SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934 for the quarterly period
ended June 30, 1996 , or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934 for the transition period
from to
Commission file number 1-8637
TIME WARNER INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1388520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000
(Address, including zip code, and telephone number, including
area code, of each registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock - $1 par value 384,725,092
Description of Class Shares Outstanding
as of July 31, 1996
<PAGE>
TIME WARNER INC. AND
TIME WARNER ENTERTAINMENT COMPANY, L.P.
INDEX TO FORM 10-Q
Page
Time
Warner TWE
PART I. FINANCIAL INFORMATION
Management's discussion and analysis of results
of operations and financial condition 1 34
Consolidated balance sheets at June 30, 1996
and December 31, 1995 19 42
Consolidated statements of operations for the three
and six months ended June 30, 1996 and 1995 20 43
Consolidated statements of cash flows for the
six months ended June 30, 1996 and 1995 21 44
Notes to consolidated financial statements 22 45
PART II. OTHER INFORMATION 51
<PAGE>
PART I. FINANCIAL INFORMATION
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Time Warner has interests in three fundamental areas of
business: Entertainment, consisting principally of interests in
recorded music and music publishing, filmed entertainment,
broadcasting, theme parks and cable television programming; News
and Information, consisting principally of interests in magazine
publishing, book publishing and direct marketing; and
Telecommunications, consisting principally of interests in cable
television systems. Substantially all of Time Warner's interests
in filmed entertainment, broadcasting, theme parks, cable
television programming and a majority of its cable television
systems are held through the Entertainment Group, consisting
principally of TWE, which is not consolidated for financial
reporting purposes. TWE manages the telecommunications properties
owned by Time Warner and the combined cable television operations
are conducted under the name of Time Warner Cable. Capitalized
terms are as defined and described in the accompanying
consolidated financial statements, or elsewhere herein.
Significant Transactions
In 1996, Time Warner and the Entertainment Group have
announced or completed a number of transactions that have had or
are expected to have a significant effect on their results of
operations and financial condition. Such transactions include:
* The announcement by Time Warner in July 1996 that it had
reached an agreement in principle with the staff of the
Federal Trade Commission (the "FTC"), Turner Broadcasting
System, Inc. ("TBS") and Liberty Media Corporation ("LMC"),
a subsidiary of Tele-Communications Inc. ("TCI") and a
shareholder of TBS, to make certain modifications to
the previously-announced merger agreement and related
documents which will allow Time Warner and TBS to proceed
with their merger. Accordingly, the merger is expected to
close early in the fourth quarter of 1996.
* The implementation by Time Warner in April 1996 of a
program to repurchase, from time to time, up to 15 million
shares of its common stock. The common stock repurchase
program is supported by a new five-year, $750 million
revolving credit facility which is expected to be
repaid principally from the cash proceeds to be received
by Time Warner from the future exercise of employee stock
options. As of June 30, 1996, Time Warner had acquired
approximately 8.8 million shares of its common
stock for an aggregate cost of approximately $360 million.
<PAGE>
* The issuance in April 1996 of 1.6 million shares of a new
series of exchangeable preferred stock ("Series K
Preferred Stock"), which pays cumulative dividends at the
rate of 10-1/4% per annum. The approximate $1.55 billion
of net proceeds raised from this transaction were used to
reduce debt and, together with other actions since the
initiation of a $2-$3 billion debt reduction program in
February 1995, Time Warner and the Entertainment Group
have raised approximately $3.2 billion for debt
reduction.
* The redemption in February 1996 of approximately $1.2
billion of convertible debt using proceeds from 1995 and
1996 financings, the effect of which was to lower interest
rates, stagger debt maturities and eliminate the potential
dilution from the conversion of such securities into 25.7
million shares of common stock.
* The acquisition by Time Warner of Cablevision Industries
Corporation ("CVI") and related companies on January 4,
1996, which strengthened Time Warner Cable's geographic
clusters of cable television systems and substantially
increased the number of cable subscribers managed by
Time Warner Cable. Time Warner Cable now serves
approximately 11.8 million subscribers in neighborhoods
passing nearly 20% of the television homes in the U.S.
In connection with the acquisition, Time Warner issued
2.9 million shares of common stock and 6.3 million shares
of new convertible preferred stock, as adjusted, and
assumed or incurred approximately $2 billion of
indebtedness.
The nature of these transactions and their impact on the
results of operations and financial condition of Time Warner and
the Entertainment Group are further discussed below.
TBS Transaction
On July 17, 1996, Time Warner announced that it had reached
an agreement in principle with the staff of the FTC, TBS and
LMC to make certain modifications to the previously-announced
merger agreement and related documents which will allow
Time Warner and TBS to proceed with their merger. Such
changes include, but are not limited to, (i) changes in the
consideration to be received by LMC from voting LMC Class Common
Stock (as defined below) to reduced-voting LMC Class Common Stock
(having 1/100th of a vote per share), (ii) limitations on the
level and voting power of TCI's and its affiliates' ownership
in Time Warner, (iii) termination of a related proposed,
<PAGE>
long-term agreement between TBS and a subsidiary of TCI concerning
carriage of TBS programming services by TCI-affiliated cable
systems, and the agreement by TBS and TCI to enter into a new
five-year, mandatory carriage agreement covering Headline
News and WTBS, a broadcast television station owned by TBS, in
the event that WTBS is converted to a copyright-paid cable television
programming service (the "WTBS Conversion") and (iv) an increase
in the consideration to be paid to LMC and its affiliates,
payable at Time Warner's election in stock or cash, in connection
with obtaining a related option and non-competition agreement (the
"SSSI Agreement") that will provide, if Time Warner exercises
its option, for Southern Satellite Systems, Inc., a subsidiary of
LMC, to provide certain satellite uplink and distribution services
for WTBS in the event that the WTBS Conversion occurs.
The amended merger agreement continues to provide for the
merger of each of Time Warner and TBS with separate subsidiaries
of a holding company ("New Time Warner"), that will combine, for
financial reporting purposes, the consolidated net assets and
operating results of Time Warner and TBS (the "TBS Transaction").
In connection therewith, the issued and outstanding shares of
each class of the capital stock of Time Warner will be converted
into shares of a substantially identical class of capital stock
of New Time Warner. The amended merger agreement provides for the
issuance by New Time Warner of approximately 173.3 million shares
of common stock, par value $.01 per share (including 52 million
shares of a special class of non-redeemable common stock
to be received by LMC which will have 1/100th of a vote per
share, the "LMC Class Common Stock"), in exchange for the
outstanding TBS capital stock, the issuance of approximately
14 million stock options to replace all outstanding TBS options
and the assumption of TBS's indebtedness (which approximated
$2.6 billion at June 30, 1996). As part of the TBS Transaction,
LMC and its affiliates will receive an additional five million
shares of LMC Class Common Stock and $67 million of consideration
payable, at the election of Time Warner, in cash or additional
shares of LMC Class Common Stock, pursuant to the SSSI Agreement.
The TBS Transaction will be accounted for by the purchase
method of accounting for business combinations. Based on TBS's
financial position and results of operations as of and for the
six months ended June 30, 1996, and giving pro forma effect to
the TBS Transaction as if it had occurred on June 30, 1996 for
balance sheet purposes and at the beginning of the year for
statement of operations purposes, the incremental effect on Time
Warner reflected in the combined pro forma financial statements
of New Time Warner would have been (i) an increase in
shareholder's equity of approximately $6 billion, principally due
<PAGE>
to the issuance by New Time Warner of approximately 178.3 million
shares of common stock, (ii) an increase in long-term debt of
approximately $2.8 billion principally due to the assumption of
TBS's debt, (iii) an increase in goodwill of approximately $6.7
billion as a result of a preliminary allocation of the excess
cost over the net book value of assets acquired, (iv) an increase
in revenues of $1.7 billion, (v) an increase in EBITDA (as
defined below) of $174 million, (vi) an increase in depreciation
and amortization of $171 million, including approximately $80
million of noncash amortization of goodwill, (vii) an increase in
operating income of $3 million, (viii) an increase in net loss of
$80 million and (ix) a reduction in net loss per common share of
$.07 per common share resulting from the dilutive effect of
issuing 178.3 million shares of common stock.
The TBS Transaction is expected to close early in the fourth
quarter of 1996, but is still subject to customary closing
conditions, including the approval of the shareholders of TBS and
of Time Warner, and all necessary approvals of the Federal
Communications Commission (the "FCC"). In addition, a formal
agreement reflecting the agreement in principle with the FTC
staff must be submitted to the full Commission for its
consideration and is subject to approval by the FTC Commissioners.
Use of EBITDA
The following comparative discussion of the results of
operations and financial condition of Time Warner and the
Entertainment Group includes, among other factors, an analysis of
changes in the operating income of the business segments before
depreciation and amortization ("EBITDA") in order to eliminate
the effect on the operating performance of the music, filmed
entertainment and cable businesses of significant amounts of
amortization of intangible assets recognized in the $14 billion
acquisition of WCI in 1989, the $1.3 billion acquisition of the
ATC minority interest in 1992, the $2.3 billion acquisitions of
Summit, KBLCOM and CVI and related companies in 1995 and early
1996 and other business combinations accounted for by the
purchase method, including the proposed TBS Transaction with
respect to certain discussions on a pro forma basis. Financial
analysts generally consider EBITDA to be an important measure of
comparative operating performance for the businesses of Time
Warner and the Entertainment Group, and when used in comparison
to debt levels or the coverage of interest expense, as a measure
of liquidity. However, EBITDA should be considered in addition
to, not as a substitute for, operating income, net income, cash
flow and other measures of financial performance and liquidity
reported in accordance with generally accepted accounting principles.
<PAGE>
RESULTS OF OPERATIONS
EBITDA and operating income for Time Warner and the
Entertainment Group for the three and six months ended June 30,
1996 and 1995 are as follows:
Three Months Ended June 30, Six Months Ended June 30,
EBITDA Operating Income EBITDA Operating Income
1996 1995 1996 1995 1996 1995 1996 1995
Time Warner: (millions)
Publishing $156 $138 $125 $114 $ 236 $215 $181 $169
Music 165 165 70 70 311 338 125 153
Cable 118 - 20 - 230 - 19 -
Total $439 $303 $215 $184 $ 777 $553 $325 $322
Entertainment Group:
Filmed Entertainment $141 $117 $ 79 $ 59 $ 277 $240 $152 $126
Six Flags Theme Parks - 58 - 31 - 60 - 29
Broadcasting -
The WB Network (12) (12) (12) (12) (36) (33) (36) (33)
Programming - HBO 87 75 83 70 168 146 159 137
Cable 376 319 147 126 744 575 293 216
Total $592 $557 $297 $274 $1,153 $988 $568 $475
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Time Warner had revenues of $2.139 billion, a loss of $31
million ($.26 per common share) before an extraordinary loss on
the retirement of debt and a net loss of $40 million ($.28 per
common share) for the three months ended June 30, 1996, compared
to revenues of $1.907 billion and a net loss of $8 million ($.03
per common share) for the three months ended June 30, 1995. Time
Warner's equity in the pretax income of the Entertainment Group
was $93 million for the three months ended June 30, 1996,
compared to $84 million for the three months ended June 30, 1995.
On a pro forma basis, giving effect to (i) the 1995 and
early 1996 acquisitions by Time Warner of Summit, KBLCOM and CVI
and related companies, and the 1995 formation by TWE of the
TWE-Advance/Newhouse Partnership, (ii) the 1995 exchange of
ITOCHU Corporation's and Toshiba Corporation's interests in TWE
for equity interests in Time Warner, (iii) the 1995 and early
1996 refinancing of approximately $4 billion of public debt by
Time Warner and the 1995 execution of a new $8.3 billion credit
<PAGE>
agreement, under which approximately $2.7 billion of debt assumed
in the cable acquisitions was refinanced by subsidiaries of Time
Warner and $2.6 billion of pre-existing bank debt was refinanced
by TWE, (iv) the issuance in April 1996 of 1.6 million shares of
Series K Preferred Stock and the use of approximately $1.55
billion of net proceeds therefrom to reduce debt, (v) the 1995
sale of 51% of TWE's interest in Six Flags and (vi) the sale or
expected sale or transfer of certain unclustered cable television
systems owned by TWE, as if each of such transactions had
occurred at the beginning of 1995, Time Warner would have
reported for the three months ended June 30, 1996 and 1995,
respectively, revenues of $2.139 billion and $2.113 billion,
depreciation and amortization of $224 million and $237 million,
operating income of $215 million and $171 million, equity in the
pretax income of the Entertainment Group of $93 million and $73
million, a loss before extraordinary item of $29 million and $50
million ($0.27 and $0.33 per common share) and a net loss of $38
million and $50 million ($0.29 and $0.33 per common share).
As discussed more fully below, the improvement in Time
Warner's pro forma operating results in 1996 as compared to 1995
principally relates to an overall increase in the operating
income of Time Warner's business segments and increased income
from its equity in the pretax income of the Entertainment Group,
offset in part by a $9 million extraordinary loss on the
retirement of debt ($.02 per common share) and a reduction in
interest income related to the resolution of a corporate tax
matter in 1995. However, on a historical basis, the positive
effect from such underlying operating trends was more than offset
by an increase in interest expense relating to approximately $3.3
billion of debt assumed or incurred in the cable acquisitions
and, with respect to Time Warner's 1996 net loss per common
share, by an increase in preferred dividend requirements as a
result of the preferred stock issued in connection with the
Series K Refinancing, the cable acquisitions and the
ITOCHU/Toshiba Transaction.
The Entertainment Group had revenues of $2.610 billion and
net income of $72 million for the three months ended June 30,
1996, compared to revenues of $2.435 billion and net income of
$59 million for the three months ended June 30, 1995. On a pro
forma basis, giving effect to (i) the 1995 formation of the
TWE-Advance/Newhouse Partnership, (ii) the 1995 refinancing of
approximately $2.6 billion of pre-existing bank debt, (iii) the
1995 consolidation of Paragon, (iv) the 1995 sale of 51% of TWE's
interest in Six Flags and (v) the sale or expected sale or
transfer of certain unclustered cable television systems owned by
TWE, as if each of such transactions had occurred at the
beginning of 1995, the Entertainment Group would have reported
for the three months ended June 30, 1995, revenues of $2.321
billion, depreciation and amortization of $263 million, operating
income of $249 million and net income of $55 million. No pro
<PAGE>
forma financial information has been presented for the
Entertainment Group for the three months ended June 30, 1996
because all of such transactions are already reflected, in all
material respects, in the historical financial statements of the
Entertainment Group.
As discussed more fully below, the Entertainment Group's
historical operating results in 1996 as compared to pro forma
results in 1995 reflect an overall increase in operating income
generated by its business segments, offset in part by a decrease
in investment-related income and an increase in minority interest
expense related to the TWE-Advance/Newhouse Partnership. On a
historical basis, the positive effect from such underlying
operating trends was slightly mitigated by the lack of
contribution of Six Flags's operating results in 1996 which
exceeded interest savings on lower average debt levels related to
management's debt reduction program.
The relationship between income before income taxes and
income tax expense of Time Warner is principally affected by the
amortization of goodwill and certain other financial statement
expenses that are not deductible for income tax purposes. Income
tax expense of Time Warner includes all income taxes related to
its allocable share of partnership income and its equity in the
income tax expense of corporate subsidiaries of the Entertainment
Group.
Time Warner
Publishing. Revenues increased to $1.038 billion, compared
to $928 million in the second quarter of 1995. EBITDA increased
to $156 million from $138 million. Depreciation and amortization
amounted to $31 million in 1996 and $24 million in 1995.
Operating income increased to $125 million from $114 million.
Revenues benefited from across-the-board increases in magazine
circulation, advertising and book revenues. Contributing to the
revenue gain were increases achieved by People, Sports
Illustrated, Time, Entertainment Weekly, Southern Living and the
direct marketing book businesses. EBITDA and operating income
increased as a result of the revenue gains.
Music. Revenues decreased to $876 million, compared to $986
million in the second quarter of 1995. EBITDA was $165 million
for both periods. Depreciation and amortization, including
amortization related to the purchase of WCI, amounted to $95
million for both periods, and operating income was $70 million
for both periods. Revenues decreased principally due to a decline
in international recorded music sales, as well as the absence of
revenues from certain start-up businesses which are no longer
being operated by the Music Division. In addition, the
industry-wide softness experienced in the first quarter in the
<PAGE>
overexpanded U.S. retail marketplace did not deteriorate further
which, together with a number of popular releases, contributed to
an increase in domestic recorded music revenues. EBITDA and
operating income were unchanged principally because the improved
domestic recorded music results, higher music publishing results
and the absence of losses from certain start-up businesses, were
offset by lower international recorded music and direct marketing results.
Cable. The 1996 Cable operating results reflect the
acquisitions of Summit effective as of May 2, 1995, KBLCOM
effective as of July 6, 1995 and CVI and related companies
effective as of January 4, 1996 and are not comparative to the
corresponding period in the prior year. Cable operating results
for the second quarter of 1996 consisted of revenues of $230
million, EBITDA of $118 million, depreciation and amortization of
$98 million and operating income of $20 million.
Interest and Other, Net. Interest and other, net, increased
to $282 million in the second quarter of 1996, compared to $201
million in the second quarter of 1995. Interest expense increased
to $224 million, compared to $219 million. The increase in
interest expense was principally due to the assumption or
incurrence of approximately $3.3 billion of debt in the cable
acquisitions, offset in part by the favorable effect from Time
Warner's redemption of the 8.75% Convertible Debentures. There
was other expense, net, of $58 million in the second quarter of
1996, compared to other income, net, of $18 million in 1995,
principally because of a reduction in interest income related to
the resolution of a corporate tax matter in 1995, a decrease in
investment-related income and an increase in dividend
requirements on preferred securities of subsidiaries issued in
1995 in connection with the redemption of the 8.75% Convertible
Debentures.
Entertainment Group
Filmed Entertainment. Revenues increased to $1.272 billion,
compared to $1.154 billion in the second quarter of 1995. EBITDA
increased to $141 million from $117 million. Depreciation and
amortization, including amortization related to the purchase of
WCI, amounted to $62 million in 1996 and $58 million in 1995.
Operating income increased to $79 million from $59 million.
Revenues benefited from increases in worldwide theatrical, home
video and television distribution operations. Domestic theatrical
revenues in 1996 were led by the success of Twister and exceeded
the prior year's performance despite difficult comparisons to
successful films such as Batman Forever. EBITDA and operating
income benefited from the revenue gains.
<PAGE>
Six Flags Theme Parks. As a result of TWE's sale of 51% of
its interest in Six Flags, the operating results of Six Flags
have been deconsolidated effective as of June 23, 1995 and TWE's
remaining 49% interest in Six Flags is accounted for under the
equity method of accounting.
Broadcasting - The WB Network. The WB Network recorded an
operating loss of $12 million on $18 million of revenues in the
second quarter of 1996, compared to an operating loss of $12
million on $3 million of revenues in the second quarter of 1995.
The increase in revenues, as well as a corresponding increase in
costs, primarily resulted from the expansion of programming in
September 1995 to two nights of primetime scheduling, and the
unveiling of Kids' WB!, the network's animated programming lineup
on Saturday mornings and weekdays. Due to the start-up nature of
this new national broadcast operation, losses are expected to continue.
Programming - HBO. Revenues increased to $456 million,
compared to $396 million in the second quarter of 1995. EBITDA
increased to $87 million from $75 million. Depreciation and
amortization amounted to $4 million in 1996 and $5 million in
1995. Operating income increased to $83 million from $70 million.
Revenues benefited primarily from a significant increase in
subscriptions. EBITDA and operating income improved principally
as a result of the revenue gains.
Cable. Revenues increased to $961 million, compared to $760
million in the second quarter of 1995. EBITDA increased to $376
million from $319 million. Depreciation and amortization,
including amortization related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $229
million in 1996 and $193 million in 1995. Operating income
increased to $147 million from $126 million. Revenues and
operating results benefited from the consolidation of Paragon
effective as of July 6, 1995. Excluding such effect, revenues
benefited from an aggregate increase of 5% in basic cable and
Primestar-related, direct broadcast satellite subscribers,
increases in regulated cable rates as permitted under Time Warner
Cable's "social contract" with the FCC and increases in
pay-per-view and advertising revenues. Excluding the effect of
consolidating Paragon, EBITDA and operating income increased as a
result of the revenue gains, offset in part, with respect to
operating income only, by higher depreciation and amortization
relating to increased capital spending.
Interest and Other, Net. Interest and other, net, decreased
to $134 million in the second quarter of 1996, compared to $140
million in the second quarter of 1995. Interest expense decreased
to $119 million, compared to $148 million in the second quarter
of 1995, principally as a result of interest savings on lower
average debt levels related to management's debt reduction
<PAGE>
program and lower short-term, floating-rates of interest paid on
borrowings under TWE's former and existing bank credit
agreements. There was other expense, net, of $15 million in the
second quarter of 1996, compared to other income, net, of $8
million in 1995, principally due to a decrease in
investment-related income, including a reduction in interest
income resulting from lower average cash balances and lower
average principal amounts due under the note receivable from U S WEST.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Time Warner had revenues of $4.207 billion, a loss of $124
million ($.58 per common share) before an extraordinary loss on
the retirement of debt and a net loss of $159 million ($.67 per
common share) for the six months ended June 30, 1996, compared to
revenues of $3.724 billion and a net loss of $55 million ($.17
per common share) for the six months ended June 30, 1995. Time
Warner's equity in the pretax income of the Entertainment Group
was $209 million for the six months ended June 30, 1996 compared
to $106 million for the six months ended June 30, 1995.
On a pro forma basis, giving effect to (i) the 1995 and
early 1996 acquisitions by Time Warner of Summit, KBLCOM and CVI
and related companies, and the 1995 formation by TWE of the
TWE-Advance/Newhouse Partnership, (ii) the 1995 exchange of
ITOCHU Corporation's and Toshiba Corporation's interests in TWE
for equity interests in Time Warner, (iii) the 1995 and early
1996 refinancing of approximately $4 billion of public debt by
Time Warner and the 1995 execution of a new $8.3 billion credit
agreement, under which approximately $2.7 billion of debt assumed
in the cable acquisitions was refinanced by subsidiaries of Time
Warner and $2.6 billion of pre-existing bank debt was refinanced
by TWE, (iv) the issuance in April 1996 of 1.6 million shares of
Series K Preferred Stock and the use of approximately $1.55
billion of net proceeds therefrom to reduce debt, (v) the 1995
sale of 51% of TWE's interest in Six Flags and (vi) the sale or
expected sale or transfer of certain unclustered cable television
systems owned by TWE, as if each of such transactions had
occurred at the beginning of 1995, Time Warner would have
reported for the six months ended June 30, 1996 and 1995,
respectively, revenues of $4.207 billion and $4.138 billion,
depreciation and amortization of $452 million and $467 million,
operating income of $325 million and $290 million, equity in the
pretax income of the Entertainment Group of $209 million and $128
million, a loss before extraordinary item of $102 million and $94
million ($0.66 and $0.65 per common share) and a net loss of $137
million and $94 million ($0.75 and $0.65 per common share).
As discussed more fully below, the increase in Time Warner's
pro forma net loss in 1996 as compared to 1995 principally
<PAGE>
relates to a $35 million extraordinary loss on the retirement of
debt ($.09 per common share) and a decrease in investment-related
income primarily resulting from gains on the sale of certain
assets recognized in 1995, which more than offset an overall
increase in the operating income of Time Warner's business
segments and increased income from its equity in the pretax
income of the Entertainment Group. On a historical basis, such
underlying operating trends were further affected by an increase
in interest expense relating to approximately $3.3 billion of
debt assumed or incurred in the cable acquisitions, and with
respect to Time Warner's 1996 net loss per common share, by an
increase in preferred dividend requirements as a result of the
preferred stock issued in connection with the Series K
Refinancing, the cable acquisitions and the ITOCHU/Toshiba
Transaction.
The Entertainment Group had revenues of $5.097 billion and
net income of $170 million for the six months ended June 30,
1996, compared to revenues of $4.508 billion and net income of
$70 million for the six months ended June 30, 1995. On a pro
forma basis, giving effect to (i) the 1995 formation of the
TWE-Advance/Newhouse Partnership, (ii) the 1995 refinancing of
approximately $2.6 billion of pre-existing bank debt, (iii) the
1995 consolidation of Paragon, (iv) the 1995 sale of 51% of TWE's
interest in Six Flags and (v) the sale or expected sale or
transfer of certain unclustered cable television systems owned by
TWE, as if each of such transactions had occurred at the
beginning of 1995, the Entertainment Group would have reported
for the six months ended June 30, 1995, revenues of $4.582
billion, depreciation and amortization of $533 million, operating
income of $478 million and net income of $95 million. No pro
forma financial information has been presented for the
Entertainment Group for the six months ended June 30, 1996
because all of such transactions are already reflected, in all
material respects, in the historical financial statements of the
Entertainment Group.
As discussed more fully below, the Entertainment Group's
historical operating results in 1996 as compared to pro forma
results in 1995 reflect an overall increase in operating income
generated by its business segments and an increase in
investment-related income, offset in part by an increase in
minority interest expense related to the TWE-Advance/Newhouse
Partnership. On a historical basis, such underlying operating
trends were enhanced by interest savings in 1996 on lower average
debt levels related to management's debt reduction program, and
were offset in part by an increase in minority interest expense
related to the operations of the TWE-Advance/Newhouse Partnership
for a full six-month period.
The relationship between income before income taxes and
income tax expense of Time Warner is principally affected by the
<PAGE>
amortization of goodwill and certain other financial statement
expenses that are not deductible for income tax purposes. Income
tax expense of Time Warner includes all income taxes related to
its allocable share of partnership income and its equity in the
income tax expense of corporate subsidiaries of the Entertainment
Group.
Time Warner
Publishing. Revenues increased to $1.917 billion, compared
to $1.759 billion in the first six months of 1995. EBITDA
increased to $236 million from $215 million. Depreciation and
amortization amounted to $55 million in 1996 and $46 million in
1995. Operating income increased to $181 million from $169
million. Revenues benefited from across-the-board increases in
magazine circulation, advertising and book revenues. Contributing
to the revenue gain were increases achieved by People, Sports
Illustrated, Entertainment Weekly, Southern Living and the direct
marketing book businesses. EBITDA and operating income increased
as a result of the revenue gains, offset in part by higher paper
costs as a result of price increases and development spending in
new direct-marketing businesses.
Music. Revenues decreased to $1.859 billion, compared to
$1.977 billion in the first six months of 1995. EBITDA decreased
to $311 million from $338 million. Depreciation and amortization,
including amortization related to the purchase of WCI, amounted
to $186 million in 1996 and $185 million in 1995. Operating
income decreased to $125 million from $153 million. Despite
maintaining its leading domestic market position (over 23%), the
Music Division's domestic recorded music operating results in
1996 were negatively affected by the industry-wide softness in
the overexpanded U.S. retail marketplace, which has resulted in a
number of music retail store closings and higher returns of music
product. The decline in revenues reflects (i) the effects from
the current U.S. retail environment, including an increase in the
Music Division's reserve for returns to provide for an
anticipated higher level of returns (ii) a decline in
international recorded music sales and (iii) the absence of
revenues from certain start-up businesses which are no longer
being operated by the Music Division. These effects were
partially offset by an increase in music publishing revenues.
EBITDA and operating income decreased principally as a result of
the decline in the worldwide recorded music business and lower
results from direct marketing activities, offset in part by
improved music publishing results and the absence of losses from
certain start-up businesses.
Cable. The 1996 Cable operating results reflect the
acquisitions of Summit effective as of May 2, 1995, KBLCOM
effective as of July 6, 1995 and CVI and related companies
effective as of January 4, 1996 and are not comparative to the
<PAGE>
corresponding period in the prior year. Cable operating results
for the first six months of 1996 consisted of revenues of $447
million, EBITDA of $230 million, depreciation and amortization of
$211 million and operating income of $19 million.
Interest and Other, Net. Interest and other, net, increased
to $578 million in the first six months of 1996, compared to $356
million in the first six months of 1995. Interest expense
increased to $471 million, compared to $429 million. The increase
in interest expense was principally due to the assumption or
incurrence of approximately $3.3 billion of debt in the cable
acquisitions, offset in part by the favorable effect from Time
Warner's redemption of the 8.75% Convertible Debentures. There
was other expense, net, of $107 million in the first six months
of 1996, compared to other income, net, of $73 million in 1995,
principally because of a decrease in investment-related income
resulting from gains on certain asset sales recognized in 1995 in
connection with management's debt reduction program and an
increase in dividend requirements on preferred securities of
subsidiaries issued in 1995 in connection with the redemption of
the 8.75% Convertible Debentures.
Entertainment Group
Filmed Entertainment. Revenues increased to $2.490 billion,
compared to $2.338 billion in the first six months of 1995.
EBITDA increased to $277 million from $240 million. Depreciation
and amortization, including amortization related to the purchase
of WCI, amounted to $125 million in 1996 and $114 million in
1995. Operating income increased to $152 million from $126
million. Revenues benefited from increases in worldwide home
video and consumer products operations. Lower domestic theatrical
revenues in the first quarter of 1996 were overcome by the second
quarter domestic box office performance of theatrical releases,
led by the success of Twister. EBITDA and operating income
benefited from the revenue gains.
Six Flags Theme Parks. As a result of TWE's sale of 51% of
its interest in Six Flags, the operating results of Six Flags
have been deconsolidated effective as of June 23, 1995 and TWE's
remaining 49% interest in Six Flags is accounted for under the
equity method of accounting.
Broadcasting - The WB Network. The WB Network recorded an
operating loss of $36 million on $33 million of revenues in the
first six months of 1996, compared to an operating loss of $33
million on $6 million of revenues in the first six months of
1995. The increased revenues and operating losses are primarily
due to the expansion of programming in September 1995 to two
nights of primetime scheduling, and the unveiling of Kids' WB!,
the network's animated programming lineup on Saturday mornings
<PAGE>
and weekdays. Due to the start-up nature of this new national
broadcast operation, losses are expected to continue.
Programming - HBO. Revenues increased to $875 million,
compared to $786 million in the first six months of 1995. EBITDA
increased to $168 million from $146 million. Depreciation and
amortization amounted to $9 million in 1996 and 1995. Operating
income increased to $159 million from $137 million. Revenues
benefited primarily from a significant increase in subscriptions.
EBITDA and operating income improved principally as a result of
the revenue gains.
Cable. Revenues increased to $1.908 billion, compared to
$1.338 billion in the first six months of 1995. EBITDA increased
to $744 million from $575 million. Depreciation and amortization,
including amortization related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $451
million in 1996 and $359 million in 1995. Operating income
increased to $293 million from $216 million. Revenues and
operating results benefited from the contribution of the
TWE-Advance/Newhouse Partnership for a full six-month period and
the consolidation of Paragon effective as of July 6, 1995.
Excluding such effects, revenues benefited from an aggregate
increase of 5% in basic cable and Primestar-related, direct
broadcast satellite subscribers, increases in regulated cable
rates as permitted under Time Warner Cable's "social contract"
with the FCC and increases in pay-per-view and advertising
revenues. Excluding the TWE-Advance/Newhouse Partnership and
Paragon effects noted above, EBITDA and operating income
increased as a result of the revenue gains, offset in part, with
respect to operating income only, by higher depreciation and
amortization relating to increased capital spending.
Interest and Other, Net. Interest and other, net, decreased
to $222 million in the first six months of 1996, compared to $304
million in the first six months of 1995. Interest expense
decreased to $240 million, compared to $299 million in the first
six months of 1995, principally as a result of interest savings
on lower average debt levels related to management's debt
reduction program and lower short-term, floating-rates of
interest paid on borrowings under TWE's former and existing bank
credit agreements. There was other income, net, of $18 million in
the first six months of 1996, compared to other expense, net, of
$5 million in 1995, principally due to an overall increase in
investment-related income resulting from gains on the sale of
certain unclustered cable systems recognized in 1996 in
connection with management's debt reduction program, which more
than exceeded a reduction in interest income resulting from lower
average cash balances and lower average principal amounts due
under the note receivable from U S WEST.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
June 30, 1996
Time Warner
Financial Condition
Time Warner had $10 billion of debt, $482 million of cash
and equivalents (net debt of $9.5 billion), $225 million of
borrowings against future stock option proceeds, $949 million of
mandatorily redeemable preferred securities of subsidiaries,
$1.586 billion of Series K Preferred Stock and $3.8 billion of
shareholders' equity at June 30, 1996, compared to $9.9 billion
of debt, $1.2 billion of cash and equivalents (net debt of $8.7
billion), $949 million of mandatorily redeemable preferred
securities of subsidiaries and $3.7 billion of shareholders'
equity at December 31, 1995. The increase in net debt principally
reflects the assumption of approximately $2 billion of debt
related to the CVI acquisition, offset in part by the use of
approximately $1.55 billion of net proceeds from the issuance of
the Series K Preferred Stock to reduce debt. The increase in
shareholders' equity reflects the issuance in 1996 of
approximately 2.9 million shares of common stock and
approximately 6.3 million shares of preferred stock in connection
with the CVI acquisition, offset in part by the repurchase of
approximately 8.8 million shares of Time Warner Common Stock at
an aggregate cost of approximately $360 million. On a combined
basis (Time Warner and the Entertainment Group together), excluding
borrowings against future stock option proceeds, there was
$14.9 billion of net debt at June 30, 1996, compared to $14.7
billion of net debt at the beginning of the year.
Investment in TWE
Time Warner's investment in TWE at June 30, 1996 consisted
of interests in 74.49% of the pro rata priority capital ("Series
A Capital") and residual equity capital ("Residual Capital") of
TWE, and 100% of the senior priority capital ("Senior Capital")
and junior priority capital ("Series B Capital") of TWE. Such
priority capital interests provide Time Warner (and with respect
to the Series A Capital only, U S WEST) with certain priority
claims to the net partnership income of TWE and distributions of
TWE partnership capital, including certain priority distributions
of partnership capital in the event of liquidation or dissolution
of TWE. Each level of priority capital interest provides for an
annual rate of return equal to or exceeding 8%, including an
above-market 13.25% annual rate of return (11.25% to the extent
concurrently distributed) related to Time Warner's Series B
Capital interest, which, when taken together with Time Warner's
contributed capital, represented a cumulative priority Series B
Capital interest of $4.9 billion at June 30, 1996. While the TWE
partnership agreement contemplates the reinvestment of
significant partnership cash flows in the form of capital
<PAGE>
expenditures and otherwise provides for certain other restrictions
that are expected to limit cash distributions on partnership
interests for the foreseeable future, Time Warner's $1.5 billion
Senior Capital interest and, to the extent not previously
distributed, partnership income allocated thereto (based on an
8% annual rate of return) is required to be distributed to Time
Warner in three annual installments beginning on July 1, 1997.
Series K Exchangeable Preferred Stock
In April 1996, Time Warner raised approximately $1.55
billion of net proceeds for debt reduction in a private placement
of 1.6 million shares of Series K Preferred Stock, which pay
cumulative dividends at the rate of 10-1/4% per annum. The
issuance of the Series K Preferred Stock allowed the Company to
realize cash proceeds through a security whose payment terms are
principally linked (until a reorganization of TWE occurs, if any)
to a portion of Time Warner's currently noncash-generating
interest in the Series B Capital of TWE, as more fully described
herein. Time Warner used the proceeds raised from the issuance of
the Series K Preferred Stock to redeem $250 million principal
amount of 8.75% Debentures due April 1, 2017 for $265 million in
May 1996 (including redemption premiums and accrued interest
thereon), and to reduce bank debt of TWI Cable Inc. by
approximately $1.3 billion. In connection with the redemption of
the 8.75% Debentures due April 1, 2017, Time Warner recognized an
extraordinary loss of $9 million in May 1996.
Generally, the terms of the Series K Preferred Stock only
require Time Warner to pay cash dividends or to redeem, prior to
its mandatory redemption date, any portion of the security for
cash upon the receipt of certain cash distributions from TWE with
respect to Time Warner's interests in the Series B Capital and
Residual Capital of TWE (excluding stock option related
distributions and certain tax related distributions). However,
because such cash distributions are subject to restrictions under
the TWE partnership agreement, Time Warner does not expect to pay
cash dividends or to redeem any portion of the Series K Preferred
Stock for cash in the foreseeable future. Instead, Time Warner
expects to satisfy its dividend requirements through the issuance
of additional shares of Series K Preferred Stock with an
aggregate liquidation preference equal to the amount of such
dividends. In addition, upon a reorganization of TWE, Time Warner
must elect either to redeem each outstanding share of Series K
Preferred Stock for cash, subject to certain conditions, or to
exchange the Series K Preferred Stock for new Series L Preferred
Stock, which also pays cumulative dividends at the rate of
10-1/4% per annum but is not linked to Time Warner's interest in
the Series B Capital of TWE. The terms of the Series L Preferred
Stock do not require Time Warner to pay cash dividends until July
2006 and provide Time Warner with an option to exchange the
<PAGE>
Series L Preferred Stock, subject to certain conditions, into
10-1/4% Senior Subordinated Debentures which do not require the
payment of cash interest until July 2006. See Note 7 to the
accompanying consolidated financial statements for a summary of
the principal terms of the Series K Preferred Stock.
Common Stock Repurchase Program
In April 1996, Time Warner's Board of Directors authorized a
program to repurchase, from time to time, up to 15 million shares
of Time Warner common stock. In connection therewith, Time Warner
entered into a five-year, $750 million revolving credit facility
(the "Stock Option Proceeds Credit Facility") in May 1996
principally to support such stock repurchases. The common stock
repurchased under the program is expected to be used to satisfy
future share issuances related to the exercise of existing
employee stock options. Actual repurchases in any period will be
subject to market conditions. As of June 30, 1996, Time Warner
had acquired approximately 8.8 million shares of its common stock
for an aggregate cost of approximately $360 million. Such
repurchases were principally funded with borrowings under the
Stock Option Proceeds Credit Facility and available cash and
equivalents.
The Stock Option Proceeds Credit Facility provides for
borrowings of up to $750 million, of which up to $100 million is
reserved solely for the payment of interest and fees thereunder.
At June 30, 1996, $225 million had been borrowed under the Stock
Option Proceeds Credit Facility. Borrowings under the Stock
Option Proceeds Credit Facility generally bear interest at LIBOR
plus a margin equal to 75 basis points and are generally required
to be prepaid from the cash proceeds received by Time Warner from
the exercise of designated employee stock options. Such
prepayments will permanently reduce the borrowing availability
under the facility. At August 2, 1996, based on a closing market
price of Time Warner common stock of $36.50, the aggregate
exercise prices of outstanding vested, "in the money" stock
options was approximately $1.5 billion, representing a 2 to 1
coverage ratio over the related borrowing availability. To the
extent that such stock option proceeds are not sufficient to
satisfy Time Warner's obligations under the Stock Option Proceeds
Credit Facility, Time Warner is generally required to repay such
borrowings using proceeds from the sale of shares of its common
stock held in escrow under the Stock Option Proceeds Credit
Facility or, at Time Warner's election, using available cash on
hand. Time Warner initially placed 36 million shares in escrow
under this arrangement and may, from time to time, have up to
52.5 million shares held in escrow. Such shares are not
considered to be issued and outstanding capital stock of the
Company.
<PAGE>
Because borrowings under the Stock Option Proceeds Credit
Facility are expected to be principally repaid by Time Warner
from the cash proceeds from the exercise of employee stock
options, Time Warner's principal credit rating agencies have
concluded that such borrowings and related financing costs are
credit neutral and are excludable from debt and interest expense,
respectively, for purposes of determining Time Warner's leverage
and coverage ratios.
Debt Refinancings
In 1996, as more fully described below, Time Warner
continued to capitalize on favorable market conditions through
certain debt refinancings, which lowered interest rates,
staggered debt maturities and, with respect to the redemption of
the 8.75% Convertible Debentures in February 1996, eliminated the
potential dilution from the conversion of such securities into
25.7 million shares of common stock.
In January 1996, in connection with its acquisition of CVI
and related companies, Time Warner assumed $500 million of public
notes and debentures of CVI and a subsidiary of Time Warner
borrowed $1.5 billion under its $8.3 billion credit agreement to
refinance a like-amount of other indebtedness assumed or incurred
in such acquisition.
In February 1996, Time Warner redeemed the remaining $1.2
billion principal amount of 8.75% Convertible Debentures for
$1.28 billion, including redemption premiums and accrued interest
thereon. The redemption was financed with (1) proceeds raised
from a $575 million issuance of Company-obligated mandatorily
redeemable preferred securities of a subsidiary in December 1995
and (2) $750 million of proceeds raised from the issuance in
January 1996, of (i) $400 million principal amount of 6.85%
debentures due 2026, which are redeemable at the option of the
holders thereof in 2003, (ii) $200 million principal amount of
8.3% discount debentures due 2036, which do not pay cash interest
until 2016, (iii) $166 million principal amount of 7.48%
debentures due 2008 and (iv) $150 million principal amount of
8.05% debentures due 2016. In connection with the 1996 redemption
of the 8.75% Convertible Debentures, Time Warner recognized an
extraordinary loss of $26 million.
Cash Flows
During the first six months of 1996, Time Warner's cash
provided by operations amounted to $81 million and reflected $777
million of EBITDA from its Publishing, Music and Cable businesses
and $132 million of distributions from TWE, less $426 million of
interest payments, $133 million of income taxes, $36 million of
corporate expenses and $233 million related to an increase in
other working capital requirements, balance sheet accounts and
<PAGE>
noncash items. Cash used by operations of $99 million for the
first six months of 1995 reflected $553 million of business
segment EBITDA and $5 million of net distributions from TWE, less
$289 million of interest payments, $127 million of income taxes,
$39 million of corporate expenses and $202 million related to an
increase in other working capital requirements, balance sheet
accounts and noncash items.
Cash used by investing activities increased to $303 million
in the first six months of 1996, compared to $31 million in the
first six months of 1995, principally as a result of the cash
portion of the consideration paid to acquire CVI and related
companies and a $129 million decrease in investment proceeds
realized in 1995 in connection with management's debt reduction
program. Capital expenditures increased to $161 million in the
first six months of 1996, compared to $97 million in 1995,
principally as a result of higher cable capital spending
associated with Time Warner's cable acquisitions.
Cash used by financing activities was $481 million for the
first six months of 1996, compared to cash provided by financing
activities of $445 million for the first six months of 1995. The
use of cash in 1996 principally resulted from the use of $135
million of available cash and equivalents to finance a portion of
the Company's share repurchase program and the use of $557
million of noncurrent cash and equivalents raised in the December
1995 issuance of the Preferred Trust Securities to redeem the
remaining portion of the 8.75% Convertible Debentures in February
1996, offset in part by borrowings incurred to finance the cash
portion of the consideration paid to acquire CVI and related
companies. In addition, Time Warner raised approximately $1.55
billion of net proceeds in 1996 from the issuance of 1.6 billion
shares of Series K Preferred Stock and used the net proceeds
therefrom to reduce debt. Cash provided by financing activities
in 1995 principally resulted from the issuance of $500 million
principal amount of ten-year notes in June 1995, the proceeds of
which were not used until September 1995 in connection with the
redemption of a portion of the then outstanding 8.75% Convertible
Debentures. Cash dividends paid increased to $135 million for the
first six months of 1996, compared to $73 million for the first
six months of 1995, principally as a result of dividends paid on
the preferred stock issued in connection with the cable
acquisitions and the ITOCHU/Toshiba Transaction.
The assets and cash flows of TWE are restricted by the TWE
partnership agreement and are unavailable to Time Warner except
through the payment of certain fees, reimbursements, cash
distributions and loans, which are subject to limitations. Under
the New Credit Agreement, TWE and TWI Cable are permitted to
incur additional indebtedness to make loans, advances,
distributions and other cash payments to Time Warner, subject to
their respective compliance with the cash flow coverage and
leverage ratio covenants contained therein.
<PAGE>
Management believes that Time Warner's operating cash flow,
cash and marketable securities and additional borrowing capacity
are sufficient to fund its capital and liquidity needs for the
foreseeable future without distributions and loans from TWE above
those permitted by existing agreements.
Entertainment Group
Financial Condition
The Entertainment Group had $5.6 billion of debt, $1.5
billion of Time Warner General Partners' Senior Capital and $6.7
billion of partners' capital at June 30, 1996, compared to $6.2
billion of debt, $1.4 billion of Time Warner General Partners'
Senior Capital and $6.6 billion of partners' capital (net of the
$169 million uncollected portion of the note receivable from U S
WEST) at December 31, 1995. Cash and equivalents were $218
million at June 30, 1996, compared to $209 million at December
31, 1995, reducing the debt-net-of-cash amounts for the
Entertainment Group to $5.4 billion and $6 billion, respectively.
Cash Flows
In the first six months of 1996, the Entertainment Group's
cash provided by operations amounted to $1.198 billion and
reflected $1.153 billion of EBITDA from the Filmed Entertainment,
Broadcasting-The WB Network, Programming-HBO and Cable businesses
and $359 million related to a reduction in working capital
requirements, other balance sheet accounts and noncash items,
less $247 million of interest payments, $32 million of income
taxes and $35 million of corporate expenses. Cash provided by
operations of $697 million in the first six months of 1995
reflected $988 million of business segment EBITDA and $76 million
related to a reduction in working capital requirements, less $303
million of interest payments, $34 million of income taxes and $30
million of corporate expenses.
Cash used by investing activities was $651 million in the
first six months of 1996, compared to cash provided by investing
activities of $175 million in the first six months of 1995,
principally as a result of a $766 million decrease in investment
proceeds realized in 1995 in connection with management's debt
reduction program. Capital expenditures increased to $781 million
in the first six months of 1996, compared to $704 million in the
first six months of 1995, principally as a result of higher cable
capital spending as discussed more fully below.
Cash used by financing activities was $538 million in the
first six months of 1996, compared to cash provided by financing
activities of $320 million in the first six months of 1995,
principally as a result of a $607 million net reduction in debt
<PAGE>
in 1996 and a $127 million increase in net distributions paid to
Time Warner, offset in part by a $74 million decrease in
collections on the note receivable from U S WEST.
Management believes that TWE's operating cash flow, cash and
equivalents and additional borrowing capacity are sufficient to
fund its capital and liquidity needs for the foreseeable future.
Cable Capital Spending
Since the beginning of 1994, Time Warner Cable has been
engaged in a plan to upgrade the technological capability and
reliability of its cable television systems and develop new
services, which it believes will position the business for
sustained, long-term growth. Capital spending by Time Warner
Cable, including the cable operations of both Time Warner and
TWE, amounted to $681 million in the six months ended June 30,
1996, compared to $514 million in the six months ended June 30,
1995, and was financed in part through collections on the note
receivable from U S WEST of $169 million and $243 million,
respectively. Cable capital spending is budgeted to be
approximately $900 million for the remainder of 1996 and is
expected to be funded principally by cable operating cash flow.
In exchange for certain flexibility in establishing cable rate
pricing structures for regulated services that went into effect
on January 1, 1996 and consistent with Time Warner Cable's
long-term strategic plan, Time Warner Cable has agreed with the
FCC to invest a total of $4 billion in capital costs in
connection with the upgrade of its cable infrastructure, which is
expected to be substantially completed over the next five years.
The agreement with the FCC covers all of the cable operations of
Time Warner Cable, including the owned or managed cable
television systems of Time Warner, TWE and the
TWE-Advance/Newhouse Partnership. Management expects to continue
to finance such level of investment principally through the
growth in cable operating cash flow derived from increases in
subscribers and cable rates, bank credit agreement borrowings and
the development of new revenue streams from expanded programming
options, high speed data transmission, telephony and other services.
Warner Bros. Backlog
Warner Bros.' backlog, representing the amount of future
revenue not yet recorded from cash contracts for the licensing of
theatrical and television product for pay cable, network, basic
cable and syndicated television exhibition, amounted to $1.601
billion at June 30, 1996, compared to $1.056 billion at December
31, 1995 (including amounts relating to HBO of $208 million at
June 30, 1996 and $175 million at December 31, 1995). Warner
Bros.' backlog increased principally as a result of the licensing
of the hit television series Friends and ER for domestic
<PAGE>
syndication and cable television exhibition beginning in 1998.
Because backlog generally relates to contracts for the licensing
of theatrical and television product which have already been
produced, the recognition of revenue for such completed product
is principally only dependent upon the commencement of the
availability period for telecast under the terms of the related
licensing agreement. In addition, cash licensing fees are
collected periodically over the term of the related licensing
agreements. Accordingly, the portion of backlog for which cash
advances have not already been received has significant
off-balance sheet asset value as a source of future funding. The
backlog excludes advertising barter contracts, which are also
expected to result in the future realization of cash through the
sale of advertising spots received under such contracts.
Interest Rate and Foreign Currency Risk Management
Interest Rate Swap Contracts
Time Warner uses interest rate swap contracts to adjust the
proportion of total debt that is subject to variable and fixed
interest rates. At June 30, 1996, Time Warner had interest rate
swap contracts to pay floating-rates of interest (average
six-month LIBOR rate of 5.5%) and receive fixed-rates of interest
(average rate of 5.4%) on $2.6 billion notional amount of
indebtedness, which resulted in approximately 46% of Time
Warner's underlying debt, and 41% of the debt of Time Warner and
the Entertainment Group combined, being subject to variable
interest rates. The notional amount of outstanding contracts at
June 30, 1996 by year of maturity, along with the related average
fixed-rates of interest to be received and the average
floating-rates of interest to be paid, are as follows: 1996-$300
million (receive-4.6%; pay-5.6%); 1998-$700 million
(receive-5.5%; pay-5.6%); 1999-$1.2 billion (receive-5.5%;
pay-5.4%); and 2000-$400 million (receive-5.5%; pay-5.4%). At
December 31, 1995, Time Warner had interest rate swap contracts
on a like-amount of $2.6 billion notional amount of indebtedness.
Based on the level of interest rates prevailing at June 30,
1996, the fair value of Time Warner's fixed-rate debt was less
than its carrying value by $12 million and it would have cost $58
million to terminate the related interest rate swap contracts,
which combined is the equivalent of an unrealized loss of $46
million. Based on the level of interest rates prevailing at
December 31, 1995, the fair value of Time Warner's fixed-rate
debt exceeded its carrying value by $407 million and it would
have cost $9 million to terminate its interest rate swap
contracts, which combined was the equivalent of an unrealized
loss of $416 million. Unrealized gains or losses on debt or
interest rate swap contracts are not recognized for financial
reporting purposes unless the debt is retired or the contracts
are terminated prior to their maturity.
<PAGE>
Changes in the unrealized gains or losses on interest rate
swap contracts and debt do not result in the realization or
expenditure of cash unless the contracts are terminated or the
debt is retired. However, based on Time Warner's variable-rate
debt and related interest rate swap contracts outstanding at June
30, 1996, each 25 basis point increase or decrease in the level
of interest rates would respectively increase or decrease Time
Warner's annual interest expense and related cash payments by
approximately $12 million, including $7 million related to
interest rate swap contracts. Such potential increases or
decreases are based on certain simplifying assumptions, including
a constant level of variable-rate debt and related interest rate
swap contracts during the period and, for all maturities, an
immediate, across-the-board increase or decrease in the level of
interest rates with no other subsequent changes for the remainder
of the period.
Foreign Exchange Contracts
Time Warner uses foreign exchange contracts primarily to
hedge the risk that unremitted or future royalties and license
fees owed to Time Warner or TWE domestic companies for the sale
or anticipated sale of U.S. copyrighted products abroad may be
adversely affected by changes in foreign currency exchange rates.
As part of its overall strategy to manage the level of exposure
to the risk of foreign currency exchange rate fluctuations, Time
Warner hedges a portion of its and TWE's combined foreign
currency exposures anticipated over the ensuing twelve month
period. At June 30, 1996, Time Warner has effectively hedged
approximately half of the combined estimated foreign currency
exposures that principally relate to anticipated cash flows to be
remitted to the U.S. over the ensuing twelve month period, using
foreign exchange contracts that generally have maturities of six
months or less, which are generally rolled over to provide
continuing coverage throughout the year. Time Warner often closes
foreign exchange sale contracts by purchasing an offsetting
purchase contract. At June 30, 1996, Time Warner had contracts
for the sale of $483 million and the purchase of $165 million of
foreign currencies at fixed rates, primarily English pounds (28%
of net contract value), German marks (23%), Canadian dollars
(19%), French francs (14%) and Japanese yen (11%), compared to
contracts for the sale of $504 million and the purchase of $140
million of foreign currencies at December 31, 1995.
Unrealized gains or losses related to foreign exchange
contracts are recorded in income as the market value of such
contracts change; accordingly, the carrying value of foreign
exchange contracts approximates market value. The carrying value
of foreign exchange contracts was not material at June 30, 1996
and December 31, 1995. No cash is required to be received or paid
with respect to such gains and losses until the related foreign
<PAGE>
exchange contracts are settled, generally at their respective
maturity dates. For the six months ended June 30, 1996 and 1995,
Time Warner recognized $11 million in gains and $26 million in
losses, respectively, and TWE recognized $4 million in gains and
$13 million in losses, respectively, on foreign exchange
contracts, which were or are expected to be offset by
corresponding decreases and increases, respectively, in the
dollar value of foreign currency royalties and license fee
payments that have been or are anticipated to be received in cash
from the sale of U.S. copyrighted products abroad. Time Warner
reimburses or is reimbursed by TWE for contract gains and losses
related to TWE's foreign currency exposure. Foreign currency
contracts are placed with a number of major financial
institutions in order to minimize credit risk.
Based on the foreign exchange contracts outstanding at June
30, 1996, each 5% devaluation of the U.S. dollar as compared to
the level of foreign exchange rates for currencies under contract
at June 30, 1996 would result in approximately $24 million of
unrealized losses and $8 million of unrealized gains on foreign
exchange contracts involving foreign currency sales and
purchases, respectively. Conversely, a 5% appreciation of the
U.S. dollar would result in $24 million of unrealized gains and
$8 million of unrealized losses, respectively. At June 30, 1996,
none of Time Warner's foreign exchange purchase contracts relates
to TWE's foreign currency exposure. However, with regard to the
$24 million of unrealized losses or gains on foreign exchange
sale contracts, Time Warner would be reimbursed by TWE, or would
reimburse TWE, respectively, for approximately $5 million related
to TWE's foreign currency exposure. Consistent with the nature of
the economic hedge provided by such foreign exchange contracts,
such unrealized gains or losses would be offset by corresponding
decreases or increases, respectively, in the dollar value of
future foreign currency royalty and license fee payments that
would be received in cash within the ensuing twelve month period
from the sale of U.S. copyrighted products abroad.
<PAGE>
TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
1996 1995
(millions, except
per share amounts)
ASSETS
Current assets
Cash and equivalents $ 482 $ 628
Receivables, less allowances of
$746 and $786 1,356 1,755
Inventories 450 443
Prepaid expenses 936 894
Total current assets 3,224 3,720
Cash and equivalents segregated for
redemption of long-term debt - 557
Investments in and amounts due to and
from Entertainment Group 5,945 5,734
Other investments 2,507 2,389
Property, plant and equipment, net 1,481 1,119
Music catalogues, contracts and copyrights 1,080 1,140
Cable television franchises 3,970 1,696
Goodwill 5,825 5,213
Other assets 476 564
Total assets $24,508 $22,132
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts and royalties payable $ 1,361 $ 1,427
Debt due within one year 43 34
Other current liabilities 1,358 1,566
Total current liabilities 2,762 3,027
Long-term debt 9,928 9,907
Borrowings against future stock
option proceeds 225 -
Deferred income taxes 3,983 3,420
Unearned portion of paid subscriptions 688 654
Other liabilities 544 508
Company-obligated mandatorily redeemable
preferred securities of subsidiaries
holding solely subordinated notes and
debentures of the Company (a) 949 949
Series K exchangeable preferred stock,
$1 par value, 1.6 million shares
outstanding at June 30, 1996 and
$1.636 billion liquidation preference 1,586 -
<PAGE>
Shareholders' equity
Preferred stock, $1 par value, 35.6 million
and 29.7 million shares outstanding, $3.559
billion and $2.994 billion liquidation
preference 36 30
Common stock, $1 par value, 386.8 million
and 387.7 million shares outstanding
(excluding 53.2 million and 45.7 million
treasury shares) 387 388
Paid-in capital 5,866 5,422
Unrealized gains on certain marketable
securities 177 116
Accumulated deficit (2,623) (2,289)
Total shareholders' equity 3,843 3,667
Total liabilities and shareholders' equity $24,508 $22,132
____________
(a) Includes $374 million of preferred securities that are
redeemable for cash, or at Time Warner's option,
approximately 12.1 million shares of Hasbro, Inc.
common stock owned by Time Warner (Note 6).
See accompanying notes.
<PAGE>
TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(millions, except per share amounts)
Revenues (a) $2,139 $1,907 4,207 $3,724
Cost of revenues (a)(b) 1,248 1,019 2,525 2,122
Selling, general and
administrative (a)(b) 676 704 1,357 1,280
Operating expenses 1,924 1,723 3,882 3,402
Business segment operating income 215 184 325 322
Equity in pretax income of
Entertainment Group (a) 93 84 209 106
Interest and other, net (a) (282) (201) (578) (356)
Corporate expenses (a) (18) (19) (36) (39)
Income (loss) before income taxes 8 48 (80) 33
Income tax provision (39) (56) (44) (88)
Loss before extraordinary item (31) (8) (124) (55)
Extraordinary loss on retirement
of debt, net of $5 million and
$22 million income tax benefit (9) - (35) -
Net loss (40) (8) (159) (55)
Preferred dividend requirements (70) (5) (104) (8)
Net loss applicable to common shares $ (110) $ (13) $ (263) $ (63)
Loss per common share:
Loss before extraordinary item $(0.26) $(0.03) $(0.58) $(0.17)
Net loss $(0.28) $(0.03) $(0.67) $(0.17)
Average common shares 389.5 381.4 390.6 380.5
__________________
(a) Includes the following income (expenses) resulting from
transactions with the Entertainment Group and other related
companies for the three and six months ended June 30, 1996,
respectively, and for the corresponding periods in the prior
year: revenues- $62 million and $103 million in 1996, and $49
<PAGE>
million and $94 million in 1995; cost of revenues- $(53) million
and $(79) million in 1996, and $(25) million and $(49) million in
1995; selling, general and administrative- $5 million and $5
million in 1996, and $16 million and $29 million in 1995; equity
in pretax income of Entertainment Group- $4 million and $(4)
million in 1996, and $(26) million and $(60) million in 1995;
interest and other, net- $(8) million and $(17) million in 1996,
and $(5) million and $1 million in 1995; and corporate expenses-
$18 million and $35 million in 1996, and $15 million and $30
million in 1995.
(b) Includes depreciation and
amortization expense of: $ 224 $ 119 $ 452 $ 231
See accompanying notes.
<PAGE>
TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
1996 1995
(millions)
OPERATIONS
Net loss $ (159) $ (55)
Adjustments for noncash and nonoperating items:
Extraordinary loss on retirement of debt 35 -
Depreciation and amortization 452 231
Noncash interest expense 46 116
Excess of equity in pretax income of
Entertainment Group over distributions (77) (101)
Changes in operating assets and liabilities (216) (290)
Cash provided (used) by operations 81 (99)
INVESTING ACTIVITIES
Investments and acquisitions (307) (228)
Capital expenditures (161) (97)
Investment proceeds 165 294
Cash used by investing activities (303) (31)
FINANCING ACTIVITIES
Borrowings 2,298 650
Debt repayments (4,074) (166)
Borrowings against future stock
option proceeds 225 -
Repurchases of Time Warner common stock (360) -
Issuance of Series K Preferred Stock 1,552 -
Dividends paid (135) (73)
Other 13 34
Cash provided (used) by financing activities (481) 445
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (703) 315
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD (a) 1,185 282
CASH AND EQUIVALENTS AT END OF PERIOD $ 482 $597
_______________
(a) Includes current and noncurrent cash and equivalents at
December 31, 1995.
See accompanying notes.
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Time Warner Inc. ("Time Warner" or the "Company") is the
world's leading media company, whose principal business objective
is to create and distribute branded information and entertainment
copyrights throughout the world. Time Warner has interests in
three fundamental areas of business: Entertainment, consisting
principally of interests in recorded music and music publishing,
filmed entertainment, broadcasting, theme parks and cable
television programming; News and Information, consisting
principally of interests in magazine publishing, book publishing
and direct marketing; and Telecommunications, consisting
principally of interests in cable television systems.
Substantially all of Time Warner's interests in filmed
entertainment, broadcasting, theme parks, cable television
programming and a majority of its cable television systems are
held through Time Warner Entertainment Company, L.P. ("TWE"), a
partnership in which Time Warner owns general and limited
partnership interests in 74.49% of the pro rata priority capital
("Series A Capital") and residual equity capital ("Residual
Capital") of TWE and 100% of the senior priority capital ("Senior
Capital") and junior priority capital ("Series B Capital") of
TWE. The remaining 25.51% limited partnership interests in the
Series A Capital and Residual Capital of TWE are held by a
subsidiary of U S WEST, Inc. ("U S WEST"). Time Warner does not
consolidate TWE and certain related companies (the "Entertainment
Group") for financial reporting purposes because of certain
limited partnership approval rights related to TWE's interest in
certain cable television systems.
Each of the business interests within Entertainment, News
and Information and Telecommunications is important to
management's objective of increasing shareholder value through
the creation, extension and distribution of recognizable brands
and copyrights throughout the world. Such brands and copyrights
include (1) copyrighted music from many of the world's leading
recording artists that is produced and distributed by a family of
established record labels such as Warner Bros. Records, the
Atlantic and Elektra Entertainment Groups and Warner Music
International, (2) the unique and extensive film and television
libraries of Warner Bros. and trademarks such as the Looney Tunes
characters and Batman, (3) The WB Network, a new national
broadcasting network launched in 1995 as an extension of the
Warner Bros. brand and as an additional distribution outlet for
Warner Bros.' collection of children cartoons and television
<PAGE>
programming, (4) Six Flags, the largest regional theme park
operator in the United States, in which TWE owns a 49% interest,
(5) HBO and Cinemax, the leading pay television services, (6)
magazine franchises such as Time, People and Sports Illustrated
and direct marketing brands such as Time Life Inc. and
Book-of-the-Month Club and (7) Time Warner Cable, the second
largest operator of cable television systems in the U.S.
The operating results of Time Warner's various business
interests are presented herein as an indication of financial
performance (Note 9). Except for start-up losses incurred in
connection with The WB Network, Time Warner's principal business
interests generate significant operating income and cash flow
from operations. The cash flow from operations generated by such
business interests is significantly greater than their operating
income due to significant amounts of noncash amortization of
intangible assets recognized in various acquisitions accounted
for by the purchase method of accounting. Noncash amortization of
intangible assets recorded by Time Warner's business interests,
including the unconsolidated business interests of the
Entertainment Group, amounted to $256 million and $199 million
for the three months ended June 30, 1996 and 1995, respectively,
and $523 million and $388 million for the six months ended June
30, 1996 and 1995, respectively.
Basis of Presentation
The accompanying financial statements are unaudited but in
the opinion of management contain all the adjustments (consisting
of those of a normal recurring nature) considered necessary to
present fairly the financial position and the results of
operations and cash flows for the periods presented in conformity
with generally accepted accounting principles applicable to
interim periods. The accompanying financial statements should be
read in conjunction with the audited consolidated financial
statements of Time Warner for the year ended December 31, 1995.
The consolidated financial statements of Time Warner reflect
the acquisitions of Summit Communications Group, Inc. ("Summit")
effective as of May 2, 1995, KBLCOM Incorporated ("KBLCOM")
effective as of July 6, 1995 and Cablevision Industries
Corporation ("CVI") and related companies effective as of January
4, 1996 (collectively, the "Cable Acquisitions"). Certain
reclassifications have been made to the 1995 financial statements
to conform to the 1996 presentation.
Effective January 1, 1996, Time Warner adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121"), which established standards for the
recognition and measurement of impairment losses on long-lived
<PAGE>
assets and certain intangible assets. The adoption of FAS 121 did
not have a material effect on Time Warner's financial statements.
2. ENTERTAINMENT GROUP
Time Warner's investment in and amounts due to and from the
Entertainment Group at June 30, 1996 and December 31, 1995
consists of the following:
June 30, December 31,
1996 1995
(millions)
Investment in TWE $6,239 $6,179
Stock option related distributions due
from TWE 137 122
Credit agreement debt due to TWE (400) (400)
Other liabilities due to TWE, principally
related to home video distribution (281) (354)
Other receivables due from TWE 135 76
Investment in and amounts due to and
from TWE 5,830 5,623
Investment in other Entertainment Group
companies 115 111
Total $5,945 $5,734
TWE is a Delaware limited partnership that was capitalized on
June 30, 1992 to own and operate substantially all of the Filmed
Entertainment, Programming-HBO and Cable businesses previously
owned by subsidiaries of Time Warner. Certain Time Warner
subsidiaries are the general partners of TWE ("Time Warner
General Partners"). Time Warner acquired the aggregate 11.22%
limited partnership interests previously held by subsidiaries of
each of ITOCHU Corporation and Toshiba Corporation in 1995 for an
aggregate cost of $1.36 billion, consisting of 15 million shares
of convertible preferred stock (Series G Preferred Stock, Series
H Preferred Stock and Series I Preferred Stock) and $10 million
in cash (the "ITOCHU/Toshiba Transaction"). Accordingly, Time
Warner and certain of its wholly-owned subsidiaries collectively
own general and limited partnership interests in 74.49% of the
Series A Capital and Residual Capital of TWE, and 100% of the
Senior Capital and Series B Capital of TWE. The remaining 25.51%
limited partnership interests in the Series A Capital and
Residual Capital of TWE are owned by U S WEST. The ITOCHU/Toshiba
Transaction was accounted for by the purchase method of
accounting for business combinations.
The TWE partnership agreement provides for special
allocations of income, loss and distributions of partnership
capital, including priority distributions in the event of
liquidation. TWE reported net income of $168 million and $60
<PAGE>
million in the six months ended June 30, 1996 and 1995,
respectively, no portion of which was allocated to the limited
partnership interests.
Each Time Warner General Partner has guaranteed a pro rata
portion of approximately $5.5 billion of TWE's debt and accrued
interest at June 30, 1996, based on the relative fair value of
the net assets each Time Warner General Partner contributed to
TWE. Such indebtedness is recourse to each Time Warner General
Partner only to the extent of its guarantee.
Set forth below is summarized financial information of the
Entertainment Group, which reflects the consolidation by TWE of
the TWE-Advance/Newhouse Partnership effective as of April 1,
1995, the deconsolidation of Six Flags Entertainment Corporation
("Six Flags") effective as of June 23, 1995 and the consolidation
of Paragon Communications ("Paragon") effective as of July 6, 1995.
TIME WARNER ENTERTAINMENT GROUP
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(millions)
Operating Statement Information
Revenues $2,610 $2,435 $5,097 $4,508
Depreciation and amortization 295 283 585 513
Business segment operating income 297 274 568 475
Interest and other, net 134 140 222 304
Minority interest 52 35 102 35
Income before income taxes 93 84 209 106
Net income 72 59 170 70
Six Months
Ended June 30,
1996 1995
(millions)
Cash Flow Information
Cash provided by operations $1,198 $ 697
Capital expenditures (781) (704)
Investments and acquisitions (66) (83)
Investment proceeds 196 962
Borrowings 63 235
Debt repayments (670) (237)
Collections on note receivable from U S WEST 169 243
Capital distributions (132) (5)
Increase in cash and equivalents 9 1,192
<PAGE>
June 30, December 31,
1996 1995
(millions)
Balance Sheet Information
Cash and equivalents $ 218 $ 209
Total current assets 2,710 2,909
Total assets 18,968 18,960
Total current liabilities 3,295 3,230
Long-term debt 5,575 6,137
Minority interests 848 726
Time Warner General Partners' Senior Capital 1,483 1,426
Partners' capital 6,735 6,576
The assets and cash flows of TWE are restricted by the TWE
partnership and credit agreements and are unavailable for use by
the partners except through the payment of certain fees,
reimbursements, cash distributions and loans, which are subject
to limitations. At June 30, 1996 and December 31, 1995, the Time
Warner General Partners had recorded $137 million and $122
million, respectively, of stock option related distributions due
from TWE, based on closing prices of Time Warner common stock of
$39.25 and $37.875, respectively. Time Warner is paid when the
options are exercised. The Time Warner General Partners also
receive tax-related distributions from TWE. The payment of such
distributions was previously subject to restrictions until July
1995 and is now made to the Time Warner General Partners on a
current basis. During the six months ended June 30, 1996, the
Time Warner General Partners received distributions from TWE in
the amount of $132 million, consisting of $123 million of
tax-related distributions and $9 million of stock option related
distributions. During the six months ended June 30, 1995, the
Time Warner General Partners received $5 million of stock option
related distributions from TWE.
On June 23, 1995, TWE sold 51% of its interest in Six Flags
to an investment group led by Boston Ventures for $204 million
and received $640 million in additional proceeds from Six Flags,
representing payment of certain intercompany indebtedness and
licensing fees. As a result of the transaction, Six Flags has
been deconsolidated and TWE's remaining 49% interest in Six Flags
is accounted for under the equity method of accounting. TWE
reduced debt by approximately $850 million in 1995 in connection
with the transaction, and a portion of the income on the
transaction has been deferred by TWE principally as a result of
its guarantee of certain third-party, zero-coupon indebtedness of
Six Flags due in 1999.
<PAGE>
3. CABLE TRANSACTIONS
On April 1, 1995, TWE formed a cable television joint
venture with the Advance/Newhouse Partnership
("Advance/Newhouse") to which Advance/Newhouse and TWE
contributed cable television systems (or interests therein)
serving approximately 4.5 million subscribers, as well as certain
foreign cable investments and programming investments that
included Advance/Newhouse's 10% interest in Primestar Partners,
L.P. ("Primestar"). TWE owns a two-thirds equity interest in the
TWE-Advance/Newhouse Partnership and is the managing partner. TWE
consolidates the partnership and the one-third equity interest
owned by Advance/Newhouse is reflected in TWE's consolidated
financial statements as minority interest. In accordance with the
partnership agreement, Advance/Newhouse can require TWE to
purchase its equity interest for fair market value at specified
intervals following the death of both of its principal
shareholders. Beginning in the third year, either partner can
initiate a dissolution in which TWE would receive two-thirds and
Advance/Newhouse would receive one-third of the partnership's net
assets. The assets contributed by TWE and Advance/Newhouse to the
partnership were recorded at their predecessor's historical cost.
No gain was recognized by TWE upon the capitalization of the
partnership.
On May 2, 1995, Time Warner acquired Summit, which owned
cable television systems serving approximately 162,000
subscribers, in exchange for the issuance of approximately 1.6
million shares of Common Stock and approximately 3.3 million
shares of a new convertible preferred stock ("Series C Preferred
Stock") and the assumption of $140 million of indebtedness. The
acquisition was accounted for by the purchase method of
accounting for business combinations; accordingly, the cost to
acquire Summit of approximately $351 million was allocated to the
assets acquired in proportion to their respective fair values, as
follows: cable television franchises-$372 million; goodwill-$146
million; other current and noncurrent assets-$144 million;
long-term debt-$140 million; deferred income taxes-$166 million;
and other current liabilities-$5 million.
On July 6, 1995, Time Warner acquired KBLCOM which owned
cable television systems serving approximately 700,000
subscribers and a 50% interest in Paragon, which owned cable
television systems serving an additional 972,000 subscribers. The
other 50% interest in Paragon was already owned by TWE. To
acquire KBLCOM, Time Warner issued 1 million shares of Common
Stock and 11 million shares of a new convertible preferred stock
("Series D Preferred Stock") and assumed or incurred
approximately $1.2 billion of indebtedness. The acquisition was
accounted for by the purchase method of accounting for business
combinations; accordingly, the cost to acquire KBLCOM of
approximately $1.033 billion was allocated to the net assets
<PAGE>
acquired in proportion to their respective fair values, as
follows: investments-$950 million; cable television
franchises-$1.366 billion; goodwill-$586 million; other current
and noncurrent assets-$289 million; long-term debt-$1.213
billion; deferred income taxes-$895 million; and other current
liabilities-$50 million.
On January 4, 1996, Time Warner acquired CVI and related
companies that owned cable television systems serving
approximately 1.3 million subscribers, in exchange for the
issuance of approximately 2.9 million shares of common stock and
approximately 6.3 million shares of new convertible preferred
stock ("Series E Preferred Stock" and "Series F Preferred
Stock"), as adjusted, and the assumption or incurrence of
approximately $2 billion of indebtedness. The acquisition was
accounted for by the purchase method of accounting for business
combinations; accordingly, the cost to acquire CVI and related
companies of $904 million was preliminarily allocated to the net
assets acquired in proportion to estimates of their respective
fair values, as follows: cable television franchises-$2.390
billion; goodwill-$688 million; other current and noncurrent
assets-$481 million; long-term debt-$1.766 billion; deferred
income taxes-$731 million; and other current and noncurrent
liabilities-$158 million.
The accompanying consolidated statement of operations
includes the operating results of each business from the
respective closing date of each transaction. On a pro forma
basis, giving effect to (i) all of the aforementioned cable
transactions, (ii) the ITOCHU/Toshiba Transaction, (iii) the 1995
and early 1996 refinancing of approximately $4 billion of public
debt by Time Warner and the 1995 execution of a new $8.3 billion
credit agreement, under which approximately $2.7 billion of debt
assumed in the cable acquisitions was refinanced by subsidiaries
of Time Warner and $2.6 billion of pre-existing bank debt was
refinanced by TWE, (iv) the issuance in April 1996 of 1.6 million
shares of 10-1/4% Series K exchangeable preferred stock and the
use of approximately $1.55 billion of net proceeds therefrom to
reduce debt, (v) the sale of 51% of TWE's interest in Six Flags
and (vi) the sale or expected sale or transfer of certain
unclustered cable television systems owned by TWE, as if each of
such transactions had occurred at the beginning of 1995, Time
Warner would have reported for the three months ended June 30,
1996 and 1995, respectively, revenues of $2.139 billion and
$2.113 billion, depreciation and amortization of $224 million and
$237 million, operating income of $215 million and $171 million,
equity in the pretax income of the Entertainment Group of $93
million and $73 million, a loss before extraordinary item of $29
million and $50 million ($0.27 and $0.33 per common share) and a
net loss of $38 million and $50 million ($.29 and $0.33 per
common share).
<PAGE>
On a pro forma basis, giving effect to the transactions
described above as if each had occurred at the beginning of 1995,
Time Warner would have reported for the six months ended June 30,
1996 and 1995, respectively, revenues of $4.207 billion and
$4.138 billion, depreciation and amortization of $452 million and
$467 million, operating income of $325 million and $290 million,
equity in the pretax income of the Entertainment Group of $209
million and $128 million, a loss before extraordinary item of
$102 million and $94 million ($0.66 and $0.65 per common share)
and a net loss of $137 million and $94 million ($0.75 and $0.65
per common share).
4. LONG-TERM DEBT
In January 1996, in connection with its acquisition of CVI
and related companies, Time Warner assumed $500 million of public
notes and debentures of CVI and a subsidiary of Time Warner
borrowed $1.5 billion under its $8.3 billion credit agreement to
refinance a like-amount of other indebtedness assumed or incurred
in such acquisition.
In February 1996, Time Warner redeemed the remaining $1.2
billion principal amount of 8.75% Convertible Subordinated
Debentures due 2015 (the "8.75% Convertible Debentures") for
$1.28 billion, including redemption premiums and accrued interest
thereon. The redemption was financed with (1) proceeds raised
from a $575 million issuance of Company-obligated mandatorily
redeemable preferred securities of a subsidiary in December 1995
and (2) $750 million of proceeds raised from the issuance in
January 1996, of (i) $400 million principal amount of 6.85%
debentures due 2026, which are redeemable at the option of the
holders thereof in 2003, (ii) $200 million principal amount of
8.3% discount debentures due 2036, which do not pay cash interest
until 2016, (iii) $166 million principal amount of 7.48%
debentures due 2008 and (iv) $150 million principal amount of
8.05% debentures due 2016. In connection with the 1996 redemption
of the 8.75% Convertible Debentures, Time Warner recognized an
extraordinary loss of $26 million.
In April 1996, Time Warner raised approximately $1.55
billion of net proceeds in a private placement of 10-1/4% Series
K exchangeable preferred stock (Note 7). The proceeds were used
by Time Warner to redeem $250 million principal amount of 8.75%
Debentures due April 1, 2017 for approximately $265 million in
May 1996 (including redemption premiums and accrued interest
thereon), and to reduce bank debt of TWI Cable Inc. by
approximately $1.3 billion. In connection with the redemption of
the 8.75% Debentures due April 1, 2017, Time Warner recognized an
extraordinary loss of $9 million in May 1996.
<PAGE>
5. BORROWINGS AGAINST FUTURE STOCK OPTION PROCEEDS
In connection with a newly-authorized common stock
repurchase program (Note 8), Time Warner entered into a
five-year, $750 million revolving credit facility (the "Stock
Option Proceeds Credit Facility") in May 1996 principally to
support such stock repurchases, of which up to $100 million is
reserved solely for the payment of interest and fees thereunder.
At June 30, 1996, Time Warner had borrowed $225 million under the
Stock Option Proceeds Credit Facility. Borrowings under the Stock
Option Proceeds Credit Facility generally bear interest at LIBOR
plus a margin equal to 75 basis points and are generally required
to be prepaid from the cash proceeds received by Time Warner from
the exercise of designated employee stock options. Such
prepayments will permanently reduce the borrowing availability
under the facility. At August 2, 1996, based on a closing market
price of Time Warner common stock of $36.50, the aggregate
exercise prices of outstanding vested, "in the money" stock
options was approximately $1.5 billion, representing a 2 to 1
coverage ratio over the related borrowing availability. To the
extent that such stock option proceeds are not sufficient to
satisfy Time Warner's obligations under the Stock Option Proceeds
Credit Facility, Time Warner is generally required to repay such
borrowings using proceeds from the sale of shares of its common
stock held in escrow under the Stock Option Proceeds Credit
Facility or, at Time Warner's election, using available cash on
hand. Time Warner initially placed 36 million shares in escrow
under this arrangement and may, from time to time, have up to
52.5 million shares held in escrow. Such shares are not
considered to be issued and outstanding capital stock of the
Company.
6. MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARIES
In August 1995, Time Warner issued approximately 12.1
million Company-obligated mandatorily redeemable preferred
securities of a wholly-owned subsidiary ("PERCS") for aggregate
gross proceeds of $374 million. The sole assets of the subsidiary
that is the obligor on the PERCS are $385 million principal
amount of 4% subordinated notes of Time Warner due December 23,
1997. Cumulative cash distributions are payable on the PERCS at
an annual rate of 4%. The PERCS are mandatorily redeemable on
December 23, 1997, for an amount per PERCS equal to the lesser of
$54.41, and the market value of a share of common stock of
Hasbro, Inc. ("Hasbro") on December 17, 1997, payable in cash or,
at Time Warner's option, Hasbro common stock. Time Warner has the
right to redeem the PERCS at any time prior to December 23, 1997,
at an amount per PERCS equal to $54.41 (or in certain limited
circumstances the lesser of such amount and the market value of a
share of Hasbro common stock at the time of redemption) plus
accrued and unpaid distributions thereon and a declining premium,
<PAGE>
payable in cash or, at Time Warner's option, Hasbro common stock.
Time Warner owns approximately 12.1 million shares of Hasbro
common stock, which can be used by Time Warner, at its election,
to satisfy its obligations under the PERCS or its obligations
under its zero coupon exchangeable notes due 2012. Such zero
coupon notes are exchangeable and redeemable into an aggregate
12.1 million shares of Hasbro common stock.
In December 1995, Time Warner issued approximately 23
million Company-obligated mandatorily redeemable preferred
securities of a wholly-owned subsidiary ("Preferred Trust
Securities") for aggregate gross proceeds of $575 million. The
sole assets of the subsidiary that is the obligor on the
Preferred Trust Securities are $592 million principal amount of
8-7/8% subordinated debentures of Time Warner due December 31,
2025. Cumulative cash distributions are payable on the Preferred
Trust Securities at an annual rate of 8-7/8%. Cash distributions
may be deferred at the election of Time Warner for any period not
exceeding 20 consecutive quarters. The Preferred Trust Securities
are mandatorily redeemable for cash on December 31, 2025, and
Time Warner has the right to redeem the Preferred Trust
Securities, in whole or in part, on or after December 31, 2000,
or in other certain circumstances, in each case at an amount per
Preferred Trust Security equal to $25 plus accrued and unpaid
distributions thereon.
Time Warner has certain obligations relating to the PERCS
and the Preferred Trust Securities which amount to a full and
unconditional guaranty of each subsidiary's obligations with
respect thereto.
7. SERIES K EXCHANGEABLE PREFERRED STOCK
In April 1996, Time Warner raised approximately $1.55
billion of net proceeds in a private placement of 1.6 million
shares of 10-1/4% Series K exchangeable preferred stock ("Series
K Preferred Stock"). The issuance of the Series K Preferred Stock
allowed the Company to realize cash proceeds through a security
whose payment terms are principally linked (until a
reorganization of TWE occurs, if any) to a portion of Time
Warner's currently noncash-generating interest in the Series B
Capital of TWE. The proceeds raised from this transaction were
used by Time Warner to reduce debt. Pursuant to a registered
exchange offer expected to be made, Time Warner plans to exchange
the privately-placed Series K Preferred Stock for registered
Series M exchangeable preferred stock with substantially
identical terms.
Each share of Series K Preferred Stock is entitled to a
liquidation preference of $1,000 and entitles the holder thereof
to receive cumulative dividends at the rate of 10-1/4% per annum,
<PAGE>
payable quarterly (1) in cash, to the extent of an amount equal
to the Pro Rata Percentage (as defined below) multiplied by the
amount of cash distributions received by Time Warner from TWE
with respect to its interests in the Series B Capital and
Residual Capital of TWE, excluding stock option related
distributions and certain tax related distributions
(collectively, "Eligible TWE Cash Distributions"), or (2) to the
extent of any balance, at Time Warner's option, (i) in cash or
(ii) in-kind, through the issuance of additional shares of Series
K Preferred Stock with an aggregate liquidation preference equal
to the amount of such dividends. The "Pro Rata Percentage" is
equal to the ratio of (1) the aggregate liquidation preference of
the outstanding shares of Series K Preferred Stock, including any
accumulated and unpaid dividends thereon, to (2) Time Warner's
total interest in the Series B Capital of TWE, including any
undistributed priority capital return thereon. Because cash
distributions to Time Warner with respect to its interests in the
Series B Capital and Residual Capital of TWE are generally
restricted until June 30, 1998 and are subject to additional
limitations thereafter under the TWE partnership agreement, Time
Warner does not expect to pay cash dividends in the foreseeable
future.
The Series K Preferred Stock may be redeemed at the option
of Time Warner, in whole or in part, on or after July 1, 2006,
subject to certain conditions, at an amount per share equal to
its liquidation preference plus accumulated and accrued and
unpaid dividends thereon, and a declining premium through July 1,
2010 (the "Optional Redemption Price"). Time Warner is required
to redeem shares of Series K Preferred Stock representing up to
20%, 25%, 33-1/3 % and 50% of the then outstanding liquidation
preference of the Series K Preferred Stock on July 1 of 2012,
2013, 2014 and 2015, respectively, at an amount equal to the
aggregate liquidation preference of the number of shares to be
redeemed plus accumulated and accrued and unpaid dividends
thereon (the "Mandatory Redemption Price"). Total payments in
respect of such mandatory redemption obligations on any
redemption date are limited to an amount equal to the Pro Rata
Percentage of any cash distributions received by Time Warner from
TWE in the preceding year in connection with the redemption of
Time Warner's interest in the Series B Capital of TWE and in
connection with certain cash distributions related to Time
Warner's interest in the Residual Capital of TWE. The redemption
of the Series B Capital of TWE is scheduled to occur ratably over
a five-year period commencing on June 30, 2011. Time Warner is
required to redeem any remaining outstanding shares of Series K
Preferred Stock on July 1, 2016 at the Mandatory Redemption
Price; however, in the event that Time Warner's interest in the
Series B Capital of TWE has not been redeemed in full prior to
such final mandatory redemption date, payments in respect of the
final mandatory redemption obligation of the Series K Preferred
Stock in 2016 will be limited to an amount equal to the lesser of
<PAGE>
the Mandatory Redemption Price and an amount equal to the Pro
Rata Percentage of the fair market value of TWE (net of taxes)
attributable to Time Warner's interests in the Series B Capital
and Residual Capital of TWE. Accordingly, there is no assurance
that such value will result in the redemption of the Series K
Preferred Stock at its full liquidation preference plus
accumulated and accrued and unpaid dividends thereon.
Upon a reorganization of TWE, as defined in the related
certificate of designation, Time Warner must elect either to (1)
exchange each outstanding share of Series K Preferred Stock for
shares of a new series of 10-1/4% exchangeable preferred stock
("Series L Preferred Stock") or (2) subject to certain
conditions, redeem the outstanding shares of Series K Preferred
Stock at an amount per share equal to 110% of the liquidation
preference thereof, plus accumulated and accrued and unpaid
dividends thereon or, after July 1, 2006, at the Optional
Redemption Price. The Series L Preferred Stock has terms similar
to those of the Series K Preferred Stock, except that (i) Time
Warner may only pay dividends in-kind until June 30, 2006, (ii)
Time Warner is required to redeem the outstanding shares of
Series L Preferred Stock on July 1, 2011 at an amount per share
equal to the liquidation preference thereof, plus accumulated and
accrued and unpaid dividends thereon and (iii) Time Warner has
the option to exchange, in whole but not in part, subject to
certain conditions, the outstanding shares of Series L Preferred
Stock for Time Warner 10-1/4% Senior Subordinated Debentures due
July 1, 2011 (the "Senior Subordinated Debentures") having a
principal amount equal to the liquidation preference of the
Series L Preferred Stock plus accrued and unpaid dividends
thereon. Interest on the Senior Subordinated Debentures is
payable in cash or, at Time Warner's option through June 30,
2006, in-kind through the issuance of additional Senior
Subordinated Debentures with a principal amount equal to such
interest. The Senior Subordinated Debentures may be redeemed at
the option of Time Warner, in whole or in part, on or after July
1, 2006, subject to certain conditions, at an amount per
debenture equal to its principal amount plus accrued and unpaid
interest, and a declining premium through July 1, 2010.
<PAGE>
8. CAPITAL STOCK
Changes in shareholders' equity are as follows:
Six Months
Ended June 30,
1996 1995
(millions)
Balance at beginning of year $3,667 $1,148
Net loss (159) (55)
Common dividends declared (70) (69)
Preferred dividends declared (104) (8)
Repurchases of Time Warner common stock (360) -
Issuance of common stock and preferred stock
in the Cable Acquisitions 680 383
Unrealized gains on certain marketable
equity investments 61 4
Other, principally shares issued pursuant
to stock option and dividend
reinvestment plans 128 76
Balance at June 30 $3,843 $1,479
In April 1996, Time Warner's Board of Directors authorized a
program to repurchase, from time to time, up to 15 million shares
of Time Warner common stock. The common stock repurchased under
the program is expected to be used to satisfy future share
issuances related to the exercise of existing employee stock
options. Actual repurchases in any period will be subject to
market conditions. As of June 30, 1996, Time Warner had acquired
approximately 8.8 million shares of its common stock for an
aggregate cost of approximately $360 million. Such repurchases
were principally funded with borrowings under the Stock Option
Proceeds Credit Facility (Note 5) and available cash and
equivalents.
9. SEGMENT INFORMATION
Time Warner's businesses are conducted in three fundamental
areas: Entertainment, consisting principally of interests in
recorded music and music publishing, filmed entertainment,
broadcasting, theme parks and cable television programming; News
and Information, consisting principally of interests in magazine
publishing, book publishing and direct marketing; and
Telecommunications, consisting principally of interests in cable
television systems. Time Warner's interests in filmed
entertainment, broadcasting, theme parks, cable television
programming and a majority of its cable television systems are
held by the Entertainment Group, which is not consolidated for
financial reporting purposes.
<PAGE>
Information as to the operations of Time Warner and the
Entertainment Group in different business segments is set forth
below. The operating results of Time Warner reflect the
acquisitions of Summit effective as of May 2, 1995, KBLCOM
effective as of July 6, 1995 and CVI and related companies
effective as of January 4, 1996. The operating results of the
Entertainment Group reflect the formation of the
TWE-Advance/Newhouse Partnership effective as of April 1, 1995,
the deconsolidation of Six Flags effective as of June 23, 1995
and the consolidation of Paragon effective as of July 6, 1995.
The operating results of Six Flags prior to June 23, 1995 are
reported separately to facilitate comparability.
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Revenues (millions)
Time Warner:
Publishing $1,038 $ 928 $1,917 $1,759
Music 876 986 1,859 1,977
Cable 230 - 447 -
Intersegment elimination (5) (7) (16) (12)
Total $2,139 $1,907 $4,207 $3,724
Entertainment Group:
Filmed Entertainment $1,272 $1,154 $2,490 $2,338
Six Flags Theme Parks - 204 - 227
Broadcasting - The WB Network 18 3 33 6
Programming - HBO 456 396 875 786
Cable 961 760 1,908 1,338
Intersegment elimination (97) (82) (209) (187)
Total $2,610 $2,435 $5,097 $4,508
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Operating Income (millions)
Time Warner:
Publishing $ 125 $ 114 $ 181 $ 169
Music 70 70 125 153
Cable 20 - 19 -
Total $ 215 $ 184 $ 325 $ 322
<PAGE>
Entertainment Group:
Filmed Entertainment $ 79 $ 59 $ 152 $ 126
Six Flags Theme Parks - 31 - 29
Broadcasting - The WB Network (12) (12) (36) (33)
Programming - HBO 83 70 159 137
Cable 147 126 293 216
Total $ 297 $ 274 $ 568 $ 475
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Depreciation of Property, (millions)
Plant and Equipment
Time Warner:
Publishing $ 17 $ 15 $ 32 $ 28
Music 19 24 42 47
Cable 33 - 66 -
Total $ 69 $ 39 $140 $ 75
Entertainment Group:
Filmed Entertainment $ 33 $ 23 $ 65 $ 45
Six Flags Theme Parks - 19 - 20
Broadcasting - The WB Network - - - -
Programming - HBO 4 5 9 9
Cable 157 117 300 207
Total $194 $164 $374 $281
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Amortization of Intangible Assets (1) (millions)
Time Warner:
Publishing $ 14 $ 9 $ 23 $ 18
Music 76 71 144 138
Cable 65 - 145 -
Total $155 $ 80 $312 $156
Entertainment Group:
Filmed Entertainment $ 29 $ 35 $ 60 $ 69
Six Flags Theme Parks - 8 - 11
Broadcasting - The WB Network - - - -
Programming - HBO - - - -
Cable 72 76 151 152
Total $101 $119 $211 $232
__________________
(1) Amortization includes all amortization relating to the
<PAGE>
acquisitions of Warner Communications Inc. ("WCI") in 1989, the
American Television and Communications Corporation ("ATC")
minority interest in 1992, the acquisitions of KBLCOM and Summit
in 1995 and CVI and related companies in 1996, and to other
business combinations accounted for by the purchase method.
10. CONTINGENCIES
Pending legal proceedings are substantially limited to
litigation incidental to businesses of Time Warner and alleged
damages in connection with class action lawsuits. In the opinion
of counsel and management, the ultimate resolution of these
matters will not have a material effect on the consolidated
financial statements of Time Warner.
11. ADDITIONAL FINANCIAL INFORMATION
Additional financial information is as follows:
Six Months
Ended June 30,
1996 1995
(millions)
Interest expense $471 $429
Cash payments made for interest 426 289
Cash payments made for income taxes 169 141
Tax-related distributions received from TWE 123 -
Income tax refunds received 36 14
Noncash dividends 36 -
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
TWE is engaged principally in two fundamental areas of
business: Entertainment, consisting principally of interests in
filmed entertainment, broadcasting, theme parks and cable
television programming; and Telecommunications, consisting
principally of interests in cable television systems. TWE also
manages the telecommunications properties owned by Time Warner
and the combined cable television operations are conducted under
the name of Time Warner Cable. Capitalized terms are as defined
and described in the accompanying consolidated financial
statements, or elsewhere herein.
Significant Transactions
In 1996, certain transactions were completed by Time Warner
and TWE that have had an effect on TWE's results of operations
and financial condition. Such transactions include:
* The acquisition by Time Warner of Cablevision Industries
Corporation ("CVI") and related companies on January 4,
1996, which strengthened Time Warner Cable's geographic
clusters of cable television systems and substantially
increased the number of cable subscribers managed by
Time Warner Cable. Time Warner Cable now serves
approximately 11.8 million subscribers in neighborhoods
passing nearly 20% of the television homes in the U.S.
* The closing of certain previously-announced sales by TWE
of unclustered cable television systems which raised
approximately $90 million of net proceeds for debt
reduction. Including the 1995 sale of 51% of its
interest in Six Flags Entertainment Corporation ("Six
Flags"), TWE has now completed transactions that have
raised approximately $1.1 billion for debt reduction.
The nature of these transactions and their impact on the results
of operations and financial condition of TWE are further
discussed below.
Use of EBITDA
The following comparative discussion of the results of
operations and financial condition of TWE includes, among other
factors, an analysis of changes in the operating income of the
business segments before depreciation and amortization ("EBITDA")
in order to eliminate the effect on the operating performance of
the filmed entertainment and cable businesses of significant
amounts of amortization of intangible assets recognized in Time
<PAGE>
Warner's $14 billion acquisition of WCI in 1989, the $1.3 billion
acquisition of the ATC minority interest in 1992 and other
business combinations accounted for by the purchase method.
Financial analysts generally consider EBITDA to be an important
measure of comparative operating performance for the businesses
of TWE, and when used in comparison to debt levels or the
coverage of interest expense, as a measure of liquidity. However,
EBITDA should be considered in addition to, not as a substitute
for, operating income, net income, cash flow and other measures
of financial performance and liquidity reported in accordance
with generally accepted accounting principles.
RESULTS OF OPERATIONS
EBITDA and operating income for TWE for the three and six
months ended June 30, 1996 and 1995 are as follows:
Three Months Ended June 30, Six Months Ended June 30,
EBITDA Operating Income EBITDA Operating Income
1996 1995 1996 1995 1996 1995 1996 1995
(millions)
Filmed Entertainment $140 $109 $ 79 $ 52 $ 271 $230 $ 149 $119
Six Flags Theme Parks - 58 - 31 - 60 - 29
Broadcasting - The
WB Network (12) (12) (12) (12) (36) (33) (36) (33)
Programming - HBO 87 74 83 70 168 145 159 137
Cable 376 312 147 125 744 556 293 205
Total $591 $541 $297 $266 $1,147 $958 $565 $457
Three Months Ended June 30, 1996 Compared to the Three Months
Ended June 30, 1995
TWE had revenues of $2.608 billion, and net income of $74
million for the three months ended June 30, 1996, compared to
revenues of $2.392 billion and net income of $56 million for the
three months ended June 30, 1995.
On a pro forma basis, giving effect to (i) the 1995 formation
of the TWE-Advance/Newhouse Partnership, (ii) the 1995
refinancing of approximately $2.6 billion of pre-existing bank
debt, (iii) the 1995 consolidation of Paragon, (iv) the 1995
reacquisition of the Time Warner Service Partnership Assets, (v)
the 1995 sale of 51% of TWE's interest in Six Flags and (vi) the
sale or expected sale or transfer of certain unclustered cable
television systems owned by TWE, as if each of such transactions
had occurred at the beginning of 1995, TWE would have reported
for the three months ended June 30, 1995, revenues of $2.317
billion, depreciation and amortization of $259 million, operating
income of $241 million and net income of $47 million. No pro
<PAGE>
forma financial information has been presented for TWE for the
three months ended June 30, 1996 because all of such transactions
are already reflected, in all material respects, in the
historical financial statements of TWE.
As discussed more fully below, TWE's historical operating
results in 1996 as compared to pro forma results in 1995 reflect
an overall increase in operating income generated by its business
segments, offset in part by a decrease in investment-related
income and an increase in minority interest expense related to
the TWE-Advance/Newhouse Partnership. On a historical basis, the
positive effect from such underlying operating trends was
slightly mitigated by the lack of contribution of Six Flags's
operating results in 1996 which exceeded interest savings on
lower average debt levels related to management's debt reduction
program.
As a U.S. partnership, TWE is not subject to U.S. federal and
state income taxation. Income and withholding taxes of $21
million and $25 million in the three months ended June 30, 1996
and 1995, respectively, have been provided in respect of the
operations of TWE's domestic and foreign subsidiary corporations.
Filmed Entertainment. Revenues increased to $1.270 billion,
compared to $1.151 billion in the second quarter of 1995. EBITDA
increased to $140 million from $109 million. Depreciation and
amortization, including amortization related to the purchase of
WCI, amounted to $61 million in 1996 and $57 million in 1995.
Operating income increased to $79 million from $52 million.
Revenues benefited from increases in worldwide theatrical, home
video and television distribution operations. Domestic theatrical
revenues in 1996 were led by the success of Twister and exceeded
the prior year's performance despite difficult comparisons to
successful films such as Batman Forever. EBITDA and operating
income benefited from the revenue gains.
Six Flags Theme Parks. As a result of TWE's sale of 51% of
its interest in Six Flags, the operating results of Six Flags
have been deconsolidated effective as of June 23, 1995 and TWE's
remaining 49% interest in Six Flags is accounted for under the
equity method of accounting.
Broadcasting - The WB Network. The WB Network recorded an
operating loss of $12 million on $18 million of revenues in the
second quarter of 1996, compared to $12 million of an operating
loss on $3 million of revenues in the second quarter of 1995. The
increase in revenues, as well as a corresponding increase in
costs, primarily resulted from the expansion of programming in
September 1995 to two nights of primetime scheduling, and the
unveiling of Kids' WB!, the network's animated programming lineup
on Saturday mornings and weekdays. Due to the start-up nature of
this new broadcast operation, losses are expected to continue.
<PAGE>
Programming - HBO. Revenues increased to $456 million,
compared to $392 million in the second quarter of 1995. EBITDA
increased to $87 million from $74 million. Depreciation and
amortization amounted to $4 million in 1996 and 1995. Operating
income increased to $83 million from $70 million. Revenues
benefited primarily from a significant increase in subscriptions.
EBITDA and operating income improved principally as a result of
the revenue gains.
Cable. Revenues increased to $961 million, compared to $724
million in the second quarter of 1995. EBITDA increased to $376
million from $312 million. Depreciation and amortization,
including amortization related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $229
million in 1996 and $187 million in 1995. Operating income
increased to $147 million from $125 million. Revenues and
operating results benefited from the consolidation of Paragon
effective as of July 6, 1995. Excluding such effect, revenues
benefited from an aggregate increase of 5% in basic cable and
Primestar-related, direct broadcast satellite subscribers,
increases in regulated cable rates as permitted under Time Warner
Cable's "social contract" with the Federal Communications
Commission (the "FCC") and increases in pay-per-view and
advertising revenues. Excluding the effect of consolidating
Paragon, EBITDA and operating income increased as a result of the
revenue gains, offset in part, with respect to operating income
only, by higher depreciation and amortization relating to
increased capital spending.
Interest and Other, Net. Interest and other, net, decreased
to $132 million in the second quarter of 1996, compared to $135
million in the second quarter of 1995. Interest expense decreased
to $117 million, compared to $146 million in the second quarter
of 1995, principally as a result of interest savings on lower
average debt levels related to management's debt reduction
program and lower short-term, floating-rates of interest paid on
borrowings under TWE's former and existing bank credit
agreements. There was other expense, net, of $15 million in the
second quarter of 1996, compared to other income, net, of $11
million in 1995, principally due to a decrease in
investment-related income, including a reduction in interest
income resulting from lower average cash balances and lower
average principal amounts due under the note receivable from U S
WEST.
Six Months Ended June 30, 1996 Compared to the Six Months Ended
June 30, 1995
TWE had revenues of $5.093 billion and net income of $168
million for the six months ended June 30, 1996, compared to
revenues of $4.438 billion and net income of $60 million for the
six months ended June 30, 1995.
<PAGE>
On a pro forma basis, giving effect to (i) the 1995 formation
of the TWE-Advance/Newhouse Partnership, (ii) the 1995
refinancing of approximately $2.6 billion of pre-existing bank
debt, (iii) the 1995 consolidation of Paragon, (iv) the 1995
reacquisition of the Time Warner Service Partnership Assets, (v)
the 1995 sale of 51% of TWE's interest in Six Flags and (vi) the
sale or expected sale or transfer of certain unclustered cable
television systems owned by TWE, as if each of such transactions
had occurred at the beginning of 1995, TWE would have reported
for the six months ended June 30, 1995, revenues of $4.583
billion, depreciation and amortization of $528 million, operating
income of $460 million and net income of $77 million. No pro
forma financial information has been presented for TWE for the
six months ended June 30, 1996 because all of such transactions
are already reflected, in all material respects, in the
historical financial statements of TWE.
As discussed more fully below, TWE's historical operating
results in 1996 as compared to pro forma results in 1995 reflect
an overall increase in operating income generated by its business
segments and an increase in investment-related income, offset in
part by an increase in minority interest expense related to the
TWE-Advance/Newhouse Partnership. On a historical basis, such
underlying operating trends were enhanced by interest savings in
1996 on lower average debt levels related to management's debt
reduction program, and were offset in part by an increase in
minority interest expense related to the operations of the
TWE-Advance/Newhouse Partnership for a full six-month period.
As a U.S. partnership, TWE is not subject to U.S. federal
and state income taxation. Income and withholding taxes of $39
million in the six months ended June 30, 1996, and $36 million in
the six months ended June 30, 1995, have been provided in respect
of the operations of TWE's domestic and foreign subsidiary
corporations.
Filmed Entertainment. Revenues increased to $2.486 billion,
compared to $2.334 billion in the first six months of 1995.
EBITDA increased to $271 million from $230 million. Depreciation
and amortization, including amortization related to the purchase
of WCI, amounted to $122 million in 1996 and $111 million in
1995. Operating income increased to $149 million from $119
million. Revenues benefited from increases in worldwide home
video and consumer products operations. Lower domestic theatrical
revenues in the first quarter of 1996 were overcome by the second
quarter domestic box office performance of theatrical releases,
led by the success of Twister. EBITDA and operating income
benefited from the revenue gains.
Six Flags Theme Parks. As a result of TWE's sale of 51% of
its interest in Six Flags, the operating results of Six Flags
have been deconsolidated effective as of June 23, 1995 and TWE's
<PAGE>
remaining 49% interest in Six Flags is accounted for under the
equity method of accounting.
Broadcasting - The WB Network. The WB Network recorded an
operating loss of $36 million on $33 million of revenues in the
first six months of 1996, compared to $33 million of an operating
loss on $6 million of revenues in the first six months of 1995.
The increased revenues and operating losses are primarily due to
the expansion of programming in September 1995 to two nights of
primetime scheduling, and the unveiling of Kids' WB!, the
network's animated programming lineup on Saturday mornings and
weekdays. Due to the start-up nature of this new broadcast
operation, losses are expected to continue.
Programming - HBO. Revenues increased to $875 million,
compared to $777 million in the first six months of 1995. EBITDA
increased to $168 million from $145 million. Depreciation and
amortization amounted to $9 million in 1996 and $8 million in
1995. Operating income increased to $159 million from $137
million. Revenues benefited primarily from a significant increase
in subscriptions. EBITDA and operating income improved
principally as a result of the revenue gains.
Cable. Revenues increased to $1.908 billion, compared to
$1.281 billion in the first six months of 1995. EBITDA increased
to $744 million from $556 million. Depreciation and amortization,
including amortization related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $451
million in 1996 and $351 million in 1995. Operating income
increased to $293 million from $205 million. Revenues and
operating results benefited from the contribution of the
TWE-Advance/Newhouse Partnership for a full six-month period and
the consolidation of Paragon effective as of July 6, 1995.
Excluding such effects, revenues benefited from an aggregate
increase of 5% in basic cable and Primestar-related, direct
broadcast satellite subscribers, increases in regulated cable
rates as permitted under Time Warner Cable's "social contract"
with the FCC and increases in pay-per-view and advertising
revenues. Excluding the TWE-Advance/Newhouse Partnership and
Paragon effects noted above, EBITDA and operating income
increased as a result of the revenue gains, offset in part, with
respect to operating income only, by higher depreciation and
amortization relating to increased capital spending.
Interest and Other, Net. Interest and other, net, decreased
to $221 million in the first six months of 1996, compared to $296
million in the first six months of 1995. Interest expense
decreased to $239 million, compared to $296 million in the first
six months of 1995, principally as a result of interest savings
on lower average debt levels related to management's debt
reduction program and lower short-term, floating-rates of
<PAGE>
interest paid on borrowings under TWE's former and existing bank
credit agreements. Other income, net, increased to $18 million in
the first six months of 1996, principally due to an overall
increase in investment-related income resulting from gains on the
sale of certain unclustered cable systems recognized in 1996 in
connection with management's debt reduction program, which more
than exceeded a reduction in interest income resulting from lower
average cash balances and lower average principal amounts due
under the note receivable from U S WEST.
FINANCIAL CONDITION AND LIQUIDITY
June 30, 1996
Financial Condition
TWE had $5.6 billion of debt, $1.5 billion of Time Warner
General Partners' Senior Capital and $6.6 billion of partners'
capital at June 30, 1996, compared to $6.2 billion of debt, $1.4
billion of Time Warner General Partners' Senior Capital and $6.5
billion of partners' capital (net of the $169 million uncollected
portion of the note receivable from U S WEST) at December 31,
1995. Cash and equivalents were $218 million at June 30, 1996,
compared to $209 million at December 31, 1995, reducing the
debt-net-of-cash amounts for TWE to $5.4 billion and $6 billion,
respectively.
Debt Reduction Program
In the first six months of 1996, TWE closed certain
previously-announced sales of unclustered cable television
systems which raised approximately $90 million of proceeds for
debt reduction. Including the 1995 sale of 51% of its interest in
Six Flags, TWE has now completed transactions that have raised
approximately $1.1 billion for debt reduction.
Cash Flows
In the first six months of 1996, TWE's cash provided by
operations amounted to $1.197 billion and reflected $1.147
billion of EBITDA from the Filmed Entertainment, Broadcasting-The
WB Network, Programming-HBO and Cable businesses and $364 million
related to a reduction in working capital requirements, other
balance sheet accounts and noncash items, less $247 million of
interest payments, $32 million of income taxes and $35 million of
corporate expenses. Cash provided by operations of $725 million
in the first six months of 1995 reflected $958 million of
business segment EBITDA and $132 million related to a reduction
in working capital requirements, other balance sheet accounts and
noncash items, less $301 million of interest payments, $34
million of income taxes and $30 million of corporate expenses.
<PAGE>
Cash used by investing activities was $650 million in the
first six months of 1996, compared to cash provided by investing
activities of $256 million in the first six months of 1995,
principally as a result of a $757 million decrease in investment
proceeds realized in 1995 in connection with management's debt
reduction program. Capital expenditures increased to $781 million
in the first six months of 1996, compared to $622 million in the
first six months of 1995, principally as a result of higher cable
capital spending as discussed more fully below.
Cash used by financing activities was $538 million in the
first six months of 1996, compared to cash provided by financing
activities of $211 million in the first six months of 1995,
principally as a result of a $607 million net reduction in debt
in 1996 and a $102 million increase in distributions paid to Time
Warner, offset in part by a $74 million decrease in collections
on the note receivable from U S WEST.
Management believes that TWE's operating cash flow, cash and
equivalents and additional borrowing capacity are sufficient to
meet its capital and liquidity needs for the foreseeable future.
Cable Capital Spending
Since the beginning of 1994, Time Warner Cable has been
engaged in a plan to upgrade the technological capability and
reliability of its cable television systems and develop new
services, which it believes will position the business for
sustained, long-term growth. Capital spending by TWE's Cable
division amounted to $610 million in the six months ended June
30, 1996, compared to $433 million in the six months ended June
30, 1995, and was financed in part through collections on the
note receivable from U S WEST of $169 million and $243 million,
respectively. Cable capital spending by TWE's Cable division is
budgeted to be approximately $700 million for the remainder of
1996 and is expected to be funded principally by cable operating
cash flow. In exchange for certain flexibility in establishing
cable rate pricing structures for regulated services that went
into effect on January 1, 1996 and consistent with Time Warner
Cable's long-term strategic plan, Time Warner Cable has agreed
with the FCC to invest a total of $4 billion in capital costs in
connection with the upgrade of its cable infrastructure, which is
expected to be substantially completed over the next five years.
The agreement with the FCC covers all of the cable operations of
Time Warner Cable, including the owned or managed cable
television systems of Time Warner, TWE and the
TWE-Advance/Newhouse Partnership. Management expects to continue
to finance such level of investment principally through the
growth in cable operating cash flow derived from increases in
subscribers and cable rates, bank credit agreement borrowings and
the development of new revenue streams from expanded programming
options, high speed data transmission, telephony and other services.
<PAGE>
Warner Bros. Backlog
Warner Bros.' backlog, representing the amount of future
revenue not yet recorded from cash contracts for the licensing of
theatrical and television product for pay cable, network, basic
cable and syndicated television exhibition, amounted to $1.601
billion at June 30, 1996, compared to $1.056 billion at December
31, 1995 (including amounts relating to HBO of $208 million at
June 30, 1996 and $175 million at December 31, 1995). Warner
Bros.' backlog increased principally as a result of the licensing
of the hit television series Friends and ER for domestic
syndication and cable television exhibition beginning in 1998.
Because backlog generally relates to contracts for the licensing
of theatrical and television product which have already been
produced, the recognition of revenue for such completed product
is principally only dependent upon the commencement of the
availability period for telecast under the terms of the related
licensing agreement. In addition, cash licensing fees are
collected periodically over the term of the related licensing
agreements. Accordingly, the portion of backlog for which cash
advances have not already been received has significant
off-balance sheet asset value as a source of future funding. The
backlog excludes advertising barter contracts, which are also
expected to result in the future realization of cash through the
sale of advertising spots received under such contracts.
Foreign Currency Risk Management
Time Warner uses foreign exchange contracts primarily to
hedge the risk that unremitted or future license fees owed to TWE
domestic companies for the sale or anticipated sale of U.S.
copyrighted products abroad may be adversely affected by changes
in foreign currency exchange rates. As part of its overall
strategy to manage the level of exposure to the risk of foreign
currency exchange rate fluctuations, Time Warner hedges a portion
of its foreign currency exposures anticipated over the ensuing
twelve month period, including those related to TWE. At June 30,
1996, Time Warner has effectively hedged approximately half of
TWE's total estimated foreign currency exposures that principally
relate to anticipated cash flows to be remitted to the U.S. over
the ensuing twelve month period, using foreign exchange contracts
that generally have maturities of three months or less, which
generally are rolled over to provide continuing coverage
throughout the year. TWE is reimbursed by or reimburses Time
Warner for Time Warner contract gains and losses related to TWE's
foreign currency exposure. Time Warner often closes foreign
exchange sale contracts by purchasing an offsetting purchase
contract. At June 30, 1996, Time Warner had contracts for the
sale of $483 million and the purchase of $165 million of foreign
currencies at fixed rates and maturities of three months or less.
Of Time Warner's $318 million net sale contract position, none of
<PAGE>
the foreign exchange purchase contracts and $98 million of the
foreign exchange sale contracts related to TWE's foreign currency
exposure, primarily Japanese yen (21% of net contract position
related to TWE), French francs (25%), German marks (12%) and
Canadian dollars (18%), compared to a net sale contract position
of $113 million of foreign currencies at December 31, 1995.
Unrealized gains or losses related to foreign exchange
contracts are recorded in income as the market value of such
contracts change; accordingly, the carrying value of foreign
exchange contracts approximates market value. The carrying value
of foreign exchange contracts was not material at June 30, 1996
and December 31, 1995. No cash is required to be received or paid
with respect to such gains and losses until the related foreign
exchange contracts are settled, generally at their respective
maturity dates. For the six months ended June 30, 1996 and 1995,
TWE recognized $4 million in gains and $13 million in losses,
respectively, on foreign exchange contracts, which were or are
expected to be offset by corresponding increases in the dollar
value of foreign currency license fee payments that have been or
are anticipated to be received in cash from the sale of U.S.
copyrighted products abroad. Time Warner places foreign currency
contracts with a number of major financial institutions in order
to minimize credit risk.
Based on Time Warner's outstanding foreign exchange contracts
related to TWE's exposure outstanding at June 30, 1996, each 5%
devaluation of the U.S. dollar as compared to the level of
foreign exchange rates for currencies under contract at June 30,
1996 would result in approximately $5 million of unrealized
losses on foreign exchange contracts. Conversely, a 5%
appreciation of the U.S. dollar as compared to the level of
foreign exchange rates for currencies under contract at June 30,
1996 would result in $5 million of unrealized gains on contracts.
Consistent with the nature of the economic hedge provided by such
foreign exchange contracts, such unrealized gains or losses would
be offset by corresponding decreases or increases, respectively,
in the dollar value of future foreign currency license fee
payments that would be received in cash within the ensuing twelve
month period from the sale of U.S. copyrighted products abroad.
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
1996 1995
(millions)
ASSETS
Current assets
Cash and equivalents $ 218 $ 209
Receivables, including $281 and $354 due
from Time Warner, less allowances
of $343 and $365 1,439 1,635
Inventories 891 904
Prepaid expenses 160 161
Total current assets 2,708 2,909
Noncurrent inventories 1,958 1,909
Loan receivable from Time Warner 400 400
Investments 400 383
Property, plant and equipment, net 5,585 5,205
Cable television franchises 3,212 3,360
Goodwill 4,058 4,119
Other assets 592 620
Total assets $18,913 $18,905
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable $ 603 $ 697
Participations and programming costs 1,274 1,090
Other current liabilities 1,401 1,427
Total current liabilities 3,278 3,214
Long-term debt 5,575 6,137
Other long-term liabilities, including
$272 and $198 due to Time Warner 1,093 924
Minority interests 848 726
Time Warner General Partners' Senior Capital 1,483 1,426
Partners' capital
Contributed capital 7,537 7,522
Undistributed partnership earnings (deficit) (901) (875)
Note receivable from U S WEST - (169)
Total partners' capital 6,636 6,478
Total liabilities and partners' capital $18,913 $18,905
See accompanying notes.
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(millions)
Revenues (a) $2,608 $2,392 $5,093 $4,438
Cost of revenues (a)(b) 1,730 1,611 3,395 3,051
Selling, general and
administrative (a)(b) 581 515 1,133 930
Operating expenses 2,311 2,126 4,528 3,981
Business segment operating income 297 266 565 457
Interest and other, net (a) (132) (135) (221) (296)
Minority interest (52) (35) (102) (35)
Corporate services (a) (18) (15) (35) (30)
Income before income taxes 95 81 207 96
Income taxes (21) (25) (39) (36)
Net income $ 74 $ 56 $ 168 $ 60
__________________
(a) Includes the following income (expenses) resulting from
transactions with the partners of TWE and other related companies
for the three and six months ended June 30, 1996, respectively,
and for the corresponding periods in the prior year: revenues-
$76 million and $99 million in 1996, $32 million and $58 million
in 1995; cost of revenues- $(14) million and $(38) million in
1996, $(36) million and $(53) million in 1995; selling, general
and administrative- $(7) million and $(9) million in 1996, $(23)
million and $(40) million in 1995; interest and other, net- $7
million and $16 million in 1996, $6 million and $6 million in
1995; and corporate services- $(18) million and $(35) million in
1996, $(15) million and $(30) million in 1995.
(b) Includes depreciation and amortization expense of:
$ 294 $ 275 $ 582 $ 501
See accompanying notes.
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
1996 1995
(millions)
OPERATIONS
Net income $ 168 $ 60
Adjustments for noncash and nonoperating items:
Depreciation and amortization 582 501
Changes in operating assets and liabilities 447 164
Cash provided by operations 1,197 725
INVESTING ACTIVITIES
Investments and acquisitions (65) (75)
Capital expenditures (781) (622)
Investment proceeds 196 953
Cash provided (used) by investing activities (650) 256
FINANCING ACTIVITIES
Borrowings 63 235
Debt repayments (670) (237)
Capital distributions (132) (30)
Collections on note receivable from U S WEST 169 243
Other 32 -
Cash provided (used) by financing activities (538) 211
INCREASE IN CASH AND EQUIVALENTS 9 1,192
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 209 1,071
CASH AND EQUIVALENTS AT END OF PERIOD $ 218 $2,263
See accompanying notes.
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Time Warner Entertainment Company, L.P., a Delaware limited
partnership ("TWE"), is engaged principally in two fundamental
areas of business: Entertainment, consisting principally of
interests in filmed entertainment, broadcasting, theme parks and
cable television programming; and Telecommunications, consisting
principally of interests in cable television systems.
Each of the business interests within Entertainment and
Telecommunications is important to TWE's objective of increasing
partner value through the creation, extension and distribution of
recognizable brands and copyrights throughout the world. Such
brands and copyrights include (1) the unique and extensive film
and television libraries of Warner Bros. and trademarks such as
the Looney Tunes characters and Batman, (2) The WB Network, a new
national broadcasting network launched in 1995 as an extension of
the Warner Bros. brand and as an additional distribution outlet
for Warner Bros.' collection of children's cartoons and
television programming, (3) Six Flags, the largest regional theme
park operator in the United States, in which TWE owns a 49%
interest, (4) HBO and Cinemax, the leading pay television
services and (5) Time Warner Cable, the second largest operator
of cable television systems in the U.S.
The operating results of TWE's various business interests are
presented herein as an indication of financial performance (Note
7). Except for start-up losses incurred in connection with The WB
Network, TWE's principal business interests generate significant
operating income and cash flow from operations. The cash flow
from operations generated by such business interests is
significantly greater than their operating income due to
significant amounts of noncash amortization of intangible assets
recognized principally in Time Warner Inc.'s ("Time Warner") $14
billion acquisition of Warner Communications Inc. ("WCI") in 1989
and $1.3 billion acquisition of the minority interest in American
Television and Communications Corporation ("ATC") in 1992, a
portion of which cost was allocated to TWE in accordance with the
pushdown method of accounting. Non-cash amortization of
intangible assets recorded by TWE's businesses amounted to $101
million and $119 million for the three months ended June 30, 1996
and 1995, respectively, and $211 million and $232 million for the
six months ended June 30, 1996 and 1995, respectively.
Subsidiaries of Time Warner are the general partners of TWE
("Time Warner General Partners"). During 1995, Time Warner
<PAGE>
acquired the aggregate 11.22% limited partnership interests
previously held by subsidiaries of each of ITOCHU Corporation and
Toshiba Corporation. As a result, Time Warner and certain of its
wholly-owned subsidiaries collectively own general and limited
partnership interests in 74.49% of the pro rata priority capital
("Series A Capital") and residual equity capital ("Residual
Capital") of TWE, and 100% of the senior priority capital
("Senior Capital") and junior priority capital ("Series B
Capital") of TWE. The remaining 25.51% limited partnership
interests in the Series A Capital and Residual Capital of TWE are
held by a subsidiary of U S WEST, Inc. ("U S WEST").
Basis of Presentation
The accompanying financial statements are unaudited but in
the opinion of management contain all the adjustments (consisting
of those of a normal recurring nature) considered necessary to
present fairly the financial position and the results of
operations and cash flows for the periods presented, in
conformity with generally accepted accounting principles
applicable to interim periods. The accompanying financial
statements should be read in conjunction with the audited
consolidated financial statements of TWE for the year ended
December 31, 1995.
The consolidated financial statements reflect (i) the
formation by TWE of the TWE-Advance/Newhouse Partnership
effective as of April 1, 1995, (ii) the deconsolidation of Six
Flags Entertainment Corporation ("Six Flags") effective as of
June 23, 1995 and (iii) the consolidation of Paragon
Communications ("Paragon") effective as of July 6, 1995. Certain
reclassifications have been made to the prior year's financial
statements to conform to the 1996 presentation.
Effective January 1, 1996, TWE adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
("FAS 121") which established standards for the recognition and
measurement of impairment losses on long-lived assets and certain
intangible assets. The adoption of FAS 121 did not have a
material effect on TWE's financial statements.
2. TWE-ADVANCE/NEWHOUSE PARTNERSHIP
On April 1, 1995, TWE formed a cable television joint venture
with the Advance/Newhouse Partnership ("Advance/Newhouse") to
which Advance/Newhouse and TWE contributed cable television
systems (or interests therein) serving approximately 4.5 million
subscribers, as well as certain foreign cable investments and
programming investments that included Advance/Newhouse's 10%
interest in Primestar Partners, L.P. ("Primestar"). TWE owns a
<PAGE>
two-thirds equity interest in the TWE-Advance/Newhouse
Partnership and is the managing partner. TWE consolidates the
partnership and the one-third equity interest owned by
Advance/Newhouse is reflected in TWE's balance sheet as minority
interest. In accordance with the partnership agreement,
Advance/Newhouse can require TWE to purchase its equity interest
for fair market value at specified intervals following the death
of both of its principal shareholders. Beginning in the third
year, either partner can initiate a dissolution in which TWE
would receive two-thirds and Advance/Newhouse would receive
one-third of the partnership's net assets. The assets contributed
by TWE and Advance/Newhouse to the partnership were recorded at
their predecessor's historical cost, which, with respect to
Advance/Newhouse, consisted of assets contributed to the
partnership of approximately $338 million and liabilities assumed
by the partnership of approximately $9 million. No gain was
recognized by TWE upon the capitalization of the partnership.
The accompanying consolidated statement of operations
includes the operating results of the Advance/Newhouse businesses
from the date of contribution to the partnership. On a pro forma
basis, giving effect to (i) the 1995 formation of the
TWE-Advance/Newhouse Partnership, (ii) the 1995 refinancing of
approximately $2.6 billion of pre-existing bank debt, (iii) the
1995 consolidation of Paragon, (iv) the 1995 reacquisition of the
Time Warner Service Partnership Assets (Note 6), (v) the 1995
sale of 51% of TWE's interest in Six Flags and (vi) the sale or
expected sale or transfer of certain unclustered cable television
systems owned by TWE, as if each of such transactions had
occurred at the beginning of 1995, TWE would have reported for
the three and six months ended June 30, 1995, respectively,
revenues of $2.317 billion and $4.583 billion, depreciation and
amortization of $259 million and $528 million, operating income
of $241 million and $460 million and net income of $47 million
and $77 million.
3. SIX FLAGS
On June 23, 1995, TWE sold 51% of its interest in Six Flags
to an investment group led by Boston Ventures for $204 million
and received $640 million in additional proceeds from Six Flags,
representing payment of certain intercompany indebtedness and
licensing fees. As a result of the transaction, Six Flags has
been deconsolidated and TWE's remaining 49% interest in Six Flags
is accounted for under the equity method of accounting. TWE
reduced debt by approximately $850 million in 1995 in connection
with the transaction, and a portion of the income on the
transaction has been deferred by TWE principally as a result of
its guarantee of certain third-party, zero-coupon indebtedness of
Six Flags due in 1999.
<PAGE>
4. INVENTORIES
Inventories consist of:
June 30, 1996 December 31, 1995
Current Noncurrent Current Noncurrent
(millions)
Film costs:
Released, less amortization $ 353 $ 447 $ 529 $ 437
Completed and not released 192 53 74 22
In process and other 63 454 11 396
Library, less amortization - 690 - 717
Programming costs, less
amortization 204 314 219 337
Merchandise 79 - 71 -
Total $ 891 $1,958 $ 904 $1,909
5. LONG-TERM DEBT
Long-term debt consists of:
June 30, December 31,
1996 1995
(millions)
Credit agreement, weighted average
interest rates of 6.0% and 6.4% $1,384 $2,185
Commercial paper, weighted average
interest rates of 5.8% and 6.2% 397 157
Publicly held notes and debentures 3,781 3,781
Other 13 14
Total $5,575 $6,137
Each Time Warner General Partner has guaranteed a pro rata
portion of approximately $5.5 billion of TWE's debt and accrued
interest thereon based on the relative fair value of the net
assets each Time Warner General Partner contributed to TWE. Such
indebtedness is recourse to each Time Warner General Partner only
to the extent of its guarantee.
<PAGE>
6. PARTNERS' CAPITAL
Changes in partners' capital were as follows:
Six Months
Ended June 30,
1996 1995
(millions)
Balance at beginning of year $6,478 $6,233
Net income 168 60
Capital contributions 15 -
Distributions (147) (316)
Allocation of income to Time Warner
General Partners' Senior Capital (57) (67)
Collections on note receivable from U S WEST 169 243
Other 10 1
Balance at June 30 $6,636 $6,154
In September 1995, TWE reacquired substantially all of the
assets of the Time Warner Service Partnerships, subject to the
liabilities relating thereto, (the "Time Warner Service
Partnership Assets") in exchange for Series B Capital interests
in TWE equal to approximately $400 million. The reacquisition was
recorded for financial statement purposes based on the $124
million historical cost of the Time Warner Service Partnership
Assets. Prior to such reacquisition, the Time Warner Service
Partnerships owned and operated certain assets of TWE which had
been distributed to the Time Warner General Partners in September
1993 in order to ensure compliance with the Modification of Final
Judgment entered on August 24, 1982 by the United States District
Court for the District of Columbia applicable to U S WEST and its
affiliated companies, which may have included TWE. Prior to
September 1995, TWE was required to make quarterly cash
distributions related to its Series B Capital in the amount of
$12.5 million to the Time Warner General Partners ("TWSP
Distributions"), which the General Partners were then required to
contribute to the Time Warner Service Partnerships.
TWE is required to make distributions to reimburse the
partners for income taxes at statutory rates based on their
allocable share of taxable income, and to reimburse Time Warner
for its stock options granted to employees of TWE based on the
amount by which the market price of Time Warner common stock
exceeds the option exercise price on the exercise date or, with
respect to options granted prior to the TWE capitalization on
June 30, 1992, the greater of the exercise price and the $27.75
market price of Time Warner common stock at the time of the TWE
capitalization. TWE accrues a stock option distribution and a
corresponding liability with respect to unexercised options when
the market price of Time Warner common stock increases during the
accounting period, and reverses previously-accrued stock option
distributions and the corresponding liability when the market
price of Time Warner common stock declines.
<PAGE>
During the six months ended June 30, 1996, TWE accrued $123
million of tax-related distributions and $24 million of stock
option distributions, based on closing prices of Time Warner
common stock of $39.25 at June 30, 1996 and $37.875 at December
31, 1995. During the six months ended June 30, 1995, TWE accrued
$25 million of TWSP Distributions and $156 million of tax-related
distributions, as well as $135 million of stock option
distributions as a result of an increase at that time in the
market price of Time Warner common stock. In the six months ended
June 30, 1996, TWE paid distributions to the Time Warner General
Partners in the amount of $132 million, consisting of $123
million of tax-related distributions and $9 million of stock
option related distributions. In the six months ended June 30,
1995, TWE paid the Time Warner General Partners distributions in
the amount of $30 million, consisting of $25 million of TWSP
Distributions and $5 million of stock option related
distributions.
7. SEGMENT INFORMATION
TWE's businesses are conducted in two fundamental areas of
business: Entertainment, consisting principally of interests in
filmed entertainment, broadcasting, theme parks and cable
television programming; and Telecommunications, consisting
principally of interests in cable television systems.
Information as to the operations of TWE in different
business segments is set forth below. The operating results of
TWE reflect the formation of the TWE-Advance/Newhouse Partnership
effective as of April 1, 1995, the deconsolidation of Six Flags
effective as of June 23, 1995 and the consolidation of Paragon
effective as of July 6, 1995. The operating results of Six Flags
prior to June 23, 1995 are reported separately to facilitate
comparability.
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(millions)
Revenues
Filmed Entertainment $1,270 $1,151 $2,486 $2,334
Six Flags Theme Parks - 204 - 227
Broadcasting - The WB Network 18 3 33 6
Programming - HBO 456 392 875 777
Cable 961 724 1,908 1,281
Intersegment elimination (97) (82) (209) (187)
Total $2,608 $2,392 $5,093 $4,438
<PAGE>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(millions)
Operating Income
Filmed Entertainment $ 79 $ 52 $ 149 $ 119
Six Flags Theme Parks - 31 - 29
Broadcasting - The WB Network (12) (12) (36) (33)
Programming - HBO 83 70 159 137
Cable 147 125 293 205
Total $ 297 $ 266 $ 565 $ 457
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(millions)
Depreciation of Property, Plant and Equipment
Filmed Entertainment $ 32 $ 22 $ 62 $ 42
Six Flags Theme Parks - 19 - 20
Broadcasting - The WB Network - - - -
Programming - HBO 4 4 9 8
Cable 157 111 300 199
Total $ 193 $ 156 $ 371 $ 269
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(millions)
Amortization of Intangible Assets (1)
Filmed Entertainment $ 29 $ 35 $ 60 $ 69
Six Flags Theme Parks - 8 - 11
Broadcasting - The WB Network - - - -
Programming - HBO - - - -
Cable 72 76 151 152
Total $ 101 $ 119 $ 211 $ 232
______________
(1) Amortization includes amortization relating to the
acquisition of WCI in 1989 and the ATC minority interest in 1992
and to other business combinations accounted for by the purchase method.
8. COMMITMENTS AND CONTINGENCIES
Pending legal proceedings are substantially limited to
litigation incidental to the businesses of TWE. In the opinion of
counsel and management, the ultimate resolution of these matters
will not have a material effect on the consolidated financial
statements of TWE.
<PAGE>
9. ADDITIONAL FINANCIAL INFORMATION
Additional financial information is as follows:
Six Months
Ended June 30,
1996 1995
(millions)
Interest expense $239 $296
Cash payments made for interest 247 301
Cash payments made for income taxes (net) 32 34
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to the litigation entitled U S WEST, INC.
et al. v. TIME WARNER INC., et al., described on page 46 of Time
Warner's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996 (the "March 1996 Form 10-Q"). On June 6,
1996, the Court of Chancery of the State of Delaware rendered an
opinion dismissing with prejudice all of the claims asserted by U
S WEST and reserving decision on the counterclaims interposed by
Time Warner. U S WEST has not appealed the decision of the Court
of Chancery, and the period for filing a notice of appeal has
closed.
On July 8, 1996, a purported class action was filed in the
Circuit Court of Blount County, Tennessee at Maryville, entitled
ROBINSON AND SILVEY v. EMI MUSIC DISTRIBUTION, INC., SONY MUSIC
ENTERTAINMENT, INC., WARNER ELEKTRA ATLANTIC CORPORATION, UNI
DISTRIBUTION CORPORATION, BERTELSMANN MUSIC GROUP, INC. and
POLYGRAM GROUP DISTRIBUTION, INC., No. L-10462. The action is
brought on behalf of persons who, from June 26, 1992 to the
present, purchased recorded music compact discs ("CDS")
indirectly from defendants in Tennessee, Alabama, California,
Florida, Kansas, Maine, Michigan, Minnesota, Mississippi, New
Mexico, North Dakota, South Dakota, West Virginia, Wisconsin and
the District of Columbia, and alleges that the defendants are
engaged in a conspiracy to fix the prices of CDS, in violation of
the antitrust, unfair trade practices and consumer protection
statutes of each of those jurisdictions. Also on July 8, the
Circuit Court issued an order conditionally granting class
certification, subject to defendants' right to move to decertify
the class.
On July 25, 1996, Warner Elektra Atlantic Corporation was
served with an antitrust civil investigative demand from the
Office of the Attorney General of the State of Florida that calls
for the production of documents in connection with an
investigation to determine whether there "is, has been or may be"
a "conspiracy to fix the prices" of CDS or conduct consisting of
"unfair methods of competition" or "unfair trade practices" in
the sale and marketing of CDS.
Reference is made to the actions filed in Superior Court,
Fulton County, Georgia, and consolidated as LEWIS, et al. v.
TURNER BROADCASTING SYS., INC., et al., described on page 46 of the
March 1996 Form 10-Q. The Superior Court heard arguments on defendants'
motion for judgment based on the pleadings on June 17, 1996.
<PAGE>
Reference is made to the litigation entitled SAMUEL D.
MOORE, et al. v. AMERICAN FEDERATION OF TELEVISION AND RADIO
ARTISTS, et al., described on page I-43 of Time Warner's Annual
Report on Form 10-K for the year ended December 31, 1995 (the
"1995 Form 10-K"). In July 1996, the plaintiffs filed a motion
to amend the complaint, which the recording companies will oppose.
The proposed second amended complaint is based on substantially
the same allegations as the prior complaint and seeks to recover
substantial monetary damages, liquidated damages, equitable relief,
and attorney's fees from the recording companies. The proposed
complaint includes a claim asserted derivatively on behalf of
the American Federation of Television and Radio Artists Health
and Retirement Fund as well as a renewal of some of the claims
that had previously been dismissed from this lawsuit.
Reference is made to the litigation entitled SAMUEL D.
MOORE, et al. v. SONY MUSIC ENTERTAINMENT GROUP, et al.,
described on page I-43 of the 1995 Form 10-K. The plaintiffs
have filed an appeal from the District Court for the Southern
District of New York's order of dismissal and have filed the
motion described in the preceding paragraph to amend the
complaint in the SAMUEL D. MOORE, et al. v. AMERICAN FEDERATION
OF TELEVISION AND RADIO ARTISTS, et al. lawsuit.
Reference is made to the description of the Federal lawsuit
filed by TWE in November 1992 seeking to overturn major
provisions of the 1992 Cable Act, described on page I-42 of the
1995 Form 10-K. Argument on the appeal to the United States
Supreme Court of the December 1995 decision of the District Court
for the District of Columbia upholding the "must-carry"
requirements of the 1992 Cable Act has been set for October 7, 1996.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders of Time Warner was
held on May 16, 1996 (the "1996 Annual Meeting").
(b) (i) The following were elected directors of Time
Warner at the 1996 Annual Meeting:
Beverly Sills Greenough
Carla A. Hills
Reuben Mark
Francis T. Vincent, Jr.
(ii) The following continue as directors of Time Warner:
Merv Adelson
Lawrence B. Buttenweiser
David T. Kearns
Gerald M. Levin
Michael A. Miles
J. Richard Munro
Richard D. Parsons
Donald S. Perkins
Raymond S. Troubh
(c) The following matters were voted upon at the 1996
Annual Meeting:
(i) Election of directors for terms expiring in 1999:
Broker
For Withheld Non-Votes
Beverly Sills Greenough 379,744,375 8,584,724 0
Carla A. Hills 380,217,114 8,111,985 0
Reuben Mark 380,302,725 8,026,374 0
Francis T. Vincent, Jr. 380,037,805 8,291,294 0
(ii) Approval of the Time Warner Inc. 1996 Stock
Option Plan for Non-Employee Directors:
Broker
Votes For Votes Against Abstentions Non-Votes
326,072,622 56,169,055 6,087,422 0
(iii) Approval of the appointment of Ernst & Young
LLP as independent auditors of Time Warner for 1996:
Broker
Votes For Votes Against Abstentions Non-Votes
385,858,867 1,549,493 920,739 0
(iv) Stockholder resolution relating to the use of
chlorine-free paper:
Broker
Votes For Votes Against Abstentions Non-Votes
18,231,697 315,833,635 17,647,793 36,615,974
<PAGE>
(v) Stockholder resolution urging an amendment to the
bylaws of Time Warner which would require that the chairman of
the board be an independent director not formerly the chief
executive of Time Warner:
Broker
Votes For Votes Against Abstentions Non-Votes
61,066,333 279,632,038 11,014,754 36,615,974
(vi) Stockholder resolution calling for the election
of directors annually and not by classes:
Broker
Votes For Votes Against Abstentions Non-Votes
101,412,025 185,960,115 64,340,985 36,615,974
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The exhibits listed on the accompanying Exhibit Index are
filed or incorporated by reference as a part of this report and
such Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K.
(i) Time Warner filed a Current Report on Form 8-K
dated April 2, 1996, reporting in Item 5 that it had issued a
press release dated April 2, 1996 announcing that it had raised
$1.5 billion for debt reduction by issuing 1.5 million shares of
Series K Exchangeable Preferred Stock under Rule 144A.
(ii) Time Warner filed a Current Report on Form 8-K
dated April 4, 1996, reporting in Item 5 that it had issued a
press release dated April 4, 1996 announcing that its offering of
Series K Exchangeable Preferred Stock had been increased to 1.6
million shares as a result of the exercise by the underwriters of
an option to purchase an additional 100,000 shares to cover
overallotments.
(iii) Time Warner filed a Current Report on Form 8-K
dated April 11, 1996, filing pursuant to Item 7 thereof the
Certificate of Designation of the 10-1/4% Series K Exchangeable
Preferred Stock and the related Form of Senior Subordinated
Indenture.
(iv) Time Warner filed a Current Report on Form 8-K
dated May 15, 1996, setting forth in Item 7 certain pro forma
financial statements of Time Warner and Time Warner Entertainment
Group at March 31, 1996, reflecting certain transactions entered
into by Time Warner and TWE during 1995 and 1996.
(v) Time Warner filed a Current Report on Form 8-K dated
August 6, 1996, reporting in Item 5 that it had issued a press release
dated August 6, 1996 announcing that as a result of a printer's error,
a preliminary draft of a report on Form 8-K relating to the acquisition
of Turner Broadcasting System, Inc. was inadvertently filed through
the SEC's electronic filing system.
<PAGE>
TIME WARNER INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Time Warner Inc.
(Registrant)
By: /s/ Richard J. Bressler
Name: Richard J. Bressler
Title: Senior Vice President
and Chief Financial Officer
Dated: August 14, 1996
<PAGE>
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit No. Description of Exhibit
10.1 Credit Agreement dated as of May 23, 1996 (the
"Credit Agreement") among Time Warner Inc. (the
"Registrant"), the several lenders from time to
time parties thereto and Chemical Bank, as
administrative agent.
10.2 Escrow Agreement dated as of May 23, 1996 among
the Registrant, The Bank of New York, as escrow
agent and Chemical Bank, as administrative agent
under the Credit Agreement.
10.3 Time Warner Inc. 1996 Stock Option Plan for
Non-Employee Directors (which is incorporated by
reference to Annex A to the Registrant's
definitive Proxy Statement dated March 29,
1996, used in connection with the Registrant's
1996 Annual Meeting of Stockholders).
27 Financial Data Schedule.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TIME WARNER INC. Exhibit 27
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information
extracted from the financial statements of Time Warner Inc. for
the six months ended June 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 482
<SECURITIES> 0
<RECEIVABLES> 2,102
<ALLOWANCES> 746
<INVENTORY> 450
<CURRENT-ASSETS> 3,224
<PP&E> 2,427
<DEPRECIATION> 946
<TOTAL-ASSETS> 24,508
<CURRENT-LIABILITIES> 2,762
<BONDS> 9,928
<COMMON> 387
0
36
<OTHER-SE> 3,420
<TOTAL-LIABILITY-AND-EQUITY> 24,508
<SALES> 4,207
<TOTAL-REVENUES> 4,207
<CGS> 2,225
<TOTAL-COSTS> 2,225
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 471
<INCOME-PRETAX> (80)
<INCOME-TAX> 44
<INCOME-CONTINUING> (124)
<DISCONTINUED> 0
<EXTRAORDINARY> (35)
<CHANGES> 0
<NET-INCOME> (159)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
EXECUTION COPY
CREDIT AGREEMENT
among
TIME WARNER INC.,
The Several Lenders
from Time to Time Parties Hereto
and
CHEMICAL BANK,
as Administrative Agent
Dated as of May 23, 1996
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . .1
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . .1
1.2 Other Definitional Provisions. . . . . . . . . . . 17
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS. . . . . . . . . . 18
2.1 Revolving Credit Commitments . . . . . . . . . . . 18
2.2 Procedure for Borrowing. . . . . . . . . . . . . . 19
2.3 Commitment and Other Fees. . . . . . . . . . . . . 19
2.4 Termination or Reduction of Commitments. . . . . . 20
2.5 Repayment of Loans; Evidence of Debt; Limited
Recourse . . . . . . . . . . . . . . . . . . . . 20
2.6 Optional and Mandatory Prepayments . . . . . . . . 21
2.7 Conversion and Continuation Options. . . . . . . . 23
2.8 Minimum Amounts and Maximum Number of Tranches . . 23
2.9 Interest Rates and Payment Dates . . . . . . . . . 24
2.10 Computation of Interest and Fees . . . . . . . . . 24
2.11 Inability to Determine Interest Rate . . . . . . . 25
2.12 Pro Rata Treatment and Payments. . . . . . . . . . 25
2.13 Illegality . . . . . . . . . . . . . . . . . . . . 26
2.14 Requirements of Law. . . . . . . . . . . . . . . . 26
2.15 Taxes. . . . . . . . . . . . . . . . . . . . . . . 28
2.16 Indemnity. . . . . . . . . . . . . . . . . . . . . 30
2.17 Change of Lending Office . . . . . . . . . . . . . 30
2.18 Replacement of Lenders under Certain
Circumstances. . . . . . . . . . . . . . . . . . 30
SECTION 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 31
3.1 Financial Condition. . . . . . . . . . . . . . . . 31
3.2 No Change. . . . . . . . . . . . . . . . . . . . . 32
3.3 Corporate Existence; Compliance with Law . . . . . 32
3.4 Corporate Power; Authorization; Enforceable
Obligations. . . . . . . . . . . . . . . . . . . 32
3.5 No Legal Bar . . . . . . . . . . . . . . . . . . . 33
3.6 No Material Litigation . . . . . . . . . . . . . . 33
3.7 No Default . . . . . . . . . . . . . . . . . . . . 33
3.8 Ownership of Property; Liens . . . . . . . . . . . 33
3.9 Intellectual Property. . . . . . . . . . . . . . . 33
3.10 No Burdensome Restrictions . . . . . . . . . . . . 34
3.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . 34
3.12 Federal Regulations. . . . . . . . . . . . . . . . 34
3.13 ERISA. . . . . . . . . . . . . . . . . . . . . . . 34
3.14 Investment Company Act; Other Regulations. . . . . 35
3.15 Purpose of Loans . . . . . . . . . . . . . . . . . 35
3.16 Environmental Matters. . . . . . . . . . . . . . . 35
3.17 Escrowed Stock . . . . . . . . . . . . . . . . . . 36
-i-
<PAGE>
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . 37
4.1 Conditions to Initial Loans. . . . . . . . . . . . 37
4.2 Conditions to Each Loan. . . . . . . . . . . . . . 39
SECTION 5. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . 39
5.1 Financial Statements . . . . . . . . . . . . . . . 40
5.2 Certificates; Other Information. . . . . . . . . . 40
5.3 Payment of Obligations . . . . . . . . . . . . . . 41
5.4 Maintenance of Existence . . . . . . . . . . . . . 41
5.5 Maintenance of Property; Insurance . . . . . . . . 42
5.6 Inspection of Property; Books and Records;
Discussions. . . . . . . . . . . . . . . . . . . 42
5.7 Notices. . . . . . . . . . . . . . . . . . . . . . 42
5.8 Environmental Laws . . . . . . . . . . . . . . . . 43
5.9 Maintenance of Escrow Agreement; Compliance with
Ratios; Undertakings to Deliver Common Stock . . 43
5.10 Directions to Escrow Agent; Release of Escrowed
Stock. . . . . . . . . . . . . . . . . . . . . . 45
5.11 Stock Option Plans . . . . . . . . . . . . . . . . 46
SECTION 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 46
6.1 Limitation on Liens. . . . . . . . . . . . . . . . 47
6.2 Limitation on Fundamental Changes. . . . . . . . . 47
6.3 Limitation on Sale of Assets . . . . . . . . . . . 47
SECTION 7. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . 47
7.1 Events of Default. . . . . . . . . . . . . . . . . 47
7.2 Special Remedy . . . . . . . . . . . . . . . . . . 50
SECTION 8. THE ADMINISTRATIVE AGENT . . . . . . . . . . . . . 50
8.1 Appointment. . . . . . . . . . . . . . . . . . . . 50
8.2 Delegation of Duties . . . . . . . . . . . . . . . 50
8.3 Exculpatory Provisions . . . . . . . . . . . . . . 50
8.4 Reliance by Administrative Agent . . . . . . . . . 51
8.5 Notice of Default. . . . . . . . . . . . . . . . . 51
8.6 Non-Reliance on Administrative Agent and Other
Lenders. . . . . . . . . . . . . . . . . . . . . 52
8.7 Indemnification. . . . . . . . . . . . . . . . . . 52
8.8 Administrative Agent in Its Individual Capacity. . 53
8.9 Successor Administrative Agent . . . . . . . . . . 53
SECTION 9. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 53
9.1 Amendments and Waivers . . . . . . . . . . . . . . 53
9.2 Notices. . . . . . . . . . . . . . . . . . . . . . 54
9.3 No Waiver; Cumulative Remedies . . . . . . . . . . 55
9.4 Survival of Representations and Warranties . . . . 55
9.5 Payment of Expenses and Taxes. . . . . . . . . . . 55
9.6 Successors and Assigns; Participations and
Assignments. . . . . . . . . . . . . . . . . . . 56
9.7 Consent to Assignment to TW Inc. . . . . . . . . . 59
-ii-
<PAGE>
9.8 Adjustments to Number of Shares of Common Stock
and Stock Price. . . . . . . . . . . . . . . . . 60
9.9 Adjustments; Set-off . . . . . . . . . . . . . . . 60
9.10 Counterparts . . . . . . . . . . . . . . . . . . . 61
9.11 Severability . . . . . . . . . . . . . . . . . . . 61
9.12 Integration. . . . . . . . . . . . . . . . . . . . 61
9.13 GOVERNING LAW. . . . . . . . . . . . . . . . . . . 62
9.14 Submission To Jurisdiction; Waivers. . . . . . . . 62
9.15 Acknowledgements . . . . . . . . . . . . . . . . . 62
9.16 WAIVERS OF JURY TRIAL. . . . . . . . . . . . . . . 63
SECTION 10. PROCEDURES TO INCREASE BASE COMMITMENT . . . . . . 63
10.1 Increase in Base Maximum Commitment Amount . . . . 63
10.2 Individual Lender Responsibility . . . . . . . . . 64
SCHEDULES
Schedule I Commitments; Addresses for Notices
Schedule II List of Options
EXHIBITS
Exhibit A Form of Note
Exhibit B Form of Escrow Agreement
Exhibit C Borrowing Certificate
Exhibit D-1 Form of Opinion of Cravath, Swaine & Moore, counsel
to the Borrower
Exhibit D-2 Form of Opinion of Peter R. Haje, Esq., general
counsel of the Borrower
Exhibit E Form of Borrowing Base Certificate
Exhibit F Form of Assignment and Acceptance
-iii-
<PAGE>
CREDIT AGREEMENT, dated as of May 23, 1996 among TIME
WARNER INC., a Delaware corporation (together with its successors
and permitted assigns, the "Borrower", except that after the
assumption provided for in subsection 9.7, the "Borrower" shall
mean TW Inc. and its successors and permitted assigns), the
several banks and other financial institutions from time to time
parties to this Agreement (collectively, the "Lenders") and
Chemical Bank, a New York banking corporation, as administrative
agent for the Lenders hereunder.
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Lenders
extend a revolving credit facility to the Borrower in an
aggregate principal amount up to $750,000,000; and
WHEREAS, the Lenders have indicated their willingness
to extend such a facility to the Borrower on the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto
hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"ABR": for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b)
the Base CD Rate in effect on such day plus 1% and (c) the
Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof: "Prime Rate" shall mean the
rate of interest per annum publicly announced from time to
time by Chemical as its prime rate in effect at its
principal office in New York City (the Prime Rate not being
intended to be the lowest rate of interest charged by
Chemical in connection with extensions of credit to
debtors); "Base CD Rate" shall mean the sum of (a) the
product of (i) the Three-Month Secondary CD Rate and (ii) a
fraction, the numerator of which is one and the denominator
of which is one minus the C/D Reserve Percentage and (b) the
C/D Assessment Rate; "Three-Month Secondary CD Rate" shall
mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such
day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board of Governors of the
Federal Reserve System (the "Board") through the public
information telephone line of the Federal Reserve Bank of
New York (which rate will, under the current practices of
the Board, be published in Federal Reserve Statistical
<PAGE>
2
Release H.15(519) during the week following such day), or,
if such rate shall not be so reported on such day or such
next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of
major money center banks in New York City received at
approximately 10:00 A.M., New York City time, on such day
(or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Administrative Agent from
three New York City negotiable certificate of deposit
dealers of recognized standing selected by it; and "Federal
Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by
federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of
such transactions received by the Administrative Agent from
three federal funds brokers of recognized standing selected
by it. Any change in the ABR due to a change in the Prime
Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime
Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable
to which is based upon the ABR.
"Administrative Agent": Chemical, together with its
affiliates, as the arranger of the Commitments and as the
agent for the Lenders under this Agreement and the other
Loan Documents.
"Affiliate": as to any Person, any other Person
(other than a Subsidiary) which, directly or indirectly, is
in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition,
"control" of a Person means the power, directly or
indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether by contract
or otherwise.
"Aggregate Loan Value": when used in reference to
Escrowed Stock and to Options, means the aggregate Loan
Value thereof determined (i) in the case of Escrowed Stock,
based upon the aggregate amount thereof in the Escrow
Account at the close of business on the Business Day
<PAGE>
3
immediately preceding the relevant Valuation Date and based
upon the Loan Value thereof as of the Trading Day
immediately preceding such Valuation Date and (ii) in the
case of Options, based upon the unexercised Options as of
the close of business on the last Business Day of the week
immediately preceding the relevant Valuation Date, provided
that whether or not such Options are "in the money" and
vested shall be determined as of, and based upon the Loan
Value of the Common Stock as of, the Trading Day immediately
preceding such Valuation Date.
"Agreement": this Credit Agreement, as amended,
supplemented or otherwise modified from time to time.
"Applicable Margin": 0.75% per annum.
"Assignee": as defined in subsection 9.6(c).
"Available Commitment": as to any Lender at any
time, an amount equal to the excess, if any, of (a) the
amount of such Lender's Commitment over (b) the aggregate
principal amount of all Loans made by such Lender then
outstanding.
"Base Maximum Commitment Amount": at any date of
determination an amount equal to the excess, if any, of the
Maximum Commitment Amount over the aggregate Notional
Reduction Amounts for all Trigger Events occurring on or
prior to such date as such amount may be increased pursuant
to subsection 10.1.
"Borrower": as defined in the preamble to this
Agreement.
"Borrowing Base Calculation": the calculation of the
Ratios pursuant to subsections 2.1(a)(1) and (2).
"Borrowing Base Certificate": as defined in
subsection 5.2(c).
"Borrowing Date": any Business Day specified in a
notice pursuant to subsection 2.2 as a date on which the
Borrower requests the Lenders to make Loans hereunder.
"Business": as defined in subsection 3.16(b).
"Business Day": a day other than a Saturday, Sunday
or other day on which commercial banks in New York City are
authorized or required by law to close and, with respect to
any Eurodollar Loan, a day on which dealings in foreign
currencies and exchange between banks may be carried on in
London, England.
<PAGE>
4
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of
capital stock of a corporation, any and all equivalent
ownership interests in a Person (other than a corporation)
and any and all warrants or options to purchase any of the
foregoing.
"C/D Assessment Rate": for any day as applied to any
ABR Loan, the annual assessment rate in effect on such day
which is payable by a member of the Bank Insurance Fund
maintained by the Federal Deposit Insurance Corporation (the
"FDIC") classified as well-capitalized and within
supervisory subgroup "B" (or a comparable successor
assessment risk classification) within the meaning of 12
C.F.R. section 327.4 (or any successor provision) to the FDIC (or
any successor) for the FDIC's (or such successor's) insuring
time deposits at offices of such institution in the United
States.
"C/D Reserve Percentage": for any day as applied to
any ABR Loan, that percentage (expressed as a decimal) which
is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor)
(the "Board"), for determining the maximum reserve
requirement for a Depositary Institution (as defined in
Regulation D of the Board) in respect of new non-personal
time deposits in Dollars having a maturity of 30 days or
more.
"Change in Law": (a) the adoption of any law, rule
or regulation after the date of this Agreement, (b) any
change in any law, rule or regulation or in the
interpretation or application thereof after the date of this
Agreement or (c) compliance by any Lender or the
Administrative Agent with any request, guideline or
directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this
Agreement.
"Chemical": Chemical Bank.
"Closing Date": the date on which the conditions
precedent set forth in subsection 4.1 shall be satisfied and
the initial Loans shall have been made hereunder.
"Closing Date Margin Requirement": Common Stock with
an Aggregate Loan Value equal to two times the Maximum
Commitment Amount on the Closing Date.
"Code": the Internal Revenue Code of 1986, as
amended from time to time.
<PAGE>
5
"Commitment": as to any Lender, the obligation of
such Lender to make Loans to the Borrower hereunder in an
aggregate principal amount at any one time outstanding not
to exceed the amount set forth opposite such Lender's name
on Schedule I, as such amount may be reduced from time to
time in accordance with the provisions of this Agreement.
"Commitment Percentage": as to any Lender at any
time, the percentage which such Lender's Commitment then
constitutes of the Maximum Commitment Amount (or, at any
time after the Commitments shall have expired or terminated,
the percentage which the aggregate principal amount of such
Lender's Loans then outstanding constitutes of the aggregate
principal amount of the Loans then outstanding).
"Commitment Period": the period from and including
the date hereof to but not including the Termination Date or
such earlier date on which the Commitments shall terminate
as provided herein.
"Common Stock": the shares of common stock of the
Borrower, as such may be modified pursuant to subsection 9.8.
"Commonly Controlled Entity": an entity, whether or
not incorporated, which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is
part of a group which includes the Borrower and which is
treated as a single employer under Section 414 of the Code.
"Compliance Ratio Period": any period during the
Commitment Period commencing with the Valuation Date on
which the ratio of (x) the Aggregate Loan Value of the
Escrowed Stock to (y) the Covered Amount (calculated as of
the close of business on the Business Day immediately
preceding such Valuation Date and after giving effect to any
requested borrowing and any prepayment hereunder to be made
on such Valuation Date), is greater than 1.70 to 1, as set
forth in the Borrowing Base Certificate delivered in respect
of such Valuation Date and ending on the earlier of (a) the
date on which a Default or Event of Default shall have
occurred and (b) the Business Day immediately succeeding the
Valuation Date on which the ratio of (x) the Aggregate Loan
Value of the Escrowed Stock to (y) the Covered Amount
(calculated as of the close of business on the Business Day
immediately preceding such Valuation Date and after giving
effect to any requested borrowing and any prepayment
hereunder to be made on such Valuation Date), is equal to or
less than 1.70 to 1, as set forth in the Borrowing Base
Certificate delivered in respect of such Valuation Date.
<PAGE>
6
"Consolidated Amortization Expense": for any period,
for any Person, the amortization expense of such Person and
its consolidated Subsidiaries, determined on a consolidated
basis in accordance with GAAP.
"Consolidated Cash Flow": for any period, for any
Person, (a) the Consolidated Net Income of such Person for
such period, plus (b) to the extent deducted in calculating
Consolidated Net Income of such Person for such Period, the
sum of (without duplication) (i) Consolidated Depreciation
Expense, (ii) Consolidated Amortization Expense, (iii)
Consolidated Interest Expense, (iv) income tax expense of
such Person and its Subsidiaries, each as determined in
accordance with GAAP after eliminating all intercompany
items and (v) non-recurring non-cash items, minus (c) to the
extent included in calculating Consolidated Net Income of
such Person for such period, interest income, all as
determined on a consolidated basis for such Person and its
Subsidiaries in accordance with GAAP.
"Consolidated Depreciation Expense": for any period,
for any Person, the depreciation expense of such Person and
its consolidated Subsidiaries, determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense": for any period, for
any Person, the interest expense of such Person and its
consolidated Subsidiaries, including, without duplication,
total interest expense for such period (including that
attributable to Financing Leases in accordance with GAAP)
with respect to all outstanding Indebtedness of such Person
and its consolidated Subsidiaries, including all capitalized
interest, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers'
acceptance financing, as such amount may be increased or
decreased by the net income or loss from Interest Rate
Agreements for such period determined in accordance with
GAAP, determined on a consolidated basis in accordance with
GAAP, all determined on a consolidate basis for such period
taken as a single accounting period.
"Consolidated Net Income": for any period, for any
Person, the net income (or loss) of such Person and its
Subsidiaries on a consolidated basis for such period taken
as a single accounting period determined in conformity with
GAAP; provided, however, that the following, without
duplication, shall be excluded: (a) the income (or loss) of
any Person that is not a Subsidiary of such Person and in
which any other Person (other than such Person or any of its
Subsidiaries) has a joint interest; (b) the income (or loss)
<PAGE>
7
of any Person accrued prior to the date it becomes a
Subsidiary of such Person or is merged into or consolidated
with such Person or any of its Subsidiaries or such Person's
assets are acquired by such Person or any of its
Subsidiaries; (c) any income of any Subsidiary of such
Person to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary of
such income is not at the time permitted by operation of the
terms of its charter or any agreement or instrument,
judgment, decree, order, statute, rule or governmental
regulation applicable to such Subsidiary, (d) dividends,
interest, income or other distributions or payments on any
investment in or with respect to any Person which is not a
Subsidiary of such Person, (e) the income (or loss) realized
by such Person or any of its Subsidiaries from dispositions
of assets other than in the ordinary course of business
(including as the result of the sale of any business assets,
business segment or business operations), (f) the income
resulting from any write-up of any asset, (g) the aggregate
net gain (or loss) during such period arising from any
revaluation (but not sale) of readily marketable securities,
(h) the aggregate net gain (or loss) during such period
arising from extraordinary transactions and (i) the income
(or loss) from discontinued operations.
"Contractual Obligation": as to any Person, any
provision of any security issued by such Person or of any
agreement, instrument or other undertaking to which such
Person is a party or by which it or any of its property is
bound.
"Covered Amount": as defined in subsection 2.1.
"Current Reg. U Loan Value": as of any date of
determination thereof, is an amount equal to 50% of the
Aggregate Loan Value of the Escrowed Stock determined as of
the Trading Day preceding the date of such determination.
"Default": any of the events specified in
subsection 7.1, whether or not any requirement for the
giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Disclosure Documents": as to the Borrower, all
filings made with the Securities and Exchange Commission
pursuant to Section 13(a) of the Securities Exchange Act of
1934 since January 1, 1996 and on or prior to the Closing
Date.
"Dollars" and "$": dollars in lawful currency of the
United States of America.
<PAGE>
8
"Environmental Laws": any and all foreign, Federal,
state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, requirements of any
Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of
human health or the environment, as now or may at any time
hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Escrow Account": shall mean the account established
by the Escrow Agent to hold the Escrowed Stock.
"Escrow Agent": The Bank of New York, a New York
banking institution, and its successors as Escrow Agent
under the Escrow Agreement.
"Escrow Agreement": the Escrow Agreement to be
executed and delivered by the Borrower, the Escrow Agent and
the Administrative Agent, substantially in the form of
Exhibit B, as the same may be amended, supplemented or
otherwise modified from time to time.
"Escrowed Stock": at any date of determination,
Common Stock held by the Escrow Agent pursuant to the Escrow
Agreement at such date.
"Eurocurrency Reserve Requirements": for any day as
applied to a Eurodollar Loan, the aggregate (without
duplication) of the rates (expressed as a decimal fraction)
of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of
Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect
thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"Eurodollar Base Rate": with respect to each day
during each Interest Period pertaining to a Eurodollar Loan,
the rate per annum equal to the rate at which Chemical is
offered Dollar deposits at or about 10:00 A.M., New York
City time, two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the
eurodollar and foreign currency and exchange operations in
respect of its Eurodollar Loans are then being conducted for
<PAGE>
9
delivery on the first day of such Interest Period for the
number of days comprised therein and in an amount comparable
to the amount of its Eurodollar Loan to be outstanding
during such Interest Period.
"Eurodollar Loans": Loans the rate of interest
applicable to which is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during
each Interest Period pertaining to a Eurodollar Loan, a rate
per annum determined for such day in accordance with the
following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in
subsection 7.1, provided that any requirement for the giving
of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Excluded Taxes": shall mean, with respect to the
Administrative Agent, any Lender or any other recipient of
any payment to be made by or on account of any obligation of
the Borrower hereunder (a) income or franchise taxes imposed
on (or measured by) its net income by the jurisdiction under
the laws of which it is organized, or the jurisdiction in
which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located,
(b) any branch profits or similar tax imposed by the United
States if such Lender's applicable lending office is located
in the United States and (c) in the case of a Foreign
Lender, any U.S. withholding tax imposed on amounts payable
to such Foreign Lender under this Agreement because of its
failure or inability to comply with subsection 2.15(d),
unless (and to the extent that) (i) such withholding tax
liability arises or is increased by reason of a Change in
Law occurring after such Foreign Lender becomes a Lender
under this Agreement or (ii) such Foreign Lender's assignor
(if any) was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such
withholding tax liability pursuant to subsection 2.15(a).
"Federal Funds Effective Rate": as defined in the
definition of "ABR" contained in this subsection.
"Financing Lease": any lease of property, real or
personal, the obligations of the lessee in respect of which
are required in accordance with GAAP to be capitalized on a
balance sheet of such lessee.
<PAGE>
10
"Foreign Lender": with respect to any Loan, shall
mean any Lender making such Loan that is organized under the
laws of a jurisdiction other than the United States.
"GAAP": generally accepted accounting principles in
the United States of America in effect from time to time.
"Governmental Authority": any nation or government,
any state or other political subdivision thereof and any
entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government.
"Guarantee Obligation": as to any Person (the
"guaranteeing person"), any obligation of (a) the
guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has
issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect
guaranteeing any Indebtedness, leases, dividends or other
obligations (the "primary obligations") of any other third
Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any
obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the
purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency
of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the
owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee
Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business.
The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount
equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee Obligation is
made and (b) the maximum amount for which such guaranteeing
person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or
<PAGE>
11
determinable, in which case the amount of such Guarantee
Obligation shall be such guaranteeing person's maximum
reasonably anticipated liability in respect thereof as
determined by the Borrower in good faith.
"Indebtedness": of any Person at any date, (a) all
indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of
business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which
is evidenced by a note, bond, debenture or similar
instrument, (c) all obligations of such Person under
Financing Leases, (d) all obligations of such Person in
respect of acceptances issued or created for the account of
such Person and (e) all liabilities secured by any Lien on
any property owned by such Person even though such Person
has not assumed or otherwise become liable for the payment
thereof.
"Insolvency": with respect to any Multiemployer
Plan, the condition that such Plan is insolvent within the
meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of
Insolvency.
"Interest Component": at any date of determination,
shall mean three months interest on the Loans calculated
using the weighted average interest rate then applicable to
the Loans at such date (after giving effect to any requested
borrowing hereunder and using, for any such requested
borrowing, the Borrower's estimate of the interest rate to
be applicable thereto).
"Interest Payment Date": (a) as to any ABR Loan, the
last day of each March, June, September and December, (b) as
to any Eurodollar Loan having an Interest Period of three
months or less, the last day of such Interest Period, and
(c) as to any Eurodollar Loan having an Interest Period
longer than three months, each day which is three months, or
a whole multiple thereof, after the first day of such
Interest Period and the last day of such Interest Period.
"Interest Period": with respect to any Eurodollar
Loan:
(i) initially, the period commencing on the
borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one,
two, three or six months thereafter, as selected by
the Borrower in its notice of borrowing or notice of
<PAGE>
12
conversion, as the case may be, given with respect
thereto; and
(ii) thereafter, each period commencing on the last
day of the next preceding Interest Period applicable
to such Eurodollar Loan and ending one, two, three or
six months thereafter, as selected by the Borrower by
irrevocable notice to the Administrative Agent not
less than three Business Days prior to the last day
of the then current Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to
Interest Periods are subject to the following:
(1) if any Interest Period would otherwise end on
a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding
Business Day unless the result of such extension
would be to carry such Interest Period into another
calendar month in which event such Interest Period
shall end on the immediately preceding Business Day;
(2) any Interest Period that would otherwise extend
beyond the Termination Date shall end on the
Termination Date; and
(3) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in
the calendar month at the end of such Interest
Period) shall end on the last Business Day of a
calendar month.
"Interest Rate Agreement": any interest rate swap
agreement, interest rate cap agreement, interest rate collar
agreement, interest rate futures contract, interest rate
option contract or other similar agreement or arrangement
designed to manage the exposure of a Person to or any of its
Subsidiaries to fluctuating interest rates.
"Interest Sublimit": when the Maximum Commitment
Amount is:
(A) $600,000,000 or more, $100,000,000;
(B) less than $600,000,000 but equal to or more
than $400,000,000, $75,000,000;
(C) less than $400,000,000 but equal to or more
than $200,000,000, $50,000,000; and
<PAGE>
13
(D) less than $200,000,000, $25,000,000.
"Lenders": as defined in the preamble to this
Agreement.
"Lien": any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien
(statutory or other), charge or other security interest or
any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or
other title retention agreement and any Financing Lease
having substantially the same economic effect as any of the
foregoing).
"Loan": as defined in subsection 2.1.
"Loan Documents": this Agreement, any Notes and the
Escrow Agreement.
"Loan Value": when used in reference to Common
Stock, means the current market price per share of the
Common Stock as of the Trading Day immediately preceding the
relevant Valuation Date and based upon the aggregate amount
of Escrowed Stock in the Escrow Account as of the Business
Day immediately preceding such Valuation Date; when used in
reference to Options, means the exercise price of
unexercised vested Options that are "in the money"
determined (x) with respect to the existence of unexercised
Options, as of the close of business on the last Business
Day of the week immediately preceding the relevant Valuation
Date, (y) with respect to whether or not such Options are
"in the money", based on the Loan Value of the Common Stock
as of the Trading Day immediately preceding such Valuation
Date and (z) with respect to whether or not such Options are
vested, as of the close of business on the Trading Day
immediately preceding such Valuation Date. The current
market price per share on (a) any Trading Day, shall be
deemed to be the reported last sale price for any such
Trading Day and (b) any other date, shall be deemed to be
the reported last sale price for the Trading Day before the
date in question. The reported last sales price for each
day shall be the reported last sales price, regular way, or,
in case no sale takes place on such day, the average of the
reported closing bid and asked prices, regular way, in
either case as reported on the New York Stock Exchange
Composite Tape or, if such security is not listed or
admitted to trading on the New York Stock Exchange at such
time, on the principal national securities exchange on which
such security is listed or admitted to trading or, if not
<PAGE>
14
listed or admitted to trading on any national securities
exchange, on the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ") or, if such security is not quoted on such
National Market System, the average of the closing bid and
asked prices on such day in the over-the-counter market as
reported by NASDAQ or, if bid and asked prices for the
security on each such day shall not have been reported
through NASDAQ, the average of the bid and asked prices for
such date as furnished by any New York Stock Exchange member
firm regularly making a market in such security selected for
such purpose by the Board of Directors of the Borrower or a
committee thereof or, if no such quotations are available,
the fair market value of such Common Stock as determined by
a New York Stock Exchange member firm regularly making a
market in the Common Stock selected for such purpose by the
Board of Directors of the Borrower or a committee thereof.
"Majority Lenders": at any time, Lenders the
Commitment Percentages of which aggregate more than 50%.
"Material Adverse Effect": a material adverse effect
on (a) the business, results of operations, condition
(financial or otherwise), properties or liabilities of the
Borrower and its Subsidiaries taken as a whole or (b) the
rights or remedies of the Administrative Agent or the
Lenders or the ability of the Borrower to perform its
obligations to the Administrative Agent or the Lenders under
any Loan Document.
"Material Subsidiary": of any Person, shall mean
each Subsidiary of such Person which, either alone or
together with the Subsidiaries of such Subsidiary, meets any
of the following conditions:
(i) the investments of such Person and its
Subsidiaries in, or their proportionate share
(based on their equity interests) of the fair
value or book value of the total assets (after
intercompany eliminations) of, the Subsidiary in
question exceeds 5% of the fair market or book
value, respectively, of the total assets of such
Person and its Subsidiaries;
(ii) the equity of such Person and its Subsidiaries in
the revenues of the Subsidiary in question exceeds
5% of the revenues from continuing operations of
such Person and its Subsidiaries (on a
consolidated basis) for the twelve-month period
ending on the last day of such Person's most
recently ended fiscal quarter; or
<PAGE>
15
(iii) the equity of such Person and its Subsidiaries in
the Consolidated Cash Flow of the Subsidiary in
question exceeds 5% of the Consolidated Cash Flow
of such Person and its Subsidiaries for the
twelve-month period ended on the last day of such
Person's most recently ended fiscal quarter.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or
petroleum products or any hazardous or toxic substances,
materials or wastes, defined or regulated as such in or
under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde
insulation.
"Maximum Commitment Amount": at any date of
determination, the aggregate amount of the Commitments then
in effect.
"Multiemployer Plan": a Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"NASDAQ": as defined in the definition of "Loan Value"
contained in this subsection 1.1.
"Net Cash Proceeds": in connection with any sale of
Escrowed Stock the cash proceeds received therefrom net of
all reasonable investment banking fees, legal fees,
accountants fees, underwriting discounts and commissions and
other customary fees and expenses, actually incurred in
connection therewith.
"Non-Material Subsidiary": with respect to any Person,
any Subsidiary of such Person which is not a Material
Subsidiary.
"Note": as defined in subsection 2.5(e).
"Notional Reduction Amount": with respect to each
Trigger Event, (i) if the Base Maximum Commitment Amount
immediately prior thereto was equal to or less than the
Current Reg. U Loan Value of the Escrowed Stock, the amount
by which the Base Maximum Commitment Amount would have to
have been reduced so that the related withdrawal and sale of
Escrowed Stock would not have caused the Base Maximum
Commitment Amount to exceed the Current Reg. U Loan Value of
the Escrowed Stock after giving effect to such withdrawal
and sale or (ii) if the Base Maximum Commitment Amount
immediately prior thereto exceeded such Current Reg. U Loan
Value, the amount by which the Base Maximum Commitment
<PAGE>
16
Amount would have to have been reduced so as not to have
caused an increase in the amount by which such Base Maximum
Commitment Amount exceeded the Current Reg. U Loan Value
after giving effect to such withdrawal and sale.
"Options": the approximately [82,613,421] options to
purchase Common Stock reflected on Schedule II (excluding
each such option the expiration date of which is, after the
Closing Date, extended beyond the maturity date of such
option set forth on Schedule II), as such Options may be
adjusted pursuant to subsection 9.8.
"Other Taxes": any and all present or future stamp or
documentary taxes or any other excise or property taxes,
charges or similar levies arising from any payment made
hereunder or from the execution or delivery of, or otherwise
with respect to, this Agreement.
"Participant": as defined in subsection 9.6(b).
"PBGC": the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or
any successor thereto.
"Person": an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other
entity of whatever nature.
"Plan": at a particular time, any employee benefit
plan which is covered by ERISA and in respect of which the
Borrower or a Commonly Controlled Entity is (or, if such
plan were terminated at such time, would under Section 4069
of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Prime Rate": as defined in the definition of "ABR"
contained in this subsection 1.1.
"Properties": as defined in subsection 3.16.
"Ratios": the ratios referred to in subsection 2.1.
"Register": as defined in subsection 9.6(d).
"Regulation U": Regulation U of the Board of Governors
of the Federal Reserve System as in effect from time to
time.
<PAGE>
17
"Reorganization": with respect to any Multiemployer
Plan, the condition that such Plan is in reorganization
within the meaning of Section 4241 of ERISA.
"Repayment Amount": as defined in subsection 2.5(f).
"Reportable Event": any of the events set forth in
Section 4043(c) of ERISA, other than those events as to
which the thirty day notice period is waived under
subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
section 2615.
"Requirement of Law": as to any Person, the
Certificate of Incorporation and By-Laws or other
organizational or governing documents of such Person, and
any law, treaty, rule or regulation or final, non-appealable
determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or
binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Responsible Officer": the chief executive officer and
the president of the Borrower or, with respect to financial
matters, the chief financial officer of the Borrower.
"Sale Event": as defined in subsection 5.9(d).
"Single Employer Plan": any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan.
"Subsidiary": as to any Person, a corporation,
partnership or other entity of which shares of stock or
other ownership interests having ordinary voting power
(other than stock or such other ownership interests having
such power only by reason of the happening of a contingency)
to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity
are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or
more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary
or Subsidiaries of the Borrower.
"Surplus Escrowed Stock": as of the indicated
effective date of any request for an increase in the Base
Maximum Commitment Amount, the sum of (i) the amount of
Common Stock deposited in the Escrow Account in connection
with such request plus (ii) an amount equal to the excess,
<PAGE>
18
if any, of (x) the amount of Escrowed Stock prior to the
deposit referred to in the preceding clause (i) over (y) the
portion of such Escrowed Stock that is at that time required
for a Trigger Event not to occur.
"Taxes": any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed
by any Governmental Authority, other than Excluded Taxes.
"Termination Date": the fifth anniversary of the
Closing Date.
"Trading Day": (x) if the Common Stock is listed or
admitted for trading on the New York Stock Exchange or
another national securities exchange, a day on which the New
York Stock Exchange or such other national securities
exchange is open for business or (y) if the Common Stock is
quoted on the National Market System of the NASDAQ, a day on
which trades may be made on such National Market System or
(z) otherwise, any Business Day.
"Tranche": the collective reference to Eurodollar
Loans the then current Interest Periods with respect to all
of which begin on the same date and end on the same later
date (whether or not such Loans shall originally have been
made on the same day).
"Transferee": as defined in subsection 9.6(f).
"Trigger Event": each withdrawal of Escrowed Stock from
the Escrow Account that, after giving effect to any
concurrent reduction in the Maximum Commitment Amount, (i)
results in the Base Maximum Commitment Amount exceeding the
Current Reg. U Loan Value of the Escrowed Stock or (ii)
which causes an increase in the amount by which such Base
Maximum Commitment Amount exceeds such Current Reg. U Loan
Value.
"Type": as to any Loan, its nature as an ABR Loan or a
Eurodollar Loan.
"Undertakings": the collective reference to the
Borrower's obligations hereunder to comply with the Ratios,
to comply with the provisions of subsections 5.9 and 5.10
and to comply with the provisions of Section 5 of the Escrow
Agreement.
"Valuation Date": means the second Business Day of
each week.
<PAGE>
19
1.2 Other Definitional Provisions. (a) Unless
otherwise specified therein, all terms defined in this Agreement
shall have the defined meanings when used in any Notes or any
certificate or other document made or delivered pursuant hereto.
(b) As used herein and in any Notes, and any
certificate or other document made or delivered pursuant hereto,
accounting terms relating to the Borrower and its Subsidiaries
not defined in subsection 1.1 and accounting terms partly defined
in subsection 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision
of this Agreement, and Section, subsection, Schedule and Exhibit
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall
be equally applicable to both the singular and plural forms of
such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the
terms and conditions hereof, each Lender severally agrees to make
revolving credit loans ("Loans") to the Borrower from time to
time during the Commitment Period in an aggregate principal
amount at any one time outstanding not to exceed the amount of
such Lender's Commitment, provided that no Lender shall be
required to make a Loan to the extent that, after giving effect
thereto
(1) the ratio of (x) the sum of (i) the Aggregate Loan
Value of the Escrowed Stock and (ii) the Aggregate Loan
Value of the Options, in each case as of the immediately
preceding Valuation Date, to (y) the sum (such sum, the
"Covered Amount") of the aggregate outstanding principal
amount of the Loans plus the Interest Component at such
time, would be less than 1.70 to 1.0; or
(2) the ratio of (x) the Aggregate Loan Value of the
Escrowed Stock as of the immediately preceding Valuation
Date, to (y) the Covered Amount at such time would be less
than (A) when the Loan Value of the Escrowed Stock is
greater than or equal to $24 per share (as adjusted pursuant
to subsection 9.8), 1.25 to 1.0 and (B) when the Loan Value
of the Escrowed Stock is less than $24 per share (as
adjusted pursuant to subsection 9.8), 1.40 to 1.0.
<PAGE>
20
During the Commitment Period the Borrower may use the Commitments
by borrowing, prepaying the Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions
hereof.
(b) The Loans may from time to time be (i) Eurodollar
Loans, (ii) ABR Loans, (iii) or a combination thereof, as
determined by the Borrower and notified to the Administrative
Agent in accordance with subsections 2.2 and 2.7, provided that
no Loan shall be made as a Eurodollar Loan after the day that is
one month prior to the Termination Date.
2.2 Procedure for Borrowing. The Borrower may borrow
under the Commitments during the Commitment Period on any
Business Day, provided that the Borrower shall give the
Administrative Agent irrevocable notice (which notice must be
received by the Administrative Agent prior to 10:00 A.M., New
York City time, (a) three Business Days prior to the requested
Borrowing Date, if all or any part of the requested Loans are to
be initially Eurodollar Loans and (b) one Business Day prior to
the requested Borrowing Date, otherwise), specifying (i) the
amount to be borrowed, (ii) the requested Borrowing Date, (iii)
whether the borrowing is to be of Eurodollar Loans, ABR Loans or
a combination thereof, (iv) if the borrowing is to be entirely or
partly of Eurodollar Loans, the respective amounts of each such
Type of Loan and the lengths of the initial Interest Periods
therefor and (v) the portion of the requested Loans, if any,
allocable to the Interest Sublimit. Each borrowing under the
Commitments shall be in an amount equal to (x) in the case of ABR
Loans, $5,000,000 or integral amounts of $1,000,000 in excess
thereof (or, if the then Available Commitments are less than
$5,000,000, such lesser amount) and (y) in the case of Eurodollar
Loans $5,000,000 or integral amounts of $1,000,000 in excess
thereof. Upon receipt of any such notice from the Borrower, the
Administrative Agent shall promptly notify each Lender thereof.
Each Lender will make the amount of its pro rata share of each
borrowing available to the Administrative Agent for the account
of the Borrower at the office of the Administrative Agent
specified in subsection 9.2 prior to 11:00 A.M., New York City
time, on the Borrowing Date requested by the Borrower in funds
immediately available to the Administrative Agent. Such
borrowing will then be made available to the Borrower by the
Administrative Agent crediting the account of the Borrower on the
books of such office with the aggregate of the amounts made
available to the Administrative Agent by the Lenders and in like
funds as received by the Administrative Agent. The foregoing
provisions shall not apply to the continuation or conversion of
Loans pursuant to subsection 2.7.
<PAGE>
21
2.3 Commitment and Other Fees. The Borrower agrees to
pay to the Administrative Agent for the account of each Lender a
commitment fee for the period from and including the first day of
the Commitment Period to the Termination Date, computed at the
rate of 1/4th of 1% per annum on the average daily amount of the
Available Commitment of such Lender during the period for which
payment is made, payable quarterly in arrears on the last day of
each March, June, September and December and on the Termination
Date or such earlier date as the Commitments shall terminate as
provided herein, commencing on the first of such dates to occur
after the date hereof. In addition the Borrower agrees to pay
the Administrative Agent the fees specified in the letter, dated
April 12, 1996, from Chase Securities Inc. and Chemical to the
Borrower.
2.4 Termination or Reduction of Commitments. (a) The
Borrower shall have the right, upon not less than five Business
Days' notice to the Administrative Agent, to terminate the
Commitments or, from time to time, to reduce the amount of the
Commitments but not below the outstanding principal amount of the
Loans after giving effect to any prepayments thereof to be made
on or prior to the effective date of such termination or
reduction. Any such reduction shall be in an amount equal to
$5,000,000 or integral amounts of $1,000,000 in excess thereof
and shall reduce permanently the Commitments then in effect.
Upon receipt of any notice pursuant to this subsection 2.4(a),
the Administrative Agent shall promptly notify each Lender
thereof.
(b) On the fifteenth day of each month or if such day
is not a Business Day, on the next succeeding Business Day
(commencing with the first such day to occur in the month
following the month in which the Closing Date occurs), the
Commitments shall automatically and permanently be reduced by an
amount equal to the cash proceeds received by or on behalf of the
Borrower during the immediately preceding month from the exercise
of Options (or, in the case of the first such day, received in
respect of the Options through the last day of the preceding
month) (the "Automatic Commitment Reduction Amount"), provided
that to the extent that the Automatic Commitment Reduction Amount
as calculated with respect to any month or period is less than
$1,000,000, the Commitments shall not be reduced pursuant to this
subsection and such Automatic Commitment Reduction Amount shall
be added to the calculation of the Automatic Commitment Reduction
Amount in respect of the immediately subsequent month.
2.5 Repayment of Loans; Evidence of Debt; Limited
Recourse. (a) Subject to the limitations on recourse to the
Borrower set forth in subsection 2.5(f), the Borrower hereby
unconditionally promises to pay to the Administrative Agent for
<PAGE>
22
the account of each Lender the then unpaid principal amount of
each Loan of such Lender on the Termination Date (or such earlier
date on which the Loans become due and payable pursuant to
subsection 7.1). Subject to the limitations on recourse to the
Borrower set forth in subsection 2.5(f), the Borrower hereby
further agrees to pay interest on the unpaid principal amount of
the Loans from time to time outstanding from the date hereof
until payment in full thereof at the rates per annum, and on the
dates, set forth in subsection 2.9.
(b) Each Lender shall maintain in accordance with its
usual practice an account or accounts evidencing indebtedness of
the Borrower to such Lender resulting from each Loan of such
Lender from time to time, including the amounts of principal and
interest payable and paid to such Lender from time to time under
this Agreement.
(c) The Administrative Agent shall maintain the
Register pursuant to subsection 9.6(d), and a subaccount therein
for each Lender, in which shall be recorded (i) the amount of
each Loan made hereunder, the Type thereof and each Interest
Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) both the amount of
any sum received by the Administrative Agent hereunder from the
Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts
of each Lender maintained pursuant to subsection 2.5(b) shall, to
the extent permitted by applicable law, be prima facie evidence
of the existence and amounts of the obligations of the Borrower
therein recorded; provided, however, that the failure of any
Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner
affect the obligation of the Borrower to repay (with applicable
interest) the Loans made to such Borrower by such Lender in
accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and
deliver to such Lender a promissory note of the Borrower
evidencing the Loans of such Lender, substantially in the form of
Exhibit A with appropriate insertions as to date and principal
amount (a "Note").
(f) Subject to the two succeeding sentences, the
obligation to repay the Loans, together with the interest thereon
pursuant to this Agreement (collectively, the "Repayment
Amount"), shall be recourse to the Borrower only in an amount
equal to the cash proceeds from the exercising of the Options and
<PAGE>
23
an amount equal to the Net Cash Proceeds of the sale of the
Escrowed Stock and to the Undertakings. Notwithstanding the
foregoing, the obligations set forth in subsections 2.3, 2.14,
2.15, 2.16 (other than clause (b) of subsection 2.16), 6.1 and
9.5 shall be fully recourse to the Borrower. In addition, to the
extent provided in subsection 7.2, if the Borrower shall fail to
perform any of its Undertakings (taking into account the time
periods provided for herein for such performance) and, as a
result, the Loans and all other amounts owing in respect thereof
shall not be paid in full, the Repayment Amount shall become
fully recourse to the Borrower, and the Repayment Amount and all
other amounts owing to the Administrative Agent and the Lenders
shall be immediately due and payable in cash.
2.6 Optional and Mandatory Prepayments. (a) The
Borrower may at any time and from time to time prepay the Loans,
in whole or in part, without premium or penalty, upon irrevocable
notice to the Administrative Agent (which notice must be received
by the Administrative Agent prior to 10:00 A.M., New York City
time, at least (i) three Business Days prior to the date of such
prepayment with respect to Eurodollar Loans and (ii) one Business
Day prior to the date of such prepayment with respect to ABR
Loans), specifying the date and amount of prepayment and whether
the prepayment is of Eurodollar Loans, ABR Loans or a combination
thereof, and, if of a combination thereof, the amount allocable
to each. Upon receipt of any such notice the Administrative
Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due
and payable on the date specified therein, together with any
amounts payable pursuant to subsection 2.16 and accrued interest
to such date on the amount prepaid. Partial prepayments under
this subsection 2.6(a) shall be in an aggregate principal amount
of $5,000,000 or in integral amounts of $1,000,000 in excess
thereof.
(b) If on any Valuation Date (the "First Valuation
Date") the Borrower is not in compliance with the Ratios (after
giving effect to any deposit of Common Stock into the Escrow
Account pursuant to subsection 5.9), the Borrower shall, without
notice or demand, on or before the immediately succeeding
Valuation Date (if on such date the Borrower is still not in
compliance with the Ratios) prepay the Loans in an aggregate
principal amount necessary to cause compliance with the Ratios as
of the First Valuation Date.
(c) Upon the release of Escrowed Stock from the Escrow
Account, the Borrower shall prepay the Loans in an amount equal
to the greater of (i) the amount, if any, necessary to cause
compliance with the Ratios (after giving effect to the release of
such Escrowed Stock) and (ii) (x) if the outstanding amount of
<PAGE>
24
the Loans immediately prior to the release of the Escrowed Stock
was less than or equal to the Current Reg. U Loan Value of the
Escrowed Stock prior to such release, an amount such that after
giving effect thereto, the outstanding principal amount of the
Loans does not exceed the Current Reg. U Loan Value of the
remaining Escrowed Stock or (y) if the outstanding amount of the
Loans immediately prior to the release of the Escrowed Stock
exceeded the Current Reg. U Loan Value of the Escrowed Stock
prior to such release, an amount such that after giving effect
thereto, the amount of such excess does not increase based on the
Current Reg. U Loan Value of the remaining Escrowed Stock. All
prepayments required to be made pursuant to this subsection
2.6(c) shall be due (x) in the case of any such prepayment
obligation which is to be satisfied with the proceeds from the
sale of such Escrowed Stock, not later than the second Business
Day following receipt of the proceeds from the sale of such
Escrowed Stock and (y) otherwise, on the Business Day such
Escrowed Stock is released.
(d) On each date that the Commitments are reduced
pursuant to subsection 2.4, the Borrower shall prepay the Loans
by the amount, if any, that the outstanding aggregate principal
amount of the Loans exceeds the Maximum Commitment Amount (after
giving effect to such reduction in the Commitments).
(e) Each prepayment pursuant to subsections 2.6(b)
through (d) shall be accompanied by payment of any amounts
payable pursuant to subsection 2.16 and accrued interest to such
date on the amount prepaid.
2.7 Conversion and Continuation Options.
(a) Notwithstanding the provisions of subsection 2.2, the
Borrower may elect from time to time to convert Eurodollar Loans
to ABR Loans by giving the Administrative Agent at least one
Business Day's prior irrevocable notice of such election (which
notice must be received by the Administrative Agent prior to
10:00 A.M., New York City time), provided that any such
conversion of Eurodollar Loans may only be made on the last day
of an Interest Period with respect thereto. The Borrower may
elect from time to time to convert ABR Loans to Eurodollar Loans
by giving the Administrative Agent at least three Business Days'
prior irrevocable notice of such election. Any such notice of
conversion to Eurodollar Loans shall specify the length of the
initial Interest Period or Interest Periods therefor. Upon
receipt of any such notice the Administrative Agent shall
promptly notify each Lender thereof. All or any part of
outstanding Eurodollar Loans and ABR Loans may be converted as
provided herein, provided that (i) no Loan may be converted into
a Eurodollar Loan when any Event of Default has occurred and is
continuing and the Administrative Agent has determined that such
<PAGE>
25
a conversion is not appropriate and (ii) no Loan may be converted
into a Eurodollar Loan after the date that is one month prior to
the Termination Date.
(b) Notwithstanding subsection 2.2, any Eurodollar
Loans may be continued as such upon the expiration of the then
current Interest Period with respect thereto by the Borrower
giving notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in
subsection 1.1, of the length of the next Interest Period to be
applicable to such Loans, provided that no Eurodollar Loan may be
continued as such (i) when any Event of Default has occurred and
is continuing and the Administrative Agent has determined that
such a continuation is not appropriate or (ii) after the date
that is one month prior to the Termination Date and provided,
further, that if the Borrower shall fail to give such notice or
if such continuation is not permitted such Loans shall be
automatically converted to ABR Loans on the last day of such then
expiring Interest Period. Upon receipt of any notice pursuant to
this subsection 2.7(b), the Administrative Agent shall promptly
notify each Lender thereof.
2.8 Minimum Amounts and Maximum Number of Tranches.
All borrowings, conversions and continuations of Loans hereunder
and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, after
giving effect thereto, the aggregate principal amount of the
Loans comprising each Tranche shall be equal to $5,000,000 or
integral amounts of $1,000,000 in excess thereof. In no event
shall there be more than 20 Tranches outstanding at any time.
2.9 Interest Rates and Payment Dates. (a) Each
Eurodollar Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to
the Eurodollar Rate determined for such day plus the Applicable
Margin.
(b) Each ABR Loan shall bear interest at a rate per
annum equal to the ABR.
(c) If all or a portion of (i) any principal of any
Loan, (ii) any interest payable thereon, (iii) any commitment fee
or (iv) any other amount payable hereunder shall not be paid when
due (whether at the stated maturity, by acceleration or
otherwise), the amount which is not paid when due shall bear
interest at a rate per annum which is (x) in the case of
principal, the rate that would otherwise be applicable thereto
pursuant to the foregoing provisions of this subsection plus 2%
or (y) in the case of any such overdue interest, commitment fee
or other amount, the rate described in paragraph (b) of this
<PAGE>
26
subsection plus 2%, in each case from the date of such
non-payment until such overdue principal, interest, commitment
fee or other amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each
Interest Payment Date, provided that interest accruing pursuant
to paragraph (c) of this subsection shall be payable from time to
time on demand.
2.10 Computation of Interest and Fees. (a) Commitment
fees and, whenever it is calculated on the basis of the Prime
Rate, interest shall be calculated on the basis of a 365- (or
366-, as the case may be) day year for the actual days elapsed;
and, otherwise, interest shall be calculated on the basis of a
360-day year for the actual days elapsed. The Administrative
Agent shall as soon as practicable notify the Borrower and the
Lenders of each determination of a Eurodollar Rate. Any change
in the interest rate on a Loan resulting from a change in the
ABR, the Eurocurrency Reserve Requirements, the C/D Assessment
Rate or the C/D Reserve Percentage shall become effective as of
the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable
notify the Borrower and the Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement
shall be conclusive and binding on the Borrower and the Lenders
in the absence of manifest error. The Administrative Agent
shall, at the request of the Borrower, deliver to the Borrower a
statement showing the quotations used by the Administrative Agent
in determining any interest rate pursuant to subsection 2.9(a).
2.11 Inability to Determine Interest Rate. If prior
to the first day of any Interest Period:
(a) the Administrative Agent shall have determined
(which determination shall be conclusive and binding upon
the Borrower) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Interest
Period, or
(b) the Administrative Agent shall have received
notice from the Majority Lenders that the Eurodollar Rate
determined or to be determined for such Interest Period will
not adequately and fairly reflect the cost to such Lenders
(as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
<PAGE>
27
the Administrative Agent shall give telecopy or telephonic notice
thereof to the Borrower and the Lenders as soon as practicable
thereafter. If such notice is given (x) any Eurodollar Loans
requested to be made on the first day of such Interest Period
shall be made as ABR Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar
Loans shall be continued as ABR Loans and (z) any outstanding
Eurodollar Loans shall be converted, on the first day of such
Interest Period, to ABR Loans. Until such notice has been
withdrawn by the Administrative Agent, no further Eurodollar
Loans shall be made or continued as such, nor shall the Borrower
have the right to convert Loans to Eurodollar Loans.
2.12 Pro Rata Treatment and Payments. (a) Each
borrowing by the Borrower from the Lenders hereunder, each
payment by the Borrower on account of any commitment fee
hereunder and any reduction of the Commitments of the Lenders
shall be made pro rata according to the respective Commitment
Percentages of the Lenders. Each payment (including each
prepayment) by the Borrower on account of principal of and
interest on the Loans shall be made pro rata according to the
respective outstanding principal amounts of the Loans then held
by the Lenders. All payments (including prepayments) to be made
by the Borrower hereunder, whether on account of principal,
interest, fees or otherwise, shall be made without set off or
counterclaim and shall be made prior to 12:00 Noon, New York City
time, on the due date thereof to the Administrative Agent, for
the account of the Lenders, at the Administrative Agent's office
specified in subsection 9.2, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as
received. If any payment hereunder becomes due and payable on a
day other than a Business Day, such payment shall be extended to
the next succeeding Business Day, and, with respect to payments
of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(b) Unless the Administrative Agent shall have been
notified in writing by any Lender prior to a borrowing that such
Lender will not make the amount that would constitute its
Commitment Percentage of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative
Agent, and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower a corresponding
amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date
therefor, such Lender shall pay to the Administrative Agent, on
demand, such amount with interest thereon at a rate equal to the
daily average Federal Funds Effective Rate for the period until
<PAGE>
28
such Lender makes such amount immediately available to the
Administrative Agent. A certificate of the Administrative Agent
submitted to any Lender with respect to any amounts owing under
this subsection shall be conclusive in the absence of manifest
error. If such Lender's Commitment Percentage of such borrowing
is not made available to the Administrative Agent by such Lender
within three Business Days of such Borrowing Date, the
Administrative Agent shall also be entitled to recover such
amount with interest thereon at the rate per annum applicable to
the Loans comprising such borrowing, on demand, from the
Borrower. If such Lender shall repay to the Administrative Agent
such corresponding amount, such amount shall constitute such
Lender's Loan as part of such borrowing for purposes of this
Agreement.
2.13 Illegality. Notwithstanding any other provision
herein, if the adoption of or any change in any Requirement of
Law or in the interpretation or application thereof shall make it
unlawful for any Lender to make or maintain Eurodollar Loans as
contemplated by this Agreement, (a) the commitment of such Lender
hereunder to make Eurodollar Loans, continue Eurodollar Loans as
such and convert ABR Loans to Eurodollar Loans shall forthwith be
cancelled and (b) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to ABR
Loans on the respective last days of the then current Interest
Periods with respect to such Loans or within such earlier period
as required by law. If any such conversion of a Eurodollar Loan
occurs on a day which is not the last day of the then current
Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to
subsection 2.16.
2.14 Requirements of Law. (a) If the adoption of or
any change in any Requirement of Law or in the interpretation or
application thereof or compliance by any Lender with any request
or directive (whether or not having the force of law) from any
central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note or any
Eurodollar Loan made by it, or change the basis of taxation
of payments to such Lender in respect thereof (except for
changes in the rate of tax on the overall net income of such
Lender);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or
<PAGE>
29
other extensions of credit by, or any other acquisition of
funds by, any office of such Lender which is not otherwise
included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to
such Lender, by an amount which such Lender reasonably deems to
be material, of making, converting into, continuing or
maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the
Borrower shall promptly pay such Lender such additional amount or
amounts as will compensate such Lender for such increased cost or
reduced amount receivable.
(b) If any Lender shall have reasonably determined
that the adoption of or any change in any Requirement of Law
regarding capital adequacy or in the interpretation or
application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive
regarding capital adequacy (whether or not having the force of
law) from any Governmental Authority made subsequent to the date
hereof shall have the effect of reducing the rate of return on
such Lender's or such corporation's capital as a consequence of
its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption,
change or compliance (taking into consideration such Lender's or
such corporation's policies with respect to capital adequacy) by
an amount reasonably deemed by such Lender to be material, then
from time to time, the Borrower shall promptly pay to such Lender
such additional amount or amounts as will compensate such Lender
or such corporation for such reduction.
(c) If any Lender becomes entitled to claim any
additional amounts pursuant to this subsection, it shall promptly
notify the Borrower (with a copy to the Administrative Agent) of
the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this
subsection submitted by such Lender to the Borrower (with a copy
to the Administrative Agent) shall be conclusive in the absence
of manifest error. The agreements in this subsection shall
survive the termination of this Agreement and the payment of the
Loans and all other amounts payable hereunder.
2.15 Taxes. (a) All payments made by the Borrower
under this Agreement and any Notes shall be made free and clear
of, and without deduction or withholding for or on account of,
any present or future Taxes or Other Taxes. If any such Taxes or
Other Taxes are required to be withheld from any amounts payable
<PAGE>
30
to the Administrative Agent or any Lender hereunder or under any
Note, the amounts so payable to the Administrative Agent or such
Lender shall be increased to the extent necessary to yield to the
Administrative Agent or such Lender (after payment of all Taxes
and Other Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this
Agreement, provided, however, that the Borrower shall not be
required to increase any such amounts payable to any Foreign
Lender if such Foreign Lender fails to comply with the
requirements of paragraph (d) of this subsection. Whenever any
Taxes or Other Taxes are payable by the Borrower, as promptly as
possible thereafter the Borrower shall send to the Administrative
Agent for its own account or for the account of such Lender, as
the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. The agreements
in this subsection 2.15 shall survive the termination of this
Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) In addition, the Borrower agrees to pay any Other
Taxes to the relevant Governmental Authority in accordance with
applicable law.
(c) The Borrower shall indemnify the Administrative
Agent and each Lender, within 10 days after written demand
therefor, for the full amount of any Taxes or Other Taxes
(including Taxes or Other Taxes imposed or asserted on amounts
payable under this subsection) paid by the Administrative Agent
or such Lender, as the case may be, with respect to payments by
or on account of any obligation of the Borrower hereunder and any
liability (including penalties, interest and reasonable expenses)
arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted by the
relevant Governmental Authority. A certificate as to the amount
of such payment or liability delivered to the Borrower by a
Lender or by the Administrative Agent on its own behalf or on
behalf of a Lender, shall be conclusive absent manifest error.
(d) Each Foreign Lender shall:
(i) deliver to the Borrower and the Administrative
Agent (A) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, or successor
applicable form, as the case may be, and (B) an Internal
Revenue Service Form W-8 or W-9, or successor applicable
form, as the case may be;
(ii) deliver to the Borrower and the Administrative
Agent two further copies of any such form or certification
on or before the date that any such form or certification
<PAGE>
31
expires or becomes obsolete and after the occurrence of any
event requiring a change in the most recent form previously
delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be
requested by the Borrower or the Administrative Agent;
unless in any such case an event (including, without limitation,
any change in treaty, law or regulation) has occurred prior to
the date on which any such delivery would otherwise be required
which renders all such forms inapplicable or which would prevent
such Lender from duly completing and delivering any such form
with respect to it and such Lender so advises the Borrower and
the Administrative Agent. Such Lender shall certify (i) in the
case of a Form 1001 or 4224, that it is entitled to receive
payments under this Agreement without deduction or withholding of
any United States federal income taxes and (ii) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax. Each Person that shall become a
Lender or a Participant pursuant to subsection 9.6 shall, upon
the effectiveness of the related transfer, be required to provide
all of the forms and statements required pursuant to this
subsection, provided that in the case of a Participant such
Participant shall furnish a copy of all such required forms and
statements to the Lender from which the related participation
shall have been purchased.
(e) If the Administrative Agent or any Lender shall
become aware that it is entitled to claim a refund from any
Governmental Authority in respect of any Taxes or Other Taxes as
to which it has been indemnified by the Borrower, or with respect
to which the Borrower has paid additional amounts pursuant to
this subsection 2.15, it shall promptly notify the Borrower of
the availability of such refund claim and shall, within ten (10)
days after receipt of a request by the Borrower, make a claim to
such Governmental Authority for such refund at the Borrower's
expense. If the Administrative Agent or any Lender receives a
refund (including pursuant to a claim for refund made pursuant to
the preceding sentence) in respect of any Taxes or Other Taxes as
to which it has been indemnified by the Borrower or with respect
to which the Borrower has paid additional amounts pursuant to
this subsection 2.15, it shall, within ten (10) days from the
date of such receipt, pay over such refund to the Borrower (but
only to the extent of indemnity payments made, or additional
amounts paid, by the Borrower under this subsection 2.15 with
respect to the Taxes or Other Taxes giving rise to such refund),
net of all out-of-pocket expenses of such Lender or the
Administrative Agent and without interest (other than interest
paid by the relevant Governmental Authority with respect to such
<PAGE>
32
refund); provided, however, that the Borrower, upon the request
of such Lender or the Administrative Agent, agrees to repay the
amount paid over to the Borrower (plus penalties, interest or
other charges) to such Lender or the Administrative Agent in the
event such Lender or the Administrative Agent is required to
repay such refund to such Governmental Authority.
2.16 Indemnity. The Borrower agrees to indemnify each
Lender and to hold each Lender harmless from any loss or expense
which such Lender may sustain or incur as a consequence of
(a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in
making any prepayment after the Borrower has given a notice
thereof in accordance with the provisions of this Agreement or
(c) the making of a prepayment or conversion of Eurodollar Loans
on a day which is not the last day of an Interest Period with
respect thereto. Such indemnification may include an amount
equal to the excess, if any, of (i) the amount of interest which
would have accrued on the amount so prepaid or converted, or not
so borrowed, converted or continued, for the period from the date
of such prepayment or conversion or of such failure to borrow,
convert or continue to the last day of such Interest Period (or,
in the case of a failure to borrow, convert or continue, the
Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such
Loans provided for herein (excluding, however, the Applicable
Margin included therein, if any) over (ii) the amount of interest
(as reasonably determined by such Lender) which would have
accrued to such Bank on such amount by placing such amount on
deposit for a comparable period with leading banks in the
interbank eurodollar market. This covenant shall survive the
termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder.
2.17 Change of Lending Office. Each Lender agrees
that if it makes any demand for payment under subsection 2.14 or
2.15(a), or if any adoption or change of the type described in
subsection 2.13 shall occur with respect to it, it will use
reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions and so long as such efforts would not
be disadvantageous to it, as determined in its sole discretion)
to designate a different lending office if the making of such a
designation would reduce or obviate the need for the Borrower to
make payments under subsection 2.14 or 2.15(a), or would
eliminate or reduce the effect of any adoption or change
described in subsection 2.13.
<PAGE>
33
2.18 Replacement of Lenders under Certain
Circumstances. The Borrower shall be permitted to replace any
Lender which (a) requests reimbursement for amounts owing
pursuant to subsection 2.14 or 2.15(a) or (b) is affected in the
manner described in subsection 2.13 and as a result thereof any
of the actions described in said subsection are required to be
taken; provided that (i) such replacement does not conflict with
any Requirement of Law, (ii) no Event of Default shall have
occurred and be continuing at the time of such replacement, (iii)
the Borrower shall repay (or the replacement bank or institution
shall purchase, at par) all Loans and other amounts owing to such
replaced Lender prior to the date of replacement, (iv) the
Borrower shall be liable to such replaced Lender under subsection
2.16 if any Eurodollar Loan owing to such replaced Lender shall
be prepaid (or purchased) other than on the last day of the
Interest Period relating thereto, (v) the replacement bank or
institution, if not already a Lender, and the terms and
conditions of such replacement, shall be reasonably satisfactory
to the Administrative Agent, (vi) the replaced Lender shall be
obligated to make such replacement in accordance with the
provisions of subsection 9.6 (provided that the Borrower shall be
obligated to pay the registration and processing fee referred to
therein), and (vii) until such time as such replacement shall be
consummated, the Borrower shall pay all additional amounts (if
any) required pursuant to subsection 2.14 or 2.15(a), as the case
may be.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to
enter into this Agreement and to make the Loans, the Borrower
hereby represents and warrants to the Administrative Agent and
each Lender that:
3.1 Financial Condition. The consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at
December 31, 1995 and the related consolidated statements of
income and of cash flows for the fiscal year ended on such date,
reported on by Ernst & Young, LLP, copies of which have
heretofore been furnished to each Lender, are complete and
correct and present fairly the consolidated financial condition
of the Borrower and its consolidated Subsidiaries as at such
date, and the consolidated results of their operations and their
consolidated cash flows for the fiscal year then ended. The
unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at March 31, 1996 and the related
unaudited consolidated statements of income and of cash flows for
the three-month period ended on such date, certified by a
Responsible Officer, copies of which have heretofore been
<PAGE>
34
furnished to each Lender, are complete and correct and present
fairly the consolidated financial condition of the Borrower and
its consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their consolidated
cash flows for the three-month period then ended (subject to
normal year-end audit adjustments). All such financial
statements, including the related schedules and notes thereto,
have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as
disclosed therein). Neither the Borrower nor any of its
consolidated Subsidiaries had, at the date of the most recent
balance sheet referred to above, any material Guarantee
Obligation, contingent liability or liability for taxes, or any
material long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or
foreign currency swap or exchange transaction, which is not
reflected in the foregoing statements or in the notes thereto to
the extent required by GAAP.
3.2 No Change. Since December 31, 1995 there has been
no development, circumstance or event which has had or could
reasonably be expected to have a Material Adverse Effect.
3.3 Corporate Existence; Compliance with Law. Each of
the Borrower and its Material Subsidiaries (a) is duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the corporate power and
authority, and the legal right, to own and operate its property,
to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified
as a foreign corporation and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such
qualification and (d) is in compliance with all Requirements of
Law, except in each case to the extent that such failure could
not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable
Obligations. The Borrower has the corporate power and authority,
and the legal right, to make, deliver and perform the Loan
Documents to which it is a party and to borrow hereunder and has
taken all necessary corporate action to authorize the borrowings
on the terms and conditions of this Agreement and any Notes and
to authorize the execution, delivery and performance of the Loan
Documents to which it is a party. Except as contemplated by the
Escrow Agreement, no consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental
Authority or any other Person is required in connection with the
<PAGE>
35
borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of the Loan Documents to
which the Borrower is a party. This Agreement has been, and each
other Loan Document to which it is a party will be, duly executed
and delivered on behalf of the Borrower. This Agreement
constitutes, and each other Loan Document to which it is a party
when executed and delivered will constitute, a legal, valid and
binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
3.5 No Legal Bar. The execution, delivery and
performance of the Loan Documents to which the Borrower is a
party, the borrowings hereunder and the use of the proceeds
thereof will not violate any Requirement of Law or Contractual
Obligation of the Borrower or of any of its Subsidiaries and will
not result in, or require, the creation or imposition of any Lien
on any of its or their respective properties or revenues pursuant
to any such Requirement of Law or Contractual Obligation.
3.6 No Material Litigation. Subject to the matters
disclosed in the Disclosure Documents, no litigation,
investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the
Borrower, threatened by or against the Borrower or any of its
Subsidiaries or against any of its or their respective properties
or revenues (a) with respect to any of the Loan Documents or any
of the transactions contemplated hereby or thereby, or (b) which
could reasonably be expected to have a Material Adverse Effect.
3.7 No Default. Subject to the matters disclosed in
the Disclosure Documents, neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any of its
Contractual Obligations in any respect which could reasonably be
expected to have a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing.
3.8 Ownership of Property; Liens. Each of the
Borrower and its Subsidiaries has good record and marketable
title in fee simple to, or a valid leasehold interest in, all its
real property, and good title to, or a valid leasehold interest
in, all its other property except, in each case, to the extent
that the failure to have such could not reasonably be expected to
have a Material Adverse Effect. Except to the extent
contemplated by the Escrow Agreement, no Lien exists on any of
the Escrowed Stock or the exercise price payable to the Borrower
in respect of the Options.
<PAGE>
36
3.9 Intellectual Property. The Borrower and each of
its Subsidiaries owns, or is licensed or otherwise entitled to
use, all trademarks, tradenames, copyrights, technology, know-how
and processes necessary for the conduct of its business as
currently conducted except for those the failure to own or
license or otherwise be entitled to use which could not
reasonably be expected to have a Material Adverse Effect (the
"Intellectual Property"). The use of such Intellectual Property
by the Borrower and its Subsidiaries does not infringe on the
rights of any Person, except for such claims and infringements
that, in the aggregate, could not reasonably be expected to have
a Material Adverse Effect.
3.10 No Burdensome Restrictions. Subject to the
matters disclosed in the Disclosure Documents, no Requirement of
Law or Contractual Obligation of the Borrower or any of its
Subsidiaries could reasonably be expected to have a Material
Adverse Effect.
3.11 Taxes. Each of the Borrower and its Subsidiaries
has filed or caused to be filed all tax returns which, to the
knowledge of the Borrower, are required to be filed and has paid
all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other
taxes, fees or other charges imposed on it or any of its property
by any Governmental Authority (other than (i) any the amount or
validity of which are currently being contested in good faith by
appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the
Borrower or its Subsidiaries, as the case may be, or (ii) with
respect to any Subsidiary, any that could not reasonably be
expected to have a Material Adverse Effect). With respect to the
Borrower, no tax Lien has been filed, and, with respect to any
Subsidiary, no tax Lien has been filed that could reasonably be
expected to have a Material Adverse Effect. No claim is being
asserted against the Borrower or any of its Subsidiaries with
respect to any such tax that could reasonably be expected to have
a Material Adverse Effect.
3.12 Federal Regulations. No part of the proceeds of
any Loans will be used for any purpose which violates, or which
would be inconsistent with, Regulation G or Regulation U of the
Board of Governors of the Federal Reserve System as now and from
time to time hereafter in effect. On the Closing Date, the
Borrower will furnish to the Administrative Agent and each Lender
a statement in conformity with the requirements of FR Form G-1 or
FR Form U-1 referred to in said Regulation G or Regulation U, as
the case may be.
<PAGE>
37
3.13 ERISA. Neither a Reportable Event nor an
"accumulated funding deficiency" (within the meaning of
Section 412 of the Code or Section 302 of ERISA) has occurred
during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan,
which, if then terminated, has had or could reasonably be
expected to have a Material Adverse Effect. Each Plan has
complied with the applicable provisions of ERISA and the Code
except where such failure to comply could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect. Neither the Borrower nor any Commonly Controlled Entity
has incurred or reasonably expects to incur any liability under
Title IV of ERISA (other than for premiums due to the PBGC which
are not in default) which, individually or in the aggregate,
reasonably, has or could be expected to have a Material Adverse
Effect and no Lien in favor of the PBGC or a Plan has arisen,
during such five year period. The present value of all accrued
benefits under each Single Employer Plan (based on those
assumptions used to fund such Plans) did not, as of the last
annual valuation date prior to the date on which this
representation is made or deemed made, exceed the value of the
assets of such Plan allocable to such accrued benefits by an
amount which, when aggregated for all such Plans whose
liabilities exceed its assets, is in excess of $50,000,000.
Neither the Borrower nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan, and
neither the Borrower nor any Commonly Controlled Entity would
become subject to any liability under ERISA if the Borrower or
any such Commonly Controlled Entity were to withdraw completely
from all Multiemployer Plans as of the valuation date most
closely preceding the date on which this representation is made
or deemed made, where such withdrawal or liability could,
individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect. No such Multiemployer Plan is in
Reorganization or Insolvent where the effect of such
Reorganization or Insolvency could, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect.
3.14 Investment Company Act; Other Regulations. The
Borrower is not an "investment company", or a company
"controlled" by an "investment company", within the meaning of
the Investment Company Act of 1940, as amended. The Borrower is
not subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board of Governors of
the Federal Reserve System) which limits its ability to incur
Indebtedness.
3.15 Purpose of Loans. The proceeds of the Loans
shall be used by the Borrower for general corporate purposes of
<PAGE>
38
the Borrower, including to pay interest and fees on the Loans;
provided that the Interest Sublimit shall be made available
exclusively for the payment of interest and fees on the Loans and
provided further that under the circumstances and for the period
described in subsection 5.9(d), the proceeds of all Loans shall
be made available exclusively for the payment of interest and
fees on the Loans.
3.16 Environmental Matters. Except as set forth on
Schedule 3.16:
(a) To the best knowledge of the Borrower, the
facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "Properties") do
not contain, and have not previously contained, any
Materials of Environmental Concern in amounts or
concentrations which (i) constitute or constituted a
violation of, or (ii) could reasonably be expected to give
rise to liability under, any Environmental Law except in
either case insofar as such violation or liability, or any
aggregation thereof, is not reasonably likely to have a
Material Adverse Effect.
(b) To the best knowledge of the Borrower, the
Properties and all operations at the Properties are in
compliance, and have in the last year been in compliance, in
all material respects with all applicable Environmental
Laws, and there is no contamination at, under or about the
Properties or violation of any Environmental Law with
respect to the Properties or the business operated by the
Borrower or any of its Subsidiaries (the "Business") which
non-compliance, contamination or violations, individually or
in the aggregate are reasonably likely to have a Material
Adverse Effect.
(c) To the best knowledge of the Borrower, Materials
of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a
manner or to a location which could reasonably be expected
to give rise to liability under, any Environmental Law, nor
have any Materials of Environmental Concern been generated,
treated, stored or disposed of at, on or under any of the
Properties in violation of, or in a manner that could
reasonably be expected to give rise to liability under, any
applicable Environmental Law except insofar as any such
violation or liability referred to in this paragraph, or any
aggregation thereof, is not reasonably likely to have a
Material Adverse Effect.
<PAGE>
39
3.17 Escrowed Stock. The share certificates
representing Common Stock held by the Escrow Agent from time to
time will represent Common Stock which is duly authorized for
issuance and upon its release by the Escrow Agent and its sale as
contemplated by the terms hereof and of the Escrow Agreement, and
when paid for in an amount not less than par, including when sold
in accordance with the Escrow Agreement to satisfy the
obligations of the Borrower hereunder, will be duly and validly
issued and fully paid and nonassessable.
3.18 Options. (a) The stock option agreements
related to the Options are in full force and effect and each such
agreement constitutes a legal, valid and binding obligation of
the Borrower and the other parties thereto enforceable against
the Borrower and the other parties thereto in accordance with its
terms.
(b) Schedule II contains a list of the Options and the
related expiration dates and exercise prices thereof and sets
forth whether or not such Options are vested and/or "in the
money", all as of the date specified therein, which Schedule is
complete and correct in all material respects as of such date.
(c) The information supplied by the Borrower contained
in the Confidential Information Memorandum dated April 1996 and
delivered to the Lenders in connection with the transactions
contemplated hereby and as supplemented by the Disclosure
Documents does not, when taken as a whole, contain, as of the
date hereof, any untrue statement of a material fact and does not
omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under
which they were made, not materially misleading; and there is no
fact known to the Borrower that has not been disclosed in the
Disclosure Documents or otherwise in writing to the Lenders that
has had or could reasonably be expected to have a Material
Adverse Effect.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans. The agreement of
each Lender to make the initial Loan requested to be made by it
is subject to the satisfaction, immediately prior to or
concurrently with the making of such Loan on the Closing Date, of
the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall
have received (i) this Agreement, executed and delivered by
a duly authorized officer of the Borrower, with a
counterpart for each Lender and (ii) the Escrow Agreement,
<PAGE>
40
executed and delivered by a duly authorized officer of each
party thereto, with a counterpart or a conformed copy for
each Lender.
(b) Borrowing Certificate. The Administrative Agent
shall have received, with a copy for each Lender, a
certificate of the Borrower, dated the Closing Date,
substantially in the form of Exhibit C, with appropriate
insertions and attachments, satisfactory in form and
substance to the Administrative Agent, executed by the
President or any Vice President and the Secretary or any
Assistant Secretary of the Borrower.
(c) Corporate Proceedings. The Administrative Agent
shall have received, with a copy for each Lender, a copy of
the resolutions, in form and substance satisfactory to the
Administrative Agent, of the Board of Directors of the
Borrower authorizing (i) the execution, delivery and
performance of this Agreement and the other Loan Documents
to which it is a party and (ii) the borrowings contemplated
hereunder, certified by the Secretary or an Assistant
Secretary of the Borrower as of the Closing Date, which
certificate shall be in form and substance satisfactory to
the Administrative Agent and shall state that the
resolutions thereby certified have not been amended,
modified, revoked or rescinded and are in full force and effect.
(d) Incumbency Certificate. The Administrative Agent
shall have received, with a copy for each Lender, a
certificate of the Borrower, dated the Closing Date, as to
the incumbency and signature of the officers of the Borrower
executing any Loan Document satisfactory in form and
substance to the Administrative Agent, executed by the
President or any Vice President and the Secretary or any
Assistant Secretary of the Borrower.
(e) Corporate Documents. The Administrative Agent
shall have received true and complete copies of the
certificate of incorporation and by-laws of the Borrower,
certified as of the Closing Date as complete and correct
copies thereof by the Secretary or an Assistant Secretary of
the Borrower.
(f) Form U-1. The Administrative Agent shall
have received a Form F.R. U-1 for each Lender, duly
completed and satisfactory to such Lender and in conformity
with Regulation U.
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41
(g) Fees. The Administrative Agent shall have
received the fees to be received on the Closing Date and
referred to in the letter dated April 12, 1996 from Chase
Securities Inc. and Chemical to the Borrower, and each
Lender shall have received the up-front fee agreed to be
paid to such Lender by the Administrative Agent.
(h) Legal Opinions. The Administrative Agent shall
have received, with a counterpart for each Lender, the
following executed legal opinions:
(i) the executed legal opinion of Cravath,
Swaine & Moore, counsel to the Borrower, substantially
in the form of Exhibit D-1; and
(ii) the executed legal opinion of Peter R.
Haje, Esq., general counsel of the Borrower,
substantially in the form of Exhibit D-2.
Each such legal opinion shall cover such other matters
incident to the transactions contemplated by this Agreement
as the Administrative Agent may reasonably require.
(i) Escrowed Stock; Stock Powers. The Administrative
Agent shall have received evidence, satisfactory to it, that
certificates representing Common Stock authorized for
issuance at least equal to the Closing Date Margin
Requirement (together with an undated stock power for each
such certificate executed in blank by a duly authorized
officer of the Borrower) have been delivered to the Escrow
Agent to be held by the Escrow Agent in accordance with the
terms of the Escrow Agreement.
(j) Disclosure Documents. The Administrative Agent
shall have received, with copies for each Lender, true and
complete copies of each Disclosure Document, certified as
such as of the Closing Date by an officer of the Borrower.
4.2 Conditions to Each Loan. The agreement of each
Lender to make any Loan requested to be made by it pursuant to
subsection 2.2 on any date (including, without limitation, its
initial Loan) is subject to the satisfaction of the following
conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower in or
pursuant to the Loan Documents shall be true and correct in
all material respects on and as of such date as if made on
and as of such date.
<PAGE>
42
(b) No Default. No Default or Event of Default shall
have occurred and be continuing on such date or after giving
effect to the Loans requested to be made on such date.
(c) Borrowing Base. After giving effect to the Loans
to be made on such date and any prepayments made on such
date, the Borrower shall be in compliance with the Ratios as
of the immediately preceding Valuation Date and, except with
respect to the initial Loans to be made hereunder, the
Administrative Agent shall have received a Borrowing Base
Certificate in respect of such Valuation Date confirming
compliance as of such Valuation Date.
(d) Base Maximum Commitment Amount. The outstanding
principal amount of the Loans does not exceed the Base
Maximum Commitment Amount on such date after giving effect
to the Loans to be made on such date and any corresponding
increase in the Base Maximum Commitment Amount on such date.
(e) Additional Matters. All corporate and other
proceedings, and all documents, instruments and other legal
matters in connection with the transactions contemplated by
this Agreement and the other Loan Documents shall be
satisfactory in form and substance to the Administrative
Agent, and the Administrative Agent shall have received such
other documents and legal opinions in respect of any aspect
or consequence of the transactions contemplated hereby or
thereby as it shall reasonably request.
Each borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date
thereof that the conditions contained in this subsection have
been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the
Commitments remain in effect or any amount is owing to any Lender
or the Administrative Agent hereunder or under any other Loan
Document, the Borrower shall and (except in the case of
subsections 5.1, 5.2, 5.7, 5.9, 5.10 and 5.11) shall cause each
of its Material Subsidiaries to:
5.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within
100 days after the end of each fiscal year of the Borrower,
a copy of the consolidated balance sheet of the Borrower and
its consolidated Subsidiaries as at the end of such year and
<PAGE>
43
the related consolidated statements of income and retained
earnings and of cash flows for such year, setting forth in
each case in comparative form the figures for the previous
year, reported on without a qualification arising out of the
scope of the audit, by Ernst & Young, LLP or other
independent certified public accountants of nationally
recognized standing; and
(b) as soon as available, but in any event not later
than 60 days after the end of each of the first three
quarterly periods of each fiscal year of the Borrower, the
unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such quarter and
the related unaudited consolidated statements of income and
retained earnings and of cash flows of the Borrower and its
consolidated Subsidiaries for such quarter and the portion
of the fiscal year through the end of such quarter, setting
forth in each case in comparative form the figures for the
previous year, certified by a Responsible Officer as being
fairly stated in all material respects (subject to normal
year-end audit adjustments);
all such financial statements shall be complete and correct in
all material respects and shall be prepared in reasonable detail
and in accordance with GAAP applied consistently throughout the
periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and
disclosed therein).
5.2 Certificates; Other Information. Furnish to each
Lender:
(a) concurrently with the delivery of the financial
statements referred to in subsection 5.1(a), a certificate
of the independent certified public accountants reporting on
such financial statements stating that in making the
examination necessary therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial
statements referred to in subsections 5.1(a) and (b), a
certificate of a Responsible Officer stating that, to the
best of such Officer's knowledge, during such period the
Borrower has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained
in this Agreement and the other Loan Documents to be
observed, performed or satisfied by it, and that such
Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate;
<PAGE>
44
(c) (i) on or prior to the second Business Day of
each week (or, at any time during a Compliance Ratio Period,
simultaneously with the delivery of the certificate referred
to in clause (ii) below but calculated as of the Valuation
Date immediately preceding the date of delivery), an
officers certificate substantially in the form of Exhibit E
(a "Borrowing Base Certificate") and (ii) on or prior to the
tenth day of each month (or if such day is not a Business
Day, the next succeeding Business Day), a report in form and
substance satisfactory to the Administrative Agent setting
forth, among other things, (A) the Options exercised during
the previous month and the aggregate cash and stock exercise
prices received by or on behalf of the Borrower in respect
thereof and (B) the remaining unexercised Options, the
related expiration dates and exercise prices thereof,
whether such Options are vested and whether such Options are
"in the money", in each case certified by any Vice President
of the Borrower as true and correct in all material
respects;
(d) promptly upon transmission thereof, copies of all
other financial statements and reports which the Borrower
sends to its stockholders, and promptly after the same are
filed, copies of all other financial statements and public
reports which the Borrower may be required to make to, or
file with, the Securities and Exchange Commission or any
successor or analogous Governmental Authority, but excluding
any preliminary or confidential filings, any filings
required to be made by the Borrower pursuant to Section
13(d) of the Securities Exchange Act of 1934, as amended
(the "Act") and any filings required to be made by the
Borrower pursuant to Section 16(a) of the Act; and
(e) promptly, such additional financial and other
information as any Lender may from time to time reasonably
request.
5.3 Payment of Obligations. Pay, discharge or
otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all its obligations of whatever
nature, except where the amount or validity thereof is currently
being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP with respect thereto have been
provided on the books of the Borrower or its Material
Subsidiaries, as the case may be.
5.4 Maintenance of Existence. Preserve, renew and
keep in full force and effect its corporate existence and take
all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its
<PAGE>
45
business except as otherwise permitted pursuant to subsections
6.2 and 9.7; provided, however, but subject to subsection 6.4,
that the Borrower shall not be required to preserve any such
right, privilege or franchise, or the corporate existence of any
Material Subsidiary, if the Board of Directors of the Borrower
shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Borrower and each
of its Material Subsidiaries, taken as a whole, and that the loss
thereof is not, and will not be, adverse in any material respect
to the Lenders; comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, be reasonably expected to
have a Material Adverse Effect.
5.5 Maintenance of Property; Insurance. Keep all
property useful and necessary in its business in good working
order and condition; maintain with financially sound and
reputable insurance companies insurance on all its property in at
least such amounts and against at least such risks as are usually
insured against in the same general area by companies engaged in
the same or a similar business or as are otherwise commercially
reasonable at such time.
5.6 Inspection of Property; Books and Records;
Discussions. Keep proper books of records and account in which
full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and
transactions in relation to its business and activities; and
permit representatives of any Lender to visit and inspect any of
its properties and examine and make abstracts from any of its
books and records at any reasonable time and as often as may
reasonably be desired and to discuss the business, operations,
properties and financial and other condition of the Borrower and
its Material Subsidiaries with officers and employees of the
Borrower and its Material Subsidiaries and with its independent
certified public accountants.
5.7 Notices. Promptly give notice to the
Administrative Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any
Contractual Obligation of the Borrower or any of its
Subsidiaries or (ii) litigation, investigation or proceeding
which may exist at any time between the Borrower or any of
its Subsidiaries and any Governmental Authority, which in
either case, if not cured or if adversely determined, as the
case may be, could reasonably be expected to have a Material
Adverse Effect;
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46
(c) except to the extent contained in the Disclosure
Documents, any litigation or proceeding affecting the
Borrower or any of its Subsidiaries that, individually or in
the aggregate, could reasonably be expected to have a
Material Adverse Effect or in which injunctive or similar
relief is sought; and
(d) the following events, as soon as possible and in
any event within 30 days after the Borrower knows or has
reason to know thereof: (i) the occurrence or expected
occurrence of any Reportable Event with respect to any Plan,
a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action
by the PBGC or the Borrower or any Commonly Controlled
Entity or any Multiemployer Plan with respect to the
withdrawal from, or the termination, Reorganization or
Insolvency of, any Plan.
Each notice pursuant to this subsection shall be accompanied by a
statement of a Responsible Officer setting forth details of the
occurrence referred to therein and stating what action the
Borrower proposes to take with respect thereto.
5.8 Environmental Laws. Comply with all applicable
Environmental Laws and obtain and comply in all material respects
with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable
Environmental Laws except to the extent that failure to do so
could not be reasonably expected to have a Material Adverse
Effect.
5.9 Maintenance of Escrow Agreement; Compliance with
Ratios; Undertakings to Deliver Common Stock. (a) At all times
on and after the Closing Date and prior to the payment in full of
the Loans and all other amounts owing to the Lenders and the
Administrative Agent hereunder, maintain the Escrow Agreement in
full force and effect.
(b) At all times maintain on deposit with the Escrow
Agent sufficient share certificates representing authorized
shares of Escrowed Stock to comply with the Ratios as and to the
extent required by subsection 2.6. The Borrower may comply with
the foregoing requirement by (i) (except after a Sale Event as
provided in subsection 5.9(d) and prior to the sale of all Common
Stock being held in the Escrow Account as of such Sale Event)
depositing additional share certificates representing authorized
shares of Common Stock in the Escrow Account (together with an
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47
undated stock power for each such certificate executed in blank
by a duly authorized officer of the Borrower), (ii) causing the
Escrow Agent to deliver Escrowed Stock to the Borrower for sale
and, to the extent required by subsection 2.6, applying the Net
Cash Proceeds thereof, together with any additional amounts
required pursuant to such subsection, to the prepayment of the
Loans or (iii) prepaying the required amount of the Loans
pursuant to subsection 2.6(b). If at the close of business on
any Valuation Date the Borrower shall not be in compliance with
the Ratios, the Borrower shall comply with the Ratios by any one
or more of the methods referred to above on or prior to the
succeeding Valuation Date. For purposes of determining
compliance with the Ratios, the computation thereof on any
Valuation Date shall remain in effect until the succeeding
Valuation Date.
(c) The Borrower shall be permitted to withdraw shares
of Escrowed Stock from time to time (i) so long as, after giving
effect thereto, (A) no Default or Event of Default shall have
occurred, (B) the Borrower is in compliance with the Ratios as of
the immediately preceding Valuation Date and (C) after giving
effect to such withdrawal and any concurrent reduction in the
Maximum Commitment Amount, the Maximum Commitment Amount is less
than or equal to 50% of the Aggregate Loan Value of the remaining
Escrowed Stock as of the Valuation Date immediately preceding the
date of withdrawal or (ii) if such withdrawal is for the purpose
of sale and the Net Cash Proceeds thereof are applied, together
with any additional amounts, to the extent required to maintain
compliance with Regulation U, as (and to the extent) provided in
subsection 2.6(c).
(d) If (i) the aggregate number of shares of Escrowed
Stock delivered from time to time into the Escrow Account (net of
any permitted withdrawals made pursuant to clause (i) of
subsection 5.9(c)) equals or exceeds 52,500,000 (a "Sale Event")
and (ii) the Borrower is not in compliance with the Ratios, the
Borrower, at the request of the Administrative Agent, shall sell
such number of shares of the Escrowed Stock as shall be necessary
to generate Net Cash Proceeds that when applied to prepay the
outstanding Loans as provided in subsection 2.6(c) will cause
compliance with the Ratios calculated as of the most recent
Valuation Date. The Borrower shall apply such Net Cash Proceeds
as provided in such subsection. In addition the Borrower may,
after a Sale Event, sell Escrowed Stock for the purpose of paying
interest and commitment fees hereunder. After a Sale Event and
except as provided in subsection 10.1(c), the Borrower will not
be permitted to deposit additional shares of Common Stock into
the Escrow Account until all shares then being held in the Escrow
Account have been sold. At such time as all such Escrowed Stock
shall have been sold, if the Borrower is not in compliance with
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48
the Ratios, calculated as of the immediately preceding Valuation
Date (after giving effect to all such Escrowed Stock sold and any
prepayments of the Loans), it shall (unless it prepays the
required amount of the Loans pursuant to subsection 2.6(b))
deposit additional shares in the Escrow Account on or prior to
the next Valuation Date to bring it into compliance as of the
immediately preceding Valuation Date. After a Sale Event and
prior to the sale of all Common Stock being held in the Escrow
Account as of the Sale Event, the Borrower may continue to borrow
subject to the terms and conditions of this Agreement. After a
Sale Event and the sale of all Common Stock held in the Escrow
Account as of the Sale Event, new borrowings pursuant to
subsection 2.2 will not be available for any purpose other than
to pay interest and fees hereunder until the Valuation Date on
which the Loan Value of the Common Stock exceeds $20 per share,
as such $20 per share price may be adjusted pursuant to
subsection 9.8 (the "Reset Date").
(e) After the occurrence of (i) a Sale Event, (ii) the
sale of all Common Stock being held in the Escrow Account as of
such Sale Event and (iii) the Reset Date, the foregoing
provisions of this subsection 5.9 shall be applicable as if a
Sale Event had never occurred, so that, among other things, (A)
the Borrower will be permitted to borrow for any of the purposes
permitted hereunder up to the Maximum Commitment Amount and (B)
the aggregate amount of shares of Common Stock delivered from
time to time into the Escrow Account for purposes of clause (i)
of the first sentence of paragraph (d) of this subsection shall
be deemed to equal the amount therein on the Reset Date and, to
the extent the number of such shares is less than 52,500,000, the
Borrower will again be entitled to contribute up to such amount
in the aggregate.
(f) On the Termination Date (or on any other date on
which the Loans are accelerated or otherwise become due) and
without limiting any of the other undertakings of the Borrower
hereunder, the Borrower shall have deposited in the Escrow
Account Common Stock which, when sold, will provide Net Cash
Proceeds sufficient to repay all outstanding Loans and all
accrued interest thereon and all other amounts owing to the
Lenders and the Administrative Agent hereunder (to the extent not
otherwise repaid); compliance with the foregoing will be
determined on the basis of the actual proceeds received from any
such sales of Common Stock.
5.10 Directions to Escrow Agent; Release of Escrowed
Stock. (a) So long as no Event of Default has occurred and is
then continuing, the Borrower may obtain the release to it or its
order of Escrowed Stock by delivering a written request to the
Escrow Agent with a copy to the Administrative Agent. Such
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49
written request shall contain a certification that no Event of
Default has occurred and that the requested release is permitted
by the terms hereof, and shall set forth in reasonable detail the
calculation of (i) the Current Reg. U Loan Value of the Escrowed
Stock prior to any such release, (ii) the Current Reg. U Loan
Value of the remaining Escrowed Stock and (iii) the Base Maximum
Commitment Amount before and after giving effect to any such
release. Upon the release of any Escrowed Stock to the Borrower
or its order pursuant to paragraph (a) or (b) of this subsection
and if the Borrower intends to satisfy any prepayment obligation
under subsection 2.6(c) that arises from the release of such
Escrowed Stock, the Borrower shall use its reasonable best
efforts to immediately sell such Escrowed Stock (or the portion
thereof required to discharge its obligation under subsection
2.6(c)), and agrees that any such sale shall be in consideration
of a concurrent transfer of cash to the Borrower.
(b) If an Event of Default has occurred and is
continuing, (i) the Borrower may obtain the release to it or its
order of Escrowed Stock only with the written consent of the
Administrative Agent and (ii) the Administrative Agent may
deliver to the Escrow Agent a Blocking Notice (as defined in the
Escrow Agreement); provided that prior to delivering a Blocking
Notice to the Escrow Agent the Administrative Agent shall, unless
stayed, prohibited or otherwise prevented by applicable law or
otherwise, notify the Borrower at least one Business Day prior
thereto of its intent to deliver a Blocking Notice.
(c) If an Event of Default has occurred and is
continuing or if any Loans are outstanding following the
Termination Date or any interest or other amounts owing to the
Lenders or the Administrative Agent hereunder remain unpaid
following the Termination Date, the Administrative Agent shall
have the right to direct the Escrow Agent to deliver to a buyer
(or its nominee or agent), in a sale effected at the direction of
the Administrative Agent, such number of shares of the Escrowed
Stock (which in the case of a failure to maintain compliance with
the Ratios will be only that amount necessary when sold pursuant
to the terms of the Escrow Agreement to return to compliance as
of the immediately preceding Valuation Date) as are necessary for
the Administrative Agent to sell in order to generate Net Cash
Proceeds equal to all amounts then owing hereunder and to use the
proceeds thereof to repay such amounts. All proceeds received in
respect of Escrowed Stock sold at the direction of the
Administrative Agent shall be applied to the payment of the Loans
and other amounts owing to the Administrative Agent and the
Lenders hereunder and under any other Loan Documents in such
order as the Administrative Agent shall direct.
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50
(d) All rights and remedies provided to the
Administrative Agent under the Escrow Agreement are subject to
the terms of this Agreement.
5.11 Stock Option Plans. Comply with, and satisfy
when due, all obligations relating to or arising under the
Borrower's stock option plans pursuant to which Options are
outstanding.
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the
Commitments remain in effect or any amount is owing to any Lender
or the Administrative Agent hereunder or under any other Loan
Document, the Borrower shall not and, in the case of subsection
6.1, shall not permit any of its Subsidiaries to and, in the case
of subsection 6.4, shall not permit any of its Material
Subsidiaries to, directly or indirectly:
6.1 Limitation on Liens. Create, incur, assume or
suffer to exist any Lien upon any Escrowed Stock or the exercise
price of the Options (or the cash proceeds to be received by or
on behalf of the Borrower from the exercise of the Options)
except for Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings, provided that
adequate reserves with respect thereto are maintained on the
books of the Borrower or its Subsidiaries, as the case may be, in
conformity with GAAP.
6.2 Limitation on Fundamental Changes. In the case of
the Borrower only, and except as contemplated by subsection 9.7,
enter into any merger, consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation
or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of, all or substantially all of its property,
business or assets except the Borrower may be merged or
consolidated with any Person provided that (a) immediately after
giving effect to such merger or consolidation, no Default or
Event of Default shall have occurred and be continuing or would
result therefrom and (b) the Borrower shall be the continuing or
surviving corporation (or, if the Borrower shall not be the
continuing or surviving corporation, the continuing or surviving
corporation shall assume the obligations of the Borrower
hereunder on terms satisfactory to the Administrative Agent).
6.3 Limitation on Sale of Assets. In the case of the
Borrower only, convey, sell, lease, assign, transfer or otherwise
dispose of all or substantially all of its property, business or
assets, whether in a single transaction or a series of related
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51
transactions except in a transaction in which the acquiring
corporation assumes the obligations of the Borrower hereunder
pursuant to an agreement satisfactory to the Administrative Agent
and which does not otherwise result in a Default or an Event of
Default.
6.4 Change in Business. Alter in a fundamental and
substantial manner the character or scope of the businesses of
the Borrower and its Subsidiaries taken as a whole from that
conducted by its respective businesses immediately prior to the
Closing Date.
SECTION 7. EVENTS OF DEFAULT
7.1 Events of Default. If any of the following events
shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of
any Loan when due in accordance with the terms thereof or
hereof; or the Borrower shall fail to pay any interest on
any Loan, or any other amount payable hereunder, within five
days, but in no event less than three Business Days, after
any such interest or other amount becomes due in accordance
with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made
by the Borrower herein or in any other Loan Document or
which is contained in any certificate, document or financial
or other statement furnished by it at any time under or in
connection with this Agreement or any such other Loan
Document shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
(c) The Borrower shall default in the observance or
performance of any of its Undertakings (other than with
respect to Section 5 of the Escrow Agreement) or any
agreement contained in Section 6; or
(d) The Borrower shall default in the observance or
performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided
in paragraphs (a) through (c) of this Section), and such
default shall continue unremedied for a period of 30 days;
or
(e) The Borrower or any of its Subsidiaries shall
default in any payment of principal of or interest on any
Indebtedness (other than the Loans) or in the payment of any
Guarantee Obligation when due (whether at the stated
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52
maturity, upon acceleration, or otherwise) beyond the period
of grace, if any, provided in the instrument or agreement
under which such Indebtedness or Guarantee Obligation was
created; provided, however, that no Default or Event of
Default shall exist under this paragraph unless the
aggregate amount of Indebtedness and/or Guarantee
Obligations in respect of which any default referred to in
this paragraph shall have occurred shall be equal to at
least $10,000,000, individually, or $50,000,000 in the
aggregate; or
(f) (i) The Borrower or any of its Material
Subsidiaries shall commence any case, proceeding or other
action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its
assets, or the Borrower or any of its Material Subsidiaries
shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the
Borrower or any of its Material Subsidiaries any case,
proceeding or other action of a nature referred to in clause
(i) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period
of 60 days; or (iii) there shall be commenced against the
Borrower or any of its Material Subsidiaries any case,
proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against
all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not
have been vacated, discharged, or stayed or bonded pending
appeal within 60 days from the entry thereof; or (iv) the
Borrower or any of its Material Subsidiaries shall take any
action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth
in clause (i), (ii), or (iii) above; or (v) the Borrower or
any of its Material Subsidiaries shall generally not, or
shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due; or
(g) (i) Any Person or "group" (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended) (A) shall have acquired beneficial
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53
ownership of securities (including options) having a
majority of the ordinary voting power in the election of
directors of the Borrower or (B) shall obtain the power
(whether or not exercised) to elect a majority of the
Borrower's directors or (ii) the Board of Directors of the
Borrower shall not consist of a majority of Continuing
Directors; "Continuing Directors" shall mean the directors
of the Borrower on the Closing Date and each other director,
if such other director's nomination for election to the
Board of Directors of the Borrower is recommended by a
majority of the then Continuing Directors;
then, and in any such event, but subject to the limitations with
respect to recourse set forth in subsection 2.5(f), (A) if such
event is an Event of Default specified in clause (i) or (ii) of
paragraph (f) of this Section with respect to the Borrower,
automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement shall immediately become due
and payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken: (i) with
the consent of the Majority Lenders, the Administrative Agent
may, or upon the request of the Majority Lenders, the
Administrative Agent shall, by notice to the Borrower declare the
Commitments to be terminated forthwith, whereupon the Commitments
shall immediately terminate; and (ii) with the consent of the
Majority Lenders, the Administrative Agent may, or upon the
request of the Majority Lenders, the Administrative Agent shall,
by notice to the Borrower, declare the Loans hereunder (with
accrued interest thereon) and all other amounts owing under this
Agreement to be due and payable forthwith, whereupon the same
shall immediately become due and payable. Except as expressly
provided above in this Section, presentment, demand, protest and
all other notices of any kind are hereby expressly waived.
7.2 Special Remedy. If the Borrower shall fail to
perform, including as a result of applicable bankruptcy law or
otherwise, any of its Undertakings (taking into account the time
periods provided for herein for such performance) and, as a
result thereof, the Loans shall not be paid in full, then the
Repayment Amount shall become fully recourse to the Borrower, and
the Repayment Amount and all other amounts owing to the
Administrative Agent and the Lenders shall be immediately due and
payable.
SECTION 8. THE ADMINISTRATIVE AGENT
8.1 Appointment. Each Lender hereby irrevocably
designates and appoints the Administrative Agent as the agent of
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54
such Lender under this Agreement and the other Loan Documents,
and each such Lender irrevocably authorizes the Administrative
Agent, in such capacity, to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and
to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this
Agreement and the other Loan Documents, together with such other
powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
8.2 Delegation of Duties. The Administrative Agent
may execute any of its duties under this Agreement and the other
Loan Documents by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters
pertaining to such duties. The Administrative Agent shall not be
responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. Neither the
Administrative Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable to any Lender for any action lawfully taken or omitted to
be taken by it or such Person under or in connection with this
Agreement or any other Loan Document (except for its or such
Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or
any officer thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other
document referred to or provided for in, or received by the
Administrative Agent under or in connection with, this Agreement
or any other Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or for any failure of the
Borrower to perform its obligations hereunder or thereunder. The
Administrative Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of the Borrower.
8.4 Reliance by Administrative Agent. The
Administrative Agent shall be entitled to rely, and shall be
fully protected in relying, upon any Note, writing, resolution,
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55
notice, consent, certificate, affidavit, letter, telecopy, telex
or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and
upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and
other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the payee of any Note as
the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed
with the Administrative Agent. The Administrative Agent shall be
fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Lenders as it
deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking or
continuing to take any such action. The Administrative Agent
shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement and the other Loan Documents in
accordance with a request of the Majority Lenders, and such
request and any action taken or failure to act pursuant thereto
shall be binding upon all the Lenders and all future holders of
the Loans.
8.5 Notice of Default. The Administrative Agent shall
not be deemed to have knowledge or notice of the occurrence of
any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Lender or the
Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives
such a notice, the Administrative Agent shall give notice thereof
to the Lenders. The Administrative Agent shall take such action
with respect to such Default or Event of Default as shall be
reasonably directed by the Majority Lenders; provided that unless
and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it
shall deem advisable in the best interests of the Lenders.
8.6 Non-Reliance on Administrative Agent and Other
Lenders. Each Lender expressly acknowledges that neither the
Administrative Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the
Administrative Agent hereafter taken, including any review of the
affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any
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56
Lender. Each Lender represents to the Administrative Agent that
it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such
documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations,
property, financial and other condition and creditworthiness of
the Borrower and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon
the Administrative Agent, any Affiliate of the Administrative
Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking
or not taking action under this Agreement and the other Loan
Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall
not have any duty or responsibility to provide any Lender with
any credit or other information concerning the business,
operations, property, condition (financial or otherwise),
prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
8.7 Indemnification. The Lenders agree to indemnify
the Administrative Agent in its capacity as such (to the extent
not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their
respective Commitment Percentages in effect on the date on which
indemnification is sought, from and against any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including, without limitation,
at any time following the payment of the Loans) be imposed on,
incurred by or asserted against the Administrative Agent in any
way relating to or arising out of, the Commitments, this
Agreement, any of the other Loan Documents or any documents
contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken
or omitted by the Administrative Agent under or in connection
with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting solely from the
Administrative Agent's gross negligence or willful misconduct.
The agreements in this subsection shall survive the payment of
the Loans and all other amounts payable hereunder.
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57
8.8 Administrative Agent in Its Individual Capacity.
The Administrative Agent and its Affiliates may make loans to,
accept deposits from and generally engage in any kind of business
with the Borrower as though the Administrative Agent were not the
Administrative Agent hereunder and under the other Loan
Documents. With respect to the Loans made by it, the
Administrative Agent shall have the same rights and powers under
this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not the Administrative Agent,
and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
8.9 Successor Administrative Agent. The
Administrative Agent may resign as Administrative Agent upon 10
days' notice to the Lenders. If the Administrative Agent shall
resign as Administrative Agent under this Agreement and the other
Loan Documents, then the Majority Lenders shall appoint from
among the Lenders a successor agent for the Lenders, which
successor agent (provided that it shall have been approved by the
Borrower), shall succeed to the rights, powers and duties of the
Administrative Agent hereunder. Effective upon such appointment
and approval, the term "Administrative Agent" shall mean such
successor agent, and the former Administrative Agent's rights,
powers and duties as Administrative Agent shall be terminated,
without any other or further act or deed on the part of such
former Administrative Agent or any of the parties to this
Agreement or any holders of the Loans. After any retiring
Administrative Agent's resignation as Administrative Agent, the
provisions of this Section 8 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement and the other Loan
Documents.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement
nor any other Loan Document, nor any terms hereof or thereof may
be amended, supplemented or modified except in accordance with
the provisions of this subsection. The Majority Lenders may, or,
with the written consent of the Majority Lenders, the
Administrative Agent may, from time to time, (a) enter into with
the Borrower written amendments, supplements or modifications
hereto and to the other Loan Documents for the purpose of adding
any provisions to this Agreement or the other Loan Documents or
changing in any manner the rights of the Lenders or of the
Borrower hereunder or thereunder or (b) waive, on such terms and
conditions as the Majority Lenders or the Administrative Agent,
as the case may be, may specify in such instrument, any of the
requirements of this Agreement or the other Loan Documents or any
<PAGE>
58
Default or Event of Default and its consequences; provided,
however, that no such waiver and no such amendment, supplement or
modification shall (i) reduce the amount or extend the scheduled
date of maturity of any Loan, or reduce the stated rate of any
interest or fee payable hereunder or extend the scheduled date of
any payment thereof or increase the amount or extend the
expiration date of any Lender's Commitment, in each case without
the consent of each Lender affected thereby, or (ii) amend,
modify or waive any provision of this subsection or subsections
2.5(f), 5.9, 5.10 or 7.2 or reduce the percentage specified in
the definition of Majority Lenders, or consent to the assignment
or transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Loan Documents or reduce the
Ratios required to be maintained by the Borrower hereunder or
amend the definition of Undertakings, in each case without the
written consent of all the Lenders, or (iii) amend, modify or
waive any provision of Section 8 without the written consent of
the then Administrative Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each
of the Lenders and shall be binding upon the Borrower, the
Lenders, the Administrative Agent and all future holders of the
Loans. In the case of any waiver, the Borrower, the Lenders and
the Administrative Agent shall be restored to their former
positions and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; no such waiver shall
extend to any subsequent or other Default or Event of Default or
impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or
upon the respective parties hereto to be effective shall be in
writing (including by facsimile transmission) and, unless
otherwise expressly provided herein, shall be deemed to have been
duly given or made (a) in the case of delivery by hand, when
delivered, (b) in the case of delivery by mail, three days after
being deposited in the mails, postage prepaid, or (c) in the case
of delivery by facsimile transmission, when sent and receipt has
been confirmed, addressed as follows in the case of the Borrower
and the Administrative Agent, and as set forth in Schedule I in
the case of the other parties hereto, or to such other address as
may be hereafter notified by the respective parties hereto:
The Borrower:
75 Rockefeller Plaza
New York, New York 10019
Attention: Chief Financial Officer
Fax: (212) 307-0126
and
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59
Attention: General Counsel
Fax: (212) 956-7281
with copies to
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attention: William P. Rogers, Jr., Esq.
Fax: (212) 474-3700
The Administrative
Agent: Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: Dorothy Vena
Fax: (212) 270-7904
provided that any notice, request or demand to or upon the
Administrative Agent or the Lenders pursuant to subsection 2.2,
2.4, 2.6, 2.7, or 2.12 shall not be effective until received.
9.3 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the
Administrative Agent or any Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of
any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative
and not exclusive of any rights, remedies, powers and privileges
provided by law.
9.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Loan
Documents and in any document, certificate or statement delivered
pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement and the making of the
Loans hereunder.
9.5 Payment of Expenses and Taxes. The Borrower
agrees (a) to pay or reimburse the Administrative Agent for all
its reasonable out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of,
and any amendment, supplement or modification to, this Agreement
and the other Loan Documents and any other documents prepared in
connection herewith or therewith, and the consummation and
administration of the transactions contemplated hereby and
<PAGE>
60
thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent, (b) to pay
or reimburse each Lender and the Administrative Agent for all its
reasonable costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement,
the other Loan Documents and any such other documents, including,
without limitation, the reasonable fees and disbursements of
counsel (including the allocated fees and expenses of in-house
counsel) to each Lender and of counsel to the Administrative
Agent, (c) to pay, indemnify, and hold each Lender and the
Administrative Agent (and their respective affiliates, officers,
directors, employees, advisors and agents) harmless from, any and
all recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise
and other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement,
the other Loan Documents and any such other documents, and (d) to
pay, indemnify, and hold each Lender and the Administrative Agent
harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Loan
Documents or the use or the proposed use of the proceeds of the
Loans and any such other documents, including, without
limitation, any of the foregoing relating to the violation of,
noncompliance with or liability under, any Environmental Law
applicable to the operations of the Borrower, any of its
Subsidiaries or any of the Properties (all the foregoing in this
clause (d), collectively, the "indemnified liabilities"),
provided that the Borrower shall have no obligation hereunder to
the Administrative Agent or any Lender with respect to
indemnified liabilities arising from the gross negligence or
willful misconduct of the Administrative Agent or any such
Lender. The agreements in this subsection shall survive
repayment of the Loans and all other amounts payable hereunder.
9.6 Successors and Assigns; Participations and
Assignments. (a) This Agreement shall be binding upon and inure
to the benefit of the Borrower, the Lenders, the Administrative
Agent and their respective successors and assigns, except that
the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written
consent of each Lender except as specified in subsection 9.7.
(b) Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable
<PAGE>
61
law, at any time sell to one or more banks or other entities
("Participants") participating interests in any Loan owing to
such Lender, the Commitment of such Lender or any other interest
of such Lender hereunder and under the other Loan Documents. In
the event of any such sale by a Lender of a participating
interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain
unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any
such Loan for all purposes under this Agreement and the other
Loan Documents, and the Borrower and the Administrative Agent
shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents. No Lender shall be
entitled to create in favor of any Participant, in the
participation agreement pursuant to which such Participant's
participating interest shall be created or otherwise, any right
to vote on, consent to or approve any matter relating to this
Agreement or any other Loan Document except for those specified
in clauses (i) and (ii) of the proviso to subsection 9.1. The
Borrower agrees that if amounts outstanding under this Agreement
are due or unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of
Default, each Participant shall, to the maximum extent permitted
by applicable law, be deemed to have the right of set-off in
respect of its participating interest in amounts owing under this
Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender
under this Agreement, provided that, in purchasing such
participating interest, such Participant shall be deemed to have
agreed to share with the Lenders the proceeds thereof as provided
in subsection 9.9(a) as fully as if it were a Lender hereunder.
The Borrower also agrees that each Participant shall be entitled
to the benefits of subsections 2.14, 2.15 and 2.16 with respect
to its participation in the Commitments and the Loans outstanding
from time to time as if it was a Lender; provided that, in the
case of subsection 2.15, such Participant shall have complied
with the requirements of said subsection and provided, further,
that no Participant shall be entitled to receive any greater
amount pursuant to any such subsection than the transferor Lender
would have been entitled to receive in respect of the amount of
the participation transferred by such transferor Lender to such
Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable
law, at any time and from time to time assign to any Lender or
any affiliate thereof or, with the consent of the Borrower and
the Administrative Agent (which in each case shall not be
unreasonably withheld), to an additional bank or financial
<PAGE>
62
institution (an "Assignee") all or any part of its rights and
obligations under this Agreement and the other Loan Documents
pursuant to an Assignment and Acceptance, substantially in the
form of Exhibit F, executed by such Assignee, such assigning
Lender (and, in the case of an Assignee that is not then a Lender
or an affiliate thereof, by the Borrower and the Administrative
Agent) and delivered to the Administrative Agent for its
acceptance and recording in the Register, provided that, in the
case of any such assignment to an additional bank or financial
institution, the sum of the aggregate principal amount of the
Loans and the aggregate amount of the Available Commitments being
assigned and, if such assignment is of less than all of the
rights and obligations of the assigning Lender, the sum of the
aggregate principal amount of the Loans and the aggregate amount
of the Available Commitment remaining with the assigning Lender
are each not less than $10,000,000 (or such lesser amount as may
be agreed to by the Borrower and the Administrative Agent). Upon
such execution, delivery, acceptance and recording, from and
after the effective date determined pursuant to such Assignment
and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder
with a Commitment as set forth therein, and (y) the assigning
Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement, such assigning
Lender shall cease to be a party hereto). Notwithstanding any
provision of this paragraph (c) and paragraph (e) of this
subsection, the consent of the Borrower shall not be required,
and, unless requested by the Assignee and/or the assigning
Lender, new Notes shall not be required to be executed and
delivered by the Borrower, for any assignment which occurs at any
time when any of the events described in subsection 7.1(f) shall
have occurred and be continuing.
(d) The Administrative Agent, on behalf of the
Borrower, shall maintain at the address of the Administrative
Agent referred to in subsection 9.2 a copy of each Assignment and
Acceptance delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the Loans owing to, each
Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower,
the Administrative Agent and the Lenders may (and, in the case of
any Loan or other obligation hereunder not evidenced by a Note,
shall) treat each Person whose name is recorded in the Register
as the owner of a Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan
<PAGE>
63
Documents, notwithstanding any notice to the contrary. Any
assignment of any Loan or other obligation hereunder not
evidenced by a Note shall be effective only upon appropriate
entries with respect thereto being made in the Register. The
Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance
executed by an assigning Lender and an Assignee (and, in the case
of an Assignee that is not then a Lender or an affiliate thereof,
by the Borrower and the Administrative Agent) together with
payment to the Administrative Agent of a registration and
processing fee of $3,000, the Administrative Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) on the
effective date determined pursuant thereto record the information
contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to
any Participant or Assignee (each, a "Transferee") and any
prospective Transferee any and all financial information in such
Lender's possession concerning the Borrower and its Affiliates
which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered
to such Lender by or on behalf of the Borrower in connection with
such Lender's credit evaluation of the Borrower and its
Affiliates prior to becoming a party to this Agreement.
(g) For avoidance of doubt, the parties to this
Agreement acknowledge that the provisions of this subsection
concerning assignments of Loans and Notes relate only to absolute
assignments and that such provisions do not prohibit assignments
creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
(h) Each Lender making any sale or assignment
permitted by this subsection agrees to deliver to the Participant
or Assignee, as the case may be, copies of all Form U-1's
theretofore delivered to it hereunder.
9.7 Consent to Assignment to TW Inc.. (a) Upon the
consummation of the acquisition of Turner Broadcasting System,
Inc. by Time Warner Inc. the Common Stock will be exchanged for
common stock of TW Inc., a Delaware corporation, and Time Warner
Inc. will become a wholly-owned Subsidiary of TW Inc. Effective
with the consummation of such transaction, the Lenders hereby
consent to the assignment to and assumption by TW Inc. of the
obligations of the Borrower hereunder.
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64
(b) Effective upon the consummation of such
acquisition and the Administrative Agent, the Lenders and the
Escrow Agent receiving written notice from Time Warner Inc. and
TW Inc. that Time Warner Inc. is a wholly-owned subsidiary of TW
Inc., TW Inc. hereby (a) assumes all obligations of Time Warner
Inc. under this Agreement and each other Loan Document, (b)
agrees that it shall become the "Borrower" hereunder and under
each other Loan Document and the "Depositor" under the Escrow
Agreement, and shall be bound by the provisions hereof and
thereof as if it were the "Borrower" or the "Depositor", as the
case may be, as the original signatory hereto and thereto, (c)
agrees that all references to the "Borrower" herein or in any
other Loan Document and to the "Depositor" in the Escrow
Agreement shall be deemed to be references to TW Inc. and its
permitted successors and assigns and (d) agrees that all
references to Common Stock and Options shall be deemed to refer
to the equivalent interests of TW Inc. Upon TW Inc.'s effective
assumption of (x) the Borrower's obligations hereunder and under
each other Loan Document and (y) the Depositor's obligations
under the Escrow Agreement, Time Warner Inc. shall automatically
be released from its obligations under this Agreement and each
other Loan Document.
9.8 Adjustments to Number of Shares of Common Stock
and Stock Price. (a) In case the Borrower shall (i) pay a
dividend or make a distribution on the Common Stock in shares of
its Capital Stock or reclassify its Common Stock, (ii) subdivide
the outstanding Common Stock into a greater number of shares,
(iii) combine the outstanding Common Stock into a smaller number
of shares or (iv) distribute to the holders of its shares of
Common Stock any assets or property, including debt or equity
securities (excluding (i) distributions in shares of its Capital
Stock and (ii) regularly scheduled cash dividends payable on
shares of Common Stock), the $24 per share price specified in
subsection 2.1, the $20 per share price specified in subsection
5.9 and the 52,500,000 shares of Common Stock referred to in
subsection 5.9 shall be adjusted so that such figures represent
the equivalent amounts after the happening of any of the events
described above, and/or the definition of "Common Stock"
contained herein shall be modified to include therein any such
assets or property that are also made subject to the Options,
provided that, if any such assets or property has no loan value
for purposes of Regulation U, such assets or property shall not
be included in determining Base Maximum Commitment Amount,
Current Reg. U Loan Value, Notional Reduction Amount, Surplus
Escrowed Stock and Trigger Event. An adjustment made pursuant to
this subsection shall become effective immediately after the
record date in the case of a dividend, and shall become effective
immediately after the effective date in the case of a
subdivision, combination or reclassification.
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65
(b) No adjustments specified in subsection 9.8(a)
shall be required unless such adjustment would require an
increase or decrease of at least 1% in the amounts in question;
provided, however, that any adjustments which by reason of this
subsection are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
(c) Whenever an adjustment is required to be made as
herein provided, the Borrower shall deliver a certificate of a
Responsible Officer to the Administrative Agent, setting forth in
reasonable detail the relevant calculations for such adjustment
and setting forth a brief statement of the facts requiring such
adjustment, which certificate shall be conclusive evidence of the
correctness of such adjustment, absent manifest error.
9.9 Adjustments; Set-off. (a) If any Lender (a
"benefitted Lender") shall at any time receive any payment of all
or part of its Loans, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 7.1(f), or otherwise), in a
greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other
Lender's Loans, or interest thereon, such benefitted Lender shall
purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loans, or shall
provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to
cause such benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the
Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such
benefitted Lender, such purchase shall be rescinded, and the
purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the
Lenders provided by law, each Lender shall have the right,
without prior notice to the Borrower, any such notice being
expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the
Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and apply
against such amount any and all deposits (general or special,
time or demand, provisional or final), in any currency, and any
other credits, indebtedness or claims, in any currency, in each
case whether direct or indirect, absolute or contingent, matured
or unmatured, at any time held or owing by such Lender or any
branch or agency thereof to or for the credit or the account of
the Borrower. Each Lender agrees promptly to notify the Borrower
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66
and the Administrative Agent after any such set-off and
application made by such Lender, provided that the failure to
give such notice shall not affect the validity of such set-off
and application.
9.10 Counterparts. This Agreement may be executed by
one or more of the parties to this Agreement on any number of
separate counterparts (including by facsimile transmission), and
all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of
this Agreement signed by all the parties shall be lodged with the
Borrower and the Administrative Agent.
9.11 Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9.12 Integration. This Agreement and the other Loan
Documents represent the entire agreement of the Borrower, the
Administrative Agent and the Lenders with respect to the subject
matter hereof and thereof, and there are no promises,
undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof or thereof
not expressly set forth or referred to herein or in the other
Loan Documents.
9.13 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
9.14 Submission To Jurisdiction; Waivers. The
Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement and the
other Loan Documents to which it is a party, or for
recognition and enforcement of any judgement in respect
thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, the courts of the
United States of America for the Southern District of
New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may
now or hereafter have to the venue of any such action or
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67
proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees
not to plead or claim the same;
(c) agrees that service of process in any such action
or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar
form of mail), postage prepaid, to the Borrower at its
address set forth in subsection 9.2 or at such other address
of which the Administrative Agent shall have been notified
pursuant thereto;
(d) agrees that nothing herein shall affect the right
to effect service of process in any other manner permitted
by law or shall limit the right to sue in any other
jurisdiction; and
(e) waives, to the maximum extent not prohibited by
law, any right it may have to claim or recover in any legal
action or proceeding referred to in this subsection any
special, exemplary, punitive or consequential damages.
9.15 Acknowledgements. The Borrower hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan
Documents;
(b) neither the Administrative Agent nor any Lender
has any fiduciary relationship with or duty to the Borrower
arising out of or in connection with this Agreement or any
of the other Loan Documents, and the relationship between
Administrative Agent and Lenders, on the one hand, and the
Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other
Loan Documents or otherwise exists by virtue of the
transactions contemplated hereby among the Lenders or among
the Borrower and the Lenders.
9.16 WAIVERS OF JURY TRIAL. THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
68
SECTION 10. PROCEDURES TO INCREASE BASE COMMITMENT
10.1 Increase in Base Maximum Commitment Amount. (a)
The Borrower shall have the right, upon not less than two
Business Days' notice to the Administrative Agent (who will
thereafter promptly notify the Lenders thereof), and upon
satisfaction of the conditions set forth in subsection 10.1(b),
to increase the Base Maximum Commitment Amount by the amount
specified in such notice, provided that the amount of such
increase shall not exceed the lesser of (i) the excess of the
Maximum Commitment Amount over the then Base Maximum Commitment
Amount and (ii) the Current Reg. U Loan Value of the Surplus
Escrowed Stock (including any Escrowed Stock to be deposited in
the Escrow Account concurrently with the effectiveness of such
increase) as of the effective date of such increase.
(b) The right of the Borrower to increase the Base
Maximum Commitment Amount is subject to the satisfaction of the
condition precedent that the Administrative Agent shall
have received a Form F.R. U-1 for each Lender, duly completed and
satisfactory to such Lender and in conformity with Regulation U,
which form shall treat the requested increase in Base Maximum
Commitment Amount as a new extension of a revolving credit
facility to the Borrower as of the effective date of the
requested increase.
(c) Notwithstanding the provisions of subsection
5.9(d), the Borrower shall at all times be entitled to deposit
certificates representing additional Common Stock into the Escrow
Account following a Sale Event and prior to the sale of all
Common Stock held in the Escrow Account as of the Sale Event to
the extent necessary to increase the Base Maximum Commitment
Amount so that the Borrower shall be entitled to borrow the full
amount that it could have borrowed under the Borrowing Base
Calculation without regard to such deposit of additional shares.
Notwithstanding anything to the contrary contained in this
Agreement, after a Sale Event and prior to the occurrence of the
events described in clause (ii) of subsection 5.9(e), all
certificates representing Common Stock that are deposited into
the Escrow Account pursuant to this subsection 10.1(c) shall be
excluded in the calculation of the Ratios. Following the sale of
an amount of Escrowed Stock equal to the amount held in the
Escrow Account as of the relevant Sale Event, all such shares so
deposited shall be included in the Borrowing Base Calculation.
10.2 Individual Lender Responsibility. Each Lender
shall be responsible for its own compliance with and
administration of the provisions of subsection 10.1(b), and the
Administrative Agent shall have no responsibility for any
determinations made or to be made by any Lender pursuant to this
Section.
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69
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and
duly authorized officers as of the day and year first above
written.
TIME WARNER INC.
By:
Title:
CHEMICAL BANK,
as Administrative Agent and
as a Lender
By:
Title:
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70
BANK OF AMERICA NT & SA
By:
Title:
BANK OF BOSTON
By:
Title:
BANK OF MONTREAL
By:
Title:
THE BANK OF NEW YORK
By:
Title:
THE BANK OF NOVA SCOTIA
By:
Title:
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By:
Title:
BANQUE NATIONALE DE PARIS
By:
Title:
By:
Title:
<PAGE>
71
BANQUE PARIBAS
By:
Title:
BARCLAYS BANK PLC
By:
Title:
CIBC INC.
By:
Title:
CITIBANK, N.A.
By:
Title:
COMMERZBANK AG
By:
Title:
By:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:
Title:
<PAGE>
72
CREDIT SUISSE
By:
Title:
By:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
By:
Title:
THE FUJI BANK, LIMITED, NEW YORK BRANCH
By:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED
By:
Title:
MELLON BANK, N.A.
By:
Title:
MITSUBISHI TRUST & BANKING
By:
Title:
<PAGE>
73
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:
Title:
NATIONSBANK, N.A.
By:
Title:
ROYAL BANK OF CANADA
By:
Title:
THE SAKURA BANK, LIMITED
By:
Title:
THE SANWA BANK, LIMITED
By:
Title:
SOCIETE GENERALE
By:
Title:
THE SUMITOMO BANK, LTD., NEW YORK BRANCH
By:
Title:
<PAGE>
74
THE TOKAI BANK, LTD.
By:
Title:
CONSENTED AND AGREED TO
FOR PURPOSES OF SUBSECTION 9.7:
TW INC.
By:
Title:
<PAGE>
EXHIBIT A
[FORM OF] NOTE
$__________ New York, New York
______________, 199
FOR VALUE RECEIVED, the undersigned, Time Warner Inc., a
Delaware corporation (together with its successors and permitted
assigns, the "Borrower", except that after the assumption
provided for in subsection 9.7 of the Credit Agreement, the
"Borrower" shall mean TW Inc. and its successors and permitted
assigns), hereby unconditionally promises to pay to the order of
____________ (the "Lender") at the office of Chemical Bank,
located at 270 Park Avenue, New York, New York 10017, in lawful
money of the United States of America and in immediately
available funds, on the Termination Date (as defined in the
Credit Agreement referred to below) the principal amount of (a)
________________ DOLLARS ($__________), or, if less, (b) the
aggregate unpaid principal amount of all Loans made by the Lender
to the Borrower pursuant to subsection 2.1 of the Credit
Agreement referred to below. The Borrower further agrees to pay
interest in like money at such office on the unpaid principal
amount hereof from time to time outstanding at the rates and on
the dates specified in subsection 2.9 of the Credit Agreement.
The holder of this Note is authorized to endorse on the
schedules annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a
part hereof the date, Type and amount of each Loan made pursuant
to the Credit Agreement and the date and amount of each payment
or prepayment of principal thereof, each continuation thereof,
each conversion of all or a portion thereof to another Type and,
in the case of Eurodollar Loans, the length of each Interest
Period with respect thereto. Each such endorsement shall
constitute prima facie evidence of the accuracy of the
information endorsed.
The failure to make any such endorsement shall not affect
the obligations of the Borrower in respect of such Loan.
This Note (a) is one of the Notes referred to in the Credit
Agreement, dated as of May 23, 1996 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"),
among the Borrower, the Lender, the other banks and financial
institutions from time to time parties thereto and Chemical Bank,
as administrative agent, (b) is subject to the provisions of the
Credit Agreement and (c) is subject to optional and mandatory
prepayment in whole or in part as provided in the Credit
Agreement.
<PAGE>
2
Upon the occurrence of any one or more of the Events of
Default, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable,
all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or
otherwise, hereby waive presentment, demand, protest and all
other notices of any kind, except as may be provided in
subsection 7.1 of the Credit Agreement.
Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them
in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
TIME WARNER INC.
By: ____________________
Name:
Title:
<PAGE>
Schedule A
To Note
LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
Amount of Principal
Amount of ABR Amount Converted of ABR Loans
Date Loans to ABR Loans Repaid
Amount of ABR Loans
Converted to Eurodollar Unpaid Principal Notations
Loans Balance of ABR Loans Made By
<PAGE>
Schedule B
To Note
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
Amount Converted Interest Paid and
Amount of to or Continued as Eurodollar Rate with
Date Eurodollar Loans Eurodollar Loans Respect Thereto
Amount of Principal Amount of Eurodollar Unpaid Principal
of Eurodollar Loans Loans Converted to Balance of Notations
Repaid ABR Loans Eurodollar Loans Made By
<PAGE>
EXHIBIT C
[FORM OF]
BORROWING CERTIFICATE
Reference is made to the Credit Agreement, dated as of May
23, 1996 (the "Credit Agreement"), among Time Warner Inc., a
Delaware corporation (together with its successors and permitted
assigns, the "Borrower", except that after the assumption
provided for in subsection 9.7 of the Credit Agreement, the
"Borrower" shall mean TW Inc. and its successors and permitted
assigns), the several banks and other financial institutions from
time to time parties thereto (collectively, the "Lenders"), and
Chemical Bank, a New York banking corporation, as Administrative
Agent for the Lenders (in such capacity, the "Administrative
Agent"). Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to
them in the Credit Agreement.
Pursuant to subsection 4.1(b) of the Credit Agreement, the
undersigned, Vice President and Assistant Secretary of the
Borrower, hereby certify as follows:
1. Each of the representations and warranties made by
the Borrower in or pursuant to any Loan Document or in or
pursuant to any certificate, document or financial or other
statement furnished by or on behalf of the Borrower pursuant
to or in connection with any Loan Document, is true and
correct in all material respects on and as of the date
hereof with the same effect as if made on the date hereof
except for representations and warranties stated to relate
to a specific earlier date, in which case such
representations and warranties were true and correct in all
material respects as of such earlier date;
2. No Default or Event of Default has occurred and is
continuing as of the date hereof or after giving effect to
the Loans to be made on the date hereof;
3. There are no liquidation or dissolution proceedings
pending or to my knowledge threatened against the Borrower
nor has any other event occurred affecting or threatening
the corporate existence of the Borrower, except as
contemplated by subsection 9.7 of the Credit Agreement;
4. The Borrower is duly organized, validly existing
and in good standing under the laws of the State of Delaware;
<PAGE>
2
5. Attached hereto as Exhibit A is a copy of a
Certificate of the Secretary of State of Delaware, dated
reasonably close to the Closing Date and certifying that the
Borrower is duly incorporated and in good standing under the
laws of Delaware;
6. As of the date hereof, (a) the amount of the
"present fair saleable value" of the assets of the Borrower
exceeds the amount that will be required to pay the probable
"liabilities of the Borrower, contingent or otherwise" on
its debts as they become absolute and matured (as such
quoted terms are determined in accordance with applicable
federal and state laws governing determinations of the
insolvency of debtors), (b) the fair value of the assets of
the Borrower is greater than the total amount of
liabilities, including, without limitation, contingent
liabilities of the Borrower, (c) the Borrower does not, nor
does it intend to, engage in business or any transaction for
which the Borrower's property would constitute an
unreasonably small amount of capital, and (d) the Borrower
is able to pay its debts as they mature and does not intend
to incur debts or liabilities beyond the Borrower's ability
to pay such debts and liabilities as they mature, taking
into account the timing of and amounts of cash to be
received by the Borrower and the timing of and amounts of
cash to be payable on or in respect of such debts or
liabilities, in each case after giving effect to the
transactions contemplated by the Credit Agreement and the
Loans to be made on Closing Date and to the application of
the proceeds of such Loans;
7. As of May __, 1996 (the Trading Day immediately
preceding the date hereof), the current market price per
share (as determined in accordance with the provisions set
forth in the definition of Loan Value contained in
subsection 1.1 of the Credit Agreement) of the Common Stock
is $___ per share;
8. Stock certificates representing [________] shares of
Common Stock (together with an undated stock power for each
such certificate executed in blank by a duly authorized
officer of the Borrower) have been delivered to the Escrow
Agent;
9. The Aggregate Loan Value of the Escrowed Stock
referred to in paragraph 8 (based upon the current market
price per share set forth in paragraph 7) is [______], which
amount is at least two times the Maximum Commitment Amount
in effect as of the date hereof;
<PAGE>
3
10. The Aggregate Loan Value of the Options set forth
on Schedule II to the Credit Agreement (calculated in
accordance with the provisions set forth in the definition
of Aggregate Loan Value contained in subsection 1.1 of the
Credit Agreement as of the date set forth in such Schedule)
is [______];
11. The aggregate amount of the Loans requested to be
made by the Lenders on the date hereof is [______];
12. As of the date hereof, the Interest Component is
[______];
13. The ratio of (x) the sum of (i) the Aggregate Loan
Value of the Escrowed Stock (as set forth in paragraph 9)
and (ii) the Aggregate Loan Value of the Options (as set
forth in paragraph 10) to (y) the Covered Amount (calculated
as the sum of the amounts indicated in paragraphs 11 and 12)
is ___ to ___; and
14. The ratio of (x) the Aggregate Loan Value of the
Escrowed Stock (as set forth in paragraph 9) to (y) the
Covered Amount is ___ to ___.
IN WITNESS WHEREOF, each of the undersigned has executed and
delivered this Borrowing Certificate on the [ day of May 1996]
[Insert Closing Date].
TIME WARNER INC.
By: ______________________
Name:
Title: Vice President
By: ______________________
Name:
Title: Assistant Secretary
<PAGE>
EXHIBIT F
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of May
23, 1996 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among Time Warner Inc., a
Delaware corporation (together with its successors and permitted
assigns, the "Borrower", except that after the assumption
provided for in subsection 9.7 of the Credit Agreement, the
"Borrower" shall mean TW Inc. and its successors and permitted
assigns), the Lenders named therein and Chemical Bank, as
administrative agent for the Lenders (in such capacity, the
"Administrative Agent"). Unless otherwise defined herein, terms
defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement.
The Assignor identified on Schedule l hereto (the
"Assignor") and the Assignee identified on Schedule l hereto (the
"Assignee") agree as follows:
1. The Assignor hereby irrevocably sells and assigns to the
Assignee without recourse to the Assignor, and the Assignee
hereby irrevocably purchases and assumes from the Assignor
without recourse to the Assignor, as of the Effective Date (as
defined below), the interest described in Schedule 1 hereto (the
"Assigned Interest") in and to the Assignor's rights and
obligations under the Credit Agreement and the other Loan
Documents as set forth on Schedule 1 hereto (the "Assigned
Facility"), in a principal amount for such Assigned Facility as
set forth on Schedule 1 hereto.
2. The Assignor (a) makes no representation or warranty and
assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the
Credit Agreement, any other Loan Document or any other instrument
or document furnished pursuant thereto or with respect to the
execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement, any other Loan
Document or any other instrument or document furnished pursuant
thereto, other than that the Assignor has not created any adverse
claim upon the interest being assigned by it hereunder and that
such interest is free and clear of any such adverse claim; (b)
makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrower, any of
its Subsidiaries or any other obligor or the performance or
observance by the Borrower, any of its Subsidiaries or any other
obligor of any of their respective obligations under the Credit
Agreement or any other Loan Document or any other instrument or
document furnished pursuant hereto or thereto; and (c) attaches
<PAGE>
2
any Note held by it evidencing the Assigned Facility and (i)
requests that the Administrative Agent, upon request by the
Assignee, exchange the attached Note for a new Note or Notes
payable to the Assignee and (ii) if the Assignor has retained any
interest in the Assigned Facility, requests that the
Administrative Agent exchange the attached Note for a new Note or
Notes payable to the Assignor, in each case in amounts which
reflect the assignment being made hereby (and after giving effect
to any other assignments which have become effective on the
Effective Date).
3. The Assignee (a) represents and warrants that it is
legally authorized to enter into this Assignment and Acceptance;
(b) confirms that it has received a copy of the Credit Agreement,
together with copies of the financial statements delivered
pursuant to subsection 3.1 thereof and such other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and
Acceptance; (c) agrees that it will, independently and without
reliance upon the Assignor, the Administrative Agent or any other
Lender and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Credit
Agreement, the other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto; (d) appoints and
authorizes the Administrative Agent to take such action as agent
on its behalf and to exercise such powers and discretion under
the Credit Agreement, the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto as
are delegated to the Administrative Agent by the terms thereof,
together with such powers as are incidental thereto; and (e)
agrees that it will be bound by the provisions of the Credit
Agreement and will perform in accordance with its terms all the
obligations which by the terms of the Credit Agreement are
required to be performed by it as a Lender including, if it is
organized under the laws of a jurisdiction outside the United
States, its obligation pursuant to subsection 2.15(d) of the
Credit Agreement.
4. The effective date of this Assignment and Acceptance
shall be the Effective Date of Assignment described in Schedule 1
hereto (the "Effective Date"). Following the execution of this
Assignment and Acceptance, it will be delivered to the
Administrative Agent for acceptance by it and recording by the
Administrative Agent pursuant to the Credit Agreement, effective
as of the Effective Date (which shall not, unless otherwise
agreed to by the Administrative Agent, be earlier than five
Business Days after the date of such acceptance and recording by
the Administrative Agent).
<PAGE>
3
5. Upon such acceptance and recording, from and after the
Effective Date, the Administrative Agent shall make all payments
in respect of the Assigned Interest (including payments of
principal, interest, fees and other amounts) to the Assignor for
amounts which have accrued to the Effective Date and to the
Assignee for amounts which have accrued subsequent to the
Effective Date. The Assignor and the Assignee shall make all
appropriate adjustments in payments by the Administrative Agent
for periods prior to the Effective Date or with respect to the
making of this assignment directly between themselves.
6. From and after the Effective Date, (a) the Assignee
shall be a party to the Credit Agreement and, to the extent
provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and under the other Loan
Documents and shall be bound by the provisions thereof and (b)
the Assignor shall, to the extent provided in this Assignment and
Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement.
7. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed as of the date first
above written by their respective duly authorized officers on
Schedule 1 hereto.
<PAGE>
Schedule 1
to Assignment and Acceptance
Name of Assignor: ___________________
Name of Assignee: ___________________
Effective Date of Assignment: __________________
Credit Principal Commitment Percentage
Facility Assigned Amount Assigned Assigned 1/
$_______________ ____.______________%
[Name of Assignor] [Name of Assignee]
By:___________________ By:___________________
Name: Name:
Title: Title:
Accepted [and Consented To]:
CHEMICAL BANK, as
Administrative Agent
By: ____________________
Name:
Title:
[Consented To:
TIME WARNER INC.
By:___________________
Name:
Title:]
_________________________________________________
1/ Calculate the Commitment Percentage that is assigned to at
least 15 decimal places and show as a percentage of the
aggregate commitments of all Lenders.
<PAGE>
SCHEDULE I
CREDIT AGREEMENT
COMMITMENTS AND ADDRESSES FOR NOTICES
NAME AND ADDRESS FOR NOTICES REVOLVING COMMITMENT AAMOUNT
AND COMMITMENT PERCENTAGE
CHEMICAL BANK Commitment Amount: $30,400,000
270 Park Avenue
New York, NY 10017 Commitment Percentage: 4.053333333
Attn: Dorothy Vena
Tel: (212) 270-4048
Fax: (212) 270-7904
BANK OF AMERICA NT & SA Commitment Amount: $25,700,000
335 Madison Avenue
New York, NY 10017 Commitment Percentage: 3.426666667
Attn: Matthew Flynn
Tel: (212) 503-8372
Fax: (212) 503-7173
BANK OF MONTREAL Commitment Amount: $25,700,000
430 Park Avenue, 16th Floor
New York, NY 10022 Commitment Percentage: 3.426666667
Attn: Allegra Griffiths
Tel: (212) 605-1426
Fax: (212) 605-1648
THE BANK OF NEW YORK Commitment Amount: $25,700,000
One Wall Street, 16th Floor
New York, NY 10266 Commitment Percentage: 3.426666667
Attn: Brendan Nedzi
Tel: (212) 635-8628
Fax: (212) 635-8593
THE BANK OF NOVA SCOTIA Commitment Amount: $25,700,000
One Liberty Plaza, 26th Floor
New York, NY 10006 Commitment Percentage: 3.426666667
Attn: Vincent Fitzgerald
Tel: (212) 225-5042
Fax: (212) 225-5091
BANK OF TOKYO-MITSUBUISHI
TRUST COMPANY Commitment Amount: $25,700,000
1251 Avenue of the Americas
New York, NY 10116-3138 Commitment Percentage: 3.426666667
Attn: John Judge
Tel: (212) 782-4383
FAX: (212) 782-6442
<PAGE>
Page 2
BANQUE NATIONALE DE PARIS Commitment Amount: $25,700,000
499 Park Avenue
New York, NY 10022 Commitment Percentage: 3.426666667
Attn: Nuala Marley
Tel: (212)-415-9726
Fax: (212) 415-9695
BANQUE PARIBAS Commitment Amount: $25,700,000
787 Seventh Avenue
New York, NY 10019 Commitment Percentage: 3.426666667
Attn: Philippe Vaurchex
Tel: (212) 841-2226
Fax: (212) 841-2369
BARCLAYS BANK PLC Commitment Amount: $25,700,000
388 Market Street
San Francisco, CA 94111 Commitment Percentage: 3.426666667
Attn: James Tan
Tel: (415) 765-4718
Fax: (415) 765-4760
CIBC INC. Commitment Amount: $25,700,000
425 Lexington Avenue
New York, NY 10017 Commitment Percentage: 3.426666667
Attn: Matthew Jones
Tel: (212) 856-3714
Fax: (212) 856-3558
CITIBANK, N.A. Commitment Amount: $25,700,000
4th Floor/Zone 16
399 Park Avenue Commitment Percentage: 3.426666667
New York, NY 10043
Attn: Mary E. Thomas
Tel: (212) 559-3094
Fax: (212) 793-6873
COMMERZBANK AG Commitment Amount: $25,700,000
2 World Financial Center
New York, NY 10261 Commitment Percentage: 3.426666667
Attn: Robert Donohue
Tel: (212) 266-7336
Fax: (212) 266-7374
CREDIT LYONNAIS NEW YORK BRANCH Commitment Amount: $25,700,000
1301 Avenue of the Americas
New York, NY 10019 Commitment Percentage: 3.426666667
Attn: Steve Levi
Tel: (212) 261-7324
Fax: (212) 261-3318
<PAGE>
Page 3
CREDIT SUISSE Commitment Amount: $25,700,000
12 East 49th Street
New York, NY 10017 Commitment Percentage: 3.426666667
Attn: Ed Barr
Tel: (212) 238-5414
Fax: (212) 238-5439
THE DAI-ICHI KANGYO BANK, LTD. Commitment Amount: $25,700,000
One World Trade Center, Suite 4911
New York, NY 10048 Commitment Percentage: 3.426666667
Attn: Seiji Imai
Tel: (212) 432-8441
Fax: (212) 524-0579
THE FIRST NATIONAL BANK OF BOSTON Commitment Amount: $25,700,000
100 Federal Street
Boston, MA 02110 Commitment Percentage: 3.426666667
Attn: Kathryn Ticknor
Tel: (617) 434-4624
Fax: (617) 434-3401
THE FUJI BANK, LIMITED,
NEW YORK BRANCH Commitment Amount: $25,700,000
Two World Trade Center, 79-81 Floors
New York, NY Commitment Percentage: 3.426666667
Attn: John D. Doyle
Tel: (212) 898-2087
Fax: (212) 912-0516
THE INDUSTRIAL BANK OF JAPAN,
LIMITED Commitment Amount: $25,700,000
245 Park Avenue
New York, NY 10167-0037 Commitment Percentage: 3.42666667
Attn: Akira Yoshida
Tel: (212) 309-6562
Fax: (212) 682-2870
THE LONG-TERM CREDIT BANK
OF JAPAN, LIMITED Commitment Amount: $25,700,000
165 Broadway, 49th Floor
New York, NY 10008 Commitment Percentage: 3.426666667
Attn: Tetsuya Fukunaga
Tel: (212) 335-4549
Fax: (212) 608-2371
MELLON BANK, N.A. Commitment Amount: $25,700,000
One Mellon Bank Center
Pittsburgh, PA 15286-0001 Commitment Percentage: 3.426666667
Attn: Maribeth Donnelly
Tel: (412) 236-2472
Fax: (412) 234-6375
<PAGE>
Page 4
MITSUBISHI TRUST & BANKING Commitment Amount: $25,700,000
520 Madison Avenue, 26th Floor
New York, NY 10022 Commitment Percentage: 3.426666667
Attn: Bea Kossodo
Tel: (212) 891-8454
Fax: (212) 755-2349
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK Commitment Amount: $25,700,000
60 Wall Street
New York, NY 10260-0060 Commitment Percentage: 3.426666667
Attn: George Stapleton
Tel: (212) 648-7831
Fax: (212) 648-5018
NATIONSBANK, N.A. Commitment Amount: $25,700,000
767 Fifth Avenue
New York, NY 10153-0083 Commitment Percentage: 3.426666667
Attn: James Gilland
Tel: (212) 407-5330
Fax: (212) 593-1083
ROYAL BANK OF CANADA Commitment Amount: $25,700,000
Financial Square
New York, NY 10005-3531 Commitment Percentage: 3.426666667
Attn: Barbara Meijer
Tel: (212) 428-6288
Fax: (212) 428-6460
THE SAKURA BANK, LIMITED Commitment Amount: $25,700,000
277 Park Avenue
New York, NY 10172 Commitment Percentage: 3.426666667
Attn: Pierre Vautravers [Fuminori Ohira]
Tel: (212) 756-6820 [(212) 756-6769]
Fax: (212) 888-7651 [(212) 888-7651]
THE SANWA BANK, LIMITED Commitment Amount: $25,700,000
55 East 52nd Street, 26th Floor
New York, NY 10055 Commitment Percentage: 3.426666667
Attn: Joseph Leo
Tel: (212) 339-6205
Fax: (212) 754-1304
SOCIETE GENERALE Commitment Amount: $25,700,000
1221 Avenue of the Americas
New York, NY 10020 Commitment Percentage: 3.426666667
Attn: Mark Vigil
Tel: (212) 278-7350
Fax:
<PAGE>
Page 5
THE SUMITOMO BANK, LTD.,
NEW YORK BRANCH Commitment Amount: $25,700,000
277 Park Avenue, 6th Floor
New York, NY 10172 Commitment Percentage: 3.426666667
Attn: Leo Pagarigan
Tel: (212) 224-4118
Fax: (212) 224-5188
THE TOKAI BANK, LTD. Commitment Amount: $25,700,000
55 East 52nd Street, 12th Floor
New York, NY 10055 Commitment Percentage: 3.426666667
Attn: Stuart Schulman
Tel: (212) 339-1117
Fax: (212) 754-2171
Exhibit 10.2
EXECUTION COPY
ESCROW AGREEMENT
This ESCROW AGREEMENT, dated as of May 23, 1996 is made
among TIME WARNER INC., a Delaware corporation (together with its
successors and permitted assigns, the "Depositor", except that
after the assumption provided for in subsection 9.7 of the Credit
Agreement, the "Depositor" shall mean TW Inc. together with its
permitted successors and assigns), THE BANK OF NEW YORK, a New
York banking corporation (together with its successors and
permitted assigns, the "Escrow Agent") and CHEMICAL BANK, a New
York banking corporation, in its capacity as Administrative Agent
(the "Administrative Agent"; and together with the Depositor, the
"Beneficiaries") under the Credit Agreement, dated as of May 23,
1996, among the Depositor, the several banks, financial
institutions and other entities from time to time parties thereto
(the "Lenders") and Chemical Bank, as Administrative Agent (as
the same may from time to time be amended, supplemented or
otherwise modified, the "Credit Agreement").
W I T N E S S E T H:
WHEREAS, under the Credit Agreement the Depositor is
required to deposit in escrow a specified number of shares of
common stock of the Depositor, as adjusted pursuant to
subsections 9.7 and 9.8 of the Credit Agreement (the "Stock") and
from time to time may be required to deposit in escrow additional
shares of Stock;
WHEREAS, the Depositor wishes to appoint the Escrow Agent to
act as its agent for the purposes of taking and retaining custody
of the shares of Stock required to be deposited in escrow under
the Credit Agreement; and
WHEREAS, each of the Depositor and the Administrative Agent
wishes to appoint the Escrow Agent to act as its agent for the
other purposes of this Agreement and carrying out the Escrow
Agent's other obligations hereunder;
NOW, THEREFORE, in consideration of the mutual agreements
herein contained and of other good and valuable consideration the
receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
SECTION 1. DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein
(i) terms defined in the preamble and recitals hereto are used
herein as so defined and (ii) terms defined in the Credit
Agreement are used herein as so defined; and the following terms
shall have the following meanings:
"Authorized Representative": as defined in subsection
2.3 hereof.
<PAGE>
2
"Blocking Notice": as defined in subsection 2.4 hereof.
"Blocking Period": as defined in subsection 5.1 hereof.
"Escrowed Stock": as defined in subsection 2.2 hereof.
"Securities Act": as defined in subsection 5.3 hereof.
(b) All references herein to "the Agreement" or "this
Agreement" are to this Escrow Agreement as it may be amended,
supplemented or modified from time to time, and all references
hereto to Sections, subsections and Exhibits are to Sections,
subsections and Exhibits of this Agreement unless otherwise
specified.
SECTION 2. APPOINTMENT AND DUTIES OF THE ESCROW AGENT
2.1 Appointment of Escrow Agent. The Depositor hereby
appoints the Escrow Agent to act as its agent for the purposes of
taking and retaining custody of the shares of Stock required to
be deposited in escrow under the Credit Agreement in accordance
with the terms and conditions of this Agreement; and each of the
Administrative Agent and the Depositor appoints the Escrow Agent
to act as its agent for purposes of carrying out the Escrow
Agent's other obligations hereunder.
2.2 Deposit of Escrowed Stock. The Depositor may from
time to time deposit with the Escrow Agent certificates
representing shares of Stock pursuant to the terms of the Credit
Agreement (such Stock, the "Escrowed Stock"), together with
undated stock powers duly executed in blank in respect of such
Escrowed Stock. All such deposited Stock shall be accompanied by
a notice from the Depositor to the Escrow Agent substantially in
the form of Exhibit 1, with a copy of such notice sent to the
Administrative Agent. The sole responsibilities of the Escrow
Agent with respect to Escrowed Stock shall be to act as custodian
thereof for the Depositor so long as such Escrowed Stock shall
remain in the Escrow Agent's possession. The Escrow Agent shall
promptly, but in any event within one (1) Business Day, provide
to the Administrative Agent written verification of all Stock
deposited hereunder or removed from escrow hereunder by the
Depositor substantially in the form of Exhibit 2. The Escrow
Agent shall have no duty to monitor the delivery to it of such
shares of Stock other than to note receipt of such on its records
and to notify the Administrative Agent thereof as provided in the
preceding sentence.
2.3 Authorized Representatives. The Escrow Agent
shall accept only written instructions of an Authorized
Representative (as defined below) of the Administrative Agent or
<PAGE>
3
the Depositor concerning the use, handling and disposition of the
Escrowed Stock. Each individual designated as an authorized
representative of the Administrative Agent, the Depositor or the
Escrow Agent (each, an "Authorized Representative") is authorized
to give and receive notices, requests and instructions and to
deliver certificates and documents in connection with this
Agreement on behalf of the Administrative Agent, the Depositor or
the Escrow Agent, as the case may be, and the specimen signature
for each such Authorized Representative thereof initially
authorized hereunder is set forth on Exhibits 5, 6 and 7 hereto,
respectively. From time to time the Administrative Agent, the
Depositor and the Escrow Agent may, by delivering to each of the
others a revised exhibit, change the information previously
given, but each of the other parties hereto shall be entitled to
rely conclusively on the last exhibit until receipt of a
superseding exhibit.
2.4 Right of Depositor to Withdraw Escrowed Stock.
(a) Unless the Escrow Agent shall have received written
notice (a "Blocking Notice") from the Administrative Agent that the
Escrow Agent may no longer accept directions from the Depositor
pursuant hereto, the Escrow Agent, upon the receipt of a written
request from the Depositor, in substantially the form of Exhibit
3 hereto (with a copy to the Administrative Agent) specifying the
number of shares of Escrowed Stock to be released by the Escrow
Agent to the Depositor, shall release the number of shares of
Escrowed Stock specifically requested by the Depositor to the
Depositor. The Escrow Agent shall deliver to the Depositor (or
to the Person designated by the Depositor in such written
request) upon receipt of such written instructions of the
Depositor, as rapidly as practicable, but in no case later than
two (2) Business Days, all of the shares of Escrowed Stock so
designated for delivery, together with the undated stock powers
in respect of such Escrowed Stock. For purposes of effecting
such release, the Escrow Agent may deliver to the Depositor for
exchange certificates representing all or a portion of the
Escrowed Stock for one or more certificates aggregating the
number of shares of Escrowed Stock specified by the Depositor as
remaining in escrow. In such case the Depositor will promptly
redeliver to the Escrow Agent certificates representing such
remaining shares, together with new undated stock powers duly
executed in blank for such remaining shares.
(b) Any instruction by the Depositor to deliver the
shares of Escrowed Stock to the Depositor (or to a Person
designated by the Depositor) must inform the Escrow Agent, to the
Escrow Agent's satisfaction, of the terms and method of delivery
of the shares of such Stock. The Depositor shall hold the Escrow
Agent harmless from losses or damages to any person for the safe
transmittal of the shares of Stock if the Escrow Agent has
complied with the Depositor's instructions regarding their
delivery.
<PAGE>
4
2.5 Right of Administrative Agent to Direct Escrow
Agent. (a) At any time after the Administrative Agent shall
have delivered a Blocking Notice to the Escrow Agent, the Escrow
Agent, upon the receipt of a written request from the
Administrative Agent, in substantially the form of Exhibit 4
(with a copy to the Depositor) specifying the number of shares of
Escrowed Stock to be released by the Escrow Agent, shall release
the number of shares of Escrowed Stock specifically requested by
the Administrative Agent to the buyer (or such buyer's nominee or
agent) set forth in such written request. The Escrow Agent shall
deliver to the buyer (or such buyer's nominee or agent) set forth
in such written request, as rapidly as practicable, but in no
case later than two (2) Business Days, all of the shares of
Escrowed Stock so designated for delivery, together with the
undated stock powers in respect of such Escrowed Stock.
(b) Any instruction by the Administrative Agent to
deliver the shares of Escrowed Stock must inform the Escrow
Agent, to the Escrow Agent's satisfaction, of the terms and
method of delivery of the shares of such Stock to or for the
account of the purchaser thereof. The Administrative Agent shall
hold the Escrow Agent harmless from losses or damages to any
person for the safe transmittal of the shares of Stock if the
Escrow Agent has complied with the Administrative Agent's
instructions regarding their delivery.
(c) During a Blocking Period, the Depositor shall only
be permitted to request the release of Escrowed Stock with the
written consent of the Administrative Agent. Once a Blocking
Notice is received by the Escrow Agent, without the written
consent of the Administrative Agent, the Escrow Agent shall not
thereafter release any Escrowed Stock to the Depositor or its
order (even if the Depositor's request was received prior to the
delivery of the Blocking Notice).
(d) The Depositor hereby authorizes and instructs the
Escrow Agent to comply with any instruction received by it from
the Administrative Agent in writing that (a) states that a
Blocking Period is in effect and (b) is otherwise in accordance
with the terms of this Agreement, without any other or further
instructions from the Depositor, and the Depositor and the
Administrative Agent agree that the Escrow Agent shall be fully
protected in so complying.
2.6 Reliance of Escrow Agent. The notices,
statements, directions and certificates requested under or
required by this Section 2 shall be full authority for and
direction to the Escrow Agent to execute the certificates and
notices and deliver the shares of Stock and stock powers referred
to herein and the Escrow Agent shall promptly do so. The Escrow
Agent in so doing shall have no liability to any Person except on
account of its wilful misconduct or negligence. In addition,
<PAGE>
5
anything to the contrary contained in this Agreement
notwithstanding, the Escrow Agent shall have no obligation to
ascertain, inquire or otherwise determine whether or not actions
taken (or requested to be taken), or notices given, under this
Agreement are being taken (or requested to be taken) or given in
accordance with the terms of the Credit Agreement.
2.7 Safekeeping of Escrowed Stock. All shares of
Escrowed Stock (together with the related stock powers) shall be
kept in fireproof vaults or cabinets at the office of the Escrow
Agent specified in subsection 6.2, or at such other office as
shall be specified to the Beneficiaries by 30 days' prior written
notice. All shares of Escrowed Stock (together with the related
stock powers) shall be placed together in a separate file cabinet
with an appropriate identifying label and maintained in such a
manner so as to permit retrieval and access.
2.8 Recordkeeping. The Escrow Agent shall keep all
shares of Escrowed Stock clearly segregated from any other
documents or instruments in its files and shall establish and at
all times maintain an account (the "Escrow Account") at its
office referred to in subsection 2.7 which sets forth the
Escrowed Stock from time to time being held pursuant to this
Agreement. The Escrow Agent shall maintain a clear listing of
all shares of Escrowed Stock and indicate that the Escrow Account
is an escrow account and all such shares of Escrowed Stock are
held in escrow pursuant to this Agreement, and that the Escrow
Agent is holding such files solely as Escrow Agent pursuant
hereto.
2.9 Inspection of Escrowed Stock. The Escrow Agent
hereby agrees and covenants that, on reasonable prior notice, it
will permit any representative of the Depositor or the
Administrative Agent (or any of their agents), during the Escrow
Agent's normal business hours, to examine the books of account,
records, reports and other papers of the Escrow Agent relating to
the shares of Escrowed Stock, and to make copies and extracts
therefrom, all at such reasonable times and as often as may be
reasonably requested.
2.10 No Implied Duties or Covenants. The Escrow Agent
undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement and no implied covenants
or obligations shall be read into this Agreement against the
Escrow Agent; in the absence of bad faith on its part, the Escrow
Agent may rely, as to the truth of the statements and correctness
of the instructions given, on instruments and reports furnished
to the Escrow Agent and conforming to the requirements of this
Agreement.
<PAGE>
6
2.11 Standard of Care. In performing its duties as
the Escrow Agent, the Escrow Agent shall use the highest degree
of care and attention employed by the custodians holding and
transferring shares of stock.
2.12 No Representations or Warranties. The Escrow
Agent makes no warranty or representation as to the validity of
the shares of Stock and is acting solely as agent of the
Beneficiaries to furnish only those services which are expressly
described herein and any other administerial service or action
which is reasonably requested by the Depositor or the
Administrative Agent in order to accomplish the purposes of this
Agreement.
2.13 Compensation of Escrow Agent. At the time of
execution of this Agreement, the Depositor covenants and agrees
to pay to the Escrow Agent and the Escrow Agent shall be entitled
to receive, under a written agreement with the Depositor,
compensation for all services rendered by it hereunder and in the
exercise and performance of any of the powers and duties
hereunder of the Escrow Agent, and the Depositor will pay or
reimburse the Escrow Agent upon its request for all reasonable
expenses, disbursements and advances incurred or made by the
Escrow Agent in accordance with any of the provisions of this
Agreement (including the reasonable fees and expenses of its
agents and counsel) except any such expense, disbursement or
advance as may arise from its negligence or bad faith.
SECTION 3. INDEMNIFICATION
3.1 Indemnification of Escrow Agent. The Depositor
agrees to indemnify and hold the escrow agent and its directors,
officers, agents and employees harmless against any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever, including reasonable attorney's fees, that may
be imposed on, incurred by, or asserted against it or them in any
way relating to or arising out of this Agreement or any action
taken or not taken by it or them hereunder unless such
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements were imposed
on, incurred by or asserted against the Escrow Agent because of
the breach by the Escrow Agent of its obligations hereunder,
which breach was caused by the negligence, lack of good faith or
willful misconduct on the part of the Escrow Agent or any of its
directors, officers, agents or employees. The foregoing
indemnification shall survive any termination of this Escrow
Agreement.
3.2 Exculpatory Provisions. (a) Neither the Escrow
Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it
<PAGE>
7
or them hereunder or in connection herewith in good faith and
believed by it or them to be within the purview of this Escrow
Agreement, including, without limitation, in the selection of
shippers and methods of shipment, except for its or their own
negligence, lack of good faith or willful misconduct. In no
event shall the Escrow Agent or its directors, officers, agents
and employees be held liable for any special, indirect, punitive
or consequential damages resulting from any action taken or
omitted to be taken by it or them hereunder or in connection
herewith even if advised of the possibility of such damages. The
Escrow Agent shall not be responsible to the Depositor, the
Administrative Agent or any other party for recitals, statements
or warranties or representations of any other party hereto
contained herein, in the Credit Agreement or in any document or
be bound to ascertain or inquire as to the performance or
observance of any of the terms of this Escrow Agreement or the
Credit Agreement on the part of Administrative Agent or the
Depositor.
(b) The Escrow Agent may, with the consent of the
Depositor (which consent shall not be unreasonably withheld),
consult with legal counsel (the reasonable expenses of which will
be the responsibility of the Depositor) as to any matter relating
to this Agreement, and the Escrow Agent shall not incur any
liability in acting in good faith in accordance with any advice
from said counsel.
(c) Subject in all circumstances to the provisions of
subsection 2.5 (which provides, among other things, that during a
Blocking Period (i) the Escrow Agent shall only follow directions
of the Depositor with the written consent of the Administrative
Agent and (ii) the Depositor authorizes and instructs the Escrow
Agent to comply with the instructions of the Administrative
Agent), in the event of any ambiguity or uncertainty hereunder or
in any notice, instruction or other communication received by the
Escrow Agent hereunder, the Escrow Agent may, in its sole
discretion, refrain from taking any action other than retaining
possession of the Escrowed Stock, unless the Escrow Agent
receives written instructions, signed by the Depositor or the
Administrative Agent or by the Depositor and the Administrative
Agent jointly, which eliminates such ambiguity or uncertainty.
SECTION 4. TERMINATION OF AGREEMENT
4.1 Termination by Notice. This Agreement may be
terminated at any time by the Depositor (with the consent, which
shall not be unreasonably withheld, of the Administrative Agent)
by written notice delivered by an Authorized Representative of
both of them to the Escrow Agent. In such event, the Depositor
(with the consent, which shall not be unreasonably withheld, of
the Administrative Agent) will select a replacement escrow agent.
The effective date of termination shall be as specified in such
notice.
<PAGE>
8
4.2 Termination Procedures. (a) Upon the termination
of this Agreement and upon written notice to the Escrow Agent
from the Depositor and the Administrative Agent, the Escrow Agent
shall deliver to any successor escrow agent (or, if the
Commitments shall have terminated and the Loans and all other
amounts owing under the Loan Documents shall have been paid in
full, to the Depositor or its designee), at the Escrow Agent's
office, all shares of Stock then held by the Escrow Agent
(together with the related stock powers).
(b) If, upon termination of this Agreement, the
Depositor fails to accept delivery of, or provide written
delivery instructions for, all shares of Escrowed Stock then held
by the Escrow Agent pursuant to this Agreement, the Escrow Agent
shall have the right upon thirty (30) days' prior written notice
to the Depositor and the Administrative Agent, to store the
unaccepted shares of Escrowed Stock in a non-fireproof area and
shall not be held liable by the Depositor for damage, theft, fire
or other perils relating to the shares of Escrowed Stock. Upon
termination of this Agreement, the Escrow Agent will not accept
any instructions from the Depositor other than arrangements for
complete delivery of all shares of Stock in its possession. Upon
the Depositor's failure to arrange complete delivery or provide
instructions for delivery within thirty (30) days of termination,
the Escrow Agent shall have the right to mail all packages by
regular, insured U.S.A. mail or United Parcel Service to the
Depositor.
SECTION 5. RIGHTS OF ADMINISTRATIVE AGENT AFTER A
BLOCKING NOTICE.
5.1 Blocking Period Rights. The following provisions
of this Section 5 shall apply during any period when a Blocking
Notice is in effect and has not been withdrawn by the
Administrative Agent (a "Blocking Period").
5.2 Right to Dispose of Escrowed Stock. During a
Blocking Period commenced in accordance with the terms of
subsection 5.10 of the Credit Agreement, the Administrative Agent
may exercise, in addition to all other rights and remedies
granted in this Agreement and in the Credit Agreement the
following rights and remedies. The Administrative Agent, without
demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except as may be required by
the Credit Agreement or any notice required by law referred to
below) to or upon the Depositor or any other Person (all and each
of which demands, defenses, presentments, protests,
advertisements and notices are (except as aforesaid) hereby
waived), may in such circumstances, on behalf of the Depositor,
forthwith sell (or cause the sale of), assign, give option or
options to purchase or otherwise dispose of and deliver the
Escrowed Stock or any part thereof (or contract to do any of the
<PAGE>
9
foregoing), in one or more parcels at public or private sale or
sales, in the over-the-counter market, at any exchange, broker's
board or office of the Administrative Agent or elsewhere upon
such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk subject to any
requirements of applicable law. The Administrative Agent or any
Lender shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Escrowed Stock
so sold, free of any right or equity of redemption in the
Depositor, which right or equity is hereby waived and released.
The Administrative Agent shall apply the Net Cash Proceeds of any
such collection, recovery, receipt, appropriation, realization or
sale, after deducting all reasonable costs and expenses of every
kind incurred in respect thereof or incidental to the care or
safekeeping of any of the Escrowed Stock or in any way relating
to the Escrowed Stock or the rights of the Administrative Agent
and the Lenders hereunder, to the payment in whole or in part of
the Loans to the extent then due and all other amounts then owing
under the Credit Agreement in accordance with its terms, in such
order as the Administrative Agent may elect, and only after such
application and after the payment by the Administrative Agent of
any other amount required by any provision of law need the
Administrative Agent account for the surplus, if any, to the
Depositor. To the extent permitted by applicable law, the
Depositor waives all claims, damages and demands it may acquire
against the Administrative Agent or any Lender arising out of the
exercise by them of any rights hereunder in accordance with this
Agreement and the Credit Agreement. If any notice of a proposed
sale or other disposition of Escrowed Stock shall be required by
law, such notice shall be deemed reasonable and proper if given
at least 10 days before such sale or other disposition. The
Depositor shall remain liable for any deficiency (but only to the
extent set forth in the Credit Agreement) if the proceeds of any
sale or other disposition of Escrowed Stock are insufficient to
pay the Loans and all other amounts owing under the Credit
Agreement and the reasonable fees and disbursements of any
attorneys employed by the Administrative Agent or any Lender to
collect such deficiency.
5.3 Registration Rights; Private Sales. (a) If the
Administrative Agent shall determine to exercise its right, on
behalf of the Depositor, to sell (or cause the sale of) any or
all of the Escrowed Stock on behalf of the Depositor pursuant to
subsection 5.2 hereof, and if in the opinion of the
Administrative Agent it is necessary or advisable to have the
Escrowed Stock, or that portion thereof to be sold, registered
under the provisions of the Securities Act of 1933, as amended
(the "Securities Act"), the Depositor will execute and deliver,
and cause its directors and officers to execute and deliver, all
such instruments and documents, and do or cause to be done all
<PAGE>
10
such other acts as may be, in the opinion of the Administrative
Agent, necessary or advisable to register the Escrowed Stock, or
that portion thereof to be sold, under the provisions of the
Securities Act, to use its best efforts to cause the registration
statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first
public offering of the Escrowed Stock, or that portion thereof to
be sold, and to make all amendments thereto and/or to the related
prospectus which, in the opinion of the Administrative Agent, are
necessary or advisable, all in conformity with the requirements
of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The
Depositor agrees to comply with the provisions of the securities
or "Blue Sky" laws of any and all jurisdictions which the
Administrative Agent shall designate and to make available to its
security holders, as soon as practicable, an earnings statement
(which need not be audited) which will satisfy the provisions of
Section 11(a) of the Securities Act.
(b) The Depositor recognizes that the Administrative
Agent may be unable to effect or cause a public sale of any or
all the Escrowed Stock, by reason of certain prohibitions
contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which
will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a
view to the distribution or resale thereof. The Depositor
acknowledges and agrees that any such private sale may result in
prices and other terms less favorable than if such sale were a
public sale and, notwithstanding such circumstances, agrees that
any such private sale shall be deemed to have been made in a
commercially reasonable manner. The Administrative Agent shall
be under no obligation to delay a sale of any of the Escrowed
Stock for the period of time necessary to permit the Depositor to
register such securities for public sale under the Securities
Act, or under applicable state securities laws, even though the
Depositor has agreed to do so.
(c) The Depositor further agrees to use its reasonable
best efforts to do or cause to be done all such other acts as may
be reasonably necessary to make such sale or sales of all or any
portion of the Escrowed Stock pursuant to this Section valid and
binding and in compliance with any and all other applicable
Requirements of Law. The Depositor further agrees that a breach
of any of the covenants contained in this Section will cause
irreparable injury to the Administrative Agent and the Lenders,
that the Administrative Agent and the Lenders have no adequate
remedy at law in respect of such breach and, as a consequence,
that each and every covenant contained in this Section shall be
specifically enforceable against the Depositor, and the Depositor
<PAGE>
11
hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a
defense that no Event of Default has occurred under the Credit
Agreement.
5.4 Administrative Agent's Appointment as Attorney-in-
Fact. (a) During any Blocking Period, the Depositor hereby
irrevocably constitutes and appoints the Administrative Agent and
any officer or agent of the Administrative Agent, with full power
of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of
the Depositor and in the name of the Depositor or in the
Administrative Agent's own name, from time to time in the
Administrative Agent's discretion, for the purpose of carrying
out the terms of this Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this
Agreement, including, without limitation, any endorsements,
assignments or other instruments of transfer.
(b) The Depositor hereby ratifies all that said
attorneys shall lawfully do or cause to be done pursuant to the
power of attorney granted in subsection 5.4(a). All powers,
authorizations and agencies contained in this Agreement are
coupled with an interest and are irrevocable until this Agreement
is terminated.
5.5 Duty of Administrative Agent. The Administrative
Agent's sole duty with respect to the custody, safekeeping and
physical preservation of any Escrowed Stock in its possession
shall be to deal with it in the same manner as the Administrative
Agent deals with similar securities and property for its own
account that it is holding for sale. Neither the Administrative
Agent, any Lender nor any of their respective directors,
officers, employees or agents shall be liable for failure to
demand, collect or realize upon any of the Escrowed Stock or for
any delay in doing so or shall be under any obligation to sell or
otherwise dispose of any Escrowed Stock upon the request of the
Depositor or any other Person or to take any other action
whatsoever with regard to the Escrowed Stock or any part thereof.
SECTION 6. MISCELLANEOUS
6.1 Assignment, Successors and Assigns. This
Agreement shall inure to the benefit of and be binding upon the
parties hereto, and their respective successors and permitted
assigns. Except as otherwise provided in this Agreement, no
other Person shall have any right or obligation hereunder.
Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may not be assigned (a) by the Escrow
Agent without the prior written consent of the Administrative
<PAGE>
12
Agent and the Depositor, which shall not be unreasonably withheld
and (b) by the Depositor without the prior written consent of the
Administrative Agent (except as specified in subsection 9.7 of
the Credit Agreement).
6.2 Notices. (a) Except as otherwise specifically
provided for in this Agreement, all notices, payments and other
communications between the parties hereto shall be given by an
Authorized Representative of the Administrative Agent, the Escrow
Agent or the Depositor, as the case may be, in writing (including
by facsimile) and shall be either hand delivered or mailed by
registered or certified mail, postage prepaid, return receipt
requested, or by facsimile (with receipt confirmed and with a
hard copy sent promptly), Federal Express, other overnight
couriers providing receipts or electronic mail as follows:
If to the Administrative Agent:
Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: Dorothy Vena
Telephone Number: (212) 270-4048
Telecopy Number: (212) 270-7904
If to the Escrow Agent:
The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Corporate Trust Escrow Unit
Telephone Number: (212) 815-5228
Telecopy Number: (212) 815-5999
If to the Depositor:
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Attention: Chief Financial Officer
Telephone Number: (212) 484-7375
Telecopy Number: (212) 307-0126
Copies to:
Attention: General Counsel
Telephone Number: (212) 484-7580
Telecopy Number: (212) 956-7281
<PAGE>
13
and to
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attention: William P. Rogers, Jr.
Telephone: (212) 474-1270
Telecopy: (212) 474-3700
(b) Except with respect to the Escrow Agent, where
notices shall be deemed effective when received, any such notice,
payment or communication so delivered or addressed and mailed by
certified mail, postage prepaid, return receipt requested, shall
be deemed to have been given when so mailed. Notice given by
Federal Express or electronic mail shall be deemed given twenty-
four (24) hours after communicated. Any party may change the
address to which notices, payments or communications shall be
given by notifying the other party in writing as provided for in
this subsection.
(c) The Depositor shall provide written notice to the
Escrow Agent within one Business Day of the effective date of the
assumption referred to in the preamble hereto.
6.3 No Set-off. The Escrow Agent, in its capacity as
escrow agent hereunder or otherwise, hereby agrees that it will
not set-off against the shares of Escrowed Stock delivered under
this Agreement or the proceeds thereof any claims which it may
have against the Administrative Agent, the Depositor or any other
Person. The Escrow Agent, in its capacity as escrow agent
hereunder or otherwise, hereby expressly waives any and all
rights it may have to file a lien against any share of Escrowed
Stock individually or in the aggregate.
6.4 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or
interpretation of any provision hereof.
6.5 Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of this Agreement
shall for any reason whatsoever be held invalid, then such
covenants, agreements, provisions or terms shall be deemed
severable from the remaining covenants, agreements, provisions or
terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
6.6 TW Inc. Assumption. Effective upon receiving
notice from Time Warner Inc. that the assumption referred to in
the preamble hereto has occurred, TW Inc. shall, in accordance
with subsection 9.7 of the Credit Agreement, be the "Depositor"
for all purposes of this Agreement.
<PAGE>
14
6.7 Counterparts. This Agreement may be executed in
two or more counterparts (and by different parties on separate
counterparts), each of which shall be an original, but all of
which together shall constitute one and the same instrument.
6.8 Merger and Integration. Except as specifically
stated otherwise herein, this Agreement sets forth the entire
understanding of the parties relating to the subject matter
hereof, and all prior understandings, written or oral, are
superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided
herein.
6.9 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
6.10 Genuineness of Documents. In the absence of bad
faith or negligence on the part of the Escrow Agent, the Escrow
Agent may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon any
request, instructions, certificate, opinion or other document
furnished to the Escrow Agent, reasonably believed by the Escrow
Agent to be genuine and to have been signed or presented by the
proper party or parties and conforming to the requirements of
this Agreement; but in the case of any document or other request,
instruction, document or certificate which by any provision
hereof is specifically required to be furnished to the Escrow
Agent, the Escrow Agent shall be under a duty to examine the same
to determine whether or not it conforms to the requirements of
this Agreement. The Escrow Agent may consult with counsel and
any opinion of counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance with such
opinion of counsel.
6.11 Not a Security Interest. The Beneficiaries
hereby acknowledge and agree that this Agreement is not intended
to, and does not, create a security interest in the Escrowed
Stock. The parties hereto hereby acknowledge and agree that (a)
neither the Administrative Agent nor any Lender has any interest
in Common Stock by virtue of the transactions contemplated by the
Credit Agreement or this Agreement and (b) the Lenders are not,
and under no circumstances shall be deemed, holders of the Common
Stock (nor do they have, and under no circumstances shall they be
deemed to have, any interest therein) by virtue of any of the
provisions hereof or of the Credit Agreement.
6.12 WAIVERS OF JURY TRIAL. THE DEPOSITOR, THE ESCROW
AGENT AND THE ADMINISTRATIVE AGENT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
<PAGE>
15
PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM
THEREIN.
6.13 Amendments and Waiver. This Escrow Agreement may
be modified only by a written amendment signed by all the parties
hereto, and no waiver of any provision hereof shall be effective
unless expressed in writing and signed by the party to be charged.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed by their respective officers as of the day
and year first above written.
THE BANK OF NEW YORK,
as the Escrow Agent
By: ________________________
Name:
Title:
CHEMICAL BANK, as Administrative
Agent under the Credit Agreement
By: ________________________
Name:
Title:
TIME WARNER INC., as Depositor
By: ________________________
Name:
Title:
<PAGE>
EXHIBIT 1
[DATE]
The Bank of New York, as
Escrow Agent
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Corporate Trust Escrow Unit
Re: The Escrow Agreement, dated as of May 23, 1996 (as amended,
supplemented or otherwise modified from time to time, the "Escrow
Agreement"), among Time Warner Inc., a Delaware corporation
(together with its successors and assigns, the "Depositor",
except that after the assumption referred to in subsection 9.7 of
the Credit Agreement, the "Depositor" shall mean TW Inc. and its
successors and assigns), The Bank of New York, a New York banking
corporation (the "Escrow Agent") and Chemical Bank, a New York
banking corporation, as Administrative Agent (in such capacity,
the "Administrative Agent").
Dear Sirs:
Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the Escrow Agreement.
In accordance with the terms of the Escrow Agreement and the
Credit Agreement referred to therein, enclosed please find the
following shares of Stock (together with properly completed
undated stock powers executed in blank by a duly authorized
officer of the Depositor), all of which shall be held in escrow
pursuant to the terms of the Escrow Agreement:
Stock Certificate Number Number of Shares
TIME WARNER INC., as Depositor
By: _________________________
Name:
Title:
cc: Chemical Bank, as Administrative Agent
<PAGE>
2
The Escrow Agent hereby acknowledges receipt of the above-listed
Stock (and related stock powers) as of _______________, 19__ and
confirms to Depositor that it is holding such documents in
accordance with the terms of the Escrow Agreement.
THE BANK OF NEW YORK, as
Escrow Agent
By: _________________________
Name:
Title:
<PAGE>
EXHIBIT 2
[DATE]
Chemical Bank, as Administrative Agent
270 Park Avenue
New York, New York 10017
Attention: Dorothy Vena
Re: The Escrow Agreement, dated as of May 23, 1996 (as amended,
supplemented or otherwise modified from time to time, the "Escrow
Agreement"), among Time Warner Inc., a Delaware corporation
(together with its successors and assigns, the "Depositor",
except that after the assumption referred to in subsection 9.7 of
the Credit Agreement, the "Depositor" shall mean TW Inc. and its
successors and assigns), The Bank of New York, a New York banking
corporation (the "Escrow Agent") and Chemical Bank, a New York
banking corporation, as Administrative Agent (in such capacity,
the "Administrative Agent").
Dear Sirs:
Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Escrow
Agreement.
In accordance with subsection 2.2 of the Escrow Agreement,
we hereby notify you that [on __________ __, 19__ we received
from the Depositor a notice (a copy of which is attached hereto
as acknowledged by us), pursuant to which the shares of Stock
(together with properly completed stock powers executed in blank
by a duly authorized officer of the Depositor) set forth therein
were delivered to the Escrow Agent and are now being held in
escrow pursuant to the terms of the Escrow Agreement] [on
_____________________, 19__ we received from the Depositor a
notice in accordance with subsection 2.4 of the Escrow Agreement
(a copy of which is attached) pursuant to which the Depositor
requested that we release to the Depositor the Stock described
therein. On [__________ __, 19__] we released said Stock to the
Depositor.]
THE BANK OF NEW YORK, as
Escrow Agent
By: _________________________
Name:
Title:
<PAGE>
EXHIBIT 3
[DATE]
The Bank of New York, as Escrow Agent
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Corporate Trust Escrow Unit
Re: The Escrow Agreement, dated as of May 23, 1996 (as amended,
supplemented or otherwise modified from time to time, the "Escrow
Agreement"), among Time Warner Inc., a Delaware corporation
(together with its successors and assigns, the "Depositor",
except that after the assumption referred to in subsection 9.7 of
the Credit Agreement, the "Depositor" shall mean TW Inc. and its
successors and assigns), The Bank of New York, a New York banking
corporation (the "Escrow Agent") and Chemical Bank, a New York
banking corporation, as Administrative Agent (in such capacity,
the "Administrative Agent").
Dear Sirs:
Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Escrow
Agreement.
In accordance with subsection 2.4 of the Escrow Agreement,
the Depositor hereby formally requests the release and transfer
of ____ shares of Stock (Stock Certificate Nos. ___, ___ and
___), together with the related stock powers, and the delivery of
the same to [_______________] via _______________ at the address
listed below:
Delivery Address
___________________
In connection therewith, the Depositor hereby certifies that:
(a) no Default or Event of Default (as defined in the
Credit Agreement) has occurred and is continuing;
(b) the release requested hereby is permitted by the
terms of the Credit Agreement and the Escrow Agreement [and
is being requested pursuant to subsection 5.9(c)(i) of the
Credit Agreement as, after giving effect to the release
requested hereby, (i) no Default or Event of Default shall
<PAGE>
2
have occurred, (ii) the Borrower is in compliance with the
Ratios as of the immediately preceding Valuation Date and
(iii) after giving effect to any concurrent reduction in the
Maximum Commitment Amount, the Maximum Commitment Amount is
less than or equal to 50% of the Aggregate Loan Value of the
remaining Escrowed Stock as of the Valuation Date
immediately preceding the date of withdrawal];
(c) the Current Reg. U Loan Value of the Escrowed Stock
prior to the release requested hereby is [_______];
(d) the Current Reg. U Loan Value of the Escrowed Stock
after giving effect to the release requested hereby is
[________];
(e) prior to giving effect to the release requested
hereby, the Base Maximum Commitment Amount is [_______]; and
(f) after giving effect to the release requested
hereby, the Base Maximum Commitment Amount is [________], as
set forth below,
[INSERT CALCULATIONS IN REASONABLE DETAIL].
TIME WARNER INC., as Depositor
By: ________________________
Name:
Title:
The Depositor hereby acknowledges receipt of the shares of Stock
referred to above this __ day of __________, 199_.
TIME WARNER INC., as Depositor
By: ____________________
Name:
Title:
cc: Chemical Bank, as Administrative Agent
<PAGE>
EXHIBIT 4
[DATE]
The Bank of New York, as Escrow Agent
101 Barclay Street
Floor 12 East
New York, New York 10286
Attention: Corporate Trust Escrow Unit
Re: The Escrow Agreement, dated as of May 23, 1996 (as amended,
supplemented or otherwise modified from time to time, the "Escrow
Agreement"), among Time Warner Inc., a Delaware corporation
(together with its successors and assigns, the "Depositor",
except that after the assumption referred to in subsection 9.7 of
the Credit Agreement, the "Depositor" shall mean TW Inc. and its
successors and assigns), The Bank of New York, a New York banking
corporation (the "Escrow Agent") and Chemical Bank, a New York
banking corporation, as Administrative Agent (in such capacity,
the "Administrative Agent").
Dear Sirs:
Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Escrow
Agreement.
In accordance with subsection 2.5 of the Escrow Agreement,
the Administrative Agent hereby formally requests the release and
transfer of ____ shares of Stock (Stock Certificate Nos. ___,
___ and ___), together with the related stock powers, and the
delivery of the same to [_____________________] via
_______________ at the address listed below:
Delivery Address
___________________________
In connection therewith, the Administrative Agent hereby
certifies that the release requested hereby is permitted by the
terms of the Credit Agreement and the Escrow Agreement.
CHEMICAL BANK, as
Administrative Agent
By: ____________________
Name:
Title:
<PAGE>
2
The Administrative Agent hereby acknowledges receipt of the
shares of Stock referred to above this __ day of __________,
199_.
CHEMICAL BANK, as
Administrative Agent
By: ________________
Name:
Title:
cc: The Depositor
<PAGE>
EXHIBIT 5
AUTHORIZED REPRESENTATIVES OF THE ADMINISTRATIVE AGENT
<PAGE>
EXHIBIT 6
AUTHORIZED REPRESENTATIVES OF THE DEPOSITOR
Name Signature
____________________ ________________________
Title:
____________________ ________________________
Title:
____________________ ________________________
Title:
____________________ ________________________
Title:
<PAGE>
EXHIBIT 7
AUTHORIZED REPRESENTATIVES OF THE ESCROW AGENT
Name Signature
____________________ ________________________
Title:
___________________ ________________________
Title:
____________________ ________________________
Title:
____________________ ________________________
Title:
