Senior
Indebtedness, Time Warner's obligations under the Guarantee and the Subordinated
Notes are effectively subordinated to all liabilities (including indebtedness)
of its consolidated and unconsolidated subsidiaries, which aggregated
approximately $13.9 billion at March 31, 1995. The indebtedness of Time Warner's
consolidated and unconsolidated subsidiaries is expected to increase by
approximately $2.5 billion as a result of the Transactions referred to under
'Recent Developments -- Certain Transactions'. The Indenture does not limit the
amount of Senior Indebtedness which Time Warner may incur. Moreover, Time
Warner's subsidiaries may incur indebtedness and other liabilities and have
obligations to third parties. Generally, the claims of such third parties to the
assets of Time Warner's subsidiaries will be superior to those of Time Warner as
a stockholder, and, therefore, the Subordinated Notes may be deemed to be
effectively subordinated to the claims of such third parties.
Upon any payment or distribution of all or substantially all of the assets
of Time Warner or in the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar proceeding whether
voluntary or involuntary relative to Time Warner or its creditors, the holders
of all Senior Indebtedness will first be entitled to receive payment in full in
cash or cash equivalents before the holders of the Subordinated Notes will be
entitled to receive any distribution on account thereof. In the event any
default in the payment of principal of, premium, if any, or interest on or other
monetary obligation with respect to, any Senior Indebtedness shall have occurred
and be continuing, then, unless and until such event of default or default shall
have been cured or waived or shall have ceased to exist, no payment on account
of the Subordinated Notes (including by way of any Claim (as defined below))
will be made by Time Warner. Time Warner is obligated, upon the occurrence of
any such default or event of default, to provide written notice to the Indenture
Trustee of such default or event of default. By reason of such subordination, in
the event of insolvency, under certain circumstances the holders of Subordinated
Notes may receive less, ratably, than Time Warner's general creditors. As used
herein, 'Claim' means any claim against Time Warner or any of its subsidiaries
for rescission of the Subordinated Notes or for monetary damages from the
purchase or receipt of the Subordinated Notes.
As used in the Indenture, the term 'Senior Indebtedness' means all
indebtedness or obligations, whether outstanding at the date of execution of the
Indenture or thereafter incurred, assumed, guaranteed or otherwise created,
unless the terms of the instrument or instruments by which Time Warner incurred,
assumed, guaranteed or otherwise created any such indebtedness or obligation
expressly provide that such indebtedness or obligation is subordinate to all
other indebtedness of Time Warner or that such indebtedness or obligation is not
superior in right of payment to the Subordinated Notes with respect to any of
the following (including, without limitation, interest accruing on or after a
bankruptcy or other similar event, whether or not an allowed claim therein): (i)
any indebtedness incurred by Time Warner or assumed or guaranteed, directly or
indirectly, by Time Warner (a) for money borrowed (including Time Warner's
outstanding 8 3/4% Convertible Subordinated Debentures due 2015), (b) in
connection with the acquisition of any business, property or other assets (other
than trade payables incurred in the ordinary course of business) or (c) for
advances or progress payments in connection with the construction or acquisition
of any building, motion picture, television production or other entertainment of
any kind; (ii) any obligation of Time Warner (or of a subsidiary which is
guaranteed by Time Warner) as lessee under a lease of real or personal property;
(iii) any obligation of Time Warner to purchase property at a future date in
connection with a financing by Time Warner or a
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subsidiary of Time Warner; (iv) letters of credit; (v) currency swaps and
interest rate hedges; and (vi) any deferral, renewal, extension or refunding of
any of the foregoing.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Subordinated Notes, will have the right
to declare the principal of and the interest on the Subordinated Notes and any
other amounts payable under the Indenture to be forthwith due and payable and to
enforce its other rights as a creditor with respect to the Subordinated Notes.
An 'Indenture Event of Default' is defined as: (i) default for 60 days in the
payment of interest on the Subordinated Notes; (ii) default in payment of the
Maturity Payment Amount or any amount payable upon optional or special
redemption of the Subordinated Notes; (iii) failure by Time Warner for 90 days
after receipt of notice to it (or the holders of at least 25% in principal
amount of the Notes then outstanding) to comply with any of its covenants or
agreements contained in the Indenture; (iv) failure by the Property Trustee or
any Regular Trustee to comply with the terms of the Subordinated Notes or the
Declaration; and (v) certain events of bankruptcy, insolvency, receivership or
reorganization involving Time Warner. If any Indenture Event of Default occurs
and is continuing, the Indenture Trustee by notice to Time Warner, or the
holders of not less than 40% in aggregate principal amount of the Subordinated
Notes outstanding by notice to the Indenture Trustee and Time Warner, may
declare the Subordinated Notes to be due and payable and, upon any such
declaration, the Subordinated Notes shall become due and payable immediately in
an amount per Minimum Denomination equal to (a) the lesser of (i) $54.41 and
(ii) the Exchange Valuation Price on the Trading Day immediately preceding such
Indenture Event of Default of such amount of Exchange Property as relates to
each Minimum Denomination of Subordinated Notes on such Trading Day (the 'Note
Acceleration Price'). Under certain conditions the holders of a majority in
principal amount of Subordinated Notes then outstanding may waive certain past
defaults and their consequences, other than a default in the payment of
principal or interest, unless such default has been cured and a sum sufficient
to pay all matured installments of interest and principal otherwise than by
acceleration has been deposited with the Indenture Trustee.
An Indenture Event of Default also constitutes a Declaration Event of
Default. The holders of PERCS in certain circumstances have the right to direct
the Property Trustee to exercise its rights as the holder of the Subordinated
Notes. See 'Description of the PERCS -- Declaration Events of Default' and
' -- Voting Rights'.
Holders of the Subordinated Notes may not enforce the Indenture except as
provided therein and except that nothing will prevent the Subordinated Note
holders from enforcing payment of principal of or interest on their Subordinated
Notes. The Indenture Trustee may refuse to enforce the Indenture unless it
receives reasonable security or indemnity. Subject to certain limitations,
holders of a majority in principal amount of Subordinated Notes then outstanding
may direct the Indenture Trustee in its exercise of any trust or power under the
Indenture.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting Time Warner and the Indenture
Trustee, with the consent of the holders of the not less than a majority in
principal amount of the outstanding Subordinated Notes, to modify the Indenture;
provided that no such modification may, without the consent of the holder of
each outstanding Subordinated Note affected thereby, (i) reduce the amount of
Subordinated Notes the holders of which must consent to any amendment,
supplement or waiver of the Indenture; (ii) reduce the rate of or extend the
time for the payment of interest on any Subordinated Note; (iii) alter the
method of calculation of, or reduce, the Maturity Payment Amount or extend the
fixed maturity of any Subordinated Note; (iv) reduce the premium payable, or
alter the method of calculation of the Note Call Price, upon any redemption of
any Subordinated Note; (v) make any Subordinated Note payable in money or
property other than that stated in the Subordinated Note; (vi) make any change
to the subordination terms that adversely affects the rights of any holder of
the Subordinated Notes; or (vii) make any change to the provisions relating to
waivers of past defaults or the rights of holders of the Subordinated Notes to
receive payments or reduce the percentage of Subordinated Notes the holders of
which are required to consent to any such modification. The
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Declaration provides that in the event that the consent of the Property Trustee,
as holder of the Subordinated Notes, is required in connection with any
modification of the Indenture or the Subordinated Notes, the Property Trustee
will request the written direction of the holders of a majority in stated amount
(or to the extent that the vote of a greater percentage or of all the holders of
the Subordinated Notes shall be required, such greater percentage in stated
liquidation amount or all) of the Trust Securities with respect to any such
modification.
CONSOLIDATION, MERGER AND SALE
The Indenture provides that Time Warner may, without the consent of the
holders of the Subordinated Notes, consolidate with or merge into, or transfer
its properties as an entirety or substantially as an entirety to any
corporation, person or other entity; provided that in any such case (i) the
successor person (if other than Time Warner) (a) is an entity organized and
existing under the laws of the United States of America or any political
subdivision thereof and (b) assumes by a supplemental indenture Time Warner's
obligations under the Indenture, (ii) immediately after giving effect to such
transaction, no Indenture Event of Default shall have occurred and be continuing
and (iii) Time Warner shall have delivered to the Indenture Trustee an officer's
certificate and opinion of counsel each stating that such consolidation, merger
or transfer and such supplemental indenture comply with the Indenture.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of PERCS in connection with the involuntary or
voluntary dissolution, winding-up or liquidation of the Trust as a result of the
occurrence of a Special Event, the Subordinated Notes will be issued in the form
of one or more global certificates (each a 'Global Note') registered in the name
of the Depositary or its nominee. Except under the limited circumstances
described below, Subordinated Notes represented by a Global Note will not be
exchangeable for, and will not otherwise be issuable as, Subordinated Notes in
definitive form. The Global Notes described above may not be transferred except
by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or to a
successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Note.
Except as provided below under ' -- Discontinuance of the Depositary's
Services' owners of beneficial interests in such a Global Note will not be
entitled to receive physical delivery of Subordinated Notes in definitive form
and will not be considered the holders (as defined in the Indenture) thereof for
any purpose under the Indenture, and no Global Note representing Subordinated
Notes shall be exchangeable, except for another Global Note of like denomination
and tenor to be registered in the name of the Depositary or its nominee or to a
successor depositary or its nominee. Accordingly, each beneficial owner must
rely on the procedures of the Depositary and, if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest to exercise any rights of a holder under the Indenture.
THE DEPOSITARY
If Subordinated Notes are distributed to holders of PERCS in liquidation of
such holders' interests in the Trust, the Depositary will act as securities
depositary for the Subordinated Notes. For a description of DTC and the specific
terms of the depositary arrangements, see 'Description of the
PERCS -- Book-Entry System.' As of the date of this Prospectus, the description
therein of the Depositary's book-entry system and the Depositary's practices as
they relate to purchases, transfers, notices and payments with respect to the
PERCS apply in all material respects to any debt obligations represented by one
or more Global Notes held by the Depositary. Time Warner may appoint a successor
to the Depositary or any successor depositary in the event the Depositary or
such successor depositary is unable or unwilling to continue as a depository for
the Global Notes.
None of Time Warner, the Trust, the Indenture Trustee, any paying agent and
any other agent of Time Warner or the Indenture Trustee will have any
responsibility or liability for any aspect of the
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records relating to or payments made on account of beneficial ownership
interests in Global Notes for such Subordinated Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Note shall be exchangeable for Subordinated Notes registered in
the names of persons other than the Depositary or its nominee only if (i) the
Depositary notifies Time Warner that it is unwilling or unable to continue as a
depositary for such Global Note and no successor depositary shall have been
appointed, (ii) the Depositary, at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the Depositary is required to be
so registered to act as such Depositary and no successor depositary shall have
been appointed, or (iii) Time Warner, in its sole discretion, determines that
such Global Note shall be so exchangeable. Any Global Note that is exchangeable
pursuant to the preceding sentence shall be exchangeable for Subordinated Notes
registered in such names as the Depositary shall direct. It is expected that
such instructions will be based upon directions received by the Depositary from
its Participants with respect to ownership of beneficial interests in such
Global Note.
GOVERNING LAW
The Indenture and the Subordinated Notes will be governed by, and construed
in accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Subordinated Notes, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
that might be incurred thereby. The Indenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it. The Indenture Trustee is one
of a number of banks with which Time Warner and its subsidiaries maintain
ordinary banking and trust relationships.
MISCELLANEOUS
Time Warner will have the right at all times to assign any of its rights or
obligations under the Indenture to a direct or indirect wholly-owned subsidiary
of Time Warner; provided that, in the event of any such assignment, Time Warner
will remain jointly and severally liable for all such obligations. Subject to
the foregoing, the Indenture will be binding upon and inure to the benefit of
the parties thereto and their respective successors and assigns. The Indenture
provides that it may not otherwise be assigned by the parties thereto.
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EFFECT OF OBLIGATIONS UNDER THE
SUBORDINATED NOTES AND THE GUARANTEE
As set forth in the Declaration, the exclusive purposes of the Trust are to
issue the Trust Securities evidencing undivided beneficial interests in the
Trust's assets, to invest the proceeds from such issuance and sale in the
Subordinated Notes and to engage in only those other activities necessary and
incidental thereto.
As long as payments of interest and other payments are made when due on the
Subordinated Notes, such payments will be sufficient to cover distributions and
payments due on the Trust Securities because of the following factors: (i) the
aggregate principal amount of Subordinated Notes will be equal to the sum of the
aggregate stated liquidation amount of the Trust Securities; (ii) the interest
rate and the interest and other payment dates on the Subordinated Notes will
match the distribution payments and distribution and other payment dates for the
Trust Securities; (iii) the amount payable at maturity of the Subordinated Notes
will equal the Mandatory Redemption Price of the Trust Securities; (iv) the
amount payable upon optional redemption of the Subordinated Notes will equal the
Call Price payable upon the early redemption of the Trust Securities; (v) the
amount payable upon special redemption of the Subordinated Notes will equal the
amount payable upon special redemption of the Trust Securities; (vi) Time Warner
shall pay all, and the Trust shall not be obligated to pay, directly or
indirectly, any, costs and expenses of the Trust; and (vii) the Declaration
further provides that the Trustees shall not cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes of
the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the PERCS (to the extent funds therefor are available) are
guaranteed by Time Warner on a subordinated basis as and to the extent set forth
under 'Description of the Guarantee'. If Time Warner does not make interest
payments on the Subordinated Notes purchased by the Trust, it is expected that
the Trust will not have sufficient funds to pay distributions on the PERCS. The
Guarantee is a full and unconditional guarantee but does not apply to any
payment of distributions unless and until the Trust has sufficient funds for the
payment of such distributions.
If Time Warner fails to make interest or other payments on the Subordinated
Notes when due, the Declaration provides a mechanism whereby the holders of the
PERCS, using the procedures described in 'Description of the PERCS -- Book-Entry
System' and ' -- Voting Rights', may (i) appoint a Special Regular Trustee and
(ii) direct the Property Trustee to enforce its rights under the Subordinated
Notes. If the Property Trustee fails to enforce its rights under the
Subordinated Notes, a holder of PERCS may, after a period of 30 days has elapsed
from such holder's written request to the Property Trustee to enforce such
rights, institute a legal proceeding against Time Warner to enforce the Property
Trustee's rights under the Subordinated Notes without first instituting any
legal proceeding against the Trust, the Property Trustee or any other person or
entity. Time Warner, under the Guarantee, acknowledges that the Guarantee
Trustee shall enforce the Guarantee on behalf of the holders of the PERCS. If
Time Warner fails to make payments under the Guarantee, the Guarantee provides a
mechanism whereby the holders of the PERCS may direct the Guarantee Trustee to
enforce its rights thereunder. If the Guarantee Trustee fails to enforce the
Guarantee, any holder of PERCS may, after a period of 30 Business Days has
elapsed from such holder's written request to the Guarantee Trustee to enforce
the Guarantee, institute a legal proceeding directly against Time Warner to
enforce the Guarantee Trustee's rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee, or any
other person or entity.
Time Warner and the Trust believe that the above mechanisms and
obligations, taken together, are equivalent to a full and unconditional
guarantee by Time Warner of payments due on the PERCS. See 'Description of the
Guarantee' and 'Description of the Subordinated Notes'.
If a Special Event shall occur and be continuing, the Trust shall be
dissolved unless the Subordinated Notes are redeemed or left outstanding in the
limited circumstances described herein, with the result that Subordinated Notes
held by the Trust having an aggregate principal amount equal to the aggregate
stated amount of the Trust Securities will be distributed on a Pro Rata Basis in
exchange for the outstanding Trust Securities, subject in the case of a Tax
Event to Time Warner's right to allow
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the Subordinated Notes to remain outstanding and indemnify the Trust for any
taxes payable by it as a result of such Tax Event. See 'Description of the
PERCS -- Special Event Distribution or Redemption'.
Upon any voluntary or involuntary liquidation, dissolution, winding-up or
termination of the Trust, the holders of Trust Securities will be entitled to
receive Subordinated Notes or, on a Pro Rata Basis, the Liquidation
Distribution. Holders of the PERCS will be entitled to the benefits of the
Guarantee with respect to the Liquidation Distribution. See 'Description of the
PERCS -- Liquidation Distribution Upon Dissolution'. Upon any voluntary or
involuntary liquidation or bankruptcy of Time Warner, the holders of
Subordinated Notes would be subordinated creditors of Time Warner, subordinated
in right of payment to all Senior Indebtedness, but entitled to receive payment
in full of principal, premium, if any, and interest, before any stockholders of
Time Warner receive payments or distributions.
A default or event of default under any Senior Indebtedness would not
constitute a default or event of default under the Subordinated Notes. However,
in the event of payment defaults under, or acceleration of, Senior Indebtedness,
the subordination provisions of the Subordinated Notes provide that no payments
may be made in respect of the Subordinated Notes. Failure to make required
payments on the Subordinated Notes would constitute an Indenture Event of
Default.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the material U.S. Federal income tax
consequences of acquiring, holding and disposing of the PERCS by a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or an estate or
trust the income of which is subject to U.S. Federal income taxation regardless
of its source (any of the foregoing, a 'U.S. person') who is the beneficial
owner of a PERCS (a 'U.S. Holder'). All references to 'holders' (including U.S.
Holders) are to beneficial owners of the PERCS. This summary is based on current
U.S. Federal income tax law and is for general information only. To the extent
that this summary addresses matters of law, the discussion expressed herein
represents the opinion of Cravath, Swaine & Moore, tax counsel for Time Warner
and the Trust ('Tax Counsel').
This summary deals only with holders who are initial holders of the PERCS
and who will hold the PERCS as capital assets. It does not address tax
considerations applicable to investors that may be subject to special U.S.
Federal income tax treatment, such as dealers in securities or persons holding
the PERCS as a position in a 'straddle' for U.S. Federal income tax purposes
(within the meaning of Section 1092 of the Internal Revenue Code of 1986, as
amended (the 'Code')), or as part of a 'conversion transaction' (within the
meaning of Section 1258 of the Code) or 'synthetic security' or other integrated
investment comprised of a PERCS and one or more other investments, and does not
address the tax consequences under state, local or foreign law. Accordingly, a
prospective investor should consult its own tax advisor to determine whether it
is subject to such special U.S. Federal income tax treatment and, if so, to
determine the tax consequences of an investment in the PERCS.
No statutory, judicial or administrative authority directly addresses the
characterization of the Subordinated Notes or instruments similar to the
Subordinated Notes for U.S. Federal income tax purposes. Furthermore, no ruling
is being requested from the Internal Revenue Service (the 'IRS') with respect to
the PERCS or the Subordinated Notes. Therefore, no assurance can be given that
the IRS will agree with the conclusions expressed herein. Accordingly, a
prospective investor (including a tax-exempt investor) in the PERCS should
consult its own tax advisor in determining the tax consequences of an investment
in the PERCS including the application of state, local, foreign or other tax
laws and the possible effects of changes in Federal or other tax laws.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the PERCS, Tax Counsel will render its
opinion to the effect that, under current law and assuming full compliance with
the terms of the Declaration, the Trust will be classified for U.S. Federal
income tax purposes as a grantor trust and not as an association taxable as a
corporation or a partnership. Accordingly, each holder of the PERCS will be
considered to be the
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beneficial owner of an allocable pro rata portion of the Subordinated Notes held
by the Trust and each U.S. Holder will be required to include in gross income
its allocable pro rata share of the interest, gain and loss arising with respect
to the Subordinated Notes held by the Trust.
DISTRIBUTION OF SUBORDINATED NOTES TO HOLDERS OF PERCS
Under current law, a distribution by the Trust of Subordinated Notes as
described under the captions 'Description of the PERCS -- Special Event
Distribution or Redemption' and ' -- Liquidation Distribution Upon Dissolution',
will not be taxable and will result in a U.S. Holder receiving directly its pro
rata share of Subordinated Notes previously held indirectly through the Trust,
with holding period and tax basis equal to the holding period and adjusted tax
basis such U.S. Holder was considered to have had in his pro rata share of the
underlying Subordinated Notes prior to such distribution.
TAXATION OF U.S. HOLDERS
Pursuant to the terms of the Declaration, Time Warner, the Trust and the
holders of the PERCS will agree to treat the Subordinated Notes as debt
instruments for U.S. Federal, state and local income and franchise tax purposes,
with interest accruing thereon at the stated rate, and not to take any contrary
position before any taxing authority or on any tax return. See 'Description of
the Subordinated Notes -- Interest'. Under this approach:
(1) a U.S. Holder of PERCS will be required to include such U.S.
Holder's allocable pro rata share of interest on the Subordinated Notes in
taxable income as such interest is paid to the Trust or accrued, in
accordance with the U.S. Holder's method of accounting for U.S. Federal
income tax purposes; and
(2) upon the sale, redemption or other disposition of the PERCS
(including a redemption of the PERCS on the Mandatory Redemption Date or
Optional Redemption Dates or an exchange of PERCS for Hasbro Common Stock
and/or cash upon exercise of the Time Warner Exchange Right), a U.S. Holder
will recognize gain or loss equal to the difference, if any, between the
amount realized by the U.S. Holder upon such sale, redemption or other
disposition and the U.S. Holder's tax basis in the PERCS. Such U.S.
Holder's amount realized will be equal to the amount of cash and the fair
market value of any other property (including Hasbro Common Stock) received
by such U.S. Holder upon the sale, redemption or other disposition.
However, the amount realized will not include the amount attributable to
the Holder's allocable pro rata share of accrued but unpaid interest on the
Subordinated Notes, which will be treated as interest. A U.S. Holder's tax
basis in the PERCS will generally be equal to its purchase price for the
PERCS. It is believed that any such gain or loss will be capital gain or
loss, and will be long-term capital gain or loss if the U.S. Holder held
the PERCS for more than one year at the time of the sale, redemption or
other disposition, although the IRS may require that any such gain be
treated as ordinary (interest) income. If a U.S. Holder receives Hasbro
Common Stock or other property upon the sale, redemption or other
disposition, such U.S. Holder's tax basis in the Hasbro Common Stock or
other property received will be equal to its fair market value at the time
of such sale, redemption or other disposition.
In the absence of pertinent legal authority concerning the proper tax
treatment of PERCS, however, no assurance can be provided that the above
discussed tax treatment will be accepted by the IRS or upheld by a court. As a
result, different tax consequences may apply. For example, (i) gain on the sale,
redemption or other disposition of the PERCS may be ordinary income rather than
capital gain, (ii) a Holder might be required to include interest on the
Subordinated Notes in taxable income on an accrual basis (regardless of such
U.S. Holder's normal method of tax accounting) and/or at a rate greater than the
stated rate of interest on the Subordinated Notes, and (correlatively) have less
gain or income (or a greater loss) upon the sale, redemption or other
disposition of the PERCS, or (iii) all or part of the stated interest on the
Subordinated Notes might be treated as a nontaxable return of capital,
increasing the amount of income or gain (or decreasing the loss) upon the
subsequent sale, redemption or other disposition of the PERCS.
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In connection with clause (ii) of the preceding paragraph, recently
proposed Treasury Regulations would require the accrual of interest income on
the Subordinated Notes based on their projected yield to maturity. The projected
yield would take into account a projected Redemption Payment Amount (based upon
forward pricing for the Hasbro Common Stock). This method might result in a U.S.
Holder's being required to recognize interest income each year at a rate in
excess of the stated rate of distributions on the PERCS. An adjustment would be
made at the time the PERCS are redeemed to reflect the actual Redemption Payment
Amount as compared to the projected amount. Moreover, any gain on the sale,
redemption or other disposition of the PERCS would be treated as ordinary
income. These proposed regulations by their terms only apply to debt instruments
issued at least 60 days after publication of final regulations, and therefore
would not apply to the Subordinated Notes. However, no assurance can be given
that the IRS or the courts would not apply the principles of the regulations to
the Subordinated Notes.
Even if U.S. Holders would generally recognize capital gain upon sale,
redemption or other disposition of the PERCS, under Section 1258 of the Internal
Revenue Code, such gain would be treated as ordinary income to a U.S. Holder
that had entered into certain offsetting positions or hedging transactions with
respect to the PERCS.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of PERCS may be subject to information reporting and to backup
withholding at a rate of 31 percent of certain amounts paid to the holder unless
such holder provides proof of an applicable exemption or correct taxpayer
identification number, and otherwise complies with applicable requirements of
the backup withholding rules.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1984 ('ERISA'), or Section 4975 of the Code
('Plans') may purchase PERCS, subject to the investing fiduciary's determination
that the investment in PERCS satisfies ERISA's fiduciary standards and other
requirements applicable to investments by the Plan.
In any case, each of Time Warner, Hasbro and/or any of their respective
affiliates may be considered a 'party in interest' (within the meaning of ERISA)
or a 'disqualified person' (within the meaning of Section 4975 of the Code) with
respect to certain Plans (generally, Plans maintained or sponsored by, or
contributed to, by any such persons). The acquisition and ownership of PERCS by
a Plan (or by an individual retirement arrangement or other Plans described in
Section 4975(e)(i) of the Code) with respect to which Time Warner, Hasbro or any
of their affiliates is considered a party in interest or a disqualified person,
may constitute or result in a prohibited transaction under ERISA or Section 4975
of the Code, unless such PERCS are acquired pursuant to and in accordance with
an applicable exemption.
As a result, Plans with respect to which Time Warner, Hasbro or any of
their affiliates is a party in interest or a disqualified person should not
acquire PERCS. Any other Plans or other entities whose assets include Plan
assets subject to ERISA proposing to acquire PERCS should consult with their own
ERISA counsel.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the 'Underwriting Agreement'), the Underwriters
named below have severally and not jointly agreed to purchase, and the Trust has
agreed to sell to the Underwriters, severally and not jointly, the respective
number of PERCS set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF PERCS
---- ----------
<S> <C>
Morgan Stanley & Co. Incorporated...............................................
----------
Total...................................................................... 12,057,561
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the PERCS are subject to the
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are committed to take and pay for all the PERCS offered hereby,
if any are taken.
The Underwriters propose to offer part of the PERCS directly to the public
at the public offering price set forth on the cover page hereof and part to
certain dealers at a price which represents a concession not in excess of $
per PERCS. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per PERCS to Underwriters or to certain other
dealers.
Subject to certain exceptions, Time Warner has agreed with the Underwriters
that without the prior written consent of Morgan Stanley & Co. Incorporated, for
a period of 45 days following the sale by the Trust of the PERCS offered hereby,
it will not, directly or indirectly, sell, offer to sell, grant options for the
sale of, or otherwise dispose of or transfer, any Hasbro Common Stock or any
security convertible into or exchangeable for any Hasbro Common Stock.
Because the proceeds of the sale of the PERCS will be invested in the
Subordinated Notes, Time Warner has agreed to pay to the Underwriters as a
commission the amount per PERCS set forth on the cover page of this Prospectus.
Prior to this offering, there has been no public market for the PERCS.
Application has been made to list the PERCS on the NYSE.
Time Warner and the Trust, on the one hand, and the Underwriters, on the
other hand, have agreed to indemnify each other against certain liabilities
under the Securities Act.
The Underwriters have from time to time performed various investment
banking services for Time Warner and its subsidiaries, for which customary
compensation has been received.
The Underwriters have informed Time Warner and the Trust that they, and any
agents or dealers utilized in the sale of PERCS, will not confirm sales of PERCS
to accounts over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the PERCS under Delaware law will be passed upon for the
Trust by Richards, Layton & Finger, Wilmington, Delaware, special Delaware
counsel to Time Warner and the Trust. The validity of the Guarantee and the
Subordinated Notes and certain Federal income tax matters will be passed upon
for Time Warner and the Trust by Cravath, Swaine & Moore, New York, New York,
and for the Underwriters by Davis Polk & Wardwell, New York, New York, and by
Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements of Time Warner and TWE appearing in
Time Warner's Annual Report on Form 10-K for the year ended December 31, 1994,
and the combined financial statements of the Time Warner Service Partnerships
incorporated by reference therein, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon set forth
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therein and incorporated herein by reference. Such financial statements have
been incorporated herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The financial statements of Summit Communications Group, Inc. as of
December 31, 1993 and 1994, and for the three years ended December 31, 1994,
incorporated by reference in this Prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their report thereon and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report and upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Newhouse Broadcasting Cable Division of
Newhouse Broadcasting Corporation and subsidiaries as of July 31, 1993 and 1994,
and for the three years ended July 31, 1994, incorporated by reference in this
Prospectus, have been audited by Paul Scherer & Company LLP, independent
auditors, as set forth in their report thereon and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report and upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Vision Cable Division of Vision Cable
Communications, Inc. and subsidiaries as of December 31, 1993 and 1994, and for
the three years ended December 31, 1994, incorporated by reference in this
Prospectus, have been audited by Paul Scherer & Company LLP, independent
auditors, as set forth in their report thereon and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report and upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Cablevision Industries Corporation as of
December 31, 1993 and 1994, and for the three years ended December 31, 1994,
incorporated by reference in this Prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their report
thereon and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report and upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Cablevision Industries Limited Partnership as
of December 31, 1993 and 1994, and for the three years ended December 31, 1994,
incorporated by reference in this Prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their report
thereon and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report and upon the
authority of such firm as experts in accounting and auditing.
The financial statements of KBLCOM Incorporated as of December 31, 1993 and
1994, and for the three years ended December 31, 1994, incorporated by reference
in this Prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as set forth in their report thereon and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report and upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Paragon Communications as of December 31, 1993
and 1994, and for the three years ended December 31, 1994, incorporated by
reference in this Prospectus, have been audited by Price Waterhouse LLP,
independent accountants, as set forth in their report thereon and incorporated
herein by reference. Such financial statements are incorporated herein by
reference in reliance upon such report and upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
Time Warner is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the 'Commission'). Reports, proxy statements
and other information filed by Time Warner can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained upon written
request addressed to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, reports,
proxy statements and other information concerning Time Warner
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may be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005, and at the offices of the Pacific Stock
Exchange Incorporated, 233 South Beaudry Avenue, Los Angeles, California 90012
and 301 Pine Street, San Francisco, California 94104, on which one or more of
Time Warner's securities are listed.
This Prospectus constitutes part of a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
'Registration Statement') filed by Time Warner and the Trust with the Commission
under the Securities Act of 1933. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement for further information
with respect to Time Warner, the Trust, the PERCS, the Guarantee, the
Subordinated Notes and the Time Warner Exchange Right. Statements contained in
this Prospectus or in any document incorporated in this Prospectus by reference
as to the contents of any contract or other document referred to herein or
therein are not necessarily complete, and, in each instance, reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
No separate financial statements of the Trust have been included herein.
Time Warner does not consider that such financial statements would be material
to holders of the PERCS because (i) the Trust is a direct wholly-owned
subsidiary of Time Warner, a reporting company under the Exchange Act; (ii) the
Trust does not have any independent operations but exists for the sole purpose
of issuing securities representing undivided beneficial interests in the assets
of the Trust and investing the proceeds thereof in the Subordinated Notes; and
(iii) the obligations of the Trust under the PERCS are fully and unconditionally
guaranteed by Time Warner, to the extent Time Warner has made payments of
interest and principal on the Subordinated Notes. See 'Description of the
Guarantee' and 'Description of the Subordinated Notes'.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by Time Warner with the Commission pursuant
to Section 13 of the Exchange Act (File No. 1-8637) are incorporated herein by
reference: (i) Time Warner's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, as amended by Amendment No. 1 thereto dated June 28,
1995; (ii) Time Warner's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995; (iii) Time Warner's Current Report on Form 8-K dated January 26,
1995; (iv) Time Warner's Current Report on Form 8-K dated February 6, 1995; (v)
Time Warner's Current Report on Form 8-K dated April 1, 1995; (vi) Time Warner's
Current Report on Form 8-K dated May 30, 1995; and (vii) Time Warner's Current
Report on Form 8-K dated June 15, 1995.
All documents and reports subsequently filed by Time Warner pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the PERCS shall be
deemed to be incorporated by reference and to be a part hereof from the date of
filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Time Warner will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all documents
incorporated herein by reference, other than exhibits to such documents unless
such exhibits are specifically incorporated by reference in such documents, and
any other documents specifically identified herein as incorporated by reference
into the Registration Statement to which this Prospectus relates or into such
other documents. Requests should be directed to Shareholder Relations, Time
Warner Inc., 75 Rockefeller Plaza, New York, New York 10019; telephone number
(212) 484-6971.
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GLOSSARY OF TERMS
The following is an abbreviated definition of certain capitalized terms
used in this Prospectus. The Declaration, the Guarantee and the Indenture may
contain a more complete definition of certain of the terms defined herein and
reference should be made to the Declaration, the Guarantee or the Indenture, as
applicable, for a more complete definition of all such terms.
<TABLE>
<S> <C>
AMEX............................................... the American Stock Exchange.
BENEFICIAL OWNER................................... each actual purchaser of a PERCS with an ownership interest.
BUSINESS DAY....................................... any day other than a Saturday or Sunday or any other day on
which banking institutions in New York, New York, are
authorized or required by law to close.
CALL PRICE......................................... with respect to each Trust Security on any date, initially,
$ , declining by $ on each day following the
Issue Date (computed on the basis of a 360-day year of
twelve 30-day months) to $ on October 23, 1997, and
$54.41 thereafter.
CODE............................................... the Internal Revenue Code of 1986, as amended.
COMMISSION......................................... the Securities and Exchange Commission.
COMMON SECURITIES.................................. the common securities of the Trust representing undivided
beneficial interests in the assets of the Trust, directly or
indirectly owned initially by Time Warner.
DECLARATION........................................ the Amended and Restated Declaration of Trust, dated as of
, 1995 by the trustees, Time Warner, as sponsor,
and the holders of undivided beneficial interests in the
assets of the Trust.
DECLARATION EVENT OF DEFAULT....................... in respect of the Trust Securities, an Indenture Event of
Default that has occurred and is continuing in respect of
the Subordinated Notes.
DISTRIBUTIONS...................................... cumulative cash distributions payable to holders of PERCS in
an amount equal to $ per PERCS per annum, or
$ per quarter, accruing from and including the
Issue Date and payable quarterly in arrears on the 30th day
of March, June, September and December of each year,
commencing September 30, 1995, except as described herein.
DTC................................................ the Depository Trust Company.
ERISA.............................................. the Employee Retirement Income Security Act of 1984.
EXCHANGE ACT....................................... the Securities Exchange Act of 1934, as amended.
EXCHANGE ADJUSTMENT EVENT.......................... (i) the distribution of a dividend on Exchange Property in
the same type of Exchange Property, (ii) the combination of
Exchange Property into a smaller number of shares or other
units, (iii) the subdivision of outstanding shares or other
units of Exchange Property, (iv) the conversion or
reclassification of Exchange Property by issuance or
exchange of other securities, (v) a distribution of cash or
other property (including rights, warrants or other
securities) on Exchange Property of a particular type
(excluding (A) cash dividends and other cash distributions
paid thereon by
</TABLE>
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<TABLE>
<S> <C>
the issuer thereof other than Extraordinary Cash Dividends,
(B) interest, if any, paid thereon by the issuer thereof and
(C) dividends payable in Exchange Property for which
adjustment is made pursuant to (i) through (iv) above).
EXCHANGE PROPERTY.................................. with respect to each PERCS on any date, (i) initially, one
share of Hasbro Common Stock, (ii) any property (other than
cash dividends and other cash distributions paid by the
issuer thereof that do not constitute Extraordinary Cash
Dividends and other than interest, if any, paid in respect
thereof) distributed in respect of the Initial Shares or
other Exchange Property and (iii) any property issued or
distributed upon the exchange or conversion of Exchange
Property, including upon any reorganization, consolidation
or merger or any sale or transfer or lease of all or
substantially all the assets of the issuer of such Exchange
Property; provided that Exchange Property does not include
any property distributed in respect of other Exchange
Property for which an antidilution adjustment has been made
pursuant to the Declaration.
EXCHANGE RATE...................................... initially, with respect to the PERCS, one share of Hasbro
Common Stock per PERCS, and with respect to the Subordinated
Notes, one share of Hasbro Common Stock per Minimum
Denomination of Subordinated Notes, subject to certain
antidilution adjustments; with respect to any other Exchange
Property the Exchange Rate will be determined on the basis
of the portion of Hasbro Common Stock or other Exchange
Property in respect of which such Exchange Property is
issued, distributed or exchanged.
EXCHANGE VALUATION PRICE........................... on any date with respect to any Exchange Property, the
average of the Purchase Sale Prices of the applicable
Exchange Property for the five Trading Day period ending on
and including such date, adjusted to take into account the
occurrence, during such period, of any Exchange Adjustment
Events with respect to such Exchange Property.
EXTRAORDINARY CASH DIVIDEND........................ any cash dividend with respect to Exchange Property the
amount of which, together with the aggregate amount of such
cash dividends on the Exchange Property to be aggregated
with such cash dividend in accordance with the terms of the
Indenture, equals or exceeds certain threshold percentages
set forth in the Indenture.
GLOBAL NOTE........................................ issued in the form of one or more global certificates
distributed to holders of PERCS in connection with the
involuntary or voluntary dissolution, winding-up or
liquidation of the Trust as a result of the occurrence of a
Special Event.
GUARANTEE.......................................... the Guarantee Agreement dated as of , 1995, executed
by Time Warner on behalf of the holders of the PERCS.
</TABLE>
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<TABLE>
<S> <C>
GUARANTEE PAYMENTS................................. (i)(A) any accrued and unpaid distributions that are
required to be paid on the PERCS and (B) subject to the
exercise by Time Warner of the Time Warner Exchange Right,
the Redemption Payment Amount with respect to the PERCS
subject to mandatory redemption or called for redemption by
the Trust, but if and only to the extent that, in each of
cases (A) and (B), Time Warner has made a payment to the
Property Trustee of interest or principal on the
Subordinated Notes, and (ii) upon a Liquidation Event (other
than in connection with the distribution of the Subordinat-
ed Notes to the holders of PERCS or the redemption of all
the PERCS upon the maturity or redemption of the
Subordinated Notes), the lesser of (x) the Liquidation
Distribution, to the extent the Trust has funds available
therefor, and (y) the amount of assets of the Trust
remaining available for distribution to holders of the PERCS
in liquidation of the Trust.
GUARANTEE TRUSTEE.................................. The First National Bank of Chicago.
HASBRO............................................. Hasbro, Inc., a Rhode Island corporation.
HASBRO COMMON STOCK................................ common stock, par value $.50 per share, of Hasbro.
INDENTURE.......................................... the Indenture dated as of , 1995, between Time Warner
and the Indenture Trustee.
INDENTURE EVENT OF DEFAULT......................... (i) default for 60 days in the payment of interest on the
Subordinated Notes; (ii) default in payment of the Maturity
Payment Amount or any amount payable upon optional or
special redemption of the Subordinated Notes; (iii) failure
by Time Warner for 90 days after receipt of notice to it to
comply with any of its covenants or agreements contained in
the Indenture; (iv) failure by the Property Trustee or any
Regular Trustee to comply with the terms of the Declaration;
and (v) certain events of bankruptcy, insolvency,
receivership or reorganization involving Time Warner.
INDENTURE TRUSTEE.................................. Chemical Bank.
INITIAL SHARES..................................... the 12,057,561 shares of Hasbro Common Stock initially
constituting Exchange Property.
INTEREST PAYMENT DATE.............................. with respect to the Subordinated Notes, the 30th day of
March, June, September and December of each year.
INVESTMENT COMPANY EVENT........................... the receipt by the Regular Trustees of an opinion of a
nationally recognized independent counsel experienced in
such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a written
change in interpretation or application of law or regulation
by any legislative body, court, governmental agency or
regulatory authority (a 'Change in 1940 Act Law'), there is
more than an insubstantial risk that the Trust is or will be
considered an 'investment company' that is required to be
registered under the 1940 Act, which Change in 1940 Act Law
becomes effective on or after the date of this Prospectus.
</TABLE>
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<TABLE>
<S> <C>
IRS................................................ Internal Revenue Service
ISSUE DATE......................................... , 1995
LIQUIDATION DISTRIBUTION........................... in respect of any Liquidation Event, (a)(i) if such
Liquidation Event occurs at the stated maturity of the
Subordinated Notes, the Mandatory Redemption Price, (ii) if
such Liquidation Event occurs in connection with the
optional redemption of the Subordinated Notes, the Call
Price, (iii) if such Liquidation Event occurs in connection
with the special redemption of the Subordinated Notes, the
Special Redemption Price and (iv) if such Liquidation Event
occurs in connection with an acceleration of the
Subordinated Notes in any other circumstance, the Note
Acceleration Price, in each case plus (b) the amount of
accrued and unpaid distributions on the Trust Securities to
but excluding the date of payment.
LIQUIDATION EVENT.................................. any liquidation, dissolution, winding-up or termination of
the Trust, whether voluntary or involuntary.
LYONS.............................................. Time Warner's $1,651,494,000 principal amount at maturity
Liquid Yield Option Notes due 2012, exchangeable for shares
of Hasbro Common Stock.
MANDATORY REDEMPTION DATE.......................... December 23, 1997.
MANDATORY REDEMPTION PRICE......................... with respect to any Trust Security, an amount equal to the
lesser of (a) $54.41 and (b) the Exchange Valuation Price on
the Trading Day immediately preceding December 17, 1997, of
such amount of Exchange Property (which initially consists
of one share of Hasbro Common Stock for each PERCS) as
relates to one PERCS on the Mandatory Redemption Date.
MATURITY DATE...................................... December 23, 1997.
MATURITY PAYMENT AMOUNT............................ the amount payable upon maturity for each Minimum
Denomination of the Subordinated Notes equal to (a) the
lesser of (i) $54.41 and (ii) the Exchange Valuation Price
on the Trading Day immediately preceding December 17, 1997,
of such amount of Exchange Property as relates to each
Minimum Denomination of Subordinated Notes at such time.
MINIMUM DENOMINATION............................... with respect to the Subordinated Notes, $ .
1940 ACT........................................... the Investment Company Act of 1940, as amended.
NO RECOGNITION OPINION............................. opinion of nationally recognized independent tax counsel, to
the effect that the holders of the PERCS will not recognize
any gain or loss for United States Federal income tax
purposes as a result of the dissolution of the Trust and
distribution of the Subordinated Notes.
NOTE ACCELERATION PRICE............................ with respect to any Subordinated Note, an amount per Minimum
Denomination equal to the lesser of (a) $54.41 and (b) the
Exchange Valuation Price on the Trading Day immediately
preceding the Indenture Event of Default resulting in an
acceleration of the
</TABLE>
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<TABLE>
<S> <C>
Subordinated Notes of such amount of Exchange Property as
relates to each Minimum Denomination of Subordinated Notes
on such Trading Day.
NOTE CALL PRICE.................................... with respect to each Minimum Denomination of Subordinated
Notes, an amount equal to initially $ per Minimum
Denomination, declining by $ on each day following
the date of issue of the Subordinated Notes to $ on
October 23, 1997, and $54.41 thereafter.
NYSE............................................... the New York Stock Exchange, Inc.
OPTIONAL REDEMPTION DATE........................... any date in respect of which, upon the call for redemption
prior to maturity by Time Warner of the Subordinated Notes,
the Trust shall have called for redemption at the Call Price
outstanding Trust Securities having an aggregate stated
amount equal to the aggregate principal amount of the
Subordinated Notes to be so redeemed.
PERCS.............................................. the Trust's 12,057,561 $ Preferred Exchangeable
Redemption Cumulative Securities.
PRINCIPAL AMOUNT................................... with respect to each Subordinated Note, the Minimum
Denomination thereof.
PRO RATA BASIS..................................... with respect to any payment, pro rata to each holder of
Trust Securities according to the aggregate stated amount of
the Trust Securities held by such holder in relation to the
aggregate stated amount of all Trust Securities outstanding;
provided, however, that if the assets of the Trust are
insufficient to make such payment in full as a result of a
default with respect to the Subordinated Notes, any funds
available to make such payment shall be paid (i) first to
each holder of PERCS pro rata according to the aggregate
stated amount of all the PERCS outstanding up to an
aggregate amount equal to the amount then owed to the
holders of the PERCS and (ii) only after satisfaction of all
amounts owed to the holders of the PERCS, to each holder of
Common Securities pro rata according to the aggregate stated
amount of the Common Securities held by such holder in
relation to the aggregate stated amount of all the Common
Securities outstanding.
PROPERTY TRUSTEE................................... The First National Bank of Chicago.
PURCHASE SALE PRICE................................ on any date with respect to any Exchange Property, the
closing per share sale price for the applicable Exchange
Property (or, if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in
either case, the average of the average bid and average ask
prices) on such date as reported in the composite
transactions for the principal United States securities
exchange on which such Exchange Property is traded or, if
such Exchange Property is not listed on a United States
national or regional securities exchange, as reported by
NAS-
</TABLE>
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<TABLE>
<S> <C>
DAQ, or, if such Exchange Property is not reported by
NASDAQ, the high per share bid price for such Exchange
Property in the over-the-counter market as reported by the
National Quotation Bureau or similar organization, or, if
such bid price is not available, the per unit market value
of such Exchange Property on such date as determined by a
nationally recognized investment banking firm retained for
such purpose by Time Warner.
REDEMPTION/DISTRIBUTION NOTICE..................... notice provided by the Trust of any redemption (other than
mandatory redemption) of, or any distribution of the
Subordinated Notes in exchange for, the PERCS to all holders
of PERCS to be redeemed or exchanged stating, among other
things, (i) the date of such redemption or of such
distribution, as the case may be, and (ii) in the case of
any early or special redemption, the applicable Call Price
or Special Redemption Price, as the case may be.
REDEMPTION PAYMENT AMOUNT.......................... any of the Mandatory Redemption Price, the Call Price or the
Special Redemption Price.
REDEMPTION PAYMENT DATE............................ any of a Mandatory Redemption Date, Optional Redemption Date
or Special Redemption Date.
REGULAR TRUSTEES................................... the three Time Warner Trustees who are employees or officers
of, or affiliated with, Time Warner.
SECURITIES ACT..................................... the Securities Act of 1933.
SENIOR INDEBTEDNESS................................ with respect to Time Warner, all indebtedness or
obligations, whether outstanding at the date of execution of
the Indenture or thereafter incurred, assumed, guaranteed or
otherwise created, unless the terms of the instrument or
instruments by which Time Warner incurred, assumed,
guaranteed or otherwise created any such indebtedness or
obligation expressly provide that such indebtedness or
obligation is subordinate to all other indebtedness of Time
Warner or that such indebtedness or obligation is not
superior in right of payment to the Subordinated Notes with
respect to any of the following (including, without
limitation, interest accruing on or after a bankruptcy or
other similar event, whether or not an allowed claim
therein): (i) any indebtedness incurred by Time Warner or
assumed or guaranteed, directly or indirectly, by Time
Warner (a) for money borrowed (including Time Warner's
outstanding 8 3/4% Convertible Subordinated Debentures due
2015), (b) in connection with the acquisition of any
business, property or other assets (other than trade
payables incurred in the ordinary course of business) or (c)
for advances or progress payments in connection with the
construction or acquisition of any building, motion picture,
television production or other entertainment of any kind;
(ii) any obligation of Time Warner (or of a subsidiary which
is guaranteed by Time Warner) as lessee under a lease of
real or personal property; (iii) any obligation of Time
</TABLE>
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<TABLE>
<S> <C>
Warner to purchase property at a future date in connection
with a financing by Time Warner or a subsidiary of Time
Warner; (iv) letters of credit; (v) currency swaps and
interest rate hedges; and (vi) any deferral, renewal,
extension or refunding of any of the foregoing.
7.75% NOTES........................................ Time Warner's $500,000,000 7.75% Notes due 2005.
SPECIAL EVENT...................................... either a Tax Event or an Investment Company Event.
SPECIAL REDEMPTION DATE............................ any date in respect of which upon the occurrence and
continuation of a Tax Event or an Investment Company Event,
Time Warner shall have called for redemption in whole the
Subordinated Notes, and the Trust shall have called for
redemption the PERCS, at the Special Redemption Price.
SPECIAL REDEMPTION PRICE........................... with respect to any Trust Security or Minimum Denomination
of Subordinated Notes on any date, an amount equal to (a)
the Exchange Valuation Price on the Trading Day immediately
preceding such Special Redemption Date of the amount of
Exchange Property that relates to one PERCS or such Minimum
Denomination of Subordinated Notes at such time (based on
the Exchange Rate in effect as of such Trading Day), plus
(b) initially $ per PERCS or such Minimum
Denomination of Subordinated Notes, declining by $
on each day following the Issue Date (computed on the basis
of a 360-day year of twelve 30-day months) to $0 on October
23, 1997 and thereafter.
SPECIAL REGULAR TRUSTEE............................ a special trustee appointed by the majority vote of the
holders of the PERCS if (i) the Trust shall have failed to
pay distributions in full on the PERCS and such failure
shall have continued unremedied for 60 days or shall have
failed to pay the Redemption Payment Amount in respect of
any PERCS to be redeemed on the applicable Redemption
Payment Date, together with any accrued and unpaid
distributions thereon to such date or (ii) a Declaration
Event of Default shall have occurred and shall be
continuing.
STATED AMOUNT...................................... with respect to each Trust Security, the per PERCS Price to
Public shown on the cover page hereof.
SUBORDINATED NOTES................................. Time Warner's % Subordinated Notes due December 23,
1997.
TAX EVENT.......................................... the receipt by the Regular Trustees of an opinion of
nationally recognized independent tax counsel experienced in
such matters (a 'Dissolution Tax Opinion') to the effect
that, as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws
(or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or
therein, (b) any amendment to, or change in, an
interpretation or application of such laws or regulations,
by any legislative body, court, governmental agency or
regulatory authority (including the enactment of any
legislation and the publication of
</TABLE>
66
<PAGE>
<TABLE>
<S> <C>
any judicial decision or regulatory determination), (c) any
interpretation or pronouncement that provides for a position
with respect to such laws or regulations that differs from
the theretofore generally accepted position or (d) any
action taken by any governmental agency or regulatory
authority, which amendment or change is enacted,
promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is
taken, in each case on or after the date of this Prospectus,
that there is more than an insubstantial risk that at such
time or within 90 days of the date thereof (i) the Trust
would be subject to United States Federal income tax with
respect to income accrued or received on the Subordinated
Notes, (ii) less than 25% of the interest payable on the
Subordinated Notes would be deductible by Time Warner for
United States Federal income tax purposes, (iii) the Trust
would be subject to more than a de minimis amount of other
taxes, duties or other governmental charges or (iv) as a
result of the issuance of the PERCS and/or the Subordinated
Notes, Time Warner (or an affiliate of Time Warner) would be
treated as having disposed, for United States Federal income
tax purposes, of the Hasbro Common Stock owned by it.
TIME WARNER........................................ Time Warner Inc., a Delaware corporation.
TIME WARNER EXCHANGE RIGHT......................... Time Warner's right to require the holders of the PERCS to
exchange on any Redemption Payment Date PERCS (or, if the
Subordinated Notes shall have been distributed to the
holders of the PERCS, Subordinated Notes) for a combination
of Hasbro Common Stock and cash.
TIME WARNER TRUSTEES............................... the Trustees that conduct the Trust's business and affairs
as appointed by Time Warner, the direct or indirect holder
of all the Common Securities.
TRADING DAY........................................ a day on which the AMEX (or any successor thereto) or, to
the extent that neither the Hasbro Common Stock nor any
other Exchange Property is listed on the AMEX, such other
national securities exchanges on which the Exchange Property
is listed or, if none, the NYSE, is open for the transaction
of business.
TRUST.............................................. Time Warner Financing Trust, a statutory business trust
formed under the laws of the State of Delaware.
TRUST ACT.......................................... the Delaware Business Trust Act.
TRUST INDENTURE ACT................................ the Trust Indenture Act of 1939, as amended.
TRUST SECURITIES................................... the Common Securities and the PERCS.
TWE................................................ Time Warner Entertainment Company, L.P., a Delaware limited
partnership.
UNDERWRITING AGREEMENT............................. the underwriting agreement dated , 1995,
among Time Warner, the Trust and Morgan Stanley & Co.
Incorporated, as representative of the several underwriters
named therein, with respect to, among other things, the
PERCS.
</TABLE>
67
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth expenses in connection with the issuance and
distribution of the securities being registered. All amounts shown are
estimated, except the SEC Filing Fee and the Stock Exchange Listing Fees.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee..................................... $138,766
Trustees' Fees.................................................................... *
Rating Agency Fees................................................................ *
Accounting Fees and Expenses...................................................... *
Legal Fees and Expenses........................................................... *
Blue Sky Fees and Expenses........................................................ 23,500
Printing and Engraving Fees....................................................... *
Stock Exchange Listing Fee........................................................ *
NASD Filing Fee................................................................... 30,500
Miscellaneous..................................................................... *
--------
Total........................................................................ $ *
--------
--------
</TABLE>
- ------------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the 'DGCL') provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation -- a
'derivative action'), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) actually and reasonably incurred
in connection with the defense or settlement of such action, and the statute
requires court approval before there can by any in indemnification where the
person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation's charter, by-laws, disinterested director vote,
stockholder vote, agreement or otherwise.
Article VI of Time Warner's By-Laws requires indemnification to the fullest
extent permitted under Delaware law of any person who is or was a director or
officer of Time Warner who is or was involved or threatened to be made so
involved in any action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that such person is or
was serving as a director, officer or employee of the Registrant or any
predecessor of Time Warner or was serving at the request of Time Warner as a
director, officer or employee of any other enterprise.
Section 102(b)(7) of the DGCL permits a provision in the certificate of
incorporation of each corporation organized thereunder, such as Time Warner,
eliminating or limiting, with certain exceptions, the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. Section 1, Article X of the Certificate of
Incorporation of Time Warner eliminates the liability of directors to the extent
permitted by Section 102(b)(7).
The foregoing statements are subject to the detailed provisions of Section
145 and 102(b)(7) of the DGCL, Article VI of such By-laws and Section 1, Article
X of such Certificate of Incorporation, as applicable.
Time Warner's Directors' and Officers' Liability and Reimbursement
Insurance Policy is designed to reimburse the Registrant for any payments made
by it pursuant to the foregoing indemnification. Such policy has coverage of
$50,000,000.
II-1
<PAGE>
The Declaration provides that no Trustee, affiliate of any Trustee or any
officers, directors, shareholders, members, partners, employees, representatives
or agents of any Trustee or any employee or agent of the Trust or its affiliates
(each, an 'Indemnified Person') shall be liable, responsible or accountable in
damages or otherwise to any employee or agent of the Trust or its affiliates, or
any officers, directors, shareholders, employees, representatives or agents of
Time Warner or its affiliates or to any holders of Trust Securities of the Trust
for any loss, damage or claim incurred by reason of any act or omission
performed or omitted by such Indemnified Person in good faith on behalf of the
Trust and in a manner such Indemnified Person reasonably believed to be within
the scope of the authority conferred on such Indemnified Person by the
Declaration or by law, except that an Indemnified Person shall be liable for any
such loss, damage or claim incurred by reason of such Indemnified Person's gross
negligence (or, in the case of the Property Trustee, negligence) or willful
misconduct with respect to such acts or omission. The Declaration also provides
that, to the fullest extent permitted by applicable law, Time Warner shall
indemnify and hold harmless each Indemnified Person from and against any loss,
damage or claim incurred by such Indemnified Person by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Trust and in a manner such Indemnified Person reasonably believed to be
within the scope of authority conferred on such Indemnified Person by the
Declaration, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such Indemnified
Person by reason of gross negligence (or, in the case of the Property Trustee,
negligence) or willful misconduct with respect to such acts or omissions. The
Declaration further provides that to the fullest extent permitted by applicable
law, expenses (including legal fees) incurred by an Indemnified Person in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by Time Warner prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by Time Warner of an undertaking
by or on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified
pursuant to the Declaration.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1.1 -- Form of Underwriting Agreement*
4.1 -- Certificate of Trust of the Trust*
4.2 -- Declaration of Trust of the Trust*
4.3 -- Form of Amended and Restated Declaration of Trust of the Trust*
4.4 -- Form of Subordinated Notes Indenture between Time Warner Inc. and Chemical Bank, as Trustee*
4.5 -- Form of PERCS (included in Exhibit 4.3)*
4.6 -- Form of Guarantee with respect to PERCS*
4.7 -- Form of Subordinated Note (included in Exhibit 4.4)*
5.1 -- Opinion of Cravath, Swaine & Moore**
5.2 -- Opinion of Richards, Layton & Finger**
8 -- Opinion of Cravath, Swaine & Moore**
12.1 -- Computation of Ratio of Earnings to Fixed Charges of Time Warner Inc.*
12.2 -- Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends of Time Warner
Inc.*
12.3 -- Computation of Ratio of Earnings to Fixed Charges of Time Warner Entertainment Company, L.P.
23.1 -- Consent of Ernst & Young LLP, Independent Auditors
23.2 -- Consent of Cravath, Swaine & Moore (to be included in Exhibits 5 and 8)
23.3 -- Consent of Deloitte & Touche LLP, Independent Auditors
23.4 -- Consent of Paul Scherer & Company LLP, Independent Auditors
23.5 -- Consent of Arthur Andersen LLP, Independent Public Accountants
23.6 -- Consent of Deloitte & Touche LLP, Independent Auditors
23.7 -- Consent of Price Waterhouse LLP, Independent Accountants
24.1 -- Powers of Attorney for Time Warner Inc.*
24.2 -- Powers of Attorney for Time Warner Inc., as sponsor, to sign this Registration Statement on behalf of the
Trust (included in Exhibit 4.2)*
25.1 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of Chemical Bank, as Trustee
under the Subordinated Notes Indenture*
25.2 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of
Chicago, as Property Trustee under the Declaration of Trust of the Trust*
25.3 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of
Chicago, as Guarantee Trustee under the Guarantee of Time Warner Inc. for the benefit of the holders of
PERCS*
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(a) That, for purposes of determining any liability under the
Securities Act of 1933 (the 'Securities Act'), each filing of Time Warner's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act') (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act), that is incorporated by
reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered herein and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering hereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the provisions referred to in Item
15 of this registration statement, or otherwise, the Registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereby, the Registrants will, unless in the opinion of counsel to the
Registrants the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(c) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering hereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Time Warner Inc. hereby
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in The
City of New York, State of New York, on the 19th day of July, 1995.
TIME WARNER INC.
By /s/ PETER R. HAJE
...................................
PETER R. HAJE
EXECUTIVE VICE PRESIDENT
GENERAL COUNSEL AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
* Director, Chairman of the Board and Chief July 19, 1995
......................................... Executive Officer (principal executive
(GERALD M. LEVIN) officer)
* Director, President July 19, 1995
.........................................
(RICHARD D. PARSONS)
* Senior Vice President and Chief Financial July 19, 1995
......................................... Officer (principal financial officer)
(RICHARD J. BRESSLER)
* Vice President and Controller (principal July 19, 1995
......................................... accounting officer)
(JOHN A. LABARCA)
* Director July 19, 1995
.........................................
(MERV ADELSON)
* Director July 19, 1995
.........................................
(LAWRENCE B. BUTTENWIESER)
* Director July 19, 1995
.........................................
(EDWARD S. FINKELSTEIN)
* Director July 19, 1995
.........................................
(BEVERLY SILLS GREENOUGH)
* Director July 19, 1995
.........................................
(CARLA A. HILLS)
* Director July 19, 1995
.........................................
(DAVID T. KEARNS)
* Director July 19, 1995
.........................................
(HENRY LUCE III)
* Director July 19, 1995
.........................................
(REUBEN MARK)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
* Director July 19, 1995
.........................................
(MICHAEL A. MILES)
* Director July 19, 1995
.........................................
(J. RICHARD MUNRO)
* Director July 19, 1995
.........................................
(DONALD S. PERKINS)
* Director July 19, 1995
.........................................
(RAYMOND S. TROUBH)
* Director July 19, 1995
.........................................
(FRANCIS T. VINCENT, JR.)
*By: /s/ PETER R. HAJE
.........................................
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Time Warner Financing
Trust hereby certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York, State of New York, on the 19th day of July,
1995.
TIME WARNER FINANCING TRUST
By: TIME WARNER INC., as Sponsor
By /s/ PETER R. HAJE
...................................
PETER R. HAJE
EXECUTIVE VICE PRESIDENT
GENERAL COUNSEL AND SECRETARY
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION NUMBER
- --------- ------------------------------------------------------------------------------------------ ---------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement*........................................................
4.1 -- Certificate of Trust of the Trust*.....................................................
4.2 -- Declaration of Trust of the Trust*.....................................................
4.3 -- Form of Amended and Restated Declaration of Trust of the Trust*........................
4.4 -- Form of Subordinated Notes Indenture between Time Warner Inc. and Chemical Bank, as
Trustee*...............................................................................
4.5 -- Form of PERCS (included in Exhibit 4.3)*...............................................
4.6 -- Form of Guarantee with respect to PERCS*...............................................
4.7 -- Form of Subordinated Note (included in Exhibit 4.4)*...................................
5.1 -- Opinion of Cravath, Swaine & Moore**...................................................
5.2 -- Opinion of Richards, Layton & Finger**.................................................
5.8 -- Opinion of Cravath, Swaine & Moore**...................................................
12.1 -- Computation of Ratio of Earnings to Fixed Charges of Time Warner Inc.*.................
12.2 -- Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends of Time Warner Inc.*.........................................................
12.3 -- Computation of Ratio of Earnings to Fixed Charges of Time Warner Entertainment Company,
L.P....................................................................................
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.....................................
23.2 -- Consent of Cravath, Swaine & Moore (to be included in Exhibits 5 and 8)................
23.3 -- Consent of Deloitte & Touche LLP, Independent Auditors.................................
23.4 -- Consent of Paul Scherer & Company LLP, Independent Auditors............................
23.5 -- Consent of Arthur Andersen LLP, Independent Public Accountants.........................
23.6 -- Consent of Deloitte & Touche LLP, Independent Auditors.................................
23.7 -- Consent of Price Waterhouse LLP, Independent Accountants...............................
24.1 -- Powers of Attorney for Time Warner Inc.*...............................................
24.2 -- Powers of Attorney for Time Warner Inc., as sponsor, to sign this Registration
Statement on behalf of the Trust (included in Exhibit 4.2)*............................
25.1 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of Chemical
Bank, as Trustee under the Subordinated Notes Indenture*...............................
25.2 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The
First National Bank of Chicago, as Property Trustee under the Declaration of Trust of
the Trust*.............................................................................
25.3 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The
First National Bank of Chicago, as Guarantee Trustee under the Guarantee of Time Warner
Inc. for the benefit of the holders of PERCS*..........................................
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
STATEMENT OF DIFFERENCES
<TABLE>
<CAPTION>
<S> <C>
The registered trademark symbol shall be expressed as ......... 'r'
</TABLE>
<PAGE>
EXHIBIT 12.3
TWE
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
---------------------------- --------------------------------------------------------------------
THREE MONTHS
THREE MONTHS YEAR ENDED YEARS ENDED DECEMBER 31,
ENDED ENDED MARCH 31, -------------------------------------------------
MARCH 31, DECEMBER 31, --------------- RESTATED
1995 1994 1995 1994 1994 1993 1992 1992 1991 1990
------------ ------------ ---- ---- ---- ---- -------- ---- ---- -----
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net income (loss)
before income taxes
and extraordinary
item............... $ 49 $242 $ 15 $ 52 $201 272 $210 $210 $132 $(159)
Interest expense..... 127 499 150 135 563 573 486 436 479 639
Amortization of
capitalized
interest........... 7 25 7 6 25 19 18 18 22 22
Position of rents
representative of
an interest
factor............. 13 47 13 10 47 39 36 33 27 30
Adjustment for
partially owned
subsidiaries and
50% owned
companies.......... 32 116 7 5 24 22 27 80 30 31
Undistributed losses
of less than 50%
owned companies.... 8 69 8 5 58 14 40 40 58 19
----- ----- ---- ---- ---- ---- -------- ---- ---- -----
Total earnings... $236 $998 $200 $213 $918 $939 $817 $817 $748 $ 582
----- ----- ---- ---- ---- ---- -------- ---- ---- -----
----- ----- ---- ---- ---- ---- -------- ---- ---- -----
Fixed Charges:
Interest expense..... $127 $499 $150 $135 $563 $573 $486 $436 $479 $ 639
Capitalized
interest........... 7 25 7 6 25 20 15 15 17 19
Portion of rents
representative of
an interest
factor............. 13 47 13 10 47 39 36 33 27 30
Adjustment for
partially owned
subsidiaries and
50% owned
companies.......... 5 17 7 5 24 22 27 80 31 32
----- ----- ---- ---- ---- ---- -------- ---- ---- -----
Total fixed
charges........ $152 $588 $177 $156 $659 $654 $564 $564 $554 $ 720
----- ----- ---- ---- ---- ---- -------- ---- ---- -----
----- ----- ---- ---- ---- ---- -------- ---- ---- -----
Ratio of earnings to
fixed charges
(deficiency in the
coverage of fixed
charges by earnings
before fixed
charges)............... 1.6x 1.7x 1.1x 1.4x 1.4x 1.4x 1.4x 1.4x 1.4x $(138)
----- ----- ---- ---- ---- ---- -------- ---- ---- -----
----- ----- ---- ---- ---- ---- -------- ---- ---- -----
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' in
Pre-Effective Amendment No. 1 to Registration Statement Nos. 33-60203 and
33-60203-1 on Form S-3 and related Prospectus of Time Warner Inc. ('TWI') and
Time Warner Financing Trust for the registration of 12,057,561 Preferred
Exchangeable Redemption Cumulative Securities ('PERCS'), the guarantee of the
PERCS by TWI, the exchange rights of TWI, and the subordinated notes of TWI, and
to the incorporation by reference therein of our reports dated February 7, 1995,
with respect to the consolidated financial statements and schedule of TWI and
Time Warner Entertainment Company, L.P. included in TWI's Annual Report on Form
10-K for the year ended December 31, 1994, and our report dated March 3, 1995,
with respect to the combined financial statements of the Time Warner Service
Partnerships incorporated by reference in TWI's Annual Report on Form 10-K for
the year ended December 31, 1994, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
New York, New York
July 18, 1995
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement Nos. 33-60203 and 33-60203-01 of Time Warner Inc. and
Time Warner Financing Trust on Form S-3 of our report dated March 10, 1995,
appearing in the Annual Report on Form 10-K of Summit Communications Group, Inc.
for the year ended December 31, 1994, and to the reference to us under the
heading 'Experts' in the Prospectus, which is part of such Registration
Statement.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
July 19, 1995
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' in
Pre-Effective Amendment No. 1 to Registration Statement Nos. 33-60203 and
33-60203-01 on Form S-3 and related Prospectus of Time Warner Inc. ('TWI') and
Time Warner Financing Trust for the registration of 12,057,561 Preferred
Exchangeable Redemption Cumulative Securities ('PERCS'), the guarantee of the
PERCS by TWI, the exchange rights of TWI, and the subordinated notes of TWI, and
to the incorporation by reference therein of (i) our report dated October 7,
1994, with respect to the financial statements of Newhouse Broadcasting Cable
Division of Newhouse Broadcasting Corporation and Subsidiaries for each of the
three years in the period ended July 31, 1994, and (ii) our report dated March
24, 1995, with respect to the financial statements of Vision Cable Division of
Vision Cable Communications, Inc. and Subsidiaries for each of the three years
in the period ended December 31, 1994, appearing in the Current Report on Form
8-K of TWI dated May 30, 1995, filed with the Securities and Exchange
Commission.
PAUL SCHERER & COMPANY LLP
New York, New York
July 18, 1995
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement (Nos. 33-60203 and 33-60203-01) on Form S-3, as amended
on July 19, 1995, relating to the 12,057,561 Preferred Exchangeable Redemption
Cumulative Securities.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
July 19, 1995
<PAGE>
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement Nos. 33-60203 and 33-60203-01, respectively, of Time
Warner Inc. and Time Warner Financing Trust on Form S-3 of our report dated
April 20, 1995, with respect to the consolidated financial statements of KBLCOM
Incorporated appearing in the Form 8-K of Time Warner Inc. dated May 31, 1995,
and to the reference to us under the heading 'Experts' in the Prospectus, which
is part of such Registration Statement.
DELOITTE & TOUCHE LLP
Houston, Texas
July 19, 1995
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Amendment No. 1 to Registration Statement on Form S-3
(Nos. 33-60203 and 33-60203-01) of Time Warner Inc. and Time Warner Financing
Trust relating to the 12,057,561 Preferred Exchangeable Redemption Cumulative
Securities of our report dated January 19, 1995, except as to Note 6, which is
as of January 27, 1995, on the Paragon Communications financial statements and
schedule. We also consent to the reference to us under the heading 'Experts' in
such Prospectus.
PRICE WATERHOUSE LLP
Denver, Colorado
July 19, 1995
