PROSPECTUS
- ----------
OFFER TO EXCHANGE ALL OUTSTANDING SHARES OF
10 1/4% SERIES K EXCHANGEABLE PREFERRED STOCK
FOR SHARES OF
10 1/4% SERIES M EXCHANGEABLE PREFERRED STOCK OF
TIME WARNER INC.
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON NOVEMBER 13, 1996, UNLESS EXTENDED
------------------------
Time Warner Inc., a Delaware corporation (the 'Company'), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying letter of transmittal (the 'Letter of Transmittal,' and
together with this Prospectus, the 'Exchange Offer'), to exchange shares of its
10 1/4% Series M Exchangeable Preferred Stock, par value $1.00 per share (the
'Series M Preferred Stock'), for any and all of the outstanding shares of
10 1/4% Series K Exchangeable Preferred Stock, par value $1.00 per share (the
'Series K Preferred Stock'), of the Company. The terms of the Series M Preferred
Stock are substantially identical to the terms of the Series K Preferred Stock,
except that the shares of Series M Preferred Stock will have been registered
under the Securities Act of 1933, as amended (the 'Securities Act'), and will
not contain terms restricting the transfer of such shares.
The Company will accept for exchange any and all shares of Series K
Preferred Stock that are validly tendered on or prior to 5:00 p.m., New York
City time, on the date the Exchange Offer expires, which will be November 13,
1996, unless the Exchange Offer is extended (the 'Expiration Date'), provided
that the Expiration Date shall in no event be later than the 180th day following
the date on which the Registration Statement is declared effective. Tenders of
shares of Series K Preferred Stock may be withdrawn at any time prior to 5:00
p.m., New York City time, on the business day prior to the Expiration Date. The
Exchange Offer is not conditioned upon any minimum number of shares of Series K
Preferred Stock being tendered for exchange. However, the Exchange Offer is
subject to certain conditions which may be waived by the Company and to the
terms and provisions of the Registration Rights Agreement. See 'Exchange Offer.'
The Company has agreed to pay the expenses of the Exchange Offer. In the event
that the TBS Transaction (as defined herein) is consummated prior to the
Expiration Date, this Exchange Offer will be terminated and each share of Series
K Preferred Stock will be converted into a share of a substantially identical
class of capital stock of New Time Warner (as defined herein). Such New Time
Warner capital stock will be issued to the holders of Series K Preferred Stock
pursuant to a registration statement on Form S-4 of New Time Warner.
Holders of shares of Series K Preferred Stock whose shares of Series K
Preferred Stock are not tendered and accepted in the Exchange Offer will
continue to hold such shares of Series K Preferred Stock. Following consummation
of the Exchange Offer, the holders of shares of Series K Preferred Stock will
continue to be subject to the existing restrictions upon transfer thereof and,
except as provided herein, the Company will have no further obligation to such
holders to provide for the registration under the Securities Act of the shares
of Series K Preferred Stock held by them.
(cover continued on next page)
-----------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 15 FOR A DISCUSSION OF MATERIAL RISKS
ASSOCIATED WITH AN INVESTMENT IN THE SERIES M PREFERRED STOCK.
The Company will not receive any proceeds from this Exchange Offer and no
underwriter is being utilized in connection with the Exchange Offer.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
The date of this Prospectus is September 6, 1996.
(cover continued from previous page)
1.6 million shares of the Series K Preferred Stock were issued and sold on
April 11, 1996 and 35,623 shares were issued on June 30, 1996 as dividends in
respect of the 1.6 million shares in transactions not registered under the
Securities Act, in reliance upon exemptions provided in the Securities Act.
Accordingly, the Series K Preferred Stock may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. Shares of Series M Preferred Stock are being
offered hereby in order to satisfy the obligations of the Company under the
registration rights agreement relating to the Series K Preferred Stock (the
'Registration Rights Agreement'). See 'The Exchange Offer -- Purpose of the
Exchange Offer.' Based on no-action letters issued by the staff of the
Securities and Exchange Commission (the 'Commission') to third parties, the
Company believes shares of Series M Preferred Stock to be issued in exchange for
shares of Series K Preferred Stock pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by holders thereof (other than (i)
a broker-dealer who purchases such shares of Series K Preferred Stock directly
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an 'affiliate' of
the Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such shares of Series M Preferred Stock are
acquired in the ordinary course of such holders' business and such holders have
no arrangements with any person to participate in the distribution of such
shares of Series M Preferred Stock. Eligible holders wishing to accept the
Exchange Offer must represent to the Company that such conditions have been met.
Each broker-dealer that receives shares of Series M Preferred Stock for its own
account in exchange for shares of Series K Preferred Stock acquired as a result
of market-making or other trading activities must acknowledge that it will
deliver a prospectus in connection with any resale of such shares of Series M
Preferred Stock. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an 'underwriter' within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of shares of Series M Preferred Stock
received in exchange for shares of Series K Preferred Stock acquired by such
broker-dealer as a result of market-making activities or other trading
activities. For a period of 90 days following the consummation of the Exchange
Offer, the Company has agreed to use its best efforts to make this Prospectus
available to broker-dealers who have identified themselves as such for use in
connection with such resales. See 'Plan of Distribution.'
Dividends on the Series M Preferred Stock, at the rate of 10 1/4% per
annum, are cumulative and payable quarterly in arrears on March 30, June 30,
September 30 and December 30 of each year, commencing on December 30, 1996 (the
'First Dividend Payment Date'). Holders of Series K Preferred Stock whose shares
of Series K Preferred Stock are accepted for exchange will be deemed to have
waived the right to receive any payment in respect of any unpaid dividends on
the Series K Preferred Stock that have accumulated or accrued to the date of the
issuance of the Series M Preferred Stock. Consequently, on the First Dividend
Payment Date holders who exchange their shares of Series K Preferred Stock for
Series M Preferred Stock will receive the same dividends on the Series M
Preferred Stock that holders of the Series K Preferred Stock who do not accept
the Exchange Offer will receive on the Series K Preferred Stock. Dividends on
the Series M Preferred Stock may be paid in cash or by issuing fully paid and
nonassessable shares of Series M Preferred Stock as described herein.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SERIES K PREFERRED STOCK IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
There can be no assurance that an active public or private market for the
Series M Preferred Stock will develop. Whether or not a market for the Series M
Preferred Stock should develop, the shares of Series M Preferred Stock could
trade at a discount from their aggregate liquidation preference. The Company
does not intend to list the Series M Preferred Stock on a national securities
exchange or to apply for quotation of the Series M Preferred Stock through the
National Association of Securities Dealers Automated Quotation System. To the
extent shares of Series K Preferred Stock are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
shares of Series K Preferred Stock could be adversely affected.
The Company has been advised by the Initial Purchasers (as defined herein)
that they intend to make a market in the Series M Preferred Stock; however, such
entities are under no obligation to do so and any market making activities with
respect to the Series M Preferred Stock may be discontinued at any time.
2
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement relating
to the Series M Preferred Stock offered hereby (together with all amendments and
exhibits, referred to as the 'Registration Statement') under the Securities Act.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement. With respect to any contract,
agreement or other document filed or incorporated by reference as an exhibit to
the Registration Statement, reference is made to such exhibit for a complete
description thereof. Any statement made in this Prospectus as to the contents of
any such contract, agreement or other document shall be deemed qualified in its
entirety by such reference. The Registration Statement and the exhibits and
schedules thereto may be inspected without charge and copied at prescribed rates
at the Public Reference Section maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Seven World Trade Center, 13th Floor, New York, New York
10048; and Northwestern Atrium Center, 500 West Madison Street (Suite 1400),
Chicago, Illinois 60661-2511.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by the Company
with the Commission pursuant to the informational requirements of the Exchange
Act may be inspected without charge and copied at prescribed rates at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street (Suite 1400), Chicago,
Illinois 60661; and copies of such material may be obtained upon written request
addressed to the Public Reference Section of the Commission, at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy
statements and other information may also be inspected at the offices of the New
York Stock Exchange, Inc. ('NYSE'), 20 Broad Street, New York, New York, and the
Pacific Stock Exchange Incorporated ('PSE'), 233 South Beaudry Avenue, Los
Angeles, California 90012 and 301 Pine Street, San Francisco, California, on
which one or more of the Company's securities are listed.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
following documents or information filed with the Commission:
(a) the Company's Current Report on Form 8-K dated August 14, 1996
(the 'August 14, 1996 8-K');
(b) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996 (the 'First Quarter 10-Q') and the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1996 (the 'Second
Quarter 10-Q');
(c) the Company's Current Reports on Form 8-K dated September 6, 1996,
August 6, 1996, May 15, 1996, April 11, 1996, April 4, 1996, April 2, 1996,
March 25, 1996, March 22, 1996 and January 4, 1996;
(d) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as amended by the Company's Form 10-K/A dated June 27,
1996 (the '10-K');
(e) the description of the Company's Common Stock contained in Item 4
of the Company's Registration Statement on Form 8-B filed with the
Commission on December 8, 1983, pursuant to Section 12(b) of the Exchange
Act, as amended from time to time;
(f) the description of the rights issued to stockholders of the
Company pursuant to the Rights Agreement, dated as of January 20, 1994,
between the Company and Chemical Bank, as Rights Agent, contained in Item 1
of the Company's Registration Statement on Form 8-A filed with the
Commission on January 24, 1994;
3
(g) the TWE Partnership Agreement included as Exhibit (A) to the
Company's Current Report on Form 8-K dated October 29, 1991, Exhibit 10(b)
and Exhibit 10(c) to the Company's Current Report on Form 8-K dated July
14, 1992 and Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993; and
(h) all documents and reports filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering made hereby.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other document subsequently filed with the Commission which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
OF ANY OR ALL OF THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN BUT NOT
DELIVERED HEREWITH (NOT INCLUDING THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). REQUESTS
FOR SUCH COPIES SHOULD BE DIRECTED TO: SHAREHOLDER RELATIONS, TIME WARNER INC.,
75 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10019 (TELEPHONE NUMBER: (212)
484-6971).
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR BOTH
TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
4
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by reference
to the more detailed information and financial statements (including the notes
thereto) appearing elsewhere in this Prospectus and in the documents
incorporated by reference in this Prospectus. Capitalized terms used in this
Prospectus and not otherwise defined herein shall have the meanings set forth in
the Glossary of Significant Terms beginning on page G-1.
THE COMPANY
GENERAL
The Company is the world's leading media company, and has interests in
three fundamental areas of business: Entertainment, consisting principally of
interests in recorded music and music publishing, filmed entertainment,
broadcasting, theme parks and cable television programming; News and
Information, consisting principally of interests in magazine publishing, book
publishing and direct marketing; and Telecommunications, consisting principally
of interests in cable television systems. The Company is a holding company and
its assets consist primarily of investments in its consolidated and
unconsolidated subsidiaries, including Time Warner Entertainment Company, L.P.,
a Delaware limited partnership ('TWE').
TWE
Substantially all of the Company's interests in filmed entertainment,
broadcasting, theme parks and cable television programming and a majority of its
interests in cable television systems are held through TWE. TWE was formed as a
Delaware limited partnership in February 1992 pursuant to an Agreement of
Limited Partnership, dated as of October 29, 1991, as amended from time to time
(the 'TWE Partnership Agreement').
The Company and certain wholly owned subsidiaries of the Company
collectively own 74.49% of the pro rata priority capital interests in TWE (the
'TWE Series A Capital') and the residual equity partnership interests in TWE
(the 'TWE Residual Capital'). The 25.51% of the TWE Series A Capital and TWE
Residual Capital not owned by the Company and its subsidiaries are held by a
wholly owned subsidiary of U S WEST, Inc., a Delaware corporation ('U S WEST').
Certain wholly owned subsidiaries of the Company (the 'Time Warner General
Partners') also own 100% of the priority capital interests senior to the TWE
Series A Capital (the 'TWE Senior Capital') and the priority capital interests
that are junior to the TWE Series A Capital (the 'TWE Series B Capital'). The
TWE Residual Capital, together with the TWE Contingent Capital (as defined
herein) and any other interests which may be issued in the future, which are
junior to the TWE Series B Capital, are sometimes referred to as 'TWE Junior
Capital.' See 'TWE Partnership Interests.'
TBS TRANSACTION
In September 1995, the Company announced that it had agreed to merge with
Turner Broadcasting System, Inc. ('TBS'), a diversified information and
entertainment company, by acquiring the approximate 80% interest in TBS that the
Company does not already own. After an extensive review of the transaction by
the staff of the Federal Trade Commission (the 'FTC') and in order to eliminate
certain concerns raised by the FTC staff regarding the possible competitive
effects of the transaction, the Company announced on July 17, 1996 that it had
reached an agreement in principle with the staff of the FTC, TBS and Liberty
Media Corporation ('LMC'), a subsidiary of Tele-Communications, Inc. and a
shareholder of TBS, to make certain modifications to the previously-announced
merger agreement and related documents which will allow the Company and TBS to
proceed with their merger. The amendments to the Agreement and Plan of Merger,
as amended (the 'TBS Merger Agreement'), between the Company and TBS and to the
related agreements (collectively, the 'Amended TBS Merger Agreements') continue
to provide for the merger of each of the Company and TBS with separate
5
subsidiaries of a holding company ('New Time Warner'), that will combine, for
financial reporting purposes, the consolidated net assets and operating results
of the Company and TBS (the 'TBS Transaction'). In connection therewith, the
issued and outstanding shares of each class of the capital stock of the Company,
including the Series K Preferred Stock and the Series M Preferred Stock, are to
be converted into shares of a substantially identical class of capital stock of
New Time Warner. 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 the Company 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. The holders of the Series K Preferred Stock
and the Series M Preferred Stock will not be entitled to vote on the TBS
Transaction. In the event that the TBS Transaction is consummated prior to the
Expiration Date, this Exchange Offer will be terminated and each share of Series
K Preferred Stock will be converted into a share of a substantially identical
class of capital stock of New Time Warner. Such New Time Warner capital stock
will be issued to the holders of the Series K Preferred Stock pursuant to a
registration statement on Form S-4 of New Time Warner. For a further discussion
of the TBS Transaction and related transactions, reference is made to the 10-K,
the Second Quarter 10-Q and the August 14, 1996 8-K, which are incorporated
herein by reference.
TWE PARTNERSHIP INTERESTS
Each partner's interest in TWE consists of the initial priority capital and
residual equity amounts that were assigned to that partner or its predecessor
based on the estimated fair value of the net assets each contributed to TWE, as
adjusted for the fair value of certain assets distributed by TWE to the Time
Warner General Partners in 1993 which were not subsequently reacquired by TWE in
1995 ('Contributed Capital'), plus, with respect to the priority capital
interests only, any undistributed priority capital return. The priority capital
return consists of net partnership income allocated to date in accordance with
the provisions of the TWE Partnership Agreement and the right to be allocated
additional partnership income which, together with any previously allocated net
partnership income, provide for the various priority capital rates of return
specified in the table below. The sum of Contributed Capital and the
undistributed priority capital return is referred to as 'Cumulative Priority
Capital.' The ultimate realization of Cumulative Priority Capital could be
affected by the fair value of TWE, which is subject to fluctuation. See 'Risk
Factors.'
A summary of the priority of Contributed Capital, the Company's ownership
of Contributed Capital and Cumulative Priority Capital at June 30, 1996 and
priority capital rates of return thereon is as set forth below.
CUMULATIVE
PRIORITY PRIORITY
CAPITAL AT CAPITAL % OWNED BY
CONTRIBUTED JUNE 30, RATES THE
PRIORITY OF CONTRIBUTED CAPITAL CAPITAL(a) 1996 OF RETURN(b) COMPANY
- --------------------------------- ----------- ---------- ------------ ----------
(BILLIONS) (% PER ANNUM
COMPOUNDED
QUARTERLY)
TWE Senior Capital............... $ 1.4 $1.5(c) 8.00% 100.00%
TWE Series A Capital............. 5.6 9.3 13.00%(d) 74.49%
TWE Series B Capital............. 2.9(g) 4.9 13.25%(e) 100.00%
TWE Residual Capital............. 3.3(g) 3.3(f) -- (f) 74.49%
- ------------
(a) Excludes partnership income or loss allocated thereto and is subject to any
special income allocations for tax purposes.
(footnotes continued on next page)
6
(footnotes continued from previous page)
(b) Income allocations related to priority capital rates of return are based on
partnership income after any special income allocations for tax purposes.
(c) Net of $366 million of partnership income distributed in 1995 representing
the priority capital return thereon through June 30, 1995.
(d) 11.00% to the extent concurrently distributed.
(e) 11.25% to the extent concurrently distributed.
(f) TWE Residual Capital is not entitled to stated priority rates of return
and, as such, the Cumulative Priority Capital relating thereto is equal to
the Contributed Capital relating thereto. However, in the case of certain
events such as the liquidation or dissolution of TWE, the TWE Residual
Capital is entitled to any excess of the then fair value of the net assets
of TWE over the aggregate amount of Cumulative Priority Capital and special
tax allocations.
(g) The Contributed Capital relating to the TWE Series B Capital has priority
over the priority returns on the TWE Series A Capital. The Contributed
Capital relating to the TWE Residual Capital has priority over the priority
returns on the TWE Series B Capital and the TWE Series A Capital.
------------------------
For a further discussion of the TWE Partnership Interests, including
allocations of partnership income and loss and distributions, see 'TWE
Partnership Interests.'
------------------------
As used in this Prospectus, unless the context otherwise requires, the term
'Company' refers to
Time Warner Inc. and its consolidated and unconsolidated subsidiaries, including
TWE. Following the TBS Transaction, unless the context otherwise requires,
references to the Company in its capacity as issuer of the Securities (as
defined herein) will be deemed to be references to New Time Warner. For
financial reporting purposes, the Company does not consolidate the results of
operations of the Entertainment Group, consisting principally of TWE, with the
Company's results of operations. TWE holds substantially all of the Company's
interests in filmed entertainment, broadcasting, theme parks and cable
television programming and a majority of the Company's interests in cable
television systems. Although TWE manages substantially all the cable systems
owned by the Company, TWE and a joint venture ('TWE-Advance/Newhouse
Partnership') between TWE and Advance/Newhouse Partnership ('Advance/Newhouse'),
the results of operations of the cable systems owned by the Company's
consolidated subsidiaries are included in the Company's consolidated results,
while the results of operations of the cable systems owned by TWE and the
TWE-Advance/Newhouse Partnership are included in the consolidated results of the
Entertainment Group. See 'Selected Historical and Pro Forma Financial
Information.'
The Company's principal executive offices are located at 75 Rockefeller
Plaza, New York, New York 10019, and its telephone number is (212) 484-8000.
7
THE EXCHANGE OFFER
Securities Offered..................... 1,635,623 shares of 10 1/4% Series M Exchangeable Preferred Stock. The
terms of the Series M Preferred Stock are substantially identical to
the terms of the Series K Preferred Stock except that the Series M
Preferred Stock will have been registered under the Securities Act and
will not contain terms restricting the transfer of such stock. See
'Description of Series M Preferred Stock.'
The Exchange Offer..................... Shares of Series M Preferred Stock are being offered in exchange for any
and all of the outstanding shares of Series K Preferred Stock (on a
share for share basis). As of the date hereof, 1,635,623 shares of
Series K Preferred Stock with an aggregate liquidation preference of
$1.636 billion are issued and outstanding. The Company is making the
Exchange Offer in order to satisfy its obligations under the
Registration Rights Agreement. For a description of the procedures for
tendering, see 'Exchange Offer -- Procedures for Tendering Series K
Preferred Stock.'
Expiration Date; Withdrawal;
Termination.......................... The Exchange Offer will expire at 5:00 p.m., New York City time, on
November 13, 1996, or such later date and time to which it may be
extended in the sole discretion of the Company (the 'Expiration
Date'), provided that the Expiration Date shall in no event be later
than the 180th day following the date on which the Registration
Statement is declared effective. Shares of Series K Preferred Stock
tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any shares of Series K Preferred Stock
not accepted for exchange for any reason will be returned without
expense to the tendering holders thereof as promptly as practicable
after the expiration or termination of the Exchange Offer. In the
event that the TBS Transaction is consummated prior to the Expiration
Date, this Exchange Offer will be terminated and each share of Series
K Preferred Stock will be converted into a share of a substantially
identical class of capital stock of New Time Warner. Such New Time
Warner capital stock will be issued to the holders of Series K
Preferred Stock pursuant to a registration statement on Form S-4 of
New Time Warner. See 'Exchange Offer -- Expiration Date; Extensions;
Termination; Amendments' and 'Exchange Offer Withdrawal Rights.'
Conditions to Exchange Offer........... The Exchange Offer is subject to certain conditions. See 'Exchange
Offer -- Certain Conditions to the Exchange Offer.' The Exchange Offer
is not conditioned upon any minimum number of shares of Series K
Preferred Stock being tendered for exchange.
Material Federal Income Tax
Considerations....................... The exchange of the Series K Preferred Stock for the Series M Preferred
Stock pursuant to the Exchange Offer should not be a taxable event to
the holder for federal income tax purposes, and the holder should not
recognize any taxable gain or loss as a result of such exchange. See
'Material Federal Income Tax Considerations.'
Untendered Series K Preferred Stock.... Upon consummation of the Exchange Offer, the holders of Series K
Preferred Stock, if any, will have no further registration or other
rights under the Registration Rights Agreement, except as provided
herein. Holders of shares of Series K Preferred Stock who do not
tender their shares of Series K Preferred Stock in the Exchange Offer
or whose shares of Series K Preferred Stock are not accepted for
exchange will continue to hold such shares of Series K Preferred Stock
and will be entitled to all the rights and preferences thereof and
will be
8
subject to all the limitations applicable thereto, except for any such
rights or limitations which, by their terms, terminate or cease to be
effective as a result of this Exchange Offer. All untendered and
tendered but unaccepted shares of Series K Preferred Stock will
continue to be subject to the restrictions on transfer provided
therein. To the extent that shares of Series K Preferred Stock are
tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted shares of Series K Preferred
Stock could be adversely affected.
TERMS OF THE SERIES M PREFERRED STOCK
The terms of the Series M Preferred Stock are substantially identical to the terms of the Series K Preferred
Stock.
Dividends.............................. Holders of the Series M Preferred Stock are entitled, when, as and if
declared by the Board of Directors of the Company out of funds legally
available therefor, to receive dividends on each outstanding share of
Series M Preferred Stock, at the rate of 10 1/4% per annum. Dividends
on the Series M Preferred Stock are payable quarterly in arrears on
March 30, June 30, September 30 and December 30 of each year (each, a
'Dividend Payment Date'), commencing on the First Dividend Payment
Date to holders of record on the immediately preceding March 10, June
10, September 10 and December 10, respectively (each, a 'Record
Date'). Dividends on the Series M Preferred Stock will be cumulative
(whether or not earned or declared) from the date of issuance of the
Series M Preferred Stock. Dividends which are not declared and paid
when due will compound quarterly at the dividend rate.
Dividends may, at the option of the Company, be paid on any Dividend
Payment Date in cash or by issuing fully paid and nonassessable shares
of Series M Preferred Stock with an aggregate liquidation preference
equal to the amount of such dividends; provided, however, that
dividends shall be paid (i) in cash, to the extent of an amount equal
to the Pro Rata Percentage as of the Preceding Record Date, multiplied
by the amount of cash distributions, excluding certain Tax
Distributions, if any, received by the Company (and its subsidiaries)
on or after the Preceding Record Date to, but not including, the
current Record Date with respect to its TWE Series B Capital and any
TWE Junior Capital, and (ii) in Series M Preferred Stock or cash, at
the Company's option, to the extent of any balance.
At June 30, 1996, if 1,635,623 shares of Series M Preferred Stock had
been outstanding at such date, the Pro Rata Percentage would have been
33.4%. See 'TWE Partnership Interests.' TWE's ability to make
distributions is subject to certain restrictions. See 'Description of
Series M Preferred Stock -- Dividends' and 'Risk
Factors -- Limitations on Dividends and Other Payments.'
Holders of Series K Preferred Stock whose shares of Series K Preferred
Stock are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of any unpaid dividends on the
Series K Preferred Stock that have accumulated or accrued to the date
of issuance of the Series M Preferred Stock. Consequently, on the
First Dividend Payment Date holders who exchange their shares of
Series K Preferred Stock for Series M Preferred Stock will receive the
same dividends on the Series M Preferred Stock that holders of the
Series K Preferred Stock who do not accept the Exchange Offer will
receive on the Series K Preferred Stock.
9
Liquidation Preference................. $1,000 per share.
Voting Rights.......................... Holders of the Series M Preferred Stock have no general voting rights
except as provided by law and as provided in the Certificate of
Designation therefor. Upon the failure of the Company to (i) pay
dividends on the Series M Preferred Stock in cash or, to the extent
permitted by its terms, by the issuance of additional shares of Series
M Preferred Stock, for more than six consecutive quarterly dividend
periods or (ii) discharge any redemption or exchange obligation with
respect to the Series M Preferred Stock, the size of the Company's
Board of Directors will be increased by two directors, and holders of
the outstanding shares of Series M Preferred Stock, voting or
consenting, as the case may be, together as a class with the holders
of any shares of Parity Stock as to which dividends are similarly in
arrears or unpaid or the Company has failed to satisfy its redemption
or exchange obligation, and to which similar voting rights apply, will
be entitled to elect two directors to fill the newly created
directorships. The Company may not issue any new class of capital
stock senior to the Series M Preferred Stock without the approval of
the holders of at least a majority of the shares of Series M Preferred
Stock then outstanding, voting or consenting, as the case may be,
separately as a class. See 'Description of Series M Preferred
Stock -- Voting Rights.'
Optional Redemption.................... The Series M Preferred Stock may not be redeemed at the option of the
Company prior to July 1, 2006. Thereafter, the Series M Preferred
Stock will be redeemable at any time, in whole or in part, at the
option of the Company, initially at 105.125% of the liquidation
preference, declining to 100% of the liquidation preference on or
after July 1, 2010, in each case plus accumulated and accrued and
unpaid dividends; provided, however, that no optional redemption shall
be made unless the Company shall have obtained a Rating Confirmation
with respect to such redemption. The Company's ability to effect an
optional redemption is subject to the legal availability at the
Company of funds therefor. See 'Description of Series M Preferred
Stock -- Optional Redemption' and 'Description of Series M Preferred
Stock -- General.'
Mandatory Redemption................... On July 1 of 2012, 2013, 2014 and 2015 (each, a 'Mandatory Redemption
Date'), the Company is required to redeem the Redeemable Number of
shares of Series M Preferred Stock at the Mandatory Redemption Price.
On July 1, 2016 (the 'Final Redemption Date'), the Company is required
to redeem all of the then outstanding shares of Series M Preferred
Stock at the lesser of the Mandatory Redemption Amount and the
Mandatory Redemption Price; provided that if the Company does not
obtain a TWE Valuation within 150 days following the final Series B
Redemption Date or if the TWE Series B Capital has been fully redeemed
in accordance with the TWE Partnership Agreement, the Company shall
redeem the outstanding Series M Preferred Stock at the Mandatory
Redemption Price.
Upon redemption of the Series M Preferred Stock on the Final Redemption
Date, the Company's obligations with respect thereto will be
discharged, and if such redemption is effected at the Mandatory
Redemption Amount, holders of shares of Series M Preferred Stock may
have received less than the liquidation preference thereof plus
accumulated and accrued and unpaid dividends thereon. See 'Risk
Factors.' The Company's obligation to redeem the Series M Preferred
Stock is subject to the legal availability at the Company of funds
therefor. See 'Description of Series M Preferred Stock -- Mandatory
Redemption.'
10
Redemption Upon
Insolvency of TWE.................... In the event of the liquidation, winding up or dissolution of TWE as a
result of the Insolvency of TWE, the Series M Preferred Stock will be
mandatorily redeemable on the Insolvency Redemption Date at the
Insolvency Redemption Amount. Upon such a redemption of Series M
Preferred Stock, the Company's obligations with respect thereto will
be discharged and holders of Series M Preferred Stock may have
received less than the liquidation preference thereof plus accumulated
and accrued and unpaid dividends thereon. The Company's obligations to
redeem the Series M Preferred Stock upon an Insolvency of TWE is
subject to the legal availability at the Company of funds therefor.
See 'Description of Series M Preferred Stock -- Redemption Upon
Insolvency of TWE' and 'Risk Factors.'
Reorganization of TWE.................. Upon a Reorganization of TWE, the Company shall, within 90 days, make a
public announcement that, on the Reorganization Redemption/Exchange
Date, it intends to either (i) exchange each outstanding share of
Series M Preferred Stock for shares of Series L Preferred Stock having
an aggregate liquidation preference equal to the liquidation
preference of such share of Series M Preferred Stock plus the
accumulated and accrued and unpaid dividends thereon at the date of
exchange (a 'Reorganization Exchange'), or (ii) redeem the outstanding
shares of Series M Preferred Stock at the Reorganization Redemption
Price (a 'Reorganization Redemption'); provided, however, that the
Company may not effect a Reorganization Redemption prior to July 1,
2011 unless the Company shall have obtained a Rating Confirmation with
respect thereto; and provided further that the Company may not effect
a Reorganization Exchange on or after July 1, 2011. The Company's
ability to effect a Reorganization Redemption is subject to the legal
availability at the Company of funds therefor. See 'Description of
Series M Preferred Stock -- Reorganization of TWE.'
Change of Control...................... Upon a Change of Control of the Company, the Company shall offer to
purchase all or any part of the outstanding Series M Preferred Stock
at 101% of the liquidation preference thereof, plus accumulated and
accrued and unpaid dividends thereon. The Company's obligation to
offer to purchase the Series M Preferred Stock is subject to the legal
availability at the Company of funds therefor. See 'Description of
Series M Preferred Stock -- Change of Control.'
Ranking................................ The Series M Preferred Stock will rank pari passu with the Series K
Preferred Stock and all other classes of Parity Stock and will rank
senior to all classes of Junior Stock. See 'Description of Series M
Preferred Stock -- Ranking.'
Insolvency of the Company.............. In the event of a liquidation, winding-up, dissolution or bankruptcy of
the Company, the holders of the Series M Preferred Stock will be
entitled to their pro rata portion of the assets of the Company
available for distribution to holders of Parity Stock up to the amount
of the liquidation preference of the Series M Preferred Stock plus
accumulated and accrued and unpaid dividends thereon. See 'Description
of Series M Preferred Stock -- Liquidation Preference' and 'Risk
Factors.'
Covenants.............................. The Certificate of Designation imposes certain restrictions on the
ability of the Company to (i) declare dividends or make distributions
with respect to, or purchase, redeem or exchange, any Junior Stock or
Parity Stock, except in or for Junior Stock, if full cumulative
dividends have not been paid on, or redemption or exchange obligations
have not been satisfied with respect to, the Series M Preferred Stock,
in cash or, to the extent permitted by its terms, by the issuance of
additional shares of Series M Preferred Stock or (ii) consolidate or
merge with or into or sell all or
11
substantially all of its assets to any person or entity. Without
limiting the generality of the foregoing, the TBS Transaction will not
require the affirmative vote or consent of the holders of the Series M
Preferred Stock. If the TBS Transaction is consummated, the Series M
Preferred Stock will be converted into a substantially identical class
of preferred stock of New Time Warner. See 'Description of Series M
Preferred Stock -- Dividends' and 'Description of Series M Preferred
Stock -- Merger, Consolidation and Sale of Assets.'
TERMS OF SERIES L PREFERRED STOCK
Dividends.............................. Holders of the Series L Preferred Stock are entitled, when, as and if
declared by the Board of Directors of the Company, out of funds
legally available therefor, to receive dividends on each outstanding
share of the Series L Preferred Stock, at the rate of 10 1/4% per
annum. Dividends on the Series L Preferred Stock are payable quarterly
in arrears on March 30, June 30, September 30 and December 30 of each
year, commencing on the first Dividend Payment Date following the
exchange of the Series M Preferred Stock for the Series L Preferred
Stock to holders of record as of the immediately preceding March 15,
June 15, September 15 and December 15, respectively. Dividends on the
Series L Preferred Stock will be cumulative (whether or not earned or
declared) from the date of issuance of the Series L Preferred Stock.
Dividends which are not declared and paid when due will compound
quarterly at the dividend rate.
Until June 30, 2006 dividends may, at the option of the Company, be paid
in cash or by issuing fully paid and nonassessable shares of Series L
Preferred Stock with an aggregate liquidation preference equal to such
dividends. Thereafter, dividends are payable only in cash. See
'Description of Series L Preferred Stock -- Dividends' and 'Risk
Factors.'
Liquidation Preference................. Same as Series M Preferred Stock.
Voting Rights.......................... Same as Series M Preferred Stock.
Optional Redemption.................... Same as Series M Preferred Stock.
Mandatory Redemption................... The Company is required to redeem the outstanding shares of Series L
Preferred Stock on July 1, 2011 at a price equal to the liquidation
preference thereof, plus accumulated and accrued and unpaid dividends.
The Company's obligation to redeem the Series L Preferred Stock is
subject to the legal availability at the Company of funds therefor.
See 'Description of Series L Preferred Stock -- Mandatory Redemption'
and 'Risk Factors.'
Exchange at Option
of Company........................... The Company has the option on any Dividend Payment Date to exchange (the
'Debt Exchange'), in whole but not in part, the outstanding shares of
Series L Preferred Stock for Senior Subordinated Debentures having a
principal amount equal to the liquidation preference of the Series L
Preferred Stock plus accrued and unpaid dividends thereon, provided
that the Debt Exchange shall not be made unless all accumulated
dividends have been paid in full and the Company shall have obtained a
Rating Confirmation with respect thereto. The Company's ability to
exchange the Series L Preferred Stock for the Senior Subordinated
Debentures is subject to the legal availability at the Company of
funds equal to the aggregate principal amount of the Senior
Subordinated Debentures to be issued. See 'Description of Series L
Preferred Stock -- Exchange at Option of Company.'
Change of Control...................... Same as Series M Preferred Stock.
12
Ranking................................ Same as Series M Preferred Stock.
Covenants.............................. Same as Series M Preferred Stock.
TERMS OF SENIOR SUBORDINATED DEBENTURES
Maturity Date.......................... July 1, 2011.
Interest............................... Interest will accrue at 10 1/4% per annum and be payable in arrears on
June 30 and December 30 of each year, commencing with the first of
such dates to occur after the date upon which Senior Subordinated
Debentures are issued in exchange for the Series L Preferred Stock
('Exchange Date'). Until June 30, 2006, interest may, at the option of
the Company, be paid in cash or by issuing additional Senior
Subordinated Debentures with a principal amount equal to such
interest. Thereafter, interest on the Senior Subordinated Debentures
must be paid in cash. See 'Description of Senior Subordinated
Debentures -- Interest.'
Optional Redemption.................... On and after July 1, 2006, the Senior Subordinated Debentures are
redeemable at any time, in whole or in part, at the option of the
Company, initially at 105.125% of the principal amount, declining to
100% of the principal amount on or after July 1, 2010, in each case
plus accrued and unpaid interest; provided, however, that no optional
redemption shall be made unless the Company shall obtain a Rating
Confirmation with respect thereto. See 'Description of Senior
Subordinated Debentures -- Optional Redemption.'
Change of Control...................... Same as Series M Preferred Stock.
Subordination.......................... The Senior Subordinated Debentures will be subordinated to all existing
and future Senior Indebtedness (as defined herein) of the Company. The
Senior Subordinated Debentures will rank pari passu with the Company's
senior subordinated indebtedness outstanding from time to time (the
'Senior Subordinated Indebtedness') and will rank senior to all
existing and future subordinated indebtedness of the Company that by
its terms is subordinated to Senior Subordinated Indebtedness (the
'Subordinated Indebtedness'). At June 30, 1996 (i) the Company
(excluding its subsidiaries) had outstanding approximately $8.6
billion of Senior Indebtedness and $977 million of Subordinated
Indebtedness and (ii) the consolidated and unconsolidated subsidiaries
of the Company had outstanding approximately $16.2 billion of
liabilities (including indebtedness) which, insofar as the assets of
those subsidiaries are concerned, would have been effectively senior
to the Senior Subordinated Debentures. As of the date of this
Prospectus, the Company has no Senior Subordinated Indebtedness. See
'Description of Senior Subordinated Debentures -- Subordination.'
Certain Restrictions................... In the event of a default under the Senior Subordinated Debentures or
any other Senior Subordinated Indebtedness (i) the Company shall not
declare or pay any dividend on, make any distributions with respect
to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock, and (ii) the Company shall not
make any payment of interest, principal or premium, if any, on, or
repay, repurchase or redeem, any debt securities issued by the Company
which rank pari passu with or junior to the Senior Subordinated
Debentures; provided, however, that the foregoing restrictions shall
not apply to any interest or dividend payments by the Company, where
the interest or dividend is paid by way of the issuance of securities
that rank junior to the Senior Subordinated Debentures. See
13
'Description of Senior Subordinated Debentures -- Subordination.'
The Senior Subordinated Indenture (as defined herein) for the Senior
Subordinated Debentures will, among other things, also contain
restrictions (with certain exceptions) on the ability of the Company
and certain of its subsidiaries to merge or consolidate with or
transfer all or substantially all of their assets to another entity.
The TBS Transaction is not subject to approval by the holders of the
Senior Subordinated Debentures. See 'Description of Senior
Subordinated Debentures -- Consolidation, Merger and Sale.' The Senior
Subordinated Indenture also will prohibit the Company from issuing any
indebtedness that is senior in right of payment to the Senior
Subordinated Debentures and expressly subordinate in right of payment
to any other indebtedness of the Company.
See 'Description of Senior Subordinated Debentures -- Covenants.'
14
RISK FACTORS
LIMITATIONS ON DIVIDENDS AND OTHER PAYMENTS
As a general matter, dividends declared by the Board of Directors on the
Series M Preferred Stock need only be paid in cash to the extent of the Pro Rata
Percentage of cash distributions, excluding certain Tax Distributions, to the
Company (and its subsidiaries) with respect to the TWE Series B Capital and TWE
Junior Capital. Under the TWE Partnership Agreement, distributions (other than
Tax Distributions) with respect to the TWE Series B Capital may not be made
prior to June 30, 1998. After June 30, 1998 such distributions are limited to an
amount up to the priority return on the TWE Series B Capital accruing from June
30, 1998. There can be no assurance that sufficient partnership income will be
allocated to the TWE Series B Capital to satisfy the entire priority return to
which it is entitled (11.25% to the extent paid concurrently, and 13.25%
otherwise). Further, the TWE Partnership Agreement provides for quarterly cash
distributions on the TWE Series B Capital and TWE Junior Capital only out of
Excess Cash (as defined herein), and subject to prior payments with respect to
partnership interests that are senior thereto. See 'TWE Partnership Interests.'
TWE is not currently generating Excess Cash and there can be no assurance that
sufficient Excess Cash will be generated by TWE in the future to enable TWE to
make distributions with respect to the TWE Series B Capital and/or the TWE
Junior Capital such that cash dividends would be payable on the Series M
Preferred Stock. In addition, under Delaware law, dividends on capital stock may
only be paid out of funds legally available therefor.
Payments in respect of mandatory redemption obligations with respect to the
Series M Preferred Stock in 2012, 2013, 2014 and 2015 will be limited to an
amount equal to the Pro Rata Percentage of any cash received by the Company (and
its subsidiaries) in connection with the Series B Redemption occurring on June
30 of the calendar year immediately preceding the year in which such mandatory
redemption is to be made and any cash received by the Company (and its
subsidiaries) in respect of its TWE Junior Capital from such June 30 to the
record date for such mandatory redemption of the Series M Preferred Stock. In
the event that TWE has not redeemed the TWE Series B Capital in full, payments
in respect of the final mandatory redemption obligation in 2016 with respect to
the Series M Preferred Stock will only be made to the extent of an amount equal
to the Pro Rata Percentage of the fair market value of TWE (net of taxes)
attributable to the TWE Series B Capital and the TWE Junior Capital. There can
be no assurance that such value will be sufficient to permit the Company to
redeem the Series M Preferred Stock at the liquidation preference plus
accumulated and accrued and unpaid dividends. In addition, payments in respect
of all mandatory redemptions with respect to the Series M Preferred Stock are
subject to the Company having funds legally available therefor. See 'Description
of Series M Preferred Stock -- Mandatory Redemption.'
Upon an insolvency of the Company, the rights of the holders of the Series
M Preferred Stock will be subordinated to claims of creditors of the Company and
its subsidiaries, including TWE, and the holders will no longer have the right
to be paid to the extent of an amount equal to the Pro Rata Percentage of
distributions on, or value attributable to, the TWE Series B Capital and TWE
Junior Capital.
Under the Credit Agreement, dated as of June 30, 1995, as amended (the 'TWE
Credit Agreement'), TWE is not permitted to make distributions (other than Tax
Distributions) unless, after giving effect to such distributions, TWE would be
in compliance with specified leverage ratios and would otherwise not be in
default under the TWE Credit Agreement. In addition, the Indenture, dated as of
April 30, 1992, as amended (the 'TWE Indenture'), which governs TWE's $3.8
billion of outstanding public debt securities, prohibits TWE from making
distributions if (i) TWE shall have failed to pay any interest on such debt
securities and such failure shall be continuing or (ii) an 'event of default'
shall have occurred and be continuing. Any payments by TWE in respect of its
partnership interests may also be subject to restrictions imposed under credit
agreements, indentures and other agreements entered into after the date hereof.
HOLDING COMPANY STRUCTURE
The Company is a holding company and its assets consist primarily of
investments in its consolidated and unconsolidated subsidiaries, including TWE.
The Company's ability to pay dividends
15
on and redeem the Series M Preferred Stock and the Series L Preferred Stock, as
well as its ability to make interest and principal payments on the Senior
Subordinated Debentures (which together with the Series M Preferred Stock and
the Series L Preferred Stock, are collectively referred to as the 'Securities'),
is dependent primarily upon the earnings of its consolidated and unconsolidated
subsidiaries, including TWE, and the distribution or other payment of such
earnings to the Company. The Company's rights and the rights of its stockholders
and creditors, including holders of the Series M Preferred Stock, and if issued,
the Series L Preferred Stock and the Senior Subordinated Debentures, to
participate in the distribution of assets of any person in which the Company
owns an equity interest (including TWE) upon such person's liquidation or
reorganization will be subject to prior claims of such person's creditors,
including trade creditors, except to the extent that the Company may itself be a
creditor with recognized claims against such person (in which case the claims of
the Company would still be subject to the prior claims of any secured creditor
of such person and of any holder of indebtedness of such person that is senior
to that held by the Company). Accordingly, the rights of holders of the Series M
Preferred Stock, and if issued, the Series L Preferred Stock and the Senior
Subordinated Debentures, will be effectively subordinated to such claims.
EXCHANGE OFFER PROCEDURES
Issuance of shares of Series M Preferred Stock in exchange for shares of
Series K Preferred Stock pursuant to the Exchange Offer will be made only after
a timely receipt by the Company of such shares of Series K Preferred Stock, a
properly completed and duly executed Letter of Transmittal and all other
required documents. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of shares of Series K Preferred Stock
tendered for exchange will be determined by the Company in its sole discretion,
which determination will be final and binding on all parties. Holders of shares
of Series K Preferred Stock desiring to tender such shares of Series K Preferred
Stock in exchange for shares of Series M Preferred Stock should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of shares
of Series K Preferred Stock for exchange. Shares of Series K Preferred Stock
that are not tendered or are tendered but not accepted will, following the
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof and, except as provided herein, the Company
will have no further obligations to provide for the registration under the
Securities Act of such shares of Series K Preferred Stock. In addition, any
holder of Series K Preferred Stock who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Series M Preferred Stock may
be deemed to have received restricted securities, and, if so, will be required
to comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent that
shares of Series K Preferred Stock are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted shares of
Series K Preferred Stock could be adversely affected. See 'Exchange Offer.'
ABSENCE OF PUBLIC MARKET
The Series M Preferred Stock is a new security for which there currently is
no market. Although the Initial Purchasers have informed the Company that they
currently intend to make a market in the Series M Preferred Stock, and if
issued, the Series L Preferred Stock and the Senior Subordinated Debentures,
they are not obligated to do so and any such market making may be discontinued
at any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Securities. The Company does not
intend to apply for listing of the Securities on any securities exchange or for
quotation through the National Association of Securities Dealers Automated
Quotation System.
EVENT RISK
The Certificate of Designation, the Series L Certificate of Designation and
the Senior Subordinated Indenture do not contain any covenants or other
provisions designed to afford holders of the Series M Preferred Stock, the
Series L Preferred Stock and the Senior Subordinated Debentures protection in
the event of a highly leveraged transaction involving the Company that has been
approved by the management of the Company. In particular, the Certificate of
Designation, the Series L Certificate of Designation and the Senior Subordinated
Indenture do not contain any provisions which will restrict the Company in any
way from incurring, assuming or becoming liable upon any type of debt or other
16
obligation of the Company other than the prohibition in the Senior Subordinated
Indenture on issuances of indebtedness that is senior in right of payment to the
Senior Subordinated Debentures and expressly subordinate in right of payment to
any other indebtedness of the Company. See 'Description of Senior Subordinated
Debentures -- Covenants.' The Certificate of Designation, the Series L
Certificate of Designation and the Senior Subordinated Indenture do not contain
any financial ratios or specified levels of net worth or liquidity to which the
Company must adhere.
The Company is required to offer to purchase the Securities at 101% of the
liquidation preference thereof, plus accumulated and unpaid dividends thereon,
or 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, as the case may be, upon a Change of Control (which does not include
transactions approved by management of the Company), subject in the case of the
Series M Preferred Stock and the Series L Preferred Stock to the legal
availability at the Company of funds therefor. The Change of Control provision
would make a hostile takeover more expensive and create uncertainties regarding
the availability of financing therefor. As a result, such provision may tend to
discourage potential bidders for the Company. Also, the Company's shareholder
rights plan may discourage potential bidders from making a hostile bid, and
therefore, reduce the likelihood that the Company would be required to make a
Change of Control offer. The Company will be required to comply with the tender
offer rules, in particular Rule 14e-1 in the case of the Securities, and Rule
13e-4 in the case of the Series M Preferred Stock and Series L Preferred Stock.
A default by the Company under the Senior Subordinated Indenture would
result in a cross default under the Company's other debt instruments. Payment of
principal of and interest on the Senior Subordinated Debentures is subordinated
to the payment of the Company's existing and future Senior Indebtedness.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
See 'Material Federal Income Tax Consequences.'
17
THE COMPANY
GENERAL
The Company is the world's leading media company, and has interests in
three fundamental areas of business: Entertainment, consisting principally of
interests in recorded music and music publishing, filmed entertainment,
broadcasting, theme parks and cable television programming; News and
Information, consisting principally of interests in magazine publishing, book
publishing and direct marketing; and Telecommunications, consisting principally
of interests in cable television systems.
The Company was incorporated in the State of Delaware in August 1983 and is
the successor to a New York corporation originally organized in 1922. The
Company changed its name from Time Incorporated following its acquisition of
59.3% of the common stock of Warner Communications Inc. ('WCI') in July 1989.
WCI became a wholly owned subsidiary of the Company in January 1990 upon the
completion of the merger of WCI and a subsidiary of the Company.
PUBLISHING
The Company's publishing operations are conducted through wholly owned
subsidiaries and include the publication of magazines such as TIME, PEOPLE,
SPORTS ILLUSTRATED, FORTUNE, MONEY, ENTERTAINMENT WEEKLY and PARENTING and
regional magazines such as SOUTHERN LIVING and SUNSET. The publication and
distribution of books is conducted by Time Life Inc., Book-of-the-Month Club,
Inc., Warner Books, Inc., Little, Brown and Company, Oxmoor House and Sunset
Books.
MUSIC
The Company's worldwide music business is conducted through wholly owned
subsidiaries and includes the production and sale of compact discs and cassette
tapes marketed throughout the world under various labels, including the
proprietary labels 'Warner Bros.,' 'Elektra,' 'Atlantic,' 'Reprise,' 'Sire,'
'EastWest,' 'WEA,' 'Teldec,' 'Erato' and 'Carrere.' The Company also owns 50% of
the Columbia House Company, a direct marketer of compact discs, cassette tapes
and videocassettes in the U.S. and Canada. The Company's music publishing
subsidiaries, headed by Warner/Chappell, Inc., own or control the rights to many
standard and contemporary compositions, and CPP/Belwin, Inc. and other
subsidiaries market sheet music and song books throughout the world.
FILMED ENTERTAINMENT
The Company's filmed entertainment operations are conducted primarily as a
division of TWE. These operations include Warner Bros. which produces and
distributes feature motion pictures, television programming and animated
programming for theatrical and television exhibition. Warner Home Video
distributes home videocassettes and laser discs throughout the world. In
addition, TWE is engaged in product licensing and the ownership and operation of
retail stores, movie theaters and theme parks, including the management of TWE's
interest in Six Flags Theme Parks.
PROGRAMMING-HBO
Programming-HBO, a division of TWE, consists principally of Home Box
Office, which operates two pay television programming services, HBO and Cinemax.
Home Box Office also has a number of international joint ventures, including HBO
Ole in Latin America and a movie-based HBO service in Asia. The Home Box Office
division also produces television programming and operates TVKO, an entity that
produces boxing matches and other programming for pay-per-view.
CABLE
Time Warner Cable, a division of TWE, is the second largest multiple system
cable operator in the United States. In addition, as a result of the recent
acquisitions of Summit, KBLCOM and CVI, wholly owned subsidiaries of the Company
own cable television systems that are managed by Time Warner
18
Cable. Time Warner may transfer certain of these newly-acquired cable systems to
the TWE-Advance/Newhouse Partnership on a tax-efficient basis. Such transfers,
if they are made, are expected to be structured so that the systems will be
transferred subject to a portion of Time Warner's debt, thereby reducing the
financial leverage of Time Warner and increasing the under-leveraged
capitalization of the TWE-Advance/Newhouse Partnership and consequently, TWE.
See 'Recent Developments.' As of June 30, 1996, the Company's wholly and
partially owned cable systems served approximately 11.8 million subscribers.
THE WB TELEVISION NETWORK
Warner Bros., a division of TWE, launched The WB, a new national television
network, which completed its first full year of broadcast operations in January
1996. Combining The WB's current broadcast affiliate line-up of 95 stations with
the reach of Tribune Broadcasting Company's WGN Superstation, The WB's national
coverage is more than 80% of all United States television households.
SIX FLAGS THEME PARKS
Six Flags Entertainment Corporation ('Six Flags'), in which TWE currently
owns a 49% interest, operates 11 theme parks in seven locations, making it the
second largest operator of theme parks in the United States and the leading
operator of national system regional theme parks. Six Flags' theme parks include
seven major ride-based theme parks, as well as three separately-gated water
parks and one wild-life safari park.
TWE
TWE owns and operates substantially all of the Company's interests in
filmed entertainment, broadcasting, theme parks and cable television programming
and a majority of the Company's interests in cable television systems.
As of the date of this Prospectus, the Company and certain wholly owned
subsidiaries of the Company collectively own 74.49% of the TWE Series A Capital
and the TWE Residual Capital and 100% of the TWE Senior Capital (which is senior
to the TWE Series A Capital) and the TWE Series B Capital (which is junior to
the TWE Series A Capital). A wholly owned subsidiary of U S WEST owns the 25.51%
of the TWE Series A Capital and the TWE Residual Capital not owned by the
Company and its wholly owned subsidiaries. See 'TWE Partnership Interests.'
TWE is not consolidated with the Company for financial reporting purposes
because of certain limited partnership approval rights related to TWE's interest
in certain cable television systems. Although TWE manages substantially all the
cable systems owned by the Company, TWE and the TWE-Advance/Newhouse
Partnership, in which TWE owns a two-thirds interest, the results of operations
of the cable systems owned by the Company's consolidated subsidiaries are
included in the Company's consolidated results, while the results of operations
of the cable systems owned by TWE and the TWE-Advance/Newhouse Partnership are
included in TWE's consolidated results.
TBS TRANSACTION
In September 1995, the Company announced that it had agreed to merge with
TBS by acquiring the approximate 80% interest in TBS that the Company does not
already own. After an extensive review of the transaction by the staff of the
FTC and in order to eliminate certain concerns raised by the FTC staff regarding
the possible competitive effects of the transaction, the Company announced on
July 17, 1996 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 the Company and TBS to
proceed with their merger. Pursuant to the Amended TBS Merger Agreements, each
of the Company and TBS would merge with separate subsidiaries of New Time
Warner, a holding company. In connection with the TBS Transaction, the issued
and outstanding shares of each class of the capital stock of the Company,
including the Series K Preferred Stock and the Series M Preferred Stock, are to
be converted into shares of a substantially identical class of capital
19
stock of New Time Warner. TBS's business includes the ownership and operation of
domestic and international entertainment networks (including TBS SuperStation,
Turner Network Television, the Cartoon Network and TNT Latin America); the
production and distribution of entertainment and news programming worldwide
(including Turner Pictures, TBS Productions, Hanna-Barbera Cartoons, Castle Rock
Entertainment, New Line Cinema, Cable News Network, Headline News and CNN
International); and the ownership of two professional sports teams (the Atlanta
Braves and the Atlanta Hawks).
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 the Company, and all necessary
approvals of 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. The holders
of the Series K Preferred Stock and the Series M Preferred Stock will not be
entitled to vote on the TBS Transaction. In the event that the TBS Transaction
is consummated prior to the Expiration Date, this Exchange Offer will be
terminated and each share of Series K Preferred Stock will be converted into a
share of a substantially identical class of capital stock of New Time
Warner. Such New Time Warner capital stock will be issued to the holders of
Series K Preferred Stock pursuant to a registration statement on Form S-4 of New
Time Warner. For a further discussion of the TBS Transaction and related
transactions, reference is made to the 10-K, the Second Quarter 10-Q and the
August 14, 1996 8-K, which are incorporated herein by reference.
TWE PARTNERSHIP INTERESTS
The summary of the TWE Partnership Agreement provisions described below
does not purport to be complete and is qualified in its entirety by the TWE
Partnership Agreement which is incorporated by reference herein.
PARTNERSHIP INTERESTS
Each partner's interest in TWE consists of the initial priority capital and
residual equity amounts that were assigned to that partner or its predecessor
based on the estimated fair value of the net assets each contributed to TWE, as
adjusted for the fair value of certain assets distributed by TWE to the Time
Warner General Partners in 1993 which were not subsequently reacquired by TWE in
1995 ('Contributed Capital'), plus, with respect to the priority capital
interests only, any undistributed priority capital return. The priority capital
return consists of net partnership income allocated to date in accordance with
the provisions of the TWE Partnership Agreement and the right to be allocated
additional partnership income which, together with any previously allocated net
partnership income, provides for the various priority capital rates of return
specified in the table below. The sum of Contributed Capital and the
undistributed priority capital return is referred to as 'Cumulative Priority
Capital.' The ultimate realization of Cumulative Priority Capital could be
affected by the fair value of TWE, which is subject to fluctuation.
A summary of the priority of Contributed Capital, the Company's ownership
of Contributed Capital and Cumulative Priority Capital at June 30, 1996 and
priority capital rates of return thereon is as set forth below.
CUMULATIVE
PRIORITY PRIORITY
CAPITAL AT CAPITAL % OWNED
PRIORITY OF CONTRIBUTED JUNE 30, RATES OF BY THE
CONTRIBUTED CAPITAL CAPITAL(a) 1996 RETURN(b) COMPANY
- ---------------------------------------------- ----------- ---------- ------------ --------
(BILLIONS) (% PER ANNUM
COMPOUNDED
QUARTERLY)
TWE Senior Capital............................ $ 1.4 $1.5(c) 8.00% 100.00%
TWE Series A Capital.......................... 5.6 9.3 13.00%(d) 74.49%
TWE Series B Capital.......................... 2.9(g) 4.9 13.25%(e) 100.00%
TWE Residual Capital.......................... 3.3(g) 3.3(f) -- (f) 74.49%
(footnotes on next page)
20
(footnotes from previous page)
(a) Excludes partnership income or loss allocated thereto and is subject to any
special income allocations for tax purposes.
(b) Income allocations related to priority capital rates of return are based on
partnership income after any special income allocations for tax purposes.
(c) Net of $366 million of partnership income distributed in 1995 representing
the priority capital return thereon through June 30, 1995.
(d) 11.00% to the extent concurrently distributed.
(e) 11.25% to the extent concurrently distributed.
(f) TWE Residual Capital is not entitled to stated priority rates of return
and, as such, the Cumulative Priority Capital relating thereto is equal to
the Contributed Capital. However, in the case of certain events such as the
liquidation or dissolution of TWE, the TWE Residual Capital is entitled to
any excess of the then fair value of the net assets of TWE over the
aggregate amount of Cumulative Priority Capital and special tax
allocations.
(g) The Contributed Capital relating to the TWE Series B Capital has priority
over the priority returns on the TWE Series A Capital. The Contributed
Capital relating to the TWE Residual Capital has priority over the priority
returns on the TWE Series B Capital and the TWE Series A Capital.
------------------------
Because Contributed Capital is based on the fair value of the net assets
that each partner contributed to TWE, the aggregate of such amounts is
significantly higher than TWE's partners' capital as reflected in the
consolidated financial statements, which is based on the historical cost of the
contributed net assets. For purposes of allocating partnership income or loss to
the partners, partnership income or loss is based on the fair value of the net
assets contributed to TWE and results in significantly less partnership income,
or results in partnership losses, in contrast to the net income reported by TWE
for financial statement purposes, which is also based on the historical cost of
contributed net assets.
If certain operating performance targets are achieved by TWE with respect
to the five-year period ending December 31, 1996 and the ten-year period ending
December 31, 2001, the Time Warner General Partners would be entitled to
increased partnership interests (the 'TWE Contingent Capital'), which generally
would be junior to the TWE Series B Capital but senior to the TWE Residual
Capital. Although TWE is unable to determine whether it will satisfy the
ten-year operating performance target at this time, it is not expected that the
five-year target will be attained.
U S WEST has an option (the 'U S WEST Option') to increase its share of the
TWE Series A Capital and the TWE Residual Capital by up to 6.33%, depending on
the operating performance of TWE's cable business. The option is exercisable
between January 1, 1999 and on or about May 1, 2005 at a maximum exercise price
of $1.25 billion to $1.8 billion, depending on the year of exercise. Either U S
WEST or TWE may elect that the exercise price be paid with partnership interests
rather than cash. The issuance of partnership interests upon exercise of the U S
WEST Option may result in a dilution of the TWE Junior Capital owned by the
Company, and accordingly, the rights of the holders of Series M Preferred Stock
with respect to cash distributed thereon or value attributable thereto.
ALLOCATIONS OF PARTNERSHIP INCOME AND LOSS
Under the TWE Partnership Agreement, partnership income, to the extent
earned, is first allocated to the partners' capital accounts so that the
economic burden of income taxes is borne as though TWE were taxed as a
corporation ('special income allocation for tax purposes'), then to the TWE
Senior Capital, the TWE Series A Capital and the TWE Series B Capital, in order
of priority, at rates of return ranging from 8% to 13.25% per annum, and finally
to the TWE Residual Capital. Partnership losses generally are allocated first to
eliminate prior allocations of partnership income to, and then to reduce the
Contributed Capital relating to the TWE Residual Capital, the TWE Series B
Capital and the TWE Series A Capital, in that order, then to reduce the Time
Warner General Partners' TWE Senior Capital, including partnership income
allocated thereto, and finally to reduce any special income allocation for
21
tax purposes. To the extent partnership income is insufficient to satisfy all
special allocations in a particular accounting period, the right to receive
additional partnership income necessary to provide for the various priority
capital rates of return is carried forward until satisfied out of future
partnership income, including any partnership income that may result from any
liquidation or dissolution of TWE. A liquidation, sale or dissolution of TWE,
other than as a result of the Insolvency of TWE, will result in a Reorganization
of TWE. See 'Description of Series M Preferred Stock -- Reorganization of TWE.'
Under certain circumstances, there may be adjustments to the partners' capital
accounts to reflect changes in the fair value of the assets of TWE.
DISTRIBUTIONS
Allocations of income to the partners' capital accounts do not result in
the distribution of cash to the partners. Under the TWE Partnership Agreement,
distributions of cash, including upon liquidation, are required to be made first
to the partners of TWE to permit them to pay taxes at statutory rates on their
taxable income from TWE, including any special income allocation for tax
purposes. Subject to any applicable contractual restrictions contained in the
agreements governing the indebtedness of TWE, cash distributions (after Tax
Distributions) will generally be made on a quarterly basis to the extent of
Excess Cash as follows and in the following order of priority: (i) first, with
respect to the TWE Senior Capital up to an amount equal to its priority return;
(ii) second, with respect to the TWE Series A Capital, up to an amount
(including any Tax Distributions thereon) equal to its priority return accruing
from June 30, 1995; (iii) third, beginning June 30, 1998, with respect to the
TWE Series B Capital up to an amount (including any Tax Distributions thereon)
equal to its priority return accruing from June 30, 1998; (iv) fourth, with
respect to TWE Contingent Capital, if any, up to an amount (including any Tax
Distributions thereon) equal to its priority return and (v) thereafter, with
respect to (and in proportion to) the TWE Residual Capital. 'Excess Cash'
generally means the net income of TWE, as determined in accordance with
generally accepted accounting principles, after adjusting for non-cash items,
capital expenditures, investments, acquisitions, debt service requirements,
changes in working capital and reserves for future operations, as determined by
TWE's Board of Representatives. There can be no assurance that Excess Cash in
any period will be sufficient to make cash distributions, including with respect
to the TWE Series B Capital. See 'Risk Factors.'
If the Class A Partners have not received aggregate distributions
(generally from all sources) at least equal to $800 million by June 30, 1997,
distributions (other than Tax Distributions) to the Time Warner General Partners
with respect to their TWE Series A Capital and TWE Residual Capital will be
deferred until such threshold is met. 'Class A Partners' include U S WEST, the
Company and a wholly-owned subsidiary of the Company and exclude the Time Warner
General Partners. Similarly, if the Class A Partners have not received aggregate
distributions (generally from all sources) at least equal to $1.6 billion by
June 30, 1998, distributions (other than Tax Distributions) to the Time Warner
General Partners with respect to their TWE Series B Capital and TWE Contingent
Capital will be deferred until such threshold is met.
The TWE Senior Capital and, to the extent not previously distributed,
partnership income allocated thereto, is required to be redeemed in three annual
installments: 33 1/3% of the amount outstanding, on July 1, 1997; 50% of the
amount outstanding, on July 1, 1998; and 100% of the amount outstanding, on July
1, 1999. In addition, the TWE Series A Capital and the TWE Series B Capital and,
to the extent not previously distributed, partnership income allocated thereto,
are to be redeemed out of available cash, on a pro rata basis, in five annual
installments: 20% of the amounts outstanding, on June 30, 2011; 25% of the
amounts outstanding, on June 30, 2012; 33 1/3% of the amounts outstanding, on
June 30, 2013; 50% of the amounts outstanding, on June 30, 2014; and 100% of the
amounts outstanding, on June 30, 2015. Such distributions with respect to the
TWE Series B Capital are referred to as the 'Series B Redemptions' and the date
of each Series B Redemption is referred to as the 'Series B Redemption Date.'
There can be no assurance that TWE will have sufficient available cash to make
any such distribution. To the extent any such distributions are not made in full
on the scheduled distribution date, TWE will make up such shortfall prior to
making any subsequently scheduled distributions.
22
In addition, the TWE Partnership Agreement provides that the net proceeds
of any sale of a division of TWE or a substantial portion thereof, or the cash
available from any financing or refinancing of TWE's debt (in each case, less
expenses and proceeds used to repay outstanding debt) will be required to be
distributed with respect to the partners' partnership interests. Such a sale
would constitute a Reorganization of TWE. See 'Description of Series M Preferred
Stock -- Reorganization of TWE.'
Under the TWE Credit Agreement, TWE is not permitted to make distributions
(other than Tax Distributions) unless, after giving effect to such
distributions, TWE would be in compliance with specified leverage ratios and
would otherwise not be in default under the TWE Credit Agreement. In addition,
the TWE Indenture prohibits TWE from making distributions if (i) TWE shall have
failed to pay any interest on any debt securities issued under the TWE Indenture
and such failure shall be continuing or (ii) an 'event of default' shall have
occurred and be continuing. There can be no assurance that TWE will be permitted
to make distributions with respect to the partnership interests therein,
including the TWE Series B Capital and the TWE Junior Capital, under the TWE
Credit Agreement or the Indenture.
RECENT DEVELOPMENTS
The Company and TWE have recently completed, or have entered into, the
transactions described below.
TBS TRANSACTION
On July 17, 1996, the Company announced that it had reached an agreement in
principle with the staff of the FTC and certain shareholders of TBS which
resulted in a renegotiation of certain terms of the TBS Merger Agreement and
related agreements. The Amended TBS Merger Agreements continue to provide for
the merger of the Company and TBS with separate subsidiaries of New Time Warner,
a holding company, that will combine, for financial reporting purposes, the
consolidated net assets and operating results of the Company and TBS. In
connection therewith, the issued and outstanding shares of each class of the
capital stock of the Company will be converted into shares of a substantially
identical class of capital stock of New Time Warner. The Amended TBS Merger
Agreements provide for the issuance by New Time Warner of approximately 173.3
million shares of common stock, par value $.01 per share (such holding company
stock, or, prior to the formation of such holding company, the existing Company
common stock, being referred to herein as the 'Common Stock') (including 50.6
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 the Company, in cash or
additional shares of LMC Class Common Stock, pursuant to an amended related
option and non-competition agreement that will provide, if the Company exercises
its option, for Southern Satellite Systems, Inc., a subsidiary of LMC, to
provide certain satellite uplink and distribution services for WTBS, a broadcast
television station owned by TBS, in the event WTBS is converted to a copyright-
paid cable television programming service.
SERIES K REFINANCING
On April 11, 1996, the Company issued 1.6 million shares of the Series K
Preferred Stock for approximately $1.552 billion of net proceeds. Such proceeds
were used by Time Warner to redeem all $250 million principal amount of its
outstanding 8.75% Debentures due 2017 for $265 million (including redemption
premiums and accrued interest thereon of $15 million) and to reduce indebtedness
of TWI Cable Inc. ('TWI Cable'), a wholly-owned subsidiary of the Company, under
the New Credit Agreement (as defined hereinafter) by approximately $1.3 billion.
The issuance of the Series K Preferred Stock and the use of the proceeds
therefrom to reduce outstanding indebtedness of the
23
Company are referred to herein as the 'Series K Refinancing.' See 'Description
of Outstanding Capital Stock -- Preferred Stock' for a summary of the principal
terms of the Series K Preferred Stock and all other classes of Parity Stock.
CONVERTIBLE DEBT REFINANCINGS
On February 1, 1996, the Company 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 'February 1996 Redemption'). In addition, in
September 1995, the Company redeemed approximately $1 billion principal amount
of 8.75% Convertible Debentures for $1.06 billion, including redemption premiums
and accrued interest thereon (the 'September 1995 Redemption'). The September
1995 Redemption was financed with (i) approximately $500 million of proceeds
raised from the issuance in June 1995 of 7.75% notes due 2005, (ii) $363 million
of net proceeds raised in August 1995 from the issuance of approximately 12.1
million Company-obligated mandatorily redeemable preferred securities of a
subsidiary ('PERCS') that are redeemable for cash or, at the Company's option,
approximately 12.1 million shares of Hasbro, Inc. common stock owned by the
Company and that pay cash distributions at a rate of 4% per annum and (iii)
available cash and equivalents (the '1995 Convertible Debt Refinancing'). The
February 1996 Redemption was financed with (i) $557 million of net proceeds
raised in December 1995 from the issuance of Company-obligated mandatorily
redeemable preferred securities of a subsidiary (the 'Preferred Trust
Securities') that pay cash distributions at a rate of 8 7/8% per annum and (ii)
proceeds raised from the $750 million issuance of debentures in January 1996,
consisting of (w) $400 million principal amount of 6.85% debentures due 2026,
which are redeemable at the option of the holders thereof in 2003, (x) $200
million principal amount of 8.3% discount debentures due 2036, which do not pay
cash interest until 2016, (y) $166 million principal amount of 7.48% debentures
due 2008 and (z) $150 million principal amount of 8.05% debentures due 2016
(collectively referred to herein as the 'January 1996 Debentures'). The issuance
of the Preferred Trust Securities and the January 1996 Debentures, together with
the February 1996 Redemption are collectively referred to as the '1996
Convertible Debt Refinancing.' The 1995 Convertible Debt Refinancing and the
1996 Convertible Debt Refinancing are collectively referred to herein as the
'Convertible Debt Refinancings.'
CVI ACQUISITION
On January 4, 1996 (as previously reported on the Current Report on Form
8-K of the Company dated January 4, 1996), the Company completed its acquisition
of Cablevision Industries Corporation ('CVI') and certain affiliated entities of
CVI (the 'Gerry Companies'). CVI and the Gerry Companies owned cable television
systems serving approximately 1.3 million subscribers (the 'CVI Acquisition').
ITOCHU/TOSHIBA TRANSACTION
On October 2, 1995 and September 5, 1995 (as previously reported on the
Current Report on Form 8-K of the Company dated August 31, 1995), Toshiba
Corporation ('Toshiba') and ITOCHU Corporation ('ITOCHU'), respectively, each
exchanged (i) their 5.61% TWE Series A Capital and TWE Residual Capital
interests, (ii) their 6.25% residual equity interests in TW Service Holding I,
L.P. and TW Service Holding II, L.P., each of which owned certain assets related
to the TWE businesses (the 'Time Warner Service Partnerships') and (iii) their
options to increase their interests in TWE under certain circumstances for, in
the case of ITOCHU, 8 million shares of two series of new convertible preferred
stock ('Series G Preferred Stock' and 'Series H Preferred Stock') of the Company
and, in the case of Toshiba, 7 million shares of new convertible preferred stock
of Time Warner ('Series I Preferred Stock') and $10 million in cash (the
'ITOCHU/Toshiba Transaction'). As a result of the ITOCHU/Toshiba Transaction,
the Company and certain of its wholly-owned subsidiaries collectively now own
74.49% of the TWE Series A Capital and TWE Residual Capital and 100% of the TWE
Senior Capital and TWE Series B Capital in TWE. A subsidiary of U S WEST owns
the remaining 25.51% of the TWE Series A Capital and TWE Residual Capital.
24
RESET NOTES REFINANCING
On August 15, 1995, the Company redeemed all of its $1.8 billion principal
amount of outstanding Redeemable Reset Notes due 2002 (the 'Reset Notes') in
exchange for new securities (the 'Reset Notes Refinancing'), consisting of
approximately $454 million aggregate principal amount of Floating Rate Notes due
2000, approximately $272 million aggregate principal amount of 7.975% Notes due
2004, approximately $545 million aggregate principal amount of 8.11% Debentures
due 2006, and approximately $545 million aggregate principal amount of 8.18%
Debentures due 2007.
KBLCOM ACQUISITION
On July 6, 1995 (as previously reported on the Current Report on Form 8-K
of the Company dated July 6, 1995), the Company acquired KBLCOM Incorporated
('KBLCOM') which owned cable television systems serving approximately 700,000
subscribers and a 50% interest in Paragon Communications ('Paragon'), which
owned cable television systems serving an additional 972,000 subscribers (the
'KBLCOM Acquisition'). The other 50% interest in Paragon was already owned by
TWE.
BANK REFINANCING
On June 30, 1995, TWI Cable, TWE and the TWE-Advance/Newhouse Partnership
executed a five-year revolving credit facility (the 'New Credit Agreement'). The
New Credit Agreement enabled such entities to refinance certain indebtedness
assumed in the Acquisitions (as defined herein), to refinance TWE's indebtedness
under a pre-existing bank credit agreement and to finance the ongoing working
capital, capital expenditure and other corporate needs of each borrower (the
'Bank Refinancing'). The Series K Refinancing, the Convertible Debt
Refinancings, the Reset Notes Refinancing and the Bank Refinancing are referred
to herein as the 'Debt Refinancings.'
SIX FLAGS TRANSACTION
On June 23, 1995, (i) Six Flags was recapitalized, (ii) TWE sold 51% of its
interest in Six Flags to an investment group led by Boston Ventures Management,
Inc. and (iii) TWE granted certain licenses to Six Flags (collectively, the 'Six
Flags Transaction').
SUMMIT ACQUISITION
On May 2, 1995, the Company acquired Summit Communications Group, Inc.
('Summit'), which owned cable television systems serving approximately 162,000
subscribers (the 'Summit Acquisition').
TWE-A/N TRANSACTION
On April 1, 1995 (as previously reported on the Current Report on Form 8-K
of the Company dated April 1, 1995), TWE closed its transaction (the 'TWE-A/N
Transaction') with Advance/Newhouse, pursuant to which TWE and Advance/Newhouse
formed the TWE-Advance/ Newhouse Partnership, to which Advance/Newhouse and TWE
contributed cable television systems (or interests therein) serving
approximately 4.5 million subscribers, as well as certain foreign cable
investments and certain programming investments that included Advance/Newhouse's
10% interest in Primestar Partners, L.P. TWE owns a two-thirds equity interest
in the TWE-Advance/Newhouse Partnership and is the managing partner and
Advance/Newhouse owns a one-third equity interest.
UNCLUSTERED CABLE TRANSACTIONS
During 1995, TWE entered into agreements to sell, or announced its
intention to sell, 17 of its unclustered cable television systems serving
approximately 180,000 subscribers, of which certain of the transactions closed
during 1995 and the remaining transactions, which are not material, have closed
or are expected to close in 1996 (the 'Unclustered Cable Transactions').
25
The Unclustered Cable Transactions and the Six Flags Transaction are
referred to herein as the 'Asset Sale Transactions'; the Summit Acquisition,
KBLCOM Acquisition and CVI Acquisition are referred to herein as the
'Acquisitions'; and the Acquisitions and the TWE-A/N Transaction are referred to
herein as the 'Cable Transactions' and the TBS Transaction, the ITOCHU/Toshiba
Transaction, the Asset Sale Transactions, the Cable Transactions and the Debt
Refinancings are referred to herein as the 'Transactions.'
CONSOLIDATED CAPITALIZATION
The consolidated historical and pro forma capitalization of the Company and
the Company's Entertainment Group, consisting principally of TWE, at June 30,
1996, is set forth below. The Entertainment Group is not consolidated with the
Company for financial reporting purposes. The pro forma capitalization of the
Company set forth in column (1) gives effect to the TBS Transaction, as if such
transaction occurred at such date. The Series K Refinancing is already reflected
in the historical capitalization of the Company at June 30, 1996. The pro forma
capitalization is presented for informational purposes only and is not
necessarily indicative of the future capitalization of the Company, any new
holding company and the Entertainment Group. Capitalized terms are as defined
and described in the 'Time Warner Inc. and Entertainment Group Pro Forma
Consolidated Condensed Financial Statements' included in the August 14, 1996 8-K
and incorporated herein by reference, or elsewhere herein.
26
COMPANY ENTERTAINMENT GROUP
------------------------- -------------------
(1)
POST-TBS
HISTORICAL PRO FORMA(a) HISTORICAL
---------- ------------ -------------------
(MILLIONS)
Long-term debt:
Company Debt:
7.45%, 7.75%, 7.95% and 7.975% notes....................... $ 1,769 $ 1,769 --
Floating rate notes due 2000 (6.5% interest rate).......... 454 454 --
8.11% and 8.18% Debentures................................. 1,090 1,090 --
Zero coupon convertible notes due 2012 (6.25% yield)(b).... 600 600 --
Zero coupon convertible notes due 2013 (5% yield)(b)....... 1,045 1,045 --
9.125% and 9.15% Debentures................................ 2,000 2,000 --
Debt due to TWE (6.5% interest rate)(c).................... 400 400 --
6.85%, 7.48% and 8.05% Debentures.......................... 716 716 --
8.30% Discount Debentures due 2036(b)...................... 35 35 --
Time Warner Cable Subsidiaries Debt:
CVI 10 3/4% senior notes................................... 300 300 --
CVI 9 1/4% senior debentures............................... 200 200 --
Summit 10 1/2% senior subordinated debentures.............. 140 140 --
New Credit Agreement (weighted average interest rate of
6.3% with respect to TWI Cable and 6.0% with respect to
TWE and the TWE-A/N Partnership)(d)(e)................... 1,500 1,500 $ 1,384
TBS Debt:
TBS credit agreement (weighted average interest rate of
6.4%).................................................... -- 1,575 --
TBS 8 3/8% and 7.4% senior notes........................... -- 547 --
TBS 8.4% senior debentures................................. -- 200 --
TBS zero coupon convertible notes due 2007 (7.25%
yield)(b)................................................ -- 273 --
TBS other indebtedness..................................... -- 5 --
TWE Debt:
TWE commercial paper (weighted average interest rate of
5.8%)(e)................................................. -- -- 397
TWE 8 7/8%, 9 5/8% and 10.15% notes(e)..................... -- -- 1,197
TWE 7 1/4%, 8 3/8% and 8 3/8% debentures(e)................ -- -- 2,584
Other........................................................... 79 241 13
---------- ------------ ----------
Subtotal........................................................ 10,328 13,090 5,575
Reclassification of debt due
to TWE to investments
in and amounts due to
the Entertainment Group(c).................................... (400) (400) --
---------- ------------ ----------
Total long-term debt............................................ 9,928 12,690 5,575
Borrowings against future stock option proceeds................. 225 225 --
Company-obligated mandatorily redeemable preferred securities of
subsidiaries holding solely subordinated notes and debentures
of the Company................................................ 949 949 --
Series K Preferred Stock(f)..................................... 1,586 1,586 --
(table continued on next page)
27
(table continued from previous page)
COMPANY ENTERTAINMENT GROUP
------------------------- -------------------
(1)
POST-TBS
HISTORICAL PRO FORMA(a) HISTORICAL
---------- ------------ -------------------
(MILLIONS)
Shareholders' equity:
Preferred stock liquidation preference.......................... 3,559 3,559 --
Equity applicable to common stock............................... 284 6,308 --
---------- ------------ ----------
Total shareholders' equity................................. 3,843 9,867 --
Time Warner General Partners' Senior Capital.................... -- -- 1,483
Partners' capital............................................... -- -- 6,735
---------- ------------ ----------
Total capitalization................................................. $ 16,531 $ 25,317 $13,793
---------- ------------ ----------
---------- ------------ ----------
- ------------
(a) Reflects, on a pro forma basis, the capitalization of the new holding
company after consummation of the TBS Transaction (in which case the
Company expects that the new holding company would provide guarantees of
the Company's and TBS's outstanding public debt).
(b) The zero coupon convertible notes due 2012 and 2013 are reflected net of
unamortized original issue discount of $1.051 billion and $1.370 billion,
respectively. The 8.3% Discount Debentures due 2036 are reflected net of
unamortized original issue discount of $165 million. The TBS zero coupon
convertible notes due 2007 are reflected net of unamortized original issue
discount of $309 million.
(c) The Company and TWE entered into a credit agreement in 1994 that allows the
Company to borrow up to $400 million from TWE through September 15, 2000.
Outstanding borrowings from TWE bear interest at LIBOR plus 1% per annum.
For financial reporting purposes, the $400 million of currently outstanding
loans from TWE to the Company have been reclassified and shown as a
reduction in the Company's investments in and amounts due to the
Entertainment Group.
(d) The New Credit Agreement permits borrowings in an aggregate amount of up to
$8.3 billion, with no scheduled reductions in credit availability prior to
maturity. Borrowings are limited to $4 billion in the case of TWI Cable, $5
billion in the case of the TWE-Advance/Newhouse Partnership and $8.3
billion in the case of TWE, subject in each case to certain limitations and
adjustments. Such borrowings bear interest at different rates for each of
the three borrowers, generally equal to LIBOR plus a margin initially
ranging from 50 to 87.5 basis points, which margin will vary based on the
credit rating or financial leverage of the applicable borrower. Unused
credit is available for general business purposes and to support any
commercial paper borrowings. The New Credit Agreement contains certain
covenants for each borrower relating to, among other things, additional
indebtedness; liens on assets; cash flow coverage and leverage ratios; and
loans, advances, distributions and other cash payments or transfers of
assets from the borrowers to their respective partners or affiliates.
(e) Except for borrowings by TWI Cable and the TWE-Advance/Newhouse Partnership
under the New Credit Agreement, such indebtedness is guaranteed by certain
subsidiaries of the Company which are the general partners of TWE.
(f) The shares of Series K Preferred Stock are to be exchanged for shares of
Series M Preferred Stock.
28
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
COMPANY SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information of the Company set forth
below has been derived from and should be read in conjunction with the
consolidated financial statements and other financial information of the Company
contained in the 10-K and with the unaudited consolidated condensed financial
statements of the Company and other financial information of the Company for the
quarter ended June 30, 1996 contained in the Second Quarter 10-Q, which are
incorporated herein by reference. The selected historical financial information
for all periods after 1992 reflect the deconsolidation of the Entertainment
Group, principally TWE, effective January 1, 1993. Capitalized terms are as
defined and described in such historical financial statements, or elsewhere
herein.
The selected historical financial information for 1996 reflects (a) the
issuance 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 and (b)(i)
the issuance of 6.3 million shares of the Company's convertible preferred stock
having an aggregate liquidation preference of $633 million and 2.9 million
shares of the Company's common stock and (ii) the assumption or incurrence of
approximately $2 billion of indebtedness, in connection with the CVI
Acquisition. The selected historical financial information for 1995 reflects (a)
the issuance of 29.3 million shares of the Company's convertible preferred stock
having an aggregate liquidation preference of $2.926 billion and 2.6 million
shares of the Company's common stock and (b) the assumption or incurrence of
approximately $1.3 billion of indebtedness in connection with (x) the KBLCOM
Acquisition and the Summit Acquisition and (y) the ITOCHU/Toshiba Transaction.
The selected historical financial information for 1993 reflects the issuance of
$6.1 billion of long-term debt and the use of $500 million of cash and
equivalents for the exchange or redemption of preferred stock having an
aggregate liquidation preference of $6.4 billion. The selected historical
financial information for 1992 reflects the capitalization of TWE on June 30,
1992 and associated refinancings, and the acquisition of the 18.7% minority
interest in American Television and Communications Corporation ('ATC') as of
June 30, 1992, using the purchase method of accounting for business
combinations. Per common share amounts and average common shares have been
restated to give effect to the four-for-one common stock split that occurred on
September 10, 1992.
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------------------- ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------------- --------------- ------ ------ ------ ------- -------
(MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
OPERATING STATEMENT INFORMATION
Revenues................................. $ 4,207 $ 3,724 $8,067 $7,396 $6,581 $13,070 $12,021
Depreciation and amortization............ 452 231 559 437 424 1,172 1,109
Business segment operating income(a)..... 325 322 697 713 591 1,343 1,154
Equity in pretax income of Entertainment
Group.................................. 209 106 256 176 281 -- --
Interest and other, net.................. 578 356 877 724 718 882 966
Income (loss) before extraordinary
item................................... (124) (55) (124) (91) (164) 86 (99)
Net income (loss)(b)(c).................. (159) (55) (166) (91) (221) 86 (99)
Net loss applicable to common shares
(after preferred dividends)............ (263) (63) (218) (104) (339) (542) (692)
Per share of common stock:
Loss before extraordinary item...... $ (.58) $ (.17) $ (.46) $ (.27) $ (.75) $ (1.46) $ (2.40)
Net loss(b)(c)...................... $ (.67) $ (.17) $ (.57) $ (.27) $ (.90) $ (1.46) $ (2.40)
Dividends........................... $ .18 $ .18 $ .36 $ .35 $ .31 $ .265 $ .25
Average common shares(c)................. 390.6 380.5 383.8 378.9 374.7 371.0 288.2
Ratio of earnings to fixed charges(d).... 1.0x 1.1x 1.1x 1.1x 1.1x 1.4x 1.1x
Ratio of earnings to combined fixed
charges and preferred stock dividends
(deficiency in the coverage of combined
fixed charges and preferred stock
dividends by earnings before fixed
charges and preferred stock
dividends)(d).......................... $ (127) 1.1x 1.0x 1.1x $ (91) $ (509) $(1,240)
29
DECEMBER 31,
JUNE 30, --------------------------------------------------
1996 1995 1994 1993 1992 1991
------------------ ------- ------ ------- ------- -------
(MILLIONS)
BALANCE SHEET INFORMATION
Investments in and amounts due to and
from Entertainment Group............ $ 5,945 $ 5,734 $5,350 $ 5,627 $ -- $ --
Total assets.......................... 24,508 22,132 16,716 16,892 27,366 24,889
Long-term debt........................ 9,928 9,907 8,839 9,291 10,068 8,716
Borrowings against future stock option
proceeds............................ 225 -- -- -- -- --
Company-obligated mandatorily
redeemable preferred securities of
subsidiaries holding solely
subordinated notes and debentures of
the Company(e)...................... 949 949 -- -- -- --
Series K Preferred Stock.............. 1,586 -- -- -- -- --
Shareholders equity:
Preferred stock liquidation
preference..................... 3,559 2,994 140 140 6,532 6,256
Equity applicable to common
stock.......................... 284 673 1,008 1,230 1,635 2,242
Total shareholders' equity....... 3,843 3,667 1,148 1,370 8,167 8,498
Total capitalization.................. 16,531 14,523 9,987 10,661 18,235 17,214
- ------------
(a) Business segment operating income for the year ended December 31, 1995
includes $85 million in losses relating to certain businesses and joint
ventures owned by the Music division which were restructured or closed.
Business segment operating income for the year ended December 31, 1991
includes a $60 million charge relating to the restructuring of the
Publishing division.
(b) The net loss for the six months ended June 30, 1996 includes an
extraordinary loss on the retirement of debt of $35 million ($.09 per
common share). The net loss for the year ended December 31, 1995 includes
an extraordinary loss on the retirement of debt of $42 million ($.11 per
common share). The net loss for the year ended December 31, 1993 includes
an extraordinary loss on the retirement of debt of $57 million ($.15 per
common share) and an unusual charge of $70 million ($.19 per common share)
from the effect of the new income tax law on the Company's deferred income
tax liability.
(c) In August 1991, the Company completed the sale of 137.9 million shares of
common stock pursuant to a rights offering. Net proceeds of $2.558 billion
from the rights offering were used to reduce indebtedness under the
Company's bank credit agreement. If the rights offering had been completed
at the beginning of 1991, net loss for the year would have been reduced to
$33 million, or $1.70 per common share, and there would have been 369.3
million shares of common stock outstanding during the year.
(d) For purposes of the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends, earnings
were calculated by adding (i) pretax income, (ii) interest expense,
including previously capitalized interest amortized to expense and the
portion of rents representative of an interest factor for the Company and
its majority-owned subsidiaries, (iii) the Company's proportionate share of
the items included in (ii) above for its 50%-owned companies, (iv)
preferred stock dividend requirements of majority-owned subsidiaries, (v)
minority interest in the income of majority-owned subsidiaries that have
fixed charges and (vi) undistributed losses of its less-than-50%-owned
companies. Fixed charges consist of (i) interest expense, including
interest capitalized and the portion of rents representative of an interest
factor for the Company and its majority-owned subsidiaries, (ii) the
Company's proportionate share of such items for its 50%-owned companies and
(iii) preferred stock dividend requirements of majority-owned
(footnotes continued on next page)
30
(footnotes continued from previous page)
subsidiaries. Combined fixed charges and preferred stock dividends also
include the amount of pretax income necessary to cover preferred stock
dividend requirements of the Company. For periods in which earnings before
fixed charges were insufficient to cover fixed charges or combined fixed
charges and preferred stock dividends, the dollar amount of coverage
deficiency, instead of the ratio, is disclosed. Earnings as defined include
significant noncash charges for depreciation and amortization. With respect
to the ratio of earnings to fixed charges, fixed charges for the six months
ended June 30, 1996 and 1995 and the years ended December 31, 1995 and 1994
include noncash interest expense of $46 million, $116 million, $176 million
and $219 million, respectively, relating to the Company's Zero Coupon
Convertible Notes due 2012 and 2013 and, in 1995 and 1994 only, the
Company's Reset Notes. With respect to the ratio of earnings to combined
fixed charges and preferred stock dividends, fixed charges similarly
include noncash interest expense as noted above and, for the six-month
period ended June 30, 1996 only, noncash preferred stock dividends of $36
million relating to the Company's Series K Preferred Stock.
(e) Includes $374 million of preferred securities that are redeemable for cash
or, at the Company's option, approximately 12.1 million shares of Hasbro,
Inc. common stock owned by the Company.
ENTERTAINMENT GROUP SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information of the Entertainment Group
set forth below has been derived from and should be read in conjunction with the
consolidated financial statements and other financial information of the Company
and TWE contained in the 10-K and with the unaudited consolidated condensed
financial statements and other financial information of the Company and TWE for
the quarter ended June 30, 1996 contained in the Second Quarter 10-Q, which are
incorporated herein by reference. Capitalized terms are as defined and described
in such historical financial statements, or elsewhere herein. For periods prior
to January 1, 1993, the Entertainment Group is consolidated with the Company for
financial reporting purposes and, accordingly, is also reflected in the
Company's selected historical financial information.
The selected historical financial information for 1995 reflects the
consolidation by TWE of the TWE-Advance/Newhouse Partnership resulting from the
formation of such partnership, effective as of April 1, 1995, and the
consolidation of Paragon effective as of July 6, 1995. The selected historical
financial information gives effect to the consolidation of Six Flags effective
as of January 1, 1993 as a result of an increase in TWE's ownership of Six Flags
from 50% to 100% in September 1993, and the subsequent deconsolidation of Six
Flags resulting from the disposition by TWE of a 51% interest in Six Flags
effective as of June 23, 1995. The selected historical financial information for
1993 also gives effect to the admission of U S WEST as an additional limited
partner of TWE as of September 15, 1993 and the issuance of $2.6 billion of TWE
debentures during the year to reduce indebtedness under TWE's then existing
credit agreement, and for 1992 gives effect to the initial capitalization of TWE
and associated refinancings as of the dates such transactions were consummated
and the Company's acquisition of the ATC minority interest as of June 30, 1992,
using the purchase method of accounting. The Company's cost to acquire the ATC
minority interest is reflected in the consolidated financial statements of TWE
under the pushdown method of accounting.
31
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- ------ ------ ------ ------ ------
(MILLIONS, EXCEPT RATIOS)
OPERATING STATEMENT INFORMATION
Revenues................................ $5,097 $4,508 $9,629 $8,509 $7,963 $6,761 $6,068
Depreciation and amortization........... 585 513 1,060 959 909 788 733
Business segment operating income....... 568 475 992 852 905 814 724
Interest and other, net................. 222 304 539 616 564 531 526
Income before extraordinary item........ 170 70 170 136 217 173 103
Net income(a)........................... 170 70 146 136 207 173 103
TWE ratio of earnings to fixed
charges(b)............................ 2.0x 1.4x 1.6x 1.4x 1.4x 1.4x 1.4x
JUNE 30, DECEMBER 31,
-------- ---------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- -------
(MILLIONS)
BALANCE SHEET INFORMATION
Total assets.................................... $18,968 $18,960 $18,992 $18,202 $15,886 $14,230
Long-term debt.................................. 5,575 6,137 7,160 7,125 7,171 4,571
Time Warner General Partners' Senior Capital.... 1,483 1,426 1,663 1,536 -- --
Partners' capital............................... 6,735 6,576 6,491 6,228 6,483 6,717
- ------------
(a) Net income for the years ended December 31, 1995 and 1993 includes an
extraordinary loss on the retirement of debt of $24 million and $10
million, respectively.
(b) For purposes of the ratio of earnings to fixed charges, earnings were
calculated by adding (i) pretax income, (ii) interest expense, including
previously capitalized interest amortized to expense and the portion of
rents representative of an interest factor for TWE and its majority-owned
subsidiaries, (iii) TWE's proportionate share of the items included in (ii)
above for its 50%-owned companies, (iv) minority interest in the income of
majority-owned subsidiaries that have fixed charges and (v) undistributed
losses of its less-than-50%-owned companies. Fixed charges consist of (i)
interest expense, including interest capitalized and the portion of rents
representative of an interest factor for TWE and its majority-owned
subsidiaries and (ii) TWE's proportionate share of such items for its
50%-owned companies. Earnings as defined include significant noncash
charges for depreciation and amortization.
COMPANY AND ENTERTAINMENT GROUP SELECTED PRO FORMA FINANCIAL INFORMATION
The unaudited selected pro forma balance sheet information of the Company
at June 30, 1996 set forth below gives effect to the TBS Transaction as if it
had occurred at such date. The unaudited selected pro forma operating statement
information of the Company for the six months ended June 30, 1996 set forth
below gives effect in column (1) to the Series K Refinancing and the 1996
Convertible Debt Refinancing and in column (2) to such transactions and the TBS
Transaction, in each case as if consummated at the beginning of 1995. The
ITOCHU/Toshiba Transaction, the Cable Transactions, the 1995 Convertible Debt
Refinancing, the Reset Notes Refinancing, the Bank Refinancing, the Asset Sale
Transactions and, with respect to the balance sheet only, the Series K
Refinancing and the 1996 Convertible Debt Refinancing, are already reflected in
the historical financial statements of the Company as of and for the six months
ended June 30, 1996. The unaudited selected pro forma operating statement
information of the Company for the year ended December 31, 1995 set forth below
gives effect in column (1) to the ITOCHU/Toshiba Transaction, the Cable
Transactions, the Debt Refinancings and the Asset Sale Transactions and in
column (2) to each of such transactions and the TBS Transaction, in each case as
if the transactions had occurred at the beginning of such period.
32
The unaudited selected pro forma operating statement information of the
Entertainment Group for the year ended December 31, 1995 set forth below gives
effect to the TWE-A/N Transaction, the Debt Refinancings, the consolidation of
Paragon and the Asset Sale Transactions, in each case as if consummated at the
beginning of 1995. Unaudited selected pro forma financial statement information
of the Entertainment Group as of and for the six months ended June 30, 1996 has
not been presented since all such transactions consummated by TWE are reflected,
in all material respects, in the historical financial statements of the
Entertainment Group as of and for the six months ended June 30, 1996.
The selected pro forma financial information should be read in conjunction
with the 'Time Warner Inc. and Entertainment Group Pro Forma Consolidated
Condensed Financial Statements' included in the August 14, 1996 8-K and
incorporated herein by reference.
The selected pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the financial position or
operating results that would have occurred if the transactions given retroactive
effect therein had been consummated as of the dates indicated, nor is it
necessarily indicative of future financial conditions or operating results.
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
--------------------------- -------------------------------------------
(1) (2) (1) (2)
COMPANY COMPANY COMPANY COMPANY
PRE-TBS POST-TBS PRE-TBS POST-TBS ENTERTAINMENT
PRO FORMA(a) PRO FORMA(b) PRO FORMA(a) PRO FORMA(b) GROUP
------------ ------------ ------------ ------------ -------------
(MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
PRO FORMA OPERATING
STATEMENT INFORMATION
Revenues.................................... $4,207 $5,882 $8,742 $ 12,179 $ 9,686
Depreciation and amortization............... 452 623 935 1,283 1,078
Business segment operating income........... 325 328 656 832 994
Equity in pretax income of Entertainment
Group..................................... 209 209 286 286 --
Interest and other, net..................... 540 627 926 1,142 484
Income (loss) before extraordinary item..... (102) (182) (190) (274) 203
Loss before extraordinary item applicable to
common shares (after preferred
dividends)................................ (257) (337) (506) (590) --
Per share of common stock:
Loss before extraordinary item......... $ (.66) $ (.59) $(1.30) $ (1.04) --
Dividends.............................. $ .18 $ .18 $ .36 $ .36 --
Average common shares....................... 390.6 568.9 387.7 566.0 --
Company and TWE ratio of earnings to fixed
charges (deficiency in the coverage of
fixed charges by earnings before fixed
charges)(c)............................... 1.1x $ (19) 1.0x $ (6) 1.8x
Company deficiency in the coverage of
combined fixed charges and preferred stock
dividends by earnings before fixed charges
and preferred stock dividends(c).......... $ (171) $ (268) $ (387) $ (444) --
33
JUNE 30, 1996
COMPANY POST-TBS
PRO FORMA(b)
----------------
(MILLIONS)
PRO FORMA BALANCE SHEET INFORMATION
Investments in and amounts due to and from Entertainment Group.............................. $ 5,945
Total assets................................................................................ 34,711
Long-term debt.............................................................................. 12,690
Borrowings against future stock option proceeds............................................. 225
Company-obligated mandatorily redeemable preferred securities of subsidiaries holding solely
subordinated notes and debentures of the Company.......................................... 949
Series K Preferred Stock.................................................................... 1,586
Shareholders' equity:
Preferred stock liquidation preference................................................. 3,559
Equity applicable to common stock...................................................... 6,308
Total shareholders' equity............................................................. 9,867
Total capitalization........................................................................ 25,317
- ------------
(a) Also reflects, on a pro forma basis, the Company as a separate subsidiary
of the new holding company after consummation of the TBS Transaction. See
'The Company -- TBS Transaction.'
(b) Reflects, on a pro forma basis, the new holding company after consummation
of the TBS Transaction (in which case the Company expects that the new
holding company would provide guarantees of the Company's and TBS's
outstanding public debt).
(c) For purposes of the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends, earnings
were calculated by adding (i) pretax income, (ii) interest expense,
including previously capitalized interest amortized to expense and the
portion of rents representative of an interest factor for each of the
Company and TWE, respectively, and each of their respective majority-owned
subsidiaries, (iii) each of the Company's and TWE's proportionate share of
the items included in (ii) above for each of their respective 50%-owned
companies, (iv) preferred stock dividend requirements of majority-owned
subsidiaries, (v) minority interest in the income of majority-owned
subsidiaries that have fixed charges and (vi) undistributed losses of each
of their respective less-than-50%-owned companies. Fixed charges consist of
(i) interest expense, including interest capitalized and the portion of
rents representative of an interest factor for each of the Company and TWE,
respectively, and its majority-owned subsidiaries, (ii) each of the
Company's and TWE's proportionate share of such items for each of their
respective 50%-owned companies and (iii) preferred stock dividend
requirements of majority-owned subsidiaries. Combined fixed charges and
preferred stock dividends also include the amount of pretax income
necessary to cover preferred stock dividend requirements of the Company.
For periods in which earnings before fixed charges were insufficient to
cover fixed charges or combined fixed charges and preferred stock
dividends, the dollar amount of coverage deficiency, instead of the ratio,
is disclosed. Earnings as defined include significant noncash charges for
depreciation and amortization. With respect to the ratio of earnings to
fixed charges, fixed charges for the Company for the six months ended June
30, 1996 and the year ended December 31, 1995 in column (1) and column (2)
include noncash interest expense of $46 million and $83 million,
respectively, relating to the Company's zero coupon convertible notes due
2012 and 2013 and, in column (2) only, an additional $10 million and $18
million, respectively, relating to TBS's zero coupon convertible notes due
2007. With respect to the ratio of earnings to combined fixed charges and
preferred stock dividends, fixed charges similarly include noncash interest
expense as noted above and, for the six-month period ended June 30, 1996
and the year ended December 31, 1995, noncash preferred stock dividends of
$87 million and $173 million, respectively, relating to the Company's
Series K Preferred Stock.
34
EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange shares of Series M
Preferred Stock for any and all of the outstanding shares of Series K Preferred
Stock (on a share for share basis) properly tendered on or prior to the
Expiration Date and not withdrawn as permitted pursuant to the procedures
described below.
PURPOSE OF THE EXCHANGE OFFER
On April 11, 1996, the Company issued 1.6 million shares of the Series K
Preferred Stock. On June 30, 1996, the Company issued 35,623 shares of the
Series K Preferred Stock as dividends in respect of the 1.6 million shares. The
issuances of Series K Preferred Stock were not registered under the Securities
Act in reliance upon exemptions provided in the Securities Act.
In connection with the issuance and sale of the Series K Preferred Stock,
the Company entered into the Registration Rights Agreement, which requires the
Company to (i) use its best efforts to cause to be filed with the Commission by
May 26, 1996 a registration statement (the 'Exchange Offer Registration
Statement') relating to a registered Exchange Offer for the Series K Preferred
Stock under the Securities Act; (ii) use its best efforts to have the Exchange
Offer Registration Statement declared effective under the Securities Act by
October 8, 1996; and (iii) commence the Exchange Offer as soon as practicable
after the effectiveness of the Exchange Offer Registration Statement and use its
best efforts to consummate the Exchange Offer as promptly as practicable, but in
any event by December 7, 1996. In the event that applicable interpretations of
the staff of the Commission do not permit the Company to effect the Exchange
Offer or do not permit any holder of the Series K Preferred Stock (including the
Initial Purchasers) to participate in the Exchange Offer, the Company will use
its best efforts to cause to be filed with the Commission a shelf registration
statement (the 'Shelf Registration Statement') to cover resales of the Series K
Preferred Stock by such holders who satisfy certain conditions relating to,
among other things, the provision of information in connection with the Shelf
Registration Statement. If the Exchange Offer is not consummated or the Shelf
Registration Statement is not declared effective by December 7, 1996, the annual
dividend rate borne by the Series K Preferred Stock will immediately increase by
.50 percent per annum; provided that if the Company had also failed to file with
the Commission the Exchange Offer Registration Statement by May 26, 1996, then
the annual dividend rate will immediately increase by 1.0 percent (instead of
.50 percent) per annum. Upon the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement, as the case may be, the
dividend rate borne by the Series K Preferred Stock will be reduced to the
original dividend rate. The Exchange Offer is being made by the Company to
satisfy its obligations under the Registration Rights Agreement.
Based on no action letters issued by the staff of the Commission to third
parties, the Company believes that the Series M Preferred Stock issued in
exchange for Series K Preferred Stock pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by holders thereof (other
than (i) a broker-dealer who purchases such Series K Preferred Stock directly
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery requirements of the
Securities Act provided that such shares of Series M Preferred Stock are
acquired in the ordinary course of such holders' business and such holders have
no arrangement with any person to participate in the distribution of such Series
M Preferred Stock. Any holder of Series K Preferred Stock who tenders in the
Exchange Offer for the purpose of participating in a distribution of the Series
M Preferred Stock could not rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Thus, any shares of Series M Preferred Stock acquired by such holders will not
be freely transferable except in compliance with the Securities Act. Each
broker-dealer that receives shares of Series M Preferred Stock for its own
account in exchange for shares of Series K Preferred Stock
35
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such shares of Series M Preferred Stock. See 'Plan
of Distribution.'
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on
November 13, 1996, unless the Company, in its sole discretion, has extended the
period of time (as described below) for which the Exchange Offer is open (such
date, as it may be extended, is referred to herein as the 'Expiration Date'),
provided that the Expiration Date shall in no event be later than the 180th day
following the date on which the Registration Statement is declared effective.
The Expiration Date will be at least 20 business days after the commencement of
the Exchange Offer in accordance with Rule 14e-1(a) under the Exchange Act. The
Company expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any shares of Series K Preferred Stock by
giving oral notice (confirmed in writing) or written notice to the Exchange
Agent and by giving written notice of such extension to the holders thereof or
by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by making a release through the Dow Jones News
Service, in each case, no later than 9:00 a.m. New York City time, on the next
business day after the previously scheduled Expiration Date. Such announcement
may state that the Company is extending the Exchange Offer for a specified
period of time. During any such extension, all shares of Series K Preferred
Stock previously tendered will remain subject to the Exchange Offer.
In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any shares of Series K
Preferred Stock not theretofore accepted for exchange upon the occurrence of any
of the events specified below under ' -- Certain Conditions to the Exchange
Offer.' If any such termination or amendment occurs, the Company will notify the
Exchange Agent and will either issue a press release or give oral or written
notice to the holders of the Series K Preferred Stock as promptly as
practicable. In addition, in the event that the TBS Transaction is consummated
prior to the Expiration Date, this Exchange Offer will be terminated and each
share of Series K Preferred Stock will be converted into a share of a
substantially identical class of capital stock of New Time Warner. Such New Time
Warner capital stock will be issued to the holders of Series K Preferred Stock
pursuant to a registration statement on Form S-4 of New Time Warner.
For purposes of the Exchange Offer, a 'business day' means any day other
than Saturday, Sunday or a federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, New York City time.
PROCEDURES FOR TENDERING SERIES K PREFERRED STOCK
The tender to the Company of shares of Series K Preferred Stock by a holder
thereof as set forth below and the acceptance thereof by the Company will
constitute a binding agreement between the tendering holder and the Company upon
the terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal.
A holder of shares of Series K Preferred Stock may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile thereof
(all references in this Prospectus to the Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the shares of Series K Preferred Stock
being tendered and any required signature guarantees, to the Exchange Agent at
its address set forth below on or prior to 5:00 p.m., New York City time, on the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
THE METHOD OF DELIVERY OF SHARES OF SERIES K PREFERRED STOCK, LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND
DELIVERY SERVICE, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO SHARES OF SERIES K PREFERRED STOCK OR LETTER OF
TRANSMITTAL SHOULD BE SENT TO THE COMPANY.
36
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the shares of Series K Preferred Stock
surrendered for exchange pursuant thereto are tendered (i) by a registered
holder of the shares of Series K Preferred Stock who has not completed the box
entitled 'Special Issuance Instructions' or 'Special Delivery Instructions' on
the Letter of Transmittal or (ii) for the account of an Eligible Institution (as
defined herein). In the event that signatures on a Letter of Transmittal or a
notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantees must be by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (each an 'Eligible Institution'). If shares
of Series K Preferred Stock are registered in the name of a person other than a
signer of the Letter of Transmittal, the shares of Series K Preferred Stock
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Series K Preferred Stock at
the book-entry transfer facility, The Depository Trust Company, for the purpose
of facilitating the Exchange Offer, and subject to the establishment thereof,
any financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of shares of Series K Preferred
Stock by causing such book-entry transfer facility to transfer such shares of
Series K Preferred Stock into the Exchange Agent's account with respect to the
shares of Series K Preferred Stock in accordance with the book-entry transfer
facility's procedures for such transfer. Although delivery of shares of Series K
Preferred Stock may be effected through book-entry transfer in the Exchange
Agent's account at the book-entry transfer facility, an appropriate Letter of
Transmittal with any required signature guarantee and other required documents
must in each case be transmitted to and received or confirmed by the Exchange
Agent at its address set forth below on or prior to the Expiration Date, or, if
the guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or shares of Series K Preferred Stock to reach the
Exchange Agent before the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if the
Exchange Agent has received at its address or facsimile number set forth below
on or prior to the Expiration Date a letter, telegram or facsimile from an
Eligible Institution setting forth the name and address of the tendering holder,
the name in which the shares of Series K Preferred Stock are registered and, if
possible, the certificate number or numbers of the certificate or certificates
representing the shares of Series K Preferred Stock to be tendered, and stating
that the tender is being made thereby and guaranteeing that within three
business days after the Expiration Date the shares of Series K Preferred Stock
in proper form for transfer (or a confirmation of book-entry transfer of such
shares of Series K Preferred Stock into the Exchange Agent's account at the
book-entry transfer facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless shares of Series K Preferred Stock being
tendered by the above-described method are deposited with the Exchange Agent
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), the Company
may, at its option, reject the tender. Copies of a Notice of Guaranteed Delivery
which may be used by an Eligible Institution for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the shares of Series K Preferred Stock (or a confirmation of
book-entry transfer of such shares of Series K Preferred Stock into the Exchange
Agent's account at the book-entry transfer facility) is received by the Exchange
Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
to similar effect (as provided above) from an Eligible Institution is received
by the Exchange Agent. Issuances of shares of Series M Preferred Stock in
exchange for shares of Series K Preferred Stock tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile to similar effect (as
provided above) by
37
an Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered shares of Series
K Preferred Stock.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of shares of Series K Preferred Stock tendered for
exchange will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
right to reject any and all tenders of any particular shares of Series K
Preferred Stock not properly tendered or reject any particular shares of Series
K Preferred Stock the acceptance of which might, in the judgment of the Company
or its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or condition of the Exchange Offer as to any
particular shares of Series K Preferred Stock either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender shares of Series K Preferred Stock in the Exchange Offer).
The interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of shares of Series K Preferred Stock for exchange
must be cured within such time as the Company shall determine. Neither the
Company nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of shares of Series K
Preferred Stock for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal or any shares of Series K Preferred Stock or
powers of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
By tendering, each holder that is not a broker-dealer or is a broker-dealer
but is not receiving shares of Series M Preferred Stock for its own account will
represent to the Company that, among other things, the shares of Series M
Preferred Stock acquired pursuant to the Exchange Offer are being obtained in
the ordinary course of such holder's business, that such holder has no
arrangement with any person to participate in the distribution of such shares of
Series M Preferred Stock and that such holder is not an 'affiliate' of the
Company as defined in Rule 405 under the Securities Act. Each broker-dealer that
is receiving shares of Series M Preferred Stock for its own account in exchange
for shares of Series K Preferred Stock that were acquired as a result of
market-making or other trading activities will represent to the Company that it
will deliver a prospectus in connection with any resale of such shares of Series
M Preferred Stock.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any shares of Series K Preferred Stock that remain
outstanding subsequent to Expiration Date, or, as set forth under ' -- Certain
Conditions to the Exchange Offer,' to terminate the Exchange Offer and (b) to
the extent permitted by applicable law, purchase shares of Series K Preferred
Stock in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers may differ from the terms of the Exchange
Offer.
WITHDRAWAL RIGHTS
Tenders of shares of Series K Preferred Stock may be withdrawn at any time
prior to the Expiration Date. For a withdrawal to be effective, a written notice
of withdrawal sent by letter, telegram or facsimile must be received by the
Exchange Agent prior to the Expiration Date at its address or facsimile number
set forth below. Any such notice of withdrawal must (i) specify the name of the
person having tendered the shares of Series K Preferred Stock to be withdrawn
(the 'Depositor'), (ii) identify the shares of Series K Preferred Stock to be
withdrawn (including the certificate number or numbers of the certificate or
certificates representing such shares of Series K Preferred Stock and number of
shares of such Series K Preferred Stock), (iii) be signed by the holder in the
same manner as the original signature on the Letter of Transmittal by which such
shares of Series K Preferred Stock were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Transfer Agent with respect to the shares of Series K Preferred Stock
to register the transfer of such shares of Series K Preferred Stock into the
name of the person withdrawing the tender and
38
(iv) specify the name in which any such shares of Series K Preferred Stock are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time of receipt) of such
withdrawal notices will be determined by the Company in its sole discretion,
which determination will be final and binding on all parties. Any shares of
Series K Preferred Stock so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no shares of Series M Preferred
Stock will be issued with respect thereto unless the shares of Series K
Preferred Stock so withdrawn are validly retendered. Any shares of Series K
Preferred Stock which have been tendered but which are withdrawn will be
returned to the holder thereof without cost to such holder as soon as
practicable after such withdrawal. Properly withdrawn shares of Series K
Preferred Stock may be retendered by following one of the procedures described
above under ' -- Procedures for Tendering Series K Preferred Stock' at any time
prior to the Expiration Date.
ACCEPTANCE OF SERIES K PREFERRED STOCK FOR EXCHANGE; DELIVERY OF SERIES M
PREFERRED STOCK
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all shares of
Series K Preferred Stock properly tendered and will issue the shares of Series M
Preferred Stock promptly after acceptance of the Exchange Offer. See
' -- Certain Conditions to the Exchange Offer' below. For purposes of the
Exchange Offer, the Company will be deemed to have accepted properly tendered
shares of Series K Preferred Stock for exchange when the Company has given oral
or written notice thereof to the Exchange Agent.
In all cases, issuance of the shares of Series M Preferred Stock in
exchange for shares of Series K Preferred Stock pursuant to the Exchange Offer
will be made only after timely receipt by the Company of such shares of Series K
Preferred Stock, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered shares of Series K Preferred
Stock are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer, such unaccepted shares of Series K Preferred
Stock will be returned without expense to the tendering holder thereof as
promptly as practicable after the rejection of such tender or the expiration or
termination of the Exchange Offer.
UNTENDERED SERIES K PREFERRED STOCK
Holders of shares of Series K Preferred Stock whose shares of Series K
Preferred Stock are not tendered or are tendered but not accepted in the
Exchange Offer will continue to hold such shares of Series K Preferred Stock and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto. Following consummation of the Exchange Offer,
the holders of shares of Series K Preferred Stock will continue to be subject to
the existing restrictions upon transfer thereof and, except as provided herein,
the Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the shares of Series K Preferred Stock
held by them. To the extent that shares of Series K Preferred Stock are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted shares of Series K Preferred Stock could be adversely
affected.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or issue shares of Series M Preferred Stock
in exchange for, any shares of Series K Preferred Stock, and may terminate or
amend the Exchange Offer, if at any time before the acceptance of such shares of
Series K Preferred Stock for exchange, any of the following events shall occur:
(i) an injunction, order or decree shall have been issued by any court
or governmental agency that would prohibit, prevent or otherwise materially
impair the ability of the Company to proceed with the Exchange Offer; or
(ii) there shall occur a change in the current interpretation of the
staff of the Commission which current interpretation permits the shares of
Series M Preferred Stock issued pursuant to the Exchange Offer in exchange
for the shares of Series K Preferred Stock to be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a
broker-dealer who purchases
39
such Series K Preferred Stock directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or
(ii) a person that is an affiliate of the Company within the meaning of
Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act
provided that such shares of Series M Preferred Stock are acquired in the
ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of shares of
Series M Preferred Stock.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any shares of Series K
Preferred Stock and return all shares of Series K Preferred Stock that have been
tendered to the holders thereof, (ii) extend the Exchange Offer and retain all
shares of Series K Preferred Stock tendered prior to the Expiration Date,
subject to the rights of such holders of tendered shares of Series K Preferred
Stock to withdraw their tendered shares of Series K Preferred Stock, or (iii)
waive such termination event with respect to the Exchange Offer and accept all
properly tendered shares of Series K Preferred Stock that have not been
withdrawn. If such waiver constitutes a material change in the Exchange Offer,
the Company will disclose such change by means of a supplement to this
Prospectus that will be distributed to each registered holder of shares of
Series K Preferred Stock, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders of the shares of
Series K Preferred Stock, if the Exchange Offer would otherwise expire during
such period.
In addition, the Company will not accept for exchange any Series K
Preferred Stock tendered, and no Series M Preferred Stock will be issued in
exchange for any such Series K Preferred Stock, if at any time any stop order
shall be threatened by the Commission or in effect with respect to the
Registration Statement.
The Exchange Offer is not conditioned on any minimum number of shares of
Series K Preferred Stock being tendered for exchange.
EXCHANGE AGENT
ChaseMellon Shareholder Services, L.L.C. ('Chase') has been appointed as
Exchange Agent for the Exchange Offer. Questions regarding Exchange Offer
procedures and requests for additional copies of this Prospectus or the Letter
of Transmittal should be directed to the Exchange Agent addressed as follows:
By Mail : By Hand or Overnight Delivery:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Reorganization Department Reorganization Department
PO Box 768 120 Broadway
Midtown Station 13th Floor
New York, NY 10018 New York, NY 10271
Chase is also the Transfer Agent for the Series K Preferred Stock.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection
40
therewith. The cash expenses to be incurred by the Company in connection with
the Exchange Offer will be paid by the Company.
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of shares of Series K Preferred Stock in
any jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of shares of Series K Preferred Stock pursuant to the Exchange Offer. If,
however, certificates representing shares of Series M Preferred Stock or shares
of Series K Preferred Stock not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the shares of Series K Preferred Stock tendered,
or if tendered shares of Series K Preferred Stock are registered in the name of
any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of shares of
Series K Preferred Stock pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. Expenses incurred in connection
with the issuance of the Series M Preferred Stock will be amortized by the
Company over the term of the Series M Preferred Stock under generally accepted
accounting principles.
PLAN OF DISTRIBUTION
Each broker-dealer that receives shares of Series M Preferred Stock for its
own account in exchange for shares of Series K Preferred Stock acquired as a
result of market-making or other trading activities must acknowledge that it
will deliver a prospectus in connection with any resale of such shares of Series
M Preferred Stock. For a period of 90 days after the Expiration Date, this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of such shares of Series M
Preferred Stock. During such 90-day period, the Company will use best efforts to
make this Prospectus available to any broker-dealer for use in connection with
such resales, provided that such broker-dealer indicates in the Letter of
Transmittal that it is a broker-dealer.
The Company will not receive any proceeds from any sale of shares of Series
M Preferred Stock by broker-dealers. Shares of Series M Preferred Stock received
by broker-dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the shares
of Series M Preferred Stock or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such shares of Series M Preferred
Stock. Any broker-dealer that resells shares of Series M Preferred Stock that
were received by it for its own account pursuant to the Exchange Offer and any
person that participates in the distribution of such shares of Series M
Preferred Stock may be deemed to be an 'underwriter' within the meaning of the
Securities Act and any profit on any such resale of shares of Series M
41
Preferred Stock and any commissions or concessions received by any such
broker-dealers may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that a broker-dealer, by
acknowledging that it will deliver and by delivering a prospectus, will not be
deemed to admit that it is an 'underwriter' within the meaning of the Securities
Act. The Company will indemnify the holders of the Series M Preferred Stock
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
In addition, the Company has agreed that if upon expiration of the Exchange
Offer, any of the Initial Purchasers of the Series K Preferred Stock shall not
have sold all of the Series K Preferred Stock initially purchased from the
Company by such Initial Purchasers to unaffiliated investors, upon such
purchasers' request (made within 10 days after the Expiration Date), the Company
will use its best efforts to file promptly, or if so requested by the Initial
Purchasers, on a later date (no later than six months after the Expiration
Date), a shelf registration statement relating to the resale of the Existing
Debentures and keep such shelf registration statement effective for a period of
120 days.
DESCRIPTION OF SERIES M PREFERRED STOCK
The Series M Preferred Stock will be issued pursuant to a certificate of
designation (the 'Certificate of Designation'). The summary contained herein of
certain provisions of the Series M Preferred Stock does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
Certificate of Designation. The definitions of certain terms used in the
Certificate of Designation and in the following summary are set forth in the
'Glossary of Significant Terms.'
GENERAL
The Company is authorized to issue 1 billion shares of capital stock, of
which 750 million shares are common stock, par value $1.00 per share ('Common
Stock'), and 250 million shares are preferred stock, par value $1.00 per share.
On June 30, 1996, there were outstanding 386.8 million shares of Common
Stock and 37.2 million shares of preferred stock.
The Board of Directors of the Company has adopted resolutions reserving for
issuance an adequate number of shares of the Series M Preferred Stock and the
Series L Preferred Stock, and the Company will file the Certificates of
Designation with respect thereto with the Secretary of State of the State of
Delaware as required by Delaware law. Shares of Series M Preferred Stock when
issued in exchange for shares of Series K Preferred Stock will be fully paid and
nonassessable, and the holders thereof will have no subscription or preemptive
rights related thereto.
Pursuant to the Company's Certificate of Incorporation, the shares of
Series M Preferred Stock shall always be subject to redemption by the Company at
a redemption price equal to fair market value payable in cash, by action of the
Board of Directors, if in the judgment of the Board of Directors such action
should be taken, pursuant to Section 151(b) of the General Corporation Law of
the State of Delaware (or by any other provision of applicable law), to the
extent necessary to prevent the loss or secure the reinstatement of any license
or franchise from any governmental agency held by the Company or any subsidiary
to conduct any portion of the business of the Company, which license or
franchise is conditioned upon some or all of the holders of the Company's stock
of any class or series possessing prescribed qualifications.
RANKING
The Series M Preferred Stock, with respect to dividends and distributions
upon the liquidation, winding up and dissolution of the Company, ranks senior to
all classes of Junior Stock and pari passu with the other classes of Parity
Stock of the Company.
DIVIDENDS
Holders of Series M Preferred Stock are entitled, when, as and if declared
by the Board of Directors of the Company out of funds legally available
therefor, to receive dividends on each
42
outstanding share of Series M Preferred Stock, at the rate of 10 1/4% per annum.
Dividends on the Series M Preferred Stock are payable quarterly in arrears on
each Dividend Payment Date, commencing on the First Dividend Payment Date, to
holders of record of the Series M Preferred Stock on the Record Date immediately
preceding such Dividend Payment Date. Dividends on the Series M Preferred Stock
will be cumulative (whether or not earned or declared) from the date of issuance
of the Series M Preferred Stock. Dividends which are not declared and paid when
due will compound quarterly on each Dividend Payment Date at the dividend rate
until payment is made.
Dividends may, at the option of the Company, be paid on any Dividend
Payment Date either in cash or by issuing fully paid and nonassessable shares of
Series M Preferred Stock with an aggregate liquidation preference equal to the
amount of such dividends; provided, however, that dividends payable on any
Dividend Payment Date shall be paid (i) in cash, to the extent of an amount
equal to the Pro Rata Percentage as of the Preceding Record Date, multiplied by
the amount of cash distributions, excluding Tax Distributions other than
Included Tax Distributions, if any, received by the Company (and its
subsidiaries) on or after the Preceding Record Date to, but not including, the
current Record Date with respect to its TWE Series B Capital and TWE Junior
Capital, and (ii) in Series M Preferred Stock or cash, at the Company's option,
to the extent of any balance. TWE's ability to make distributions is subject to
certain restrictions. See 'Risk Factors.'
Holders of Series K Preferred Stock whose shares of Series K Preferred
Stock are accepted for exchange will be deemed to have waived the right to
receive any payment in respect of any unpaid dividends on the Series K Preferred
Stock that have accumulated or accrued to the date of issuance of the Series M
Preferred Stock. Consequently, on the First Dividend Payment Date holders who
exchange their shares of Series K Preferred Stock for Series M Preferred Stock
will receive the same dividends on the Series M Preferred Stock that holders of
the Series K Preferred Stock who do not accept the Exchange Offer will receive
on the Series K Preferred Stock.
No dividends may be declared or paid or set apart for payment on Series M
Preferred Stock or any other Parity Stock, and no Parity Stock, including the
Series M Preferred Stock, may be repurchased, exchanged, redeemed or otherwise
retired by the Company, nor may funds be set apart for payment with respect
thereto, unless full cumulative dividends shall have been paid or set apart for
such payment on, and all applicable redemption, exchange and repurchase
obligations shall have been satisfied with respect to, all outstanding shares of
Series M Preferred Stock and such other Parity Stock; provided that dividends
may be paid on Parity Stock if they are payable in Junior Stock; and provided
further that Parity Stock may be converted into or exchanged for Parity Stock
(having the same liquidation preference) or Junior Stock. If full dividends are
not so paid, the Series M Preferred Stock shall share dividends with all other
Parity Stock so that the amount of dividends declared per share on the Series M
Preferred Stock and all such other Parity Stock shall in all cases bear the same
ratio that cumulative dividends per share on the Series M Preferred Stock and
all such other Parity Stock bear to each other. No dividends may be paid or set
apart for such payment on Junior Stock, and no Junior Stock may be repurchased,
exchanged, redeemed or otherwise retired nor may funds be set apart for payment
with respect thereto, if full cumulative dividends have not been paid on the
Series M Preferred Stock or any applicable redemption, exchange or repurchase
obligation has not been satisfied with respect to all outstanding shares of
Series M Preferred Stock; provided that dividends or distributions may be made
on Junior Stock if they are payable-in-kind in additional shares of, or
warrants, rights, calls or options exercisable for or convertible into
additional shares of Junior Stock; and provided further that Junior Stock may be
converted into or exchanged for Junior Stock. In addition, in the event that
there shall have occurred certain events of default in connection with the
Company's debt, the Company shall not declare or pay or make any distributions
on or with respect to, or purchase, redeem or exchange any of its capital stock,
except where such dividend or payment is made in the form of, or such exchange
is for, capital stock.
OPTIONAL REDEMPTION
The Series M Preferred Stock may not be redeemed at the option of the
Company prior to July 1, 2006. Thereafter, the Series M Preferred Stock will be
redeemable, at the Company's option, in whole or in part, at any time and from
time to time upon not less than 30 nor more than 60 days' prior notice
43
mailed by first-class mail to the registered address of each holder of the
Series M Preferred Stock as of the record date for such redemption. The
redemption price for each share of Series M Preferred Stock called for
redemption during the 12-month period commencing on July 1 of the years set
forth below shall be the amounts (expressed as percentages of the liquidation
preference thereof) set forth opposite such years, plus accumulated and accrued
and unpaid dividends to the redemption date.
PERCENTAGE OF
LIQUIDATION
PERIOD PREFERENCE
- ------ -------------
2006 ............................................................................ 105.125%
2007 ............................................................................ 103.844
2008 ............................................................................ 102.563
2009 ............................................................................ 101.281
2010 and thereafter.............................................................. 100.000
No optional redemption shall be effected unless the Company shall have
obtained a Rating Confirmation with respect to such redemption.
MANDATORY REDEMPTION
On each Mandatory Redemption Date, the Company is required to redeem the
Redeemable Number of shares of Series M Preferred Stock at the Mandatory
Redemption Price.
On July 1, 2016, the Final Redemption Date, the Company is required to
redeem all of the then outstanding shares of Series M Preferred Stock at the
lesser of the Mandatory Redemption Amount and the Mandatory Redemption Price;
provided that if the Company does not obtain a TWE Valuation within 150 days
following the final Series B Redemption Date or if the TWE Series B Capital has
been fully redeemed in accordance with the TWE Partnership Agreement, the
Company shall redeem the Series M Preferred Stock at the Mandatory Redemption
Price.
Upon the redemption of Series M Preferred Stock on the Final Redemption
Date, the Company's obligations with respect thereto will be discharged, and if
such redemption is effected at the Mandatory Redemption Amount, holders of
shares of Series M Preferred Stock may have received less than the liquidation
preference thereof plus accumulated and accrued and unpaid dividends thereon.
The Company's obligation to redeem the Series M Preferred Stock is subject to
the legal availability at the Company of funds therefor. See 'Risk Factors.'
REDEMPTION UPON INSOLVENCY OF TWE
In the event of a liquidation, winding up or dissolution of TWE as a result
of the Insolvency of TWE, the Series M Preferred Stock will be mandatorily
redeemable on the Insolvency Redemption Date at the Insolvency Redemption
Amount. Upon such a redemption of Series M Preferred Stock, the Company's
obligation with respect thereto will be discharged and holders of Series M
Preferred Stock may have received less than the liquidation preference thereof
plus accumulated and accrued and unpaid dividends thereon. The Company's
obligations to redeem the Series M Preferred Stock upon an Insolvency of TWE is
subject to the legal availability at the Company of funds therefor. See 'Risk
Factors.'
REORGANIZATION OF TWE
Upon a Reorganization of TWE, the Company shall, within 90 days, make a
public announcement that it intends, on the Reorganization Redemption/Exchange
Date, to either (i) exchange each outstanding share of Series M Preferred Stock
for shares of the Series L Preferred Stock having an aggregate liquidation
preference equal to the liquidation preference of such share of Series M
Preferred Stock plus accumulated and accrued and unpaid dividends thereon at the
date of exchange, or (ii) redeem the outstanding shares of Series M Preferred
Stock at the Reorganization Redemption Price; provided, however, that the
Company may not effect a Reorganization Redemption (as described in clause (ii))
prior to July 1, 2011 unless the Company shall have obtained a Rating
Confirmation with
44
respect to such Reorganization Redemption and provided further that the Company
may not effect a Reorganization Exchange (as described in clause (i)) on or
after July 1, 2011. The Company's ability to effect a Reorganization Redemption
is subject to the legal availability at the Company of funds therefor.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company shall make an offer
(the 'Preferred Stock Change of Control Offer') to each holder of Series M
Preferred Stock to repurchase all or any part of such holder's Series M
Preferred Stock at a purchase price in cash equal to 101% of the liquidation
preference thereof, plus an amount equal to all accumulated and accrued and
unpaid dividends per share to the date of purchase. The Preferred Stock Change
of Control Offer must be made within 30 days following a Change of Control, must
remain open for at least 30 and not more than 40 days and must comply with the
requirements of Rule 14e-1 under the Exchange Act and any other applicable
securities laws and regulations. The Company's obligation to offer to purchase
the Series M Preferred Stock is subject to the legal availability at the Company
of funds therefor. See Risk Factors.
PROCEDURE FOR REDEMPTION OR EXCHANGE
On and after a redemption or exchange date, unless the Company defaults in
the payment of the applicable redemption price or exchange obligations,
dividends will cease to accrue on shares of Series M Preferred Stock called for
redemption or exchange and all rights of holders of such shares will terminate
except for the right to receive the redemption price or the Series L Preferred
Stock, as the case may be, without interest. The Company will send a written
notice of redemption by first class mail to each holder of record of shares of
Series M Preferred Stock, not fewer than 30 days nor more than 60 days prior to
the date fixed for such redemption. Shares of Series M Preferred Stock issued
and reacquired will, upon compliance with the applicable requirements of
Delaware law, have the status of authorized but unissued shares of preferred
stock of the Company undesignated as to Series and may with any and all other
authorized but unissued shares of preferred stock of the Company be designated
or redesignated and issued or reissued, as the case may be, as part of any
Series of preferred stock of the Company, except that any issuance or reissuance
of shares of Series M Preferred Stock must be in compliance with the Certificate
of Designation.
In the event of partial redemptions of Series M Preferred Stock, the shares
to be redeemed will be determined pro rata or by lot, as determined by the
Company, except that the Company may redeem such shares held by any holder of
fewer than 100 shares (or shares held by holders who would hold less than 100
shares as a result of such redemption), as may be determined by the Company.
LIQUIDATION PREFERENCE
In the event of any liquidation, winding-up or dissolution of the Company,
holders of Series M Preferred Stock will be entitled to their pro rata portion
of the assets of the Company available for distribution to holders of Parity
Stock up to the liquidation preference of the Series M Preferred Stock, plus
accumulated and accrued and unpaid dividends thereon, before any distribution is
made on any Junior Stock, including, without limitation, on any Common Stock. If
upon any liquidation, winding-up or dissolution of the Company, the amounts
payable with respect to the Series M Preferred Stock and the other Parity Stock
are not paid in full, the holders of the Series M Preferred Stock and the other
Parity Stock will share equally and ratably in any distribution of assets of the
Company in proportion to the full liquidation preference to which each is
entitled. After payment of the full amount of the liquidation preferences to
which they are entitled, the holders of shares of Series M Preferred Stock will
not be entitled to any further participation in any distribution of assets of
the Company. Neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
of the property or assets of the Company nor the consolidation or merger of the
Company with one or more corporations shall be deemed to be a liquidation,
winding-up or dissolution of the Company.
45
The Certificate of Designation for the Series M Preferred Stock does not
contain any provision requiring funds to be set aside to protect the liquidation
preference of the Series M Preferred Stock, although such liquidation preference
will be substantially in excess of the par value of such shares of Series M
Preferred Stock. In addition, the Company is not aware of any provision of
Delaware law or any controlling decision of the courts of the State of Delaware
(the state of incorporation of the Company) that requires a restriction upon the
surplus of the Company solely because the liquidation preference of the Series M
Preferred Stock will exceed its par value. Consequently, there will be no
restriction upon any surplus of the Company solely because the liquidation
preference of the Series M Preferred Stock will exceed the par value and there
will be no remedies available to holders of the Series M Preferred Stock before
or after the payment of any dividend, other than in connection with the
liquidation preference of the Company, solely by reason of the fact that such
dividend would reduce the surplus of the Company to an amount less than the
difference between the liquidation preference of the Series M Preferred Stock
and its par value.
VOTING RIGHTS
Holders of the Series M Preferred Stock will have no voting rights with
respect to general corporate matters except as provided by law or as set forth
in the Certificate of Designation therefor. The Certificate of Designation
provides that upon a failure of the Company to (a) pay dividends on the Series M
Preferred Stock in cash or, to the extent permitted by its terms, by the
issuance of additional shares of Series M Preferred Stock, for more than six
consecutive quarterly dividend periods or (b) discharge any redemption or
exchange obligation with respect to the Series M Preferred Stock, the size of
the Company's Board of Directors will be increased by two directors, and holders
of the outstanding shares of Series M Preferred Stock, voting or consenting, as
the case may be, together as a class with the holders of any shares of Parity
Stock as to which dividends are similarly in arrears or unpaid or the Company's
redemption or exchange obligation has not been satisfied, and to which similar
voting rights apply, will be entitled to elect two directors to fill the newly
created directorships. Such voting rights will continue until such time as all
dividends in arrears on the Series M Preferred Stock are paid in full and any
failure, breach or default referred to in clause (b) is remedied, at which time
the term of the directors elected pursuant to the provisions of this paragraph
shall terminate. Each such event described in clauses (a) and (b) above is
referred to herein as a 'Voting Rights Triggering Event.' Any vacancy occurring
in the office of the directors elected by holders of the Series M Preferred
Stock (and such other Parity Stock) may be filled by the remaining director
elected by such holders unless and until such vacancy shall be filled by such
holders.
The Certificate of Designation also provides that the Company will not
create, authorize or issue any new class of capital stock senior to the Series M
Preferred Stock without the affirmative vote or consent of holders of at least a
majority of the outstanding shares of Series M Preferred Stock, voting or
consenting, as the case may be, separately as one class. The Certificate of
Designation also provides that the Company may not amend the Certificate of
Designation or the Certificate of Incorporation so as to affect adversely the
specified rights, preferences, privileges or voting rights of holders of shares
of the Series M Preferred Stock, without the affirmative vote or consent of the
holders of at least a majority of the outstanding shares of Series M Preferred
Stock, voting or consenting, as the case may be, separately as one class. The
holders of at least a majority of the outstanding shares of Series M Preferred
Stock, voting or consenting, as the case may be, separately as one class, may
also waive compliance with any provision of the Certificate of Designation. The
Certificate of Designation also provides that, except as set forth above, (a)
the creation, authorization or issuance of any shares of Junior Stock or Parity
Stock or (b) the increase or decrease in the amount of authorized capital stock
of any class, including any preferred stock, shall not require the consent of
the holders of Series M Preferred Stock, voting or consenting separately as one
class, and shall not be deemed to affect adversely the rights, preferences,
privileges or voting rights of holders of shares of Series M Preferred Stock.
Under Delaware law, holders of Series M Preferred Stock will be entitled to
vote together as a class with holders of any shares of preferred stock upon a
proposed amendment to the certificate of incorporation, whether or not entitled
to vote thereon by the certificate of incorporation, if the amendment would
increase or decrease the number of authorized shares of preferred stock,
increase or
46
decrease the par value of the shares of such class, or alter or change the
powers, preferences or special rights of the shares of such class so as to
affect them adversely. If any proposed amendment would alter or change the
powers, preferences or special rights of one or more series of any class so as
to affect them adversely, but shall not so affect the entire class, then only
the shares of the series so affected by such amendment will be entitled to vote
thereon separately as one class.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Without the affirmative vote or consent of the holders of at least a
majority of the outstanding shares of Series M Preferred Stock, voting or
consenting, as the case may be, separately as one class, the Company may not
consolidate or merge with or into, or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets to, any person or
entity unless: (a) the entity formed by such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made shall be a corporation organized or
existing under the laws of the United States or any State thereof or the
District of Columbia; (b) the Series M Preferred Stock shall be converted into
or exchanged for and shall become shares of such successor, transferee or
resulting corporation or a parent corporation of such corporation (each, a
'Successor Corporation'), having in respect of such successor, transferee or
resulting corporation or parent corporation substantially the same powers,
preferences and relative participating, optional or other special rights, and
the qualifications, limitations or restrictions thereon, that the Series M
Preferred Stock had immediately prior to such transaction; and (c) immediately
after giving effect to such transaction, no Voting Rights Triggering Event shall
have occurred or be continuing. The Company may consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to, any person or entity if such merger,
consolidation or sale has been approved by the affirmative vote or consent of
holders of at least a majority of the outstanding shares of Series M Preferred
Stock, voting or consenting, as the case may be, separately as one class.
Without limiting the generality of the foregoing, the consummation of the TBS
Transaction will not require the affirmative vote or consent of the holders of
the Series M Preferred Stock. If the TBS Transaction is consummated, the Series
M Preferred Stock will be converted into a substantially identical class of
preferred stock of New Time Warner.
COVENANT TO REPORT
Notwithstanding that the Company or any Successor Corporation, as the case
may be, may not be subject to the reporting requirements of Section 13 or
Section 15(d) of the Exchange Act, the Company or any Successor Corporation, as
the case may be, will provide the Transfer Agent and the holders of the Series M
Preferred Stock with all information, documents and reports specified in Section
13 and Section 15(d) of the Exchange Act.
TRANSFER AGENT AND REGISTRAR
Chemical is the transfer agent and registrar for the Series M Preferred
Stock.
DESCRIPTION OF SERIES L PREFERRED STOCK
The Series L Preferred Stock will be issued pursuant to a certificate of
designation (the 'Series L Certificate of Designation'). The provisions of the
Series L Preferred Stock are substantially similar to those of the Series M
Preferred Stock, except as set forth below. See'Description of Series M
Preferred Stock.' The summary contained herein of certain provisions of the
Series L Preferred Stock does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Series L Certificate of
Designation filed with the Secretary of State of Delaware as an exhibit to the
Certificate of Designation. The definitions of certain terms used in the Series
L Certificate of Designation and in the following summary are set forth in the
'Glossary of Significant Terms.'
47
DIVIDENDS
Holders of the Series L Preferred Stock are entitled, when, as and if
declared by the Board of Directors of the Company out of funds legally available
therefor, to receive dividends on each outstanding share of the Series L
Preferred Stock, at the rate of 10 1/4% per annum. Dividends on the Series L
Preferred Stock are payable quarterly in arrears on each Dividend Payment Date,
commencing on the first Dividend Payment Date following the exchange of the
Series M Preferred Stock for the Series L Preferred Stock to holders of record
as of the immediately preceding March 15, June 15, September 15 and December 15,
respectively. Dividends on the Series L Preferred Stock will be cumulative
(whether or not earned or declared) from the date of issuance of the Series L
Preferred Stock. Dividends which are not declared and paid when due will
compound quarterly on each Dividend Payment Date at the dividend rate until
payment is made.
Until June 30, 2006, dividends payable on any Dividend Payment Date may, at
the option of the Company, be paid either in cash or by issuing fully paid and
nonassessable shares of Series L Preferred Stock with an aggregate liquidation
preference equal to the amount of such dividends. Thereafter, dividends are
payable only in cash. See 'Risk Factors.'
MANDATORY REDEMPTION
The Company is required to redeem the outstanding shares of Series L
Preferred Stock on July 1, 2011 at a price equal to the liquidation preference
thereof plus accumulated and accrued and unpaid dividends thereon. The Company's
obligation to redeem the Series L Preferred Stock is subject to the legal
availability at the Company of funds therefor. See 'Risk Factors.'
EXCHANGE AT OPTION OF COMPANY
The Company has the option on any Dividend Payment Date to exchange, in
whole but not in part, outstanding shares of Series L Preferred Stock for Senior
Subordinated Debentures having a principal amount equal to the liquidation
preference of the Series L Preferred Stock plus accrued and unpaid dividends
thereon; provided that the Debt Exchange shall not be effected unless all
accumulated dividends have been paid in full and the Company shall have obtained
a Rating Confirmation with respect to such Debt Exchange. The Company's ability
to exchange the Series L Preferred Stock for the Senior Subordinated Debentures
is subject to the legal availability at the Company of funds therefor.
To the extent the TBS Transaction has occurred and substantially all of the
debt of the Company immediately prior to the TBS Transaction is assumed by New
Time Warner, New Time Warner may exchange the Series L Preferred Stock for
Senior Subordinated Debentures issued by New Time Warner; provided that, if
substantially all the debt of the Company immediately prior to the TBS
Transaction is assumed by New Time Warner and is guaranteed by the Company, the
Company shall similarly provide a senior subordinated guarantee for the Senior
Subordinated Debentures. But if substantially all of the debt of the Company is
not assumed by New Time Warner upon the consummation of the TBS Transaction, New
Time Warner may, at its option, exchange the Series L Preferred Stock for (i)
Senior Subordinated Debentures issued by the Company or (ii) Senior Subordinated
Debentures issued by New Time Warner with a senior subordinated guarantee of the
Company.
DESCRIPTION OF SENIOR SUBORDINATED DEBENTURES
The Senior Subordinated Debentures will be issued under an indenture
substantially in the form of the senior subordinated indenture described below
(the 'Senior Subordinated Indenture') between the Company and a trustee to be
designated by the Company prior to the issuance of the Senior Subordinated
Debentures (the 'Trustee'). The Senior Subordinated Indenture does not limit the
amount of securities which may be issued thereunder. The following description
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to the Senior Subordinated Indenture, the Trust Indenture
Act of 1939, as amended (the 'Trust Indenture Act'), and the other documents
incorporated by reference herein. The terms of the Senior Subordinated
Debentures include
48
those set forth in the Trust Indenture Act. Certain capitalized terms are used
herein as defined in the Senior Subordinated Indenture.
GENERAL
The Senior Subordinated Debentures will be issued as direct, unsecured,
senior subordinated obligations of the Company, in an aggregate principal amount
equal to the aggregate liquidation preference of the Series L Preferred Stock
plus accrued and unpaid dividends thereon. Upon the Debt Exchange, Senior
Subordinated Debentures will be issued in fully registered form, without
coupons, only in principal amounts of $1,000 and integral multiples thereof.
Principal of and premium, if any, and interest on the Senior Subordinated
Debentures will be payable, and the Senior Subordinated Debentures will be
exchangeable and transferable, at the office or agency of the Company in The
City of New York (which initially will be the Corporate Trust Office of the
Trustee); provided, however, that payment of interest, to the extent paid in
cash, may be made at the option of the Company by check mailed to the person
entitled thereto as shown on the Register of the Senior Subordinated Debentures.
No service charge will be made for any registration of transfer or exchange of
Senior Subordinated Debentures, except for any tax or other governmental charge
that may be imposed in connection therewith.
SUBORDINATION
The payment of the principal of and interest on the Senior Subordinated
Debentures will be subordinated in right of payment to the prior payment in full
in cash or cash equivalents of all of the Company's existing and future Senior
Indebtedness, which at June 30, 1996, would have been approximately $8.6
billion. In addition to such Senior Indebtedness, the Company's obligations
under the Senior Subordinated Debentures are effectively subordinated to all
liabilities (including indebtedness) of its consolidated and unconsolidated
subsidiaries, which at June 30, 1996, aggregated approximately $16.2 billion.
The Senior Subordinated Debentures will rank senior to all existing and future
Subordinated Indebtedness. The amount of Subordinated Indebtedness outstanding
at June 30, 1996, was $977 million. As of the date of this Prospectus, the
Company has no Senior Subordinated Indebtedness outstanding. In the event of an
event of default under the Company's Senior Subordinated Indebtedness or, an
Event of Default under the Senior Subordinated Debentures, the Company shall not
declare or pay dividends on, make any distribution with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to any of its
capital stock and the Company shall not make any payment of interest, principal
or premium, if any, on or repay, repurchase or redeem any debt securities issued
by the Company that rank pari passu with or junior to the Senior Subordinated
Debentures; provided, however, that the foregoing restrictions shall not apply
to any interest or dividend payment by the Company, where the interest or
dividend is paid by way of the issuance of securities that rank junior to the
Senior Subordinated Debentures.
The Senior Subordinated Indenture does not limit the amount of Senior
Indebtedness which the Company may incur. Moreover, the Company's subsidiaries
may incur indebtedness and other liabilities and have obligations to third
parties. Generally, the claims of such third parties to the assets of the
Company's subsidiaries will be superior to those of the Company as a
stockholder, and, therefore, the Senior Subordinated Debentures may be deemed to
be effectively subordinated to the claims of such third parties. The Senior
Subordinated Debentures will rank pari passu with the Senior Subordinated
Indebtedness and senior to the Subordinated Indebtedness.
Upon any payment or distribution of all or substantially all of the assets
of the Company or in the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar proceeding whether
voluntary or involuntary relative to the Company or its creditors, the holders
of all Senior Indebtedness will first be entitled to receive payment in full in
cash or cash equivalents before the holders of the Senior Subordinated
Debentures will be entitled to receive any distribution on account thereof. No
payments on account of the Senior Subordinated Debentures, including by way of
any Claim (as defined herein) may be made if, at any time, there is a default in
the payment of principal of or interest on or other monetary obligation with
respect to any Senior
49
Indebtedness (including, without limitation, fees, expenses and indemnities) or
if there is an event of default with respect to any Senior Indebtedness or any
agreement pursuant to which the Senior Indebtedness is issued which, or any
event that, with the giving of notice or lapse of time, would be an event of
default and permit the holders to accelerate the maturity thereof. The Company
is obligated, upon the occurrence of any such default or event of default, to
provide written notice to the Trustee of such default or event of default. By
reason of such subordination, in the event of insolvency, under certain
circumstances the holders of Senior Subordinated Debentures may receive less,
ratably, than the Company's general creditors. As used herein, 'Claim' means any
claim against the Company or any of its subsidiaries for rescission of the
Senior Subordinated Debentures or for monetary damages from the purchase or
receipt of the Senior Subordinated Debentures.
As used in the Senior Subordinated Indenture, the term 'Senior
Indebtedness' means all indebtedness or obligations, whether outstanding at the
date of execution of the Senior Subordinated Indenture or thereafter incurred,
assumed, guaranteed or otherwise created, unless the terms of the instrument or
instruments by which the Company incurred, assumed, guaranteed or otherwise
created any such indebtedness or obligation expressly provide that such
indebtedness or obligation is subordinate to all other indebtedness of the
Company or that such indebtedness or obligation is pari passu or is subordinated
in right of payment to the Senior Subordinated Debentures with respect to any of
the following (including, without limitation, interest accruing on or after a
bankruptcy or other similar event, whether or not an allowed claim therein): (i)
any indebtedness incurred by the Company or assumed or guaranteed, directly or
indirectly, by the Company (a) for money borrowed, (b) in connection with the
acquisition of any business, property or other assets (other than trade payables
incurred in the ordinary course of business) or (c) for advances or progress
payments in connection with the construction or acquisition of any building,
motion picture, television production or other entertainment of any kind; (ii)
any obligation of the Company (or of a subsidiary which is guaranteed by the
Company) as lessee under a lease of real or personal property; (iii) any
obligation of the Company to purchase property at a future date in connection
with a financing by the Company or a subsidiary of the Company; (iv) letters of
credit; (v) currency swaps and interest rate hedges; and (vi) any deferral,
renewal, extension or refunding of any of the foregoing.
INTEREST
Each Senior Subordinated Debenture shall bear interest at the rate equal to
the dividend rate of the Series L Preferred Stock from the original date of
issuance, payable semi-annually in arrears on June 30 and December 30 of each
year (each, an 'Interest Payment Date'), to the person in whose name such Senior
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the Business Day next preceding the relevant Interest
Payment Date. In the event the Senior Subordinated Debentures shall not continue
to remain in book-entry only form, the Company shall have the right to select
record dates, which shall be more than one Business Day prior to the Interest
Payment Date.
Until June 30, 2006, interest may, at the option of the Company, be paid in
cash or by issuing additional Senior Subordinated Debentures with a principal
amount equal to such interest. Thereafter, interest on the Senior Subordinated
Debentures must be paid in cash. The amount of interest payable for any period
will be computed on the basis of a 360-day year of twelve 30-day months. The
amount of interest payable for any period shorter than a full semi-annual period
for which interest is computed will be computed on the basis of the actual
number of days elapsed per 30-day month. In the event that any date on which
interest is payable on the Senior Subordinated Debentures is not a Business Day,
then payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, then such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
50
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company shall make an offer
(a 'Debt Change of Control Offer') to each holder of the Senior Subordinated
Debentures to repurchase all or any part of such holder's Senior Subordinated
Debentures at a purchase price in cash equal to 101% of the principal amount of
the Senior Subordinated Debentures, plus an amount equal to all accrued and
unpaid interest thereon. The Debt Change of Control Offer must be made within 30
days following a Change of Control, must remain open for at least 30 and not
more than 40 days and must comply with the requirements of Rule 14e-1 under the
Exchange Act and any other applicable securities laws and regulations.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Senior Subordinated
Debentures, in whole or in part, from time to time, on or after July 1, 2006
(the 'Optional Redemption Date'), upon at least 30 and no more than 60 days'
notice, mailed by first-class mail to each holder's registered address. The
redemption price for the Senior Subordinated Debentures called for redemption
during the 12-month period commencing on July 1 of the years set forth below
shall be the amounts (expressed as percentages of the principal amount of the
Senior Subordinated Debentures) set forth opposite such years, plus accrued and
unpaid interest to the redemption date.
PERCENTAGE
OF
PRINCIPAL
YEAR AMOUNT
- --------------------------------------------------------------------------------- ------------
2006............................................................................. 105.125%
2007............................................................................. 103.844
2008............................................................................. 102.563
2009............................................................................. 101.281
2010 and thereafter.............................................................. 100.000
If less than all of the Senior Subordinated Debentures are to be redeemed,
the Trustee shall select the Senior Subordinated Debentures or portions thereof
to be redeemed either pro rata or by lot. No optional redemption shall be
effected unless the Company shall have obtained a Rating Confirmation with
respect to such redemption.
COVENANTS
The Senior Subordinated Indenture will provide that the Company will not
incur, create, assume, guarantee or in any other manner become directly or
indirectly liable with respect to or responsible for, or permit to remain
outstanding, any indebtedness that is subordinate or junior in right of payment
to any Senior Indebtedness unless such indebtedness is also pari passu with, or
subordinate in right of payment to, the Senior Subordinated Debentures pursuant
to subordination provisions substantially similar to those contained in the
Senior Subordinated Indenture.
DEFEASANCE
The Senior Subordinated Indenture provides that the Company, at its option,
(a) will be Discharged (as defined in the Senior Subordinated Indenture) from
any and all obligations in respect of the Senior Subordinated Debentures (except
for certain obligations to register the transfer or exchange of the Senior
Subordinated Debentures, replace stolen, lost or mutilated Senior Subordinated
Debentures, maintain paying agencies and hold moneys for payment in trust) or
(b) need not comply with any restrictive covenant described herein, and certain
Events of Default (as defined herein) (other than those arising out of the
failure to pay interest or principal on the Senior Subordinated Debentures and
certain events of bankruptcy, insolvency and reorganization) will no longer
constitute Events of Default with respect to the Senior Subordinated Debentures,
in each case if the Company deposits with the Trustee, in trust, money or the
equivalent in U.S. Government Obligations (as defined in the Senior Subordinated
Indenture), or a combination thereof, which through the payment of interest
thereon and
51
principal thereof in accordance with their terms will provide money in an amount
sufficient to pay all the principal of, and interest on, the Senior Subordinated
Debentures on the dates such payments are due in accordance with the terms of
the Senior Subordinated Indenture. To exercise any such option, the Company is
required, among other things, to deliver to the Trustee an opinion of counsel to
the effect that the deposit and related defeasance would not cause the holders
of such series to recognize income, gain or loss for United States Federal
income tax purposes and, in the case of a Discharge pursuant to clause (a), such
opinion must be based on a ruling to such effect received from or published by
the United States Internal Revenue Service or upon a change in applicable
Federal income tax law. In addition, the Company is required to deliver to the
Trustee an Officers' Certificate stating that such deposit was not made by the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others.
EVENTS OF DEFAULT
If any Event of Default shall occur with respect to the Senior Subordinated
Debentures and be continuing, the Trustee will have the right to declare the
principal of and the interest on the Senior Subordinated Debentures and any
other amounts payable under the Senior Subordinated Indenture to be forthwith
due and payable and to enforce its other rights as a creditor with respect to
the Senior Subordinated Debentures. An 'Event of Default' is defined as: (i)
default for 30 days in the payment of interest on the Senior Subordinated
Debentures; (ii) default in payment of the principal amount at maturity or the
amount payable upon redemption of the Senior Subordinated Debentures; (iii)
failure by the Company for 90 days after receipt of notice to it by the Trustee
(or the holders of at least 25% in principal amount of the Senior Subordinated
Debentures then outstanding) to comply with any of its covenants or agreements
contained in the Senior Subordinated Indenture; and (iv) certain events of
bankruptcy, insolvency, receivership or reorganization involving the Company or
certain affiliates. If any Event of Default described in clause (i), (ii) or
(iii) above occurs and is continuing, the Trustee by notice to the Company, or
the holders of not less than 25% in aggregate principal amount of the Senior
Subordinated Debentures outstanding by notice to the Trustee and the Company,
may declare the Senior Subordinated Debentures to be due and payable and, upon
any such declaration, the Senior Subordinated Debentures shall become
immediately due and payable along with any accrued and unpaid interest. If any
Event of Default described in clause (iv) above occurs and is continuing, the
Senior Subordinated Debentures shall become immediately due and payable along
with any accrued and unpaid interest. Under certain conditions the holders of a
majority in principal amount of Senior Subordinated Debentures then outstanding
may waive certain past defaults and their consequences with respect to the
Senior Subordinated Debentures, other than a default in the payment of principal
or interest or in the observance of a provision which cannot be amended without
the consent of each holder of Senior Subordinated Debentures, unless such
default has been cured and a sum sufficient to pay all matured installments of
interest and principal otherwise than by acceleration has been deposited with
the Trustee.
MODIFICATION OF THE INDENTURE
The Company and the Trustee may, without the consent of the holders of the
Senior Subordinated Debentures, enter into indentures supplemental to the Senior
Subordinated Indenture for, among others, one or more of the following purposes:
(i) to evidence the succession of another person to the Company, and the
assumption by such successor of the Company's obligations under the Senior
Subordinated Indenture and the Senior Subordinated Debentures; (ii) to add
covenants of the Company, or surrender any rights of the Company, for the
benefit of the holders of Senior Subordinated Debentures or Subordinated
Debentures of any or all series; (iii) to cure any ambiguity, or correct any
inconsistency in the Senior Subordinated Indenture; (iv) to evidence and provide
for the acceptance of any successor Trustee with respect to the Senior
Subordinated Debentures or to facilitate the administration of the trusts
thereunder by one or more trustees in accordance with the Senior Subordinated
Indenture; (v) to establish the form or terms of any series of Senior
Subordinated Debentures; and (vi) to provide any additional Events of Default.
52
The Senior Subordinated Indenture contains provisions permitting the
Company and the Trustee, with the consent of the holders of not less than a
majority in principal amount of the outstanding Senior Subordinated Debentures,
to modify the Senior Subordinated Indenture; provided that no such modification
may, without the consent of the holders of each outstanding Senior Subordinated
Debenture affected thereby, (i) reduce the amount of Senior Subordinated
Debentures the holders of which must consent to any amendment, supplement or
waiver of the Senior Subordinated Indenture; (ii) reduce the rate of or extend
the time for the payment of interest on any Senior Subordinated Debenture; (iii)
alter the method of calculation of, or reduce, the amount paid at maturity or
extend the fixed maturity of any Senior Subordinated Debenture; (iv) make any
Senior Subordinated Debenture payable in money or property other than that
stated in the Senior Subordinated Debenture; (v) make any change to the
subordination terms that adversely affects the rights of any holder of the
Senior Subordinated Debentures; or (vi) make any change to the provisions
relating to waivers of past defaults or the rights of holders of the Senior
Subordinated Debentures to receive payments or reduce the percentage of Senior
Subordinated Debentures the holders of which are required to consent to any such
modification.
CONSOLIDATION, MERGER AND SALE
The Senior Subordinated Indenture provides that the Company may, without
the consent of the holders of the Senior Subordinated Debentures, consolidate
with or merge into, or transfer its properties as an entirety or substantially
as an entirety to any corporation, person or other entity; provided that in any
such case (i) the successor person (if other than the Company) (a) is an entity
organized and existing under the laws of the United States of America or any
political subdivision thereof and (b) such entity or its parent corporation
assumes by a supplemental indenture the Company's obligations under the Senior
Subordinated Indenture, (ii) immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing and (iii)
the Company shall have delivered to the Trustee an officer's certificate and
opinion of counsel stating that such consolidation, merger or transfer and such
supplemental indenture comply with the Senior Subordinated Indenture. The TBS
Transaction is not subject to approval by the holders of the Senior Subordinated
Debt.
GOVERNING LAW
The Senior Subordinated Indenture and the Senior Subordinated Debentures
will be governed by, and construed in accordance with, the laws of the State of
New York.
INFORMATION CONCERNING THE TRUSTEE
The Trustee, prior to default, undertakes to perform only such duties as
are specifically set forth in the Senior Subordinated Indenture and, after
default, shall exercise the same degree of care as a prudent individual would
exercise in the conduct of his or her own affairs. Subject to such provision,
the Trustee is under no obligation to exercise any of the powers vested in it by
the Senior Subordinated Indenture at the request of any holder of Senior
Subordinated Debentures, unless offered reasonable indemnity by such holder
against the costs, expenses and liabilities that might be incurred thereby. The
Trustee is not required to expend or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the Trustee
reasonably believes that repayment or adequate indemnity is not reasonably
assured to it. The Trustee may be one of a number of banks with which the
Company and its subsidiaries maintain ordinary banking and trust relationships.
MISCELLANEOUS
The Company will have the right at all times to assign any of its rights or
obligations under the Senior Subordinated Indenture to a direct or indirect
wholly owned subsidiary of the Company; provided that, in the event of any such
assignment, the Company will remain jointly and severally liable for all such
obligations. Subject to the foregoing, the Senior Subordinated Indenture will be
binding upon and inure to the benefit of the parties thereto and their
respective successors and assigns.
53
DESCRIPTION OF OUTSTANDING CAPITAL STOCK
The summary contained herein of the outstanding capital stock of the
Company does not purport to be complete and is qualified in its entirety by
reference to the following documents: (i) the Company's Certificate of
Incorporation; (ii) the Company's by laws; and (iii) the Rights Agreement, as
amended, between the Company and Chemical Bank, Rights Agent (the 'Rights
Agreement').
The outstanding capital stock of the Company at June 30, 1996 consisted of
37.2 million shares of preferred stock and 386.8 million shares of Common Stock
(net of 53.2 million shares of Common Stock in treasury).
COMMON STOCK
Subject to the rights of the holders of any outstanding shares of preferred
stock, holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor.
Each holder of Common Stock is entitled to one vote for each share held on
all matters voted upon by the stockholders of the Company, including the
election of directors. The Common Stock does not have cumulative voting rights.
Election of directors is decided by the holders of a plurality of the shares
entitled to vote and present in person or by proxy at a meeting for the election
of directors. See 'Description of Series M Preferred Stock' for a discussion of
the voting rights of the Series M Preferred Stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, after the payment or provision for payment of the
debts and other liabilities of the Company and the preferential amounts to which
holders of the Company's preferred stock are entitled, the holders of Common
Stock are entitled to share ratably in the remaining assets of the Company.
The Common Stock has no preemptive or conversion rights and there are no
redemption or sinking fund provisions applicable thereto.
The Common Stock of the Company is listed on the New York Stock Exchange,
the Pacific Stock Exchange and the International Stock Exchange and Stock
Exchange of the United Kingdom and the Republic of Ireland, Ltd. The transfer
agent and the registrar for the Common Stock is Chemical Bank.
PREFERRED STOCK
Set forth below is a summary of the principal terms of the Company's
outstanding issues of preferred stock, all of which are Parity Stock:
NUMBER OF
SHARES
SHARES OF COMMON STOCK EARLIEST EARLIEST
OUTSTANDING AT ISSUABLE UPON EXCHANGE REDEMPTION
DESCRIPTION JUNE 30, 1996 CONVERSION DATE DATE
- ---------------------------------------- -------------- --------------- -------- ------------
(MILLIONS) (MILLIONS)
Series C Preferred Stock................ 3.3 6.8 5/2/98 5/2/00
Series D Preferred Stock................ 11.0 22.9 7/6/99 7/6/00
Series E Preferred Stock................ 3.3 6.8 1/4/01 1/4/01
Series F Preferred Stock................ 3.0 6.4 1/4/00 1/4/01
Series G Preferred Stock................ 6.2 12.9 9/5/99 9/5/99
Series H Preferred Stock................ 1.8 3.7 9/5/00 9/5/99
Series I Preferred Stock................ 7.0 14.6 10/2/99 10/2/99
Series K Preferred Stock................ 1.6 --
----- -----
Total shares....................... 37.2 74.1
----- -----
----- -----
The principal terms of each series of convertible preferred stock issued in
1995 and 1996 (the Series C Preferred Stock, the Series D Preferred Stock, the
Series E Preferred Stock, the Series F Preferred Stock, the Series G Preferred
Stock, the Series H Preferred Stock and the Series I Preferred Stock,
collectively referred to as the 'Convertible Preferred Stock') are similar in
nature, unless
54
otherwise noted below. Each share of Convertible Preferred Stock: (1) is
entitled to a liquidation preference of $100 per share, (2) is immediately
convertible into 2.08264 shares of the Common Stock at a conversion price of $48
per share (based on its liquidation value), except that shares of the Series H
Preferred Stock are generally not convertible until September 5, 2000, (3)
entitles the holder thereof (i) to receive for a four-year period from the date
of issuance (or a five year period with respect to the Series C and Series E
Preferred Stock) an annual dividend per share equal to the greater of $3.75 and
an amount equal to the dividends paid on the Common Stock into which each share
may be converted and (ii) to the extent that any of such shares of preferred
stock remain outstanding at the end of the period in which the minimum $3.75 per
share dividend is to be paid, the holders thereafter will receive dividends
equal to the dividends paid on shares of Common Stock multiplied by the number
of shares into which their shares of preferred stock are convertible and (4)
except for the Series H Preferred Stock, which is generally not entitled to
vote, entitles the holder thereof to vote with the common stockholders on all
matters on which the common stockholders are entitled to vote, and each share of
such Convertible Preferred Stock is entitled to two votes on any such matter.
The Company has the right to exchange each series of Convertible Preferred
Stock for Common Stock at the stated conversion price at any time on or after
the respective exchange date. The Series C Preferred Stock is exchangeable by
the holder beginning after the third year from its date of issuance and by the
Company after the fourth year at the stated conversion price plus a declining
premium in years four and five and no premium thereafter. In addition, the
Company has the right to redeem each series of Convertible Preferred Stock, in
whole or in part, for cash at the liquidation value plus accrued dividends, at
any time on or after the respective redemption date.
In 1993, the Company redeemed or exchanged $6.4 billion of Series C and
Series D preferred stock ('old Series C and Series D preferred stock') that were
issued in the Company's 1989 acquisition of Warner Communications Inc. The cash
redemption of the old Series D Preferred Stock was financed principally by the
proceeds from the issuance of long-term notes and debentures. The old Series C
Preferred Stock was exchanged for the 8.75% Convertible Debentures.
At June 30, 1996, the Company had reserved 176 million shares of Common
Stock for the conversion of its Convertible Preferred Stock, zero coupon
convertible notes and other convertible securities, and for the exercise of
outstanding options to purchase shares of Common Stock.
SHAREHOLDER RIGHTS PLAN
Pursuant to a shareholder rights plan adopted in January 1994, the Company
distributed one right per share of Common Stock which becomes exercisable in
certain events involving the acquisition of 15% or more of the then outstanding
Common Stock of the Company. Upon the occurrence of such an event, each right
entitled its holder to purchase for $150 the economic equivalent of Common
Stock, or in certain circumstances, common stock of the acquiror, worth twice as
much. In connection with the plan, 4 million shares of Series A Preferred Stock,
which is junior to the Parity Stock, were reserved. The rights expire on January
20, 2004. In connection with the TBS Transaction, the Company expects to amend
the shareholder rights plan principally to change the basis for determining if
an acquisition of 15% or more of the Common Stock has occurred to a
fully-diluted basis.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of counsel, the following discussion sets forth the material
anticipated federal income tax consequences of an exchange of the Series K
Preferred Stock for Series M Preferred Stock and of the purchase, ownership, and
disposition of the Series M Preferred Stock, Series L Preferred Stock, and
Senior Subordinated Debentures. The discussion is based upon the provisions of
the Internal Revenue Code of 1986, as amended (the 'Code'), the final,
temporary, and proposed regulations promulgated thereunder, and administrative
rulings and judicial decisions now in effect, all of which are subject to change
(possibly with retroactive effect) or different interpretations. In particular,
Congress could enact legislation affecting the treatment of stock with
characteristics similar to the Series M Preferred Stock or the Treasury
Department could change the current law in future regulations, including
regulations issued pursuant to its authority under Section 337(d) of the Code.
Any such
55
legislation or regulations could be enacted or promulgated to apply
retroactively to the Series M Preferred Stock. This summary does not purport to
deal with all aspects of federal income taxation that may be relevant to a
particular investor, nor any tax consequences arising under the laws of any
state, locality, or foreign jurisdiction, and it is not intended to be
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations, foreign
persons, persons that hold Series M Preferred Stock, Series L Preferred Stock,
or Senior Subordinated Debentures as part of a straddle or conversion
transaction, or holders subject to the alternative minimum tax, may be subject
to special rules. In addition, the summary is limited to persons that will hold
the Series M Preferred Stock, Series L Preferred Stock, and Senior Subordinated
Debentures as 'capital assets'(generally, property held for investment) within
the meaning of Section 1221 of the Code. No ruling has been or will be requested
by the Company from the Internal Revenue Service ('the Service') on any tax
matters relating to the Series M Preferred Stock, Series L Preferred Stock, or
Senior Subordinated Debentures, and there can be no assurance that the Service
will agree with the views expressed below. ALL INVESTORS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISERS REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF SERIES M PREFERRED
STOCK, SERIES L PREFERRED STOCK, OR SENIOR SUBORDINATED DEBENTURES.
TAXATION OF HOLDERS ON EXCHANGE
Although the matter is not free from doubt, in the opinion of counsel, an
exchange of shares of Series K Preferred Stock for shares of Series M Preferred
Stock pursuant to the Exchange Offer should not be a taxable event to holders of
Series K Preferred Stock, and holders should not recognize any taxable gain or
loss as a result of such an exchange or a filing. Accordingly, a holder would
have the same adjusted basis and holding period in the Series M Preferred Stock
as it had in the Series K Preferred Stock immediately before the exchange.
Further, the tax consequences of ownership and disposition of any shares of
Series M Preferred Stock should be the same as the tax consequences of ownership
and disposition of shares of the Series K Preferred Stock.
SERIES M PREFERRED STOCK
In the opinion of counsel, the Series M Preferred Stock will be stock of
the Company for federal income tax purposes. There are, however, no federal
income tax regulations, court decisions, or published Service rulings bearing
directly on certain features of the Series M Preferred Stock. In addition, the
Service announced during 1987 that it was studying the federal income tax
consequences of stock that has certain voting and liquidation rights in an
issuing corporation, but whose dividend rights are determined by reference to
the earnings and profits of a segregated portion of the issuing corporation's
assets, and that it would not issue any advance rulings regarding such stock. In
1995, the Service withdrew such stock from its list of matters under
consideration and reiterated that it would not issue advance rulings regarding
such stock. In the absence of such a ruling, it is possible that the Service
could claim that the Series M Preferred Stock represents property other than
stock of the Company. While counsel recognizes that this matter cannot be viewed
as free from doubt because there is no conclusive authority dealing with the
precise facts presented by the Series M Preferred Stock, counsel believes that
if the status of the Series M Preferred Stock as stock of the Company for
federal income tax purposes were challenged, a court would agree that the Series
M Preferred Stock is stock of the Company.
Legislation has recently been proposed that would require taxpayers to
recognize gain upon a constructive sale (i.e., the substantial elimination of
risk of loss and opportunity for gain) of an appreciated position in stock, a
debt instrument, or a partnership interest. Although the scope of the provision
is unclear in the absence of Congressional committee reports or other further
elaboration, the Company believes that such proposed legislation should not
apply to the Series M Preferred Stock. Further, it is not clear whether or in
what form the proposed legislation will be enacted.
If the Series M Preferred Stock is not considered stock of the Company,
then holders might be considered for federal income tax purposes to own
interests in TWE. In such event, a holder would be
56
treated as receiving a distributive share of the income, gain, loss, deductions,
and credits of TWE and would not be eligible for the dividends-received
deduction. In addition, the timing of the items of income and deduction holders
would receive with respect to such deemed interests in TWE would be uncertain
and most likely would not correspond to the timing of the distributions they
would receive as holders of the Series M Preferred Stock.
If the Series M Preferred Stock is not considered stock of the Company or
the Company is treated as having constructively sold a portion of the TWE Series
B Capital, then the Company would recognize substantial taxable gain in
connection with the issuance of the Series M Preferred Stock.
The discussion herein is based upon the foregoing opinion that the Series M
Preferred Stock is stock of the Company for federal income tax purposes.
DISTRIBUTIONS ON SERIES M PREFERRED STOCK OR SERIES L PREFERRED STOCK
The amount of any distribution with respect to the Series M Preferred Stock
or Series L Preferred Stock will be equal to the amount of cash or the fair
market value of the shares of Series M Preferred Stock or Series L Preferred
Stock distributed. A stockholder's initial tax basis in any additional shares of
Series M Preferred Stock or Series L Preferred Stock distributed by the Company
will be equal to the fair market value of such additional shares of Series K
Preferred Stock or Series L Preferred Stock on the date of distribution. A
stockholder's holding period for such additional shares of Series M Preferred
Stock or Series L Preferred Stock will commence on the day following the date of
distribution and will not include such stockholder's holding period for the
shares of Series M Preferred Stock or Series L Preferred Stock with respect to
which the additional shares of Series M Preferred Stock or Series L Preferred
Stock were distributed.
The amount of any distribution with respect to the Series M Preferred Stock
or Series L Preferred Stock, whether paid in cash or in additional shares of
Series M Preferred Stock or Series L Preferred Stock, will be a dividend,
taxable as ordinary income to the recipient thereof, to the extent of the
Company's current or accumulated earnings and profits ('earnings and profits')
as determined under U.S. federal income tax principles. Under Section 243 of the
Code, corporate shareholders generally will be able to deduct 70% of the amount
of any distribution qualifying as a dividend. There are, however, many
exceptions and restrictions relating to the availability of such
dividends-received deduction such as restrictions relating to (i) the holding
period of stock the dividends on which are sought to be deducted, (ii)
debt-financed portfolio stock, (iii) dividends treated as 'extraordinary
dividends' for purposes of Section 1059 of the Code, and (iv) taxpayers that pay
alternative minimum tax. Corporate shareholders should consult their own tax
advisers regarding the extent, if any, to which such exceptions and restrictions
may apply to their particular factual situation. Additionally, recently proposed
legislation would reduce the applicable dividends-received deduction from 70% to
50% and could also affect the availability of such deduction to corporate
shareholders that do not meet applicable holding period requirements. It is
uncertain whether or in what form such legislation will be enacted into law.
Corporate shareholders should consult their own tax advisers regarding the
extent, if any, to which such legislation may apply to their particular factual
situation.
Additionally, the excess of the liquidation preference over the issue price
of the Series M Preferred Stock or the Series L Preferred Stock, if more than a
de minimis amount, would be accrued as dividend income (to the extent of the
Company's earnings and profits) by a holder on a constant yield basis over its
term. Because the issue price of any additional shares of Series M Preferred
Stock or Series L Preferred Stock distributed by the Company in lieu of a cash
payment generally will equal the fair market value of such shares of Series M
Preferred Stock or Series L Preferred Stock on the date of distribution, the
amount of any redemption premium, and the tax consequences thereof, may need to
be separately determined for each such distribution. Further, it is not clear
whether the issue price of any shares of Series L Preferred Stock issued in
exchange for shares of Series M Preferred Stock, or any shares of stock of New
Time Warner issued to holders of the Series M Preferred Stock or Series L
Preferred Stock in the TBS Transaction, will equal the issue price of the shares
so exchanged or will equal the fair market value of the shares received at the
time of such exchange. Holders should consult their own tax advisers regarding
the application of the redemption premium rules to their particular situation.
57
REDEMPTION, SALE, OR EXCHANGE
In the opinion of counsel, no gain or loss will be recognized by a holder
that exchanges shares of Series M Preferred Stock for shares of Series L
Preferred Stock (except to the extent that such shares of Series L Preferred
Stock are attributable to declared dividends, which will be treated in the same
manner as distributions described above). The basis of shares of Series L
Preferred Stock so received by such holder in the exchange will be the same as
that of the shares of Series M Preferred Stock exchanged therefor. The holder's
holding period for such shares of Series L Preferred Stock will include the
holder's holding period for the shares of Series M Preferred Stock so exchanged,
provided that the shares of Series M Preferred Stock were held as a capital
asset. Recently proposed legislation would tax gain on an exchange of preferred
stock for preferred stock unless the new preferred stock is comparable to the
preferred stock exchanged therefor and of a same or lesser value. It is
uncertain whether or in what form such legislation will be enacted into law.
A sale or redemption of the shares of Series M Preferred Stock or Series L
Preferred Stock for cash by a holder who will not continue to own stock of the
Company, actually or constructively, following the redemption will be a taxable
transaction on which a holder will generally recognize capital gain or loss
(except to the extent of amounts received on the exchange that are attributable
to declared dividends, which will be treated in the same manner as distributions
described above). The gain or loss recognized on such exchange will generally be
equal to the difference between the amount realized by the holder and such
holder's adjusted tax basis in the shares of Series M Preferred Stock or shares
of Series L Preferred Stock surrendered in the redemption. Different rules may
apply to holders that continue to own stock of the Company, actually or
constructively, following the redemption.
A redemption of shares of Series L Preferred Stock in exchange for Senior
Subordinated Debentures will be subject to the same general rules as a
redemption for cash, except that the holder would have capital gain or loss
equal to the difference between the issue price of the Senior Subordinated
Debentures received and the holder's adjusted tax basis in the shares of Series
L Preferred Stock redeemed. The issue price of the Senior Subordinated
Debentures would be determined in the manner described below under ' -- Original
Issue Discount' for purposes of computing original issue discount on the Senior
Subordinated Debentures.
Depending upon a holder's particular circumstances, the tax consequences of
holding Senior Subordinated Debentures may be less advantageous than the tax
consequences of holding Series M Preferred Stock or Series L Preferred Stock
because, for example, payments of interest on the Senior Subordinated Debentures
will not be eligible for any dividends-received deduction that may be available
to corporate holders and because, as discussed below, Senior Subordinated
Debentures may be issued with original issue discount ('OID').
ORIGINAL ISSUE DISCOUNT
If the Series L Preferred Stock is exchanged for Senior Subordinated
Debentures at a time when the stated redemption price at maturity of the Senior
Subordinated Debentures exceeds their issue price by more than a de minimis
amount, the Senior Subordinated Debentures will be treated as having OID equal
to the entire amount of such excess. If the Senior Subordinated Debentures are
deemed to be traded on an established securities market at any time during the
60-day period ending 30 days after their issue date, the issue price of the
Senior Subordinated Debentures will be their fair market value as determined as
of their issue date. Subject to certain limitations described in the
regulations, the Senior Subordinated Debentures will be deemed to be traded on
an established securities market if, among other things, price quotations are
readily available from dealers, brokers, or traders. Similarly, if the Series L
Preferred Stock, but not the Senior Subordinated Debentures issued and exchanged
therefor, is deemed to be traded on an established securities market at the time
of the exchange, then the issue price of each Senior Subordinated Debenture
should be the fair market value of the shares of Series L Preferred Stock
exchanged therefor at the time of the exchange. The Series L Preferred Stock
will generally be deemed to be traded on an established securities market if it
appears on a system of general circulation that provides a reasonable basis to
determine fair market value based either on recent price quotations or recent
sales transactions. In the event that neither the Series L Preferred Stock nor
the Senior Subordinated Debentures is deemed to be traded on an established
securities
58
market, the issue price of the Senior Subordinated Debentures will be their
stated principal amount or, in the event the Senior Subordinated Debentures do
not bear 'adequate stated interest' within the meaning of Section 1274 of the
Code, their 'imputed principal amount,' which is generally the sum of the
present values of all payments due under the Senior Subordinated Debentures,
discounted from the date of payment to their issue date at the appropriate
'applicable federal rate.'
The stated redemption price at maturity of the Senior Subordinated
Debentures would equal the total of all payments required to be made thereon,
other than payments of qualified stated interest. Qualified stated interest
generally is stated interest that is unconditionally payable in cash or other
property (other than debt instruments of the issuer) at least annually at a
single fixed rate. Therefore, Senior Subordinated Debentures that are issued
when the Company has the option to pay interest in additional Senior
Subordinated Debentures will be treated as having been issued with interest in
excess of qualified stated interest. Accordingly, the excess of (x) all interest
payable pursuant to the stated interest rate on such Senior Subordinated
Debentures over (y) the qualified stated interest, in each case determined over
the entire term, will be treated as OID and accrued under a constant yield
method by the holder, and the holder should not also treat the receipt of such
excess stated interest on such Senior Subordinated Debentures as interest for
federal income tax purposes.
An additional Senior Subordinated Debenture (a 'Secondary Debenture')
issued in payment of interest with respect to an initially issued Senior
Subordinated Debenture (an 'Initial Debenture') will not be considered as a
payment made on the Initial Debenture and will be aggregated with the Initial
Debenture for purposes of computing and accruing OID on the Initial Debenture.
As between the Initial Debenture and the Secondary Debenture, the Company will
allocate the adjusted issue price of the Initial Debenture between the Initial
Debenture and the Secondary Debenture in proportion to their respective
principal amounts. That is, upon its issuance of a Secondary Debenture with
respect to an Initial Debenture, the Company intends to treat the Initial
Debenture and the Secondary Debenture derived from the Initial Debenture as
initially having the same adjusted issue price and inherent amount of OID per
dollar of principal amount. The Initial Debenture and the Secondary Debenture
derived therefrom will be treated as having the same yield to maturity. Similar
treatment will be applied when additional Senior Subordinated Debentures are
issued on Secondary Debentures.
BOND PREMIUM ON SENIOR SUBORDINATED DEBENTURES RECEIVED IN EXCHANGE
If, at the time the Series L Preferred Stock is exchanged for Senior
Subordinated Debentures or a holder purchases Senior Subordinated Debentures,
the holder's tax basis in any such Senior Subordinated Debenture exceeds the
amount payable at the maturity date, such excess may constitute amortizable bond
premium that the holder may elect to amortize over the term of the Senior
Subordinated Debenture on a constant yield method. A holder who elects to
amortize bond premium must reduce its tax basis in the Senior Subordinated
Debentures by the amount so amortized, and the amount amortized in any year will
be treated as a reduction of interest income on the Senior Subordinated
Debentures. The election to amortize premium applies to all obligations owned or
acquired by the holder in the current and all subsequent tax years and may not
be revoked without the consent of the Service. Bond premium on a Senior
Subordinated Debenture held by a holder that does not make such an election will
decrease the gain or increase the loss otherwise recognized on disposition of
the Senior Subordinated Debenture.
ACQUISITION PREMIUM
In the opinion of counsel, a holder of a Senior Subordinated Debenture
issued with OID who purchases such Senior Subordinated Debenture for an amount
greater than the sum of all amounts payable on the Senior Subordinated Debenture
after the purchase date other than qualified stated interest will not be
required to include any OID in income. A holder of a Senior Subordinated
Debenture issued with OID who purchases such Senior Subordinated Debenture for
an amount that is greater than its adjusted issue price but equal to or less
than the sum of all amounts payable on the Senior Subordinated Debenture after
the purchase date other than payments of qualified stated interest will be
considered to have purchased such Senior Subordinated Debenture at an
'acquisition premium.' Under the acquisition premium rules, the amount of OID
that such holder must include in income with
59
respect to such Senior Subordinated Debenture for any taxable year will be
reduced by the portion of such acquisition premium properly allocable to such
year.
MARKET DISCOUNT ON RESALE OF SENIOR SUBORDINATED DEBENTURES
Holders of Senior Subordinated Debentures should be aware that a
disposition of the Senior Subordinated Debentures may be affected by the market
discount provisions of Sections 1276-78 of the Code. These rules generally
provide that, if a holder acquires Senior Subordinated Debentures at a market
discount that equals or exceeds one-fourth of one percent of the stated
redemption price of the Senior Subordinated Debentures at maturity multiplied by
the number of remaining years to maturity and thereafter recognizes gain upon a
disposition of the Senior Subordinated Debentures, the lesser of (i) such gain
or (ii) the portion of the market discount that accrued while the Senior
Subordinated Debenture was held by such holder will be treated as ordinary
income at the time of the disposition. For these purposes, market discount means
the excess (if any) of the stated redemption price at maturity (or, if an
instrument is issued with OID, the instrument's revised issue price, which is
the sum of the issue price of the instrument and the aggregate amount of OID
includible in the gross income of all previous holders of the instrument) over
the basis of such Senior Subordinated Debenture immediately after its
acquisition by the holder. A holder of a Senior Subordinated Debenture may elect
to include any market discount in income currently rather than upon disposition
of the Senior Subordinated Debenture. This election once made applies to all
market discount obligations acquired in or after the first taxable year to which
the election applies and may not be revoked without the consent of the Service.
A holder of any Senior Subordinated Debenture who acquired such Senior
Subordinated Debenture at a market discount generally will be required to defer
the deduction of a portion of the interest on any indebtedness incurred or
maintained to purchase or carry such Senior Subordinated Debenture until the
market discount is recognized upon a subsequent disposition of such Senior
Subordinated Debenture. Such a deferral is not required, however, if the holder
elects to include accrued market discount in income currently.
REDEMPTION OR SALE OF SENIOR SUBORDINATED DEBENTURES
Generally, any redemption or sale of Senior Subordinated Debentures by a
holder will result in taxable gain or loss equal to the difference between the
amount of cash received (except to the extent the cash received is attributable
to accrued interest) and the holder's adjusted tax basis in such Senior
Subordinated Debentures. The adjusted tax basis of a holder who received such
Senior Subordinated Debentures in exchange for the Series L Preferred Stock will
generally be equal to the issue price of such Senior Subordinated Debentures,
increased by any OID or market discount on the Senior Subordinated Debentures
included in such holder's income prior to their sale or redemption, and reduced
by any bond premium previously allowed as an offset to interest payments on such
Senior Subordinated Debentures and any cash payments on the Senior Subordinated
Debentures other than qualified stated interest. Such gain or loss would be
capital gain or loss if the Senior Subordinated Debentures were held as a
capital asset and would be long-term gain or loss if the holder's holding period
exceeded one year. Cash received that is attributable to accrued interest will
be included in income as ordinary income.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
In the opinion of counsel, pursuant to Section 163 of the Code a portion of
the OID accruing on certain debt instruments may be treated as a dividend
eligible for the dividends-received deduction and the corporation issuing such
debt instrument would not be entitled to deduct the 'disqualified portion' of
the OID accruing on such debt instrument and would be allowed to deduct the
remainder of the OID only when paid.
This treatment would apply to 'applicable high yield discount obligations'
('AHYDO'), that is, debt instruments that have a term of more than five years,
have a yield to maturity that equals or exceeds five percentage points over the
'applicable federal rate,' and have 'significant' OID. A debt
60
instrument is treated as having 'significant' OID if the aggregate amount that
would be includible in gross income with respect to such debt instrument for
periods before the close of any accrual period ending after a date five years
after the date of issue exceeds the sum of (i) the aggregate amount of interest
to be paid in cash under the debt instrument before the close of such accrual
period and (ii) the product of the initial issue price of such debt instrument
and its yield to maturity. Because the amount of OID attributable to the Senior
Subordinated Debentures will be determined at the time such Senior Subordinated
Debentures are issued and the applicable federal rate at the time the Senior
Subordinated Debentures are issued is not predictable, it is impossible to
determine at the present time whether a Senior Subordinated Debenture will be
treated as an AHYDO.
If a Senior Subordinated Debenture is treated as an AHYDO, a holder would
be treated as receiving dividend income (to the extent of the Company's earnings
and profits) solely for purposes of the dividends-received deduction in an
amount equal to the 'dividend equivalent portion' of the 'disqualified portion'
of the OID of such AHYDO. The 'disqualified portion' of the OID is equal to the
lesser of (i) the amount of OID or (ii) the portion of the 'total return' (the
excess of all payments to be made with respect to such obligation over its issue
price) on such obligation that bears the same ratio to the obligation's total
return as the 'disqualified yield' (the extent to which the yield exceeds the
applicable federal rate plus 6%) bears to the obligation's yield to maturity.
The dividend equivalent portion of the disqualified portion is the portion of
such portion that would be treated as a dividend if distributed by the issuer
with respect to its stock. The Company's deduction for OID will be substantially
deferred with respect to a Senior Subordinated Debenture that is treated as an
AHYDO. In addition, such deduction will be disallowed if and to the extent that
the yield on such AHYDO exceeds the applicable federal rate by more than 6%.
BACKUP WITHHOLDING
In general, a noncorporate holder of Series M Preferred Stock, Series L
Preferred Stock, or Senior Subordinated Debentures will be subject to backup
withholding at the rate of 31% with respect to reportable payments of dividends,
interest, or OID accrued with respect to, or the proceeds of a sale, exchange,
or redemption of, Series M Preferred Stock, Series L Preferred Stock, or Senior
Subordinated Debentures, as the case may be, if the holder fails to provide a
taxpayer identification number or certification of foreign or other exempt
status or fails to report in full dividend and interest income. Amounts paid as
backup withholding do not constitute an additional tax and will be credited
against the holder's federal income tax liabilities.
THE UNITED STATES FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY OR MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISERS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE
SERIES M PREFERRED STOCK, THE SERIES L PREFERRED STOCK, OR THE SENIOR
SUBORDINATED DEBENTURES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
LEGAL OPINION
Certain legal matters in connection with the exchange of the Series K
Preferred Stock for the Series M Preferred Stock will be passed upon for the
Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. As of
June 30, 1996 certain members of Paul, Weiss, Rifkind, Wharton & Garrison, who
are participating in the representation of the Company, owned approximately
14,050 shares of Common Stock.
61
EXPERTS
The consolidated financial statements and schedules of the Company and TWE
appearing in the 10-K, the combined financial statements of the Time Warner
Service Partnerships incorporated by reference therein, and the consolidated
financial statements and schedule of Cablevision Industries Corporation as of
December 31, 1995, and for the year then ended incorporated by reference in this
Prospectus from the August 14, 1996 8-K, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. Such financial statements and schedules are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Newhouse Broadcasting Cable Division of
Newhouse Broadcasting Corporation and Subsidiaries as of July 31, 1994 and 1993,
and for each of the three years in the period ended July 31, 1994, and the
financial statements of Vision Cable Division of Vision Cable Communications,
Inc. and Subsidiaries as of December 31, 1994 and 1993, and for each of the
three years in the period ended December 31, 1994, incorporated by reference in
this Prospectus from the August 14, 1996 8-K, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Paragon Communications as of December 31, 1994
and 1993, and for each of the three years in the period ended December 31, 1994,
incorporated by reference in this Prospectus from the 10-K, and the consolidated
financial statements of Turner Broadcasting System, Inc. as of December 31, 1995
and 1994, and for the three years in the period ended December 31, 1995,
incorporated by reference in this Prospectus from the August 14, 1996 8-K, have
been audited by Price Waterhouse LLP, independent accountants, as set forth in
their reports thereon included therein and incorporated herein by reference.
Such financial statements are incorporated herein by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Cablevision Industries Corporation
as of December 31, 1994, and for each of the two years in the period ended
December 31, 1994, incorporated by reference in this Prospectus from the August
14, 1996 8-K, have been audited by Arthur Andersen LLP, Independent Public
Accountants, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements have
been incorporated herein by reference in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of KBLCOM Incorporated as of December
31, 1994 and 1993, and for each of the three years in the period ended December
31, 1994, incorporated by reference in this Prospectus from the August 14, 1996
8-K, have been audited by Deloitte & Touche LLP, Independent Auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements have been incorporated herein
by reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
------------------------
The following information is being disclosed pursuant to Florida law and is
accurate as of the date hereof: A subsidiary of Warner Communications Inc. pays
royalties to Artex, S.A., a corporation organized under the laws of Cuba, in
connection with the distribution in the United States of certain Cuban musical
recordings. Current information concerning this matter may be obtained from the
State of Florida Department of Banking & Finance, The Capital, Tallahassee,
Florida 32399-0350, 904-488-9805.
62
GLOSSARY OF SIGNIFICANT TERMS
As used in this Prospectus, the following terms shall have the meanings set
forth below:
'Change of Control' means:
(i) whenever, in any three-year period, a majority of the members of
the Board of Directors of the Company elected during such three-year period
shall have been so elected against the recommendation of the management of
the Company or the Board of Directors of the Company in office immediately
prior to such election; provided, however, that for purposes of this clause
(i) a member of such Board of Directors shall be deemed to have been
elected against the recommendation of such Board of Directors if his or her
initial election occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other than
such Board of Directors; or
(ii) whenever any person shall acquire (whether by merger,
consolidation, sale, assignment, lease, transfer or otherwise, in one
transaction or any related series of transactions) or otherwise
beneficially own voting securities of the Company that represent in excess
of 50% of the voting power of all outstanding voting securities of the
Company generally entitled to vote for the election of directors, if such
person had acquired or publicly announced its intention to initially
acquire ten percent or more of such voting securities in a transaction that
had not been approved by the management of the Company within 30 days after
the date of such acquisition or public announcement.
'Included Tax Distributions' means, with respect to any period, Tax
Distributions made by TWE during such period with respect to the TWE Series B
Capital, but only if the total distributions made by TWE during such period with
respect to the TWE Series B Capital exceed such Tax Distributions.
'Initial Purchasers' means Bear, Stearns & Co. Inc. and Morgan Stanley &
Co. Incorporated.
'Insolvency of TWE' means:
(i) the entry by a court having jurisdiction in the premises of (a) a
decree or order for relief in respect of TWE in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (b) a decree or order adjudging TWE
a bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
TWE under any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of TWE or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such
decree or order for relief or any such other decree or order under either
clause (a) or (b) above unstayed and in effect for a period of 60
consecutive days; or
(ii) the commencement by TWE of a voluntary case or proceeding under
any applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or
order for relief in respect of TWE in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by it
of a petition or answer or consent seeking reorganization or relief under
any applicable federal or state law, or the consent by it to the filing of
such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of TWE or of any substantial part of its property, or the making
by it of a general assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due, or the adoption of a resolution by the Board of
Representatives of TWE to take any of the foregoing actions.
'Insolvency Distribution Date' means the date of the completion of the
liquidation, winding up or dissolution of TWE upon the Insolvency of TWE.
G-1
'Insolvency Redemption Amount' means an amount equal to the lesser of (i)
the sum of (a) the Pro Rata Percentage as of the Insolvency Distribution Date
multiplied by the sum of cash distributions and non-cash distributions (the
value of which shall be determined pursuant to a TWE Insolvency Valuation)
received by the Company (and its subsidiaries) with respect to its TWE Series B
Capital and its TWE Junior Capital in connection with such liquidation,
winding-up or dissolution, in accordance with the TWE Partnership Agreement, and
(b) an amount equal to dividends on the outstanding shares of the Series M
Preferred Stock for four quarters and one day and (ii) the liquidation
preference of the Series M Preferred Stock plus accumulated and accrued and
unpaid dividends thereon.
'Insolvency Redemption Date' means the day following the first anniversary
of the Insolvency Distribution Date.
'Junior Stock' means the Common Stock, the Series A Preferred Stock and all
classes of capital stock established after the initial issuance of the Series M
Preferred Stock by the Company's Board of Directors that by their terms are
junior in right of payment to the Parity Stock.
'Mandatory Redemption Amount' means an amount equal to (i) the Pro Rata
Percentage (determined as of June 30, 2015 without giving effect to the Series B
Redemption occurring on such date) multiplied by the amount (as determined by a
TWE Valuation) that the Company (and its subsidiaries) would have received in
accordance with the TWE Partnership Agreement with respect to its TWE Series B
Capital and its TWE Junior Capital had TWE sold all of its assets and liquidated
on June 30, 2015, plus (ii) dividends on the outstanding shares of Series M
Preferred Stock from July 1, 2015 to July 1, 2016.
'Mandatory Redemption Price' means a redemption price equal to the
liquidation preference of the Series M Preferred Stock to be redeemed, plus
accumulated and accrued and unpaid dividends thereon.
'Material Contribution of Assets' means a contribution to TWE in a single
transaction or a series of related transactions of Relevant Assets (as defined
below) net of associated debt, the fair market value of which is in excess of
$1,000,000,000 (as determined by the Board of Directors of the Company in good
faith). For purposes of the foregoing definition, 'Relevant Assets' means filmed
entertainment or programming assets currently owned by the Company or any of its
subsidiaries (other than TWE) or which the Company or any of its subsidiaries
(other than TWE) currently has an agreement to acquire.
'Nationally Recognized Investment Banking Firm' means an investment banking
firm having a national reputation in the United States which shall have
experience in valuation or securities rating matters, as the case may be, and
which shall be approved by a majority of the members of the Board of Directors
of the Company who are not officers or employees of the Company or its
subsidiaries,
including TWE.
'Parity Stock' means the Company's Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I
Preferred Stock, Series K Preferred Stock, Series M Preferred Stock and all
classes of capital stock established after the initial issuance of the Series M
Preferred Stock by the Company's Board of Directors that by their terms are pari
passu with the Series M Preferred Stock. The terms of any Series L Preferred
Stock will provide that they are pari passu with the Series M Preferred Stock.
'Preceding Record Date' means (i) with respect to the First Dividend
Payment Date, the date twenty days prior to the last dividend payment date for
the Series K Preferred Stock prior to the
issuance of the Series M Preferred Stock and (ii) with respect to any other
Dividend Payment Date, the Record Date applicable to the immediately preceding
Dividend Payment Date.
'Pro Rata Percentage' means, as of any date, a fraction, the numerator of
which shall be the aggregate liquidation preference of the outstanding shares of
Series M Preferred Stock as of such date, plus accumulated and unpaid dividends
thereon, and the denominator of which shall be the Cumulative Priority Capital
of the TWE Series B Capital as of such date; provided that the Pro Rata
Percentage as of any date prior to the issuance of the Series M Preferred Stock,
means a fraction, the numerator of which shall be the aggregate liquidation
preference as of such date of the outstanding shares of Series K Preferred Stock
which Series K Preferred Stock have been exchanged for shares of Series M
Preferred
G-2
Stock in the Exchange Offer, plus accumulated and unpaid dividends thereon, and
the denominator of which shall be the Cumulative Priority Capital of the TWE
Series B Capital as of such date. In calculating the Pro Rata Percentage in
connection with the final mandatory redemption or upon an Insolvency of TWE, the
Cumulative Priority Capital of the TWE Series B Capital shall be increased by
the sum of all Tax Distributions (other than Included Tax Distributions) made by
TWE to the Company (and its subsidiaries) following the issuance of the Series K
Preferred Stock with respect to the TWE Series B Capital.
'Rating Confirmation' means either (i) a confirmation from each of Moody's
Investors Service, Inc. or any successor to its rating agency business
('Moody's') and Standard and Poor's Corporation or any successor to its rating
agency business ('S&P') that any contemplated redemption or exchange by the
Company would not result in a downgrade of its rating of the Company's senior
unsecured long-term debt, or (ii) a good faith determination by the Board of
Directors of the Company or any committee thereof (after consultation with a
Nationally Recognized Investment Banking Firm) that any contemplated redemption
or exchange by the Company should not result in a downgrade in the rating of the
Company's senior unsecured long-term debt by either Moody's or S&P.
'Redeemable Number' means, with respect to any Mandatory Redemption Date, a
number (rounded down to the nearest whole number) of shares of Series M
Preferred Stock equal to (i) the Pro Rata Percentage (determined as of the June
30 occurring one year and one day prior to such Mandatory Redemption Date
without giving effect to the Series B Redemption occurring on such date) of the
amount of (a) cash distributions received by the Company (and its subsidiaries)
in respect of the Series B Redemption occurring on such June 30, plus (b) cash
distributions received by the Company in respect of its TWE Junior Capital from
such June 30 to such Mandatory Redemption Date, divided by (ii) the liquidation
preference of $1,000 per share plus accumulated and accrued and unpaid dividends
thereon; provided, however, that in no event shall the Redeemable Number exceed
20%, 25%, 33 1/3% and 50% of the number of shares of Series M Preferred Stock
outstanding on the Mandatory Redemption Dates occurring on July 1 of 2012, 2013,
2014 and 2015, respectively.
'Reorganization of TWE' means (i) any merger or consolidation of TWE or any
sale of all or substantially all of the assets of TWE, (ii) the liquidation,
winding up or dissolution of TWE other than as a result of the Insolvency of
TWE, (iii) the making of any distributions, in cash or other property (other
than cash distributions in accordance with the TWE Partnership Agreement), on
the partnership interests in TWE from and after the date of initial issuance of
the Series K Preferred Stock having an aggregate fair market value (together
with any such prior distributions) in excess of $500,000,000 as determined by
the Board of Directors of the Company in good faith, (iv) any transaction or
series of related transactions which results in a sale or transfer of 10% or
more of the total assets of TWE (excluding asset swaps and contributions to
subsidiaries or joint ventures, other than joint ventures with any existing
partner of TWE that is not a subsidiary of the Company) unless such sale or
transfer is made at fair market value, the net proceeds of such sale or transfer
are substantially in cash and such cash is used to repay debt or is reinvested
in the business of TWE, (v) any transfer in the beneficial ownership of a class
of partnership interests in TWE that would result in the Company (directly or
indirectly) owning (after giving effect to any reductions permitted by clause
(a) or (b)) less than 90% or more than 110% of its percentage ownership interest
in any class as of the date of initial issuance of the Series K Preferred Stock,
other than any change resulting from (a) cash distributions in accordance with
the TWE Partnership Agreement or (b) the issuance of partnership interests upon
exercise of the U S WEST Option, (vi) any material reduction in voting or
management rights of the Company (and its subsidiaries) in TWE, (vii) any
issuance of additional partnership interests which rank senior to the TWE Series
B Capital (other than (a) the TWE Contingent Capital, (b) partnership interests
issued upon exercise of the U S WEST Option or (c) partnership interests having
a fair market value (together with any such prior issuances) no greater than
$500,000,000, as determined by the Board of Directors of the Company in good
faith, issued in connection with any contribution of assets to TWE), it being
understood that allocations of income or accretion with respect to the capital
accounts associated with the outstanding partnership interests shall not be
considered issuances of additional partnership interests in TWE, (viii) any
amendment (other than an amendment to effectuate an issuance permitted by clause
(vii)(c) above) to the TWE Partnership Agreement that adversely affects the
allocation of income, payment of distributions, priority capital rate of return
or the priority of the TWE Series B
G-3
Capital or (ix) the six month anniversary of a Material Contribution of Assets
which does not otherwise result in the occurrence of an event specified in (i)
through (viii) above.
'Reorganization Redemption/Exchange Date' means, with respect to any
Reorganization of TWE, the first Dividend Payment Date following the 90th day
after such Reorganization of TWE; provided
that if such first Dividend Payment Date occurs on or prior to the 30th day
following such 90th day, then the Reorganization Redemption/Exchange Date means
the second Dividend Payment Date following the 90th day after such
Reorganization of TWE.
'Reorganization Redemption Price' means 110% of the liquidation preference
of the Series K Preferred Stock, plus accumulated and accrued and unpaid
dividends, or, if the Series M Preferred Stock may be redeemed at the option of
the Company at such time, the optional redemption price then in effect.
'Series B Redemption' means the distributions with respect to the TWE
Series B Capital on June 30 of each of 2011, 2012, 2013, 2014 and 2015.
'Tax Distributions' means cash distributions to the Company (and its
subsidiaries) required to be made under the TWE Partnership Agreement to the
partners of TWE to permit them to pay taxes at assumed statutory rates on their
allocations of income from TWE.
'TWE Insolvency Valuation' means the average of the determinations of two
Nationally Recognized Investment Banking Firms with respect to the fair market
values, as of the Insolvency Distribution Date, of any non-cash distributions
from TWE received by the Company (and its subsidiaries) upon a liquidation,
winding up or distribution of TWE as a result of the Insolvency of TWE. The
Nationally Recognized Investment Banking Firms shall be selected by the Company
within 30 days following the Insolvency Distribution Date and shall render their
opinions within 90 days following such Insolvency Distribution Date. For
purposes of the foregoing, (i) the fair market value of such non-cash
distributions shall be based on the price at which such property would be sold
in an arm's length transaction between a willing buyer and a willing seller, and
to the extent such property comprises an operating business, it shall be valued
on a going concern basis; and (ii) such value shall be increased by the sum of
all Tax Distributions other than Included Tax Distributions made by TWE to the
Company (and its subsidiaries) following the initial issuance of the Series K
Preferred Stock with respect to the TWE Series B Capital.
'TWE Valuation' means the average of the determinations of two Nationally
Recognized Investment Banking Firms with respect to the fair market values of
the assets of TWE as of June 30, 2015 (without giving effect to the Series B
Redemption or any distribution in respect of TWE Junior Capital occurring on
such date). The Nationally Recognized Investment Banking Firms shall be selected
by the Company within 90 days following the final Series B Redemption Date and
shall render their opinions within 150 days following the final Series B
Redemption Date. For purposes of the foregoing, (i) the fair market value of the
assets of TWE shall be determined on a going concern basis, assuming that each
division of TWE is sold in a separate arm's length transaction between a willing
buyer and a willing seller; and (ii) such value shall be increased by the sum of
all Tax Distributions (other than Included Tax Distributions) made by TWE
following the issuance of the Series K Preferred Stock with respect to the TWE
Series B Capital.
G-4
_____________________________ _____________________________
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Available Information....................................................................................................... 3
Incorporation of Certain Documents by Reference............................................................................. 3
Prospectus Summary.......................................................................................................... 5
Risk Factors................................................................................................................ 15
The Company................................................................................................................. 18
TWE Partnership Interests................................................................................................... 20
Recent Developments......................................................................................................... 23
Consolidated Capitalization................................................................................................. 26
Selected Historical and Pro Forma Financial Information..................................................................... 29
Exchange Offer.............................................................................................................. 35
Plan of Distribution........................................................................................................ 41
Description of Series M Preferred Stock..................................................................................... 42
Description of Series L Preferred Stock..................................................................................... 47
Description of Senior Subordinated Debentures............................................................................... 48
Description of Outstanding Capital Stock.................................................................................... 54
Material Federal Income Tax Considerations.................................................................................. 55
Legal Opinion............................................................................................................... 61
Experts..................................................................................................................... 62
Glossary of Significant Terms............................................................................................... G-1
TIME WARNER INC.
--------------------------
PROSPECTUS
--------------------------
SEPTEMBER 6, 1996
_____________________________ _____________________________