SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT of 1934 for the transition period from _____________ to ______________ .
AOL TIME WARNER INC.
(Exact name of registrant as specified in its charter)
Delaware 13-4099534
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Shares Outstanding
Description of Class as of April 30, 2001
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Common Stock - $.01 par value 4,259,406,654
Series LMCN-V Common Stock - $.01 par value 171,185,826
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AOL TIME WARNER INC. AND
TIME WARNER ENTERTAINMENT COMPANY, L.P.
INDEX TO FORM 10-Q
Page
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AOL Time
Warner TWE
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PART I. FINANCIAL INFORMATION
Management's discussion and analysis of results of operations and financial condition..... 1 37
Consolidated balance sheet at March 31, 2001 and December 31, 2000........................ 14 44
Consolidated statement of operations for the three months ended
March 31, 2001 and 2000.............................................................. 15 45
Consolidated statement of cash flows for the three months ended March 31, 2001
and 2000............................................................................. 16 46
Consolidated statement of shareholders' equity and partnership capital.................... 17 47
Notes to consolidated financial statements................................................ 18 48
Supplementary information................................................................. 31
PART II. OTHER INFORMATION.................................................................... 57
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AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Description of Business
AOL Time Warner Inc. ("AOL Time Warner" or the "Company") is the world's first fully integrated, Internet-powered media and communications company. The Company was formed in connection with the merger of America Online, Inc. ("America Online") and Time Warner Inc. ("Time Warner") which was consummated on January 11, 2001 (the "Merger"). As a result of the Merger, America Online and Time Warner each became a wholly owned subsidiary of AOL Time Warner.
The Merger was accounted for by AOL Time Warner as an acquisition of Time Warner under the purchase method of accounting for business combinations. Under the purchase method of accounting, the estimated cost of approximately $147 billion to acquire Time Warner, including transaction costs, was allocated to its underlying net assets based on their respective estimated fair values. Any excess of the purchase price over estimated fair values of the net assets acquired was recorded as goodwill. The financial results for Time Warner have been included in AOL Time Warner's results since January 1, 2001, as permitted under generally accepted accounting principles.
As part of the integration of Time Warner's businesses into AOL Time Warner's operating structure, management is pursuing various initiatives to enhance efficiencies. Such initiatives, some of which have already been implemented, include the consolidation of certain duplicative administrative and operational functions and the restructuring of certain under-performing assets. For additional information on the Merger and the Company's restructuring initiatives, see Notes 1 and 2, respectively, to the accompanying consolidated financial statements.
AOL Time Warner classifies its business interests into six fundamental areas: AOL, consisting principally of interactive services, Web brands, Internet technologies and electronic commerce services; Cable, consisting principally of interests in cable television systems; Filmed Entertainment, consisting principally of interests in filmed entertainment and television production; Networks, consisting principally of interests in cable television and broadcast network programming; Music, consisting principally of interests in recorded music and music publishing; and Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing.
Investment in Time Warner Entertainment Company, L.P.
A majority of AOL Time Warner's interests in filmed entertainment, television production and cable television systems, and a portion of its interests in cable television and broadcast network programming, are held through Time Warner Entertainment Company, L.P. ("TWE"). AOL Time Warner owns general and limited partnership interests in TWE consisting of 74.49% of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital"), and 100% of the junior priority capital. The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by MediaOne TWE Holdings, Inc., a subsidiary of AT&T Corp. ("AT&T").
The Company and AT&T from time to time have engaged in discussions regarding AT&T's interest in TWE. On February 28, 2001, AT&T delivered to the Company and TWE notice of its exercise of certain registration rights under the TWE partnership agreement. Actions pursuant to the notice were then suspended while discussions between the Company and AT&T regarding AT&T's interest in TWE continued. AT&T, the Company and TWE have now
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
recommended the registration rights process that could result in the registration for public sale or the purchase by TWE of some or all of AT&T's interest in TWE.
Use of EBITDA
AOL Time Warner evaluates operating performance based on several factors, including its primary financial measure of operating income (loss) before noncash depreciation of tangible assets and amortization of intangible assets ("EBITDA"). AOL Time Warner considers EBITDA an important indicator of the operational strength and performance of its businesses, including the ability to provide cash flows to service debt and fund capital expenditures. In addition, EBITDA eliminates the uneven effect across all business segments of considerable amounts of noncash depreciation of tangible assets and amortization of intangible assets recognized in business combinations accounted for by the purchase method. As such, the following comparative discussion of the results of operations of AOL Time Warner includes, among other factors, an analysis of changes in business segment EBITDA. However, EBITDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss) and other measures of financial performance reported in accordance with generally accepted accounting principles.
Transactions Affecting Comparability of Results of Operations
America Online-Time Warner Merger
The accompanying historical consolidated financial statements and notes for 2000 reflect only the financial results of America Online, as predecessor to AOL Time Warner. As a result, AOL Time Warner's 2000 historical operating results and financial condition are not comparable to 2001 because of the Merger. Accordingly, in order to enhance comparability and make an analysis of 2001 more meaningful, the following discussion of results of operations and changes in financial condition and liquidity is based upon pro forma financial information for 2000 as if the Merger had occurred on January 1, 2000. These results also reflect reclassifications of each company's historical operating results and segment information to conform to the combined Company's financial statement presentation, as follows:
o Time Warner's digital media results have been allocated to the business segments now responsible for managing those operations and are no longer treated as a distinct line item;
o Income and losses related to equity-method investments and gains and losses
on the sale of investments have been reclassified from operating income
(loss) to other income (expense), net;
o Corporate expenses have been reclassified to selling, general and administrative costs as a reduction of operating income (loss); and
o Merger-related costs have been moved from other income (expense), net, to operating income (loss).
Other Significant Transactions and Nonrecurring Items
As more fully described herein, the comparability of AOL Time Warner's operating results has been affected by certain significant transactions and nonrecurring items in each period.
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
For the three months ended March 31, 2001, these items included (i) merger-related costs of $71 million, primarily relating to the Merger, and (ii) a $620 million noncash pretax charge to reduce the carrying value of certain investments in AOL Time Warner's investment portfolio, primarily due to significant market declines experienced in the first quarter.
For the three months ended March 31, 2000 on a pro forma basis, these
items included (i) pretax gains of approximately $28 million relating to the
sale or exchange of various cable television systems and investments, (ii) a
pretax gain of $10 million relating to the partial recognition of a deferred
gain on the 1998 sale of Six Flags Entertainment Corporation, (iii) pretax gains
of approximately $275 million from the sale or exchange of certain investments,
(iv) a noncash, pretax charge of approximately $220 million relating to the
write-down of AOL Time Warner's carrying value of its investment in the Columbia
House Company Partnerships ("Columbia House"), a 50%-owned equity investee, (v)
merger-related costs of approximately $46 million relating to the Merger and
(vi) a noncash pretax charge of $738 million, which is shown separately on the
accompanying statement of operations as an after-tax charge of $443 million
related to the cumulative effect of an accounting change in connection with the
adoption of a new film accounting standard.
For the three months ended March 31, 2000 on a historical basis, the operating results include pretax gains of approximately $275 million from the sale or exchange of certain investments.
In order to meaningfully assess underlying operating trends, management believes that the results of operations for each period should be analyzed after excluding the effects of these significant nonrecurring items. As such, the following discussion and analysis focuses on amounts and trends adjusted to exclude the impact of these unusual items. However, unusual items may occur in any period. Accordingly, investors and other financial statement users individually should consider the types of events and transactions for which adjustments have been made.
RESULTS OF OPERATIONS
Consolidated Results
AOL Time Warner had revenues of $9.080 billion and a net loss of $1.369 billion for the three months ended March 31, 2001, compared to revenues of $8.316 billion on a pro forma basis ($1.814 billion on a historical basis) and a loss before the cumulative effect of an accounting change of $1.012 billion on a pro forma basis (net income of $433 million on a historical basis) for the three months ended March 31, 2000. After preferred dividend requirements, AOL Time Warner had basic and diluted net loss per common share of $.31 in 2001, compared to basic and diluted loss before the cumulative effect of an accounting change of $.24 per common share on a pro forma basis in 2000 (basic earnings per share of $.19 and diluted earnings per share of $.17 on a historical basis).
As previously described, in addition to the consummation of the Merger, the comparability of AOL Time Warner's operating results for the first quarter of 2001 and 2000 has been affected by certain significant, nonrecurring items recognized in each period. These nonrecurring items consisted of approximately $691 million of net pretax losses in both 2001 and on a pro forma basis in 2000 (net pretax gains of $275 million on a historical basis). The aggregate net effect of these items was to increase basic and diluted net loss per common share by $.09 in 2001 and $.10 on a pro forma basis in 2000 (an increase in basic and diluted earnings per share of $.07 on a historical basis).
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
Revenues. AOL Time Warner's revenues increased to $9.080 billion in 2001, compared to $8.316 billion on a pro forma basis in 2000. This increase was driven by an increase in subscription revenues of 9% to $3.857 billion, an increase in advertising and commerce revenues of 10% to $2.053 billion and an increase in content and other revenues of 8% to $3.170 billion. This compares to $3.528 billion, $1.865 billion and $2.923 billion, respectively, on a pro forma basis for the three months ended March 31, 2000.
As discussed more fully below, the increase in subscription revenues was principally due to an increase in the number of subscribers at the AOL, Cable and Networks segments and an increase in subscription rates at the Cable and Networks segments. The increase in advertising and commerce revenues was principally due to increased advertising at the AOL, Cable and Publishing segments and advertising rate increases at The WB Network. The increase in content and other revenues was principally due to increased distribution of theatrical content at the Filmed Entertainment segment, offset in part by lower revenue at the Music segment from the negative effect of changes in foreign currency rates on international recorded music sales and lower domestic recorded music sales.
Net Loss and Net Loss Per Common Share. AOL Time Warner's net loss decreased to $1.369 billion in 2001, compared to $1.455 billion on a pro forma basis in 2000. However, excluding the significant effect of the nonrecurring items referred to earlier, the net loss decreased by $76 million to $954 million in 2001 from $1.030 billion on a pro forma basis in 2000. As discussed more fully below, this improvement principally resulted from an overall increase in AOL Time Warner's EBITDA, offset in part by higher depreciation and amortization and higher amortization on certain investments accounted for under the equity method of accounting. Similarly, adjusted basic net loss per common share, excluding the effect of significant nonrecurring items, decreased to $.22 in 2001, compared to an adjusted basic net loss per common share of $.24 on a pro forma basis in 2000.
Depreciation and Amortization. Depreciation and amortization increased to $2.222 billion in 2001 from $2.141 billion on a pro forma basis in 2000. This increase was due to increases in both depreciation, primarily due to higher capital spending at the Cable segment, and amortization. The higher amortization in the first quarter of 2001 was primarily due to goodwill generated from certain restructuring liabilities that were committed to by management in the first quarter of 2001 and recorded as liabilities assumed in the purchase of Time Warner and the absence in 2000 of amortization related to minor acquisitions consummated after the first quarter of 2000 that were accounted for under the purchase method of accounting.
Interest Expense, Net. Interest expense, net, decreased to $319 million in 2001, from $328 million on a pro forma basis in 2000, principally as a result of lower market interest rates.
Other Income (Expense), Net. Other income (expense), net, increased to $872 million of expense in 2001 from $104 million of expense on a pro forma basis in 2000. Other income (expense), net, increased primarily because of a noncash pretax charge of $620 million to reduce the carrying value of certain investments, primarily due to declines in market values deemed to be other-than-temporary, higher amortization of goodwill associated with certain investments accounted for under the equity method of accounting and the absence in 2001 of $285 million of gains from the sale or exchange of certain investments in 2000. This overall decrease was offset in part by the absence in 2001 of a $220 million noncash pretax charge to reduce the carrying value of the Company's investment in Columbia House in 2000.
Minority Interest. Minority interest expense increased to $104 million in 2001, compared to $55 million on a pro forma basis in 2000. Minority interest expense increased principally due to the allocation of pretax gains related
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
to the exchange of various cable television systems in 2001 at the TWE Advance/ Newhouse Partnership ("TWE-A/N") attributable to the minority owners of TWE-A/N and a higher allocation of losses in 2000 to a minority partner in The WB Network.
Income Tax Benefit (Provision). The relationship between income before income taxes and income tax expense of AOL Time Warner is principally affected by the amortization of goodwill and certain other financial statement expenses that are not deductible for income tax purposes. AOL Time Warner had an income tax benefit of $73 million in the first quarter of 2001, compared to income tax expense of $161 million on a pro forma basis in the first quarter of 2000. Income taxes, for financial reporting purposes, benefited from the tax effect of the $620 million noncash pretax charge to reduce the carrying value of certain investments in the first quarter of 2001. The $28 million of net pretax gains related to the sale or exchange of various cable television systems and investments in the first quarter of 2000 resulted in additional expense in that quarter. Excluding the tax effect of these items, the effective tax rate was consistent in each period. As of March 31, 2001, the Company had net operating loss carryforwards of approximately $10.2 billion, primarily resulting from stock option exercises, available to offset future U.S. federal taxable income.
Business Segment Results
Revenues and EBITDA are as follows:
Three Months Ended March 31,
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Revenues EBITDA
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2001 2000(a)(b) 2001 2000(b)
Historical Pro Forma Historical Pro Forma
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(millions)
AOL.......................................... $2,125 $1,814 $ 684 $ 506
Cable(c)..................................... 1,625 1,447 768 694
Filmed Entertainment......................... 2,212 1,896 113 185
Networks..................................... 1,699 1,610 449 335
Music........................................ 881 934 94 101
Publishing................................... 966 939 113 94
Corporate.................................... - - (74) (84)
Merger-related costs......................... - - (71) (46)
Intersegment elimination..................... (428) (324) (1) (8)
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Total revenues and EBITDA.................... $9,080 $8,316 $2,075 $1,777
Depreciation and amortization................ - - (2,222) (2,141)
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Total revenues and operating loss............ $9,080 $8,316 $ (147) $ (364)
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(b) 2001 operating results reflect the impact of the America Online-Time Warner merger. In order to enhance comparability, pro forma financial information for 2000 is provided as if the Merger had occurred at the beginning of 2000, including certain reclassifications of each company's historical operating results to conform to AOL Time Warner's financial statement presentation. AOL Time Warner's historical revenues, EBITDA and operating income for the three months ended March 31, 2000 were $1.814 billion, $484 million and $376 million, respectively.
(c) 2000 EBITDA includes pretax gains of approximately $28 million relating to the sale or exchange of certain cable television systems and investments.
AOL. Revenues increased to $2.125 billion in 2001, compared to $1.814 billion in 2000. EBITDA increased to $684 million in 2001, compared to $506 million in 2000. Revenues increased due to a 9% increase in subscription
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
revenues and a 37% increase in advertising and commerce revenues on the AOL service, as well as other branded services and portals.
The growth in subscription revenues was principally due to an increase in subscribers, offset in part by a decline in the average revenue per subscriber. The decrease in the average revenue per subscriber is due to the impact of a changing mix of brands and services with different price points, as well as certain promotional programs. Under these bundling programs, customers of AOL's commerce partners typically receive a subscription to AOL's online services as a result of purchasing a product from a commerce partner. Subscription revenues under these bundling programs are recorded based on the net amount received from the commerce partner.
The improved operating results in 2001 are primarily due to strong revenue growth and a decrease in data network-related and overhead costs as a percentage of subscription revenues, primarily due to efficiencies AOL continues to gain as a result of its size and scale, as well as lower negotiated rates with its network providers.
Cable. Revenues increased to $1.625 billion in 2001, compared to $1.447 billion on a pro forma basis in 2000. EBITDA increased to $768 million in 2001 from $694 million on a pro forma basis in 2000. Revenues increased due to a 12% increase in subscription revenues and a 17% increase in advertising and commerce revenues. The increase in subscription revenues was due to an increase in basic cable rates, an increase in basic cable subscribers, a 249% increase in digital cable subscribers and a 165% increase in subscribers to high-speed online services. The operating results of the Cable division were affected by pretax gains of approximately $28 million recognized in 2000 relating to the sale or exchange of various cable television systems and investments. Excluding these gains, EBITDA increased principally as a result of the revenue gains, offset in part by higher programming costs, principally due to programming rate increases.
Filmed Entertainment. Revenues increased to $2.212 billion in 2001, compared to $1.896 billion on a pro forma basis in 2000. EBITDA decreased to $113 million in 2001, compared to $185 million on a pro forma basis in 2000. Revenues grew due to increases at both Warner Bros. and the filmed entertainment businesses of Turner Broadcasting System, Inc. (the "Turner filmed entertainment businesses"). The Turner filmed entertainment businesses include New Line Cinema, Castle Rock and the former film and television libraries of Metro- Goldwyn-Mayer, Inc. and RKO Pictures, Inc. For Warner Bros., revenues benefited from increased worldwide revenues from the distribution of theatrical product, principally due to higher worldwide DVD sales, and increased television licensing fees. For the Turner filmed entertainment businesses, revenues increased primarily due to significant syndication revenue from licensing arrangements for the second-cycle broadcasting rights for Seinfeld, higher international theatrical revenues and higher revenues from the distribution of theatrical product through pay-television and basic cable television exhibition.
For Warner Bros., EBITDA decreased principally due to higher advertising and distribution costs due to an increase in the number and the timing of new theatrical releases in comparison to the prior year's quarter, offset in part by the revenue gains. For the Turner filmed entertainment businesses, EBITDA decreased principally due to higher film and advertising costs, offset in part by the revenue gains.
Networks. Revenues increased to $1.699 billion in 2001, compared to
$1.610 billion on a pro forma basis in 2000. EBITDA increased to $449 million in
2001 from $335 million on a pro forma basis in 2000. Revenues grew primarily due
to an increase in subscription revenues with growth at the cable networks of
Turner Broadcasting System,
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
Inc. (the "Turner cable networks group") and HBO. For the Turner cable networks group, subscription revenues benefited from an increase in the number of subscribers and higher rates, primarily led by revenue increases at TNT, CNN, TBS Superstation and Cartoon Network. For HBO, revenues benefited primarily from an increase in the number of subscribers. For The WB Network, revenues increased primarily due to an increase in advertising and commerce revenues driven by advertising rate increases.
Likewise, EBITDA was higher due to improved results at the Turner cable networks group, HBO and The WB Network. For the Turner cable networks group, the increase in EBITDA was principally due to the revenue gains and lower programming costs. For HBO, the increase in EBITDA was principally due to the revenue gains and increased cost savings from HBO's overhead cost management program. For The WB Network, the increase in EBITDA was principally due to the revenue gains.
Music. Revenues decreased to $881 million in 2001, compared to $934 million on a pro forma basis in 2000. EBITDA decreased to $94 million in 2001 from $101 million on a pro forma basis in 2000. Revenues decreased primarily due to the negative effect of changes in foreign currency exchange rates on international recorded music operations as well as lower domestic recorded music sales. EBITDA decreased principally due to the decline in revenues and higher marketing costs, offset in part by lower artist royalty costs and higher income from DVD manufacturing operations. Management expects that the revenue decline relating to lower sales levels will continue into the second quarter of 2001, which could continue to affect operating results negatively.
Publishing. Revenues increased to $966 million in 2001, compared to $939 million on a pro forma basis in 2000. EBITDA increased to $113 million in 2001 from $94 million on a pro forma basis in 2000. Revenues increased primarily from a 9% increase in advertising and commerce revenues, which was primarily due to increased advertising at In Style, Southern Living and the acquisition of the Times Mirror magazines group in the fourth quarter of 2000. Subscription revenues were relatively flat. EBITDA increased principally as a result of the advertising revenue gains and increased cost savings.
FINANCIAL CONDITION AND LIQUIDITY
March 31, 2001
Financial Condition
At March 31, 2001, AOL Time Warner had $20.2 billion of debt, $1.3 billion of cash and equivalents (net debt of $18.9 billion) and $156.5 billion of shareholders' equity, this was comparable to $21.3 billion of debt, $3.3 billion of cash and equivalents (net debt of $18.0 billion), $575 million of mandatorily redeemable preferred securities of a subsidiary and $157.6 billion of shareholders' equity on a pro forma basis at December 31, 2000. On a historical basis, AOL Time Warner had $2.6 billion of cash and equivalents, $1.4 billion of debt and $6.8 billion of shareholders' equity at December 31, 2000.
Cash Flows
During the first three months of 2001, AOL Time Warner's cash provided by operations amounted to $976 million and reflected $2.075 billion of business segment EBITDA, less $391 million of net interest payments, $122 million of net income taxes paid, $74 million of proceeds repaid under AOL Time Warner's asset securitization program
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
and $512 million related to an increase in other working capital requirements. Cash provided by operations of $909 million on a pro forma basis in the first three months of 2000 reflected $1.777 billion of business segment EBITDA, less $388 million of net interest payments, $100 million of net income taxes paid, $98 million of proceeds repaid under AOL Time Warner's asset securitization program and $282 million related to an increase in other working capital requirements.
Cash provided by investing activities was $460 million in the first three months of 2001, compared to $1.106 billion of cash used by investing activities on a pro forma basis in the first three months of 2000. The increase in cash provided by investing activities included $690 million of cash acquired in the Merger, an increase of $1.175 billion of proceeds received from the sale of investments, offset in part by a $150 million increase in the acquisitions of investments and an increase in capital expenditures of $165 million. The increase in proceeds received from the sale of investments primarily consists of the sale of short-term investments previously held by America Online. The increase in capital expenditures was primarily due to increased capital spending in the Cable segment related to digital cable boxes, high-speed modems and associated support equipment.
Cash used by financing activities was $2.778 billion in the first three months of 2001, compared to $101 million on a pro forma basis in the first three months of 2000. The use of cash in 2001 resulted primarily from $1.844 billion of debt reduction, the repurchase of approximately 14.1 million shares of AOL Time Warner common stock at an aggregate cost of $615 million under AOL Time Warner's recently authorized $5 billion common stock repurchase program and the redemption of mandatorily redeemable preferred securities of a subsidiary of $575 million, offset in part by $277 million of proceeds received principally from the exercise of employee stock options. Cash used by financing activities on a pro forma basis in the first three months of 2000 principally resulted from $318 million of debt reduction, the repurchase of approximately 1.4 million shares of AOL Time Warner common stock at an aggregate cost of $65 million and the payment of $67 million of dividends, offset in part by $367 million of proceeds received principally from the exercise of employee stock options. The lower level of share repurchases in the prior year relates to the suspension of Time Warner's share repurchase program in early 2000 as a result of the announced merger between America Online and Time Warner.
AOL Time Warner evaluates operating performance based on several factors including free cash flow, which is defined as cash provided by operations after deducting capital expenditures, dividend payments and partnership distributions. Free cash flow for the three months ended March 31, 2001 was $49 million, compared to $83 million on a pro forma basis for the three months ended March 31, 2000. The comparability of AOL Time Warner's free cash flow has been affected by certain significant transactions and nonrecurring items in each period. For the three months ended March 31, 2001, these items aggregated approximately $602 million of cash payments, primarily related to merger-related costs incurred in connection with the Merger and certain litigation payments. For the three months ended March 31, 2000, these items aggregated approximately $45 million, primarily related to merger-related costs incurred in connection with the Merger. Excluding the effect of these nonrecurring items, free cash flow increased from $128 million in the first quarter of 2000 to $651 million in the first quarter of 2001.
The assets and cash flows of TWE are restricted by certain borrowing and partnership agreements and are unavailable to AOL Time Warner except through the payment of certain fees, reimbursements, cash distributions and loans, which are subject to limitations. Under its bank credit agreement, TWE is permitted to incur additional indebtedness to make loans, advances, distributions and other cash payments to AOL Time Warner, subject to its individual compliance with the cash flow coverage and leverage ratio covenants contained therein.
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
Management believes that AOL Time Warner's operating cash flow, cash and equivalents, borrowing capacity and availability under the shelf registration statement are sufficient to fund its capital and liquidity needs for the foreseeable future without distributions and loans from TWE above those permitted by existing agreements.
Shelf Registration Statement
In January 2001, AOL Time Warner filed a shelf registration statement with the SEC, which allows AOL Time Warner to offer and sell from time to time, debt securities, preferred stock, series common stock, common stock and/or warrants to purchase debt and equity securities in amounts up to $10 billion in initial aggregate public offering prices. Proceeds from any offerings will be used for general corporate purposes including investments, capital expenditures, repayment of debt and financing acquisitions. On April 19, 2001, AOL Time Warner issued an aggregate of $4 billion principal amount of debt securities under this shelf registration statement at various fixed interest rates and maturities of 5, 10 and 30 years. The net proceeds to the Company were $3.964 billion and were used primarily to pay down bank debt. These securities are guaranteed on an unsecured basis by each of America Online and Time Warner. In addition, Time Warner Companies, Inc. ("TW Companies") and Turner Broadcasting System, Inc. ("TBS") have guaranteed, on an unsecured basis, Time Warner's guarantee of the securities. $5 Billion Commercial Paper Program and Senior Unsecured Revolving Credit Facility
In April 2001, AOL Time Warner established a $5 billion commercial paper program which is backed by a $5 billion 364-day senior unsecured revolving credit facility (the "revolving credit facility"), borrowings under which may be repaid for a period up to two years following the initial term. The program will allow AOL Time Warner to issue commercial paper to investors from time to time in maturities of up to 365 days. Proceeds from the commercial paper offerings will be used for general corporate purposes including investments, capital expenditures, repayment of debt and financing acquisitions. The revolving credit facility is available to support the commercial paper program and for general corporate purposes. Borrowings under the $5 billion commercial paper program and the revolving credit facility are guaranteed on an unsecured basis, directly or indirectly, by each of America Online, Time Warner, TW Companies and TBS.
Common Stock Repurchase Program
In January 2001, AOL Time Warner's Board of Directors authorized a common stock repurchase program that allows AOL Time Warner to repurchase, from time to time, up to $5 billion of common stock over a two-year period. During the first quarter of 2001, the Company repurchased 14.1 million shares at an aggregate cost of $615 million.
Capital Spending
AOL Time Warner's overall capital spending for the three months ended March 31, 2001 was $906 million, an increase of $165 million over capital spending for the three months ended March 31, 2000 of $741 million. AOL Time Warner capital spending and the related increase is principally at its Cable segment, as discussed more fully below. Also contributing to the AOL Time Warner capital spending levels is its AOL segment, including expenditures related to product development, and, to a lesser extent, AOL Time Warner's other business segments.
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
AOL Time Warner's Cable segment has been engaged in a plan to upgrade the technological capability and reliability of its cable television systems and develop new services, which management believes will position the business for sustained, long-term growth. Capital spending by the Cable segment amounted to $577 million in the first three months of 2001, compared to $419 million on a pro forma basis in 2000. Cable capital spending for the remainder of 2001 is expected to remain at comparable levels, reflecting spending on variable capital to facilitate the continued roll-out of the Cable segment's popular digital services, including digital cable and high-speed online services. At March 31, 2001, the Cable segment had 2.1 million digital cable subscribers, a 16.7% penetration of basic cable subscribers. This compares to 613,000 digital cable subscribers, or a 4.8% penetration of basic cable subscribers at March 31, 2000. Similarly, the number of high-speed online customers grew to 1.2 million, or 7.4% of eligible homes, from 447,000, or 4.7% of eligible homes at March 31, 2000. Such rapid growth of subscribers to these digital services increased the variable capital spending for digital cable boxes, high-speed modems and associated support equipment. Capital spending by the Cable segment is expected to continue to be funded by the Cable segment's operating cash flow.
Market Risk Management
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and changes in the market value of investments.
Interest Rate Risk
AOL Time Warner has entered into variable-rate debt that, at March 31, 2001, had an outstanding balance of approximately $6.3 billion. Based on AOL Time Warner's variable-rate obligations outstanding at March 31, 2001, each 25 basis point increase or decrease in the level of interest rates would, respectively, increase or decrease AOL Time Warner's annual interest expense and related cash payments by approximately $15.7 million. Such potential increases or decreases are based on certain simplifying assumptions, including a constant level of variable-rate debt for all maturities and an immediate, across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period.
Foreign Currency Risk
AOL Time Warner uses foreign exchange contracts primarily to hedge the risk that unremitted or future royalties and license fees owed to AOL Time Warner domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad may be adversely affected by changes in foreign currency exchange rates. As part of its overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, AOL Time Warner hedges a portion of its foreign currency exposures anticipated over the ensuing twelve month period. At March 31, 2001, AOL Time Warner had effectively hedged approximately 60% of the estimated foreign currency exposures that principally relate to anticipated cash flows to be remitted to the U.S. over the ensuing twelve month period. To hedge this exposure, AOL Time Warner used foreign exchange contracts that have maturities of three to twelve months to provide continuing coverage throughout the year. AOL Time Warner often closes foreign exchange sale contracts by purchasing an offsetting purchase contract. At March 31, 2001, AOL Time Warner had contracts for the sale of $725 million and the purchase of $604 million of foreign currencies at fixed rates.
Based on the foreign exchange contracts outstanding at March 31, 2001, each 5% devaluation of the U.S. dollar as compared to the level of foreign exchange rates for currencies under contract at March 31, 2001 would result in
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
approximately $36 million of unrealized losses and $30 million of unrealized gains on foreign exchange contracts involving foreign currency sales and purchases, respectively. Conversely, a 5% appreciation of the U.S. dollar would result in $36 million of unrealized gains and $30 million of unrealized losses, respectively. Consistent with the nature of the economic hedge provided by such foreign exchange contracts, such unrealized gains or losses largely would be offset by corresponding decreases or increases, respectively, in the dollar value of future foreign currency royalty and license fee payments that would be received in cash within the ensuing twelve month period from the sale of U.S. copyrighted products abroad.
Equity Risk
The Company is exposed to market risk as it relates to changes in the market value of its investments. The Company invests in equity instruments of public and private companies for business and strategic purposes, many of which are Internet and technology companies. These securities are subject to significant fluctuations in fair market value due to the volatility of the stock market and the industries in which the companies operate. These securities, which are classified in "Investments, including available-for-sale securities" on the accompanying consolidated balance sheet, include equity-method investments, investments in private securities, available-for-sale securities, restricted securities and derivative securities. As of March 31, 2001, the Company had investments in private equity securities with a balance of approximately $340 million and investments in public equity securities, held for purposes other than trading, with a readily determinable fair market value of approximately $2.4 billion. However, continued market volatility, as well as mergers and acquisitions, are beyond the control of AOL Time Warner and have the potential to have a material non-cash impact on the operating results in future periods.
Since December 31, 2000, there has been a broad decline in the public equity markets, particularly in technology stocks, including investments held in the AOL Time Warner portfolio. Similarly, AOL Time Warner experienced significant declines in the value of certain privately held investments and restricted securities. As a result, the Company has recorded a $620 million noncash pretax charge in the first quarter to reduce the carrying value of certain publicly traded and privately held investments and restricted securities. This charge has been included in other income (expense), net, in the accompanying consolidated statement of operations.
Euro Conversion
Effective January 1, 1999, the "euro" was established as a single currency valid in more than two-thirds of the member countries of the European Union. These member countries have a three-year transitional period to physically convert their sovereign currencies to the euro. By July 1, 2002, all participating member countries must eliminate their currencies and replace their legal tender with euro-denominated bills and coins. Accordingly, AOL Time Warner continues to evaluate the short-term and long-term effects of the euro conversion on its European operations, principally at the Publishing, Music, Networks and Filmed Entertainment segments and at AOL Europe, an equity-method investee of AOL Time Warner.
AOL Time Warner believes that the most significant short-term impact of the euro conversion is the need to modify its accounting and information systems to handle an increasing volume of transactions during the transitional period in both the euro and sovereign currencies of the participating member countries. Based on preliminary information, costs to modify its accounting and information systems have not been, and are not expected to be, material. AOL Time Warner believes that the most significant long-term business risk of the euro conversion may be increased pricing pressures for its
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
products and services brought about by heightened consumer awareness of possible cross-border price differences. However, AOL Time Warner believes that these business risks may be offset to some extent by lower material costs, other cost savings and marketing opportunities. Notwithstanding such risks, management does not believe that the euro conversion will have a material effect on AOL Time Warner's financial position, results of operations or cash flows in future periods.
Caution Concerning Forward-Looking Statements
The SEC encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This document contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, EBITDA and cash flow. Words such as "anticipates," "estimates," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify such forward-looking statements. Those forward-looking statements are based on management's present expectations about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of such changes, new information, future events or otherwise.
AOL Time Warner operates in highly competitive, consumer driven and rapidly changing Internet, media and entertainment businesses that are dependent on government regulation and economic, political and social conditions in the countries in which they operate, consumer demand for their products and services, technological developments and (particularly in view of technological changes) protection of their intellectual property rights. AOL Time Warner's actual results could differ materially from management's expectations because of changes in such factors. Other factors could also cause actual results to differ from those contained in the forward-looking statements, including those identified in AOL Time Warner's other filings with the SEC and the following:
o For AOL Time Warner's America Online businesses, the ability to develop new products and services to remain competitive; the ability to develop or adopt new technologies; the ability to continue growth rates of the subscriber base; the ability to provide adequate server, network and system capacity; the risk of increased costs for network services; increased competition from providers of Internet services; the ability to maintain or enter into new electronic commerce, advertising, marketing or content arrangements; the ability to maintain and grow market share in the enterprise software industry; the risks from changes in U.S. and international regulatory environments affecting interactive services; and the ability to expand successfully internationally.
o For AOL Time Warner's cable business, more aggressive than expected competition from new technologies and other types of video programming distributors, including DBS and DSL; increases in government regulation of basic cable or equipment rates or other terms of service (such as "digital must-carry," open access or common carrier requirements); government regulation of other services, such as broadband cable modem service; increased difficulty in obtaining franchise renewals; the failure of new equipment (such as digital set-top boxes) or services (such as digital cable, high-speed online services, telephony over cable or video on demand) to appeal to enough consumers or to be available at reasonable prices, to function as expected and to be delivered in a timely fashion;
AOL TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
fluctuations in spending levels by businesses and consumers; and greater than expected increases in programming or other costs.
o For AOL Time Warner's film businesses, their ability to continue to attract and select desirable talent and scripts at manageable costs; a strike by screen actors and writers; general increases in production costs; fragmentation of consumer leisure and entertainment time (and its possible negative effects on the broadcast and cable networks, which are significant customers of these businesses); continued popularity of merchandising; and the uncertain impact of technological developments, such as the Internet.
o For AOL Time Warner's network businesses, greater than expected programming or production costs; a strike by television actors and writers; public and cable operator resistance to price increases (and the negative impact on premium programmers of increases in basic cable rates); increased regulation of distribution agreements; the sensitivity of advertising to economic cyclicality; the development of new technologies that alter the role of programming networks and services; and greater than expected fragmentation of consumer viewership due to an increased number of programming services or the increased popularity of alternatives to television.
o For AOL Time Warner's music business, its ability to continue to attract and select desirable talent at manageable costs; the timely completion of albums by major artists; the popular demand for particular artists and albums; its ability to continue to enforce its intellectual property rights in digital environments; its ability to develop a successful business model applicable to a digital online environment; and the overall strength of global music sales.
o For AOL Time Warner's print media and publishing businesses, increases in paper, postal and distribution costs; the introduction and increased popularity of alternative technologies for the provision of news and information, such as the Internet; the ability to continue to develop new sources of circulation; and fluctuations in spending levels by businesses and consumers.
o The risks related to the successful integration of the businesses of America Online and Time Warner, including the costs related to the integration; the failure of the Company to realize the anticipated benefits of the combination of these businesses; the difficulty the financial market may have in valuing the business model of the Company; and fluctuating market prices that could cause the value of AOL Time Warner's stock to fail to reflect the historical values of America Online's and Time Warner's stock.
In addition, the Company's overall financial strategy, including growth in operations, maintaining its financial ratios and strengthened balance sheet, could be adversely affected by increased interest rates, failure to meet earnings expectations, significant acquisitions or other transactions, economic slowdowns, consequences of the euro conversion and changes in the Company's plans, strategies and intentions.
AOL TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31, December 31,
2001 2000 2000
Historical Pro Forma(a) Historical(a)
---------- --------- ----------
ASSETS (millions, except per share amounts)
Current assets
Cash and equivalents....................................................... $ 1,268 $ 3,300 $ 2,610
Short-term investments..................................................... - 886 886
Receivables, less allowances of $1.732 billion, $1.725 billion and $97
million............................................................... 4,957 6,033 613
Inventories................................................................ 1,857 1,583 47
Prepaid expenses and other current assets.................................. 1,897 1,908 515
-------- -------- -------
Total current assets....................................................... 9,979 13,710 4,671
Noncurrent inventories and film costs...................................... 7,086 6,235 -
Investments, including available-for-sale securities....................... 11,564 9,472 3,824
Property, plant and equipment.............................................. 11,514 11,174 1,041
Music catalogues and copyrights............................................ 2,970 2,500 -
Cable television and sports franchises..................................... 27,796 31,700 -
Brands and trademarks...................................................... 10,830 10,000 -
Goodwill and other intangible assets....................................... 127,907 128,927 816
Other assets............................................................... 2,345 2,329 475
-------- -------- -------
Total assets............................................................... $211,991 $216,047 $10,827
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................................................... $ 1,855 $ 2,125 $ 105
Participations payable..................................................... 1,201 1,190 -
Royalties and programming costs payable.................................... 1,447 1,488 -
Deferred revenue........................................................... 1,779 1,660 1,063
Debt due within one year................................................... 17 45 2
Other current liabilities.................................................. 6,378 6,163 1,158
-------- -------- -------
Total current liabilities.................................................. 12,677 12,671 2,328
Long-term debt ............................................................ 20,176 21,318 1,411
Deferred income taxes...................................................... 13,127 15,165 -
Deferred revenue........................................................... 1,224 1,277 223
Other liabilities.......................................................... 4,787 4,050 87
Minority interests......................................................... 3,475 3,364 -
Mandatorily redeemable preferred securities of a subsidiary holding
solely debentures of a subsidiary of the Company...................... - 575 -
Shareholders' equity
Series LMCN-V Common Stock, $.01 par value, 171.2 million shares
outstanding at March 31, 2001 and December 31, 2000 pro forma......... 2 2 -
AOL Time Warner (and America Online, as predecessor) Common Stock,
$.01 par value, 4.127, 4.101 and 2.379 billion shares outstanding..... 41 41 24
Paid-in capital............................................................ 156,018 155,796 4,966
Accumulated other comprehensive income, net................................ 101 61 61
Retained earnings.......................................................... 363 1,727 1,727
-------- -------- -------
Total shareholders' equity................................................. 156,525 157,627 6,778
-------- -------- -------
Total liabilities and shareholders' equity................................. $211,991 $216,047 $10,827
======== ======== =======
|
See accompanying notes.
AOL TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31,
(Unaudited)
2001 2000 2000
Historical Pro Forma(a) Historical(a)
---------- --------- ----------
(millions, except per share amounts)
Revenues:
Subscriptions......................................................... $ 3,857 $ 3,528 $ 1,153
Advertising and commerce.............................................. 2,053 1,865 528
Content and other..................................................... 3,170 2,923 133
-------- ------- -------
Total revenues(b)..................................................... 9,080 8,316 1,814
Costs of revenues(b)....................................................... (5,010) (4,583) (987)
Selling, general and administrative(b)..................................... (2,371) (2,327) (432)
Amortization of goodwill and other intangible assets....................... (1,775) (1,752) (19)
Gain on sale or exchange of cable television systems....................... - 28 -
Merger-related costs....................................................... (71) (46) -
-------- ------- -------
Operating income (loss).................................................... (147) (364) 376
Interest income (expense), net............................................. (319) (328) 58
Other income (expense), net(b)............................................. (872) (104) 280
Minority interest.......................................................... (104) (55) (1)
-------- ------- -------
Income (loss) before income taxes and cumulative effect of accounting
change................................................................ (1,442) (851) 713
Income tax benefit (provision)............................................. 73 (161) (280)
-------- ------- -------
Income (loss) before cumulative effect of accounting change................ (1,369) (1,012) 433
Cumulative effect of accounting change, net of $295 million income tax
benefit............................................................... - (443) -
-------- ------- -------
Net income (loss).......................................................... (1,369) (1,455) 433
Preferred dividend requirements............................................ - (5) -
-------- ------- -------
Net income (loss) applicable to common shares.............................. $ (1,369) $(1,460) $ 433
======== ======= =======
Basic income (loss) per common share before cumulative effect
of accounting change.................................................. $ (0.31) $ (0.24) $ 0.19
Cumulative effect of accounting change..................................... - (0.10) -
-------- ------- -------
Basic net income (loss) per common share................................... $ (0.31) $ (0.34) $ 0.19
======== ======= =======
Average basic common shares................................................ 4,412.7 4,250.3 2,298.0
======== ======= =======
Diluted income (loss) per common share before cumulative effect
of accounting change.................................................. $ (0.31) $ (0.24) $ 0.17
Cumulative effect of accounting change..................................... - (0.10) -
-------- ------- -------
Diluted net income (loss) per common share................................. $ (0.31) $ (0.34) $ 0.17
======== ======= =======
Average diluted common shares.............................................. 4,412.7 4,250.3 2,608.0
======== ======= =======
|
(b) Includes the following income (expenses) resulting from transactions with related companies:
Revenues.......................................................... $ 237 $ 109 $ 17 Cost of revenues.................................................. (103) (40) (11) Selling, general and administrative............................... (13) (3) 2 Other income (expense), net....................................... (1) (7) - |
See accompanying notes.
AOL TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31,
(Unaudited)
2001 2000 2000
Historical Pro Forma(a) Historical(a)
---------- --------- ----------
(millions, except per share amounts)
OPERATIONS
Net income (loss).......................................................... $(1,369) $(1,455) $ 433
Adjustments for noncash and nonoperating items:
Cumulative effect of accounting change................................ - 443 -
Depreciation and amortization......................................... 2,222 2,141 108
Amortization of film costs............................................ 626 500 -
Loss on writedown of investments...................................... 620 - -
Gain on sale of investments........................................... (3) (297) (279)
Gain on sale or exchange of cable systems and investments............. - (28) -
Equity in losses of investee companies after distributions............ 221 417 -
Changes in operating assets and liabilities, net of acquisitions........... (1,341) (812) 216
-------- ------- ------
Cash provided by operations................................................ 976 909 478
-------- ------- ------
INVESTING ACTIVITIES
Acquisition of Time Warner Inc. cash and equivalents....................... 690 - -
Investments and acquisitions............................................... (973) (823) (502)
Capital expenditures....................................................... (906) (741) (197)
Investment proceeds........................................................ 1,649 474 269
Other...................................................................... - (16) (16)
-------- ------- ------
Cash provided (used) by investing activities............................... 460 (1,106) (446)
-------- ------- ------
FINANCING ACTIVITIES
Borrowings................................................................. 2,247 1,083 32
Debt repayments............................................................ (4,091) (1,401) (3)
Borrowings against future stock option proceeds............................ - 2 -
Redemption of mandatorily redeemable preferred securities of subsidiary.... (575) - -
Proceeds from exercise of stock option and dividend reimbursement plans.... 277 367 77
Repurchases of common stock................................................ (615) (65) -
Dividends paid and partnership distributions............................... (21) (85) -
Other...................................................................... - (2) -
-------- ------- ------
Cash provided (used) by financing activities............................... (2,778) (101) 106
-------- ------- ------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS................................ (1,342) (298) 138
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................................ 2,610 3,838 2,554
-------- ------- ------
CASH AND EQUIVALENTS AT END OF PERIOD...................................... $1,268 $3,540 $2,692
====== ====== ======
|
See accompanying notes.
AOL TIME WARNER INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months Ended March 31,
(Unaudited)
2001 2000
Historical Historical
---------- ----------
(millions)
BALANCE AT BEGINNING OF PERIOD............................................................ $ 6,778 $6,331
Issuance of common stock in connection with America Online-Time Warner merger............. 146,430 -
Reversal of America Online's deferred tax valuation allowance............................. 4,419 -
-------- ------
Balance at beginning of period, adjusted to give effect to the America Online-
Time Warner merger..................................................................... 157,627 6,331
Net income (loss)......................................................................... (1,369) 433
Other comprehensive income (loss)(a)...................................................... 50 (652)
-------- ------
Comprehensive loss........................................................................ (1,319) (219)
Repurchases of AOL Time Warner common stock............................................... (615) -
Other, principally shares issued pursuant to stock option and benefit
plans, including $555 and $272 million of tax benefit.................................. 832 356
-------- ------
BALANCE AT END OF PERIOD.................................................................. $156,525 $6,468
======== ======
|
See accompanying notes.
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
AOL Time Warner Inc. ("AOL Time Warner" or the "Company") is the world's first fully integrated, Internet-powered media and communications company. AOL Time Warner classifies its business interests into six fundamental areas: AOL, consisting principally of interactive services, Web brands, Internet technologies and electronic commerce services; Cable, consisting principally of interests in cable television systems; Filmed Entertainment, consisting principally of interests in filmed entertainment and television production; Networks, consisting principally of interests in cable television and broadcast network programming; Music, consisting principally of interests in recorded music and music publishing; and Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing.
Each of the business interests within AOL, Cable, Filmed Entertainment,
Networks, Music and Publishing is important to management's objective of
increasing shareholder value through the creation, extension and distribution of
recognizable brands and copyrights throughout the world. Such brands and
copyrights include (1) leading worldwide Internet services, such as the AOL and
Compuserve services, leading Web brands, such as Digital City, AOL Moviefone and
MapQuest, messaging services, such as ICQ and AOL Instant Messenger, and AOL
music properties, such as Spinner.com, Winamp and SHOUTcast, (2) Time Warner
Cable, currently the second largest operator of cable television systems in the
U.S., (3) the unique and extensive film, television and animation libraries
owned or managed by Warner Bros. and New Line Cinema, and trademarks such as the
Looney Tunes characters, Batman and The Flintstones, (4) leading television
networks, such as The WB Network, HBO, Cinemax, CNN, TNT and TBS Superstation,
(5) copyrighted music from many of the world's leading recording artists that is
produced and distributed by a family of established record labels such as Warner
Bros. Records, Atlantic Records, Elektra Entertainment and Warner Music
International and (6) magazine franchises, such as Time, People and Sports
Illustrated.
Financial information for AOL Time Warner's various business segments is presented herein as an indication of financial performance (Note 10). AOL Time Warner's principal business segments generate significant cash flow from operations. The cash flow from operations generated by such business segments is considerably greater than their operating income due to significant amounts of noncash amortization of intangible assets recognized primarily in connection with the America Online-Time Warner merger. Noncash amortization of intangible assets recorded by AOL Time Warner's business segments amounted to $1.775 billion for the first quarter of 2001 and $1.752 billion on a pro forma basis for the first quarter of 2000 ($19 million on a historical basis).
Basis of Presentation
America Online-Time Warner Merger
The company was formed in connection with the merger of America Online, Inc. ("America Online") and Time Warner Inc. ("Time Warner") which was consummated on January 11, 2001 (the "Merger"). As a result of the Merger, America Online and Time Warner each became a wholly owned subsidiary of AOL Time Warner.
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The Merger has been accounted for by AOL Time Warner as an acquisition of Time Warner under the purchase method of accounting for business combinations. The financial results for Time Warner have been included in AOL Time Warner's results since January 1, 2001, as permitted under generally accepted accounting principles. Under the purchase method of accounting, the cost of approximately $147 billion to acquire Time Warner, including transaction costs, was allocated to its underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill. A preliminary allocation of the excess of the purchase price, including transaction costs, over the book value of the net assets acquired has been made to goodwill and other intangible assets, including film and television libraries, music catalogues and music copyrights, cable television and sports franchises, and brands and trademarks. The goodwill and identified intangible assets will be amortized on a straight-line basis over the following weighted-average useful lives:
Weighted-Average
Useful Life
-----------
(Years)
Film and television libraries........................ 17
Music catalogues and copyrights...................... 20
Cable television and sports franchises............... 25
Brands and trademarks................................ 34
Subscriber lists..................................... 5
Goodwill............................................. 25
|
The estimates of the fair values and weighted average useful lives of net assets acquired, identified intangibles and goodwill are based on a preliminary estimate. Additional work needs to be completed to finalize the allocation of the purchase price to net assets, identified intangibles and goodwill acquired. AOL Time Warner does not expect the final allocation of the purchase price to differ materially from the amounts included in the accompanying financial statements.
Because the Merger was not consummated on or before December 31, 2000, the accompanying consolidated financial statements and notes for 2000 reflect only the financial results of America Online, as predecessor to AOL Time Warner. However, in order to enhance comparability, pro forma consolidated financial statements are presented supplementally to illustrate the effects of the Merger on the historical financial position and operating results of America Online. The pro forma financial statements for AOL Time Warner are presented as if the Merger between America Online and Time Warner had occurred on January 1, 2000. These results also reflect reclassifications of each company's historical operating results and segment information to conform to the combined Company's financial statement presentation, as follows:
o Time Warner's digital media results have been allocated to the business segments now responsible for managing those operations and are no longer treated as a distinct line item;
o Income and losses related to equity-method investments and gains and losses
on the sale of investments have been reclassified from operating income
(loss) to other income (expense), net;
o Corporate expenses have been reclassified to selling, general and administrative costs as a reduction of operating income (loss); and
o Merger-related costs have been moved from other income (expense), net, to operating income (loss).
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Investment in Time Warner Entertainment Company, L.P.
A majority of AOL Time Warner's interests in filmed entertainment, television production, television broadcasting and cable television systems, and a portion of its interests in cable television programming are held through Time Warner Entertainment Company, L.P. ("TWE"). AOL Time Warner owns general and limited partnership interests in TWE consisting of 74.49% of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital"), and 100% of the junior priority capital ("Series B Capital"). The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by MediaOne TWE Holdings, Inc. ("MediaOne"), a subsidiary of AT&T Corp.
Interim Financial Statements
The accompanying consolidated financial statements are unaudited but, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position and the results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles applicable to interim periods. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements of America Online, predecessor to AOL Time Warner, included in AOL Time Warner's Annual Report on Form 10-K for the year ended December 31, 2000 (the "2000 Form 10-K") and the audited consolidated financial statements of Time Warner for the year ended December 31, 2000, included in AOL Time Warner's Current Report on Form 8-K/A, dated January 11, 2001 (filed February 9, 2001) (the "Time Warner 2000 Financial Statements"). Included in the Time Warner 2000 Financial Statements is a summary of significant accounting policies used in determining the financial position, cash flows and results of operations of Time Warner's business segments.
Cumulative Effect of Change in Film Accounting Principle
In June 2000, Time Warner adopted Statement of Position 00-2, "Accounting by Producers and Distributors of Films" ("SOP 00-2"). SOP 00-2 established new film accounting standards, including changes in revenue recognition and accounting for advertising, development and overhead costs. Specifically, SOP 00-2 requires advertising costs for theatrical and television product to be expensed as incurred. This compares to Time Warner's previous policy of first capitalizing and then expensing advertising costs for theatrical product over the related revenue streams. In addition, SOP 00-2 requires development costs for abandoned projects and certain indirect overhead costs to be charged directly to expense, instead of those costs being capitalized to film costs, which was required under the previous accounting model. SOP 00-2 also requires all film costs to be classified in the balance sheet as noncurrent assets.
Time Warner had adopted the provisions of SOP 00-2, retroactively to the beginning of 2000. As a result, AOL Time Warner's pro forma net loss in 2000 includes a one-time, noncash, after-tax charge of $443 million, primarily to reduce the carrying value of its film inventory. This charge has been reflected as a cumulative effect of an accounting change.
Revenue Classification Changes
In the fourth quarter of 2000, both America Online and Time Warner adopted Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 clarifies certain existing accounting principles for the timing of revenue recognition and the classification of revenues in financial statements. While both America Online's and Time Warner's existing revenue recognition policies
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
were consistent with the provisions of SAB 101, the new rules resulted in changes as to how revenues from certain transactions are classified in the AOL, Networks and Music segments. As a result of applying the provisions of SAB 101, the Company's revenues and costs during the first quarter of 2000 were reduced by an equal amount of $91 million on a pro forma basis ($33 million on a historical basis).
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a Replacement of FASB Statement No. 125" ("FAS 140"). FAS 140 revises the criteria for accounting for securitizations and other transfers of financial assets and collateral. In addition, FAS 140 requires certain additional disclosures. Except for the new disclosure provisions, which were effective for the year ended December 31, 2000, FAS 140 is effective for the transfer of financial assets occurring after March 31, 2001. Management does not expect the provisions of FAS 140 to have a significant effect on AOL Time Warner's consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the prior year's financial information to conform to the 2001 presentation, including reclassifications of each company's historical results as previously discussed.
2. MERGER-RELATED COSTS
America Online-Time Warner Merger
In connection with the Merger, the Company has reviewed of its operations and implemented several plans to restructure the operations of America Online and Time Warner ("restructuring plans"). As part of the restructuring plans, the Company recorded a restructuring liability of approximately $965 million during the first quarter of 2001. The restructuring liability is for costs to be incurred for exiting and consolidating activities of the Company as well as costs incurred to terminate employees throughout the Company.
The restructuring plans include approximately $70 million, primarily related to the AOL segment, which was expensed in the first quarter of 2001 in accordance with generally accepted accounting principles and is included in "Merger-related costs" in the accompanying consolidated statement of operations. The remaining costs to be incurred in connection with the restructuring plans were recognized as liabilities assumed in the purchase business combination and included in the allocation of the cost to acquire Time Warner. Accordingly, such amounts resulted in additional goodwill being recorded in connection with the Merger.
Of the total restructuring costs, $565 million related to work force reductions and represented employee termination benefits. Because certain employees can defer receipt of termination benefits for up to 24 months, cash payments will continue after the employee has been terminated. Termination payments of approximately $40 million were made in the first quarter of 2001. As of March 31, 2001, the remaining liability of approximately $525 million was primarily classified as a current liability in the accompanying consolidated balance sheet.
The restructuring charge also includes approximately $400 million associated with exiting certain activities, primarily related to lease and contract termination costs. Specifically, the Company plans to consolidate certain operations and exit other under-performing operations, including the Studio Store operations included in the Filmed
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Entertainment segment and the World Championship Wrestling operations included in the Networks segment. The restructuring charge associated with other exiting activities specifically includes incremental costs and contractual termination obligations for items such as leasehold termination payments and other facility exit costs incurred as a direct result of these plans, which will not have future benefits. As of March 31, 2001, the remaining liability of $380 million was primarily classified as a current liability in the accompanying consolidated balance sheet.
The restructuring costs recorded in the first quarter are based on the Company's restructuring plans that have been committed to by management. These restructuring plans may be broadened to include additional restructuring initiatives as management continues to evaluate the integration of the combined companies and completes its purchase price allocation.
Selected information relating to the restructuring plans follows (in millions):
Employee Other
Termination Exit Costs Total
------------ ------------ ------------
Initial Accruals $565 $400 $965
Cash paid (40) (20) (60)
-------- -------- --------
Restructuring liability as of March 31, 2001 $525 $380 $905
======== ======== =========
|
3. SIGNIFICANT TRANSACTIONS
Investment-Related Activity
During the first quarter of 2001, there was a broad decline in the public equity markets, particularly in technology stocks, including investments held in the Company's portfolio. Similarly, the Company experienced significant declines in the value of certain privately held investments and restricted securities. As a result, the Company has recorded a $620 million noncash pretax charge to reduce the carrying value of certain publicly traded and privately held investments and restricted securities that had experienced other-than-temporary declines. The charge has been included in other income (expense), net, in the accompanying consolidated statement of operations.
During the first quarter of 2000, the Company recognized pretax gains of approximately $285 million from the sale of certain investments ($275 million on a historical basis). These gains have been included in other income (expense), net, on both a historical and pro forma basis in the accompanying consolidated statement of operations.
Gain on Sale or Exchange of Cable Television Systems And Investments
In 2000, largely in an ongoing effort to enhance its geographic clustering of cable television properties, the Company sold or exchanged various cable television systems and investments. For the three months ended March 31, 2000, the operating results of the Cable segment include net pretax gains of $28 million, on a pro forma basis.
Columbia House Investment Write-Down
In March 2000, the proposed merger between CDNOW, Inc. and Columbia House was terminated. In connection with the termination of the merger, the risk associated with the timely execution of certain strategic alternatives for Columbia House's operations and the transformation of Columbia House's traditional business model to an online one increased. As a result, Time Warner's management concluded that the decline in Columbia House's
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
business was likely to continue through the near term. As such, the Company recorded a $220 million noncash pretax charge in the first quarter of 2000 to reduce the carrying value of its investment in Columbia House to an estimate of its fair value. The charge has been included in other income (expense), net, on a pro forma basis in the accompanying consolidated statement of operations.
4. BERTELSMANN AG ALLIANCE
In March 2000, America Online and Bertelsmann AG announced a global alliance to expand the distribution of Bertelsmann's media content and electronic commerce properties over America Online's interactive brands worldwide. America Online and Bertelsmann also announced an agreement to restructure their interests in the AOL Europe and AOL Australia joint ventures. This restructuring consists of a put and call arrangement under which the Company may purchase or be required to purchase, in two installments beginning in January 2002, Bertelsmann's 49.5% interest in AOL Europe for consideration ranging from $6.75 billion to $8.25 billion. On March 30, 2001, AOL Time Warner and Bertelsmann agreed that, if Bertelsmann exercises its put right, $2.5 billion of the consideration would be paid in cash, with the remainder payable at AOL Time Warner's option in cash, AOL Time Warner stock or a combination of cash and stock. AOL Time Warner believes it will have adequate resources from its cash reserves or from accessing its committed bank facilities, commercial paper markets or capital markets to make any payments it is required or chooses to make in cash upon exercise of a put or call right.
5. INVESTMENT IN TWE
TWE is a Delaware limited partnership that was capitalized in 1992 to own and operate substantially all of the Filmed Entertainment-Warner Bros., Networks-HBO and The WB Network, and Cable businesses previously owned by subsidiaries of AOL Time Warner. AOL Time Warner, through its wholly owned subsidiaries, collectively owns general and limited partnership interests in TWE consisting of 74.49% of the Series A Capital and Residual Capital and 100% of the Series B Capital. The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by MediaOne. Certain AOL Time Warner subsidiaries are the general partners of TWE ("AOL Time Warner General Partners").
The TWE partnership agreement provides for special allocations of income, loss and distributions of partnership capital, including priority distributions in the event of liquidation. As a result of the Merger, a portion of the $147 billion cost to acquire Time Warner was allocated to the underlying net assets of TWE, to the extent acquired. TWE's net loss for the three months ended March 31, 2001 reflects additional amortization generated by the intangible assets and goodwill established in connection with this allocation. TWE reported a net loss of $350 million in the first quarter of 2001 and a net loss of $866 million, including a $524 million noncash charge related to the cumulative effect of an accounting change, on a pro forma basis in the first quarter of 2000 ($300 million net loss on a historical basis). Because of the priority rights over allocations of income and distributions of TWE held by the AOL Time Warner General Partners, $344 million of TWE's loss for the three months ended March 31, 2001 was allocated to AOL Time Warner and $6 million was allocated to MediaOne. For the three months ended March 31, 2000, all of TWE's net loss of $300 million was allocated to AOL Time Warner and none was allocated to MediaOne.
The assets and cash flows of TWE are restricted by the TWE partnership and credit agreements. As such, they are unavailable for use by the partners except through the payment of certain fees, reimbursements, cash distributions and loans, which are subject to limitations.
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. INVENTORIES
Inventories and film costs consist of:
March 31, 2001 December 31, 2000
-------------- -----------------
Historical Pro Forma
---------- ---------
(millions)
Programming costs, less amortization.............................. $2,396 $2,097
Magazines, books, recorded music and other merchandise............ 614 614
Film costs-Theatrical:
Released, less amortization.................................. 828 916
Completed and not released................................... 374 242
In production................................................ 708 776
Development and pre-production............................... 77 91
Film costs-Television:
Released, less amortization.................................. 247 220
Completed and not released................................... 159 196
In production................................................ 39 76
Development and pre-production............................... 5 5
Film costs-Library, less amortization............................. 3,496 2,585
------ ------
Total inventories and film costs.................................. 8,943 7,818
Less current portion of inventory................................. 1,857 1,583
------ ------
Total noncurrent inventories and film costs....................... $7,086 $6,235
====== ======
|
At December 31, 2000, on a historical basis, AOL Time Warner had current inventory of $47 million.
7. LONG-TERM DEBT
$10 Billion Shelf Registration Statement
In January 2001, AOL Time Warner filed a shelf registration statement with the SEC, which allows AOL Time Warner to offer and sell from time to time, debt securities, preferred stock, series common stock, common stock and/or warrants to purchase debt and equity securities in amounts up to $10 billion in initial aggregate public offering prices. Proceeds from any offerings will be used for general corporate purposes, including investments, capital expenditures, repayment of debt and financing acquisitions. On April 19, 2001, AOL Time Warner issued an aggregate of $4 billion principal amount of debt securities under this shelf registration statement at various fixed interest rates and maturities of 5, 10 and 30 years. The net proceeds to the Company were $3.964 billion and were used primarily to pay down bank debt. These securities are guaranteed on an unsecured basis by each of America Online and Time Warner. In addition, Time Warner Companies, Inc. ("TW Companies") and Turner Broadcasting System, Inc. ("TBS") have guaranteed, on an unsecured basis, Time Warner's guarantee of the securities.
$5 Billion Commercial Paper Program and Senior Unsecured Revolving Credit Facility
In April 2001, AOL Time Warner established a $5 billion commercial paper program which is backed by a $5 billion 364-day senior unsecured revolving credit facility (the "revolving credit facility"), borrowings under which may be repaid for a period up to two years following the initial term. The program will allow AOL Time Warner to issue commercial paper to investors from time to time in maturities of up to 365 days. Proceeds from the commercial paper offerings will be used for general corporate purposes including investments, capital expenditures, repayment of debt and financing acquisitions. The revolving credit facility is available to support the commercial paper program and for general corporate purposes. Borrowings under the $5 billion commercial paper program and the revolving credit facility
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
are guaranteed on an unsecured basis, directly or indirectly, by each of America Online, Time Warner, TW Companies and TBS.
Cross Guarantees of Bank and Public Debt
During 2001, in connection with the Merger, America Online and AOL Time Warner were added as guarantors to (i) borrowings drawn against the Company's $7.5 billion revolving credit facility by Time Warner and a number of its consolidated subsidiaries, consisting of TW Companies, TWI Cable Inc. and TBS and (ii) the public debt of Time Warner, TW Companies and TBS. In addition, AOL Time Warner, Time Warner, TW Companies and TBS were added as guarantors to America Online's zero-coupon convertible subordinated notes.
8. MANDATORILY REDEEMABLE PREFERRED SECURITIES
In 1995, the Company, through TW Companies, issued approximately 23 million Company-obligated mandatorily redeemable preferred securities of a wholly owned subsidiary ("Preferred Trust Securities") for aggregate gross proceeds of $575 million. The sole assets of the subsidiary that was the obligor on the Preferred Trust Securities were $592 million principal amount of 8 7/8% subordinated debentures of TW Companies due December 31, 2025. Cumulative cash distributions were payable on the Preferred Trust Securities at an annual rate of 8 7/8%. The Preferred Trust Securities were mandatorily redeemable for cash on December 31, 2025, and TW Companies had the right to redeem the Preferred Trust Securities, in whole or in part, on or after December 31, 2000, or in other certain circumstances.
On February 13, 2001, TW Companies redeemed all 23 million shares of the Preferred Trust Securities. The redemption price was $25 per security, plus accrued and unpaid distributions thereon equal to $0.265 per security. The total redemption price of $581 million was funded with borrowings under the Company's $7.5 billion revolving credit facility.
9. SHAREHOLDERS' EQUITY
Common Stock Repurchase Program
In January 2001, AOL Time Warner's Board of Directors authorized a common stock repurchase program that allows AOL Time Warner to repurchase, from time to time, up to $5 billion of common stock over a two-year period. During the first quarter of 2001, the Company repurchased 14.1 million shares at an aggregate cost of $615 million.
Income (Loss) Per Common Share Before Cumulative Effect of Accounting Change
Set forth below is a reconciliation of basic and diluted income (loss) per common share before the cumulative effect of an accounting change for each period.
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000 2000
Historical(a) Pro Forma(a) Historical(a)
---------- --------- ----------
(millions, except per share amounts)
Income (loss) applicable to common shares before
cumulative effect of accounting change - basic.................... $ (1,369) $ (1,017) $ 433
Interest savings, net of tax(b)........................................ - - 2
-------- -------- --------
Income (loss) applicable to common shares before
cumulative effect of accounting change - diluted.................. $ (1,369) $ (1,017) $ 435
======== ======== ========
Average number of common shares outstanding - basic.................... 4,412.7 4,250.3 2,298.0
Dilutive effect of stock options....................................... - - 272.0
Dilutive effect of convertible debt.................................... - - 38.0
-------- -------- --------
Average number of common shares outstanding - diluted.................. 4,412.7 4,250.3 2,608.0
======== ======== ========
Income (loss) per common share before cumulative
effect of accounting change:
Basic............................................................. $ (0.31) $ (0.24) $ 0.19
======== ======== ========
Diluted........................................................... $ (0.31) $ (0.24) $ 0.17
======== ======== ========
|
(b) Reflects the savings associated with reduced interest expense that would be forfeited if the convertible debt was converted to equity.
10. SEGMENT INFORMATION
AOL Time Warner classifies its business interests into six fundamental areas: AOL, consisting principally of interactive services, Web brands, Internet technologies and electronic commerce services; Cable, consisting principally of interests in cable television systems; Filmed Entertainment, consisting principally of interests in filmed entertainment and television production; Networks, consisting principally of interests in cable television and broadcast network programming; Music, consisting principally of interests in recorded music and music publishing; and Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing.
Information as to the operations of AOL Time Warner in different business segments is set forth below based on the nature of the products and services offered. AOL Time Warner evaluates performance based on several factors, of which the primary financial measure is operating income (loss) before noncash depreciation of tangible assets and amortization of intangible assets ("EBITDA").
Prior to the Merger, America Online, predecessor to AOL Time Warner, classified its business interests into two reportable segments, the Interactive Services Group and the Netscape Enterprise Group. As a result of the Merger, and the addition of Time Warner's business interests, AOL Time Warner management assessed the manner in which financial information is reviewed in making operating decisions and assessing performance, and concluded that America Online would be treated as one separate and distinct reportable segment. In accordance with Financial Accounting Standards Board No. 131, "Disclosures About Segments of an Enterprise and Related Information," AOL Time Warner has reclassified its 2000 historical segment presentation to reflect America Online as one reportable segment. In order to enhance comparability, supplemental pro forma operating results for 2000 have been presented as if the Merger had occurred at the beginning of the year.
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The accounting policies of the business segments are the same as those described in the summary of significant accounting policies under Note 1 in the 2000 Form 10-K (for America Online business interests) and under Note 1 in the Time Warner 2000 Financial Statements (for Time Warner's business interests). Intersegment sales are accounted for at fair value as if the sales were to third parties.
Three Months
Ended March 31,
----------------------
2001 2000(a)
Historical Pro Forma
---------- ---------
(millions)
Revenues
AOL............................................... $2,125 $1,814
Cable............................................. 1,625 1,447
Filmed Entertainment.............................. 2,212 1,896
Networks.......................................... 1,699 1,610
Music............................................. 881 934
Publishing........................................ 966 939
Intersegment elimination.......................... (428) (324)
------ ------
Total business segment revenues................... $9,080 $8,316
====== ======
|
Three Months
Ended March 31,
----------------------
2001 2000(a)
Historical Pro Forma
---------- ---------
(millions)
EBITDA(b)
AOL .................................................... $ 684 $ 506
Cable(c)................................................. 768 694
Filmed Entertainment..................................... 113 185
Networks................................................. 449 335
Music.................................................... 94 101
Publishing............................................... 113 94
Corporate................................................ (74) (84)
Merger-related costs..................................... (71) (46)
Intersegment elimination................................. (1) (8)
------ ------
Total business segment EBITDA............................ $2,075 $1,777
====== ======
|
(b) EBITDA represents operating income (loss) before noncash depreciation of tangible assets and amortization of intangible assets. After deducting depreciation and amortization, AOL Time Warner's operating loss was $147 million in 2001 and $364 million on a pro forma basis in 2000 (operating income of $376 million on a historical basis).
(c) Includes pretax gains of approximately $28 million in 2000 relating to the sale or exchange of certain cable television systems and investments.
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Three Months
Ended March 31,
----------------------
2001 2000(a)
Historical Pro Forma
---------- ---------
(millions)
Depreciation of Property, Plant and Equipment
AOL............................................... $101 $ 89
Cable............................................. 242 199
Filmed Entertainment.............................. 22 25
Networks.......................................... 39 33
Music............................................. 22 20
Publishing........................................ 16 18
Corporate......................................... 5 5
---- ----
Total business segment depreciation............... $447 $389
==== ====
|
Three Months
Ended March 31,
----------------------
2001 2000(a)
Historical Pro Forma
---------- ---------
(millions)
Amortization of Intangible Assets(b)
AOL...................................................... $ 35 $ 19
Cable.................................................... 626 664
Filmed Entertainment..................................... 118 130
Networks................................................. 474 487
Music.................................................... 206 180
Publishing............................................... 233 205
Corporate................................................ 83 67
------ ------
Total business segment amortization...................... $1,775 $1,752
====== ======
|
(b) Includes amortization relating to business combinations accounted for by the purchase method, substantially all of which arose in the $147 billion acquisition of Time Warner in 2001.
On a historical basis, AOL Time Warner's assets represent those of America Online, as predecessor to AOL Time Warner, and were $10.827 billion at December 31, 2000, including approximately $4.2 billion of corporate-related assets such as cash and liquid investments. Due to the consummation of the Merger and the allocation of the $147 billion cost to acquire Time Warner to the underlying net assets of Time Warner based on their respective fair values, AOL Time Warner's assets have significantly increased since December 31, 2000. Any excess of the purchase price over estimated fair value of the net assets acquired was recorded as goodwill and allocated among AOL Time Warner's business segments. AOL Time Warner's assets by business segment, compared to the pro forma assets as of December 31, 2000 as if the Merger had occurred at the beginning of 2000, are as follows:
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
March 31, December 31,
2001 2000
Historical Pro Forma
---------- ---------
(millions)
Assets
AOL............................................... $ 6,500 $ 6,647
Cable............................................. 73,001 77,217
Filmed Entertainment.............................. 18,167 18,791
Networks.......................................... 52,845 54,152
Music............................................. 19,300 18,171
Publishing........................................ 27,517 25,130
Corporate......................................... 14,661 15,939
-------- --------
Total business segment assets..................... $211,991 $216,047
======== ========
|
11. COMMITMENTS AND CONTINGENCIES
America Online has been named as defendant in several putative class action lawsuits brought by consumers and Internet service providers, alleging certain injuries to have been caused by installation of AOL versions 5.0 and 6.0 software. These cases are in preliminary stages, but the Company believes that they are without merit and intends to defend them vigorously. The Company is unable, however, to predict the outcome of these cases, or reasonably estimate a range of possible loss given their current status.
The Department of Labor has commenced an investigation into the applicability of the Fair Labor Standards Act ("FLSA") to America Online's Community Leader program. In addition, a putative class of former and current Community Leader volunteers has brought a lawsuit against America Online alleging violations of the FLSA and comparable state statutes. The Company believes that America Online's actions concerning the Community Leader program comply with the law and that the investigation and the private lawsuit by the purported class of volunteers are without merit. The Company intends to defend both the investigation and the lawsuit vigorously, but the Company is unable at this time to predict the outcome of the investigation or the litigation, or reasonably estimate a range of possible loss given their current status.
In Six Flags Over Georgia LLC et al. v. Time Warner Entertainment Company et al., following a trial in December 1998, the jury returned a verdict for plaintiffs and against defendants, including TWE, on plaintiffs' claims for breaches of fiduciary duty. The jury awarded plaintiffs approximately $197 million in compensatory damages and $257 million in punitive damages, and interest has been accruing on those amounts at the Georgia annual statutory rate of twelve percent. The Company has since paid the compensatory damages with accrued interest. Payment of the punitive damages portion of the award with accrued interest was stayed by the United States Supreme Court on March 1, 2001 pending the disposition of a certiorari petition with that Court, which has not yet been filed by TWE.
The Company is subject to a number of state and federal class action lawsuits as well as an action brought by a number of state Attorneys General alleging unlawful horizontal and vertical agreements to fix the prices of compact discs by the major record companies. Although the Company believes that, as to each of these actions, the cases have no merit, adverse jury verdicts could result in a material loss to the Company. The Company is unable to predict the outcomes of the litigation and cannot reasonably estimate a range of possible loss given the current status of the cases. Two competition investigations also are currently pending in Europe. The Company is cooperating in these investigations, but is unable to predict their outcomes given their current status.
AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in those matters (including those matters described above), and developments or assertions by or against the Company relating to intellectual property rights and intellectual property licenses, could have a material adverse effect on the Company's business, financial condition and operating results.
12. ADDITIONAL FINANCIAL INFORMATION
Cash Flows
Additional financial information with respect to cash flows is as follows:
Three Months Ended March 31,
------------------------------------
2001 2000 2000
Historical Pro Forma Historical
---------- --------- ----------
(millions)
Cash payments made for interest................... $460 $473 $ 2
Interest income received.......................... 69 85 71
Cash payments made for income taxes............... 132 112 -
Income tax refunds received....................... 10 12 -
|
Other Income (Expense), Net
Other income (expense), net, consists of:
Three Months Ended March 31,
------------------------------------
2001 2000 2000
Historical Pro Forma Historical
---------- --------- ----------
(millions)
Write-down of investments.......................... $(620) $ - $ -
Write-down of investment in Columbia House......... - (220) -
Gains on sale of certain investments............... - 285 275
Other investment-related activity, principally
net losses of equity investees(a)............. (224) (128) 4
Losses on asset securitization programs............ (20) (25) -
Miscellaneous...................................... (8) (16) 1
----- ----- ----
Total other income (expense), net.................. $(872) $(104) $280
===== ===== ====
|
Other Current Liabilities
Other current liabilities consist of:
March 31, December 31, December 31,
2001 2000 2000
Historical Pro Forma Historical
---------- --------- ----------
(millions)
Accrued expenses......................... $5,547 $4,936 $1,047
Accrued compensation..................... 735 1,085 111
Accrued income taxes..................... 96 142 -
------ ------ ------
Total.................................... $6,378 $6,163 $1,158
====== ====== ======
|
AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(Unaudited)
America Online, Inc. ("America Online"), Time Warner Inc. ("Time Warner"), Time Warner Companies, Inc. ("TW Companies") and Turner Broadcasting System, Inc. ("TBS" and, together with America Online, Time Warner and TW Companies, the "Guarantor Subsidiaries") are wholly owned subsidiaries of AOL Time Warner Inc. ("AOL Time Warner"). AOL Time Warner, America Online, Time Warner, TW Companies and TBS have fully and unconditionally, jointly and severally, and directly or indirectly, guaranteed all of the outstanding publicly traded indebtedness of each other. Set forth below are condensed consolidating financial statements of AOL Time Warner, including each of the Guarantor Subsidiaries, presented for the information of each company's public debtholders. The following condensed consolidating financial statements present the results of operations, financial position and cash flows of (i) America Online, Time Warner, TW Companies and TBS (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the direct and indirect non-guarantor subsidiaries of AOL Time Warner and (iii) the eliminations necessary to arrive at the information for AOL Time Warner on a consolidated basis. These condensed consolidating financial statements should be read in conjunction with the accompanying consolidated financial statements of AOL Time Warner.
Consolidating Statement of Operations For The Three Months Ended March 31, 2001
AOL Non- AOL Time
Time America Time TW Guarantor Warner
Warner Online Warner Companies TBS Subsidiaries Eliminations Consolidated
------ ------ ------ --------- --- ------------ ------------ ------------
(millions)
Revenues....................................$ - $ 1,626 $ - $ - $ 197 $ 7,285 $ (28) $ 9,080
------- ------- ------- ----- ----- ------- ------ -------
Cost of revenues............................ - (882) - - (63) (4,093) 28 (5,010)
Selling, general and administrative......... (8) (390) (8) (4) (44) (1,917) - (2,371)
Amortization of goodwill and other
intangible assets........................ (83) (5) - - (56) (1,631) - (1,775)
Merger-related costs........................ - (67) - - - (4) - (71)
------- ------- ------- ----- ----- ------- ------ -------
Operating income (loss)..................... (91) 282 (8) (4) 34 (360) - (147)
Equity in pretax income of consolidated
subsidiaries............................. (1,350) 173 (1,197) (814) (205) - 3,393 -
Interest income (expense), net.............. 1 41 (21) (129) (48) (163) - (319)
Other expense, net.......................... (2) (598) (28) (24) (5) (215) - (872)
Minority interest........................... - - 6 - - (110) - (104)
------- ------- ------- ----- ----- ------ ------ -------
Loss before income taxes.................... (1,442) (102) (1,248) (971) (224) (848) 3,393 (1,442)
Income tax benefit (provision).............. 73 44 (8) (9) (48) (168) 189 73
------- ------- ------- ------ ----- ------ ------ -------
Net loss....................................$(1,369) $ (58) $(1,256) $(980) $(272) $(1,016) $3,582 $(1,369)
======= ======= ======= ===== ===== ======= ====== =======
|
AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Consolidating Statement of Operations
For The Three Months Ended March 31, 2000
America
Online
(predecessor Non- AOL Time
to AOL Time TW Guarantor Warner
Time Warner) Warner Companies TBS Subsidiaries Eliminations Consolidated
----------- ------ --------- --- ------------ ------------ ------------
(millions)
Revenues........................................$1,425 $ - $ - $ - $ 389 $ - $1,814
------ ------ ------ ------ ----- ------ ------
Cost of revenues................................ (803) - - - (184) - (987)
Selling, general and administrative............. (328) - - - (104) - (432)
Amortization of goodwill and other
intangible assets............................ - - - - (19) - (19)
------ ------ ------ ------ ----- ------ ------
Operating income................................ 294 - - - 82 - 376
Equity in pretax income of consolidated
subsidiaries................................. 83 - - - - (83) -
Interest income, net............................ - - - - 58 - 58
Other income (expense), net..................... 336 - - - (56) - 280
Minority interest............................... - - - - (1) - (1)
------ ------ ------ ------ ----- ------ ------
Income before income taxes...................... 713 - - - 83 (83) 713
Income tax provision............................ (280) - - - - - (280)
------ ------ ------ ------ ----- ------ ------
Net income......................................$ 433 $ - $ - $ - $ 83 $ (83) $ 433
====== ====== ====== ====== ===== ====== ======
|
AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Consolidating Balance Sheet
March 31, 2001
AOL Non- AOL Time
Time America Time TW Guarantor Warner
Warner Online Warner Companies TBS Subsidiaries Eliminations Consolidated
------ ------ ------ --------- --- ------------ ------------ ------------
(millions)
ASSETS
Current assets
Cash and equivalents....................$ 261 $ 123 $ - $ 274 $ 39 $ 773 $ (202) $ 1,268
Receivables, net........................ 11 379 17 20 97 4,433 - 4,957
Inventories............................. - - - - 108 1,749 - 1,857
Prepaid expenses and other current
assets............................... 24 277 - - 8 1,588 - 1,897
-------- ------ -------- -------- ------- -------- --------- --------
Total current assets.................... 296 779 17 294 252 8,543 (202) 9,979
Noncurrent inventories and film costs... - - - - 275 6,811 - 7,086
Investments in amounts due to and
from consolidated subsidiaries....... 161,287 1,726 179,626 139,884 37,527 - $(520,050) -
Investments, including available-
for-sale securities.................. - 2,847 (547) 657 24 8,583 - 11,564
Property, plant and equipment........... 27 867 6 - 82 10,532 - 11,514
Music catalogues and copyrights......... - - - - - 2,970 - 2,970
Cable television and sports franchises.. - - - - - 27,796 - 27,796
Brands and trademarks................... - - - - 655 10,175 - 10,830
Goodwill and other intangible assets.... 8,483 357 (40) - 7,057 112,050 - 127,907
Other assets............................ 28 32 137 62 74 2,012 - 2,345
-------- ------ -------- -------- ------- -------- --------- --------
Total assets............................$170,121 $6,608 $179,199 $140,897 $45,946 $189,472 $(520,252) $211,991
======== ====== ======== ======== ======= ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................$ 2 $ 171 $ 15 $ - $ 36 $ 1,631 $ - $ 1,855
Participations payable.................. - - - - - 1,201 - 1,201
Royalties and programming costs payable. - - - - 12 1,435 - 1,447
Deferred revenue........................ - 923 - - - 856 - 1,779
Debt due within one year................ - - - - - 17 - 17
Other current liabilities............... 433 1,081 97 104 360 4,222 81 6,378
-------- ------ -------- -------- ------- -------- --------- --------
Total current liabilities............... 435 2,175 112 104 408 9,362 81 12,677
Long-term debt.......................... - 1,420 2,842 6,745 793 8,578 (202) 20,176
Debt due to affiliates.................. - - - - 1,647 158 (1,805) -
Deferred income taxes................... 13,127 (4,538) 17,665 15,343 2,402 17,745 (48,617) 13,127
Deferred revenue........................ - 253 - - - 971 - 1,224
Other liabilities....................... 33 3 560 (43) 186 4,048 - 4,787
Minority interests...................... - - (6) - - 3,481 - 3,475
Shareholders' equity
Due (to) from AOL Time Warner and
subsidiaries......................... - 460 6,217 632 (1,227) (13,819) 7,737 -
Other shareholders' equity.............. 156,526 6,835 151,809 118,116 41,737 158,948 (477,446) 156,525
-------- ------ -------- -------- ------- -------- --------- --------
Total shareholders' equity.............. 156,526 7,295 158,026 118,748 40,510 145,129 (469,709) 156,525
-------- ------ -------- -------- ------- -------- --------- --------
Total liabilities and shareholders'
equity...............................$170,121 $6,608 $179,199 $140,897 $45,946 $189,472 $(520,252) $211,991
======== ====== ======== ======== ======= ======== ========= ========
|
AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Consolidating Balance Sheet
December 31, 2000
America
Online
(predecessor Non- AOL Time
to AOL Time TW Guarantor Warner
Time Warner) Warner Companies TBS Subsidiaries Eliminations Consolidated
----------- ------ --------- --- ------------ ------------ ------------
(millions)
ASSETS
Current assets
Cash and equivalents...........................$ 2,530 $ - $ - $ - $ 80 $ - $ 2,610
Short-term investments......................... 880 - - - 6 - 886
Receivables, net............................... 455 - - - 158 - 613
Inventories.................................... - - - - 47 - 47
Prepaid expenses and other current assets...... 375 - - - 140 - 515
------- ---- ---- ---- ------ ------- -------
Total current assets........................... 4,240 - - - 431 - 4,671
Investments in amounts due to and from
consolidated subsidiaries................... 1,511 - - - - (1,511) -
Investments, including available-
for-sale securities......................... 3,734 - - - 90 - 3,824
Property, plant and equipment.................. 866 - - - 175 - 1,041
Goodwill and other intangible assets........... 169 - - - 647 - 816
Other assets................................... 190 - - - 285 - 475
------- ---- ---- ---- ------ ------- -------
Total assets...................................$10,710 $ - $ - $ - $1,628 $(1,511) $10,827
======= ==== ==== ==== ====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable...............................$ 46 $ - $ - $ - $ 59 $ - $ 105
Deferred revenue............................... 909 - - - 154 - 1,063
Debt due within one year....................... 2 - - - - - 2
Other current liabilities...................... 1,029 - - - 129 - 1,158
------- ---- ---- ---- ------ ------- -------
Total current liabilities...................... 1,986 - - - 342 - 2,328
Long-term debt ................................ 1,411 - - - - - 1,411
Deferred revenue............................... 223 - - - - - 223
Other liabilities.............................. 82 - - - 5 - 87
Minority interests............................. - - - - - - -
Shareholders' equity
Due from AOL Time Warner subsidiaries.......... 296 - - - (296) - -
Other shareholders' equity..................... 6,712 - - - 1,577 (1,511) 6,778
------- ---- ---- ---- ------ ------- -------
Total shareholders' equity..................... 7,008 - - - 1,281 (1,511) 6,778
------- ---- ---- ---- ------ ------- -------
Total liabilities and shareholders' equity.....$10,710 $ - $ - $ - $1,628 $(1,511) $10,827
======= ==== ==== ==== ====== ======= =======
|
AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Consolidating Statement of Cash Flows
For The Three Months Ended March 31, 2001
AOL Non- AOL Time
Time America Time TW Guarantor Warner
Warner Online Warner Companies TBS Subsidiaries Eliminations Consolidated
------ ------ ------ --------- --- ------------ ------------ ------------
(millions)
OPERATIONS
Net loss................................$(1,369) $ (58) $(1,256) $ (980) $(272) $(1,016) $ 3,582 $(1,369)
Adjustments for noncash and
nonoperating items:
Depreciation and amortization........ 84 86 - - 57 1,995 - 2,222
Amortization of film costs........... - - - - - 626 - 626
Loss on writedown of investments..... - 587 - - - 33 - 620
Gain on sale of investments.......... - (3) - - - - - (3)
Excess (deficiency) of distributions
over equity in pretax income of
consolidated subsidiaries......... 234 (4,225) (1,936) 1,048 (136) - 5,015 -
Equity in losses of other investee
companies after distributions..... - 6 - 14 - 201 - 221
Changes in operating assets and
liabilities, net of acquisitions..... 2,871 4,090 (622) (3,511) 129 2,973 (7,271) (1,341)
------- ------- ------- ------- ----- ------- ------- -------
Cash provided (used) by operations...... 1,820 483 (3,814) (3,429) (222) 4,812 1,326 976
------- ------- ------- ------- ----- ------- ------- -------
INVESTING ACTIVITIES
Acquisition of Time Warner Inc. cash
and equivalents...................... - - (1) 198 40 453 - 690
Investments and acquisitions............ - (257) - - - (716) - (973)
Advances to parents and
consolidated subsidiaries............ - - - (1,680) - (1,444) 3,124 -
Capital expenditures.................... - (124) - - (12) (770) - (906)
Investment proceeds..................... - 1,609 - - - 40 - 1,649
------- ------- ------- ------- ----- ------- ------- -------
Cash provided (used) by investing
activities........................... - 1,228 (1) (1,482) 28 (2,437) 3,124 460
------- ------- ------- ------- ----- ------- ------- -------
FINANCING ACTIVITIES
Borrowings.............................. - - 1,380 - - 867 - 2,247
Debt repayments......................... - - - (25) - (4,066) - (4,091)
Change in due to/from parent............ (1,221) (4,118) 2,439 5,210 233 2,109 (4,652) -
Redemption of mandatorily redeemable
preferred securities of subsidiary... - - - - - (575) - (575)
Proceeds from exercise of stock option
and dividend reimbursement plans..... 277 - - - - - - 277
Repurchases of common stock............. (615) - - - - - - (615)
Dividends paid and partnership
distributions........................ - - (4) - - (17) - (21)
------- ------- ------- ------- ----- ------- ------- -------
Cash provided (used) by financing
activities........................... (1,559) (4,118) 3,815 5,185 233 (1,682) (4,652) (2,778)
------- ------- ------- ------- ----- ------- ------- -------
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS.......................... 261 (2,407) - 274 39 693 (202) (1,342)
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD.................. - 2,530 - - - 80 - 2,610
------- ------- ------- ------- ----- ------- ------- -------
CASH AND EQUIVALENTS AT END
OF PERIOD............................$ 261 $ 123 $ - $ 274 $ 39 $ 773 $ (202) $ 1,268
======= ======= ======= ======= ===== ======= ======= =======
|
AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Consolidating Statement of Cash Flows
For The Three Months Ended March 31, 2000
America
Online
(predecessor Non- AOL Time
to AOL Time TW Guarantor Warner
Time Warner) Warner Companies TBS Subsidiaries Eliminations Consolidated
----------- ------ --------- --- ------------ ------------ ------------
(millions)
OPERATIONS
Net income........................................$ 433 $ - $ - $ - $ 83 $(83) $ 433
Adjustments for noncash and nonoperating items:
Depreciation and amortization.................. 57 - - - 51 - 108
Gain on sale of investments.................... (194) - - - (85) - (279)
Equity in losses of other investee companies
after distributions......................... (82) - - - 82 - -
Changes in operating assets and liabilities,
net of acquisitions............................ 167 - - - 49 - 216
------ ---- ---- ---- ---- ---- ------
Cash provided (used) by operations................ 381 - - - 180 (83) 478
------ ---- ---- ---- ---- ---- ------
INVESTING ACTIVITIES
Investments and acquisitions...................... (466) - - - (36) - (502)
Capital expenditures.............................. (183) - - - (14) - (197)
Investment proceeds............................... 210 - - - 59 - 269
Other............................................. (9) - - - (7) - (16)
------ ---- ---- ---- ---- ---- ------
Cash provided (used) by investing activities...... (448) - - - 2 - (446)
------ ---- ---- ---- ---- ---- ------
FINANCING ACTIVITIES
Borrowings........................................ 34 - - - (2) - 32
Debt repayments................................... (3) - - - - - (3)
Proceeds from exercise of stock option and
dividend reimbursement plans................... 74 - - - 3 - 77
------ ---- ---- ---- ---- ---- ------
Cash provided (used) by financing activities...... 105 - - - 1 - 106
------ ---- ---- ---- ---- ---- ------
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS.................................... 38 - - - 183 (83) 138
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD............................ 2,393 - - - 161 - 2,554
------ ---- ---- ---- ---- ---- ------
CASH AND EQUIVALENTS AT END
OF PERIOD......................................$2,431 $ - $ - $ - $344 $(83) $2,692
====== ==== ==== ==== ==== ==== ======
|
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Description of Business
AOL Time Warner Inc. ("AOL Time Warner") is the world's first fully integrated, Internet-powered media and communications company. The Company was formed in connection with the merger of America Online, Inc. ("America Online") and Time Warner Inc. ("Time Warner") which was consummated on January 11, 2001 (the "Merger"). As a result of the Merger, America Online and Time Warner each became a wholly owned subsidiary of AOL Time Warner.
A majority of AOL Time Warner's interests in filmed entertainment, television production and cable television systems, and a portion of its interests in cable television and broadcast network programming, are held through Time Warner Entertainment Company, L.P. ("TWE"). AOL Time Warner owns general and limited partnership interests in TWE consisting of 74.49% of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital"), and 100% of the junior priority capital. The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by MediaOne TWE Holdings, Inc., a subsidiary of AT&T Corp. ("AT&T").
As part of the integration of TWE's businesses into AOL Time Warner's operating structure, management is pursuing various initiatives to enhance efficiencies. Such initiatives, some of which have already been implemented, include the consolidation of certain duplicative administrative and operational functions and the restructuring of certain under-performing assets. For additional information on the Merger and TWE's restructuring initiatives, see Notes 1 and 2, respectively, to the accompanying consolidated financial statements.
TWE classifies its business interests into three fundamental areas:
Cable, consisting principally of interests in cable television systems; Filmed
Entertainment, consisting principally of interests in filmed entertainment and
television production; and Networks, consisting principally of interests in
cable television and broadcast network programming. TWE also manages the cable
properties owned by AOL Time Warner and the combined cable television operations
are conducted under the name of Time Warner Cable.
AOL Time Warner and AT&T from time to time have engaged in discussions regarding AT&T's interest in TWE. On February 28, 2001, AT&T delivered to AOL Time Warner and TWE notice of its exercise of certain registration rights under the TWE partnership agreement. Actions pursuant to the notice were then suspended while discussions between AOL Time Warner and AT&T regarding AT&T's interest in TWE continued. AT&T, AOL Time Warner and TWE have now recommended the registration rights process that could result in the registration for public sale or the purchase by TWE of some or all of AT&T's interest in TWE.
Use of EBITDA
TWE evaluates operating performance based on several factors, including its primary financial measure of operating income (loss) before noncash depreciation of tangible assets and amortization of intangible assets ("EBITDA"). TWE considers EBITDA an important indicator of the operational strength and performance of its businesses, including the ability to provide cash flows to service debt and fund capital expenditures. In addition, EBITDA eliminates the uneven effect across all business segments of considerable amounts of noncash depreciation of tangible assets and amortization of intangible assets recognized in business combinations accounted for by the
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
purchase method. As such, the following comparative discussion of the results of operations of TWE includes, among other factors, an analysis of changes in business segment EBITDA. However, EBITDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss) and other measures of financial performance reported in accordance with generally accepted accounting principles.
Transactions Affecting Comparability of Results of Operations
America Online-Time Warner Merger
The Merger was accounted for by AOL Time Warner as an acquisition of Time Warner under the purchase method of accounting for business combinations. Under the purchase method of accounting, the estimated cost of approximately $147 billion to acquire Time Warner, including transaction costs, was allocated to its underlying net assets, including the net assets of TWE to the extent acquired, based on their respective estimated fair values. Any excess of the purchase price over estimated fair values of the net assets acquired was recorded as goodwill.
As a result of the Merger and the application of the purchase method of accounting, the accompanying historical operating results and financial condition are no longer comparable to 2001. Accordingly, in order to enhance comparability and make an analysis of 2001 more meaningful, the following discussion of results of operations and changes in financial condition and liquidity is based upon pro forma financial information for 2000 as if the Merger had occurred on January 1, 2000. These results also reflect reclassifications of historical operating results and segment information to conform to AOL Time Warner's financial statement presentation, as follows:
o TWE's digital media results have been allocated to the business segments now responsible for managing those operations and are no longer treated as a distinct line item;
o Income and losses related to equity-method investments and gains and losses
on the sale of investments have been reclassified from operating income
(loss) to other income (expense), net; and
o Corporate expenses have been reclassified to selling, general and administrative costs as a reduction of operating income (loss).
Other Significant Transactions and Nonrecurring Items
As more fully described herein, the comparability of TWE's operating results has been affected by certain significant transactions and nonrecurring items in 2000. The operating results for the first three months of 2000, on both a historical and pro forma basis, included (i) a pretax gain of $10 million relating to the partial recognition of a deferred gain on the 1998 sale of Six Flags Entertainment Corporation and (ii) a noncash charge of $524 million reflecting the cumulative effect of an accounting change in connection with the adoption of a new film accounting standard.
In order to meaningfully assess underlying operating trends, management believes that the results of operations for each period should be analyzed after excluding the effects of significant nonrecurring items. As such, the following discussion and analysis focuses on amounts and trends adjusted to exclude the impact of these unusual items. However, unusual items may occur in any period. Accordingly, investors and other financial statement users individually should consider the types of events and transactions for which adjustments have been made.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
RESULTS OF OPERATIONS
Consolidated Results
TWE had revenues of $3.542 billion and a net loss of $350 million for the three months ended March 31, 2001, compared to revenues of $3.311 billion on both a pro forma and historical basis and a loss before the cumulative effect of an accounting change of $342 million on a pro forma basis (income before the cumulative effect of an accounting change of $224 million on a historical basis) for the three months ended March 31, 2000.
As previously described, in addition to the consummation of the Merger, the comparability of TWE's operating results for the first quarter of 2000, on both a pro forma and historical basis, has been affected by certain significant, nonrecurring items aggregating approximately $514 million of net pretax losses.
Revenues. TWE's revenues increased to $3.542 billion in 2001, compared to $3.311 billion in 2000. This increase was driven by an increase in subscription revenues of 11% to $1.771 billion, an increase in advertising and commerce revenues of 5% to $299 million and an increase in content and other revenues of 3% to $1.472 billion. This compares to $1.594 billion, $284 million and $1.433 billion, respectively, for the three months ended March 31, 2000 on a pro forma basis.
As discussed more fully below, the increase in subscription revenues was principally due to an increase in the number of subscribers and an increase in subscription rates at both the Cable and Networks segments. The increase in advertising and commerce revenues was principally due to increased advertising at the Cable segment and advertising rate increases at The WB Network. The increase in content and other revenues was principally due to increased distribution of theatrical content at the Filmed Entertainment segment.
Net Loss. TWE's net loss decreased to $350 million in 2001, compared to $866 million on a pro forma basis in 2000. Excluding the effect of the nonrecurring items referred to earlier, TWE's net loss decreased marginally to $350 million in 2001 from $353 million on a pro forma basis in 2000. TWE's net loss decreased due to higher EBITDA and lower amortization expense, offset in part by increases in depreciation expense, minority interest and interest expense.
Depreciation and Amortization. Depreciation and amortization increased to $898 million in 2001 from $912 million on a pro forma basis in 2000. This increase was due to an increase in depreciation, primarily due to higher capital spending at the Cable segment, offset in part by a decrease in amortization.
Interest Expense, Net. Interest expense increased to $153 million in 2001, compared to $138 million in 2000, principally as a result of higher outstanding debt levels.
Other Expense, Net. Other expense, net, increased to $40 million of expense in 2001, compared to $37 million of expense on a pro forma basis in 2000. Other expense, net, increased primarily due to higher losses from certain investments accounted for under the equity method of accounting.
Minority Interest. Minority interest expense increased to $103 million in 2001, compared to $40 million in 2000. Minority interest expense increased principally due to pretax gains in 2001 on the exchange of various cable television systems at an equity investee of the TWE-Advance/Newhouse Partnership ("TWE-A/N") attributable to the minority owners of TWE-A/N and a higher allocation of losses in 2000 to a minority partner in The WB Network.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
Income Tax Expense. As a U.S. partnership, TWE is not subject to U.S. federal and state income taxation. Income and withholding taxes of $32 million in 2001 and $36 million on both a pro forma and historical basis in 2000, have been provided for the operations of TWE's domestic and foreign subsidiary corporations.
Business Segment Results
Revenues and EBITDA are as follows:
Three Months Ended March 31,
-----------------------------------------------
Revenues EBITDA
---------------------- -----------------------
2001 2000 2001 2000(a)
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
(millions)
Cable............................................... $1,387 $1,231 $ 661 $ 579
Filmed Entertainment-Warner Bros.................... 1,603 1,568 100 144
Networks............................................ 724 656 158 103
Corporate........................................... - - (19) (19)
Intersegment elimination............................ (172) (144) - -
------ ------ ----- -----
Total revenues and EBITDA........................... $3,542 $3,311 $ 900 $ 807
Depreciation and amortization....................... - - (922) (898)
------ ------ ----- -----
Total revenues and operating loss................... $3,542 $3,311 $ (22) $ (91)
====== ====== ===== =====
|
Cable. Revenues increased to $1.387 billion in 2001, compared to $1.231 billion in 2000. EBITDA increased to $661 million in 2001 from $579 million on a pro forma basis in 2000. Revenues increased due to a 12% increase in subscription revenues and an 18% increase in advertising and commerce revenues. The increase in subscription revenues was due to an increase in basic cable rates, an increase in basic cable subscribers, an increase in digital cable subscribers and an increase in subscribers to high-speed online services. EBITDA increased principally as a result of the revenue gains, offset in part by higher programming costs, principally due to programming rate increases.
Filmed Entertainment-Warner Bros. Revenues increased to $1.603 billion in 2001, compared to $1.568 billion in 2000. EBITDA decreased to $100 million in 2001 from $144 million on a pro forma basis in 2000. Revenues benefited from increased worldwide revenues from the distribution of theatrical product, principally due to higher worldwide DVD sales, and increased television licensing fees. EBITDA decreased principally due to higher advertising and distribution costs due to a higher number and different timing of new theatrical releases in comparison to the prior year's quarter, offset in part by the revenue gains.
Networks. Revenues increased to $724 million in 2001, compared to $656 million in 2000. EBITDA increased to $158 million in 2001 from $103 million on a pro forma basis in 2000. Revenues grew primarily due to an increase in subscription revenues at HBO, primarily from an increase in the number of subscribers. For The WB Network, revenues increased primarily due to an increase in advertising and commerce revenues driven by advertising rate increases.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
For HBO, the increase in EBITDA was principally due to the revenue gains and increased cost savings from management's overhead cost management program. For The WB Network, the increase in EBITDA was principally due to the revenue gains.
FINANCIAL CONDITION AND LIQUIDITY
March 31, 2001
Financial Condition
At March 31, 2001, TWE had $8.2 billion of debt, $384 million of cash and equivalents (net debt of $7.8 billion) and $65.8 billion of partners' capital, this was comparable to $7.1 billion of debt, $306 million of cash and equivalents (net debt of $6.8 billion) and $66.4 billion of partners' capital on a pro forma basis at December 31, 2000. On a historical basis, TWE had $7.1 billion of debt, $306 million of cash and equivalents (net debt of $6.8 billion) and $6.9 billion of partners' capital at December 31, 2000.
Cash Flows
During the first three months of 2001, TWE's cash provided by operations amounted to $600 million and reflected $900 million of business segment EBITDA, less $163 million of net interest payments, $66 million of net income taxes paid, $49 million of proceeds repaid under TWE's asset securitization program and $22 million related to an increase in other working capital requirements. Cash provided by operations of $776 million in the first three months of 2000 reflected $807 million of pro forma business segment EBITDA and $140 million related to a decrease in other working capital requirements, less $150 million of net interest payments, $19 million of net income taxes paid and $2 million of proceeds repaid under TWE's asset securitization program.
Cash used by investing activities was $1.117 billion in the first three months of 2001, compared to $599 million in 2000, principally as a result of an increase in cash used for investments and acquisitions and an increase in capital expenditures. Capital expenditures increased to $512 million in the first three months of 2001, compared to $391 million in 2000, primarily due to increased capital spending in the Cable segment related to digital cable boxes, high-speed modems and associated equipment.
Cash provided by financing activities was $595 million in the first three months of 2001, compared to cash used by financing activities of $334 million in 2000. Cash provided by financing activities in 2001 primarily related to $810 million of net borrowings, offset in part by capital distributions of $197 million. Cash used in financing activities in 2000 primarily related to $308 million of capital distributions.
Management believes that TWE's operating cash flow, cash and equivalents and additional borrowing capacity are sufficient to fund its capital and liquidity needs for the foreseeable future.
Cable Capital Spending
As discussed previously, TWE's capital spending primarily relates to spending at Time Warner Cable. Time Warner Cable has been engaged in a plan to upgrade the technological capability and reliability of its cable television systems and develop new services, which management believes will position the business for sustained, long-term growth. Capital spending by TWE's Cable division amounted to $489 million in 2001, compared to $360 million in
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
2000. Cable capital spending for the remainder of 2001 is expected to remain at comparable levels, reflecting spending on variable capital to facilitate the continued roll-out of Time Warner Cable's popular digital services, including digital cable and high-speed online services. At March 31, 2001, the Cable segment had 2.1 million digital cable subscribers, a 16.7% penetration of basic cable subscribers. This compares to 613,000 digital cable subscribers, or a 4.8% penetration of basic cable subscribers at March 31, 2000. Similarly, the number of high-speed online customers grew to 1.2 million, or 7.4% of eligible homes, from 447,000, or 4.4% of eligible homes at March 31, 2000. Such rapid growth of subscribers to these digital services increased the variable capital spending for digital cable boxes, high-speed modems and associated equipment. Capital spending is expected to continue to be funded by Time Warner Cable's operating cash flow.
Caution Concerning Forward-Looking Statements
The Securities and Exchange Commission (the "SEC") encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This document contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, EBITDA and cash flow. Words such as "anticipates," "estimates," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify such forward-looking statements. Those forward-looking statements are based on management's present expectations about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and TWE is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of such changes, new information, future events or otherwise.
TWE operates in highly competitive, consumer driven and rapidly changing media and entertainment businesses that are dependent on government regulation and economic, political and social conditions in the countries in which they operate, consumer demand for their products and services, technological developments and (particularly in view of technological changes) protection of their intellectual property rights. TWE's actual results could differ materially from management's expectations because of changes in such factors. Other factors could also cause actual results to differ from those contained in the forward-looking statements, including those identified in TWE's other filings with the SEC and the following:
o For TWE's cable business, more aggressive than expected competition from new technologies and other types of video programming distributors, including DBS and DSL; increases in government regulation of basic cable or equipment rates or other terms of service (such as "digital must-carry," open access or common carrier requirements); government regulation of other services, such as broadband cable modem service; increased difficulty in obtaining franchise renewals; the failure of new equipment (such as digital set-top boxes) or services (such as digital cable, high-speed online services, telephony over cable or video on demand) to appeal to enough consumers or to be available at reasonable prices, to function as expected and to be delivered in a timely fashion; fluctuations in spending levels by business and consumers; and greater than expected increases in programming or other costs.
o For TWE's cable and broadcast television programming businesses, greater than expected programming or production costs; a strike by television actors and writers; public and cable operator resistance to price increases (and the negative impact on premium programmers of increases in basic cable rates); increased regulation of distribution agreements; the sensitivity of advertising to economic cyclicality; the development of new technologies that alter the role of programming networks and services; and greater than expected fragmentation of consumer
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
viewership due to an increased number of programming services or the increased popularity of alternatives to television.
o For TWE's film businesses, their ability to continue to attract and select desirable talent and scripts at manageable costs; a strike by screen actors and writers; general increases in production costs; fragmentation of consumer leisure and entertainment time (and its possible negative effects on the broadcast and cable networks, which are significant customers of these businesses); continued popularity of merchandising; and the uncertain impact of technological developments, such as the Internet.
In addition, TWE's overall financial strategy, including growth in operations, maintaining its financial ratios and strengthened balance sheet, could be adversely affected by increased interest rates, failure to meet earnings expectations, significant acquisitions or other transactions, economic slowdowns, consequences of the euro conversion and changes in TWE's plans, strategies and intentions.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31, December 31,
2001 2000 2000
Historical Pro Forma(a) Historical(a)
----------- ---------- -----------
(millions)
ASSETS
Current assets
Cash and equivalents....................................................... $ 384 $ 306 $ 306
Receivables, including $1.452, $1.556 and $1.556 billion due from AOL
Time Warner, less allowances of $707, $677 and $677 million............ 3,317 3,643 3,643
Inventories................................................................ 756 762 762
Prepaid expenses........................................................... 264 200 200
------- ------- -------
Total current assets....................................................... 4,721 4,911 4,911
Noncurrent inventories and film costs...................................... 4,799 3,938 2,579
Investments................................................................ 2,722 2,218 543
Property, plant and equipment.............................................. 7,700 7,468 7,493
Cable television franchises................................................ 20,470 23,100 5,329
Brands and trademarks...................................................... 2,135 2,500 -
Goodwill and other intangible assets....................................... 42,118 39,882 3,603
Other assets............................................................... 905 959 1,000
------- ------- -------
Total assets............................................................... $85,570 $84,976 $25,458
======= ======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable........................................................... $ 2,329 $ 2,272 $ 2,272
Participations payable..................................................... 973 969 969
Programming costs payable.................................................. 518 455 455
Debt due within one year................................................... 2 3 3
Other current liabilities, including $1.323, $1.223 and $1.223 billion due
to AOL Time Warner..................................................... 2,566 2,799 2,799
------- ------- -------
Total current liabilities.................................................. 6,388 6,498 6,498
Long-term debt, including $202 million due to AOL Time Warner at
March 31, 2001......................................................... 8,172 7,108 7,108
Other long-term liabilities, including $828, $681 and $681 million due to
AOL Time Warner........................................................ 3,280 3,045 3,045
Minority interests......................................................... 1,969 1,881 1,881
Partners' capital
Contributed capital........................................................ 66,795 66,793 7,349
Partnership deficit........................................................ (1,034) (349) (423)
------- ------- -------
Total partners' capital.................................................... 65,761 66,444 6,926
------- ------- -------
Total liabilities and partners' capital.................................... $85,570 $84,976 $25,458
======= ======= =======
|
See accompanying notes.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31,
(Unaudited)
2001 2000 2000
Historical Pro Forma(a) Historical(a)
---------- --------- ----------
(millions)
Revenues:
Subscriptions................................................................ $ 1,771 $ 1,594 $ 1,594
Advertising and commerce..................................................... 299 284 284
Content and other............................................................ 1,472 1,433 1,433
------- ------- -------
Total revenues(b)............................................................... 3,542 3,311 3,311
Cost of revenues(b)............................................................. (2,258) (2,084) (2,098)
Selling, general and administrative(b).......................................... (625) (623) (620)
Amortization of goodwill and other intangible assets............................ (681) (695) (140)
------- ------- -------
Operating income (loss)......................................................... (22) (91) 453
Interest expense, net........................................................... (153) (138) (138)
Other expense, net(b)........................................................... (40) (37) (15)
Minority interest............................................................... (103) (40) (40)
------- ------- -------
Income (loss) before income taxes and cumulative effect of accounting change.... (318) (306) 260
Income taxes.................................................................... (32) (36) (36)
------- ------- -------
Income (loss) before cumulative effect of accounting change..................... (350) (342) 224
Cumulative effect of accounting change.......................................... - (524) (524)
------- ------- -------
Net loss........................................................................ $ (350) $ (866) $ (300)
======= ====== ======
|
(b) Includes the following income (expenses) resulting from transactions with the partners of TWE and other related companies:
Revenues................................................................. $207 $ 93 $ 93 Cost of revenues......................................................... (123) (63) (63) Selling, general and administrative...................................... (36) (43) (43) Other expense, net....................................................... 8 3 3 |
See accompanying notes.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
------------------------------------
2001 2000 2000
Historical Pro Forma(a) Historical(a)
---------- --------- ----------
(millions)
OPERATIONS
Net loss......................................................... $ (350) $(866) $ (300)
Adjustments for noncash and nonoperating items:
Cumulative effect of accounting change........................ - 524 524
Depreciation and amortization................................. 922 898 357
Amortization of film costs.................................... 452 416 416
Equity in losses of investee companies after distributions.... 48 53 31
Changes in operating assets and liabilities...................... (472) (249) (252)
------- ----- -----
Cash provided by operations...................................... 600 776 776
------- ----- -----
INVESTING ACTIVITIES
Investments and acquisitions..................................... (605) (272) (272)
Capital expenditures............................................. (512) (391) (391)
Investment proceeds.............................................. - 64 64
------- ----- -----
Cash used by investing activities................................ (1,117) (599) (599)
------- ----- -----
FINANCING ACTIVITIES
Borrowings....................................................... 819 894 894
Debt repayments.................................................. (9) (901) (901)
Capital distributions............................................ (198) (308) (308)
Other............................................................ (17) (19) (19)
------- ----- -----
Cash provided (used) by financing activities..................... 595 (334) (334)
------- ----- -----
INCREASE (DECREASE) IN CASH AND EQUIVALENTS...................... 78 (157) (157)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD...................... 306 517 517
------- ----- -----
CASH AND EQUIVALENTS AT END OF PERIOD............................ $ 384 $ 360 $ 360
======= ===== =====
|
See accompanying notes.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF PARTNERSHIP CAPITAL
(Unaudited)
Three Months
Ended March 31,
-----------------------
2001 2000
Historical Historical
---------- ----------
(millions)
BALANCE AT BEGINNING OF PERIOD.............................................................. $ 6,926 $ 7,149
Allocation of a portion of the purchase price in connection with America Online-Time
Warner merger to TWE..................................................................... 59,518 -
------ -------
Balance at beginning of period, adjusted to give effect to the America Online-Time Warner
merger................................................................................... 66,444 7,149
Net income (loss)........................................................................... (350) (300)
Other comprehensive income (loss)........................................................... 14 (9)
------- -------
Comprehensive income........................................................................ (336) (309)
Distributions............................................................................... (345) (1,030)
Other....................................................................................... (2) 11
------- -------
BALANCE AT END OF PERIOD.................................................................... $65,761 $ 5,821
======= =======
|
See accompanying notes.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
AOL Time Warner Inc. ("AOL Time Warner") is the world's first fully integrated, Internet-powered media and communications company. The Company was formed in connection with the merger of America Online, Inc. ("America Online") and Time Warner Inc. ("Time Warner") which was consummated on January 11, 2001 (the "Merger"). As a result of the Merger, America Online and Time Warner each became a wholly owned subsidiary of AOL Time Warner.
A majority of AOL Time Warner's interests in filmed entertainment, television production and cable television systems, and a portion of its interests in cable television and broadcast network programming, are held through Time Warner Entertainment Company, L.P. ("TWE"). AOL Time Warner owns general and limited partnership interests in TWE consisting of 74.49% of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital"), and 100% of the junior priority capital. The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by MediaOne TWE Holdings, Inc., a subsidiary of AT&T Corp.
TWE, a Delaware limited partnership, classifies its business interests into three fundamental areas: Cable, consisting principally of interests in cable television systems; Filmed Entertainment, consisting principally of interests in filmed entertainment and television production; and Networks, consisting principally of interests in cable television and broadcast network programming.
Each of the business interests within Cable, Filmed Entertainment and
Networks is important to TWE's objective of increasing partner value through the
creation, extension and distribution of recognizable brands and copyrights
throughout the world. Such brands and copyrights include (1) Time Warner Cable,
currently the second largest operator of cable television systems in the U.S.,
(2) the unique and extensive film, television and animation libraries of Warner
Bros. and trademarks such as the Looney Tunes characters and Batman, (3) HBO and
Cinemax, the leading pay-television services and (4) The WB Network, a national
broadcasting network launched in 1995 as an extension of the Warner Bros. brand
and as an additional distribution outlet for Warner Bros.'s collection of
children's cartoons and television programming.
The operating results of TWE's various business segments are presented herein as an indication of financial performance (Note 5). TWE's business segments generate significant cash flow from operations. The cash flow from operations generated by such business segments is considerably greater than their operating income due to significant amounts of noncash amortization of intangible assets recognized principally in the merger of America Online and Time Warner. Noncash amortization of intangible assets recorded by TWE's business segments amounted to $681 million in the first quarter of 2001 and $695 million on a pro forma basis in the first quarter of 2000 ($140 million on a historical basis).
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Basis of Presentation
America Online-Time Warner Merger
The Merger has been accounted for by AOL Time Warner as an acquisition of Time Warner under the purchase method of accounting for business combinations. Under the purchase method of accounting, the cost of approximately $147 billion to acquire Time Warner, including transaction costs, was allocated to its underlying net assets, including the net assets of TWE to the extent acquired, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill. A preliminary allocation of the excess of the purchase price, including transaction costs, over the book value of TWE's net assets to the extent acquired has been made to goodwill and other intangible assets, including film and television libraries, cable television franchises and brands and trademarks. The goodwill and identified intangible assets will be amortized on a straight-line basis over the following weighted-average useful lives:
Weighted-Average
Useful Life
-----------
(Years)
Film and television libraries................... 17
Cable television franchises..................... 25
Brands and trademarks........................... 34
Goodwill........................................ 25
|
The estimates of the fair values and weighted average useful lives of net assets acquired, identified intangibles and goodwill are based upon a preliminary estimate. Additional work needs to be completed in finalizing the allocation of the purchase price to net assets, identified intangibles and goodwill acquired. TWE does not expect the final allocation of the purchase price to differ materially from the amounts included in the accompanying consolidated financial statements.
Because the Merger was not consummated on or before December 31, 2000, the accompanying consolidated financial statements and notes for 2000 reflect only the financial results of TWE on a historical basis without the significant amortization created by the Merger. However, in order to enhance comparability, pro forma consolidated financial statements are presented supplementally to illustrate the effects of the Merger on the historical financial position and operating results of TWE. The pro forma financial statements for TWE are presented as if the Merger between America Online and Time Warner had occurred on January 1, 2000. These results also reflect reclassifications TWE's historical operating results and segment information to conform to the combined AOL Time Warner's financial statement presentation, as follows:
o TWE's digital media results have been allocated to the business segments now responsible for managing those operations and are no longer treated as a distinct line item;
o Income and losses related to equity-method investments and gains and losses
on the sale of investments have been reclassified from operating income
(loss) to other income (expense), net; and
o Corporate services have been reclassified to selling, general and administrative costs as a reduction of operating income (loss).
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Interim Financial Statements
The accompanying consolidated financial statements are unaudited but, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position and the results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles applicable to interim periods. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements of TWE included in AOL Time Warner's Current Report on Form 8-K/A dated January 11, 2001, filed February 9, 2001 (the "2000 Financial Statements").
Cumulative Effect of Change in Film Accounting Principle
In June 2000, TWE adopted Statement of Position 00-2, "Accounting by Producers and Distributors of Films" ("SOP 00-2"). SOP 00-2 established new film accounting standards, including changes in revenue recognition and accounting for advertising, development and overhead costs. Specifically, SOP 00-2 requires advertising costs for theatrical and television product to be expensed as incurred. This compares to TWE's previous policy of first capitalizing and then expensing advertising costs for theatrical product over the related revenue streams. In addition, SOP 00-2 requires development costs for abandoned projects and certain indirect overhead costs to be charged directly to expense, instead of those costs being capitalized to film costs, which was required under the previous accounting model. SOP 00-2 also requires all film costs to be classified in the balance sheet as noncurrent assets. Provisions of SOP 00-2 in other areas, such as revenue recognition, generally are consistent with TWE's existing accounting policies.
TWE adopted the provisions of SOP 00-2 retroactively to the beginning of 2000. As a result, TWE's net income in 2000 includes a one-time, noncash charge of $524 million, primarily to reduce the carrying value of its film inventory. This charge has been reflected as a cumulative effect of an accounting change in the accompanying consolidated statement of operations.
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a Replacement of FASB Statement No. 125" ("FAS 140"). FAS 140 revises the criteria for accounting for securitizations and other transfers of financial assets and collateral. In addition, FAS 140 requires certain additional disclosures. Except for the new disclosure provisions, which were effective for the year ended December 31, 2000, FAS 140 is effective for the transfer of financial assets occurring after March 31, 2001. Management does not expect the provisions of FAS 140 to have a significant effect on TWE's consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the prior year's financial statements to conform to the 2001 presentation.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
2. MERGER-RELATED COSTS
America Online-Time Warner Merger
In connection with the Merger, TWE has reviewed its operations and implemented several plans to restructure the operations of America Online and Time Warner ("restructuring plans"). As part of the restructuring plans, TWE recorded a restructuring liability of approximately $210 million during the first quarter of 2001. The restructuring liability is for costs to be incurred for exiting and consolidating activities at TWE, as well as costs incurred to terminate employees throughout TWE.
Of the total restructuring costs, $55 million related to work force reductions and represented employee termination benefits. Because certain employees can defer receipt of termination benefits for up to 24 months, cash payments will continue after the employee has been terminated. As of March 31, 2001, the liability was primarily classified as a current liability in the accompanying consolidated balance sheet.
The restructuring charge also includes approximately $155 million associated with exiting certain activities, primarily related to lease and contract termination costs. Specifically, TWE plans to exit certain under- performing operations, including the Studio Store operations included in the Filmed Entertainment segment. The restructuring charge associated with other exiting activities specifically includes incremental costs and contractual obligations for items such as leasehold termination payments and other facility exit costs incurred as a direct result of these plans, which will not have future benefits. As of March 31, 2001, the remaining liability of $150 million was primarily classified as a current liability in the accompanying consolidated balance sheet.
The restructuring costs recorded in the first quarter are based on TWE's restructuring plans that have been committed to by management. These integration plans may be broadened to include additional restructure initiatives as management continues to evaluate the integration of the combined companies and complete its purchase price allocation.
Selected information relating to the restructuring plans follows:
Employee Other
Termination Exit Costs Total
----------- ---------- -----
Initial Accruals $ 55 $155 $210
Cash paid - (5) (5)
---- ---- ----
Restructuring liability as of March 31, 2001 $ 55 $150 $205
==== ==== ====
|
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. INVENTORIES AND FILM COSTS
Inventories and film costs consist of:
March 31, 2001 December 31, 2000 December 31, 2000
Historical Pro Forma Historical
---------- --------- ----------
(millions)
Programming costs, less amortization.......................... $1,153 $1,029 $1,014
Film costs-Theatrical:
Released, less amortization................................ 647 711 711
Completed and not released................................. 292 113 113
In production.............................................. 407 386 386
Development and pre-production............................. 27 25 25
Film costs-Television:
Released, less amortization................................ 201 133 133
Completed and not released................................. 159 194 194
In production.............................................. 38 76 76
Development and pre-production............................. 5 5 5
Film costs-Library, less amortization......................... 2,481 1,800 456
Merchandise................................................... 145 228 228
------ ------ ------
Total inventories and film costs.............................. 5,555 4,700 3,341
Less current portion of inventory............................. 756 762 762
------ ------ ------
Total noncurrent inventories and film costs................... $4,799 $3,938 $2,579
====== ====== ======
|
4. PARTNERS' CAPITAL
TWE is required to make distributions to reimburse the partners for income taxes at statutory rates based on their allocable share of taxable income, and to reimburse AOL Time Warner for stock options granted to employees of TWE based on the amount by which the market price of AOL Time Warner common stock exceeds the option exercise price on the exercise date or, with respect to options granted prior to the TWE capitalization on June 30, 1992, the greater of the exercise price or the $9.25 market price of AOL Time Warner common stock (adjusted for the Merger) at the time of the TWE capitalization. TWE accrues a stock option distribution and a corresponding liability with respect to unexercised options when the market price of AOL Time Warner common stock increases during the accounting period, and reverses previously accrued stock option distributions and the corresponding liability when the market price of AOL Time Warner common stock declines.
During the three months ended March 31, 2001, TWE accrued $35 million of tax-related distributions and $310 million of stock option distributions, based on closing prices of AOL Time Warner common stock of $40.15 at March 31, 2001 and $34.80 at December 31, 2000. During the three months ended March 31, 2000, TWE accrued $145 million of tax-related distributions and $885 million of stock option distributions as a result of an increase at that time in the market price of AOL Time Warner common stock. During the three months ended March 31, 2001, TWE paid distributions to the AOL Time Warner General Partners in the amount of $198 million, consisting of $35 million of tax-related distributions and $163 million of stock option related distributions. During the three months ended March 31, 2000, TWE paid the AOL Time Warner General Partners distributions in the amount of $308 million, consisting of $145 million of tax-related distributions and $163 million of stock option related distributions.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
5. SEGMENT INFORMATION
As a result of the Merger, AOL Time Warner management assessed the manner in which financial information of TWE is reviewed in making operating decisions and assessing performance. In accordance with Financial Accounting Standards Board No. 131 "Disclosures About Segments of an Enterprise and Related Information," TWE reclassified its 2000 historical segment presentation to conform to the current presentation.
TWE classifies its business interests into three fundamental areas:
Cable, consisting principally of interests in cable television systems; Filmed
Entertainment, consisting principally of interests in filmed entertainment and
television production; and Networks, consisting principally of interests in
cable television and broadcast network programming.
Information as to the operations of TWE in different business segments is set forth below based on the nature of the products and services offered. TWE evaluates performance based on several factors, of which the primary financial measure is operating income (loss) before noncash depreciation of tangible assets and amortization of intangible assets ("EBITDA"). The accounting policies of the business segments are the same as those described in the summary of significant accounting policies under Note 1 in TWE's 2000 Financial Statements. Intersegment sales are accounted for at fair value as if the sales were to third parties.
Three Months Ended March 31,
----------------------------
2001 2000 2000
Historical Pro Forma(a) Historical
---------- --------- ----------
(millions)
Revenues
Cable.............................................. $1,387 $1,231 $1,231
Filmed Entertainment-Warner Bros................... 1,603 1,568 1,568
Networks........................................... 724 656 656
Intersegment elimination........................... (172) (144) (144)
------ ------ ------
Total.............................................. $3,542 $3,311 $3,311
====== ====== ======
|
Three Months Ended March 31,
----------------------------
2001 2000 2000
Historical Pro Forma(a) Historical
---------- --------- ----------
(millions)
EBITDA(b)
Cable............................................... $ 661 $ 579 $ 580
Filmed Entertainment-Warner Bros.................... 100 144 145
Networks............................................ 158 103 104
Corporate........................................... (19) (19) (19)
----- ----- -----
Total............................................... $ 900 $ 807 810
===== ===== =====
|
(b) EBITDA represents business segment operating income (loss) before depreciation and amortization of intangible assets. After deducting depreciation of tangible assets and amortization of intangible assets, TWE reported an operating loss of $22 million in 2001 and $91 million in 2000 on a pro forma basis (operating income of $453 million on a historical basis).
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000 2000
Historical Pro Forma(a) Historical
---------- --------- ----------
(millions)
Depreciation of Property, Plant and Equipment
Cable..................................................... $ 211 $ 172 $ 186
Filmed Entertainment-Warner Bros.......................... 21 22 22
Networks.................................................. 8 7 7
Corporate................................................. 1 2 2
------ ------ ------
Total..................................................... $ 241 $ 203 $ 217
====== ====== ======
|
Three Months Ended March 31,
----------------------------
2001 2000 2000
Historical Pro Forma(a) Historical
---------- --------- ----------
(millions)
Amortization of Intangible Assets(b)
Cable................................................... $ 488 $ 491 $ 109
Filmed Entertainment-Warner Bros........................ 98 102 30
Networks................................................ 95 102 1
------ ------ ------
Total................................................... $ 681 $ 695 $ 140
====== ====== ======
|
(b) Includes amortization relating to business combinations accounted for by the purchase method, substantially all of which arose in the merger of America Online and Time Warner in 2001.
TWE's assets have significantly increased since December 31, 2000 due to the consummation of the Merger and the allocation of the $147 billion cost to acquire Time Warner to the underlying net assets of Time Warner, including the net assets of TWE to the extent acquired, based on their respective estimated fair values. Any excess of the purchase price over estimated fair value of the net assets acquired was recorded as goodwill and allocated among AOL Time Warner's business segments, including the business segments of TWE. As such, TWE's assets by business segment are as follows:
March 31, December 31,
2001 2000
Historical Pro Forma(a)
---------- ---------
(millions)
Assets
Cable........................................... $56,685 $56,097
Filmed Entertainment-Warner Bros................ 16,915 16,825
Networks........................................ 11,446 11,654
Corporate....................................... 524 400
------- -------
Total business segment assets................... $85,570 $84,976
======= =======
|
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES
In Six Flags Over Georgia LLC et al. v. Time Warner Entertainment Company et al., following a trial in December 1998, the jury returned a verdict for plaintiffs and against defendants, including TWE, on plaintiffs' claims for breaches of fiduciary duty. The jury awarded plaintiffs approximately $197 million in compensatory damages and $257 million in punitive damages, and interest has been accruing on those amounts at the Georgia annual statutory rate of twelve percent. The Company has since paid the compensatory damages with accrued interest. Payment of the punitive damages portion of the award with accrued interest was stayed by the United States Supreme Court on March 1, 2001 pending the disposition of a certiorari petition with that Court, which has not yet been filed by TWE.
The costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgements and investigations, claims and changes in those matters (including the matter described above), and developments or assertions by or against TWE relatig to intellectual property rights and intellectual property licenses, could have a material adverse effect on TWE's business, financial condition and operating results.
7. ADDITIONAL FINANCIAL INFORMATION
Cash Flows
Additional financial information with respect to cash flows is as follows:
Three Months Ended March 31,
----------------------------
2001 2000 2000
Historical Pro Forma Historical
---------- --------- ----------
(millions)
Cash payments made for interest, net.................. $163 $150 $150
Cash payments made for income taxes, net.............. 66 19 19
Noncash capital distributions......................... 147 722 722
|
Other Expense, Net
Other expense, net, consists of:
Three Months Ended March 31,
----------------------------
2001 2000 2000
Historical Pro Forma Historical
---------- --------- ----------
(millions)
Other investment-related activity, principally
net losses on equity investees....................... $(33) $(22) $ -
Losses on asset securitization programs................ (6) (3) (3)
Miscellaneous.......................................... (1) (12) (12)
---- ---- ----
Total other income (expense), net...................... $(40) $(37) $(15)
==== ==== ====
|
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Other Current Liabilities
Other current liabilities consist of:
March 31, December 31, December 31,
2001 2000 2000
Historical Pro Forma Historical
---------- --------- ----------
Accrued expenses.................. $1,994 $2,071 $2,071
Accrued compensation.............. 227 352 352
Deferred revenues................. 302 297 297
Accrued income taxes.............. 43 79 79
------ ------ ------
Total............................. $2,566 $2,799 $2,799
====== ====== ======
|
Part II. Other Information
Item 1. Legal Proceedings.
Reference is made to the consolidated putative class action litigation against America Online, Inc. ("America Online") concerning AOL version 5.0 software, described on page I-34 of the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (the "2000 Form 10-K"). On April 19, 2001, the court ruled on America Online's motion to dismiss and dismissed all but one of the consumer claims brought under the Computer Fraud and Abuse Act ("CFAA") with prejudice and dismissed the remaining consumer CFAA claim without prejudice. Regarding the claims brought by competing Internet service providers, the court dismissed one CFAA claim with prejudice, allowed one CFAA claim to remain and dismissed all remaining claims without prejudice, including claims alleging unfair business practices and tortious interference.
Reference is made to Ottinger & Silvey et al. v. EMI Music Distribution, Inc. et al., and related suits described on page I-35 of the Company's 2000 Form 10-K, which were brought purportedly on behalf of persons in sixteen states and the District of Columbia. On March 27, 2001, the Tennessee trial court ruled that the case must be limited to Tennessee plaintiffs and dismissed the action as to the other plaintiffs. Similar cases are pending in nine other states; motions to dismiss are pending in eight of these actions.
Reference is made to the lawsuit brought by the former President of Indonesia, H.M. Suharto, against Time Inc. Asia and certain individuals, described on page I-35 of the Company's 2000 Form 10-K. Suharto's appeal to the intermediate appellate court in Indonesia has been denied.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as a part of this report and such Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K.
(i) The Company filed a Current Report on Form 8-K dated January 11, 2001 in which it reported in Item 2 the closing of the merger between America Online and Time Warner Inc. ("Time Warner") (filing date January 12, 2001).
(ii) The Company filed a Current Report on Form 8-K dated January 18, 2001 setting forth in Item 5 financial statements of America Online for the three months ended September 30, 2000 adjusted to reflect purchase rather than pooling accounting treatment for three acquisitions (filing date January 26, 2001).
(iii) The Company filed a Current Report on Form 8-K/A dated January 11, 2001 setting forth in Item 7 pro forma financial statements of the Company for the period ended September 30, 2000 (filing date January 26, 2001).
(iv) The Company filed a Current Report on Form 8-K/A dated January 11, 2001 setting forth in Item 7 consolidated financial statements of Time Warner, Time Warner Entertainment Company, L.P. ("TWE") and the TWE General Partners for the quarter and year ended December 31, 2000 (filing date February 9, 2001).
(v) The Company filed a Current Report on Form 8-K/A dated January 11, 2001 setting forth in Item 7 pro forma financial statements of the Company for the period ended December 31, 2000 (filing date March 30, 2001).
(vi) The Company filed a Current Report on Form 8-K dated April 18, 2001 in which it reported in Item 5 that the Company announced its results of operations for the quarter ended March 31, 2001 (filing date April 19, 2001).
AOL TIME WARNER INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AOL TIME WARNER INC.
(Registrant)
By: /s/ J. Michael Kelly
------------------------------------
Name: J. Michael Kelly
Title: Executive Vice President and
Chief Financial Officer
Dated: May 15, 2001
|
EXHIBIT INDEX
Pursuant to Item 601 of Regulations S-K
Exhibit No. Description of Exhibit
----------- ----------------------
4 Indenture dated as of April 19, 2001 among the Company, America Online,
Time Warner, Time Warner Companies, Inc. ("TWCI") and Turner Broadcasting
System, Inc. ("TBS"), and The Chase Manhattan Bank, as Trustee.
10.1 Credit Agreement dated as of April 6, 2001 among the Company, as Borrower,
The Chase Manhattan Bank, as Administrative Agent, Citibank, N.A. and
Bank of America N.A. as Co-Syndication Agents, and ABN AMRO Bank, N.V.,
as Documentation Agent.
10.2 Amended and Restated Employment Agreement made as of March 19, 1998,
as amended through April 20, 2001, between Gerald M. Levin and the
Company, as assignee of Time Warner.
10.3 Amended and Restated Employment Agreement made as of March 25, 1999,
as amended through April 20, 2001, between Richard D. Parsons and the
Company, as assignee of Time Warner.
12.1 Statement regarding the computation of the ratio of earnings to fixed
charges of the Company.
12.2 Statement regarding the computation of the ratio of earnings to fixed
charges of America Online.
12.3 Statement regarding the computation of the ratio of earnings to fixed
charges of Time Warner.
12.4 Statement regarding the computation of the ratio of earnings to fixed
charges of TWCI.
12.5 Statement regarding the computation of the ratio of earnings to fixed
charges of TBS.
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The section symbol shall be expressed as ............................. 'SS'
Exhibit 4
EXECUTION COPY
AOL TIME WARNER INC.,
AMERICA ONLINE, INC.,
as Guarantor
TIME WARNER INC.,
as Guarantor
TIME WARNER COMPANIES, INC.,
as Guarantor
TURNER BROADCASTING SYSTEM, INC.,
as Guarantor
and
THE CHASE MANHATTAN BANK,
Trustee
INDENTURE
Dated as of April 19, 2001
Providing for Issuance of Senior Securities in Series
Table Showing Reflection in Indenture of Certain Provisions of Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990
Reflected in Indenture
TIA Section
'SS'310(a)(1)................................................................ 6.09
(a)(2)............................................................. 6.09
(a)(3)............................................................. Not Applicable
(a)(4)............................................................. Not Applicable
(a)(5)............................................................. 6.09
(b)................................................................ 6.08
'SS'311(a)................................................................... 6.13(a)
(b)................................................................... 6.13(b)
(b)(2)................................................................ 7.03(a)
.................................................................. 7.03(b)
'SS'312(a)................................................................... 7.01
..................................................................... 7.02(a)
(b)................................................................... 7.03(b)
(c)................................................................... 7.02(c)
'SS'313(a)................................................................... 7.03(a)
(b)................................................................... 7.03(b)
(c)................................................................... 7.03(a)
..................................................................... 7.03(b)
(d)................................................................... 7.03(c)
'SS'314(a)(1)................................................................ 7.04
(a)(2)................................................................ 7.04
(a)(3)................................................................ 7.04
(a)(4)................................................................ 10.04
(b)................................................................... Not Applicable
(c)(1)................................................................ 1.02
(c)(2)................................................................ 1.02
(c)(3)................................................................ Not Applicable
(d)................................................................... Not Applicable
(e)................................................................... 1.02
'SS'315(a)................................................................... 6.01(a)
..................................................................... 6.01(c)
(b)................................................................... 6.02
..................................................................... 7.03(a)
(c)................................................................... 6.01(b)
(d)................................................................... 6.01
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(d)(1)................................................................ 6.01(a)
(d)(2)................................................................ 6.01(c)(2)
(d)(3)................................................................ 6.01(c)(3)
(e)................................................................... 5.14
'SS'316(a)................................................................... 1.01
(a)(1)(A)............................................................. 5.02
..................................................................... 5.12
(a)(1)(B)............................................................. 5.13
(a)(2)................................................................ Not Applicable
(b)................................................................... 5.08
(c)................................................................... 1.04(d)
'SS'317(a)(1)................................................................ 5.03
(a)(2)................................................................ 5.04
(b)................................................................... 10.03
'SS'318(a)................................................................... 1.07
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TABLE OF CONTENTS
Page
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Recitals of the Company................................................................. 1
Agreements of the Parties............................................................... 1
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 1.01. Definitions.............................................................. 1
SECTION 1.02. Compliance Certificates and Opinions..................................... 13
SECTION 1.03. Form of Documents Delivered to Trustee................................... 14
SECTION 1.04. Acts of Securityholders.................................................. 15
SECTION 1.05. Notices, etc., to Trustee and Company.................................... 17
SECTION 1.06. Notices to Securityholders; Waiver....................................... 18
SECTION 1.07. Conflict with Trust Indenture Act........................................ 18
SECTION 1.08. Effect of Headings and Table of Contents................................. 18
SECTION 1.09. Successors and Assigns................................................... 18
SECTION 1.10. Separability Clause...................................................... 19
SECTION 1.11. Benefits of Indenture.................................................... 19
SECTION 1.12. Govering Law............................................................. 19
SECTION 1.13. Counterparts............................................................. 19
SECTION 1.14. Judgment Currency........................................................ 19
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally.......................................................... 20
SECTION 2.02. Forms of Securities...................................................... 20
SECTION 2.03. Form of Trustee's Certificate of Authentication.......................... 21
SECTION 2.04. Securities Issuable in the Form of a Global Security..................... 21
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ARTICLE III
The Securities
SECTION 3.01. General Title; General Limitations;
Issuable in Series; Terms of
Particular Series....................................................... 23
SECTION 3.02. Denominations............................................................ 27
SECTION 3.03. Execution, Authentication and Delivery and Dating...................... 27
SECTION 3.04. Temporary Securities..................................................... 29
SECTION 3.05. Registration, Transfer and Exchange...................................... 30
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities......................... 31
SECTION 3.07. Payment of Interest; Interest Rights Preserved........................... 32
SECTION 3.08. Persons Deemed Owners.................................................... 34
SECTION 3.09. Cancelation.............................................................. 34
SECTION 3.10. Computation of Interest.................................................. 35
SECTION 3.11. Delayed Issuance of Securities........................................... 35
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture.................................. 36
SECTION 4.02. Application of Trust Money............................................... 37
SECTION 4.03. Defeasance Upon Deposit of Funds or Government Obligations............... 38
SECTION 4.04. Reinstatement............................................................ 40
ARTICLE V
Remedies
SECTION 5.01. Events of Default........................................................ 41
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment...................... 43
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SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee................................................ 45
SECTION 5.04. Trustee May File Proofs of Claim......................................... 46
SECTION 5.05. Trustee May Enforce Claims Without
Possession of Securities.............................................. 47
SECTION 5.06. Application of Money Collected........................................... 47
SECTION 5.07. Limitation on Suits...................................................... 48
SECTION 5.08. Unconditional Right of Securityholders
To Receive Principal, Premium and Interest............................ 48
SECTION 5.09. Restoration of Rights and Remedies....................................... 49
SECTION 5.10. Rights and Remedies Cumulative........................................... 49
SECTION 5.11. Delay or Omission Not Waiver............................................. 49
SECTION 5.12. Control by Securityholders............................................... 49
SECTION 5.13. Waiver of Past Defaults.................................................. 50
SECTION 5.14. Undertaking for Costs.................................................... 50
SECTION 5.15. Waiver of Stay or Extension Laws......................................... 51
ARTICLE VI
The Trustee
SECTION 6.01. Certain Duties and Responsibilities...................................... 51
SECTION 6.02. Notice of Defaults....................................................... 53
SECTION 6.03. Certain Rights of Trustee................................................ 53
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities................... 55
SECTION 6.05. May Hold Securities...................................................... 55
SECTION 6.06. Money Held in Trust...................................................... 55
SECTION 6.07. Compensation and Reimbursement........................................... 55
SECTION 6.08. Disqualification; Conflicting Interests.................................. 56
SECTION 6.09. Corporate Trustee Required; Eligibility.................................. 56
SECTION 6.10. Resignation and Removal.................................................. 57
SECTION 6.11. Acceptance of Appointment by Successor................................... 59
SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business.............. 60
SECTION 6.13. Preferential Collection of Claims Against Company........................ 61
SECTION 6.14. Appointment of Authenticating Agent...................................... 61
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ARTICLE VII
Securityholders' Lists and
Reports by Trustee and Company
SECTION 7.01. Company To Furnish Trustee Names and
Addresses of Securityholders.......................................... 63
SECTION 7.02. Preservation of Information;
Communications to Securityholders..................................... 63
SECTION 7.03. Reports by Trustee....................................................... 65
SECTION 7.04. Reports by Company....................................................... 65
ARTICLE VIII
Consolidation, Merger, Conveyance or Transfer
SECTION 8.01. Consolidation, Merger, Conveyance or
Transfer on Certain Terms............................................. 66
SECTION 8.02. Successor Person Substituted............................................. 67
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent
of Securityholders.................................................... 67
SECTION 9.02. Supplemental Indentures with Consent of
Securityholders....................................................... 69
SECTION 9.03. Execution of Supplemental Indentures..................................... 71
SECTION 9.04. Effect of Supplemental Indentures........................................ 71
SECTION 9.05. Conformity with Trust Indenture Act...................................... 71
SECTION 9.06. Reference in Securities to Supplemental Indentures....................... 71
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and Interest............................... 71
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SECTION 10.02. Maintenance of Office or Agency........................................... 72
SECTION 10.03. Money for Security Payments To Be Held in Trust........................... 72
SECTION 10.04. Statement as to Compliance................................................ 74
SECTION 10.05. Legal Existence........................................................... 74
SECTION 10.06. Limitation on Liens....................................................... 75
SECTION 10.07. Waiver of Certain Covenants............................................... 77
ARTICLE XI
Redemption of Securities
SECTION 11.01. Applicability of Article.................................................. 78
SECTION 11.02. Election To Redeem; Notice to Trustee..................................... 78
SECTION 11.03. Selection by Trustee of Securities To Be Redeemed......................... 79
SECTION 11.04. Notice of Redemption...................................................... 80
SECTION 11.05. Deposit of Redemption Price............................................... 81
SECTION 11.06. Securities Payable on Redemption Date..................................... 81
SECTION 11.07. Securities Redeemed in Part............................................... 82
SECTION 11.08. Provisions with Respect to Any Sinking Funds.............................. 82
SECTION 11.09. Rescission of Redemption.................................................. 83
ARTICLE XII
Conversion
SECTION 12.01. Conversion Privilege...................................................... 85
SECTION 12.02. Conversion Procedure; Rescission of
Conversion; Conversion Price; Fractional Shares........................ 85
SECTION 12.03. Adjustment of Conversion Price for
Common Stock or Marketable Securities.................................. 88
SECTION 12.04. Consolidation or Merger of the Company.................................... 93
SECTION 12.05. Notice of Adjustment...................................................... 94
SECTION 12.06. Notice in Certain Events.................................................. 94
SECTION 12.07. Company To Reserve Stock or other
Marketable Securities; Registration; Listing........................... 95
SECTION 12.08. Taxes on Conversion....................................................... 96
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SECTION 12.09. Conversion After Record Date.............................................. 96
SECTION 12.10. Corporate Action Regarding Par Value of Common Stock...................... 97
SECTION 12.11. Company Determination Final............................................... 97
SECTION 12.12. Trustee's Disclaimer...................................................... 97
ARTICLE XIII
Guarantees
SECTION 13.01. Guarantees................................................................ 97
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THIS INDENTURE between AOL TIME WARNER INC., a Delaware corporation (hereinafter called the "Company") having its principal office at 75 Rockefeller Plaza, New York, New York 10019, AMERICA ONLINE, INC., a Delaware corporation ("America Online"), TIME WARNER INC., a Delaware corporation ("Time Warner"), TIME WARNER COMPANIES, INC., a Delaware corporation ("TWC"), TURNER BROADCASTING SYSTEM, INC., a Georgia corporation ("TBS" and together with America Online, Time Warner and TWC, the "Guarantors"), and THE CHASE MANHATTAN BANK, a New York banking corporation, trustee (hereinafter called the "Trustee"), is made and entered into as of the 19th day of April, 2001.
Recitals of the Company
The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of its debentures, notes, bonds or other evidences of indebtedness, to be issued in one or more fully registered series.
All things necessary to make this Indenture a valid agreement of the Company, America Online, Time Warner, TWC and TBS in accordance with its terms, have been done.
Agreements of the Parties
To set forth or to provide for the establishment of the terms and conditions upon which the Securities are and are to be authenticated, issued and delivered, and in consideration of the premises and the purchase of Securities by the Holders thereof, it is mutually covenanted and agreed as follows, for the equal and proportionate benefit of all Holders of the Securities or of a series thereof, as the case may be:
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 1.01. Definitions. For all purposes of this Indenture and of any indenture supplemental hereto,
except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture Act or by Commission rule under the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them herein;
(3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles and any accounting rules or interpretations promulgated by the Commission as are generally accepted in the United States of America at the date of this Indenture; and
(4) all references in this instrument to designated "Articles", "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this instrument as originally executed. The words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
Certain terms, used principally in Article VI, are defined in that Article.
"Act", when used with respect to any Securityholder, has the meaning specified in Section 1.04.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"America Online" means America Online, Inc., a Delaware corporation and wholly owned subsidiary of the Company, until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "America Online" shall mean such successor.
"Authenticating Agent" means any Person authorized by the Company to authenticate Securities under Section 6.14.
"Board of Directors" means (i) the board of directors of the Company, (ii) any duly authorized committee of such board, (iii) any committee of officers of the Company or (iv) any officer of the Company acting, in the case of (iii) or (iv), pursuant to authority granted by the board of directors of the Company or any committee of such board.
"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"Business Day" means, with respect to any series of Securities, unless otherwise specified in a Board Resolution and an Officer's Certificate with respect to a particular series of Securities, each day which is not a Saturday, Sunday or other day on which banking institutions in the pertinent Place or Places of Payment or the city in which the Corporate Trust Office is located are authorized or required by law or executive order to be closed.
"Closing Price" of the Common Stock or other Marketable Security, as the case may be, shall mean the last reported sale price of such stock or other Marketable Security (regular way) as shown on the Composite Tape of the NYSE (or, if such stock or other Marketable Security is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which such stock or other Marketable Security is listed or admitted to trading), or, in case no such sale takes place on such day, the average of the closing bid and asked prices on the NYSE (or, if such stock or other Marketable Security is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which such stock or other Marketable Security is listed or admitted to trading), or, if it is not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ), or if such stock or other
Marketable Security is not so reported, the average of the closing bid and asked prices as furnished by any member of the National Association of Securities Dealers, Inc., selected from time to time by the Company for that purpose.
"Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
"Common Stock" shall mean the class of Common Stock, par value $.01 per share, of the Company authorized at the date of this Indenture as originally signed, or any other class of stock resulting from successive changes or reclassifications of such Common Stock, and in any such case including any shares thereof authorized after the date of this Indenture.
"Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor.
"Company Request", "Company Order" and "Company Consent" mean a written request, order or consent, respectively, signed in the name of the Company by its Chairman of the Board, Chief Executive Officer, Co-Chief Operating Officer or a Vice President, and by its Treasurer, an Assistant Treasurer, Controller, an Assistant Controller, Secretary or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Net Worth" means, with respect to any Person, at the date of any determination, the consolidated stockholders' or owners' equity of the holders of capital stock or partnership interests of such Person and its subsidiaries, determined on a consolidated basis in accordance with GAAP consistently applied.
"Conversion Agent" means any Person authorized by the Company to receive Securities to be converted into Common Stock or other Marketable Securities on behalf of the Company. The Company initially authorizes the Trustee to act as Conversion Agent for the Securities on its behalf. The Company may at any time and from time to time authorize one or more Persons to act as Conversion Agent in addition
to or in place of the Trustee with respect to any series of Securities issued under this Indenture.
"Conversion Price" means, with respect to any series of Securities which are convertible into Common Stock or other Marketable Securities, the price per share of Common Stock or the price per designated unit of other Marketable Security at which the Securities of such series are so convertible as set forth in the Board Resolution with respect to such series (or in any supplemental indenture entered into pursuant to Section 9.01(9) with respect to such series), as the same may be adjusted from time to time in accordance with Section 12.03 (or such supplemental indenture).
"Converting Holder" shall have the meaning specified in
Section 12.02(c) of this Indenture.
"Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at 450 West 33rd Street, 15th Floor, New York, New York 10001.
"Current Market Price" on any date shall mean the average of the daily Closing Prices per share of Common Stock or of such other Marketable Securities for any thirty (30) consecutive Trading Days selected by the Company prior to the day in question, which thirty (30) consecutive Trading Day period shall not commence more than forty-five (45) Trading Days prior to the day in question; provided that with respect to Section 12.03(3), the "Current Market Price" of the Common Stock or of such other Marketable Securities shall mean the average of the daily Closing Prices per share of Common Stock or of such other Marketable Securities for the five (5) consecutive Trading Days ending on the date of the distribution referred to in Section 12.03(3) (or if such date shall not be a Trading Day, on the Trading Day immediately preceding such date).
"Defaulted Interest" has the meaning specified in Section 3.07.
"Depository" means, unless otherwise specified by the Company pursuant to either Section 2.04 or 3.01, with respect to Securities of any series issuable or issued as a Global Security, The Depository Trust Company, New York, New York, or any successor thereto registered as a clearing agency under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation.
"Discharged" has the meaning specified in Section 4.03.
"Event of Default" has the meaning specified in Article V.
"Federal Bankruptcy Act" has the meaning specified in Section 5.01(5).
"GAAP" means generally accepted accounting principles as such principles are in effect as of the date of this Indenture.
"Global Security", when used with respect to any series of Securities issued hereunder, means a Security which is executed by the Company and authenticated and delivered by the Trustee to the Depository or pursuant to the Depository's instruction, all in accordance with this Indenture and an indenture supplemental hereto, if any, or Board Resolution and pursuant to a Company Request, which shall be registered in the name of the Depository or its nominee and which shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all of the Outstanding Securities of such series or any portion thereof, in either case having the same terms, including, without limitation, the same original issue date, date or dates on which principal is due, and interest rate or method of determining interest.
"Guarantee" means the guarantees specified in Section 13.01(a) and (b).
"Guarantors" means America Online, Time Warner, TBS and TWC.
"Holder", when used with respect to any Security, means a Securityholder.
"Indenture" or "this Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 3.01.
"Interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.
"Interest Payment Date", when used with respect to any series of Securities, means the Stated Maturity of any installment of interest on those Securities.
"Marketable Security" means any common stock, debt security or other security of a Person which is (or will, upon distribution thereof, be) listed on the NYSE, the American Stock Exchange or any national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended, or approved for quotation in the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System or any similar system of automated dissemination of quotations of securities prices in the United States or for which there is a recognized market maker or trading market.
"Material Subsidiary" means any Person that is a Subsidiary if at the end of the most recent fiscal quarter of the Company, the aggregate amount, determined in accordance with GAAP consistently applied, of securities of, loans and advances to, and other investments in, such Person held by the Company and its other Subsidiaries exceeded 10% of the Company's Consolidated Net Worth.
"Material U.S. Subsidiary" means any Material Subsidiary that is organized under the laws of the United States of America or any political subdivision thereof (including any State thereof or the District of Columbia).
"Maturity", when used with respect to any Securities, means the date on which the principal of any such Security becomes due and payable as therein or herein provided, whether on a Repayment Date, at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Officers' Certificate" means a certificate signed by the Chairman of the Board, the Chief Executive Officer, a Co-Chief Operating Officer or a Vice President, and by the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. Wherever this Indenture requires that an Officers' Certificate be signed also by an engineer or an accountant or other expert, such engineer, accountant or other expert (except as otherwise expressly provided in this Indenture) may be in the employ of the Company, and shall be acceptable to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may (except as otherwise expressly provided in this Indenture) be an employee of or of counsel to the Company, which is delivered to the Trustee. Such counsel shall be acceptable to the Trustee, whose acceptance shall not be unreasonably withheld.
"Original Issue Discount Security" means (i) any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof, and (ii) any other security which is issued with "original issue discount" within the meaning of Section 1273(a) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
"Outstanding", when used with respect to Securities or Securities of any series, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except:
(i) such Securities theretofore canceled by the Trustee or delivered to the Trustee for cancelation;
(ii) such Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and
(iii) such Securities in exchange for or in lieu of which
other Securities have been authenticated and delivered pursuant to this
Indenture, or which shall have been paid pursuant to the terms of
Section 3.06 (except with respect to any such Security as to which
proof satisfactory to the Trustee is presented that such Security is
held by a Person in whose hands such Security is a legal, valid and
binding obligation of the Company).
In determining whether the Holders of the requisite principal amount of such Securities Outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (i) the principal amount of any Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of the taking of such action upon a declaration of acceleration of the
Maturity thereof, and (ii) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding. In determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer assigned to the Corporate Trust Department of the Trustee knows to be owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right to act as owner with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. The Company initially authorizes the Trustee to act as Paying Agent for the Securities on its behalf. The Company may at any time and from time to time authorize one or more Persons to act as Paying Agent in addition to or in place of the Trustee with respect to any series of Securities issued under this Indenture.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
"Place of Payment" means with respect to any series of Securities issued hereunder the city or political subdivision so designated with respect to the series of Securities in question in accordance with the provisions of Section 3.01.
"Predecessor Securities" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.06 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security.
"Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed, means the price specified in the Security at which it is to be redeemed pursuant to this Indenture.
"Redemption Rescission Event" shall mean the occurrence of (a)
any general suspension of trading in, or limitation on prices for, securities on
the principal national securities exchange on which shares of Common Stock or
Marketable Securities are registered and listed for trading (or, if shares of
Common Stock or Marketable Securities are not registered and listed for trading
on any such exchange, in the over-the-counter market) for more than
six-and-one-half (6-1/2) consecutive trading hours, (b) any decline in either
the Dow Jones Industrial Average or the S&P's Index of 400 Industrial Companies
(or any successor index published by Dow Jones & Company, Inc. or S&P) by either
(i) an amount in excess of 10%, measured from the close of business on any
Trading Day to the close of business on the next succeeding Trading Day during
the period commencing on the Trading Day preceding the day notice of any
redemption of Securities is given (or, if such notice is given after the close
of business on a Trading Day, commencing on such Trading Day) and ending at the
time and date fixed for redemption in such notice or (ii) an amount in excess of
15% (or if the time and date fixed for redemption is more than 15 days following
the date on which such notice of redemption is given, 20%), measured from the
close of business on the Trading Day preceding the day notice of such redemption
is given (or, if such notice is given after the close of business on a Trading
Day, from such Trading Day) to the close of business on any Trading Day at or
prior to the time and date fixed for redemption, (c) a declaration of a banking
moratorium or any suspension of payments in respect of banks by Federal or state
authorities in the United States or (d) the commencement of a war or armed
hostilities or other national or international calamity directly or indirectly
involving the United States which in the reasonable judgment of the Company
could have a material adverse effect on the market for the Common Stock or
Marketable Securities.
"Regular Record Date" for the interest payable on any Security on any Interest Payment Date means the date specified in such Security as the Regular Record Date.
"Repayment Date", when used with respect to any Security to be repaid, means the date fixed for such repayment pursuant to such Security.
"Repayment Price", when used with respect to any Security to be repaid, means the price at which it is to be repaid pursuant to such Security.
"Required Currency", when used with respect to any Security, has the meaning set forth in Section 1.14.
"Responsible Officer", when used with respect to the Trustee, means any officer of the Trustee with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.
"S&P" means Standard & Poor's Ratings Service or any successor to the rating agency business thereof.
"Security" or "Securities" means any note or notes, bond or bonds, debenture or debentures, or any other evidences of indebtedness, as the case may be, of any series authenticated and delivered from time to time under this Indenture.
"Security Register" shall have the meaning specified in
Section 3.05.
"Security Registrar" means the Person who keeps the Security Register specified in Section 3.05. The Company initially appoints the Trustee to act as Security Registrar for the Securities on its behalf. The Company may at any time and from time to time authorize any Person to act as Security Registrar in place of the Trustee with respect to any series of Securities issued under this Indenture.
"Securityholder" means a Person in whose name a security is registered in the Security Register.
"Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity" when used with respect to any Security or any installment of principal thereof or interest thereon means the date specified in such Security as the
fixed date on which the principal of such Security or such installment of principal or interest is due and payable.
"Subsidiary" means, with respect to any Person, any corporation more than 50% of the voting stock of which is owned directly or indirectly by such Person, and any partnership, association, joint venture or other entity in which such Person owns more than 50% of the equity interests or has the power to elect a majority of the board of directors or other governing body.
"TBS" means Turner Broadcasting System, Inc., a Georgia corporation and wholly owned subsidiary of Time Warner, until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "TBS" shall mean such successor.
"Time Warner" means Time Warner Inc., a Delaware corporation and wholly owned subsidiary of the Company, until a successor shall have been such pursuant to the applicable provisions of this Indenture, and thereafter "Time Warner" shall mean such successor.
"Trading Day" shall mean, with respect to the Common Stock or a Marketable Security, so long as the common stock or such Marketable Security, as the case may be, is listed or admitted to trading on the NYSE, a day on which the NYSE is open for the transaction of business, or, if the Common Stock or such Marketable Security, as the case may be, is not listed or admitted to trading on the NYSE, a day on which the principal national securities exchange on which the Common Stock or such Marketable Security, as the case may be, is listed is open for the transaction of business, or, if the Common Stock or such Marketable Security, as the case may be, is not so listed or admitted for trading on any national securities exchange, a day on which NASDAQ is open for the transaction of business.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that, in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" or "TIA" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the Trustee in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean and include each Person who is then a Trustee
hereunder. If at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series.
"TWC" means Time Warner Companies, Inc., a Delaware corporation and wholly owned subsidiary of Time Warner, until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "TWC" shall mean such successor.
"TWE" means Time Warner Entertainment Company, L.P., a Delaware limited partnership and subsidiary of TWC.
"Vice President" when used with respect to the Company or the Trustee means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president", including, without limitation, an assistant vice president.
"Voting Stock", as applied to the stock of any corporation, means stock of any class or classes (however designated) having by the terms thereof ordinary voting power to elect a majority of the members of the board of directors (or other governing body) of such corporation other than stock having such power only by reason of the happening of a contingency.
"Works" means motion pictures, video, television, interactive or multi-media programming, audio-visual works, sound recordings, books and other literary or written material, any software, copyright or other intellectual property related thereto, acquired directly or indirectly after the date of this Indenture by purchase, business combination, production, creation or otherwise, any component of the foregoing or rights with respect thereto, and all improvements thereon, products and proceeds thereof and revenues derived therefrom.
"Yield to Maturity" means the yield to maturity on a series of Securities, calculated by the Company at the time of issuance of such series of Securities, or, if applicable, at the most recent redetermination of interest on such series, in accordance with accepted financial practice.
SECTION 1.02. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent,
if any (including any covenants compliance with which constitutes a condition precedent), provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such Counsel all such conditions precedent, if any (including any covenants compliance with which constitutes a condition precedent), have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than annual statements of compliance provided pursuant to Section 10.04) shall include:
(1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
SECTION 1.03. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons may certify or give an opinion as to the other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal
matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such Counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
SECTION 1.04. Acts of Securityholders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Securityholders or Securityholders of any series may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders in person or by an agent duly appointed in writing or may be embodied in or evidenced by an electronic transmission which identifies the documents containing the proposal on which such consent is requested and certifies such Securityholders' consent thereto and agreement to be bound thereby; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee, and, where it is hereby expressly required, to the Company. If any Securities are denominated in coin or currency other than that of the United States, then for the purposes of determining whether the Holders of the requisite principal amount of Securities have taken any action as herein described, the principal amount of such Securities shall be deemed to be that amount of United States dollars that could be obtained for such principal amount on the basis of the spot rate of exchange into United States dollars for the currency in which such Securities are denominated (as evidenced to the Trustee by an Officers' Certificate) as of the date the taking of such action by the Holders of such requisite principal amount is evidenced to the Trustee as provided in the immediately preceding sentence. If any Securities are Original Issue Discount Securities, then for the purposes of determining whether the Holders of the
requisite principal amount of Securities have taken any action as herein
described, the principal amount of such Original Issue Discount Securities shall
be deemed to be the amount of the principal thereof that would be due and
payable upon a declaration of acceleration of the Maturity thereof as of the
date the taking of such action by the Holders of such requisite principal amount
is evidenced to the Trustee as provided in the first sentence of this Section
1.04(a). Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Securityholders signing such instrument or instruments. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and (subject to Section 6.01)
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness to such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security Register.
(d) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, by Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so. Such record date shall be the later of 10 days prior to the first solicitation of such action or the date of the most recent list of Holders furnished to the Trustee pursuant to Section 7.01. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Holders of record at the close of business on the record date shall be deemed to
be Holders for the purposes of determining whether Holders of the requisite proportion of Securities outstanding have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the Securities outstanding shall be computed as of the record date; provided that no such authorization, agreement or consent by the Holders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date, and that no such authorization, agreement or consent may be amended, withdrawn or revoked once given by a Holder, unless the Company shall provide for such amendment, withdrawal or revocation in conjunction with such solicitation of authorizations, agreements or consents or unless and to the extent required by applicable law.
(e) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon whether or not notation of such action is made upon such Security.
SECTION 1.05. Notices, etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Securityholders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with:
(1) the Trustee by any Securityholder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Institutional Trust Services; or
(2) the Company by the Trustee or by any Securityholder shall
be sufficient for every purpose hereunder (except as provided in
Section 5.01(4) or, in the case of a request for repayment, as
specified in the Security carrying the right to repayment) if in
writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this instrument, Attention: Treasurer, or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 1.06. Notices to Securityholders; Waiver. Where this Indenture or any Security provides for notice to Securityholders of any event, such notice shall be sufficiently given (unless otherwise herein or in such Security expressly provided) if in writing and mailed, first-class postage prepaid, to each Securityholder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Securityholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Securityholder shall affect the sufficiency of such notice with respect to other Securityholders. Where this Indenture or any Security provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Securityholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or otherwise, it shall be impractical to mail notice of any event to any Securityholder when such notice is required to be given pursuant to any provision of this Indenture, then any method of notification as shall be satisfactory to the Trustee and the Company shall be deemed to be a sufficient giving of such notice.
SECTION 1.07. Conflict with Trust Indenture Act. If and to the extent that any provision hereof limits, qualifies or conflicts with the duties imposed by, or with another provision (an "incorporated provision") included in this Indenture by operation of, any of Sections 310 to 318, inclusive, of the Trust Indenture Act, such imposed duties or incorporated provision shall control.
SECTION 1.08. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
SECTION 1.09. Successors and Assigns. All covenants and agreements in this Indenture by the Company and the Guarantors shall bind their respective successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in any Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Authenticating Agent or Paying Agent, the Security Registrar and the Holders of Securities (or such of them as may be affected thereby), any benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law. This Indenture shall be construed in accordance with and governed by the laws of the State of New York.
SECTION 1.13. Counterparts. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
SECTION 1.14. Judgment Currency. The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of, or premium or interest, if any, on the Securities of any series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in the City of New York the Required Currency with the Judgment Currency on the New York Banking Day preceding that on which a final unappealable judgment is given and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall
not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a legal holiday in the City of New York or a day on which banking institutions in the City of New York are authorized or required by law or executive order to close.
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally. The Securities shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may be required to comply with the rules of any securities exchange, or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities, subject, with respect to the Securities of any series, to the rules of any securities exchange on which such Securities are listed.
SECTION 2.02. Forms of Securities. Each Security shall be in one of the forms approved from time to time by or pursuant to a Board Resolution, or established in one or more indentures supplemental hereto. Prior to the delivery of a Security to the Trustee for authentication in any form approved by or pursuant to a Board Resolution, the Company shall deliver to the Trustee the Board Resolution by or pursuant to which such form of Security has been approved, which Board Resolution shall have attached thereto a true and correct copy of the form of Security which has been approved thereby or, if a Board Resolution authorizes a specific officer or officers to approve a form of Security, a certificate of such officer or officers approving the form of Security attached thereto. Any form of Security approved by or pursuant to a Board Resolution must be acceptable as to form to the Trustee, such acceptance to be evidenced by the Trustee's authentication of Securities in that form or a
certificate signed by a Responsible Officer of the Trustee and delivered to the Company.
SECTION 2.03. Form of Trustee's Certificate of Authentication. The form of Trustee's Certificate of Authentication for any Security issued pursuant to this Indenture shall be substantially as follows:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, as
Trustee
SECTION 2.04. Securities Issuable in the Form of a Global
Security. (a) If the Company shall establish pursuant to Sections 2.02 and 3.01
that the Securities of a particular series are to be issued in whole or in part
in the form of one or more Global Securities, then the Company shall execute and
the Trustee or its agent shall, in accordance with Section 3.03 and the Company
Order delivered to the Trustee or its agent thereunder, authenticate and
deliver, such Global Security or Securities, which (i) shall represent, and
shall be denominated in an amount equal to the aggregate principal amount of,
the Outstanding Securities of such series to be represented by such Global
Security or Securities, or such portion thereof as the Company shall specify in
a Company Order, (ii) shall be registered in the name of the Depository for such
Global Security or Securities or its nominee, (iii) shall be delivered by the
Trustee or its agent to the Depository or pursuant to the Depository's
instruction and (iv) shall bear a legend substantially to the following effect:
"Unless this certificate is presented by an authorized representative of the
Depository to Issuer or its agent for registration of transfer, exchange, or
payment, and any certificate issued is registered in the name of the nominee of
the Depository or in such other name as is requested by an authorized
representative of the Depository (and any payment is made to the nominee of the
Depository or to such other entity as is requested by an authorized
representative of the Depository), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, the nominee of the Depository, has an interest herein."
(b) Notwithstanding any other provision of this Section 2.04 or of Section 3.05, and subject to the provisions of paragraph (c) below, unless the terms of a Global Security expressly permit such Global Security to be exchanged in whole or in part for individual Securities, a Global Security may be transferred, in whole but not in part and in the manner provided in Section 3.05, only to a nominee of the Depository for such Global Security, or to the Depository, or a successor Depository for such Global Security selected or approved by the Company, or to a nominee of such successor Depository.
(c) (i) If at any time the Depository for a Global Security notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time the Depository for the Securities for such series shall no longer be eligible or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation, the Company shall appoint a successor Depository with respect to such Global Security. If a successor Depository for such Global Security is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company will execute, and the Trustee or its agent, upon receipt of a Company Request for the authentication and delivery of individual Securities of such series in exchange for such Global Security, will authenticate and deliver, individual Securities of such series of like tenor and terms in an aggregate principal amount equal to the principal amount of the Global Security in exchange for such Global Security.
(ii) The Company may at any time and in its sole discretion determine that the Securities of any series or portion thereof issued or issuable in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of a Company Request for the authentication and delivery of individual Securities of such series in exchange in whole or in part for such Global Security, will authenticate and deliver individual Securities of such series of like tenor and terms in definitive form in an aggregate principal amount equal to the principal amount of such Global Security or Securities representing such series or portion thereof in exchange for such Global Security or Securities.
(iii) If specified by the Company pursuant to Sections 2.02 and 3.02 with respect to Securities issued or issuable in the form of a Global Security, the Depository for such Global Security may surrender such Global Security in exchange in whole or in part for individual Securities of such series of like tenor and terms in definitive form on such terms as are acceptable to the Company and such Depository. Thereupon the Company shall execute, and the Trustee or its agent shall authenticate and deliver, without service charge, (1) to each Person specified by such Depository a new Security or Securities of the same series of like tenor and terms and of any authorized denomination as requested by such Person in aggregate principal amount equal to and in exchange for such Person's beneficial interest as specified by such Depository in the Global Security; and (2) to such Depository a new Global Security of like tenor and terms and in an authorized denomination equal to the difference, if any, between the principal amount of the surrendered Global Security and the aggregate principal amount of Securities delivered to Holders thereof.
(iv) In any exchange provided for in any of the preceding
three paragraphs, the Company will execute and the Trustee or its agent will
authenticate and deliver individual Securities in definitive registered form in
authorized denominations. Upon the exchange of the entire principal amount of a
Global Security for individual Securities, such Global Security shall be
canceled by the Trustee or its agent. Except as provided in the preceding
paragraph, Securities issued in exchange for a Global Security pursuant to this
Section shall be registered in such names and in such authorized denominations
as the Depository for such Global Security, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Trustee or the
Security Registrar. The Trustee or the Security Registrar shall deliver at its
Corporate Trust Office such Securities to the Persons in whose names such
Securities are so registered.
ARTICLE III
The Securities
SECTION 3.01. General Title; General Limitations; Issuable in Series; Terms of Particular Series. The aggregate principal amount of Securities which may be authenticated and delivered and Outstanding under this Indenture is not limited.
The Securities may be issued in one or more series as from time to time may be authorized by the Board of Directors. There shall be established in or pursuant to a Board Resolution or in a supplemental indenture, subject to Section 3.11, prior to the issuance of Securities of any such series:
(1) the title of the Securities of such series (which shall distinguish the Securities of such series from Securities of any other series);
(2) the Person to whom any interest on a Security of such series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest;
(3) the date or dates on which the principal of the Securities of such series is payable;
(4) the rate or rates at which the Securities of such series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable and the Regular Record Date for any interest payable on any Interest Payment Date;
(5) the place or places where the principal of and any premium and interest on Securities of such series shall be payable;
(6) the period or periods within which, the Redemption Price or Prices or the Repayment Price or Prices, as the case may be, at which and the terms and conditions upon which Securities of such series may be redeemed or repaid (including the applicability of Section 11.09), as the case may be, in whole or in part, at the option of the Company or the Holder;
(7) the obligation, if any, of the Company to purchase Securities of such series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of such series shall be purchased, in whole or in part, pursuant to such obligation;
(8) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of such series shall be issuable;
(9) provisions, if any, with regard to the conversion or exchange of the Securities of such series, at the option of the Holders thereof or the Company, as the case may be, for or into new Securities of a different series, Common Stock or other securities and, if the Securities of such series are convertible into common stock or other Marketable Securities, the Conversion Price therefor;
(10) if other than U.S. dollars, the currency or currencies or units based on or related to currencies in which the Securities of such series shall be denominated and in which payments of principal of, and any premium and interest on, such Securities shall or may be payable;
(11) if the principal of (and premium, if any) or interest, if any, on the Securities of such series are to be payable, at the election of the Company or a Holder thereof, in a coin or currency (including a composite currency) other than that in which the Securities are stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made;
(12) if the amount of payments of principal of (and premium, if any) or interest, if any, on the Securities of such series may be determined with reference to an index based on a coin or currency (including a composite currency) other than that in which the Securities are stated to be payable, the manner in which such amounts shall be determined;
(13) any limit upon the aggregate principal amount of the
Securities of such series which may be authenticated and delivered
under this Indenture (except for Securities authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of,
other Securities of such series pursuant to Sections 3.04, 3.05, 3.06,
9.06, 11.07 and 12.02 and except for any Securities which, pursuant to
Section 3.03, are deemed never to have been authenticated and delivered
hereunder);
(14) provisions, if any, with regard to the exchange of Securities of such series, at the option of the Holders thereof, for other Securities of the same series of the same aggregate principal amount or of a different authorized series or different authorized denomination or denominations, or both;
(15) provisions, if any, with regard to the appointment by the Company of an Authenticating Agent in one or more places other than the location of the office of the Trustee with power to act on behalf of the Trustee and subject to its direction in the authentication and delivery of the Securities of any one or more series in connection with such transactions as shall be specified in the provisions of this Indenture or in or pursuant to such Board Resolution or supplemental indenture;
(16) the portion of the principal amount of Securities of the series, if other than the principal amount thereof, which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.02 or provable in bankruptcy pursuant to Section 5.04;
(17) any Event of Default with respect to the Securities of such series, if not set forth herein, and any additions, deletions or other changes to the Events of Default set forth herein that shall be applicable to the Securities of such series;
(18) any covenant solely for the benefit of the Securities of such series and any additions, deletions or other changes to the provisions of Article X or Section 1.01 or any definitions relating to such Article that would otherwise be applicable to the Securities of such series;
(19) if Section 4.03 of this Indenture shall not be applicable to the Securities of such series and if Section 4.03 shall be applicable to any covenant or Event of Default established in or pursuant to a Board Resolution or in a supplemental indenture as described above that has not already been established herein;
(20) if the Securities of such series shall be issued in whole or in part in the form of a Global Security or Securities, the terms and conditions, if any, upon which such Global Security or Securities may be exchanged in whole or in part for other individual Securities; and the Depository for such Global Security or Securities; and
(21) any other terms of such series.
all upon such terms as may be determined in or pursuant to such Board Resolution or supplemental indenture with respect to such series.
The form of the Securities of each series shall be established pursuant to the provisions of this Indenture in or pursuant to the Board Resolution or in the supplemental indenture creating such series. The Securities of each series shall be distinguished from the Securities of each other series in such manner, reasonably satisfactory to the Trustee, as the Board of Directors may determine.
Unless otherwise provided with respect to Securities of a particular series, the Securities of any series may only be issuable in registered form, without coupons.
Any terms or provisions in respect of the Securities of any series issued under this Indenture may be determined pursuant to this Section by providing for the method by which such terms or provisions shall be determined.
SECTION 3.02. Denominations. The Securities of each series shall be issuable in such denominations and currency as shall be provided in the provisions of this Indenture or in or pursuant to the Board Resolution or the supplemental indenture creating such series. In the absence of any such provisions with respect to the Securities of any series, the Securities of that series shall be issuable only in fully registered form in denominations of $1,000 and any integral multiple thereof.
SECTION 3.03. Execution, Authentication and Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, one if its Co-Chief Operating Officers, one of its Vice Presidents or its Treasurer under its corporate seal reproduced thereon and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication; and the Trustee shall, upon Company
Order, authenticate and deliver such Securities as in this Indenture provided and not otherwise.
Prior to any such authentication and delivery, the Trustee shall be entitled to receive, in addition to any Officers' Certificate and Opinion of Counsel required to be furnished to the Trustee pursuant to Section 1.02, and the Board Resolution and any certificate relating to the issuance of the series of Securities required to be furnished pursuant to Section 2.02, an Opinion of Counsel stating that:
(1) all instruments furnished to the Trustee conform to the requirements of the Indenture and constitute sufficient authority hereunder for the Trustee to authenticate and deliver such Securities;
(2) the form and terms of such Securities have been established in conformity with the provisions of this Indenture;
(3) all laws and requirements with respect to the execution and delivery by the Company of such Securities have been complied with, the Company has the corporate power to issue such Securities and such Securities have been duly authorized and delivered by the Company and, assuming due authentication and delivery by the Trustee, constitute legal, valid and binding obligations of the Company enforceable in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors' rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity) and entitled to the benefits of this Indenture, equally and ratably with all other Securities, if any, of such series Outstanding;
(4) the Indenture is qualified under the Trust Indenture Act; and
(5) such other matters as the Trustee may reasonably request;
and, if the authentication and delivery relates to a new series of Securities created by an indenture supplemental hereto, also stating that all laws and requirements with respect to the form and execution by the Company of the supplemental indenture with respect to that series of Securities have been complied with, the Company has
corporate power to execute and deliver any such supplemental indenture and has taken all necessary corporate action for those purposes and any such supplemental indenture has been executed and delivered and constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors' rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity).
The Trustee shall not be required to authenticate such Securities if the issue thereof will adversely affect the Trustee's own rights, duties or immunities under the Securities and this Indenture.
Unless otherwise provided in the form of Security for any series, all Securities shall be dated the date of their authentication.
No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancelation as provided in Section 3.09, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.
SECTION 3.04. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and, upon receipt of the documents required by Section 3.03, together with a Company Order, the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause definitive Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment, without charge to the Holder; and upon surrender for cancelation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of such series of authorized denominations and of like tenor and terms. Until so exchanged the temporary Securities of such series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.
SECTION 3.05. Registration, Transfer and Exchange. The Company
shall keep or cause to be kept a register or registers (herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities, or of Securities of a particular series, and of transfers of
Securities or of Securities of such series. Any such register shall be in
written form or in any other form capable of being converted into written form
within a reasonable time. At all reasonable times the information contained in
such register or registers shall be available for inspection by the Trustee at
the office or agency to be maintained by the Company as provided in Section
10.02. There shall be only one Security Register per series of Securities.
Subject to Section 2.04, upon surrender for registration of transfer of any Security of any series at the office or agency of the Company maintained for such purpose in a Place of Payment, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of such series of any authorized denominations, of a like aggregate principal amount and Stated Maturity and of like tenor and terms.
Subject to Section 2.04, at the option of the Holder, Securities of any series may be exchanged for other Securities of such series of any authorized denominations, of a like aggregate principal amount and Stated Maturity and of like tenor and terms, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities which the Securityholder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed, by the Holder thereof or his attorney duly authorized in writing.
Unless otherwise provided in the Security to be registered for transfer or exchanged, no service charge shall be made on any Securityholder for any registration of transfer or exchange of Securities, but the Company may (unless otherwise provided in such Security) require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or exchange any Security of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of such series selected for redemption under Section 11.03 and ending at the close of business on the date of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part.
None of the Company, the Trustee, any agent of the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities. If (i) any mutilated Security is surrendered to the Trustee, or the Company and the Trustee
receive evidence to their satisfaction of the destruction, loss or theft of any Security, and (ii) there is delivered to the Company and the Trustee such Security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a protected purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Security, a new Security of like tenor, series, Stated Maturity and principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of the same series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.07. Payment of Interest; Interest Rights Preserved. Unless otherwise provided with respect to such Security pursuant to Section 3.01, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall
forthwith cease to be payable to the registered Holder on the relevant Regular Record Date by virtue of his having been such Holder; and, except as hereinafter provided, such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or Clause (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names any such Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class postage prepaid, to the Holder of each such Security at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Securities (or their respective Predecessor Securities) are registered on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.
If any installment of interest the Stated Maturity of which is on or prior to the Redemption Date for any Security called for redemption pursuant to Article XI is not paid or duly provided for on or prior to the Redemption Date in accordance with the foregoing provisions of this Section, such interest shall be payable as part of the Redemption Price of such Securities.
Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 3.08. Persons Deemed Owners. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any), and (subject to Section 3.07) interest on, such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
SECTION 3.09. Cancelation. All Securities surrendered for payment, conversion, redemption, registration of transfer, exchange or credit against a sinking fund shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and, if not already canceled, shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancelation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Security shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. The Trustee shall dispose of all canceled Securities in accordance with its standard procedures and deliver a certificate of such disposition to the Company.
SECTION 3.10. Computation of Interest. Unless otherwise provided as contemplated in Section 3.01, interest on the Securities shall be calculated on the basis of a 360-day year of twelve 30-day months.
SECTION 3.11. Delayed Issuance of Securities. Notwithstanding any contrary provision herein, if all Securities of a series are not to be originally issued at one time, it shall not be necessary for the Company to deliver to the Trustee an Officers' Certificate, Board Resolution, supplemental indenture, opinion of counsel or Company Order otherwise required pursuant to Sections 1.02, 2.02, 3.01 and 3.03 at or prior to the time of authentication of each Security of such series if such documents are delivered to the Trustee or its agent at or prior to the authentication upon original issuance of the first Security of such series to be issued; provided that any subsequent request by the Company to the Trustee to authenticate Securities of such series upon original issuance shall constitute a representation and warranty by the Company that as of the date of such request, the statements made in the Officers' Certificate or other certificates delivered pursuant to Sections 1.02 and 2.02 shall be true and correct as if made on such date.
A Company Order, Officers' Certificate or Board Resolution or supplemental indenture delivered by the Company to the Trustee in the circumstances set forth in the preceding paragraph may provide that Securities which are the subject thereof will be authenticated and delivered by the Trustee or its agent on original issue from time to time in the aggregate principal amount, if any, established for such series pursuant to such procedures acceptable to the Trustee as may be specified from time to time by Company Order upon the telephonic, electronic or written order of Persons designated in such Company Order, Officers' Certificate, supplemental indenture or Board Resolution (any such telephonic or electronic instructions to be promptly confirmed in writing by such Persons) and that such Persons are authorized to determine, consistent with such Company Order, Officers' Certificate, supplemental indenture or Board Resolution, such terms and conditions of said Securities as are specified in such Company Order, Officers' Certificate, supplemental indenture or Board Resolution.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect with respect to any series of Securities (except as to any surviving rights of conversion or registration of transfer or exchange of Securities of such series expressly provided for herein or in the form of Security for such series), and the Trustee, on receipt of a Company Request and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series, when:
(1) either
(A) all Securities of that series theretofore authenticated and
delivered (other than (i) Securities of such series which have been
destroyed, lost or stolen and which have been replaced or paid as
provided in Section 3.06, and (ii) Securities of such series for whose
payment money in the Required Currency has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 10.03) have been delivered to the Trustee canceled or for
cancelation; or
(B) all such Securities of that series not theretofore delivered to the Trustee canceled or for cancelation:
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one year, or
(iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount in the Required Currency sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the
Trustee canceled or for cancelation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable), or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the Securities of such series; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Securities of such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture with respect to any series of Securities, the obligations of the Company to the Trustee with respect to that series under Section 6.07 shall survive and the obligations of the Company and the Trustee under Sections 3.05, 3.06, 4.02, 10.02 and 10.03 shall survive.
SECTION 4.02. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 or Section 4.03 shall be held in trust and applied by it, in accordance with the provisions of the series of Securities in respect of which it was deposited and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
Anything herein to the contrary notwithstanding, the Trustee shall
deliver or pay to the Company from time to time upon Company Request any money
or securities deposited with and held by it as provided in Section 4.03 and this
Section 4.02 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent satisfaction and discharge,
Discharge or covenant defeasance, provided that the Trustee shall not be
required
to liquidate any securities in order to comply with the provisions of this paragraph.
SECTION 4.03. Defeasance Upon Deposit of Funds or Government
Obligations. Unless pursuant to Section 3.01 provision is made that this Section
shall not be applicable to the Securities of any series, at the Company's
option, either (a) the Company shall be deemed to have been Discharged (as
defined below) from its obligations with respect to any series of Securities
after the applicable conditions set forth below have been satisfied or (b) the
Company shall cease to be under any obligation to comply with any term,
provision or condition set forth in Sections 10.05, and 10.06 and Article VIII
(and any other Sections or covenants applicable to such Securities that are
determined pursuant to Section 3.01 to be subject to this provision), and clause
(4) of Section 5.01 of this Indenture (and any other Events of Default
applicable to such Securities that are determined pursuant to Section 3.01 to be
subject to this provision) shall be deemed not to be an Event of Default, with
respect to any series of Securities at any time after the applicable conditions
set forth below have been satisfied:
(1) the Company shall have deposited or caused to be deposited
irrevocably with the Trustee as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of the Securities of such series (i) money in an amount, or
(ii) the equivalent in securities of the government which issued the
currency in which the Securities are denominated or government agencies
backed by the full faith and credit of such government which through
the payment of interest and principal in respect thereof in accordance
with their terms will provide freely available funds on or prior to the
due date of any payment, money in an amount, or (iii) a combination of
(i) and (ii), sufficient, in the opinion (with respect to (ii) and
(iii)) of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge each installment of principal
(including mandatory sinking fund payments) and any premium of,
interest on and any repurchase or redemption obligations with respect
to the outstanding Securities of such series on the dates such
installments of interest or principal or repurchase or redemption
obligations are due (before such a deposit, if the Securities of such
series are then redeemable or may be redeemed in the future pursuant to
the terms thereof, in either case at the option of the Company, the
Company may give to the Trustee, in accordance with Section 11.02, a notice of its election to redeem all of the Securities of such series at a future date in accordance with Article XI);
(2) no Event of Default or event (including such deposit) which with notice or lapse of time would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit;
(3) the Company shall have delivered to the Trustee (A) an
Opinion of Counsel to the effect that Holders of the Securities of such
series will not recognize income, gain or loss for Federal income tax
purposes as a result of the Company's exercise of its option under this
Section 4.03 and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been
the case if such option had not been exercised, and, in the case of
Securities being Discharged, accompanied by a ruling to that effect
from the Internal Revenue Service, unless, as set forth in such Opinion
of Counsel, there has been a change in the applicable federal income
tax law since the date of this Indenture such that a ruling from the
Internal Revenue Service is no longer required and (B) an Opinion of
Counsel, subject to such qualifications, exceptions, assumptions and
limitations as are reasonably deemed necessary by such counsel and are
reasonably satisfactory to counsel for the Trustee, to the effect that
the trust resulting from the deposit referred to in paragraph (1) above
does not violate the Investment Company Act of 1940;
(4) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit referred to in paragraph
(1) above was not made by the Company with the intent of preferring the
Holders over other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company
or others; and
(5) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Securities of such series have been complied with.
If the Company, at its option, with respect to a series of Securities,
satisfies the applicable conditions pursuant to either clause (a) or (b) of the
first sentence of this Section, then (x), in the event the Company satisfies the
conditions to clause (a) and elects clause (a) to be applicable, each of America
Online, Time Warner, TBS and TWC shall be deemed to have paid and discharged the
entire indebtedness represented by, and obligations under, its respective
guarantee of the Securities of such series and to have satisfied all the
obligations under this Indenture relating to the Securities of such series and
(y) in either case, each of America Online, Time Warner, TBS and TWC shall cease
to be under any obligation to comply with any term, provision or condition set
forth in Article Eight (and any other covenants applicable to such Securities
that are determined pursuant to Section 3.01 to be subject to this provision),
and clause (4) of Section 5.01 (and any other Events of Default applicable to
such series of Securities that are determined pursuant to Section 3.01 to be
subject to this provision) shall be deemed not to be an Event of Default with
respect to such series of Securities at any time thereafter.
"Discharged" means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by, and obligations under, the
Securities of such series and to have satisfied all the obligations under this
Indenture relating to the Securities of such series (and the Trustee, on receipt
of a Company Request and at the expense of the Company, shall execute proper
instruments acknowledging the same), except (A) the rights of Holders of
Securities to receive, from the trust fund described in clause (1) above,
payment of the principal and any premium of and any interest on such Securities
when such payments are due; (B) the Company's obligations with respect to such
Securities under Sections 3.05, 3.06, 4.02, 6.07, 10.02 and 10.03; (C) the
Company's right of redemption, if any, with respect to any Securities of such
series pursuant to Article XI, in which case the Company may redeem the
Securities of such series in accordance with Article XI by complying with such
Article and depositing with the Trustee, in accordance with Section 11.05, an
amount of money sufficient, together with all amounts held in trust pursuant to
Section 4.02 with respect to Securities of such series, to pay the Redemption
Price of all the Securities of such series to be redeemed; and (D) the rights,
powers, trusts, duties and immunities of the Trustee hereunder.
SECTION 4.04. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or securities in accordance with Section 4.02 of this Indenture, by reason of
any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's and, if applicable, the Guarantors' obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 4.01 or 4.03 of this Indenture, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money or securities in accordance with Section 4.02 of this Indenture; provided that, if the Company has made any payment of principal of or interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or securities held by the Trustee or Paying Agent.
ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default", wherever used herein, means with respect to any series of Securities any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is either inapplicable to a particular series or it is specifically deleted or modified in or pursuant to the supplemental indenture or Board Resolution creating such series of Securities or in the form of Security for such series:
(1) default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or
(3) default in the payment of any sinking or purchase fund or analogous obligation when the same becomes due by the terms of the Securities of such series; or
(4) default in the performance, or breach, of any covenant or warranty of the Company, America Online, Time Warner, TWC or TBS in this Indenture in respect of the Securities of such series (other than a covenant or warranty in respect of the Securities of such series a default in the performance of which or the breach of which is elsewhere in this Section specifically dealt with), all of such covenants and warranties in the Indenture which are not expressly stated to be for the benefit of a particular series of Securities being deemed in respect of the Securities of all series for this purpose, and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company (or, if applicable, America Online, Time Warner, TWC or TBS) by the Trustee or to the Company (or, if applicable, America Online, Time Warner, TWC or TBS) and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or
(5) the entry of an order for relief against the Company or any Material U.S. Subsidiary thereof under Title 11, United States Code (the "Federal Bankruptcy Act") by a court having jurisdiction in the premises or a decree or order by a court having jurisdiction in the premises adjudging the Company or any Material U.S. Subsidiary thereof a bankrupt or insolvent under any other applicable Federal or State law, or the entry of a decree or order approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Material U.S. Subsidiary thereof under the Federal Bankruptcy Act or any other applicable Federal or State law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Material U.S. Subsidiary thereof or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or
(6) the consent by the Company or any Material U.S. Subsidiary thereof to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Act or any other applicable Federal or State law, or
the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Material U.S. Subsidiary thereof or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any Material U.S. Subsidiary thereof in furtherance of any such action;
(7) any Guarantee shall for any reason cease to be, or be asserted in writing by any Guarantor or the Company not to be, in full force and effect, enforceable in accordance with its terms, except to the extent contemplated by this Indenture and any such Guarantee; or
(8) any other Event of Default provided in the supplemental indenture or Board Resolution under which such series of Securities is issued or in the form of Security for such series.
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default described in paragraph (1), (2), (3), (4), (7) or (8) (if the
Event of Default under paragraph (4) or (8) is with respect to less than all
series of Securities then Outstanding) of Section 5.01 occurs and is continuing
with respect to any series, then and in each and every such case, unless the
principal of all the Securities of such series shall have already become due and
payable, either the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Securities of such series then Outstanding hereunder
(each such series acting as a separate class), by notice in writing to the
Company (and to the Trustee if given by Holders), may declare the principal
amount (or, if the Securities of such series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of all the Securities of such series and all accrued
interest thereon to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Securities of such series contained to the
contrary notwithstanding. If an Event of Default described in paragraph (4) or
(8) (if the Event of Default under paragraph (4) or (8) is with respect to all
series of Securities then Outstanding), of Section 5.01 occurs and is
continuing, then and in each and every such case, unless the principal of all
the Securities shall have already become due and payable, either the
Trustee or the Holders of not less than 25% in aggregate principal amount of all the Securities then Outstanding hereunder (treated as one class), by notice in writing to the Company (and to the Trustee if given by Holders), may declare the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms thereof) of all the Securities then Outstanding and all accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Securities contained to the contrary notwithstanding. If an Event of Default of the type set forth in paragraph (5) or (6) of Section 5.01 occurs and is continuing, the principal of and any interest on the Securities then outstanding shall become immediately due and payable.
At any time after such a declaration of acceleration has been made with respect to the Securities of any or all series, as the case may be, and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the outstanding Securities of such series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient to pay:
(A) all overdue installments of interest on the Securities of such series;
(B) the principal of (and premium, if any, on) any Securities of such series which have become due otherwise than by such declaration of acceleration, and interest thereon at the rate or rates prescribed therefor by the terms of the Securities of such series, to the extent that payment of such interest is lawful;
(C) interest upon overdue installments of interest at the rate or rates prescribed therefor by the terms of the Securities of such series to the extent that payment of such interest is lawful; and
(D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and all other amounts due the Trustee under Section 6.07; and
(2) all Events of Default with respect to such series of Securities, other than the nonpayment of the principal of the Securities of such series which have become due solely by such acceleration, have been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right consequent thereon.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if:
(1) default is made in the payment of any installment of interest on any Security of any series when such interest becomes due and payable; or
(2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof; or
(3) default is made in the payment of any sinking or purchase fund or analogous obligation when the same becomes due by the terms of the Securities of any series;
and any such default continues for any period of grace provided with respect to the Securities of such series, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holder of any such Security (or the Holders of any such series in the case of Clause (3) above), the whole amount then due and payable on any such Security (or on the Securities of any such series in the case of Clause (3) above) for principal (and premium, if any) and interest, with interest, to the extent that payment of such interest shall be legally enforceable, upon the overdue principal (and premium, if any) and upon overdue installments of interest, at such rate or rates as may be prescribed therefor by the terms of any such Security (or of Securities of any such series in the case of Clause (3) above); and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 6.07.
If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as
trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities of such series and collect the money adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.
If an Event of Default with respect to any series of Securities occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.04. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceedings or otherwise:
(i) to file and prove a claim for the whole amount of principal (or portion thereof determined pursuant to Section 3.01(16) to be provable in bankruptcy) (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary and advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 6.07) and of the Securityholders allowed in such judicial proceeding; and
(ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Securityholder to make such payment to the Trustee and in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder, any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any, Securityholder in any such proceeding.
SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities of any series may be prosecuted and enforced by the Trustee without the possession of any of the Securities of such series or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel and any other amounts due the Trustee under Section 6.07, be for the ratable benefit of the Holders of the Securities of the series in respect of which such judgment has been recovered.
SECTION 5.06. Application of Money Collected. Any money collected by the Trustee with respect to a series of Securities pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities of such series and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 6.07.
SECOND: To the payment of the amounts then due and unpaid upon the Securities of that series for principal (and premium, if any) and interest, in respect of which or
for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively.
SECTION 5.07. Limitation on Suits. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of, a continuing Event of Default with respect to Securities of such series;
(2) the Holders of not less than 25% in principal amount of the outstanding Securities of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of such series;
it being understood and intended that no one or more Holders of Securities of such series shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities of such series, or to obtain or to seek to obtain priority or preference over any other such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and proportionate benefit of all the Holders of all Securities of such series.
SECTION 5.08. Unconditional Right of Securityholders To Receive Principal, Premium and Interest. Notwithstanding any other provisions in this Indenture, the Holder of any Security shall have the right, which is
absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.07) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repayment, on the Redemption Date or Repayment Date, as the case may be) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder.
SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or any Securityholder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, then and in every such case the Company, the Trustee and the Securityholders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Securityholders shall continue as though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Securityholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Securityholders, as the case may be.
SECTION 5.12. Control by Securityholders. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Securities of such series, provided that:
(1) the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, determines that the action so directed may not lawfully be taken or would conflict with this Indenture or if the Trustee in good faith shall, by a Responsible Officer, determine that the proceedings so directed would involve it in personal liability or be unjustly prejudicial to the Holders not taking part in such direction, and
(2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default not theretofore cured:
(1) in the payment of the principal of (or premium, if any) or interest on any Security of such series, or in the payment of any sinking or purchase fund or analogous obligation with respect to the Securities of such series, or
(2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series.
Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding in the aggregate more than lot in principal amount of the Outstanding Securities of any series to which the suit relates, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of (or premium, if any) or interest on an Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption or repayment, on or after the Redemption Date or Repayment Date, as the case may be).
SECTION 5.15. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE VI
The Trustee
SECTION 6.01. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default with respect to any series of Securities:
(1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture with respect to the Securities of such series, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may, with respect to Securities of such series, conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.
(b) In case an Event of Default with respect to any series of Securities has occurred and is continuing, the Trustee shall exercise with respect to the Securities of such series such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities of any series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; and
(4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
SECTION 6.02. Notice of Defaults. Within 90 days after the occurrence of any default hereunder with respect to Securities of any series, the Trustee shall transmit by mail to all Securityholders of such series, as their names and addresses appear in the Security Register, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking or purchase fund installment or analogous obligation with respect to Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Securityholders of such series; and provided, further, that in the case of any default of the character specified in Section 5.01(4) with respect to Securities of such series no such notice to Securityholders of such series shall be given until at least 90 days after the occurrence thereof. For the purpose of this Section, the term "default", with respect to Securities of any series, means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series.
SECTION 6.03. Certain Rights of Trustee. Except as otherwise provided in Section 6.01:
(a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such counsel or and Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Securityholders pursuant to this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
(h) the Trustee shall not be charged with knowledge of any default (as defined in Section 6.02) or Event of Default with respect to the Securities of any series for which it is acting as Trustee unless either (1) a Responsible Officer of the Trustee assigned to the Corporate Trust Department of the Trustee (or any successor division or department of the Trustee) shall have actual knowledge of such default or Event of Default or (2) written notice of such default or Event of Default shall have been given to the Trustee by the Company or any other obligor on such Securities or by any Holder of such Securities; and
(i) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture.
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.
SECTION 6.05. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, the Security Registrar, any Conversion Agent or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company or any Guarantor with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar, Conversion Agent or such other agent.
SECTION 6.06. Money Held in Trust. Subject to the provisions of Section 10.03 hereof, all moneys in any currency or currency received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company.
SECTION 6.07. Compensation and Reimbursement. The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.
As security for the performance of the obligations of the Company under this Section the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Securities.
When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.01(5) or (6), the expenses and the compensation for the services are intended to constitute expenses of administration under any bankruptcy law.
The Company's obligations under this Section 6.07 and any lien arising hereunder shall survive the resignation or removal of any Trustee, the discharge of the Company's obligations pursuant to Article IV of this Indenture and/or the termination of this Indenture.
SECTION 6.08. Disqualification; Conflicting Interests. The Trustee for the Securities of any series issued hereunder shall be subject to the provisions of Section 310(b) of the Trust Indenture Act during the period of time provided for therein. In determining whether the Trustee has a conflicting interest as defined in Section 310(b) of the Trust Indenture Act with respect to the Securities of any series, there shall be excluded this Indenture with respect to Securities of any particular series of Securities other than that series. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 310(b) of the Trust Indenture Act.
SECTION 6.09. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee
hereunder with respect to each series of Securities, which shall be either:
(i) a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal or State authority, or
(ii) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees;
in either case having a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither the Company nor any Person directly or indirectly controlling, controlled by, or under common control with the Company shall serve as trustee for the Securities of any series issued hereunder. If at any time the Trustee with respect to any series of Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in Section 6.10.
SECTION 6.10. Resignation and Removal. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign with respect to any series of Securities at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed with respect to any series of Securities at any time by Act of the Holders of a majority in principal amount of the outstanding Securities of that series, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act pursuant to Section 6.08 with respect to any series of Securities after written request therefor by the Company or by any Securityholder who has been a bona fide Holder of a Security of that series for at least six months, unless the Trustee's duty to resign is stayed in accordance with the provisions of Section 310(b) of the Trust Indenture Act, or
(2) the Trustee shall cease to be eligible under Section 6.09 with respect to any series of Securities and shall fail to resign after written request therefor by the Company or by any such Securityholder, or
(3) the Trustee shall become incapable of acting with respect to any series of Securities, or
(4) the Trustee shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, with respect to the series, or in the case of Clause (4), with respect to all series, or (ii) subject to Section 5.14, any Securityholder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee with respect to the series, or, in the case of Clause (4), with respect to all series.
(e) If the Trustee shall resign, be removed or become incapable of acting with respect to any series of Securities, or if a vacancy shall occur in the office of the Trustee with respect to any series of Securities for any cause, the Company, by Board Resolution, shall promptly appoint a successor Trustee for that series of Securities.
If, within one year after such resignation, removal or incapacity, or the
occurrence of such vacancy, a successor Trustee with respect to such series of
Securities shall be appointed by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series delivered to the Company and
the retiring Trustee, the successor Trustee so appointed shall, forthwith upon
its acceptance of such appointment, become the successor Trustee with respect to
such series and supersede the successor Trustee appointed by the Company with
respect to such series. If no successor Trustee with respect to such series
shall have been so appointed by the Company or the Securityholders of such
series and accepted appointment in the manner hereinafter provided, subject to
Section 5.14, any Securityholder who has been a bona fide Holder of a Security
of that series for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to such series.
(f) The Company shall give notice of each resignation and each removal of the Trustee with respect to any series and each appointment of a successor Trustee with respect to any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities of that series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee and the address of its principal Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the predecessor Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the predecessor Trustee shall become effective with respect to any series as to which it is resigning or being removed as Trustee, and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the predecessor Trustee with respect to any such series; but, on request of the Company or the successor Trustee, such predecessor Trustee shall, upon payment of its reasonable charges, if any, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the predecessor Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such predecessor trustee hereunder with respect to all or any such series, subject nevertheless to its lien, if any, provided for in Section 6.07. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts.
In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the predecessor Trustee and each successor Trustee with respect to the Securities of any applicable series shall execute and deliver an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the predecessor Trustee with respect to the Securities of any series as to which the predecessor Trustee is not being succeeded shall continue to be vested in the predecessor Trustee, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be Trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee.
No successor Trustee with respect to any series of Securities shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible with respect to that series under this Article.
SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.
SECTION 6.13. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated.
SECTION 6.14. Appointment of Authenticating Agent. At any time when any
of the Securities remain Outstanding the Trustee, with the approval of the
Company, may appoint an Authenticating Agent or Agents with respect to one or
more series of Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities of such series issued upon original issuance,
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 3.06, and Securities so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as an
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and, if other than the Company itself, subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the
corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and, if other than the Company, to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and, if other than the Company, to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee, with the approval of the Company, may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section.
If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
as Trustee
As Authenticating Agent
ARTICLE VII
Securityholders' Lists and Reports by
Trustee and Company
SECTION 7.01. Company To Furnish Trustee Names and Addresses of Securityholders. The Company will furnish or cause to be furnished to the Trustee:
(1) semi-annually, not more than 15 days after December 15 and June 15 in each year in such form as the Trustee may reasonably require, a list of the names and addresses of the Holders of Securities of each series as of such December 15 and June 15, as applicable, and
(2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security Registrar for Securities of a series, no such list need be furnished with respect to such series of Securities.
SECTION 7.02. Preservation of Information; Communications to
Securityholders. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders of Securities
contained in the most recent list furnished to the Trustee as provided in
Section 7.01 and the names and addresses of Holders of Securities received by
the Trustee in its capacity as Security Registrar, if so acting. The Trustee may
destroy any list furnished to it as provided in Section 7.01 upon receipt of a
new list so furnished.
(b) If three or more Holders of Securities of any series (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security of such series for a period of at least six months
preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Securities of such series or with the Holders of all Securities with respect to their rights under this Indenture or under such Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either:
(i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 7.02(a), or
(ii) inform such applicants as to the approximate number of Holders of Securities of such series or all Securities, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a), and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder of a Security of such series or to all Securityholders, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless, within five days after such tender, the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders of Securities of such series or all Securityholders, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to
all Securityholders of such series or all Securityholders, as the case may be, with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
shall be held accountable by reason of the disclosure of any such information as
to the names and addresses of the Holders of Securities in accordance with
Section 7.02(b), regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Section 7.02(b).
SECTION 7.03. Reports by Trustee. (a) Within 60 days after May 15 of each year commencing with the first May 15 after the issuance of Securities, the Trustee shall transmit by mail, at the Company's expense, to all Holders as their names and addresses appear in the Security Register, as provided in Trust Indenture Act 313(c), a brief report dated as of May 15 in accordance with and with respect to the matters required by Trust Indenture Act Section 313(a).
(b) The Trustee shall transmit by mail, at the Company's expense, to all Holders as their names and addresses appear in the Security Register, as provided in Trust Indenture Act 313(c), a brief report in accordance with and with respect to the matters required by Trust Indenture Act Section 313(b).
(c) A copy of each such report shall, at the time of such transmission to Holders, be furnished to the Company and, in accordance with Trust Indenture Act Section 313(d), be filed by the Trustee with each stock exchange upon which the Securities are listed, and also with the Commission.
SECTION 7.04. Reports by Company. The Company shall file with the Trustee, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. The
Company also shall comply with the other provisions of Trust Indenture Act
Section 314(a).
ARTICLE VIII
Consolidation, Merger, Conveyance or Transfer
SECTION 8.01. Consolidation, Merger, Conveyance or Transfer on Certain Terms. None of the Company, America Online, Time Warner, TBS or TWC shall consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless:
(1)(a) in the case of the Company, the Person formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer the properties and assets of the
Company substantially as an entirety shall be organized and existing
under the laws of the United States of America or any State thereof or
the District of Columbia, and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the
principal of (and premium, if any) and interest on all the Securities
and the performance of every covenant of this Indenture (as
supplemented from time to time) on the part of the Company to be
performed or observed; (b) in the case of any Guarantor, the Person
formed by such consolidation or into which such Guarantor is merged or
the Person which acquires by conveyance or transfer the properties and
assets of such Guarantor substantially as an entirety shall be either
(i) the Company or another Guarantor or (ii) a Person organized and
existing under the laws of the United States of America or any State
thereof or the District of Columbia, and in the case of clause (ii),
shall expressly assume, by an indenture supplemental hereto, executed
and delivered to the Trustee, in form satisfactory to the Trustee, the
performance of every covenant of this Indenture (as supplemented from
time to time) on the part of such Guarantor to be performed or
observed;
(2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.
SECTION 8.02. Successor Person Substituted. Upon any consolidation or merger, or any conveyance or transfer of the properties and assets of the Company or any Guarantor substantially as an entirety in accordance with Section 8.01, the successor Person formed by such consolidation or into which the Company or such Guarantor is merged or to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Guarantor, as the case may be, under this Indenture with the same effect as if such successor had been named as the Company or such Guarantor herein. In the event of any such conveyance or transfer, the Company or such Guarantor, as the case may be, as the predecessor shall be discharged from all obligations and covenants under this Indenture and the Securities and may be dissolved, wound up or liquidated at any time thereafter.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of Securityholders. Without the consent of the Holders of any Securities, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation or Person to the Company or any Guarantor, and the assumption by any such successor of the respective covenants of the Company or any Guarantor herein and in the Securities contained; or
(2) to add to the covenants of the Company or any Guarantor, or to surrender any right or power herein conferred upon the Company or any Guarantor, for the benefit of the Holders of the Securities of any or all series (and if such covenants or the surrender of such right or power are to be for the benefit of less than
all series of Securities, stating that such covenants are expressly being included or such surrenders are expressly being made solely for the benefit of one or more specified series); or
(3) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; or
(4) to add to this Indenture such provisions as may be expressly permitted by the TIA, excluding, however, the provisions referred to in Section 316(a)(2) of the TIA as in effect at the date as of which this instrument was executed or any corresponding provision in any similar federal statute hereafter enacted; or
(5) to establish any form of Security, as provided in Article II, to provide for the issuance of any series of Securities as provided in Article III and to set forth the terms thereof, and/or to add to the rights of the Holders of the Securities of any series; or
(6) to evidence and provide for the acceptance of appointment by another corporation as a successor Trustee hereunder with respect to one or more series of Securities and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to Section 6.11; or
(7) to add any additional Events of Default in respect of the Securities of any or all series (and if such additional Events of Default are to be in respect of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of one or more specified series); or
(8) to provide for the issuance of Securities in coupon as well as fully registered form; or
(9) to provide for the terms and conditions of conversion into Common Stock or other Marketable Securities of the Securities of any series which are convertible into Common Stock or other Marketable
Securities, if different from those set forth in Article XII; or
(10) to secure the Securities of any series pursuant to
Section 10.06 or otherwise.
No supplemental indenture for the purposes identified in Clauses (2),
(3), (5) or (7) above may be entered into if to do so would adversely affect the
rights of the Holders of Outstanding Securities of any series in any material
respect.
SECTION 9.02. Supplemental Indentures with Consent of Securityholders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of all series affected by such supplemental indenture or indentures (acting as one class), by Act of said Holders delivered to the Company and the Trustee (in accordance with Section 1.04 hereof), the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Securities of each such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby:
(1) change the Maturity of the principal of, or the Stated Maturity of any premium on, or any installment of interest on, any Security, or reduce the principal amount thereof or the interest or any premium thereon, or change the method of computing the amount of principal thereof or interest thereon on any date or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Maturity or the Stated Maturity, as the case may be, thereof (or, in the case of redemption or repayment, on or after the Redemption Date or the Repayment Date, as the case may be), or alter the provisions of this Indenture so as to affect adversely the terms, if any, of conversion of any Securities into Common Stock or other securities; or
(2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required
for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences, provided for in this Indenture; or
(3) modify any of the provisions of this Section 9.02, Section 5.13 or Section 10.07, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby;
(4) impair or adversely affect the right of any Holder to institute suit for the enforcement of any payment on, or with respect to, the Securities of any series on or after the Stated Maturity of such Securities (or in the case of redemption, on or after the Redemption Date);
(5) amend or modify Section 13.01 of this Indenture in any manner adverse to the rights of the Holders of the Outstanding Securities of any series.
For purposes of this Section 9.02, if the Securities of any series are issuable upon the exercise of warrants, each holder of an unexercised and unexpired warrant with respect to such series shall be deemed to be a Holder of Outstanding Securities of such series in the amount issuable upon the exercise of such warrant. For such purposes, the ownership of any such warrant shall be determined by the Company in a manner consistent with customary commercial practices. The Trustee for such series shall be entitled to rely on an Officers' Certificate as to the principal amount of Securities of such series in respect of which consents shall have been executed by holders of such warrants.
A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of Holders of Securities of any other series.
It shall not be necessary for any Act of Securityholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 9.03. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby to the extent provided therein.
SECTION 9.05. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of TIA as then in effect.
SECTION 9.06. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities.
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and Interest. With respect to each series of Securities, the Company will duly and punctually pay the principal of (and premium, if any) and interest on such Securities in accordance with their terms and this Indenture, and will
duly comply with all the other terms, agreements and conditions contained in, or made in the Indenture for the benefit of, the Securities of such series.
SECTION 10.02. Maintenance of Office or Agency. The Company will maintain an office or agency in each Place of Payment where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served and where any Securities with conversion privileges may be presented and surrendered for conversion. The Company will give prompt written notice to the Trustee of the location, and of any change in the location, of such office or agency. If at any time the Company shall fail to maintain such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands.
Unless otherwise set forth in, or pursuant to, a Board Resolution or Indenture supplemental hereto with respect to a series of Securities, the Company hereby initially designates as the Place of Payment for each series of Securities, the Borough of Manhattan, the City and State of New York, and initially appoints the Trustee at its Corporate Trust Office as the Company's office or agency for each such purpose in such city.
SECTION 10.03. Money for Security Payments To Be Held in Trust. If the Company shall at any time act as its own Paying Agent for any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on, any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure to act.
Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, on or prior to each due date of the principal of (and premium, if any) or interest on, any Securities of such series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to
such principal (and premium, if any) or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee for any series of Securities to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of principal of (and premium, if any) or interest on Securities of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of such series) in the making of any such payment of principal (and premium, if any) or interest on the Securities of such series; and
(3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture with respect to any series of Securities or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent in respect of each and every series of Securities as to which it seeks to discharge this Indenture or, if for any other purpose, all sums so held in trust by the Company in respect of all Securities, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease. The Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company mail to the Holders of the Securities as to which the money to be repaid was held in trust, as their names and addresses appear in the Security Register, a notice that such moneys remain unclaimed and that, after a date specified in the notice, which shall not be less than 30 days from the date on which the notice was first mailed to the Holders of the Securities as to which the money to be repaid was held in trust, any unclaimed balance of such moneys then remaining will be paid to the Company free of the trust formerly impressed upon it.
SECTION 10.04. Statement as to Compliance. The Company and each Guarantor will deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement signed by the principal executive officer, principal financial officer or principal accounting officer of the Company or such Guarantor, as applicable, stating that:
(1) a review of the activities of the Company or such Guarantor, as applicable, during such year and of performance under this Indenture and under the terms of the Securities has been made under his supervision; and
(2) to the best of his knowledge, based on such review, the Company or such Guarantor, as applicable, has fulfilled all its obligations under this Indenture and has complied with all conditions and covenants on its part contained in this Indenture through such year, or, if there has been a default in the fulfillment of any such obligation, covenant or condition, specifying each such default known to him and the nature and status thereof.
For the purpose of this Section 10.04, default and compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture.
SECTION 10.05. Legal Existence. Subject to Article VIII the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence.
SECTION 10.06. Limitation on Liens. Neither the Company nor any Material Subsidiary of the Company shall incur, create, issue, assume, guarantee or otherwise become liable for any indebtedness for money borrowed that is secured by a lien on any asset now owned or hereafter acquired by it unless the Company makes or causes to be made effective provisions whereby the Securities issued under this Indenture will be secured by such lien equally and ratably with (or prior to) all other indebtedness thereby secured so long as any such indebtedness shall be secured. The foregoing restriction does not apply to the following:
(i) liens existing as of the date of this Indenture;
(ii) liens created by Subsidiaries of the Company to secure indebtedness of such Subsidiaries to the Company or to one or more other Subsidiaries of the Company;
(iii) liens affecting property of a Person existing at the time it becomes a Subsidiary of the Company or at the time it merges into or consolidates with the Company or a Subsidiary of the Company or at the time of a sale, lease or other disposition of all or substantially all of the properties of such Person to the Company or its Subsidiaries;
(iv) liens on property existing at the time of the acquisition thereof or incurred to secure payment of all or a part of the purchase price thereof or to secure indebtedness incurred prior to, at the time of, or within 18 months after the acquisition thereof for the purpose of financing all or part of the purchase price thereof;
(v) liens on any property to secure all or part of the cost of improvements or construction thereon or indebtedness incurred to provide funds for such purpose in a principal amount not exceeding the cost of such improvements or construction;
(vi) liens consisting of or relating to the sale, transfer or financing of motion pictures, video and television programs, sound recordings, books or rights with respect thereto to or with so-called tax shelter groups or other third-party investors in connection with the financing of such motion pictures, video and television programming, sound recordings or books in the ordinary course of business and the granting to the Company or any of its Subsidiaries of rights to
distribute such motion pictures, video and television programming, sound recordings or books; provided, however, that no such lien shall attach to any asset or right of the Company or its Subsidiaries (other than (1) the motion pictures, video and television programming, sound recordings, books or rights which were sold, transferred to or financed by the tax shelter group or third-party investors in question or the proceeds arising therefrom and (2) the stock or other equity interests of a Subsidiary substantially all of the assets of which consist of such motion pictures, video and television programming, sound recordings, books or rights and related proceeds);
(vii) liens on shares of stock, indebtedness or other securities of a Person that is not a Subsidiary of the Company;
(viii) liens on Works which either (1) existed in such Works before the time of their acquisition and were not created in anticipation thereof, or (2) were created solely for the purpose of securing obligations to financiers, producers, distributors, exhibitors, completion guarantors, inventors, copyright holders, financial institutions or other participants incurred in the ordinary course of business in connection with the acquisition, financing, production, completion, distribution or exhibition of Works;
(ix) any lien on the office building and hotel complex located in Atlanta, Georgia known as the CNN Center Complex, including the parking decks for such complex (to the extent such parking decks are owned or leased by the Company or its Subsidiaries), or any portion thereof and all property rights therein and the products, revenues and proceeds therefrom created as part of any mortgage financing or sale-leaseback of the CNN Center Complex;
(x) liens on satellite transponders and all property rights therein and the products, revenues and proceeds therefrom which secure obligations incurred in connection with the acquisition, utilization or operation of such satellite transponders or the refinancing of any such obligations;
(xi) restrictions on the Atlanta National League Baseball Club, Inc., Atlanta Hawks, Ltd. and the Atlanta Hockey Club, Inc. and their respective assets imposed by Major League Baseball or the Commissioner of Baseball, the National Basketball Association and the
National Hockey League, respectively, including, without limitation, restrictions on the transferability of the Company's or any of its Subsidiary's interests therein;
(xii) liens on capital leases entered into after the date of this Indenture provided that such liens extend only to the property or assets that are the subject of such capital leases;
(xiii) liens resulting from progress payments or partial payments under United States government contracts or subcontracts;
(xiv) any extensions, renewal or replacement of any lien referred to in the foregoing clauses (i) through (xiii) inclusive, or of any indebtedness secured thereby; provided, however, that the principal amount of indebtedness secured thereby shall not exceed the principal amount of indebtedness so secured at the time of such extension, renewal or replacement, or at the time the lien was issued, created or assumed or otherwise permitted, and that such extension, renewal or replacement lien shall be limited to all or part of substantially the same property which secured the lien extended, renewed or replaced (plus improvements on such property); and
(xv) other liens arising in connection with indebtedness of the Company and its Subsidiaries in an aggregate principal amount for the Company and its Subsidiaries not exceeding at the time such lien is issued, created or assumed the greater of (A) 15% of the Consolidated Net Worth of the Company and (B) $500 million.
SECTION 10.07. Waiver of Certain Covenants. The Company may omit in respect of any series of Securities, in any particular instance, to comply with any covenant or condition set forth in Sections 10.05 or 10.06 or set forth in a Board Resolution or supplemental indenture with respect to the Securities of such series, unless otherwise specified in such Board Resolution or supplemental indenture, if before or after the time for such compliance the Holders of not less than a majority in principal amount of the Outstanding Securities of all series affected by such waiver (voting as one class) shall, by Act of such Securityholders delivered to the Company and the Trustee (in accordance with Section 1.04 hereof), either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. Nothing in this Section 10.07 shall permit the waiver of compliance with any covenant or condition set forth in such Board Resolution or supplemental indenture which, if in the form of an indenture supplemental hereto, would not be permitted by Section 9.02 without the consent of the Holder of each Outstanding Security affected thereby.
ARTICLE XI
Redemption of Securities
SECTION 11.01. Applicability of Article. The Company may reserve the right to redeem and pay before Stated Maturity all or any part of the Securities of any series, either by optional redemption, sinking or purchase fund or analogous obligation or otherwise, by provision therefor in the form of Security for such series established and approved pursuant to Section 2.02 and on such terms as are specified in such form or in the indenture supplemental hereto with respect to Securities of such series as provided in Section 3.01. Redemption of Securities of any series shall be made in accordance with the terms of such Securities and, to the extent that this Article does not conflict with such terms, the succeeding Sections of this Article. Notwithstanding anything to the contrary in this Indenture, except in the case of redemption pursuant to a sinking fund, the Trustee shall not make any payment in connection with the redemption of Securities until the close of business on the Redemption Date.
SECTION 11.02. Election To Redeem; Notice to Trustee. The election of the Company to redeem any Securities redeemable at the election of the Company shall be evidenced by, or pursuant to authority granted by, a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any series, the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series and the Tranche (as defined in Section 11.03) to be redeemed.
In the case of any redemption of Securities (i) prior to the expiration of any restriction on such redemption provided in the terms of such Securities or
elsewhere in this Indenture, or (ii) pursuant to an election of the Company which is subject to a condition specified in the terms of such Securities, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction or condition.
SECTION 11.03. Selection by Trustee of Securities To Be Redeemed. If less than all the Securities of like tenor and terms of any series (a "Tranche") are to be redeemed, the particular Securities to be redeemed shall be selected not more than 45 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such Tranche not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may include provision for the selection for redemption of portions of the principal of Securities of such Tranche of a denomination larger than the minimum authorized denomination for Securities of that series. Unless otherwise provided in the terms of a particular series of Securities, the portions of the principal of Securities so selected for partial redemption shall be equal to the minimum authorized denomination of the Securities of such series, or an integral multiple thereof, and the principal amount which remains outstanding shall not be less than the minimum authorized denomination for Securities of such series. If less than all the Securities of unlike tenor and terms of a series are to be redeemed, the particular Tranche of Securities to be redeemed shall be selected by the Company.
If any convertible Security selected for partial redemption is converted in part before the termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption.
Upon any redemption of fewer than all the Securities of a series or Tranche, the Company and the Trustee may treat as Outstanding any Securities surrendered for conversion during the period of fifteen days next preceding the mailing of a notice of redemption, and need not treat as Outstanding any Security authenticated and delivered during such period in exchange for the unconverted portion of any Security converted in part during such period.
The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed.
Securities shall be excluded from eligibility for selection for redemption if they are identified by registration and certificate number in a written statement signed by an authorized officer of the Company and delivered to the Trustee at least 45 days prior to the Redemption Date as being owned of record and beneficially by, and not pledged or hypothecated by either, (a) the Company or (b) an entity specifically identified in such written statement as being an Affiliate of the Company.
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal of such Security which has been or is to be redeemed.
SECTION 11.04. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 15 (unless otherwise provided in the Board Resolution establishing the relevant series) nor more than 45 days prior to the Redemption Date, to each holder of Securities to be redeemed, at his address appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Securities to be redeemed;
(4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security, and that interest, if any, thereon shall cease to accrue from and after said date;
(5) the place where such Securities are to be surrendered for payment of the Redemption Price, which shall be the office or agency of the Company in the Place of Payment;
(6) that the redemption is on account of a sinking or purchase fund, or other analogous obligation, if that be the case;
(7) if such Securities are convertible into Common Stock or other securities, the Conversion Price or other conversion price and the date on which the right to convert such Securities into Common Stock or other securities will terminate; and
(8) if applicable, that the redemption may be rescinded by the Company, at its sole option, pursuant to Section 11.09 of this Indenture upon the occurrence of a Redemption Rescission Event.
Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company.
SECTION 11.05. Deposit of Redemption Price. On or prior to any Redemption Date and subject to Section 11.09, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money sufficient to pay the Redemption Price of all the Securities which are to be redeemed on that date. If any Security to be redeemed is converted into Common Stock or other securities, any money so deposited with the Trustee or a Paying Agent shall be paid to the Company upon Company Request or, if then so segregated and held in trust by the Company, shall be discharged from such trust.
SECTION 11.06. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, subject to Section 11.09, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price) such Securities shall cease to bear interest and any rights to convert such Securities shall terminate. Upon surrender of such Securities for redemption in accordance with the notice and subject to Section 11.09, such Securities shall be paid by the Company at the Redemption Price. Unless otherwise provided with respect to such Securities pursuant to Section 3.01, installments of interest the Stated Maturity of which is on or prior to the Redemption Date shall be payable to the Holders of such Securities registered as such on the relevant Regular Record Dates according to their terms and the provisions of Section 3.07.
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal
shall, until paid, bear interest from the Redemption Date at the rate borne by the Security, or as otherwise provided in such Security.
SECTION 11.07. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at the office or agency of the Company in the Place of Payment with respect to that series (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and Stated Maturity and of like tenor and terms, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.
SECTION 11.08. Provisions with Respect to Any Sinking Funds. Unless the form or terms of any series of Securities shall provide otherwise, in lieu of making all or any part of any mandatory sinking fund payment with respect to such series of Securities in cash, the Company may at its option (1) deliver to the Trustee for cancelation any Securities of such series theretofore acquired by the Company or converted by the Holder thereof into Common Stock or other securities, or (2) receive credit for any Securities of such series (not previously so credited) acquired by the Company (including by way of optional redemption (pursuant to the sinking fund or otherwise but not by way of mandatory sinking fund redemption) or converted by the Holder thereof into Common Stock or other securities and theretofore delivered to the Trustee for cancelation, and if it does so then (i) Securities so delivered or credited shall be credited at the applicable sinking fund Redemption Price with respect to Securities of such series, and (ii) on or before the 60th day next preceding each sinking fund Redemption Date with respect to such series of Securities, the Company will deliver to the Trustee (A) an Officers' Certificate specifying the portions of such sinking fund payment to be satisfied by payment of cash and by delivery or credit of Securities of such series acquired by the Company or converted by the Holder thereof, and (B) such Securities, to the extent not previously surrendered. Such Officers' Certificate shall also state the basis for such credit and that the Securities for which the Company elects to receive credit have not been previously so credited and were not acquired by the Company through operation of the mandatory sinking fund, if any,
provided with respect to such Securities and shall also state that no Event of Default with respect to Securities of such series has occurred and is continuing. All Securities so delivered to the Trustee shall be canceled by the Trustee and no Securities shall be authenticated in lieu thereof.
If the sinking fund payment or payments (mandatory or
optional) with respect to any series of Securities made in cash plus any unused
balance of any preceding sinking fund payments with respect to Securities of
such series made in cash shall exceed $50,000 (or a lesser sum if the Company
shall so request), unless otherwise provided by the terms of such series of
Securities, that cash shall be applied by the Trustee on the sinking fund
Redemption Date with respect to Securities of such series next following the
date of such payment to the redemption of Securities of such series at the
applicable sinking fund Redemption Price with respect to Securities of such
series, together with accrued interest, if any, to the date fixed for
redemption, with the effect provided in Section 11.06. The Trustee shall select,
in the manner provided in Section 11.03, for redemption on such sinking fund
Redemption Date a sufficient principal amount of Securities of such series to
utilize that cash and shall thereupon cause notice of redemption of the
Securities of such series for the sinking fund to be given in the manner
provided in Section 11.04 (and with the effect provided in Section 11.06) for
the redemption of Securities in part at the option of the Company. Any sinking
fund moneys not so applied or allocated by the Trustee to the redemption of
Securities of such series shall be added to the next cash sinking fund payment
with respect to Securities of such series received by the Trustee and, together
with such payment, shall be applied in accordance with the provisions of this
Section 11.08. Any and all sinking fund moneys with respect to Securities of any
series held by the Trustee at the Maturity of Securities of such series, and not
held for the payment or redemption of particular Securities of such series,
shall be applied by the Trustee, together with other moneys, if necessary, to be
deposited sufficient for the purpose, to the payment of the principal of the
Securities of such series at Maturity.
On or before each sinking fund Redemption Date provided with respect to Securities of any series, the Company shall pay to the Trustee in cash a sum equal to all accrued interest, if any, to the date fixed for redemption on Securities to be redeemed on such sinking fund Redemption Date pursuant to this Section 11.08.
SECTION 11.09. Rescission of Redemption. In the event that this Section 11.09 is specified to be applicable
to a series of Securities pursuant to Section 3.01 and a Redemption Rescission Event shall occur following any day on which a notice of redemption shall have been given pursuant to Section 11.04 hereof but at or prior to the time and date fixed for redemption as set forth in such notice of redemption, the Company may, at its sole option, at any time prior to the earlier of (i) the close of business on that day which is two Trading Days following such Redemption Rescission Event and (ii) the time and date fixed for redemption as set forth in such notice, rescind the redemption to which such notice of redemption shall have related by making a public announcement of such rescission (the date on which such public announcement shall have been made being hereinafter referred to as the "Rescission Date"). The Company shall be deemed to have made such announcement if it shall issue a release to the Dow Jones New Service, Reuters Information Services or any successor news wire service. From and after the making of such announcement, the Company shall have no obligation to redeem Securities called for redemption pursuant to such notice of redemption or to pay the Redemption Price therefor and all rights of Holders of Securities shall be restored as if such notice of redemption had not been given. As promptly as practicable following the making of such announcement, the Company shall telephonically notify the Trustee and the Paying Agent of such rescission. The Company shall give notice of any such rescission by first-class mail, postage prepaid, mailed as promptly as practicable but in no event later than the close of business on that day which is five Trading Days following the Rescission Date to each Holder of Securities at the close of business on the Rescission Date, to any other Person that was a Holder of Securities and that shall have surrendered Securities for conversion following the giving of notice of the subsequently rescinded redemption and to the Trustee and the Paying Agent. Each notice of rescission shall (w) state that the redemption described in the notice of redemption has been rescinded, (x) state that any Converting Holder shall be entitled to rescind the conversion of Securities surrendered for conversion following the day on which notice of redemption was given but on or prior to the date of the mailing of the Company's notice of rescission, (y) be accompanied by a form prescribed by the Company to be used by any Converting Holder rescinding the conversion of Securities so surrendered for conversion (and instructions for the completion and delivery of such form, including instructions with respect to any payment that may be required to accompany such delivery) and (z) state that such form must be properly completed and received by the Company no later than the close of business on a date that shall be 15
Trading Days following the date of the mailing of such notice of rescission.
ARTICLE XII
Conversion
SECTION 12.01. Conversion Privilege. In the event that this
Article XII is specified to be applicable to a series of Securities pursuant to
Section 3.01, the Holder of a Security of such series shall have the right, at
such Holder's option, to convert, in accordance with the terms of such series of
Securities and this Article XII, all or any part (in a denomination of, unless
otherwise specified in a Board Resolution or supplemental indenture with respect
to Securities of such series, $1,000 in principal amount or any integral
multiple thereof) of such Security into shares of Common Stock or other
Marketable Securities specified in such Board Resolution at any time or, as to
any Securities called for redemption, at any time prior to the time and date
fixed for such redemption (unless the Company shall default in the payment of
the Redemption Price, in which case such right shall not terminate at such time
and date).
SECTION 12.02. Conversion Procedure; Rescission of Conversion; Conversion Price; Fractional Shares. (a) Each Security to which this Article is applicable shall be convertible at the office of the Conversion Agent, and at such other place or places, if any, specified in a Board Resolution with respect to the Securities of such series, into fully paid and nonassessable shares (calculated to the nearest 1/100th of a share) of Common Stock or other Marketable Securities. The Securities will be converted into shares of Common Stock or such other Marketable Securities at the Conversion Price therefor. No payment or adjustment shall be made in respect of dividends on the Common Stock or such other Marketable Securities, or accrued interest on a converted Security except as described in Section 12.09. The Company may, but shall not be required, in connection with any conversion of Securities, to issue a fraction of a share of Common Stock or of such other Marketable Security, and, if the Company shall determine not to issue any such fraction, the Company shall, subject to Section 12.03(4), make a cash payment (calculated to the nearest cent) equal to such fraction multiplied by the Closing Price of the Common Stock or such other Marketable Security on the last Trading Day prior to the date of conversion.
(b) Before any Holder of a Security shall be entitled to convert the same into Common Stock or other Marketable Securities, such Holder shall surrender such Security duly endorsed to the Company or in blank, at the office of the Conversion Agent or at such other place or places, if any, specified in a Board Resolution with respect to the Securities of such series, and shall give written notice to the Company at said office or place that he elects to convert the same and shall state in writing therein the principal amount of Securities to be converted and the name or names (with addresses) in which he wishes the certificate or certificates for Common Stock or for such other Marketable Securities to be issued; provided, however, that no Security or portion thereof shall be accepted for conversion unless the principal amount of such Security or such portion, when added to the principal amount of all other Securities or portions thereof then being surrendered by the Holder thereof for conversion, exceeds the then effective Conversion Price with respect thereto. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock or such other Marketable Securities which shall be deliverable upon conversion shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof to the extent permitted thereby) so surrendered. Subject to the next succeeding sentence, the Company will, as soon as practicable thereafter, issue and deliver at said office or place to such Holder of a Security, or to his nominee or nominees, certificates for the number of full shares of Common Stock or other Marketable Security to which he shall be entitled as aforesaid, together, subject to the last sentence of paragraph (a) above, with cash in lieu of any fraction of a share to which he would otherwise be entitled. The Company shall not be required to deliver certificates for shares of Common Stock or other Marketable Securities while the stock transfer books for such stock or the transfer books for such Marketable Securities, as the case may be, or the Security Register are duly closed for any purpose, but certificates for shares of Common Stock or other Marketable Securities shall be issued and delivered as soon as practicable after the opening of such books or Security Register. A Security shall be deemed to have been converted as of the close of business on the date of the surrender of such Security for conversion as provided above, and the person or persons entitled to receive the Common Stock or other Marketable Securities issuable upon such conversion shall be treated for all purposes as the record Holder or Holders of such Common Stock or other Marketable Securities as of the close of business on such date. In case any Security shall be surrendered for partial conversion, the Company shall
execute and the Trustee shall authenticate and deliver to or upon the written order of the Holder of the Securities so surrendered, without charge to such Holder (subject to the provisions of Section 12.08), a new Security or Securities in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Security.
(c) Notwithstanding anything to the contrary contained herein,
in the event the Company shall have rescinded a redemption of Securities
pursuant to Section 11.09 hereof, any Holder of Securities that shall have
surrendered Securities for conversion following the day on which notice of the
subsequently rescinded redemption shall have been given but prior to the later
of (a) the close of business on the Trading Day next succeeding the date on
which public announcement of the rescission of such redemption shall have been
made and (b) the date of the mailing of the notice of rescission required by
Section 11.09 hereof (a "Converting Holder") may rescind the conversion of such
Securities surrendered for conversion by (i) properly completing a form
prescribed by the Company and mailed to Holders of Securities (including
Converting Holders) with the Company's notice of rescission, which form shall
provide for the certification by any Converting Holder rescinding a conversion
on behalf of any beneficial owner (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934) of Securities that the beneficial ownership
(within the meaning of such Rule) of such Securities shall not have changed from
the date on which such Securities were surrendered for conversion to the date of
such certification and (ii) delivering such form to the Company no later than
the close of business on that date which is fifteen Trading Days following the
date of the mailing of the Company's notice of rescission. The delivery of such
form by a Converting Holder shall be accompanied by (x) any certificates
representing shares of Common Stock or other securities issued to such
Converting Holder upon a conversion of Securities that shall be rescinded by the
proper delivery of such form (the "Surrendered Securities"), (y) any securities,
evidences of indebtedness or assets (other than cash) distributed by the Company
to such Converting Holder by reason of such Converting Holder being a record
holder of Surrendered Securities and (z) payment in New York Clearing House
funds or other funds acceptable to the Company of an amount equal to the sum of
(I) any cash such Converting Holder may have received in lieu of the issuance of
fractional Surrendered Securities and (II) any cash paid or payable by the
Company to such Converting Holder by reason of such Converting Holder being a
record holder of Surrendered Securities. Upon receipt by the
Company of any such form properly completed by a Converting Holder and any certificates, securities, evidences of indebtedness, assets or cash payments required to be returned by such Converting Holder to the Company as set forth above, the Company shall instruct the transfer agent or agents for shares of Common Stock or other securities to cancel any certificates representing Surrendered Securities (which Surrendered Securities shall be deposited in the treasury of the Company) and shall instruct the Registrar to reissue certificates representing Securities to such Converting Holder (which Securities shall be deemed to have been outstanding at all times during the period following their surrender for conversion). The Company shall, as promptly as practicable, and in no event more than five Trading Days following the receipt of any such properly completed form and any such certificates, securities, evidences of indebtedness, assets or cash payments required to be so returned, pay to the Holder of Securities surrendered to the Company pursuant to a rescinded conversion or as otherwise directed by such Holder any interest paid or other payment made to Holders of Securities during the period from the time such Securities shall have been surrendered for conversion to the rescission of such conversion. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any form submitted to the Company to rescind the conversion of Securities, including questions as to the proper completion or execution of any such form or any certification contained therein, shall be resolved by the Company, whose determination shall be final and binding.
SECTION 12.03. Adjustment of Conversion Price for Common Stock or Marketable Securities. The Conversion Price with respect to any Security which is convertible into Common Stock or other Marketable Securities shall be adjusted from time to time as follows:
(1) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, (i) pay a dividend in shares of its Common Stock or other Marketable Securities, (ii) combine its outstanding shares of Common Stock or other Marketable Securities into a smaller number of shares or securities, (iii) subdivide its outstanding shares of Common Stock or other Marketable Securities or (iv) issue by reclassification of its shares of Common Stock or other Marketable Securities any shares of stock or other Marketable Securities of the Company, then the Conversion Price in effect immediately before such action shall be adjusted so that the Holders of such Securities, upon conversion thereof into Common
Stock or other Marketable Securities immediately following such event, shall be entitled to receive the kind and amount of shares of capital stock of the Company or other Marketable Securities which they would have owned or been entitled to receive upon or by reason of such event if such Securities had been converted immediately before the record date (or, if no record date, the effective date) for such event. An adjustment made pursuant to this Section 12.03(1) shall become effective retroactively immediately after the record date in the case of a dividend or distribution and shall become effective retroactively immediately after the effective date in the case of a subdivision, combination or reclassification. For the purposes of this Section 12.03(1), each Holder of Securities shall be deemed to have failed to exercise any right to elect the kind or amount of securities receivable upon the payment of any such dividend, subdivision, combination or reclassification (provided that if the kind or amount of securities receivable upon such dividend, subdivision, combination or reclassification is not the same for each nonelecting share, then the kind and amount of securities or other property receivable upon such dividend, subdivision, combination or reclassification for each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares).
(2) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, issue rights or warrants to all holders of shares of its Common Stock or other Marketable Securities entitling them (for a period expiring within 45 days after the record date for such issuance) to subscribe for or purchase shares of Common Stock or other Marketable Securities (or securities convertible into shares of Common Stock or other Marketable Securities) at a price per share less than the Current Market Price of the Common Stock or other Marketable Securities at such record date (treating the price per share of the securities convertible into Common Stock or other Marketable Securities as equal to (x) the sum of (i) the price for a unit of the security convertible into Common Stock or other Marketable Securities plus (ii) any additional consideration initially payable upon the conversion of such security into Common Stock or other Marketable Securities divided by (y) the number of shares of Common Stock or other Marketable Securities initially underlying such convertible security), the Conversion Price with respect to such Securities shall be adjusted so that it shall equal the
price determined by dividing the Conversion Price in effect immediately prior to the date of issuance of such rights or warrants by a fraction, the numerator of which shall be the number of shares of Common Stock or other Marketable Securities outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock or other Marketable Securities offered for subscription or purchase (or into which the convertible securities so offered are initially convertible), and the denominator of which shall be the number of shares of Common Stock or other Marketable Securities outstanding on the date of issuance of such rights or warrants plus the number of shares or securities which the aggregate offering price of the total number of shares or securities so offered for subscription or purchase (or the aggregate purchase price of the convertible securities so offered plus the aggregate amount of any additional consideration initially payable upon conversion of such Securities into Common Stock or other Marketable Securities) would purchase at such Current Market Price of the Common Stock or other Marketable Securities. Such adjustment shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights or warrants.
(3) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, distribute to all holders of shares of its Common Stock or other Marketable Securities (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation and the Common Stock or other Marketable Securities are not changed or exchanged) cash, evidences of its indebtedness, securities or assets (excluding (i) regular periodic cash dividends in amounts, if any, determined from time to time by the Board of Directors, (ii) dividends payable in shares of Common Stock or other Marketable Securities for which adjustment is made under Section 12.03(1) or (iii) rights or warrants to subscribe for or purchase securities of the Company (excluding those referred to in Section 12.03(2)), then in each such case the Conversion Price with respect to such Securities shall be adjusted so that it shall equal the price determined by dividing the Conversion Price in effect immediately prior to the date of such distribution by a fraction, the numerator of which shall be the Current Market Price of the Common Stock or other Marketable Securities on the record date referred to below, and the denominator of which shall be such Current Market
Price of the Common Stock or other Marketable Securities less the then
fair market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the portion of the
cash or assets or evidences of indebtedness or securities so
distributed or of such subscription rights or warrants applicable to
one share of Common Stock or one other Marketable Security (provided
that such denominator shall never be less than 1.0); provided, however,
that no adjustment shall be made with respect to any distribution of
rights to purchase securities of the Company if a Holder of Securities
would otherwise be entitled to receive such rights upon conversion at
any time of such Securities into Common Stock or other Marketable
Securities unless such rights are subsequently redeemed by the Company,
in which case such redemption shall be treated for purposes of this
Section as a dividend on the Common Stock or other Marketable
Securities. Such adjustment shall become effective retroactively
immediately after the record date for the determination of stockholders
or holders of Marketable Securities entitled to receive such
distribution; and in the event that such distribution is not so made,
the Conversion Price shall again be adjusted to the Conversion Price
which would then be in effect if such record date had not been fixed.
(4) The Company shall be entitled to make such additional adjustments in the Conversion Price, in addition to those required by subsections 12.03(1), 12.03(2) and 12.03(3), as shall be necessary in order that any dividend or distribution of Common Stock or other Marketable Securities, any subdivision, reclassification or combination of shares of Common Stock or other Marketable Securities or any issuance of rights or warrants referred to above shall not be taxable to the holders of Common Stock or other Marketable Securities for United States Federal income tax purposes.
(5) In any case in which this Section 12.03 shall require that any adjustment be made effective as of or retroactively immediately following a record date, the Company may elect to defer (but only for five (5) Trading Days following the filing of the statement referred to in Section 12.05) issuing to the Holder of any Securities converted after such record date the shares of Common Stock and other capital stock of the Company or other Marketable Securities issuable upon such conversion over and above the shares of Common Stock and other capital stock of the Company or other
Marketable Securities issuable upon such conversion on the basis of the Conversion Price prior to adjustment; provided, however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment.
(6) All calculations under this Section 12.03 shall be made to the nearest cent or one-hundredth of a share or security, with one-half cent and .005 of a share, respectively, being rounded upward. Notwithstanding any other provision of this Section 12.03, the Company shall not be required to make any adjustment of the Conversion Price unless such adjustment would require an increase or decrease of at least 1% of such price. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% in such price. Any adjustments under this Section 12.03 shall be made successively whenever an event requiring such an adjustment occurs.
(7) In the event that at any time, as a result of an adjustment made pursuant to this Section 12.03, the Holder of any Security thereafter surrendered for conversion shall become entitled to receive any shares of stock of or other Marketable Securities of the Company other than shares of Common Stock or Marketable Securities into which the Securities originally were convertible, the Conversion Price of such other shares or Marketable Securities so receivable upon conversion of any such Security shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock and Marketable Securities contained in subparagraphs (1) through (6) of this Section 12.03, and the provision of Sections 12.01, 12.02 and 12.04 through 12.09 with respect to the Common Stock or other Marketable Securities shall apply on like or similar terms to any such other shares or Marketable Securities and the determination of the Board of Directors as to any such adjustment shall be conclusive.
(8) No adjustment shall be made pursuant to this Section (i) if the effect thereof would be to reduce the Conversion Price below the par value (if any) of the Common Stock or other Marketable Security, if
any,
or (ii) subject to Section 12.03(5) hereof, with respect to any Security that is converted prior to the time such adjustment otherwise would be made.
SECTION 12.04. Consolidation or Merger of the Company. In case of either (a) any consolidation or merger to which the Company is a party, other than a merger or consolidation in which the Company is the surviving or continuing corporation and which does not result in a reclassification of, or change (other than a change in par value or from par value to no par value or from no par value to par value, as a result of a subdivision or combination) in, outstanding shares of Common Stock or other Marketable Securities or (b) any sale or conveyance of all or substantially all of the property and assets of the Company to another Person, then each Security then Outstanding shall be convertible from and after such merger, consolidation, sale or conveyance of property and assets into the kind and amount of shares of stock or other securities and property (including cash) receivable upon such consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock or other Marketable Securities into which such Securities would have been converted immediately prior to such consolidation, merger, sale or conveyance, subject to adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article XII (and assuming such holder of Common Stock or other Marketable Securities failed to exercise his rights of election, if any, as to the kind or amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance (provided that, if the kind or amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance is not the same for each nonelecting share, then the kind and amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance for each nonelecting share, shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares or securities)). The Company shall not enter into any of the transactions referred to in clause (a) or (b) of the preceding sentence unless effective provision shall be made so as to give effect to the provisions set forth in this Section 12.04. The provisions of this Section 12.04 shall apply similarly to successive consolidations, mergers, sales or conveyances.
SECTION 12.05. Notice of Adjustment. Whenever an adjustment in the Conversion Price with respect to a series of Securities is required:
(1) the Company shall forthwith place on file with the Trustee and any Conversion Agent for such Securities a certificate of the Treasurer of the Company, stating the adjusted Conversion Price determined as provided herein and setting forth in reasonable detail such facts as shall be necessary to show the reason for and the manner of computing such adjustment, such certificate to be conclusive evidence that the adjustment is correct; and
(2) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be mailed, first class postage prepaid, by the Company to the Holders of record of such Outstanding Securities.
SECTION 12.06. Notice in Certain Events. In case:
(1) of a consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or conveyance to another person or entity or group of persons or entities acting in concert as a partnership, limited partnership, syndicate or other group (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of all or substantially all of the property and assets of the Company; or
(2) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or
(3) of any action triggering an adjustment of the Conversion Price pursuant to this Article XII;
then, in each case, the Company shall cause to be filed with the Trustee and the Agent for the applicable Securities, and shall cause to be mailed, first class postage prepaid, to the Holders of record of applicable Securities, at least fifteen (15) days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of any distribution or grant of rights or warrants triggering an adjustment to the Conversion Price pursuant to this Article XII, or, if a record is not to be taken, the date as of which the holders of record of Common Stock or other Marketable Securities entitled to such distribution, rights or warrants are to be
determined, or (y) the date on which any reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up triggering an adjustment to the Conversion Price pursuant to this Article XII is expected to become effective, and the date as of which it is expected that holders of Common Stock or other Marketable Securities of record shall be entitled to exchange their Common Stock or other Marketable Securities for securities or other property deliverable upon such reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up.
Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in clause (1), (2) or (3) of this Section.
SECTION 12.07. Company To Reserve Stock or other Marketable Securities; Registration; Listing. (a) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Common Stock or other Marketable Securities, for the purpose of effecting the conversion of the Securities, such number of its duly authorized shares of Common Stock or number or principal amount of other Marketable Securities as shall from time to time be sufficient to effect the conversion of all applicable outstanding Securities into such Common Stock or other Marketable Securities at any time (assuming that, at the time of the computation of such number of shares or securities, all such Securities would be held by a single Holder); provided, however, that nothing contained herein shall preclude the Company from satisfying its obligations in respect of the conversion of the Securities by delivery of purchased shares of Common Stock or other Marketable Securities which are held in the treasury of the Company. The Company shall from time to time, in accordance with the laws of the State of Delaware, use its best efforts to cause the authorized amount of the Common Stock or other Marketable Securities to be increased if the aggregate of the authorized amount of the Common Stock or other Marketable Securities remaining unissued and the issued shares of such Common Stock or other Marketable Securities in its treasury (other than any such shares reserved for issuance in any other connection) shall not be sufficient to permit the conversion of all Securities.
(b) If any shares of Common Stock or other Marketable Securities which would be issuable upon conversion of Securities hereunder require registration with or approval of any governmental authority before such shares or securities may be issued upon such conversion, the Company will in good faith and as expeditiously as possible
endeavor to cause such shares or securities to be duly registered or approved, as the case may be. The Company will endeavor to list the shares of Common Stock or other Marketable Securities required to be delivered upon conversion of the Securities prior to such delivery upon the principal national securities exchange upon which the outstanding Common Stock or other Marketable Securities is listed at the time of such delivery.
SECTION 12.08. Taxes on Conversion. The Company shall pay any and all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of shares of Common Stock or other Marketable Securities on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock or other Marketable Securities or the portion, if any, of the Securities which are not so converted in a name other than that in which the Securities so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of such tax or has established to the satisfaction of the Company that such tax has been paid.
SECTION 12.09. Conversion After Record Date. If any Securities are surrendered for conversion subsequent to the record date preceding an Interest Payment Date but on or prior to such Interest Payment Date (except Securities called for redemption on a Redemption Date between such record date and Interest Payment Date), the Holder of such Securities at the close of business on such record date shall be entitled to receive the interest payable on such securities on such Interest Payment Date notwithstanding the conversion thereof. Securities surrendered for conversion during the period from the close of business on any record date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall (except in the case of Securities which have been called for redemption on a Redemption Date within such period) be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the Securities being surrendered for conversion. Except as provided in this Section 12.09, no adjustments in respect of payments of interest on Securities surrendered for conversion or any dividends or distributions or interest on the Common Stock or other Marketable Securities issued upon conversion shall be made upon the conversion of any Securities.
SECTION 12.10. Corporate Action Regarding Par Value of Common Stock. Before taking any action which would cause an adjustment reducing the applicable Conversion Price below the then par value (if any) of the shares of Common Stock or other Marketable Securities deliverable upon conversion of the Securities, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock or other Marketable Securities at such adjusted Conversion Price.
SECTION 12.11. Company Determination Final. Any determination that the Company or the Board of Directors must make pursuant to this Article is conclusive.
SECTION 12.12. Trustee's Disclaimer. The Trustee has no duty to determine when an adjustment under this Article should be made, how it should be made or what it should be. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for the Company's failure to comply with this Article. Each Conversion Agent other than the Company shall have the same protection under this Section as the Trustee.
ARTICLE XIII
Guarantees
SECTION 13.01. Guarantees. (a) Each of America Online and Time Warner, as primary obligor and not merely as surety, will fully, irrevocably and unconditionally guarantee, to each Holder of Securities (including each Holder of Securities issued under the Indenture after the date of this Indenture) and to the Trustee and its successors and assigns (i) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under this Indenture (including obligations to the Trustee) and the Securities and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Company under this Indenture and the Securities.
(b) Each of TBS and TWC, as primary obligor and not merely as surety, will fully, irrevocably and unconditionally guarantee, to each Holder of Securities (including each Holder of Securities issued under the
Indenture after the date of this Indenture) and to the Trustee and its successors and assigns (i) the full and punctual payment of all monies due under the Guarantee of Time Warner, and all other monetary obligations of Time Warner under this Indenture (including obligations to the Trustee) and (ii) the full and punctual performance within applicable grace periods of all other obligations of Time Warner under this Indenture and its Guarantee.
(c) Each of the Guarantors further agrees that its obligations hereunder shall be unconditional irrespective of the absence or existence of any action to enforce the same, the recovery of any judgment against the Company or any other Guarantor (except to the extent such judgment is paid) or any waiver or amendment of the provisions of this Indenture or the Securities to the extent that any such action or any similar action would otherwise constitute a legal or equitable discharge or defense of a guarantor (except that each such waiver or amendment shall be effective in accordance with its terms).
(d) Each of the Guarantors further agrees that each Guarantee constitutes a guarantee of payment, performance and compliance and not merely of collection.
(e) Each of the Guarantors further agrees to waive presentment to, demand of payment from and protest to the Company or any other Person, and also waives diligence, notice of acceptance of its Guarantee, presentment, demand for payment, notice of protest for nonpayment, the filing of claims with a court in the event of merger or bankruptcy of the Company or any other Person and any right to require a proceeding first against the Company or any other Person. The obligations of the Guarantors shall not be affected by any failure or policy on the part of the Trustee to exercise any right or remedy under this Indenture or the Securities of any series.
(f) The obligation of each Guarantor to make any payment hereunder may be satisfied by causing the Company or any other Person to make such payment. If any Holder of any Security or the Trustee is required by any court or otherwise to return to the Company or any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to any of the Company or any Guarantor, any amount paid by any of them to the Trustee or such Holder, the Guarantee of such Guarantor, to the extent theretofore discharged, shall be reinstated in full force and effect.
(g) Each Guarantor also agrees to pay any and all reasonable costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder of Securities in enforcing any of their respective rights under its Guarantees.
(h) Any term or provision of this Indenture to the contrary notwithstanding, the maximum aggregate amount of each of the Guarantees shall not exceed the maximum amount that can be guaranteed by the relevant Guarantor without rendering the relevant Guarantee under this Indenture voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written.
AOL TIME WARNER INC.,
by
/s/ Raymond G. Murphy
---------------------------------
Name: Raymond G. Murphy
Title: Vice President and
Treasurer
Attest:
/s/ Susan A. Waxenberg
-----------------------------
Name: Susan A. Waxenberg
Title: Assistant Secretary
|
AMERICA ONLINE, INC.,
by
/s/ Raymond G. Murphy
---------------------------------
Name: Raymond G. Murphy
Title: Vice President and
Assistant Treasurer
Attest:
/s/ Brenda C. Karickhoff
-----------------------------
Name: Brenda C. Karickhoff
Title: Assistant Secretary
|
TIME WARNER INC.,
by
/s/ Raymond G. Murphy
---------------------------------
Name: Raymond G. Murphy
Title: Vice President and
Treasurer
Attest:
/s/ Susan A. Waxenberg
-----------------------------
Name: Susan A. Waxenberg
Title: Assistant Secretary
|
TIME WARNER COMPANIES, INC.,
by
/s/ Raymond G. Murphy
---------------------------------
Name: Raymond G. Murphy
Title: Vice President and
Treasurer
Attest:
/s/ Susan A. Waxenberg
-----------------------------
Name: Susan A. Waxenberg
Title: Assistant Secretary
|
TURNER BROADCASTING SYSTEM,
INC.,
by
/s/ Thomas W. McEnerney
---------------------------------
Name: Thomas W. McEnerney
Title: Vice President
Attest:
/s/ Janice Cannon
-----------------------------
Name: Janice Cannon
Title: Assistant Secretary
|
THE CHASE MANHATTAN BANK, as
Trustee,
by
/s/ Richard Lorenzen
---------------------------------
Name: Richard Lorenzen
Title: Assistant Vice
President
Attest:
/s/ Virginia Dominguez
-----------------------------
Name: Virginia Dominguez
Title: Trust Officer
|
Exhibit 10.1
CREDIT AGREEMENT
dated as of
April 6, 2001
among
AOL TIME WARNER INC.,
as Borrower
The Lenders Party Hereto,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
CITIBANK, N.A. AND BANK OF AMERICA, N.A.
as Co-Syndication Agents,
and
ABN AMRO BANK N.V.,
as Documentation Agent
$5,000,000,000 364-DAY REVOLVING CREDIT FACILITY
BANC OF AMERICA SECURITIES LLC,
as Joint Lead Arranger and Joint Bookrunner
and
JPMORGAN, A DIVISION OF CHASE SECURITIES INC.,
as Advisor, Joint Lead Arranger and Joint Bookrunner
TABLE OF CONTENTS
Page
----
ARTICLE I Definitions................................................................................1
SECTION 1.01. Defined Terms..................................................................1
SECTION 1.02. Classification of Loans and Borrowings........................................18
SECTION 1.03. Terms Generally...............................................................18
SECTION 1.04. Accounting Terms; GAAP........................................................18
ARTICLE II The Credits...............................................................................19
SECTION 2.01. Commitments...................................................................19
SECTION 2.02. Loans and Borrowings..........................................................19
SECTION 2.03. Requests for Revolving Borrowings.............................................19
SECTION 2.04. Swingline Loans...............................................................20
SECTION 2.05. Funding of Borrowings.........................................................21
SECTION 2.06. Interest Elections............................................................22
SECTION 2.07. Termination and Reduction of Commitments......................................23
SECTION 2.08. Repayment of Loans; Evidence of Debt..........................................24
SECTION 2.09. Prepayment of Loans...........................................................24
SECTION 2.10. Fees..........................................................................25
SECTION 2.11. Interest......................................................................26
SECTION 2.12. Alternate Rate of Interest....................................................27
SECTION 2.13. Increased Costs...............................................................27
SECTION 2.14. Break Funding Payments........................................................28
SECTION 2.15. Taxes.........................................................................29
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Setoffs....................30
SECTION 2.17. Mitigation Obligations; Replacement of Lenders................................31
ARTICLE III Representations and Warranties...........................................................32
SECTION 3.01. Organization; Powers..........................................................32
SECTION 3.02. Authorization; Enforceability.................................................32
SECTION 3.03. Governmental Approvals; No Conflicts..........................................33
SECTION 3.04. Financial Condition; No Material Adverse Change...............................33
SECTION 3.05. Properties ...................................................................34
SECTION 3.06. Litigation and Environmental Matters..........................................34
SECTION 3.07. Compliance with Laws and Agreements...........................................34
SECTION 3.08. Government Regulation.........................................................34
SECTION 3.09. Taxes.........................................................................35
SECTION 3.10. ERISA.........................................................................35
SECTION 3.11. Disclosure....................................................................35
|
Page
----
ARTICLE IV Conditions................................................................................35
SECTION 4.01. Effective Date................................................................35
SECTION 4.02. Each Credit Event.............................................................36
ARTICLE V Affirmative Covenants......................................................................37
SECTION 5.01. Financial Statements and Other Information....................................37
SECTION 5.02. Notices of Material Events....................................................38
SECTION 5.03. Existence; Conduct of Business................................................39
SECTION 5.04. Payment of Obligations........................................................39
SECTION 5.05. Maintenance of Properties; Insurance..........................................39
SECTION 5.06. Books and Records; Inspection Rights..........................................39
SECTION 5.07. Compliance with Laws..........................................................40
SECTION 5.08. Use of Proceeds...............................................................40
SECTION 5.09. Fiscal Periods; Accounting....................................................40
ARTICLE VI Negative Covenants........................................................................40
SECTION 6.01. Financial Covenants...........................................................40
SECTION 6.02. Indebtedness..................................................................41
SECTION 6.03. Liens.........................................................................41
SECTION 6.04. Mergers, Etc..................................................................43
SECTION 6.05. Investments...................................................................43
SECTION 6.07. Transactions with Affiliates..................................................43
SECTION 6.08. Unrestricted Subsidiaries.....................................................44
ARTICLE VII Events of Default........................................................................44
ARTICLE VIII The Agents..............................................................................47
ARTICLE IX Miscellaneous.............................................................................49
SECTION 9.01. Notices.......................................................................49
SECTION 9.02. Waivers; Amendments...........................................................50
SECTION 9.03. Expenses; Indemnity; Damage Waiver............................................50
SECTION 9.04. Successors and Assigns........................................................51
SECTION 9.05. Survival......................................................................54
SECTION 9.06. Counterparts; Integration; Effectiveness......................................54
SECTION 9.07. Severability..................................................................55
SECTION 9.08. Right of Setoff...............................................................55
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process....................55
SECTION 9.10. WAIVER OF JURY TRIAL..........................................................56
SECTION 9.11. Headings......................................................................56
SECTION 9.12. Confidentiality...............................................................56
SECTION 9.13. Acknowledgements..............................................................57
|
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 6.08 - Unrestricted Subsidiaries
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Credit Agreement
Exhibit B to the Credit Agreement
364-DAY CREDIT AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement") dated as of April 6, 2001, among AOL TIME WARNER INC., a Delaware corporation (the "Borrower"), the several banks and other financial institutions from time to time parties to this Agreement (the "Lenders"), CITIBANK, N.A. and BANK OF AMERICA, N.A., as co-syndication agents (in such capacity, the "Co-Syndication Agents"), ABN AMRO BANK N.V., as documentation agent (in such capacity, the "Documentation Agent") and THE CHASE MANHATTAN BANK, as administrative agent.
WHEREAS, the Borrower has requested the Lenders to make loans to it in an aggregate amount of up to $5,000,000,000 as more particularly described herein;
WHEREAS, the Lenders are willing to make such loans on the terms and conditions contained herein;
NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows:
1.
Definitions
(a) Defined Terms. As used in this Agreement, the following terms have the meanings specified below:
"ABR" when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.
"Adjusted Financial Statements" means, for any period, (a) the balance sheet of the Borrower and its Restricted Subsidiaries (treating Unrestricted Subsidiaries as equity investments of the Borrower to the extent that such Unrestricted Subsidiaries would not otherwise be treated as equity investments of the Borrower in accordance with GAAP) as of the end of such period and (b) the related statements of operations and stockholders equity for such period and, if such period is not a fiscal year, for the then elapsed portion of the fiscal year (treating Unrestricted Subsidiaries as equity investments of the Borrower to the extent that such Unrestricted Subsidiaries would not otherwise be treated as equity investments of the Borrower in accordance with GAAP).
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, together with its affiliates, as an arranger of the Commitments and as administrative agent for the Lenders hereunder, together with any of its successors pursuant to Article VIII.
"Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified; provided, that two or more Persons shall not be deemed Affiliates because an individual is a director and/or officer of each such Person.
"Agents" means the collective reference to the Co-Syndication Agents, the Documentation Agent and the Administrative Agent.
"Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"America Online" means America Online, Inc., a Delaware corporation.
"Applicable Percentage" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day, with respect to any Eurodollar Loan, the Facility Fee or the Utilization Fee payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption "Eurodollar Spread", "Facility Fee Rate" or "Utilization Fee Rate", as the case may be, based upon the corporate credit ratings (or an equivalent thereof, including, in the case of Moody's, and until such time as Moody's may assign a corporate credit rating to the Borrower, the senior unsecured long term debt credit rating) (in each case, a "Rating") assigned by Moody's and S&P, respectively, applicable on such date to the Borrower:
===========================================================================================
Ratings Eurodollar Facility Fee Utilization Fee
S&P / Moody's Spread Rate Rate
-------------------------------------------------------------------------------------------
Category A 28.0 7.0 5.0
----------
A / A2
-------------------------------------------------------------------------------------------
Category B 32.0 8.0 5.0
----------
A- / A3
-------------------------------------------------------------------------------------------
Category C 36.0 9.0 5.0
----------
BBB+ / Baa1
-------------------------------------------------------------------------------------------
Category D 50.0 12.5 10.0
----------
BBB / Baa2
-------------------------------------------------------------------------------------------
Category E 62.5 17.5 15.0
----------
BBB- / Baa3
-------------------------------------------------------------------------------------------
Category F 75.0 25.0 20.0
----------
Lower than BBB- /Baa3
===========================================================================================
|
For purposes of the foregoing, (a) if either Moody's or S&P shall not have in effect a Rating for the Borrower (other than by reason of the circumstances referred to in clause
(c) of this definition), then the Rating assigned by the other rating agency shall be used; (b) if the Ratings for the Borrower assigned by Moody's and S&P shall fall within different Categories, the Applicable Rate shall be based on the higher of the two Ratings unless one of the two Ratings is two or more Categories lower than the other, in which case the Applicable Rate shall be determined by reference to the Category next below that of the higher of the two ratings; (c) if either rating agency shall cease to assign a Rating for the Borrower solely because the Borrower elects not to participate or otherwise cooperate in the ratings process of such rating agency, the Applicable Rate shall not be less than that before such rating agency's Rating for the Borrower became unavailable; and (d) if the Ratings for the Borrower assigned by Moody's and S&P shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating most recently in effect prior to such change or cessation.
"Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.
"Availability Period" means the period from and including the Effective Date to but excluding the Commitment Termination Date.
"Board" means the Board of Governors of the Federal Reserve System of the United States.
"Borrower" has the meaning assigned to such term in the preamble hereto.
"Borrowing" means (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect or (b) a Swingline Loan.
"Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use)
real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares, partnership interests or other equivalents (however designated and whether voting or non-voting) of such Person's equity, whether outstanding on the date hereof or hereafter issued, and any and all equivalent ownership interests in a Person (other than a corporation) and any and all rights, warrants or options to purchase or acquire or exchangeable for or convertible into such shares, partnership interests or other equivalents.
"Cash Equivalents" means (a) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) that (i) have maturities of not more than six months from the date of acquisition thereof or (ii) are subject to a repurchase agreement with an institution described in clause (b)(i) or (ii) below exercisable within six months from the date of acquisition thereof, (b) U.S. Dollar-denominated and Eurodollar time deposits, certificates of deposit and bankers' acceptances of (i) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (ii) any bank whose short-term commercial paper rating from S&P is at least A-2 or the equivalent thereof or from Moody's is at least P-2 or the equivalent thereof (any such bank, an "Approved Lender"), in each case with maturities of not more than six months from the date of acquisition thereof, (c) commercial paper and variable and fixed rate notes issued by any Lender or Approved Lender or by the parent company of any Lender or Approved Lender and commercial paper and variable rate notes issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's, and in each case maturing within six months after the date of acquisition thereof, (d) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (e) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition, (f) tax-exempt commercial paper of U.S. municipal, state or local governments rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's and maturing within six months after the date of acquisition thereof, (g) shares of money market mutual or similar funds sponsored by any registered broker dealer or mutual fund distributor, (h) repurchase obligations entered into with any bank meeting the qualifications of clause (b) above or any registered broker dealer whose short-term commercial paper rating from S&P is at least A-2 or the equivalent thereof or from Moody's is at least P-2 or the equivalent thereof, having a term of not more than 30 days, with respect to securities issued or fully guaranteed or insured by the United States government or residential whole loan mortgages, and (i) demand deposit accounts maintained in the ordinary course of business.
"Change in Control" means either (a) a Person or "group" (within the meaning of Section 13(d) and 14(d) of the Exchange Act) acquiring or having beneficial ownership (it being understood that a tender of shares or other equity interests shall not be deemed acquired or giving beneficial ownership until such shares or other equity interests shall have been accepted for payment) of securities (or options to purchase securities) having a majority or more of the ordinary voting power of the Borrower (including options to acquire such voting power) or (b) persons who are directors of the Borrower as of the date hereof or persons designated or approved by such directors ceasing to constitute a majority of the board of directors of the Borrower.
"Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.13(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive of any Governmental Authority made or issued after the date of this Agreement.
"Chase" means The Chase Manhattan Bank.
"Class" when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans.
"Co-Syndication Agents" has the meaning assigned to such term in the preamble hereto.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquire participations in Swingline Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable.
"Commitment Termination Date" means the earlier of (a) the Business Day immediately preceding the first anniversary of the Effective Date and (b) the date on which the Commitments shall terminate in accordance with the provisions of this Agreement.
"Commitment Utilization Percentage" means on any day the percentage equivalent to a fraction (a) the numerator of which is the sum of the aggregate outstanding principal amount of the Loans (including Swingline Loans), and (b) the denominator of which is the aggregate amount of the Commitments then in effect (or, on any day after the termination of the Commitments, the aggregate amount of the Commitments in effect immediately preceding such termination).
"Conduit Lender" means any special purpose corporation organized and administered by any Lender for the purpose of making Loans otherwise required to be made by such Lender and designated by such Lender in a written instrument, subject to the consent of the Administrative Agent and the Borrower (which consent shall not be unreasonably withheld); provided, that the designation by any Lender of a Conduit Lender shall not relieve the designating Lender of any of its obligations to fund a Loan under this Agreement if, for any reason, its Conduit Lender fails to fund any such Loan, and the designating Lender (and not the Conduit Lender) shall have the sole right and responsibility to deliver all consents and waivers required or requested under this Agreement with respect to its Conduit Lender, and provided, further, that no Conduit Lender shall (a) be entitled to receive any greater amount pursuant to Section 2.13, 2.14, 2.15 or 9.03 than the designating Lender would have been entitled to receive in respect of the Loans made by such Conduit Lender or (b) be deemed to have any Commitment. The making of a Loan by a Conduit Lender hereunder shall utilize the Commitment of a designating Lender to the same extent, and as if, such Loan were made by such designating Lender.
"Consolidated EBITDA" means, for any period for any Person,
the Consolidated Net Income of such Person for such period plus, without
duplication and to the extent reflected as a charge in the statement of such
Consolidated Net Income for such period, the sum of (a) income tax expense, (b)
interest expense, amortization or writeoff of debt discount and debt issuance
costs and commissions, discounts and other fees and charges associated with
Indebtedness (including the Loans), (c) depreciation and amortization expense
(excluding amortization of film inventory that does not constitute amortization
of purchase price amortization), (d) amortization of intangibles (including, but
not limited to, goodwill) and organization costs (excluding amortization of film
inventory that does not constitute amortization of purchase price amortization),
(e) any extraordinary, unusual or non-recurring non-cash expenses or losses
(including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, non-cash losses on
sales of assets outside of the ordinary course of business), and (f) minority
interest expense in respect of preferred stock of Subsidiaries of such Person,
and minus, to the extent included in the statement of such Consolidated Net
Income for such period, the sum of (a) interest income and (b) any
extraordinary, unusual or non-recurring income or gains (including, whether or
not otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, gains on the sales of assets outside of
the ordinary course of business), all as determined on a consolidated basis.
"Consolidated Leverage Ratio" means, as at the last day of any period of four consecutive fiscal quarters for any Person, the ratio of (a) Consolidated Total Debt of such Person on such day to (b) Consolidated EBITDA of such Person (and its Restricted Subsidiaries only, in the case of the Borrower) for such period, provided that the Consolidated Leverage Ratio for the Borrower shall be calculated, with respect to quarters ended on or prior to December 31, 2000, on a pro forma basis consistent with the preparation of financial statements delivered pursuant to Section 3.04(b).
"Consolidated Net Income" means, for any period for any Person, the consolidated net income (or loss) of such Person and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded, without
duplication (a) the income (or deficit) of any Person accrued prior to the date
it becomes a Subsidiary of such Person or is merged into or consolidated with
such Person or any of its Subsidiaries or that such other Person's assets are
acquired by such Person or any of its Subsidiaries, (b) the income (or deficit)
of any Person (other than (i) in the case of the Borrower, a Restricted
Subsidiary and (ii) in the case of any other Person, a Subsidiary of such
Person) in which such Person or any of its Subsidiaries has an ownership
interest, except to the extent that any such income is actually received by
such Person (or (i) in the case of the Borrower, its Restricted Subsidiary and
(ii) in the case of any other Person, its Subsidiaries) in the form of dividends
or similar distributions and (c) the undistributed earnings of any Subsidiary
of such Person to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary is not at the time permitted by
the terms of its charter or any agreement or instrument (other than any Credit
Document), judgment, decree, order, statute, rule, governmental regulation or
other requirement of law applicable to such Subsidiary; provided that the
income of any Subsidiary of such Person shall not be excluded by reason of
this clause (c) so long as such Subsidiary guarantees the Obligations of such
Person.
"Consolidated Net Worth" means at any date, all amounts that would, in conformity with GAAP, be included on a consolidated balance sheet of the Borrower and its Subsidiaries under stockholders' equity at such date; provided that such amounts shall be calculated in accordance with Section 1.04.
"Consolidated Total Assets" means at any date, all amounts that would, in conformity with GAAP, be included on a consolidated balance sheet of the Borrower and its Subsidiaries under total assets at such date; provided that such amounts shall be calculated in accordance with Section 1.04.
"Consolidated Total Debt" means, at any date, (a) with respect
to the Borrower, the aggregate principal amount of Indebtedness of the Borrower
and its Restricted Subsidiaries minus (i) the aggregate principal amount of any
such Indebtedness that is payable either by its terms or at the election of the
obligor in equity securities of the Borrower or the proceeds of options in
respect of such equity securities, (ii) the aggregate amount of any Stock Option
Loans, (iii) the aggregate principal amount of Film Financings and (iv) the
aggregate amount of cash and Cash Equivalents held by the Borrower or any of its
Restricted Subsidiaries in excess of $200,000,000 and (b) for purposes of
Section 6.02(b) (until such time as TWE becomes a Guarantor, at which time this
clause (b) shall cease to apply), the aggregate principal amount of Indebtedness
of TWE and its Subsidiaries minus (i) the aggregate principal amount of any such
Indebtedness that is payable either by its terms or at the election of the
obligor in equity securities of TWE or the proceeds of options in respect of
such equity securities, (ii) the aggregate principal amount of Film Financings,
and (iii) the aggregate amount of cash and Cash Equivalents held by TWE or any
of its Subsidiaries, all determined on a consolidated basis in accordance with
GAAP.
"Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Copyright Liens" means any Liens granted by the Borrower or any of its Subsidiaries on copyrights relating to movies or other programming, which movies or other programming are subject to one or more contracts entitling the Borrower or such Subsidiary to future payments in respect of such movies or other programming and which contractual rights to future payments are to be transferred by the Borrower or Subsidiary to a special purpose Subsidiary of the Borrower or Subsidiary organized for the purpose of monetizing such rights to future payments, provided that such Liens (a) are granted directly or indirectly for the benefit of the special purpose Subsidiary and/or the Persons who purchase such contractual rights to future payments from such special purpose Subsidiary and (b) extend only to the copyrights for the movies or other programming subject to such contracts for the purpose of permitting the completion, distribution and exhibition of such movies or other programming.
"Credit Documents" means this Agreement, each Guarantee and each Note.
"Credit Parties" means the Borrower and the Guarantors; and "Credit Party" means any of them.
"Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
"Defaulting Lender" means any Lender which fails to make any Loan required to be made by it in accordance with the terms and conditions of this Agreement.
"Documentation Agent" has the meaning assigned to such term in the preamble hereto.
"dollars" or $" refers to lawful money of the United States.
"Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Environmental Law" means all applicable and binding laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, or agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or in Section
303(d) of ERISA of an application for a waiver of the minimum funding standard
with respect to any Plan; (d) the incurrence by any Credit Party or any of its
ERISA Affiliates of any unfunded liability under Title IV of ERISA with respect
to the termination of any Plan; (e) the receipt by any Credit Party or any ERISA
Affiliate from the PBGC or a plan administrator of any notice relating to an
intention to terminate any Plan or Plans or to appoint a trustee to administer
any Plan; (f) the incurrence by any Credit Party or any of its ERISA Affiliates
of any liability with respect to the withdrawal or partial withdrawal from any
Plan or Multiemployer Plan; (g) the receipt by any Credit Party or any ERISA
Affiliate of any notice concerning the imposition on such entity of Withdrawal
Liability or a determination that a Multiemployer Plan with respect to which
such entity is obligated to contribute or is otherwise liable is, or is expected
to be, insolvent or in reorganization, within the meaning of Title IV of ERISA;
or (h) the occurrence, with respect to a Plan or a Multiemployer Plan, of a
nonexempt "prohibited transaction" (within the meaning of Section 4975 of the
Code or Section 406 of ERISA) which could reasonably be expected to result in
liability to a Credit Party.
"Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article VII.
"Excess Utilization Day" means each day on which the Commitment Utilization Percentage exceeds 50%.
"Exchange Act" means the Securities and Exchange Act of 1934, as amended.
"Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction described in clause (a) above and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section
2.17(b)), any withholding tax (i) that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement or designates a new lending office or (ii) is attributable to such Foreign Lender's failure or inability to comply with Section 2.15(f), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of such designation of a new lending office or assignment, to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.15(a).
"Facility Fee" has the meaning assigned to such term in
Section 2.10(a).
"Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
"Film Financing" means, without duplication, monetary obligations arising out of transactions in which so-called tax-based financing groups or other third-party investors provide financing for the acquisition, production or distribution of motion pictures, television programs, sound recordings or books or rights with respect thereto in exchange, in part, for certain tax or other benefits which are derived from such motion pictures, television programs, sound recordings, books or rights; provided that no such monetary obligations shall have, directly or indirectly, recourse (including by way of setoff) to the Borrower or any Restricted Subsidiary or any of its assets other than to the profits or distribution rights related to such motion pictures, television programs, sound recordings, books or rights and other than to a Subsidiary of TWE or TBS substantially all of the assets of which consist of the motion pictures, television programs, sound recordings, books or rights which are the subject of such transaction and related cash and Cash Equivalents.
"Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower.
"Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
"Franchise" means, with respect to any Person, a franchise, license, authorization or right to construct, own, operate, manage, promote, extend or otherwise utilize any cable television distribution system operated or to be operated by such Person or any of its Subsidiaries granted by any Governmental Authority, but shall not include any such franchise, license, authorization or right that is incidentally required for the purpose of installing, constructing or extending a cable television system.
"GAAP" means generally accepted accounting principles in the United States.
"Governmental Authority" means the government of the United States, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
"Guarantee Obligations" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness; provided, that the term Guarantee Obligations shall not include endorsements for collection or deposit in the ordinary course of business.
"Guarantees" means, collectively, the Guarantees to be executed and delivered by each of the Guarantors, substantially in the form of Exhibit B.
"Guarantors" means (a) America Online, (b) Time Warner, (c) TBS, (d) Time Warner Companies, Inc., a Delaware corporation, (e) TWI Cable Inc., a Delaware corporation, and (f) any other Person that becomes a party to the Guarantee after the Effective Date.
"Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
"Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person (but not including synthetic or operating leases), (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business and payment obligations of such Person pursuant to agreements entered into in the ordinary course of business, which payment obligations are contingent on another Person's satisfactory provision of services or products), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien (other than a Copyright Lien or Liens on interests or Investments in Unrestricted Subsidiaries) on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed (but only to the extent of the
lesser of the fair market value of the property subject to such Lien and the amount of such Indebtedness), (g) all Guarantee Obligations of such Person with respect to Indebtedness of others (except to the extent that such Guarantee Obligation guarantees Indebtedness of a Restricted Subsidiary), (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit (but only to the extent of all drafts drawn thereunder) and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. Notwithstanding the foregoing, Indebtedness shall not include (i) any obligation of such Person to guarantee performance of, or enter into indemnification agreements with respect to, obligations, entered into in the ordinary course of business, under any and all Franchises, leases, performance bonds, franchise bonds and obligations to reimburse drawings under letters of credit issued in lieu of performance or franchise bonds, (ii) completion bonds or guarantees or indemnities of a similar nature issued in the ordinary course of business in connection with the production of motion pictures and video and television programming or (iii) obligations to make Tax Distributions. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other contractual relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Interest Election Request" means a request by the Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.06.
"Interest Payment Date" means (a) with respect to any ABR Loan
(other than a Swingline Loan), the last day of each March, June, September and
December, (b) with respect to any Eurodollar Loan, the last day of the Interest
Period applicable to the Borrowing of which such Loan is a part and, in the case
of a Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day that is three months, or a whole multiple thereof, after the
first day of such Interest Period and the last day of such Interest Period, and
(c) with respect to any Swingline Loan, the day that such Loan is required to be
repaid.
"Interest Period" means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is (a) one, two, three or six months (or, with the consent of each Lender, a shorter period) thereafter, as the Borrower may elect and (b) one month thereafter, if the Borrower has made no election, provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
"Investment" by any Person means any direct or indirect (a) loan, advance or other extension of credit or contribution to any other Person (by means of transfer of cash or other property to others, payments for property or services for the account or use of others, mergers or otherwise), (b) purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities (including any option, warrant or other right to acquire any of the foregoing) or evidences of Indebtedness issued by any other Person (whether by merger, consolidation, amalgamation or otherwise and whether or not purchased directly from the issuer of such securities or evidences of Indebtedness), (c) purchase or acquisition (in one transaction or a series of transactions) of any assets of any other Person constituting a business unit and (d) all other items that would be classified as investments on a balance sheet of such Person prepared in accordance with GAAP. Investments shall exclude extension of trade credit and advances to customers and suppliers to the extent made in the ordinary course of business and in accordance with customary industry practice.
"Lender Affiliate" means, (a) with respect to any Lender, (i) an Affiliate of such Lender or (ii) any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender and (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
"Lenders" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. Unless the context otherwise requires, the term "Lenders" includes the Swingline Lender.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered to the London branches of the Reference Banks in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in (including sales of accounts), on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same
economic effect as any of the foregoing, but excluding any operating leases) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
"Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement.
"Material Adverse Effect" means a material adverse effect on
(a) the financial condition, business, results of operations, properties or
liabilities of the Borrower and the Subsidiaries taken as a whole, (b) the
ability of any Credit Party to perform any of its material obligations to the
Lenders under any Credit Document to which it is or will be a party or (c) the
rights of or benefits available to the Lenders under any Credit Document.
"Material Indebtedness" means Indebtedness (other than the Loans), of any one or more of the Borrower and its Restricted Subsidiaries or any Material Subsidiary of the Borrower in an aggregate principal amount exceeding $100,000,000.
"Material Subsidiary" of any Person means, at any date, each Subsidiary of such Person which, either alone or together with the Subsidiaries of such Subsidiary, meets any of the following conditions:
2. as of the last day of such Person's most recently ended fiscal quarter for
which financial statements have been filed with the SEC the investments of
such Person and its Subsidiaries in, or their proportionate share (based on
their equity interests) of the book value of the total assets (after
intercompany eliminations) of, the Subsidiary in question exceeds 10% of
the book value of the total assets of such Person and its consolidated
Subsidiaries;
3. for the full four consecutive quarter period ended on the last day of such
Person's most recently ended fiscal quarter for which financial statements
have been filed with the SEC, the equity of such Person and its
Subsidiaries in the revenues from continuing operations of the Subsidiary
in question exceeds 10% of the revenues from continuing operations of such
Person and its consolidated Subsidiaries; or
4. for the full four consecutive quarter period ended on the last day of such
Person's most recently ended fiscal quarter for which financial statements
have been filed with the SEC, the equity of such Person and its
Subsidiaries in the Consolidated EBITDA of the Subsidiary in question
exceeds 10% of the Consolidated EBITDA of such Person.
"Maturity Date" means the Commitment Termination Date, or if the Borrower has delivered a Term Out Notice, the second anniversary of the Commitment Termination Date.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Note" means any promissory note evidencing Loans.
"Obligations" has the meaning assigned to such term in the Guarantees.
"Officer's Certificate" means a certificate executed by the Chief Financial Officer, the Treasurer or the Controller of the Borrower or such other officer of the Borrower reasonably acceptable to the Administrative Agent and designated as such in writing to the Administrative Agent by the Borrower.
"Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
"Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Prime Rate" means the rate of interest per annum publicly announced from time to time by Chase as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.
"Rating" has the meaning assigned to such term in the definition of "Applicable Rate".
"Reference Banks" means Chase, Bank of America, N.A. and Citibank, N.A.
"Register" has the meaning set forth in Section 9.04.
"Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving Credit Exposures and unused Commitments representing more than 50% of the sum of the total Revolving Credit Exposures and unused Commitments at such time.
"Responsible Officer" of the Borrower means any of the Chief Executive Officer, Chief Legal Officer, Chief Financial Officer, Treasurer or Controller (or any equivalent of the foregoing officers) of the Borrower.
"Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the
Borrower, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock of the Borrower or any option, warrant or other right to acquire any such shares of capital stock of the Borrower.
"Restricted Subsidiaries" of the Borrower means, as of any date, all Subsidiaries of the Borrower that have not been designated as Unrestricted Subsidiaries by the Borrower pursuant to Section 6.08 or have been so designated as Unrestricted Subsidiaries by the Borrower but prior to such date have been (or have been deemed to be) re-designated by the Borrower as Restricted Subsidiaries pursuant to Section 6.08.
"Revolving Borrowing" means a Borrowing of Revolving Loans.
"Revolving Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans and Swingline Exposure at such time.
"Revolving Loan" means a Loan made pursuant to Section 2.03.
"S&P" means Standard & Poor's Rating Services.
"SEC" means the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentage shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
"Stock Option Loans" means (a) borrowings under that certain Credit Agreement dated as of March 13, 1998, as amended, among Time Warner, Chase, as administrative agent thereunder, and the lenders party thereto; provided the lenders thereunder shall not have the benefit of any Lien other than on the Capital Stock of Time Warner and proceeds therefrom or (b) borrowings under substantially similar facilities.
"Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity
or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held. Unless otherwise qualified, all references to a "Subsidiary" or "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.
"Swingline Exposure" means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be its Applicable Percentage of the total Swingline Exposure at such time.
"Swingline Lender" means Chase, in its capacity as lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
"Tax Distribution" means, with respect to any period, distributions made to any Person by a Subsidiary of such Person on or with respect to income and other taxes, which distributions are not in excess of the tax liabilities that would have been payable by such Subsidiary on a standalone basis, and which are calculated in accordance with, and made no earlier than as required by, the terms of the applicable organizational document which requires such distribution.
"Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.
"TBS" means Turner Broadcasting System, Inc., a Georgia corporation.
"Term Out Notice" has the meaning assigned to such term in
Section 2.08(e).
"Time Warner" means Time Warner Inc., a Delaware corporation.
"Transactions" means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans and the use of the proceeds thereof.
"TWE" means Time Warner Entertainment Company, L.P., a Delaware limited partnership.
"Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
"United States" means the United States of America.
"Unrestricted Subsidiary" has the meaning assigned to such term in Section 6.08.
"Utilization Fee" has the meaning assigned to such term in
Section 2.10(b).
"Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
(b) Classification of Loans and Borrowings.
For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing").
(c) Terms Generally.
The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words, "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(d) Accounting Terms; GAAP.
Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, (a) if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith and (b) Consolidated Net Worth and Consolidated Total Assets shall be calculated at all times in accordance with GAAP as in effect on the Effective Date solely as it relates to the impairment of goodwill and intangibles.
2.
The Credits
(a) Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability
Period in an aggregate principal amount that will not result in (a) such Lender's Revolving Credit Exposure exceeding such Lender's Commitment or (b) the sum of the total Revolving Credit Exposures exceeding the total Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.
(b) Loans and Borrowings. (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required.
Option 1. Subject to Section 2.12, each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Swingline Loan shall be an ABR Loan. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.
Option 2. At the commencement of each Interest Period for any Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $20,000,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $20,000,000; provided that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments. Each Swingline Loan shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of 20 Eurodollar Revolving Borrowings outstanding.
Option 3. Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.
(c) Requests for Revolving Borrowings. To request a Revolving Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 12:00 noon, New York City time, three Business Days before the date of the proposed Borrowing and (b) in the case of an ABR Borrowing, not later than 10:00 a.m., New York City time, on the day of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:
(A) the aggregate amount of the requested Borrowing;
(B) the date of such Borrowing, which shall be a Business
Day;
(C) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(D) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and
(E) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05.
If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing.
(d) Swingline Loans. (b) Subject to the terms and conditions set forth
herein, the Swingline Lender agrees to make Swingline Loans to the Borrower
from time to time during the Availability Period, in an aggregate principal
amount at any time outstanding that will not result in (i) the aggregate
principal amount of outstanding Swingline Loans exceeding $75,000,000 or
(ii) the sum of the total Revolving Credit Exposures exceeding the total
Commitments; provided that the Swingline Lender shall not be required to make
a Swingline Loan to refinance an outstanding Swingline Loan. Within the
foregoing limits and subject to the terms and conditions set forth herein,
the Borrower may borrow, prepay and reborrow Swingline Loans.
Option 1. To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request by telephone (confirmed by telecopy), not later than 2:00 p.m., New York City time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to the general deposit account of the Borrower with the Swingline Lender by 3:00 p.m., New York City time, on the requested date of such Swingline Loan.
Option 2. The Swingline Lender may by written notice given to the Administrative Agent not later than 12:00 noon, New York City time, on any Business Day require the Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Lender, specifying in such notice such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Lender
acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.05 with respect to Loans made by such Lender (and Section 2.05 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof. Notwithstanding the foregoing, a Lender shall not have any obligation to acquire a participation in a Swingline Loan pursuant to this paragraph if an Event of Default shall have occurred and be continuing at the time such Swingline Loan was made and such Lender shall have notified the Swingline Lender in writing, at least one Business Day prior to the time such Swingline Loan was made, that such Event of Default has occurred and that such Lender will not acquire participations in Swingline Loans made while such Event of Default is continuing.
(e) Funding of Borrowings. (c) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders; provided that Swingline Loans shall be made as provided in Section 2.04. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request.
Option 1. Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the
case of the Borrower,
the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing.
(f) Interest Elections. (d) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued.
Option 1. To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower.
Option 2. Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:
(A) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);
(B) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(C) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and
(D) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration.
Option 3. Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing.
Option 4. If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to a Eurodollar Revolving Borrowing having a one month Interest Period. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
(g) Termination and Reduction of Commitments. Unless previously terminated, the Commitments shall terminate on the Commitment Termination Date.
Option 1. The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.09, the sum of the Revolving Credit Exposures would exceed the total Commitments.
Option 2. The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (a) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments.
(h) Repayment of Loans; Evidence of Debt. (e) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date and (ii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Maturity Date and the first date after such Swingline Loan is made that is the 15th or last day of a calendar month and is at least two Business Days after such Swingline Loan is made; provided that on each date that a Revolving Borrowing is made, the Borrower shall repay all Swingline Loans then outstanding.
Option 1. Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
Option 2. The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof.
Option 3. Any Lender may request that Loans made by it be evidenced by a Note. In such event, the Borrower shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more Notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).
Option 4. The Borrower may elect to extend the maturity of all Revolving Loans outstanding on the Commitment Termination Date to the date which is the second anniversary of the Commitment Termination by giving written notice (the "Term Out Notice") of such election to the Administration Agent at least 15 days prior to the Commitment Termination Date.
(i) Prepayment of Loans. (f) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section.
Option 1. The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 12:00 noon, New York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Revolving Borrowing, not later than 12:00 noon, New York City time, one Business Day before the date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 12:00 noon, New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.07, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.07. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.11.
(j) Fees. (g) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee (a "Facility Fee") which shall accrue at the Applicable Rate on the daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the Effective Date to but excluding the date on which such Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such Facility Fee shall continue to accrue on the daily amount of such Lender's Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued Facility Fees shall be payable in arrears on the last day of March, June, September and December of each year and on the Maturity Date (or such earlier date after the Commitment Termination Date on which the Loans are repaid in full), commencing on the first such date to occur after the date hereof. All Facility Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
Option 1. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a utilization fee (a "Utilization Fee") which shall accrue at a rate per annum equal to the Applicable Rate on the daily amount of such Lender's Revolving Credit Exposure for each Excess Utilization Day during the period from and including the Effective Date to but excluding the date on which such Lender's Commitment terminates; provided that if such Lender continues to have Revolving Credit Exposure after its Commitment terminates, then such Utilization Fee shall continue to accrue on the daily amount of such Lender's Revolving Credit Exposure for each Excess Utilization Day from and including the Effective Date to but excluding the date on which it ceases to have any Revolving Credit Exposure (it being understood that if the Commitment Utilization Percentage is less than 50% on the Commitment Termination Date, no Utilization Fee is payable after such date). Accrued Utilization Fees shall be payable in arrears on the last day of March, June, September and December of each year and on the Maturity Date (or such earlier date after the Commitment Termination Date on which the Loans are repaid in full), commencing on the first such date to occur after the date hereof. All Utilization Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
Option 2. The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.
Option 3. All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of Facility Fees and Utilization Fees, to the Lenders. Fees paid shall not be refundable under any circumstances.
(k) Interest. (h) The Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at a rate per annum equal to the Alternate Base Rate.
Option 1. The Loans comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to in the case of a Eurodollar Revolving Loan, the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.
Option 2. Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided above or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided above.
Option 3. Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, (iii) in the event of any conversion of any Eurodollar Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion and (iv) all accrued interest shall be payable upon termination of the Commitments.
Option 4. All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
(l) Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing:
(1) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(2) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing if the circumstances giving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted.
(m) Increased Costs. (i) If any Change in Law shall:
(A) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or
(B) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs actually incurred or reduction actually suffered.
Option 2. If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by, such Lender, to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction actually suffered.
Option 3. A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
Option 4. Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than six months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof.
Notwithstanding any other provision of this Section 2.13, no Lender shall demand compensation for any increased costs or reduction referred to above if it shall not be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements, if any (it being understood that this sentence
shall not in any way limit the discretion of any Lender to waive the right to demand such compensation in any given case).
(n) Break Funding Payments. In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b)
the conversion of any Eurodollar Loan other than on the last day of the
Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan on the date specified in any notice
delivered pursuant hereto (regardless of whether such notice is permitted to be
revocable under Section 2.09(b) and is revoked in accordance herewith), or
(d) the assignment of any Eurodollar Loan other than on the last day of the
Interest Period applicable thereto as a result of a request by the Borrower
pursuant to Section 2.17, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurodollar Loan, the loss to any Lender attributable
to any such event shall be deemed to include an amount determined by such
Lender to be equal to the excess, if any, of (i) the amount of interest that
such Lender would pay for a deposit equal to the principal amount of such Loan
for the period from the date of such payment, conversion, failure or assignment
to the last day of the then current Interest Period for such Loan (or, in the
case of a failure to borrow, convert or continue, the duration of the Interest
Period that would have resulted from such borrowing, conversion or
continuation) if the interest rate payable on such deposit were equal to the
Adjusted LIBO Rate for such Interest Period, over (ii) the amount of interest
that such Lender would earn on such principal amount for such period if such
Lender were to invest such principal amount for such period at the interest
rate that would be bid by such Lender (or an affiliate of such Lender) for
dollar deposits from other banks in the eurodollar market at the commencement
of such period. A certificate of any Lender setting forth any amount or amounts
that such Lender is entitled to receive pursuant to this Section shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Lender the amount shown as due on any such certificate
within 10 days after receipt thereof.
(o) Taxes. (j) Any and all payments by or an account of any obligation of
the Borrower hereunder shall be made free and clear of and without deduction for
any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent or Lender (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
Option 1. In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
Option 2. The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
Option 3. If a Lender or the Administrative Agent receives a refund in respect
of any Indemnified Taxes or Other Taxes as to which it has been indemnified by
the Borrower or with respect to which the Borrower has paid additional amounts
pursuant to this Section 2.15, it shall within 30 days from the date of such
receipt pay over such refund to the Borrower (but only to the extent of
indemnity payments made, or additional amounts paid, by the Borrower under this
Section 2.15 with respect to the Indemnified Taxes or Other Taxes giving rise to
such refund, as determined by such Lender in its sole discretion), net of all
out-of-pocket expenses of such Lender or the Administrative Agent and without
interest (other than interest paid by the relevant taxation authority with
respect to such refund); provided that the Borrower, upon the request of such
Lender or the Administrative Agent, agrees to repay the amount paid over to the
Borrower (plus penalties, interest or other charges) to such Lender or the
Administrative Agent in the event such Lender or the Administrative Agent is
required to repay such refund to such taxation authority.
Option 4. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
Option 5. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate.
(p) Payments Generally; Pro Rata Treatment; Sharing of Setoffs. (k) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or, or under Section 2.13, 2.14 or 2.15, or otherwise) prior to 1:00 p.m., New York City time, on the date when due, in immediately available funds, without setoff or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except payments to be made directly to the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.13, 2.14, 2.15 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon
shall be payable for the period of such extension. All payments hereunder shall be made in dollars.
Option 1. If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, interest and fees
then due hereunder, such funds shall be applied (i) first, to pay interest and
fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, to pay principal then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal then due to such
parties.
Option 2. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans and Swingline Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
Option 3. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate.
Option 4. If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(c), 2.05(b) or 2.16(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender from or on behalf of any Credit Party or
otherwise in respect of the Obligations to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid.
(q) Mitigation Obligations; Replacement of Lenders. (l) If any Lender requests compensation under Section 2.13, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
Option 1. If any Lender requests compensation under Section 2.13, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
or if any Lender becomes a Defaulting Lender hereunder, then the Borrower may,
at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent (and,
if a Commitment is being assigned, the Swingline Lender), which consent shall
not unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans and Swingline Loans,
accrued interest thereon, accrued fees and all other amounts payable to it
hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrower (in the case of all other amounts)
and (iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.13 or payments required to be made pursuant to
Section 2.15, such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply.
3.
Representations and Warranties
The Borrower represents and warrants to the Lenders that:
(a) Organization; Powers. Each Credit Party and each Restricted Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.
(b) Authorization; Enforceability. The Transactions are within the Credit Parties' corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. Each Credit Document (other than each Note) has been, and each Note when delivered hereunder will have been, duly executed and delivered by the Credit Parties party thereto. Each Credit Document (other than each Note) constitutes, and each Note when delivered hereunder will be, a legal, valid and binding obligation of each such Credit Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
(c) Governmental Approvals; No Conflicts. The Transactions (a) do not
require any consent or approval of, registration or filing with, or any other
action by, any Governmental Authority, except such as have been obtained or
made and are in full force and effect, (b) will not violate (i) any applicable
law or regulation or (ii) the charter, by-laws or other organizational documents
of the Borrower or any of its Subsidiaries or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
agreement or other instrument binding upon the Borrower or any of its
Subsidiaries or its assets, or give rise to a right thereunder to require any
payment to be made by the Borrower or any of its Subsidiaries, and (d) will
not result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries, except, in each case (other than clause
(b)(ii) with respect to any Credit Party), such as could not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse Effect.
(d) Financial Condition; No Material Adverse Change. (m) The consolidated balance sheet and statements of income, stockholders equity and cash flows (including the notes thereto) (i) of America Online as of and for the fiscal years ended December 31, 1999 and December 31, 2000, reported on by Ernst & Young LLP, independent public accountants, and (ii) of Time Warner as of and for the fiscal years ended December 31, 1999 and December 31, 2000, reported on by Ernst & Young LLP, independent accountants, copies of which have heretofore been furnished to each Lender, present fairly, in all material respects, the financial position and results of operations and cash flows respectively, of America Online and Time Warner and their respective consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP.
Option 1. The unaudited pro forma combined balance sheet of the Borrower and its consolidated Subsidiaries as at December 31, 2000 (including the notes thereto) and the unaudited combined pro forma statement of income of the Borrower and its consolidated Subsidiaries for the twelve-month period ending December 31, 2000, copies of which have heretofore been furnished to each Lender, have been prepared giving effect (as if the merger had occurred on January 1, 2000) to the consummation of the merger of America Online and Time Warner. The financial
statements described in this paragraph have been prepared based on the best information available to the Borrower as of the date of delivery thereof and present fairly on a pro forma basis the estimated combined financial position of the Borrower and its consolidated Subsidiaries as of December 31, 2000 and the combined results of their operations for the twelve-month period then ended, assuming that the merger of America Online and Time Warner occurred on January 1, 2000.
Option 2. Since December 31, 2000, there has been no material adverse change in the business, assets, operations or financial condition of the Borrower and its Subsidiaries, taken as a whole (assuming, for the purposes of this representation, that the business, assets, operations and financial condition of the Borrower as of December 31, 2000 were as adjusted for the combination of America Online and Time Warner).
(e) Properties. (n) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property, except for defects in title that could not reasonably be expected to result in a Material Adverse Effect.
Option 1. Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
(f) Litigation and Environmental Matters. (o) There are no actions, suits, investigations or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) which could reasonably be expected to be adversely determined and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve this Agreement or the Transactions.
Option 1. Except with respect to any matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, (x) neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability or (iii) has received notice of any claim with respect to any Environmental Liability and (y) the Borrower has no knowledge of any basis for any Environmental Liability on the part of any of its Restricted Subsidiaries.
(g) Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing.
(h) Government Regulation. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, (b) a "holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935, or (c) is subject to any other statute or regulation which regulates the incurrence of indebtedness for borrowed money, other than, in the case of this clause (c), Federal and state securities laws and as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
(i) Taxes. Each of the Borrower and its Subsidiaries has timely filed or
caused to be filed all Tax returns and reports required to have been filed and
has paid or caused to be paid all Taxes required to have been paid by it, except
(a) Taxes that are being contested in good faith by appropriate proceedings and
for which the Borrower or such Subsidiary, as applicable, has set aside on its
books adequate reserves in accordance with GAAP or (b) to the extent that the
failure to do so could not reasonably be expected to result in a Material
Adverse Effect.
(j) ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect.
(k) Disclosure. As of the date hereof and the Effective Date, all information heretofore or contemporaneously furnished by or on behalf of the Borrower or any Subsidiary (including all information contained in the Credit Documents, the Confidential Memorandum dated March 2001 and the annexes, schedules and other attachments thereto but not including any projected financial statements), when taken together with the reports and other filings with the SEC made under the Exchange Act by any Credit Party since December 31, 1999, is, and all other such information hereafter furnished, including all information contained in any of the Credit Documents, including any annexes or schedules thereto, by or on behalf of the Borrower or any Subsidiary to or on behalf of any Lender is and will be (as of their respective dates and the Effective Date), true and accurate in all material respects and not incomplete by omitting to state a material fact to make such information not misleading as such time. There is no fact of which the Borrower or any Guarantor is aware which has not been disclosed to the Lenders in writing pursuant to the terms of this Agreement prior to the date hereof and which, singly or in the aggregate with all such other facts of which the Borrower or any Guarantor is aware, could reasonably be expected to result in a Material Adverse Effect. All statements of fact and representation concerning the present and anticipated business, operations and assets of the Borrower and any Subsidiary, the Credit Documents and the transactions referred to therein are true and correct in all material respects.
4.
Conditions
(a) Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):
(1) Credit Documents. The Administrative Agent (or its counsel) shall have received (i) this Agreement executed and delivered by each party hereto and (ii) a Guarantee, executed and delivered by each of the Guarantors.
(2) Opinion of Counsel. The Administrative Agent shall have received the favorable written opinions (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of (i) Cravath, Swaine & Moore, counsel for the Credit Parties, and (ii) in-house counsel to the Credit Parties, in each case in form and substance reasonably satisfactory to the Administrative Agent. The Borrower hereby requests each such counsel to deliver such opinions.
(3) Closing Certificate. The Administrative Agent shall have received a certificate from each Credit Party, in form and substance reasonably satisfactory to the Administrative Agent, dated the Effective Date and signed by the president, a vice president, a financial officer or an equivalent officer of such Credit Party, including, in the case of the Borrower, confirmation of compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02.
(4) Fees. The Borrower shall have paid all fees required to be paid on or before the Effective Date by the Borrower in connection the revolving credit facility provided for in this Agreement.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on April 9, 2001 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).
(b) Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions:
(1) The representations and warranties of the Credit Parties set forth in the Credit Documents (other than those set forth in Sections 3.04(c) and 3.06(a) on any date other than the Effective Date) shall be true and correct in all material respects on and as of the date of such Borrowing.
(2) At the time of and immediately after giving effect to such Borrowing no Default or Event of Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.
5.
Affirmative Covenants
Until the Commitments have expired or been terminated and the principal of and interest on each Loan, all fees payable hereunder and all other Obligations shall have been paid in full (but with respect to such other Obligations only to the extent that actual amounts hereunder are owing at the time the Loans, together with interest and fees, have been paid in full), the Borrower (for itself and its Subsidiaries) covenants and agrees with the Lenders that:
(a) Financial Statements and Other Information. The Borrower will, and, until such time as TWE becomes a Guarantor, will cause TWE to furnish to, the Administrative Agent (with a copy for each Lender):
(1) within 105 days after the end of each fiscal year of such Person, its audited consolidated balance sheet and related statements of operations, stockholders' equity (or partnership capital) and cash flows as of the end of and for such year and, with respect to the Borrower only, its unaudited Adjusted Financial Statements for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, and, (i) in the case of the audited financial statements, reported on by Ernst & Young LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied and (ii) in the case of the Adjusted Financial Statements, certified by one of the Borrower's Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; provided that, so long as no Default has occurred and is continuing, the Borrower shall not be required to furnish Adjusted Financial Statements for any fiscal year if all Unrestricted Subsidiaries of the Borrower (other than any such Unrestricted Subsidiaries that are already treated as equity investments on the Borrower's financial statements) on a combined basis would not have constituted a Material Subsidiary of the Borrower for such fiscal year;
(2) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of such Person, its consolidated balance sheet and related statements of operations, stockholders' equity (or partnership capital) and cash flows and, with respect to the Borrower only, its Adjusted Financial Statements as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of the Borrower's Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; provided that, so long as no Default has occurred and is continuing, the Borrower shall not be required to furnish Adjusted Financial Statements for any fiscal quarter if all Unrestricted Subsidiaries of the Borrower (other than any such Unrestricted Subsidiaries that are already treated as equity investments on the Borrower's financial statements) on a combined basis would not have constituted a Material Subsidiary of the Borrower for such fiscal quarter;
(3) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 6.01, 6.02, 6.03 and 6.08 and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;
(4) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the SEC or with any national securities exchange, or distributed by the Borrower or any of its Subsidiaries to its security holders generally, as the case may be (other than registration statements on Form S-8, filings under Sections 16(a) or 13(d) of the Exchange Act and routine filings related to employee benefit plans); and
(5) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request (it being understood that the Borrower shall not be required to provide any information or documents which are subject to confidentiality provisions the nature of which prohibit such disclosure).
Information required to be delivered pursuant to paragraphs
(a), (b) and (d) shall be deemed to have been delivered on the date on which the
Borrower provides notice to the Administrative Agent that such information has
been posted on the Borrower's website on the internet at the website address
listed on the signature pages of such notice, at www.sec.gov or at another
website identified in such notice and accessible by the Lenders without charge;
provided that the Borrower shall deliver paper copies of the reports and
financial statements referred to in paragraphs (a), (b) and (d) of this Section
5.01 to the Administrative Agent or any Lender who requests the Borrower to
deliver such paper copies until written notice to cease delivering paper copies
is given by the Administrative Agent or such Lender.
(b) Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following, upon any such event becoming known to any Responsible Officer of the Borrower:
(1) the occurrence of any Default;
(2) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;
(3) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $100,000,000; and
(4) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
(c) Existence; Conduct of Business. The Borrower will, and will cause each of its Restricted Subsidiaries which are Material Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.04.
(d) Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.
(e) Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Restricted Subsidiaries to, (a) keep and maintain all property material to the conduct of its business (taken as a whole) in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations (it being understood that, to the extent consistent with prudent business practice, a program of self-insurance for first or other loss layers may be utilized).
(f) Books and Records; Inspection Rights. The Borrower will, and will cause each of its Restricted Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Restricted Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine its books and records, and to discuss its affairs, finances and condition with its officers and, so long as a representative of the Borrower is present, or the Borrower has consented to the absence of such a representative, independent accountants (in each case subject to the Borrower's or its Restricted Subsidiaries' obligations
under applicable confidentiality provisions), all at such reasonable times and as often as reasonably requested.
(g) Compliance with Laws. The Borrower will, and will cause each of its Restricted Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
(h) Use of Proceeds. The proceeds of the Loans will be used only for general corporate purposes, including commercial paper backup. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X.
(i) Fiscal Periods; Accounting.
The Borrower will keep the same financial reporting periods as are in effect on the date hereof.
6.
Negative Covenants
Until the Commitments have expired or terminated and the principal of and interest on each Loan, all fees payable hereunder and all other Obligations have been paid in full (but with respect to such other Obligations only to the extent that actual amounts hereunder are owing at the time the Loans, together with interest and fees, have been paid in full), the Borrower covenants and agrees with the Lenders that:
(a) Financial Covenants.
(1) The Consolidated Leverage Ratio of the Borrower and its Restricted Subsidiaries as of the last day of any fiscal quarter of the Borrower (commencing with the first fiscal quarter ending after the Effective Date) will not exceed 4.50 to 1.00.
(2) The Consolidated Net Worth of the Borrower at any time will not be less than $125,000,000,000.
(b) Indebtedness.
(1) The Borrower will not permit any of its Restricted Subsidiaries (other than (i) a Credit Party or (ii) TWE and the consolidated Subsidiaries of TWE) to, create, incur, assume or permit to exist any Indebtedness, except:
(i) with respect to all such Restricted Subsidiaries that are also Subsidiaries of Time Warner, Indebtedness of up to an aggregate principal amount of $650,000,000 at any one time outstanding;
(B) with respect to all such Restricted Subsidiaries that are also Subsidiaries of America Online, Indebtedness of up to an aggregate principal amount of $350,000,000 at any one time outstanding;
(C) Indebtedness of any such Restricted Subsidiary to the Borrower or any Subsidiary;
(D) Guarantee Obligations of any such Restricted Subsidiary with respect to Indebtedness of the Borrower or any wholly owned Restricted Subsidiary;
(E) Indebtedness of any such Restricted Subsidiary incurred to finance the acquisition, construction or improvement of any property, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such property or secured by a Lien on any such property prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided that the aggregate principal amount of Indebtedness permitted by this clause (v) with respect to any such property shall not exceed 110% of the purchase price for, or the cost of construction or improvement of, such property;
(F) Indebtedness of any Person that becomes a Restricted Subsidiary after the date hereof; provided that (x) such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (y) such Indebtedness does not, directly or indirectly, have recourse (including by way of setoff) to the Borrower or any of its Restricted Subsidiaries or any asset thereof other than to the Person so acquired and its Subsidiaries and the assets of the Person so acquired and its Subsidiaries; and
(G) Film Financings.
Option 2. The Borrower will not permit TWE or any of its consolidated Subsidiaries to create, incur or assume any Indebtedness unless, after giving effect to the creation, incurrence or assumption of such Indebtedness, the Consolidated Leverage Ratio of TWE will not exceed (i) at any time when 95% or more of the Capital Stock of TWE is, directly or indirectly, owned (beneficially or of record) or held by the Borrower, 4.50 to 1.00 and (ii) at any other time, 5.00 to 1.00; provided, that once TWE becomes a Guarantor this paragraph 6.02(b) shall cease to apply.
(c) Liens. The Borrower will not, and will not permit any of its Restricted Subsidiaries, to create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, except:
(1) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof; provided, that such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewal and replacements thereof that do not increase the outstanding principal amount thereof and such Liens do not secure an aggregate principal amount of Indebtedness in excess of $100,000,000 or apply to property or assets of the Borrower and its Restricted Subsidiaries in excess of $100,000,000;
(2) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time
such
Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;
(3) Liens on property acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness permitted by clause (v) of Section 6.02, (ii) the Indebtedness secured thereby does not exceed 110% of the cost of acquiring, constructing or improving such property and (iii) such security interests shall not apply to any other property or assets of the Borrower or any of its Subsidiaries;
(4) Liens to secure Film Financings; provided that such Liens shall extend only to the property or assets acquired with such Film Financing;
(5) Liens on Capital Stock of Time Warner and proceeds therefrom securing Stock Option Loans to the extent contemplated by the definition thereof;
(6) any Copyright Liens securing obligations specified in the definition thereof;
(7) Liens securing Indebtedness of the Borrower or any Restricted Subsidiary and owing to such Borrower or to a Restricted Subsidiary of such Borrower;
(8) Liens on interests in or investments in any Unrestricted Subsidiary or in any other Person that is not a Subsidiary of the Borrower securing Indebtedness of such Unrestricted Subsidiary or such other Person;
(9) Liens for taxes, assessments or governmental charges or levies not yet due and payable or which are being contested in good faith by appropriate proceedings;
(10) Liens incidental to the ordinary conduct of the Borrower's business or the ownership of its assets which were not incurred in connection with the borrowing of money, such as carrier's, warehousemen's, materialmen's, landlord's and mechanic's liens, and which do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the ordinary course of its business; and
(11) other Liens in respect of property or assets of the Borrower or any Restricted Subsidiary so long as at the time of the securing of any obligations related thereto, the aggregate principal amount of all such secured obligations does not exceed 5% of the Consolidated Total Assets of the Borrower
at such time (it being understood that any Lien permitted under any other clause in this Section 6.03 shall not be included in the computation described in this paragraph).
(d) Mergers, Etc. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or a substantial portion of the Borrower's consolidated assets, or all or a substantial portion of the stock of all of its Restricted Subsidiaries, taken as a whole (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, unless (a) at the time thereof and immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing and (b) after giving effect to any such transaction, the business, taken as a whole, of the Borrower and its Restricted Subsidiaries shall not have been altered in a fundamental and substantial manner from that conducted by them, taken as a whole, immediately prior to the Effective Date, provided that (i) the Borrower shall not merge into or consolidate with such other Person, unless the Borrower shall survive such consolidation or merger, and (ii) the Borrower shall not liquidate or dissolve or permit any Guarantor to liquidate or dissolve except into the Borrower or another Guarantor.
(e) Investments. The Borrower will not, and will not cause or permit any of its Restricted Subsidiaries to, make any Investment (other than any Investment in the ordinary course of the operation of its business) if, before or after giving effect to the commitment thereto on a pro forma basis, a Default shall have occurred and be continuing.
SECTION 1.02. Restricted Payments. The Borrower will not
declare or make, or agree to pay or make, directly or indirectly, any Restricted
Payment, except the Borrower may (a) declare and pay dividends with respect to
its capital stock payable solely in additional shares of its common stock and
(b) make Restricted Payments so long as after giving effect to the making of
such Restricted Payment, no Default shall have occurred and be continuing on a
pro forma basis.
(f) Transactions with Affiliates. The Borrower will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into any material transaction with any of its Affiliates, except (a)
transactions entered into prior to the date hereof or contemplated by any
agreement entered into prior to the date hereof, (b) in the ordinary course of
business or at prices and on terms and conditions not less favorable to the
Borrower or such Subsidiary than could be obtained on an arm's-length basis
from unrelated third parties, (c) transactions between or among the Borrower
and its Restricted Subsidiaries or between or among Restricted Subsidiaries,
(d) any arrangements with officers, directors, representatives or other
employees of the Borrower and its Subsidiaries relating specifically to
employment as such and (e) transactions that are otherwise permitted by this
Agreement.
(g) Unrestricted Subsidiaries. (a) Schedule 6.08 sets forth those
Subsidiaries (other than a Guarantor) of the Borrower that have been designated
as Unrestricted Subsidiaries as of the date hereof. The Borrower may designate
any other of its Subsidiaries (other than a Guarantor) as Unrestricted
Subsidiaries from time to time in compliance with the provisions of this
Section 6.08. The Borrower will not designate any of its Subsidiaries as an
Unrestricted Subsidiary
unless (i) such Subsidiary is designated as an Unrestricted Subsidiary within 90 days of the time it becomes a Subsidiary; and (ii) at the time such Subsidiary is designated as an Unrestricted Subsidiary, before and after giving effect to such designation on a pro forma basis, no Default shall have occurred and be continuing, as shown in an Officers' Certificate delivered to the Administrative Agent at the time of such designation. Such Officers' Certificate shall also state the specific purpose for which such designation is being made. All Subsidiaries of Unrestricted Subsidiaries shall be Unrestricted Subsidiaries.
Option 1. The Borrower will not designate or re-designate any Unrestricted Subsidiary as a Restricted Subsidiary, unless at the time such Unrestricted Subsidiary is so designated or re-designated as a Restricted Subsidiary, before and after giving effect to such designation or re-designation on a pro forma basis, no Default shall have occurred and be continuing, as shown in an Officer's Certificate delivered to the Administrative Agent at the time of such designation or re-designation.
7.
Events of Default
If any of the following events ("Events of Default") shall occur:
(1) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;
(2) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five days;
(3) any representation or warranty made or deemed made by or on behalf of any Credit Party in any Credit Document or any amendment or modification thereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Credit Document or any amendment or modification thereof, shall prove to have been incorrect in any material respect when made or deemed made;
(4) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02 or
5.03 (with respect to the Borrower's existence) or in Article
VI;
(5) any Credit Party shall fail to observe or perform
any covenant, condition or agreement contained in the Credit
Documents (other than those specified in clause (a), (b) or
(d) of this Article), and such failure shall continue
unremedied for a period of 30 days after notice thereof from
the Administrative Agent (given at the request of any Lender)
to the Borrower;
(6) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any
Material Indebtedness, when and as the same shall become due and payable after giving effect to any applicable grace periods;
(7) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (after giving effect to any applicable grade periods) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness;
(8) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Material Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
(9) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Material Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;
(10) the Borrower or any Material Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due;
(11) one or more judgments for the payment of money in an aggregate amount in excess of $100,000,000 shall be rendered against the Borrower, any Material Subsidiary or any combination thereof or any action shall be legally taken by a judgment creditor (whose liquidated judgment, along with those of any other judgment creditor's, exceeds $100,000,000) to attach or levy upon any assets of the Borrower or any Material Subsidiary to enforce any such judgment, and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed, vacated or bonded pending appeal;
(12) an ERISA Event shall have occurred that, when taken together with all other ERISA Events (with respect to which the Borrower has a liability which has not yet been satisfied) that have occurred, could, reasonably be expected to result in a Material Adverse Effect;
(13) except as otherwise permitted by this Agreement, any of the Guarantees shall cease, for any reason, to be in full force and effect or any Credit Party shall so assert; or
(14) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.
8.
The Agents
Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto.
Each bank serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent hereunder.
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders (or, if so specified by this Agreement, all the Lenders), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or, if so specified by this Agreement, all the Lenders) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Credit Document, (ii) the contents of any certificate, report or other document delivered under any Credit Document or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in the Credit Document, (iv) the validity, enforceability, effectiveness or genuineness of any Credit Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor which, so long as no Event of Default is continuing, shall be reasonably acceptable to the Borrower. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.
The Lenders agree to indemnify each Agent in its capacity as
such (to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their Commitments in
effect (or at any time after the Commitments have terminated, their Revolving
Credit Exposure) on the date on which indemnification is sought under this
Section (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full,
ratably in accordance with their Commitments (or, if the Commitments have
terminated earlier, their Revolving Credit Exposures) immediately prior to such
date), from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever that may at any time (whether before or after the payment of the
Loans) be imposed on, incurred by or asserted against such Agent in any way
relating to or arising out of, the Commitments, this Agreement, any of the other
Credit Documents or any documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by such Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements that are found by a final and
nonappealable decision of a court of competent jurisdiction to have resulted
from such Agent's gross negligence or willful misconduct. The agreements in
this Section shall survive the payment of the Loans and all other amounts
payable hereunder.
Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder.
Neither the Documentation Agent nor either Co-Syndication Agent shall have any duties or responsibilities hereunder in its capacity as such.
9.
Miscellaneous
(a) Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:
(1) if to the Borrower, to it at 75 Rockefeller Plaza, New York, New York 10019, Attention of Chief Financial Officer, (Telecopy No. (212) 405-5213), with copies to its General Counsel (Telecopy No. (212) 258-3172);
(2) if to the Administrative Agent, to The Chase Manhattan Bank, Agent Bank Services Group, One Chase Manhattan Plaza, New York, New York 10080, Attention of Donna Montgomery (Telecopy No. (212) 552-5700), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of Joan Fitzgibbon (Telecopy No. (212) 270-4164);
(3) if to the Swingline Lender, to it at The Chase Manhattan Bank, Agent Bank Services Group, One Chase Manhattan Plaza, New York, New York 10080, Attention of Donna Montgomery (Telecopy No. (212) 552-5700); and
(4) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.
(b) Waivers; Amendments. (b) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time.
Option 1. Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any
Lender without the written consent of such Lender, (ii) reduce the principal
amount of any Loan or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any
Loan, or any interest thereon, or any fees payable hereunder, or reduce the
amount of, waive or excuse any such payment, or postpone the scheduled date of
expiration of any Commitment, without the written consent of each Lender
affected thereby, (iv) change Section 2.16(b) or (c) in a manner that would
alter the pro rata sharing of payments required thereby, without the written
consent of each Lender, (v) release any material Guarantor without the written
consent of each Lender, or (vi) change any of the provisions of this Section or
the definition of "Required Lenders" or any other provision hereof specifying
the number or percentage of Lenders required to waive, amend or modify any
rights hereunder or make any determination or grant any consent hereunder,
without the written consent of each Lender; provided further that no such
agreement shall amend, modify or otherwise affect the rights or duties of
the Administrative Agent or the Swingline Lender hereunder without the prior
written consent of the Administrative Agent or the Swingline Lender,
as the case may be.
(c) Expenses; Indemnity; Damage Waiver. (c) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Credit Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with any Credit Document, including its rights under this Section, or in connection with the Loans made hereunder, including in connection with any workout, restructuring or negotiations in respect thereof.
Option 1. The Borrower shall indemnify each Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Credit Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses resulted from the gross negligence or willful misconduct of such Indemnitee.
Option 2. To the extent that the Borrower fails to pay any amount required to be
paid by it to the Administrative Agent or the Swingline Lender under paragraph
(a) or (b) of this Section, each Lender severally agrees to pay to the
Administrative Agent or the Swingline Lender, as the case may be, such Lender's
Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent or the Swingline Lender in its capacity as
such.
Option 3. To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof.
Option 4. All amounts due under this Section shall be payable promptly after written demand therefor.
(d) Successors and Assigns. (d) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender except in accordance with Section 6.04 (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
Option 1. Any Lender other than a Conduit Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or a Lender Affiliate, each of the Borrower and the Administrative Agent (and, in the case of an assignment of all or a portion of a Commitment or any Lender's obligations in respect of its Swingline Exposure and the Swingline Lender) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (iv) except in the case of an assignment to an Affiliate of the Assigning Lender on or about the Effective Date, the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Upon acceptance and recording pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall (i) continue to be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 9.03) and (ii) continue to be subject to the confidentiality provisions hereof. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. Notwithstanding the foregoing, any Conduit Lender may assign at any time to its designating Lender hereunder without the consent of the Borrower or the Administrative Agent any or all of the Loans it may have funded hereunder and pursuant to its designation agreement and without regard to the limitations set forth in the first sentence of this Section.
Option 2. The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.
Option 3. Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
Option 4. Any Lender other than a Conduit Lender may, without the consent of the Borrower, the Administrative Agent or the Swingline Lender, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the first proviso to
Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this
Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section.
Option 5. A Participant shall not be entitled to receive any greater payment under Section 2.13 or 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.15(f) as though it were a Lender.
Option 6. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any such pledge or assignment to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto.
Option 7. The Borrower, upon receipt of written notice from the relevant Lender, agrees to issue Notes to any Lender requiring Notes to facilitate transactions of the type described in paragraph (f) above.
Option 8. Each of the Borrower, each Lender and the Administrative Agent hereby confirms that it will not institute against a Conduit Lender or join any other Person in instituting against a Conduit Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Conduit Lender; provided, however, that each Lender designating any Conduit Lender hereby agrees to indemnify, save and hold harmless each other party hereto for any loss, cost, damage or expense arising out of its inability to institute such a proceeding against such Conduit Lender during such period of forbearance.
(e) Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under
this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof.
(f) Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.
(g) Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
(h) Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.
(i) Governing Law; Jurisdiction; Consent to Service of Process. (e) This Agreement shall be construed in accordance with and governed by the law of the State of New York.
Option 1. The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction.
Option 2. The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
Option 3. Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
(j) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
(k) Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
(l) Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, provided that in connection with any such requirement by a subpoena or similar legal process, the Borrower is given prior notice to the extent such prior notice is permissible under the circumstances and an opportunity to object to such disclosure, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an express agreement for the benefit of the Borrower containing provisions substantially the same
as those of this Section, to any (i) assignee (or Conduit Lender) of or
Participant in, or any prospective assignee (or Conduit Lender) of or
Participant in, any of its rights or obligations under this Agreement or
(ii) hedging agreement counterparty (or such contractual counterparty's
professional advisor), (g) with the consent of the Borrower or (h) to the
extent such Information (i) becomes publicly available other than as a result
of a breach of this Section or (ii) becomes available to the Administrative
Agent or any Lender on a nonconfidential basis from a source other than the
Borrower. For the purposes of this Section, "Information" means all information
received from the Borrower, whether oral or written, relating to the Borrower
or its business, other than any such information that is available to the
Administrative Agent or any Lender on a nonconfidential basis prior to
disclosure by the Borrower; provided that, in the case of information received
from the Borrower after the date hereof, such information is clearly identified
at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information, including in accordance
with Regulation FD as promulgated by the SEC.
(m) Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Credit Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Credit Documents, and the relationship between Administrative Agent and Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Credit Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower and the Lenders.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
AOL TIME WARNER INC.
By /s/ Raymond G. Murphy
--------------------------
Name: Raymond G. Murphy
Title: Vice President and Treasurer
|
ABN AMRO BANK N.V.., individually and
as Documentation Agent.
By: /s/ David C. Carrington
------------------------------------
Name: David C. Carrington
Title: Group Vice President
By: /s/ Thomas Rogers
-----------------------------------
Name: Thomas Rogers
Title: Group Vice President
|
THE CHASE MANHATTAN BANK,
individually and as Administration Agent
By: /s/ Tracey Navin Ewing
------------------------------------
Name: Tracey Navin Ewing
Title: Vice President
|
BANCA COMMERCIALE ITALIANA-
NEW YORK BRANCH
By: /s/ Charles Dougherty
-------------------------------
Name: Charles Dougherty
Title: Vice President
By: /s/ Frank Maffei
-------------------------------
Name: Frank Maffei
Title: Vice President
|
BANK OF AMERICA, N.A., individually
and as Co-Syndication Agent
By: /s/ Sean W. Cassidy
-------------------------------
Name: Sean W. Cassidy
Title: Principal
|
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By: /s/ Eugene J. Nostrame
------------------------------
Name: Eugene J. Nostrame
Title: Attorney-In-Fact
|
THE BANK OF NOVA SCOTIA
By: /s/ Vincent J. Fitzgerald, Jr.
-------------------------------
Name: Vincent J. Fitzgerald, Jr.
Title: Authorized Signatory
|
BARCLAYS BANK PLC
By: /s/ Daniele Iacovone
-------------------------------
Name: Daniele Iacovone
Title: Director
|
BAYERISCHE LANDESBANK
GIROZENTRALE, CAYMAN ISLANDS BRANCH
By: /s/ Hereward Drummond
-------------------------------
Name: Hereward Drummond
Title: Senior Vice President
By: /s/ James H. Boyle
-------------------------------
Name: James H. Boyle
Title: Vice President
|
BNP PARIBAS
By: /s/ Nuala Marley
------------------------------
Name: Nuala Marley
Title: Director
By: /s/ Todd Rodgers
------------------------------
Name: Todd Rodgers
Title: Associate
|
CITIBANK, N.A., individually and as Co-
Syndication Agent
By: /s/ Julio Ojea Quintana
-----------------------------------
Name: Julio Ojea Quintana
Title: Vice President
|
COMMERZBANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By: /s/ Robert Donohue
-----------------------------
Name: Robert Donohue
Title: Senior Vice President
By: /s/ Peter Doyle
-----------------------------
Name: Peter Doyle
Title: Vice President
|
CREDIT SUISSE FIRST BOSTON
By: /s/ Kristin Lepri
----------------------------
Name: Kristin Lepri
Title: Associate
By: /s/ David L. Sawyer
----------------------------
Name: David L. Sawyer
Title: Vice President
|
THE DAI-ICHI KANGYO BANK, LTD.
(d/b/a Mizuho Financial Group)
By: /s/ Daniel Guevara
----------------------------
Name: Daniel Guevara
Title: Vice President
|
DEUTSCHE BANK AG NEW YORK
BRANCH AND/OR CAYMAN ISLANDS BRANCH
By: /s/ William W. McGinty
--------------------------------
Name: William W. McGinty
Title: Director
By: /s/ Irene Egues
--------------------------------
Name: Irene Egues
Title: Vice President
|
DRESDNER BANK AG, NEW YORK and GRAND
CAYMAN BRANCHES
By: /s/ William E. Lambert
---------------------------------
Name: William E. Lambert
Title: Vice President
By: /s/ Brian E. Haughney
---------------------------------
Name: Brian E. Haughney
Title: Assistant Vice President
|
FLEET NATIONAL BANK
By: /s/ Sue Anderson
------------------------------
Name: Sue Anderson
Title: Director
|
THE FUJI BANK, LIMITED
(d/b/a Mizuho Financial Group)
By: /s/ John D. Doyle
---------------------------------
Name: John D. Doyle
Title: Vice President & Manager
|
ING BANK N.V.
By: /s/ Michael Fenlon
---------------------------------
Name: Michael Fenlon
Title: Manager
By: /s/ Peter Nabney
---------------------------------
Name: Peter Nabney
Title: Country Manager
|
HSBC BANK USA
By: /s/ Johan Sorensson
---------------------------------
Name: Johan Sorensson
Title: First Vice President
|
LEHMAN COMMERCIAL PAPER INC.
By: /s/ G. Andrew Keith
---------------------------------
Name: G. Andrew Keith
Title: Authorized Signatory
|
LLOYDS TSB BANK PLC
By: /s/ Windsor R. Davies
-----------------------------------------
Name: Windsor R. Davies
Title: Director, Corporate Banking, USA
By: /s/ Michael J. Gilligan
-----------------------------------------
Name: Michael J. Gilligan
Title: Director, Financial Institutions,
USA
|
MERRILL LYNCH BANK USA
By: /s/ D. Kevin Imlay
---------------------------------
Name: D. Kevin Imlay
Title: Senior Lending Officer
|
NATIONAL AUSTRALIA BANK
LIMITED, A.C.N. 004044937
By: /s/ Eduardo Salazar
---------------------------------
Name: Eduardo Salazar
Title: Sector Head, Media &
Entertainment
|
NORDDEUTSCHE LANDESBANK
GIROZENTRALE NEW YORK BRANCH
and /or CAYMAN ISLANDS BRANCH
By: /s/ Stephen K. Hunter
---------------------------------------
Name: Stephen K. Hunter
Title: Senior Vice President & Deputy
General Manager
By: /s/ Stephanie Finnen
---------------------------------------
Name: Stephanie Finnen
Title: Vice President
|
SUMITOMO MITSUI BANKING CORPORATION
By: /s/ Peter R. C. Knight
---------------------------------
Name: Peter R. C. Knight
Title: Senior Vice President
|
SUNTRUST BANK
By: /s/ Thomas C. Palmer
---------------------------------
Name: Thomas C. Palmer
Title: Director
|
THE SANWA BANK, LIMITED, NEW
YORK BRANCH
By: /s/ Joseph E. Leo
---------------------------------
Name: Joseph E. Leo
Title: Vice President and Area Manager
|
THE ROYAL BANK OF SCOTLAND PLC
By: /s/ Lee Morse
---------------------------------
Name: Lee Morse
Title: Vice President
|
WACHOVIA BANK, N.A.
By: /s/ Charles D. Barham, III
---------------------------------
Name: Charles D. Barham, III
Title: Vice President
|
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By: /s/ Pascal Kabemba
---------------------------------
Name: Pascal Kabemba
Title: Associate Director
By: /s/ Lucie L. Guernsey
---------------------------------
Name: Lucie L. Guernsey
Title: Director
|
FORM OF GUARANTEE
GUARANTEE, dated as of April 6, 2001, made by AMERICA ONLINE, INC., a Delaware corporation, TIME WARNER INC., a Delaware Corporation, TURNER BROADCASTING SYSTEM, INC., a Georgia corporation, TIME WARNER COMPANIES, INC., a Delaware corporation, and TWI CABLE INC., a Delaware corporation (each, a "Guarantor", and collectively, the "Guarantors"), in favor of THE CHASE MANHATTAN BANK, as administrative agent (in such capacity, the "Administrative Agent") for the lenders (the "Lenders") parties to the Credit Agreement, dated as of April 6, 2001 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among AOL Time Warner Inc., (the "Borrower"), the Lenders, Citibank, N.A. and Bank of America, N.A., as co-syndication agents, ABN Amro, N.V., as documentation agent, and the Administrative Agent.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans to the Borrower upon the terms and subject to the conditions set forth therein;
WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective Loans to the Borrower under the Credit Agreement that the Guarantors shall have executed and delivered this Guarantee to the Administrative Agent for the ratable benefit of the Lenders; and
WHEREAS, each Guarantor is an affiliate of the Borrower, and it is to the advantage of each Guarantor that the Lenders make the Loans to the Borrower.
NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective loans to the Borrower under the Credit Agreement, each Guarantor hereby agrees with the Administrative Agent, for the ratable benefit of the Lenders, as follows:
10. Defined Terms. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
(b) As used herein, "Obligations" means the collective reference to the unpaid principal of and interest on the Loans and all other obligations and liabilities of the Borrower to the Administrative Agent and the Lenders (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or
to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement or any other Credit Document, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by the Borrower pursuant to the terms of the Credit Agreement or any other Credit Document).
(c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and section and paragraph references are to this Guarantee unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.
11. Guarantee. (a) Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.
(b) This Guarantee shall remain in full force and effect until the Obligations are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto the Borrower may be free from any Obligations.
(c) Each Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to the Administrative Agent or any Lender on account of its liability hereunder, it will notify the Administrative Agent and such Lender in writing that such payment is made under this Guarantee for such purpose.
(d) Anything herein or in any other Credit Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Credit Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 3).
(e) No payment or payments made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from the Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any setoff or appropriation or payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder who shall, notwithstanding any such payment or payments (other than payments made by such Guarantor in respect of the Obligations or payments received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of such Guarantor hereunder until the Obligations are paid in full and the Commitments are terminated.
12. Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder who has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 5 hereof. The provisions of this Section shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the Lenders, and each Guarantor shall remain liable to the Administrative Agent and the Lenders for the full amount guaranteed by such Guarantor hereunder.
13. Right of Setoff. Each Guarantor hereby authorizes each Lender at any time and from time to time when any amounts owed by the Borrower under the Credit Agreement are due and payable and have not been paid (taking into account any applicable grace periods), to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final), at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of such Guarantor against any of and all of the obligations of such Guarantor to such Lender hereunder now or hereafter existing under the Credit Agreement or any other Credit Document whether or not such Lender has made any demand for payment. Each Lender shall notify such Guarantor promptly of any such setoff and the application made by such Lender of the proceeds thereof; provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this paragraph are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.
14. No Subrogation. Notwithstanding any payment or payments made by any Guarantor hereunder, or any setoff or application of funds of any Guarantor by any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against the Borrower or against any collateral security or guarantee or right of offset held by the Administrative Agent or any Lender for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower in respect of payments made by such Guarantor hereunder, until all amounts owing to the Administrative Agent and the Lenders by the Borrower on account of the Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine.
15. Amendments, etc. with Respect to the Obligations; Waiver of Rights.
Each Guarantor shall remain obligated hereunder notwithstanding that, without
any reservation of rights against any Guarantor, and without notice to or
further assent by any Guarantor, (a) any demand for payment of any of the
Obligations made by the Administrative Agent or any Lender may be rescinded by
the Administrative Agent or such Lender, and any of the Obligations continued,
(b) the Obligations, or the liability of any other Person upon or for any part
thereof, or
any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, (c) the Credit Agreement and any other Credit Document may be amended, modified, supplemented or terminated, in whole or in part, and (d) any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any Lender for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Guarantee or any property subject thereto.
16. Guarantee Absolute and Unconditional. Each Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Administrative Agent or
any Lender upon this Guarantee or acceptance of this Guarantee; the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred, or renewed, extended, amended or waived, in reliance upon this
Guarantee; and all dealings between the Borrower or any of the Guarantors, on
the one hand, and the Administrative Agent and the Lenders, on the other, shall
likewise be conclusively presumed to have been had or consummated in reliance
upon this Guarantee. Each Guarantor waives diligence, presentment, protest,
demand for payment and notice of default or nonpayment to or upon the Borrower
or any Guarantor with respect to the Obligations. This Guarantee shall be
construed as a continuing, absolute and unconditional guarantee of payment
without regard to (a) the validity, regularity or enforceability of the Credit
Agreement or any other Credit Document, any of the Obligations or any other
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Administrative Agent or any
Lender, (b) any defense, setoff or counterclaim (other than a defense of payment
or performance) which may at any time be available to or be asserted by the
Borrower or any other Person against the Administrative Agent or any Lender, or
(c) any other circumstance whatsoever (with or without notice to or knowledge of
the Borrower or any Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower from the
Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any
other instance. When making a demand hereunder or otherwise pursuing its rights
and remedies hereunder against any Guarantor, the Administrative Agent and any
Lender may, but shall be under no obligation to, make a similar demand on or
otherwise pursue such rights and remedies as it may have against the Borrower,
any other Guarantor or any other Person or against any collateral security or
guarantee for the Obligations or any right of offset with respect thereto, and
any failure by the Administrative Agent or any Lender to make any such demand,
to pursue such other rights or remedies or to collect any payments from the
Borrower, any such other Guarantor or any such other Person or to realize upon
any such collateral security or guarantee or to exercise any such right of
offset, or any release of the Borrower, any such other Guarantor or any such
other Person or of any such collateral security, guarantee or right of offset,
shall not relieve any Guarantor of any liability hereunder, and shall not
impair or affect the rights and remedies, whether express, implied or available
as a matter of law, of the Administrative Agent or any Lender against any
Guarantor. For the purposes hereof "demand" shall include the commencement and
continuance of any legal proceedings.
17. Reinstatement. This Guarantee shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or
must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any substantial part of its property, or otherwise, all as though such payments had not been made.
18. Payments. Each Guarantor hereby agrees that the Obligations will be paid to the Administrative Agent without setoff or counterclaim in U.S. dollars at the office of the Administrative Agent located at 270 Park Avenue, New York, New York 10017.
19. Representations and Warranties. To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Guarantor hereby represents and warrants to the Administrative Agent and each Lender that the representations and warranties set forth in Article III of the Credit Agreement (other than those set forth in Sections 3.04(c) and 3.06(a) on any date other than the Effective Date) as they relate to such Guarantor or to the Credit Documents to which such Guarantor is a party, each of which is hereby incorporated herein by reference, are true and correct, and the Administrative Agent and each Lender shall be entitled to rely on each of them as if they were fully set forth herein (it being understood that any representation or warranty set forth in Article III of the Credit Agreement that is qualified by a reference to the Borrower and its Subsidiaries taken as a whole shall not be deemed to apply to the Guarantor individually).
The Guarantors agree that the foregoing representation and warranty shall be deemed to have been made by each Guarantor and shall be true and correct in all material respects on the date of each borrowing by the Borrower under the Credit Agreement on and as of such date of borrowing as though made hereunder on and as of such date.
20. Authority of Administrative Agent. Each Guarantor acknowledges that the rights and responsibilities of the Administrative Agent under this Guarantee with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guarantee shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and any or all of the Guarantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and no Guarantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority.
21. Notices. All notices, requests and demands to or upon the Administrative Agent, any Lender or any Guarantor shall be effected in the manner provided in Section 9.01 of the Credit Agreement; any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 1 hereto.
22. Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
23. Integration. This Guarantee and the other Credit Documents represent the agreement of each Guarantor with respect to the subject matter hereof and there are no promises or representations by the Guarantor, the Administrative Agent or any Lender relative to the subject matter hereof not reflected herein or in the other Credit Documents.
24. Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the applicable Guarantor and the Administrative Agent, provided that any right, power or privilege of the Administrative Agent or the Lenders arising under this Guarantee may be waived by the Administrative Agent and the Lenders in a letter or agreement executed by the Administrative Agent; provided, further, that no such amendment or waiver shall release any material Guarantor from their obligations hereunder without the written consent of each Lender.
25. No Waiver; Cumulative Remedies. Neither the Administrative Agent nor any Lender shall by any act (except by a written instrument pursuant to paragraph 15 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.
26. Section Headings. The section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.
27. Successors and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Administrative Agent and the Lenders and their successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Administrative Agent.
28. Enforcement Expenses. Each Guarantor agrees, jointly and severally, to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in collecting against such Guarantor under this Guarantee or otherwise enforcing or protecting any rights under this Guarantee and the other Credit Documents to which such Guarantor is a party, including, without limitation, the fees and disbursements of counsel to each Lender and of counsel to the Administrative Agent.
29. Counterparts. This Guarantee may be executed by one or more of the Guarantors on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.
30. Acknowledgements.
Each Guarantor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of this Guarantee;
(b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any other Credit Document, and the relationship between any or all of the Guarantors, on the one hand, and the Administrative Agent and Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Credit Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Guarantors and the Lenders.
31. GOVERNING LAW. This Guarantee shall be governed by, and construed and interpreted in accordance with, the law of the State of New York.
32. Jurisdiction; Consent to Service of Process. (a) Each Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Guarantee, or for recognition or enforcement of any judgment, and each Guarantor hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Guarantee shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Guarantee against any Guarantor or its properties in the courts of any jurisdiction.
(b) Each Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Guarantee in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(c) Each Guarantor irrevocably consents to service of process in the manner provided for notices in Section 12 of this Guarantee. Nothing in this Guarantee will affect the right of any party to this Guarantee to serve process in any other manner permitted by law.
33. WAIVER OF JURY TRIAL. EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly executed and delivered by its duly authorized officer as of the day and year first above written.
AMERICA ONLINE, INC.
By:_________________________________
Name:
Title:
TIME WARNER INC.
By:_________________________________
Name:
Title:
TURNER BROADCASTING SYSTEM, INC.
By:_________________________________
Name:
Title:
TIME WARNER COMPANIES, INC.
By:_________________________________
Name:
Title:
TWI CABLE INC.
By:_________________________________
Name:
Title:
Schedule I
to Guarantee
Address for Notices
AMERICA ONLINE, INC.
2200 AOL Way
Dulles, VA 20166
Attention: Chief Financial Officer
Telecopy No. 703-265-6481
Attention: General Counsel
Telecopy No. 703-265-3992
TIME WARNER INC.
75 Rockefeller Plaza
New York, NY 10019
Attention: Treasurer
Telecopy No. 212-258-3020
Attention: General Counsel
Telecopy No. 212-258-3172
TURNER BROADCASTING SYSTEM, INC.
1 CNN Center
Atlanta, GA 30348
Attention: Chief Financial Officer
Telecopy No. 404-827-4069
Attention: General Counsel
Telecopy No. 404-827-2381
TIME WARNER COMPANIES, INC.
75 Rockefeller Plaza
New York, NY 10019
Attention: Treasurer
Telecopy No. 212-258-3020
Attention: General Counsel
Telecopy No. 212-258-3172
TWI CABLE INC.
75 Rockefeller Plaza
New York, NY 10019
Attention: Treasurer
Telecopy No. 212-258-3020
Attention: General Counsel
Telecopy No. 212-258-3172
Exhibit 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT made as of March 19, 1998 effective as of January 1, 1998 (the "Effective Date"), as amended on December 2, 1998 and April 20, 2001, between TIME WARNER INC., a Delaware corporation (the "Company"), and Gerald M. Levin (the "Executive").
The Executive is currently employed by the Company pursuant to an Employment Agreement dated as of November 15, 1990, as amended by an amendment dated as of May 22, 1992 (the "Prior Agreement"). The Company wishes to restate the Prior Agreement and secure the services of the Executive on a full-time basis for an extended period to and including December 31, 2003 (the "Term Date") on and subject to the terms and conditions set forth in this Agreement, and the Executive is willing for the Prior Agreement to be so restated and to provide such services on and subject to the terms and conditions set forth in this Agreement. The parties therefore agree as follows:
1. Term of Employment. The Executive's "term of employment", as this phrase is used throughout this Agreement, shall be for the period beginning on the Effective Date and ending on the Term Date, subject, however, to the terms and conditions set forth in this Agreement. Notwithstanding the foregoing or anything to the contrary contained in this Agreement, the "term of employment", as used in Section 3.6, 3.7, 3.8 and 8 through 12 shall include the term of any Advisory Period (as defined in Section 13).
2. Employment. During the term of employment, the Company shall employ the Executive, and the Executive shall serve, as Chief Executive Officer of the Company and shall have the authority, functions, duties, powers and responsibilities normally associated with such position and as the Board of Directors of the Company may from time to time delegate to the Executive in addition thereto. The Executive shall, subject to his election as such from time to time and without additional compensation, serve during the term of employment in such additional offices of comparable or greater stature and responsibility in the Company and its subsidiaries and as a director and as a member of any committee of the Board of Directors of the Company and its subsidiaries, to which he may be elected from time to time. During the term of employment, (i) the Executive's services shall be rendered on a substantially full-time, exclusive basis and he will apply on a full-time basis all of his skill and experience to the performance of his duties in such employment, (ii) the Executive shall report only to the Company's Board of Directors; (iii) the Executive shall have no other employment and, without the prior consent of a majority of the members of the Company's Board of Directors, no outside business activities which require the devotion of substantial amounts of the Executive's time and (iv) the place for the performance of the Executive's services shall be the principal executive offices of the Company which shall be in the New York City metropolitan area, subject to such reasonable travel as may be appropriate or required in the performance of the Executive's duties in the business of the Company. The
foregoing shall be subject to the Company's written policies, as in effect from time to time, regarding vacations, holidays, illness and the like and shall not prevent the Executive from devoting such time to his personal affairs as shall not interfere with the performance of his duties hereunder, provided that the Executive complies with the provisions of Sections 9 and 10 and any of the Company's written policies on conflicts of interest and service as a director of another corporation, partnership, trust or other entity ("Entity").
The Company shall use its best efforts to cause the Executive to be a member of its Board of Directors throughout the term of employment during the term of employment and shall include him in the management slate for election during the term of employment as a director at every stockholders' meeting at which his term as a director would otherwise expire.
3. Compensation.
3.1 Base Salary. The Company shall pay or cause to be paid to the Executive a base salary of not less than $1,000,000 per annum during the term of employment (the "Base Salary"). The Company may increase, but not decrease, the Base Salary at any time and from time to time during the term of employment and upon each such increase the term "Base Salary" shall mean such increased amount. Base Salary shall be payable in monthly or more frequent installments in accordance with the Company's then current practices and policies with respect to senior executives. For the purposes of this Agreement "senior executives" shall mean the executive officers of the Company.
3.2 Intentionally left blank.
3.3 Deferred Compensation. In addition to Base Salary and bonus as set forth in Sections 3.1 and 3.2, the Executive shall be credited with a defined contribution which shall be determined and paid out on a deferred basis ("deferred compensation") as provided in this Agreement, including Annex A hereto. Unless the Executive shall make the election described in the last sentence of this Section 3.3, during the term of employment through December 31, 2000, the Company shall pay to the trustee (the "Trustee") of a Company grantor trust (the "Rabbi Trust") for credit to a special account maintained on the books of the Rabbi Trust for the Executive (the "Trust Account"), monthly, an amount equal to 50% of one-twelfth of the Executive's then current Base Salary. If a lump sum payment is made pursuant to Section 4.2.2 or 4.2.3, the Company shall pay to the Trustee for credit to the Trust Account at the time of such payment an amount equal to 50% of the Base Salary portion of such lump sum payment; provided, however, that the Executive may elect by written notice to the Company no later than the date the Executive makes the election provided for in the first paragraph of Section 4.2 to have such amount credited instead to the
Deferred Compensation Plan established by the Company on November 18, 1998, as the same may be amended from time to time (as so amended, the "Deferred Plan"). The Trust Account shall be maintained by the Trustee in accordance with the terms of this Agreement, including Annex A, and the trust agreement (the "Trust Agreement") establishing the Rabbi Trust (which Trust Agreement shall in all respects be in furtherance of, and not inconsistent with, the terms of this Agreement, including Annex A), until the full amount which the Executive is entitled to receive therefrom has been paid in full. Effective April 1, 1998, the Company shall establish and maintain the Rabbi Trust as a grantor trust within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code and shall pay all fees and expenses of the Trustee and shall enforce the provisions of the Trust Agreement for the benefit of the Executive. Prior to April 1, 1998, the Company shall credit the Executive with deferred compensation in accordance with the provisions of Section 3.3 of the Prior Agreement. The Executive may elect by written notice delivered to the Company at least 15 days prior to the commencement of any calendar year during the term of employment (except that for calendar year 1999, such election shall be made no later than January 31, 1999) to have (a) all of the payments to be made to the Rabbi Trust pursuant to the second sentence of this Section 3.3 to be credited instead to the Deferred Plan or (b) to have 50% of the payments to be made by the Company pursuant to the second sentence of this Section 3.3 to be credited instead to the Deferred Plan and the remaining 50% to be paid to the Rabbi Trust. The Company shall have no obligation to pay the Executive deferred compensation pursuant to this Section 3.3 for any period after December 31, 2000. Any deferred compensation paid to the Trust Account prior to January 1, 2001 will continue to be governed by the terms of this Section 3.3 and Annex A.
3.4 Deferred Salary and Bonus. In addition to any other deferred salary or deferred bonus plan in which the Executive may be entitled to participate, the Executive may elect by written notice delivered to the Company at least 15 days prior to the commencement of any calendar year during the term of employment (except that for calendar year 1999, such election shall be made no later than January 31, 1999), to defer payment of and to have the Company credit all or any portion of the Executive's salary and/or bonus for such year to either the Trust Account or the Deferred Plan, or a combination of both, subject in the case of a deferral to the Deferred Plan to the terms and conditions of the Deferred Plan. Any such election shall only apply to the calendar year during the term of employment with respect to which such election is made and a new election shall be required with respect to each successive calendar year during the term of employment. Notwithstanding the foregoing, the Executive hereby elects to defer payment of and have the Company pay to the Trustee for credit to the Trust Account $300,000 of the Base Salary payable to the Executive for the period beginning on the Effective Date and ending on the Term Date. The Executive may change the election provided in the preceding sentence for any calendar year by written notice delivered to the Company at least 10 days prior to the commencement of any such calendar year.
3.5 Prior Account. The parties confirm that the Company has maintained a deferred compensation account (the "Prior Account") for the Executive in accordance with the Prior Agreement. The Prior Account shall be promptly transferred to, and shall for all purposes be deemed part of, the Trust Account and shall be maintained by the Trustee in accordance with this Agreement and the Trust Agreement. All prior credits to the Prior Account shall be deemed to be credits made under this Agreement, all "Account Retained Income" thereunder shall be deemed to be Account Retained Income under this Agreement and all increases or decreases to the Prior Account as a result of income, gains, losses and other changes shall be deemed to have been made under this Agreement.
3.6 Reimbursement. The Company shall reasonably promptly pay or reimburse the Executive for all reasonable travel, entertainment and other business expenses actually incurred or paid by the Executive during the term of employment in the performance of his services under this Agreement provided such expenses are incurred or paid in accordance with the Company's then current written practices and policies with respect to senior executives of the Company and upon presentation of expense statements or vouchers or such other supporting information as the Company may customarily require of its senior executives.
3.7 No Anticipatory Assignments. Except as specifically contemplated in Section 12.8 or under the life insurance policies and benefit plans referred to in Sections 7 and 8, respectively, neither the Executive, his legal representative nor any beneficiary designated by him shall have any right, without the prior written consent of the Company, to assign, transfer, pledge, hypothecate, anticipate or commute to any person or Entity any payment due in the future pursuant to any provision of this Agreement, and any attempt to do so shall be void and shall not be recognized by the Company.
3.8 Indemnification. The Executive shall be entitled throughout the term of employment in his capacity as an officer or director of the Company or any of its subsidiaries or an officer or member of the Board of Representatives or other governing body of any partnership or joint venture in which the Company has an equity interest (and after the term of employment, to the extent relating to his service as such officer, director or member) to the benefit of the indemnification provisions contained on the date hereof in the Certificate of Incorporation and By-Laws of the Company (not including any amendments or additions after the date of execution hereof that limit or narrow, but including any that add to or broaden, the protection afforded to the Executive by those provisions), to the extent not prohibited by applicable law at the time of the assertion of any liability against the Executive.
4. Termination.
4.1 Termination for Cause. The Company may terminate the term of employment, the Advisory Period (if any) and all of the Company's obligations under this Agreement, other than its obligations set forth below in this Section 4.1, for "cause" but only if the term of employment or any Advisory Period has not previously been terminated pursuant to any other provision of this Agreement. Termination by the Company for "cause" shall mean termination by action of the Company's Board of Directors, or a committee thereof, because of the Executive's conviction (treating a nolo contendere plea as a conviction) of a felony (whether or not any right to appeal has been or may be exercised) or willful refusal without proper cause to perform his obligations under this Agreement or because of the Executive's breach of any of the covenants provided for in Section 9. Such termination shall be effected by written notice thereof delivered by the Company to the Executive and shall be effective as of the date of such notice; provided, however, that if (i) such termination is because of the Executive's willful refusal without proper cause to perform any one or more of his obligations under this Agreement, (ii) such notice is the first such notice of termination for any reason delivered by the Company to the Executive under this Section 4.1, and (iii) within 15 days following the date of such notice the Executive shall cease his refusal and shall use his best efforts to perform such obligations, the termination shall not be effective.
In the event of such termination by the Company for cause, without prejudice to any other rights or remedies that the Company may have at law or in equity, the Company shall have no further obligations to the Executive other than (i) to pay Base Salary and make credits of deferred compensation as provided in Sections 3.1 and 3.3, or to pay Advisory Period compensation, if applicable, accrued through the effective date of termination, (ii) to pay any annual bonus pursuant to Section 3.2 to the Executive in respect of the calendar year prior to the calendar year in which such termination is effective, in the event such annual bonus has been determined but not yet paid as of the date of such termination and (iii) with respect to any rights the Executive has in respect of amounts credited to the Trust Account or pursuant to any insurance or other benefit plans or arrangements of the Company maintained for the benefit of its senior executives. The Executive hereby disclaims any right to receive a pro rata portion of the Executive's annual bonus with respect to the year in which such termination occurs. The fourth sentence of Section 3.3 and the provisions of Sections 3.8, 8.2, 8.3 and 9 through 12 and Annex A shall survive any termination pursuant to this Section 4.1.
4.2 Termination by Executive for Material Breach by the Company and Termination by the Company Without Cause. Unless previously terminated pursuant to any other provision of this Agreement and unless a Disability Period shall be in effect, the
Executive shall have the right, exercisable by written notice to the Company, to terminate the term of employment or, if applicable, the Advisory Period, effective 15 days after the giving of such notice, if, at the time of the giving of such notice, the Company shall be in material breach of its obligations under this Agreement; provided, however, that, with the exception of clause (i) below, this Agreement shall not so terminate if such notice is the first such notice of termination delivered by the Executive pursuant to this Section 4.2 and within such 15-day period the Company shall have cured all such material breaches of its obligations under this Agreement. A material breach by the Company shall include, but not be limited to, (i) the Company failing to cause the Executive to retain the title specified in the first sentence of Section 2 during the term of employment; (ii) the Executive being required to report to persons other than those specified in Section 2 during the term of employment; (iii) the Company violating the provisions of Section 2 with respect to the Executive's authority, functions, duties, powers or responsibilities (whether or not accompanied by a change in title) during the term of employment; (iv) the Company requiring the Executive's primary services to be rendered at a place other than at the Company's principal executive offices in the New York City metropolitan area; and (v) the Company failing to cause the successor to all or substantially all of the business and assets of the Company expressly to assume the obligations of the Company under this Agreement.
The Company shall have the right, exercisable by written notice to the Executive, to terminate the Executive's employment under this Agreement without cause, effective at least 30 days after the giving of such notice, which notice shall specify the effective date of such termination.
In the event of a termination pursuant to this Section 4.2, the Executive shall be entitled to elect by delivery of written notice to the Company, within 30 days after written notice of such termination is given pursuant to this Section 4.2, either (A) to cease being an employee of the Company and receive a lump sum payment as provided in Section 4.2.2 or (B) to remain an employee of the Company as provided in Section 4.2.3. After the Executive makes such election, the following provisions shall apply:
4.2.1 Regardless of the election made by the Executive pursuant to the preceding paragraph, (i) after the effective date of such termination, the Executive shall have no further obligations or liabilities to the Company whatsoever, except that Sections 4.4 and 4.5 and Sections 6 through 12 shall survive such termination, and (ii) the Executive shall be entitled to receive any earned and unpaid Base Salary or Advisory Period compensation, as the case may be, accrued through the effective date of such termination.
4.2.2 In the event the Executive shall make the election provided in clause (A) above, the Company shall pay to the Executive as damages in a lump
sum within 30 days thereafter (provided that if the Executive was named in the
compensation table in the Company's then most recent proxy statement, such lump
sum payment shall be made within 30 days after the end of the calendar year in
which such notice of termination is given) an amount (discounted as provided in
the immediately following sentence) equal to (a) in the event such termination
occurs during the term of employment, all amounts otherwise payable pursuant to
Section 3.1 for the year in which such termination occurs and for each
subsequent year through the Term Date and (b) in the event such termination
occurs during the Advisory Period, all amounts otherwise payable pursuant to
Section 13 from the date of such termination through the Term Date. Any payments
required to be made to the Executive pursuant to this Section 4.2.2 upon such
termination shall be discounted to present value as of the date of payment from
the times at which such amounts would have become payable absent any such
termination at an annual discount rate for the relevant periods equal to 120% of
the "applicable Federal rate" (within the meaning of Section 1274(d) of the
Internal Revenue Code of 1986 (the "Code")), in effect on the date of such
termination, compounded semi-annually, the use of which rate is hereby elected
by the parties hereto pursuant to Treas. Reg. ss.1.280G-1 Q/A 32 (provided that,
in the event such election is not permitted under Section 280G of the Code and
the regulations thereunder, such other rate determined as of such other date as
is applicable for determining present value under Section 280G of the Code shall
be used).
4.2.3 In the event the Executive shall make the election provided in clause (B) above, the term of employment or, if applicable, the Advisory Period shall continue and the Executive shall remain an employee of the Company through the Term Date and during such period the Executive shall be entitled to receive, whether or not he becomes disabled during such period but subject to Section 6, (a) in the event such termination occurs during the term of employment, Base Salary (all or a portion of which may be deferred by the Executive pursuant to Section 3.4) at an annual rate equal to his Base Salary in effect immediately prior to the notice of termination as provided in Section 3.1 and (b) in the event such termination occurs during the Advisory Period, Advisory Period compensation as provided in Section 13. Except as provided in the next sentence, if the Executive accepts full-time employment with any other Entity during such period or notifies the Company in writing of his intention to terminate his status as an employee during such period, then the term of employment or, if applicable, the Advisory Period shall cease and the Executive shall cease to be an employee of the Company effective upon the commencement of such employment or the effective date of such termination as specified by the Executive in such notice, whichever is applicable, and the Executive shall be entitled to receive as severance in a lump sum within 30 days after such commencement or such effective date (provided that if the Executive was named in the compensation table in the Company's then most recent proxy statement, such lump sum payment shall be made within 30 days after the end of the calendar year in which such commencement or effective date occurred) an amount
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(discounted as provided in the second sentence of Section 4.2.2, except that the "applicable Federal rate" shall be determined as of the date the Executive shall cease to be an employee of the Company) for the balance of (x) the Base Salary (assuming no deferral pursuant to Section 3.4) or (y) the Advisory Period compensation, as the case may be, the Executive would have been entitled to receive pursuant to this Section 4.2.3 had the Executive remained on the Company's payroll until the Term Date. Notwithstanding the preceding sentence, if the Executive accepts employment with any charitable or not-for-profit Entity, or any family-owned corporation, trust or partnership, then the Executive shall be entitled to remain an employee of the Company and receive the payments as provided in the first sentence of this Section 4.2.3; and if the Executive accepts full-time employment with any affiliate of the Company, then the payments provided for in this Section 4.2.3 and the term of employment or, if applicable, the Advisory Period shall cease and the Executive shall not be entitled to any such lump sum payment. For purposes of this Agreement, the term "affiliate" shall mean any Entity which, directly or indirectly, controls, is controlled by, or is under common control with, the Company.
4.3 Office Facilities. In the event the Executive shall make the election provided in clause (B) of Section 4.2, then for the period beginning on the day the Executive makes such election and ending one year thereafter, the Company shall, without charge to the Executive, make available to the Executive office space at the Executive's principal job location immediately prior to his termination of employment, or other location reasonably close to such location, together with secretarial services, office facilities, services and furnishings, in each case reasonably appropriate to an employee of the Executive's position and responsibilities prior to such termination of employment but taking into account the Executive's reduced need for such office space, secretarial services and office facilities, services and furnishings as a result of the Executive no longer being a full-time employee.
4.4 Release. In partial consideration for the Company's obligation to make the payments described in Section 4.2, the Executive shall execute and deliver to the Company a release in substantially the form attached hereto as Annex B. The Company shall deliver such release to the Executive within 10 days after the written notice of termination is delivered pursuant to Section 4.2 and the Executive shall execute and deliver such release to the Company within 21 days after receipt thereof. If the Executive shall fail to execute and deliver such release to the Company within such 21 day period, or if the Executive shall revoke his consent to such release as provided therein, the Executive's term of employment shall terminate as provided in Section 4.2, but the Executive shall receive, in lieu of the payments provided for in said Section 4.2, a lump sum cash payment in an amount determined in accordance with the written personnel policies of the Company relating to notice and severance then generally applicable to employees with length of service and compensation level of the Executive.
4.5 Mitigation. In the event of termination of the term of
employment or, if applicable, the Advisory Period pursuant to Section 4.2, the
Executive shall not be required to seek other employment in order to mitigate
his damages hereunder unless Section 280G of the Code would apply to any
payments by the Company to the Executive and the Executive's failure to mitigate
would result in the Company losing tax deductions to which it would otherwise
have been entitled. In such an event, the Executive will engage in whatsoever
mitigation is necessary to preserve the Company's tax deductions. With respect
to the preceding sentences, any payments or rights to which the Executive is
entitled by reason of the termination of the term of employment and the Advisory
Period by the Executive or the Company pursuant to Section 4.2 shall be
considered as damages hereunder. Any obligation of the Executive to mitigate his
damages pursuant to this Section 4.5 shall not be a defense or offset to the
Company's obligation to pay the Executive in full the amounts provided in
Section 4.2.2 or 4.2.3, as the case may be, at the time provided therein or the
timely and full performance of any of the Company's other obligations under this
Agreement.
4.6 Payments. So long as the Executive remains on the payroll of the Company or any subsidiary of the Company, payments of salary, deferred compensation and bonus required to be made pursuant to Section 4.2 shall be made at the same times as such payments are made to senior executives of the Company or such subsidiary.
5. Disability. If during the term of employment and prior to any termination of this Agreement under Section 4.2, the Executive shall become physically or mentally disabled, whether totally or partially, so that he is prevented from performing his usual duties for a period of six consecutive months, or for shorter periods aggregating six months in any twelve-month period, the Company shall, nevertheless, continue to pay the Executive his full compensation, when otherwise due, as provided in Section 3, through the last day of the sixth consecutive month of disability or the date on which the shorter periods of disability shall have equaled a total of six months in any twelve-month period (such last day or date being referred to herein as the "Disability Date"). If the Executive has not resumed his usual duties on or prior to the Disability Date, the Company shall pay the Executive disability benefits for the period ending on the Term Date (the "Disability Period"), in an annual amount equal to 75% of the Executive's Base Salary at the time the Executive becomes disabled. If during the Disability Period the Executive shall fully recover from his disability, the Company shall have the right (exercisable within 60 days after notice from the Executive of such recovery), but not the obligation, to restore the Executive to full-time service at full compensation. If the Company elects to restore the Executive to full-time service, then this Agreement shall continue in full force and effect in all respects and the Term Date and the Advisory Period shall not be extended by virtue of the occurrence of the Disability Period. If the Company elects not to restore the Executive to full-time service, the Executive shall be entitled to obtain other employment, subject, however, to the following: (i) the Executive shall be
obligated to perform advisory services during any balance of the Disability Period; and (ii) the provisions of Sections 9 and 10 shall continue to apply to the Executive during the Disability Period. The advisory services referred to in clause (i) of the immediately preceding sentence shall consist of rendering advice concerning the business, affairs and management of the Company as requested by the Board of Directors or the Chief Executive Officer of the Company but the Executive shall not be required to devote more than five days (up to eight hours per day) each month to such services, which shall be performed at a time and place mutually convenient to both parties. Any income from such other employment shall not be applied to reduce the Company's obligations under this Agreement. The Company shall be entitled to deduct from all payments to be made to the Executive during the Disability Period pursuant to this Section 5 an amount equal to all disability payments received by the Executive during the Disability Period from Workmen's Compensation, Social Security and disability insurance policies maintained by the Company; provided, however, that for so long as, and to the extent that, proceeds paid to the Executive from such disability insurance policies are not includible in his income for federal income tax purposes, the Company's deduction with respect to such payments shall be equal to the product of (i) such payments and (ii) a fraction, the numerator of which is one and the denominator of which is one less the maximum marginal rate of federal income taxes applicable to individuals at the time of receipt of such payments. All payments made under this Section 5 after the Disability Date are intended to be disability payments, regardless of the manner in which they are computed. If a Disability Date occurs during the Advisory Period, the Company shall pay to the Executive the full amount of the Advisory Period compensation in accordance with Section 13 through the Term Date without regard to the preceding two sentences. Except as otherwise provided in this Section 5, the during the Disability Period and the Advisory Period, the Executive shall be entitled to all of the rights and benefits provided for in this Agreement, except that Section 4.2 shall not apply during the Disability Period and the term of employment or, if applicable, the Advisory Period shall end and the Executive shall cease to be an employee of the Company on the Term Date and shall not be entitled to notice and severance or to receive or be paid for any accrued vacation time or unused sabbatical.
6. Death. Upon the death of the Executive during the term of employment or, if applicable, the Advisory Period, this Agreement and all obligations of the Company to make any payments under Sections 3, 4, 5 and 13 shall terminate except that (i) the Executive's estate (or a designated beneficiary) shall be entitled to receive, to the extent being received by the Executive immediately prior to his death, Base Salary or, if applicable, Advisory Period compensation, to the last day of the month in which his death occurs and (ii) the Trust Account shall be liquidated and revalued as provided in Annex A as of the date of the Executive's death (except that all taxes shall be computed and charged to the Trust Account as of such date of death to the extent not theretofore so computed and charged) and the entire balance thereof (plus any amount due under the last paragraph of Section A.6 of
Annex A) shall be paid to the Executive's estate (or a designated beneficiary) in a single payment not later than 75 days following such date of death.
7. Life Insurance. The Company shall maintain $6,000,000 face amount of split ownership life insurance on the life of the Executive, to be owned by the Executive or the trustees of a trust for the benefit of the Executive's spouse and/or descendants. Until the death of the Executive, and irrespective of any termination of this Agreement except pursuant to Section 4.1, the Company shall pay all premiums on such policy and shall maintain such policy (without reduction of the face amount of the coverage). The Company shall not borrow from the cash value of such policy. At the death of the Executive, or on the earlier surrender of such policy by the owner, the Executive agrees that the owner of the policy shall promptly pay to the Company an amount equal to the premiums on such policy paid by the Company (net of (i) tax benefits, if any, to the Company in respect of payments of such premiums, (ii) any amounts payable by the Company which had been paid by or on behalf of the Executive with respect to such insurance, (iii) dividends received by the Company in respect of such premiums, but only to the extent such dividends are not used to purchase additional insurance on the life of the Executive, and (iv) any unpaid borrowings by the Company on the policy), whether before, during or after the term of this Agreement. The owner of the policy from time to time shall execute, deliver and maintain a customary split dollar insurance and collateral assignment form, assigning to the Company the proceeds of such policy but only to the extent necessary to secure the reimbursement obligation contained in the preceding sentence. In addition to the foregoing, during the Executive's employment with the Company, the Company shall (x) provide the Executive with $50,000 of group life insurance and (y) pay to the Executive annually an amount equal to the premium that the Executive would have to pay to obtain life insurance under the Group Universal Life ("GUL") insurance program made available by the Company in an amount equal to (i) twice the Executive's Base Salary minus (ii) $50,000. The Executive shall be under no obligation to use the payments made by the Company pursuant to the preceding sentence to purchase GUL insurance or to purchase any other life insurance. If the Company discontinues its GUL insurance program, the Company shall nevertheless make the payments required by this Section 7 as if such program were still in effect. The payments made to the Executive pursuant to this Section 7 shall not be considered as "salary" or "compensation" or "bonus" in determining the amount of any payment under any pension, retirement, profit-sharing or other benefit plan of the Company or any subsidiary of the Company.
8. Other Benefits.
8.1 General Availability. To the extent that (a) the Executive is eligible under the general provisions thereof and (b) the Company maintains such plan or program for the benefit of its senior executives, during the term of employment and any
Advisory Period and so long as the Executive is an employee of the Company, the Executive shall be eligible to participate in any pension, profit-sharing, stock option or similar plan or program and in any group life insurance (to the extent set forth in Section 7), hospitalization, medical, dental, accident, disability or similar plan or program of the Company now existing or established hereafter. In addition, so long as the Executive is an employee of the Company the Executive shall be entitled to receive other benefits generally available to all senior executives of the Company to the extent the Executive is eligible under the general provisions thereof, including, without limitation, to the extent maintained in effect by the Company for its senior executives, an automobile allowance and financial services.
8.2 Benefits After a Termination or Disability. During the period the Executive remains on the payroll of the Company after a termination pursuant to Section 4.2 and during the Disability Period and any Advisory Period, the Executive shall continue to be eligible to participate in the benefit plans and to receive the benefits required to be provided to the Executive under Sections 7 and 8.1 to the extent such benefits are maintained in effect by the Company for its senior executives; provided, however, the Executive shall not be entitled to any additional awards or grants under any stock option, restricted stock or other stock based incentive plan. The Executive shall continue to be an employee of the Company for purposes of any stock option and restricted shares agreements and any other incentive plan awards during the term of employment and any Advisory Period and until such time as the Executive shall leave the payroll of the Company. At the time the Executive's term of employment and any Advisory Period terminates and he leaves the payroll of the Company pursuant to the provisions of Section 4.1, 4.2, 5 or 6, the Executive's rights to benefits and payments under any benefit plans or any insurance or other death benefit plans or arrangements of the Company or under any stock option, restricted stock, stock appreciation right, bonus unit, management incentive or other plan of the Company shall be determined, subject to the other terms and provisions of this Agreement, in accordance with the terms and provisions of such plans and any agreements under which such stock options, restricted stock or other awards were granted; provided, however, that notwithstanding the foregoing or any more restrictive provisions of any such plan or agreement (but without affecting any less restrictive or more favorable to the Executive provisions of any such plan or agreement), if the Executive leaves the payroll of the Company as a result of a termination pursuant to Section 4.2, then (i) all stock options granted to the Executive by the Company shall vest and become immediately exercisable at the time the Executive shall leave the payroll of the Company pursuant to Section 4.2, (ii) all stock options granted to the Executive by the Company shall remain exercisable (but not beyond the term thereof) during the remainder of the term of employment and any Advisory Period and for a period of three months thereafter or such longer period as shall be specified in any applicable stock option agreement and (iii) the Company shall not be permitted to determine that the Executive's employment was
terminated for "unsatisfactory performance" within the meaning of any stock option agreement between the Company and the Executive.
8.3 Payments in Lieu of Other Benefits. In the event the term of employment and the Executive's employment with the Company is terminated pursuant to Sections 4.1, 4.2, 5 or 6 (and regardless of whether the Executive elects clause (A) or (B) as provided in Section 4.2), the Executive shall not be entitled to notice and severance or to be paid for any accrued vacation time or unused sabbatical, the payments provided for in such Sections being in lieu thereof.
9. Protection of Confidential Information; Non-Compete. The provisions of Section 9.2 shall continue to apply through the latest of (i) the date the Executive ceases to be an employee of the Company and leaves the payroll of the Company for any reason and (ii) for twelve months after the effective date of any notice of termination of the Executive's employment pursuant to Section 4.1, 4.2 or 4.3. The provisions of Sections 9.1 and 9.3 shall continue to apply until three years after the latest of the events described in the preceding sentence.
9.1 Confidentiality Covenant. The Executive acknowledges that his employment by the Company (which, for purposes of this Section 9 shall mean Time Warner Inc. and its affiliates) will, throughout the term of employment and any Advisory Period, bring him into close contact with many confidential affairs of the Company, including information about costs, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not readily available to the public, and plans for future development. The Executive further acknowledges that the services to be performed under this Agreement are of a special, unique, unusual, extraordinary and intellectual character. The Executive further acknowledges that the business of the Company is international in scope, that its products are marketed throughout the world, that the Company competes in nearly all of its business activities with other Entities that are or could be located in nearly any part of the world and that the nature of the Executive's services, position and expertise are such that he is capable of competing with the Company from nearly any location in the world. In recognition of the foregoing, the Executive covenants and agrees:
9.1.1 The Executive shall keep secret all confidential
matters of the Company and shall not intentionally disclose such matters to
anyone outside of the Company, either during or after the term of employment and
any Advisory Period, except with the Company's written consent, provided that
(i) the Executive shall have no such obligation to the extent such matters are
or become publicly known other than as a result of the Executive's breach of his
obligations hereunder and (ii) the Executive may, after giving
prior notice to the Company to the extent practicable under the circumstances, disclose such matters to the extent required by applicable laws or governmental regulations or judicial or regulatory process;
9.1.2 The Executive shall deliver promptly to the Company on termination of his employment by the Company, or at any other time the Company may so request, at the Company's expense, all memoranda, notes, records, reports and other documents (and all copies thereof) relating to the Company's business, which he obtained while employed by, or otherwise serving or acting on behalf of, the Company and which he may then possess or have under his control; and
9.1.3 If the term of employment is terminated pursuant to
Section 4.1 or 4.2, for a period of one year after such termination, without the
prior written consent of the Company, the Executive shall not employ, and shall
not cause any Entity of which he is an affiliate to employ, any person who was a
full-time exempt employee of the Company at the date of such termination or
within six months prior thereto.
9.2 Non-Compete. The Executive shall not, directly or indirectly, without the prior consent of a majority of the members of the Company's Board of Directors, render any services to any person or Entity or acquire any interest of any type in any Entity, that might be deemed in competition with the Company; provided, however, that the foregoing shall not be deemed to prohibit the Executive from (a) acquiring, solely as an investment and through market purchases, securities of any Entity which are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 and which are publicly traded, so long as he is not part of any control group of such Entity and such securities, if converted, do not constitute more than one percent (1%) of the outstanding voting power of that Entity, (b) acquiring, solely as an investment, any securities of an Entity (other than an Entity that has outstanding securities covered by the preceding clause (a)) so long as he remains a passive investor in such Entity and does not become part of any control group thereof and so long as such Entity is not, directly or indirectly, in competition with the Company, (c) serving as a director of any Entity that is not in competition with the Company or (d) during the Advisory Period, being a partner in or of counsel to a law firm that represents any person or Entity that is in competition with the Company so long as the Executive does not personally provide or assist in the provision of services to any such person or Entity. For purposes of the foregoing, a person or Entity shall be deemed to be in competition with the Company if such person or it engages in any line of business that is substantially the same as either (i) any line of operating business which the Company engages in, conducts or, to the knowledge of the Executive, has definitive plans to engage in or conduct or (ii) any operating business that is engaged in or conducted by the Company and as to which, to the knowledge of the Executive, the Company covenants in writing, in connection with the disposition of such business, not to
compete therewith.. Notwithstanding the preceding sentences, following the effective date of any termination under Section 4 of this Agreement (including during the Advisory Period contemplated by Section 13), only the following Entities shall be deemed to be in competition with the Company: AT&T Corporation, Bertelsmann A.G., The Walt Disney Company, EarthLink, Inc., General Electric Corporation, Microsoft Corporation, The News Corporation, Sony Corporation, Viacom Inc., Vivendi Universal, S.A., Yahoo! Inc. and their respective subsidiaries and affiliates and any affiliates and any successor to any of the internet service provider, media or entertainment businesses thereof.
9.3 Specific Remedy. In addition to such other rights and remedies as the Company may have at equity or in law with respect to any breach of this Agreement, if the Executive commits a material breach of any of the provisions of Section 9.1, the Company shall have the right and remedy to have such provisions specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company.
9.4 Liquidated Damages. If the Executive commits a material breach
of the provisions of Section 9.2, the Executive shall pay to the Company as
liquidated damages an amount equal to two and one-half times the Executive's
then current Base Salary, or if the Executive is not employed by the Company at
the time of such breach, an amount equal to two and one-half times the most
recent Base Salary paid to the Executive by the Company. The Company shall be
entitled to offset any amounts owed by the Executive to the Company under this
Section 9.4 against any amounts owed by the Company to the Executive under any
provision of this Agreement or otherwise, including without limitation, amounts
payable to the Executive under Section 4.2. The Company and the Executive agree
that it is impossible to determine with any reasonable accuracy the amount of
prospective damages to the Company upon a breach of Section 9.2 by the Executive
and further agree that the damages set forth in this Section 9.4 are reasonable,
and not a penalty, based upon the facts and circumstances of the parties and
with due regard to future expectations.
10. Ownership of Work Product. The Executive acknowledges that during the term of employment, he may conceive of, discover, invent or create inventions, improvements, new contributions, literary property, material, ideas and discoveries, whether patentable or copyrightable or not (all of the foregoing being collectively referred to herein as "Work Product"), and that various business opportunities shall be presented to him by reason of his employment by the Company. The Executive acknowledges that all of the foregoing shall be owned by and belong exclusively to the Company and that he shall have no personal interest therein, provided that they are either related in any manner to the business (commercial or experimental) of the Company, or are, in the case of Work Product, conceived
or made on the Company's time or with the use of the Company's facilities or
materials, or, in the case of business opportunities, are presented to him for
the possible interest or participation of the Company. The Executive shall (i)
promptly disclose any such Work Product and business opportunities to the
Company; (ii) assign to the Company, upon request and without additional
compensation, the entire rights to such Work Product and business opportunities;
(iii) sign all papers necessary to carry out the foregoing; and (iv) give
testimony in support of his inventorship or creation in any appropriate case.
The Executive agrees that he will not assert any rights to any Work Product or
business opportunity as having been made or acquired by him prior to the date of
this Agreement except for Work Product or business opportunities, if any,
disclosed to and acknowledged by the Company in writing prior to the date
hereof.
11. Notices. All notices, requests, consents and other communications required or permitted to be given under this Agreement shall be effective only if given in writing and shall be deemed to have been duly given if delivered personally or sent by prepaid telegram, or mailed first-class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith):
11.1 If to the Company:
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Attention: President
(with a copy, similarly addressed but Attention: General Counsel)
11.2 If to the Executive, to his residence address set forth on the records of the Company.
12. General.
12.1 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the substantive laws of the State of New York applicable to agreements made and to be performed entirely in New York.
12.2 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
12.3 Entire Agreement. This Agreement, including Annexes A and B, sets forth the entire agreement and understanding of the parties relating to the subject matter of this Agreement and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties, including without limitation, the Prior Agreement.
12.4 No Other Representations. No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or be liable for any alleged representation, promise or inducement not so set forth.
12.5 Assignability. This Agreement and the Executive's rights and obligations hereunder may not be assigned by the Executive. The Company may assign its rights together with its obligations hereunder, in connection with any sale, transfer or other disposition of all or substantially all of its business and assets; and such rights and obligations shall inure to, and be binding upon, any successor to all or substantially all of the business and assets of the Company, whether by merger, purchase of stock or assets or otherwise. The Company shall cause such successor expressly to assume such obligations.
12.6 Amendments; Waivers. This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived only by written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect such party's right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.
12.7 Resolution of Disputes. Any dispute or controversy arising with respect to this Agreement shall, at the election of either the Company or the Executive, be submitted to JAMS/ENDISPUTE for resolution in arbitration in accordance with the rules and procedures of JAMS/ENDISPUTE. Either party shall make such election by delivering written notice thereof to the other party at any time (but not later than 45 days after such party receives notice of the commencement of any administrative or regulatory proceeding or the filing of any lawsuit relating to any such dispute or controversy) and thereupon any such dispute or controversy shall be resolved only in accordance with the provisions of this Section
12.7. Any such proceedings shall take place in New York City before a single arbitrator (rather than a panel of arbitrators), pursuant to any streamlined or expedited (rather than a comprehensive) arbitration process, before a nonjudicial (rather than a judicial) arbitrator, and in accordance with an arbitration process which, in the judgment of such arbitrator, shall have the effect of reasonably limiting or reducing the cost of such arbitration. The resolution of any such dispute or controversy by the arbitrator appointed in accordance with the procedures of JAMS/ENDISPUTE shall be final and binding. Judgment upon the award rendered by such arbitrator may be entered in any court having jurisdiction thereof, and the parties consent to the jurisdiction of the New York courts for this purpose. The prevailing party shall be entitled to recover the costs of arbitration (including reasonable attorneys fees and the fees of experts) from the losing party. If at the time any dispute or controversy arises with respect to this Agreement, JAMS/ENDISPUTE is not in business or is no longer providing arbitration services, then the American Arbitration Association shall be substituted for JAMS/ENDISPUTE for the purposes of the foregoing provisions of this Section 12.7. If the Executive shall be the prevailing party in such arbitration, the Company shall promptly pay, upon demand of the Executive, all legal fees, court costs and other costs and expenses incurred by the Executive in any legal action seeking to enforce the award in any court.
12.8 Beneficiaries. Whenever this Agreement provides for any payment to the Executive's estate, such payment may be made instead to such beneficiary or beneficiaries as the Executive may designate by written notice to the Company. The Executive shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Company (and to any applicable insurance company) to such effect.
12.9 No Conflict. The Executive represents and warrants to the Company that this Agreement is legal, valid and binding upon the Executive and the execution of this Agreement and the performance of the Executive's obligations hereunder does not and will not constitute a breach of, or conflict with the terms or provisions of, any agreement or understanding to which the Executive is a party (including, without limitation, any other employment agreement). The Company represents and warrants to the Executive that this Agreement is legal, valid and binding upon the Company and the execution of this Agreement and the performance of the Company's obligations hereunder does not and will not constitute a breach of, or conflict with the terms or provisions of, any agreement or understanding to which the Company is a party.
12.10 Withholding Taxes. Payments made to the Executive pursuant to this Agreement shall be subject to withholding and social security taxes and other ordinary and customary payroll deductions.
12.11 No Offset. Except as provided in Section 9.4 of this Agreement, neither the Company nor the Executive shall have any right to offset any amounts owed by one party hereunder against amounts owed or claimed to be owed to such party, whether pursuant to this Agreement or otherwise, and the Company and the Executive shall make all the payments provided for in this Agreement in a timely manner.
12.12 Severability. If any provision of this Agreement shall be held invalid, the remainder of this Agreement shall not be affected thereby; provided, however, that the parties shall negotiate in good faith with respect to equitable modification of the provision or application thereof held to be invalid. To the extent that it may effectively do so under applicable law, each party hereby waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect.
12.13 Definitions. The following terms are defined in this Agreement in the places indicated:
Account Retained Income - Section A.6 of Annex A
Advisory Period - Section 13
affiliate - Section 4.2.3
Applicable Tax Law - Section A.5 of Annex A
Base Salary - Section 3.1
cause - Section 4.1
Code - Section 4.2.2
Company - the first paragraph on page 1 and Section 9.1
deferred compensation - Section 3.3
Disability Date - Section 5
Disability Period - Section 5
Effective Date - the first paragraph on page 1
eligible securities - Section A.1 of Annex A
Entity - Section 2
Executive - the first paragraph in page 1
fair market value - Section A.1 of Annex A
Investment Advisor - Section A.1 of Annex A
Pay-Out Period - Section A.6 of Annex A
Prior Account - Section 3.5
Prior Agreement - the second paragraph on page 1
Rabbi Trust - Section 3.3
senior executives - Section 3.1
Term Date - the second paragraph on page 1
term of employment - Section 1
Trust Account - Section 3.3
Trust Agreement - Section 3.3
Trustee - Section 3.3
Valuation Date - Section A.6 of Annex A
Work Product - Section 10
13. Advisory Services. Notwithstanding anything to the contrary contained in this Agreement (except the last sentence of Section 1), the Executive shall have the right to elect by delivery of written notice to the Company, which notice may be delivered at any time on or after January 1, 2002, to terminate the term of employment and his position as Chairman and Chief Executive Officer of the Company effective six months after the delivery of such notice and to serve as an advisor to the Company for the period from the effective date of such notice through the Term Date (the "Advisory Period"). During the Advisory Period, the Executive will provide such advisory services concerning the business, affairs and management of the Company as may be required by the Board of Directors or the Chief Executive Officer of the Company, but shall not be required to devote more than five days (up to eight hours per day) each month to such service, which shall be performed at a time and place mutually convenient to both parties and consistent with the Executive's other activities. If at any time during the Advisory Period, the Executive engages in other full-time employment, the Executive shall not be deemed to be in breach of this Section 13, but unless such employment consists of the Executive providing services to one or more (i) charitable or non-profit organizations or (ii) family-owned corporations, trusts, or partnerships, the Advisory Period shall terminate, the Executive shall leave the payroll of the Company and the Company shall have no further obligations under this agreement other than with respect to earned and unpaid compensation and benefits. Notwithstanding the foregoing, but subject to Section 9 of this Agreement, during the Advisory Period the Executive may provide part-time services to third parties (including serving as a member of the Board of Directors of any such party). During the Advisory Period, the Executive shall be entitled to receive annual compensation in an amount equal to the Base Salary being received by the Executive pursuant to Section 3.1 at the time the Executive delivers the notice provided for in this Section 13 and shall continue to be entitled to the benefits described in Sections 7 and 8 hereof; provided, however, that the Executive shall not be entitled to any additional grants of stock options during the Advisory Period, shall not accrue any vacation time during the Advisory Period and shall not be entitled to any severance pay at the end thereof. In addition, during the Advisory Period the Company shall provide the Executive with an office, office facilities and a secretary in accordance with the provisions of Section 4.3.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.
TIME WARNER INC.
ANNEX A
Deferred Compensation Account
A.1 Investments. Funds credited to the Trust Account shall be actually invested and reinvested in an account in securities selected from time to time by an investment advisor designated from time to time by the Company (the "Investment Advisor"), substantially all of which securities shall be "eligible securities". The designation from time to time by the Company of an Investment Advisor shall be subject to the approval of the Executive, which approval shall not be withheld unreasonably. "Eligible securities" are common and preferred stocks, warrants to purchase common or preferred stocks, put and call options, and corporate or governmental bonds, notes and debentures, either listed on a national securities exchange or for which price quotations are published in newspapers of general circulation, including The Wall Street Journal, and certificates of deposit. Eligible securities shall not include the common or preferred stock, any warrants, options or rights to purchase common or preferred stock or the notes or debentures of the Company or any corporation or other entity of which the Company owns directly or indirectly 5% or more of any class of outstanding equity securities. The Investment Advisor shall have the right, from time to time, to designate eligible securities which shall be actually purchased and sold for the Trust Account on the date of reference. Such purchases may be made on margin; provided that the Company may, from time to time, by written notice to the Executive, the Trustee and the Investment Advisor, limit or prohibit margin purchases in any manner it deems prudent and, upon three business days written notice to the Executive, the Trustee and the Investment Advisor, cause all eligible securities theretofore purchased on margin to be sold. The Investment Advisor shall send notification to the Executive and the Trustee in writing of each transaction within five business days thereafter and shall render to the Executive and the Trustee written quarterly reports as to the current status of his or her Trust Account. In the case of any purchase, the Trust Account shall be charged with a dollar amount equal to the quantity and kind of securities purchased multiplied by the fair market value of such securities on the date of reference and shall be credited with the quantity and kind of securities so purchased. In the case of any sale, the Trust Account shall be charged with the quantity and kind of securities sold, and shall be credited with a dollar amount equal to the quantity and kind of securities sold multiplied by the fair market value of such securities on the date of reference. Such charges and credits to the Trust Account shall take place immediately upon the consummation of the transactions to which they relate. As used herein "fair market value" means either (i) if the security is actually purchased or sold by the Rabbi Trust on the date of reference, the actual purchase or sale price per security to the Rabbi Trust or (ii) if the security is not purchased or sold on the date of reference, in the case of a listed security, the closing price per security on the date of reference, or if there were no sales on
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such date, then the closing price per security on the nearest preceding day on which there were such sales, and, in the case of an unlisted security, the mean between the bid and asked prices per security on the date of reference, or if no such prices are available for such date, then the mean between the bid and asked prices per security on the nearest preceding day for which such prices are available. If no bid or asked price information is available with respect to a particular security, the price quoted to the Trustee as the value of such security on the date of reference (or the nearest preceding date for which such information is available) shall be used for purposes of administering the Trust Account, including determining the fair market value of such security. The Trust Account shall be charged currently with all interest paid by the Trust Account with respect to any credit extended to the Trust Account. Such interest shall be charged to the Trust Account, for margin purchases actually made, at the rates and times actually paid by the Trust Account. The Company may, in the Company's sole discretion, from time to time serve as the lender with respect to any margin transactions by notice to the then Investment Advisor and the Trustee and in such case interest shall be charged at the rate and times then charged by an investment banking firm designated by the Company with which the Company does significant business. Brokerage fees shall be charged to the Trust Account at the rates and times actually paid.
A.2 Dividends and Interest. The Trust Account shall be credited with
dollar amounts equal to cash dividends paid from time to time upon the stocks
held therein. Dividends shall be credited as of the payment date. The Trust
Account shall similarly be credited with interest payable on interest bearing
securities held therein. Interest shall be credited as of the payment date,
except that in the case of purchases of interest-bearing securities the Trust
Account shall be charged with the dollar amount of interest accrued to the date
of purchase, and in the case of sales of such interest-bearing securities the
Trust Account shall be credited with the dollar amount of interest accrued to
the date of sale. All dollar amounts of dividends or interest credited to the
Trust Account pursuant to this Section A.2 shall be charged with all taxes
thereon deemed payable by the Company (as and when determined pursuant to
Section A.5). The Investment Advisor shall have the same right with respect to
the investment and reinvestment of net dividends and net interest as he has with
respect to the balance of the Trust Account.
A.3 Adjustments. The Trust Account shall be equitably adjusted to reflect stock dividends, stock splits, recapitalizations, mergers, consolidations, reorganizations and other changes affecting the securities held therein.
A.4 Obligation of the Company. Without in any way limiting the obligations of the Company otherwise set forth in the Agreement or this Annex A, the Company shall have the obligation to establish, maintain and enforce the Rabbi Trust and to make payments
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to the Trustee for credit to the Trust Account in accordance with the provisions of Section 3.3 of the Agreement, to use due care in selecting the Trustee or any successor trustee and to in all respects work cooperatively with the Trustee to fulfill the obligations of the Company and the Trustee to the Executive. The Trust Account shall be charged with all taxes (including stock transfer taxes), interest, brokerage fees and investment advisory fees, if any, payable by the Company and attributable to the purchase or disposition of securities designated by the Investment Advisor (in all cases net after any tax benefits that the Company would be deemed to derive from the payment thereof, as and when determined pursuant to Section A.5) and only in the event of a default by the Company of its obligation to pay such fees and expenses, the fees and expenses of the Trustee in accordance with the terms of the Trust Agreement, but no other costs of the Company. Subject to the terms of the Trust Agreement, the securities purchased for the Trust Account as designated by the Investment Advisor shall remain the sole property of the Company, subject to the claims of its general creditors, as provided in the Trust Agreement. Neither the Executive nor his legal representative nor any beneficiary designated by the Executive shall have any right, other than the right of an unsecured general creditor, against the Company or the Trust in respect of any portion of the Trust Account.
A.5 Taxes. The Trust Account shall be charged with all federal, state
and local taxes deemed payable by the Company with respect to income recognized
upon the dividends and interest received by the Trust Account pursuant to
Section A.2 and gains recognized upon sales of any of the securities which are
sold pursuant to Sections A.1, A.6 or A.7. The Trust Account shall be credited
with the amount of the tax benefit received by the Company as a result of any
payment of interest actually made pursuant to Section A.1 or A.2 and as a result
of any payment of brokerage fees and investment advisory fees made pursuant to
Section A.1. If any of the sales of the securities which are sold pursuant to
Sections A.1, A.6 or A.7 results in a loss to the Trust Account, such net loss
shall be deemed to offset the income and gains referred to in the second
preceding sentence (and thus reduce the charge for taxes referred to therein) to
the extent then permitted under the Internal Revenue Code of 1986, as amended
from time to time, and under applicable state and local income and franchise tax
laws (collectively referred to as "Applicable Tax Law"); provided, however, that
for the purposes of this Section A.5 the Trust Account shall, except as provided
in the third following sentence, be deemed to be a separate corporate taxpayer
and the losses referred to above shall be deemed to offset only the income and
gains referred to in the second preceding sentence. Such losses shall be carried
back and carried forward within the Trust Account to the extent permitted by
Applicable Tax Law in order to minimize the taxes deemed payable on such income
and gains within the Trust Account. For the purposes of this Section A.5, all
charges and credits to the Trust Account for taxes shall be deemed to be made as
of the end of the Company's taxable year during which the transactions, from
which the liabilities for such taxes are deemed to have arisen, are deemed to
have occurred. Notwithstanding the
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foregoing, if and to the extent that in any year there is a net loss in the
Trust Account that cannot be offset against income and gains in any prior year,
then an amount equal to the tax benefit to the Company of such net loss (after
such net loss is reduced by the amount of any net capital loss of the Trust
Account for such year) shall be credited to the Trust Account on the last day of
such year. If and to the extent that any such net loss of the Trust Account
shall be utilized to determine a credit to the Trust Account pursuant to the
preceding sentence, it shall not thereafter be carried forward under this
Section A.5. For purposes of determining taxes payable by the Company under any
provision of this Annex A it shall be assumed that the Company is a taxpayer and
pays all taxes at the maximum marginal rate of federal income taxes and state
and local income and franchise taxes (net of assumed federal income tax
benefits) applicable to business corporations and that all of such dividends,
interest, gains and losses are allocable to its corporate headquarters, which
are currently located in New York City.
A.6 One-Time Transfer to Deferred Plan. So long as the Executive is an employee of the Company, the Executive shall have the right to elect at any time, but only once during the Executive's lifetime, by written notice to the Company to transfer to the Deferred Plan all or a portion of the Net Transferable Balance (determined as provided in the next sentence) of the Trust Account. If the Executive shall make such an election, the Net Transferable Balance shall be determined as of the end of the calendar quarter following the date of such election (unless such election is made during the ten calendar days following the end of a calendar quarter, in which case such determination shall be made as of the end of such preceding calendar quarter) by adjusting all of the securities held in the Trust Account to their fair market value (net of the tax adjustment that would be made thereon if sold, as estimated by the Company or the Trustee) and by deducting from such value the amount of all outstanding indebtedness and any other amounts payable by the Trust Account. Transfers to the Deferred Plan shall be made in cash as promptly as reasonably practicable after the end of such calendar quarter and the Investment Advisor (or the Company or the Trustee if the Investment Advisor shall fail to act in a timely manner) shall cause securities held in the Trust Account to be sold to provide cash equal to the portion of the Net Transferable Balance of the Trust Account selected to be transferred by the Executive. If the Executive elects to transfer more than 75% of the Net Transferable Balance of the Trust Account to the Deferred Plan, the Company or the Trustee shall be permitted to take such action as they may deem reasonably appropriate, including but not limited to, retaining a portion of such Net Transferable Balance in the Trust Account, to ensure that the Trust Account will have sufficient assets to pay the Company the amount of taxes payable on such sales of securities at the end of the year in which such sales are made.
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A.7 Payments. Payments of deferred compensation shall be made as
provided in this Section A.7. Unless the Executive makes the election referred
to in the next succeeding sentence, deferred compensation shall be paid
bi-weekly for a period of ten years (the "Pay-Out Period") commencing on the
first Company payroll date in the month following the later of (i) the Term Date
and (ii) the date the Executive ceases to be an employee of the Company and
leaves the payroll of the Company for any reason, provided, however, that if the
Executive was named in the compensation table in the Company's then most recent
proxy statement, such payments shall commence on the first Company payroll date
in January of the year following the year in which the latest of such events
occurs. The Executive may elect a shorter Pay-Out Period by delivering written
notice to the Company or the Trustee at least one-year prior to the commencement
of the Pay-Out Period, which notice shall specify the shorter Pay-Out Period. On
each payment date, the Trust Account shall be charged with the dollar amount of
such payment. On each payment date, the amount of cash held in the Trust Account
shall be not less than the payment then due and the Company or the Trustee may
select the securities to be sold to provide such cash if the Investment Advisor
shall fail to do so on a timely basis. The amount of any taxes payable with
respect to any such sales shall be computed, as provided in Section A.5 above,
and deducted from the Trust Account, as of the end of the taxable year of the
Company during which such sales are deemed to have occurred. Solely for the
purpose of determining the amount of payments during the Pay-Out Period, the
Trust Account shall be valued on the fifth trading day prior to the end of the
month preceding the first payment of each year of the Pay-Out Period, or more
frequently at the Company's or the Trustee's election (the "Valuation Date"), by
adjusting all of the securities held in the Trust Account to their fair market
value (net of the tax adjustment that would be made thereon if sold, as
estimated by the Company or the Trustee) and by deducting from the Trust Account
the amount of all outstanding indebtedness. The extent, if any, by which the
Trust Account, valued as provided in the immediately preceding sentence, plus
any amounts that have been transferred to the Deferred Plan pursuant to section
A.6 hereof and not theretofore distributed or deemed distributed therefrom,
exceeds the aggregate amount of credits to the Trust Account pursuant to
Sections 3.3, 3.4 and 3.5 of the Agreement as of each Valuation Date and not
theretofore distributed or deemed distributed pursuant to this Section A.7 is
herein called "Account Retained Income". The amount of each payment for the
year, or such shorter period as may be determined by the Company or the Trustee,
of the Pay-Out Period immediately succeeding such Valuation Date, including the
payment then due, shall be determined by dividing the aggregate value of the
Trust Account, as valued and adjusted pursuant to the second preceding sentence,
by the number of payments remaining to be paid in the Pay-Out Period, including
the payment then due; provided that each payment made shall be deemed made first
out of Account Retained Income (to the extent remaining after all prior
distributions thereof since the last Valuation Date). The balance of the Trust
Account, after all the securities held therein have been sold and all
indebtedness liquidated, shall be
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paid to the Executive in the final payment, which shall be decreased by deducting therefrom the amount of all taxes attributable to the sale of any securities held in the Trust Account since the end of the preceding taxable year of the Company, which taxes shall be computed as of the date of such payment.
If this Agreement is terminated by the Company pursuant to Section 4.1 or if the Executive terminates thi s Agreement in breach of this Agreement, the Trust Account shall be valued as of the later of (i) the Term Date or (ii) twelve months after termination of the Executive's employment with the Company, and the balance of the Trust Account, after the securities held therein have been sold and all related indebtedness liquidated, shall be paid to the Executive as soon as practicable and in any event within 75 days following the later of such dates in a final lump sum payment, which shall be decreased by deducting therefrom the amount of all taxes attributable to the sale of any securities held in the Trust Account since the end of the preceding taxable year of the Company, which taxes shall be computed as of the date of such payment. Payments made pursuant to this paragraph shall be deemed made first out of Account Retained Income.
If the Executive becomes disabled within the meaning of Section 5 of the Agreement and is not thereafter returned to full-time employment with the Company as provided in said Section 5, then deferred compensation shall be paid bi-weekly during the Pay-Out Period commencing on the first Company payroll date in the month following the end of the Disability Period in accordance with the provisions of the first paragraph of this Section A.7.
If the Executive shall die at any time whether during or after the term of employment, the Trust Account shall be valued as of the date of the Executive's death and the balance of the Trust Account shall be paid to the Executive's estate or beneficiary within 75 days of such death in accordance with the provisions of the second preceding paragraph.
Notwithstanding the foregoing provisions of this Section A.7, if the Rabbi Trust shall terminate in accordance with the provisions of the Trust Agreement, the Trust Account shall be valued as of the date of such termination and the balance of the Trust Account shall be paid to the Executive within 15 days of such termination in accordance with the provisions of the third preceding paragraph.
If a transfer to the Deferred Plan has been made pursuant to Section
A.6 hereof, payments made to the Executive from the Deferred Plan (a) shall be
deemed made
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first from the amounts transferred to the Deferred Plan pursuant to Section A.6 and (b) shall be deemed made first out of Account Retained Income.
Within 90 days after the end of each taxable year of the Company in
which payments are made, directly or indirectly, to the Executive from the Trust
Account or from the Deferred Plan with respect to amounts transferred to the
Deferred Plan from the Trust Account pursuant to Section A.6 and at the time of
the final payment from the Trust Account, the Company or the Trustee shall
compute and the Company shall pay to the Trustee for credit to the Trust
Account, the amount of the tax benefit assumed to be received by the Company
from the payment to the Executive of amounts of Account Retained Income during
such taxable year or since the end of the last taxable year, as the case may be.
No additional credits shall be made to the Trust Account pursuant to the
preceding sentence in respect of the amounts credited to the Trust Account
pursuant to the preceding sentence. Notwithstanding any provision of this
Section A.7, the Executive shall not be entitled to receive pursuant to this
Annex A (including any amounts that have been transferred to the Deferred Plan
pursuant to Section A.6 hereof) an aggregate amount that shall exceed the sum of
(i) all credits made to the Trust Account pursuant to Sections 3.3, 3.4 and 3.5
of the Agreement, (ii) the net cumulative amount (positive or negative) of all
income, gains, losses, interest and expenses charged or credited to the Trust
Account pursuant to this Annex A (excluding credits made pursuant to the second
preceding sentence), after all credits and charges to the Trust Account with
respect to the tax benefits or burdens thereof, and (iii) an amount equal to the
tax benefit to the Company from the payment of the amount (if positive)
determined under clause (ii) above; and the final payment(s) otherwise due may
be adjusted or eliminated accordingly. In determining the tax benefit to the
Company under clause (iii) above, the Company shall be deemed to have made the
payments under clause (ii) above with respect to the same taxable years and in
the same proportions as payments of Account Retained Income were actually made
from the Trust Account. Except as otherwise provided in this paragraph, the
computation of all taxes and tax benefits referred to in this Section A.7 shall
be determined in accordance with Section A.5 above.
RELEASE
Pursuant to the terms of the Employment Agreement made as of _____________, between TIME WARNER INC., a Delaware corporation (the "Company"), 75 Rockefeller Plaza, New York, New York 10019 and the undersigned (the "Agreement"), and in consideration of the payments made to me and other benefits to be received by me pursuant thereto, I, [Name], being of lawful age, do hereby release and forever discharge the Company and its officers, shareholders, subsidiaries, agents, and employees, from any and all actions, causes of action, claims, or demands for general, special or punitive damages, attorney's fees, expenses, or other compensation, which in any way relate to or arise out of my employment with the Company or any of its subsidiaries or the termination of such employment, which I may now or hereafter have under any federal, state or local law, regulation or order, including without limitation, under the Age Discrimination in Employment Act, as amended, through and including the date of this Release; provided, however, that the execution of this Release shall not prevent the undersigned from bringing a lawsuit against the Company to enforce its obligations under the Agreement.
I acknowledge that I have been given at least 21 days from the day I received a copy of this Release to sign it and that I have been advised to consult an attorney. I understand that I have the right to revoke my consent to this Release for seven days following my signing. This Release shall not become effective or enforceable until the expiration of the seven-day period following the date it is signed by me.
I further state that I have read this document and the Agreement referred to herein, that I know the contents of both and that I have executed the same as my own free act.
WITNESS my hand this ____ day of ___________ , ____.
Exhibit 10.3
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AMENDED AND RESTATED EMPLOYMENT AGREEMENT made as of March 25, 1999, effective as of January 1, 1999 (the "Effective Date"), as amended on October 26, 2000 and April 20, 2001, between AOL Time Warner Inc., a Delaware corporation (the "Company"), as assignee of Time Warner Inc., a Delaware corporation, and Richard D. Parsons (the "Executive").
The Executive is currently employed by the Company pursuant to an Employment Agreement made as of March 18, 1998 (the "Prior Agreement"). The Company wishes to amend and restate the Prior Agreement and secure the services of the Executive on a full-time basis for the period to and including January 31, 2005 (the "Term Date") on and subject to the terms and conditions set forth in this Agreement, and the Executive is willing for the Prior Agreement to be so amended and restated and to provide such services on and subject to the terms and conditions set forth in this Agreement. The parties therefore agree as follows:
1. Term of Employment. The Executive's "term of employment", as this phrase is used throughout this Agreement, shall be for the period beginning on the Effective Date and ending on the Term Date, subject, however, to the terms and conditions set forth in this Agreement.
2. Employment. During the term of employment, the Company shall employ the Executive, and the Executive shall serve, as the Co-Chief Operating Officer of the Company. In such capacity the Executive shall have responsibility for the direction and supervision of the following functions, divisions and subsidiaries of the Company, with the authority, duties and powers appropriate and customary to discharge such responsibility: Warner Bros. (except the WB Television Network), New Line Cinema Corporation, Warner Music Group (both before and after the consummation of the publicly announced proposed transaction with EMI Group, plc), Time Warner Trade Publishing and the legal and human resources or people development corporate staff functions. The chief executive officer of each such division or subsidiary and the Executive or Senior Vice President of each such staff function shall report to the Executive. In addition, the Executive shall have such other authority, functions, duties, powers and responsibilities as the Board of Directors or the Chief Executive Officer of the Company may from time to time delegate to the Executive in addition thereto, consistent with his stature as the Co-Chief Operating Officer of the Company. The Executive shall, subject to his election as such from time to time and without additional compensation, serve during the term of employment in such additional offices of comparable or greater stature and responsibility in the Company and its subsidiaries and as a director and as a member of any committee of the Board of Directors of the Company and its subsidiaries, to which he may be elected from time to time. During the
2 term of employment, (i) the Executive's services shall be rendered on a substantially full-time, exclusive basis and he will apply on a full-time basis all of his skill and experience to the performance of his duties in such employment, (ii) the Executive shall report only to the Company's Board of Directors and to the Company's Chief Executive Officer, (iii) the Executive shall have no other employment and, without the prior written consent of the Chief Executive Officer of the Company, no outside business activities which require the devotion of substantial amounts of the Executive's time and (iv) the place for the performance of the Executive's services shall be the principal executive offices of the Company which shall be in the New York City metropolitan area, subject to such reasonable travel as may be appropriate or required in the performance of the Executive's duties in the business of the Company. The foregoing shall be subject to the Company's written policies, as in effect from time to time, regarding vacations, holidays, illness and the like and shall not prevent the Executive from devoting such time to his personal affairs as shall not interfere with the performance of his duties hereunder, provided that the Executive complies with the provisions of Sections 9 and 10 and any generally applicable written policies of the Company on conflicts of interest and service as a director of another corporation, partnership, trust or other entity ("Entity").
The Company shall use its best efforts to cause the Executive to be a member of its Board of Directors throughout the term of employment and shall include him in the management slate for election as a director at every stockholders' meeting at which his term as a director would otherwise expire.
3. Compensation.
3.1 Base Salary. The Company shall pay or cause to be paid to the Executive a base salary of not less than $1,000,000 per annum during the term of employment (the "Base Salary"). The Company may increase, but not decrease, the Base Salary at any time and from time to time during the term of employment and upon each such increase the term "Base Salary" shall mean such increased amount (subject to Section 5). Base Salary shall be payable in monthly or more frequent installments in accordance with the Company's then current practices and policies with respect to senior executives. For the purposes of this Agreement "senior executives" shall mean the executive officers of the Company.
3.2 Intentionally left blank.
3.3 Deferred Compensation. In addition to Base Salary and bonus as set forth in Sections 3.1 and 3.2, the Executive shall be credited with a defined contribution which shall be determined and paid out on a deferred basis ("deferred compensation") as provided in this Agreement, including Annex A hereto. Unless the Executive shall make the election described in the last sentence of this Section 3.3, during the term of employment through
3 December 31, 2000, the Company shall pay to the trustee (the "Trustee") of a Company grantor trust (the "Rabbi Trust") for credit to a special account maintained on the books of the Rabbi Trust for the Executive (the "Trust Account"), monthly, an amount equal to 50% of one-twelfth of the Executive's then current Base Salary. If a lump sum payment is made pursuant to Section 4.2.2, the Company shall pay to the Trustee for credit to the Trust Account at the time of such payment an amount equal to 50% of the Base Salary portion of such lump sum payment; provided, however, that the Executive may elect by written notice to the Company at least 15 days prior to the date of any such lump sum payment, to have such amount credited instead to the Deferred Compensation Plan established by the Company on November 18, 1998, as the same may be amended from time to time (as so amended, the "Deferred Plan"). The Trust Account shall be maintained by the Trustee in accordance with the terms of this Agreement, including Annex A, and the trust agreement (the "Trust Agreement") establishing the Rabbi Trust (which Trust Agreement shall in all respects be in furtherance of, and not inconsistent with, the terms of this Agreement, including Annex A), until the full amount which the Executive is entitled to receive therefrom has been paid in full. The Company shall maintain the Rabbi Trust as a grantor trust within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code and shall pay all fees and expenses of the Trustee and shall enforce the provisions of the Trust Agreement for the benefit of the Executive. The Executive may elect by written notice delivered to the Company at least 15 days prior to the commencement of any calendar year during the term of employment (except that for calendar year 1999, such election shall be made no later than January 31, 1999) to have (a) all of the payments to be made to the Rabbi Trust pursuant to the second sentence of this Section 3.3 to be credited instead to the Deferred Plan or (b) to have 50% of the payments to be made by the Company pursuant to the second sentence of this Section 3.3 to be credited instead to the Deferred Plan and the remaining 50% to be paid to the Rabbi Trust. The Company shall have no obligation to pay the Executive deferred compensation pursuant to this Section 3.3 for any period after December 31, 2000. Any deferred compensation paid to the Trust Account prior to January 1, 2001 will continue to be governed by the terms of this Section 3.3 and Annex A.
3.4 Deferred Bonus. In addition to any other deferred bonus plan in which the Executive may be entitled to participate, the Executive may elect by written notice delivered to the Company at least 15 days prior to the commencement of any calendar year during the term of employment during which an annual cash bonus would otherwise accrue or to which it would relate (except that for calendar year 1999, such election shall be made no later than January 31, 1999), to defer payment of and to have the Company credit all or any portion of the Executive's bonus for such year to either the Trust Account or the Deferred Plan, or a combination of both, subject in the case of a deferral to the Deferred Plan to the terms and
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conditions of the Deferred Plan. Any such election shall only apply to the calendar year during the term of employment with respect to which such election is made and a new election shall be required with respect to each successive calendar year during the term of employment.
3.5 Prior Account. The parties confirm that the Company has maintained a deferred compensation account (the "Prior Account") for the Executive in accordance with the Prior Agreement. The Prior Account shall be promptly transferred to, and shall for all purposes be deemed part of, the Trust Account and shall be maintained by the Trustee in accordance with this Agreement and the Trust Agreement. All prior credits to the Prior Account shall be deemed to be credits made under this Agreement, all "Account Retained Income" thereunder shall be deemed to be Account Retained Income under this Agreement and all increases or decreases to the Prior Account as a result of income, gains, losses and other changes shall be deemed to have been made under this Agreement.
3.6 Reimbursement. The Company shall reasonably promptly pay or reimburse the Executive for all reasonable travel, entertainment and other business expenses actually incurred or paid by the Executive during the term of employment in the performance of his services under this Agreement provided such expenses are incurred or paid in accordance with the Company's then current written practices and policies with respect to senior executives of the Company and upon presentation of expense statements or vouchers or such other supporting information as the Company may customarily require of its senior executives.
3.7 No Anticipatory Assignments. Except as specifically contemplated in Section 12.8 or under the life insurance policies and benefit plans referred to in Sections 7 and 8, respectively, neither the Executive, his legal representative nor any beneficiary designated by him shall have any right, without the prior written consent of the Company, to assign, transfer, pledge, hypothecate, anticipate or commute to any person or Entity any payment due in the future pursuant to any provision of this Agreement, and any attempt to do so shall be void and shall not be recognized by the Company.
3.8 Indemnification. The Executive shall be entitled throughout the term of employment in his capacity as an officer or director of the Company or any of its
5 subsidiaries or an officer or member of the Board of Representatives or other governing body of any partnership or joint venture in which the Company has an equity interest or as a trustee or fiduciary of any plan, program, trust or other entity established for the benefit of the Company, its subsidiaries or any of their respective employees in connection with the business of the Company (and after the term of employment, to the extent relating to his service as such officer, director, member, trustee or fiduciary) to the benefit of the indemnification provisions contained on the date hereof in the Certificate of Incorporation and By-Laws of the Company (not including any amendments or additions after the date of execution hereof that limit or narrow, but including any that add to or broaden, the protection afforded to the Executive by those provisions), to the extent not prohibited by applicable law at the time of the assertion of any liability against the Executive.
4. Termination.
4.1 Termination for Cause. The Company may terminate the term of employment and all of the Company's obligations hereunder, other than its obligations set forth below in this Section 4.1, for "cause" but only if the term of employment has not previously been terminated pursuant to any other provision of this Agreement. Termination by the Company for "cause" shall mean termination by action of the Company's Board of Directors, or a committee thereof, after a hearing at which the Executive has had the opportunity to address the Board, because of the Executive's conviction (treating a nolo contendere plea as a conviction) of a felony (whether or not any right to appeal has been or may be exercised) or willful refusal without proper cause to perform his obligations under this Agreement or because of the Executive's breach of any of the covenants provided for in Section 9. Such termination shall be effected by written notice thereof delivered by the Company to the Executive and shall be effective as of the date of such notice; provided, however, that if (i) such termination is because of the Executive's willful refusal without proper cause to perform any one or more of his obligations under this Agreement, (ii) such notice is the first such notice of termination for any reason delivered by the Company to the Executive under this Section 4.1, and (iii) within 15 days following the date of such notice the Executive shall cease his refusal and shall use his best efforts to perform such obligations, the termination shall not be effective.
6 In the event of such termination by the Company for cause, without prejudice to any other rights or remedies that the Company may have at law or in equity, the Company shall have no further obligations to the Executive other than (i) to pay Base Salary and make credits of deferred compensation as provided in Sections 3.1 and 3.3 accrued through the effective date of termination, (ii) to pay any annual bonus pursuant to Section 3.2 to the Executive in respect of the calendar year prior to the calendar year in which such termination is effective, in the event such annual bonus has been determined but not yet paid as of the date of such termination and (iii) with respect to any rights the Executive has in respect of amounts credited to the Trust Account through the effective date of termination or pursuant to any insurance or other benefit plans or arrangements of the Company maintained for the benefit of its senior executives. The Executive hereby disclaims any right to receive a pro rata portion of the Executive's annual bonus with respect to the year in which such termination occurs. The fourth sentence of Section 3.3 and the provisions of Sections 3.8, 8.2, 8.3 and 9 through 12 and Annex A shall survive any termination pursuant to this Section 4.1.
4.2 Termination by Executive for Material Breach by
the Company and Termination by the Company Without Cause. Unless previously
terminated pursuant to any other provision of this Agreement and unless a
Disability Period shall be in effect, the Executive shall have the right,
exercisable by written notice to the Company, to terminate the term of
employment (other than those provisions that specifically survive such
termination) effective 15 days after the giving of such notice, if, at the time
of the giving of such notice, the Company shall be in material breach of its
obligations under this Agreement; provided, however, that with the exception of
clause (i) below, this Agreement shall not so terminate if such notice is the
first such notice of termination delivered by the Executive pursuant to this
Section 4.2 and within such 15 day period the Company shall have cured all such
material breaches of its obligations under this Agreement. A material breach by
the Company shall include, but not be limited to, (i) the Company failing to
cause the Executive to retain the title of President or, if the Executive is
appointed President and Chief Operating Officer, to thereafter retain such
title, (ii) the Executive being required to report to persons other than those
specified in Section 2; (iii) the Company violating the provisions of Section 2
or any written delegation from the Chief Executive Officer with respect to the
Executive's authority, functions, duties, powers or
7 responsibilities (whether or not accompanied by a change in title); (iv) the Company requiring the Executive's primary services to be rendered at a place other than at the Company's principal executive offices in the New York City metropolitan area; (v) the Company breaching its obligations under the last paragraph of Section 2; and (vi) the Company failing to cause the successor to all or substantially all of the business and assets of the Company expressly to assume the obligations of the Company under this Agreement.
The Company shall have the right, exercisable by written notice to the Executive, to terminate the Executive's employment under this Agreement without cause, effective at least 30 days after the giving of such notice, which notice shall specify the effective date of such termination.
In the event of a termination pursuant to this
Section 4.2, the Executive shall remain an employee of the Company as provided
in Section 4.2.2. In such case, the following provisions shall apply:
4.2.1 After the effective date of such termination, the Executive shall have no further obligations or liabilities to the Company whatsoever, except that Sections 3.8, 4.6 and 4.8 and Sections 6 through 12 and Annex A shall survive such termination, and the Executive shall be entitled to receive any earned and unpaid Base Salary accrued through the effective date of such termination.
4.2.2 After the effective date of termination pursuant to this Section 4.2, the Executive shall remain an employee of the Company for the period ending on the Term Date, and during such period the Executive shall be entitled to receive, whether or not the Executive becomes disabled during such period but subject to Section 6, salary at an annual rate equal to the Base Salary. Except as provided in the second succeeding sentence, if the Executive accepts full-time employment with any other Entity during such period or notifies the Company in writing of his intention to terminate his status as an employee during such period, then the Executive shall cease to be an employee of the Company effective upon the commencement of such employment or the effective date of such termination as specified by the
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Executive in such notice, whichever is applicable, and the Executive shall be entitled to receive as severance in a lump sum within 30 days after such commencement or such effective date (provided that if the Executive was named in the compensation table in the Company's then most recent proxy statement, such lump sum payment shall be made within 30 days after the end of the calendar year in which such commencement or effective date occurred) an amount (discounted as provided in the immediately following) equal to the balance of the Base Salary the Executive would have been entitled to receive pursuant to this Section 4.2.2 had the Executive remained on the Company's payroll until the Term Date. The lump sum payment required to be made to the Executive pursuant to this Section 4.2.2 shall be discounted to present value as of the date of payment from the times at which such amounts would have become payable absent any such termination at an annual discount rate for the relevant periods equal to 120% of the "applicable Federal rate" (within the meaning of Section 1274(d) of the Code), in effect on the date of such termination, compounded semi-annually. Notwithstanding the foregoing, if the Executive accepts employment with any not-for-profit Entity, then the Executive shall be entitled to remain an employee of the Company and receive the payments as provided in the first sentence of this Section 4.2.2; and if the Executive accepts full-time employment with any affiliate of the Company, then the payments provided for in this Section 4.2.2 shall cease and the Executive shall not be entitled to any such lump sum payment. For purposes of this Agreement, the term "affiliate" shall mean any Entity which, directly or indirectly, controls, is controlled by, or is under common control with, the Company.
4.3 Optional Termination by Executive. The Executive shall have the right to elect by delivery of written notice to the Company, which notice may be delivered at any time on or after July 1, 2001, to terminate the term of employment and the Executive's position with the Company effective six months after the delivery of such notice and to serve as an advisor to the Company from the effective date of such notice through January 31, 2005 (the "Advisory Period"). During the Advisory Period, the Executive will remain an employee of the Company and will provide such advisory services concerning the business, affairs and management of the Company as may be required by the Board of Directors or the Chief Executive Officer of the Company, but shall not be required to devote more than five days (up to eight hours per day) each month to such service, which shall be performed at a time and place mutually convenient to both parties and consistent with the Executive's other activities. If at any
9
time during the Advisory Period, the Executive engages in other full-time
employment, the Executive shall not be deemed to be in breach of this Section
4.3, but unless such employment consists of the Executive providing services to
one or more (i) charitable or non-profit organizations or (ii) family owned
corporations, trusts, or partnerships, the Advisory Period shall terminate, the
Executive shall leave the payroll of the Company and the Company shall have no
further obligations under this agreement other than with respect to earned and
unpaid compensation and benefits. Notwithstanding the foregoing, but subject to
Section 9 of this Agreement, during the Advisory Period the Executive may
provide part-time services to third parties (including serving as a member of
the Board of Directors of any such party). During the Advisory Period, the
Executive shall be entitled to receive a Base Salary paid at the rate of
$500,000 per annum and shall continue to be entitled to the benefits described
in Sections 7 and 8 of the Agreement; provided, however, that the Executive
shall not be entitled to deferred compensation, an annual bonus or any
additional grants of stock options during the Advisory Period, shall not accrue
any vacation time during the Advisory Period and shall not be entitled to any
severance pay at the end thereof. In addition, during the Advisory Period, the
Company shall provide the Executive with an office, office facilities and a
secretary in accordance with the provisions of Section 4.5 of this Agreement.
4.4 After the Term Date. If at the Term Date, the term of employment shall not have been previously terminated pursuant to the provisions of this Agreement, no Disability Period is then in effect and the parties shall not have agreed in writing to an extension or renewal of this Agreement or on the terms of a new written employment agreement, then the term of employment shall continue and the Executive shall continue to be employed by the Company pursuant to the terms of this Agreement, subject to termination by either party hereto on 90 days written notice delivered to the other party. Such 90-day notice may be given by either party on or after October 1, 2004 so that the term of employment may end on the Term Date or any date thereafter. If this Agreement shall be terminated on or after the Term Date for any reason (other than by the Company for cause as defined in Section 4.1, in which case Section 4.1 shall apply), then the Executive shall receive Base Salary through the effective date of termination. At the end of the 90-day notice period provided for in the first sentence of this Section 4.4, the term of employment shall end and the Executive shall cease to be an employee
10
of the Company and the Executive shall have no further obligations or liabilities to the Company whatsoever, except that Sections 3.8, 4.6 and 4.8 and Sections 6 through 12 and Annex A shall survive such termination.
4.5 Office Facilities. In the event of a termination of the Executive's employment pursuant to Section 4.2, 4.3 or 4.4, then for the period beginning on the effective date of such termination and ending one year thereafter, the Company shall, without charge to the Executive, make available to the Executive office space at the Executive's principal job location immediately prior to his termination of employment, or other location reasonably close to such location, together with secretarial services, office facilities, services and furnishings, in each case reasonably appropriate to an employee of the Executive's position and responsibilities prior to such termination of employment but taking into account the Executive's reduced need for such office space, secretarial services and office facilities, services and furnishings as a result of the Executive no longer being a full-time employee.
4.6 Release. In partial consideration for the Company's obligation to make the payments described in Section 4.2, the Company shall be entitled to require the Executive to execute and deliver to the Company a release in substantially the form attached hereto as Annex B. If the Company so elects, the Company shall deliver such release to the Executive within 10 days after the written notice of termination is delivered pursuant to Section 4.2 and the Executive shall execute and deliver such release to the Company within 21 days after receipt thereof. Upon receipt by the Company of such release signed by the Executive, the Company shall deliver to the Executive a release substantially in the form attached hereto as Annex C, signed by the Company. If the Company shall request the Executive to execute an Annex B release and the Executive shall fail to execute and deliver such release to the Company within such 21 day period, or if the Executive shall revoke his consent to such release as provided therein, the Company shall have no obligation to deliver the Annex C release and the Executive's term of employment shall terminate as provided in Section 4.2, but the Executive shall receive, in lieu of the payments provided for in said Section 4.2, a lump sum cash payment in an amount determined in accordance with the written personnel policies of the Company relating to notice and severance then generally applicable to senior executives of the Company with length of service and compensation level of the Executive.
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4.7 Retirement. Notwithstanding the provisions of
Sections 4.2, 4.4 or 5, if the term of employment is in effect and the Executive
is still employed by the Company pursuant to this Agreement on the date the
Executive first becomes eligible for normal retirement as defined in any
applicable retirement plan of the Company or any subsidiary of the Company (the
"Retirement Date"), then this Agreement shall terminate automatically on such
date and the Executive's employment with the Company shall thereafter be
governed by the policies generally applicable to employees of the Company, and
the Executive shall not thereafter be entitled to the payments provided in such
Sections to the extent not received by the Executive on or prior to the
Retirement Date. In addition, no benefits or payments provided in Sections 4.2,
4.4 or 5 shall include any period after the Retirement Date and if the provision
of benefits or calculation of payments provided in any such Section would
include any period subsequent to the Retirement Date, such provision of benefits
shall end on the Retirement Date and the calculation of payments shall cover
only the period ending on the Retirement Date. Notwithstanding the foregoing,
the provisions of Annex A and the Trust Agreement shall apply to the investment
and payment of deferred compensation after such termination, the provisions of
Section 7 of this Agreement shall survive any such termination and the
provisions of Sections 12.1 and 12.7 shall apply to any dispute with respect to
this Agreement that arises after any such termination.
4.8 Mitigation. The payments provided for in this Agreement in the event of a termination without cause are not subject to mitigation unless the Executive's failure to mitigate would result in the Company losing tax deductions to which it would otherwise have been entitled. In such an event, the Executive will engage in whatsoever mitigation is necessary to preserve the Company's tax deductions. With respect to the preceding sentences, any payments or rights to which the Executive is entitled by reason of the termination of employment without cause shall be considered as damages hereunder. Any obligation of the Executive to mitigate the damages pursuant to this Section 4.8 shall not be a defense or offset to the Company's obligation to pay the Executive in full the amounts provided in this Agreement upon the occurrence of a termination without cause, at the time provided herein, or the timely and full performance of any of the Company's other obligations under this Agreement.
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4.9 Payments. So long as the Executive remains on the payroll of the Company or any subsidiary of the Company, payments of salary, deferred compensation and bonus required to be made pursuant to Section 4.2, 4.3 or 4.4 shall be made at the same times as such payments are made to senior executives of the Company or such subsidiary.
5. Disability. If during the term of employment and prior to
any termination of this Agreement under Section 4.2, 4.3 or 4.4, the Executive
shall become physically or mentally disabled, whether totally or partially, so
that he is prevented from performing his usual duties for a period of six
consecutive months, or for shorter periods aggregating six months in any
twelve-month period, the Company shall, nevertheless, continue to pay the
Executive his full compensation as provided in Section 3 through the last day of
the sixth consecutive month of disability or the date on which the shorter
periods of disability shall have equaled a total of six months in any
twelve-month period (such last day or date being referred to herein as the
"Disability Date"). If the Executive has not resumed his usual duties on or
prior to the Disability Date, the Company shall pay the Executive disability
benefits for the period from the Disability Date through the Term Date (the
"Disability Period"), in an annual amount equal to 75% of the Base Salary. If
during the Disability Period the Executive shall fully recover from his
disability, the Company shall have the right (exercisable within 60 days after
notice from the Executive of such recovery), but not the obligation, to restore
the Executive to full-time service at full compensation. The Disability Period
shall continue during such 60-day period. If the Company elects to restore the
Executive to full-time service, then this Agreement shall continue in full force
and effect in all respects, including without limitation, the provisions of
Section 3 which shall apply in lieu of the Disability provisions of this Section
5, and the Term Date shall not be extended by virtue of the occurrence of the
Disability Period. If the Company elects not to restore the Executive to
full-time service, the Executive may terminate this Agreement by written notice
to the Company within 60 days after the termination of the sixty-day period
provided for above, in which case neither party shall have any further
obligations hereunder after the date of such termination. If the Company elects
not to restore the Executive to full-time service and the Executive does not
elect to terminate this Agreement, the Executive shall be entitled to obtain
other employment, subject, however, to the following: (i) the Executive shall be
obligated to perform advisory services during any balance of the Disability
Period; and
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(ii) the provisions of Sections 9 and 10 shall continue to apply to the Executive during the Disability Period. The advisory services referred to in clause (i) of the immediately preceding sentence shall consist of rendering advice concerning the business, affairs and management of the Company as requested by the Board of Directors or the Chief Executive Officer of the Company but the Executive shall not be required to devote more than five days (up to eight hours per day) each month to such services, which shall be performed at a time and place mutually convenient to both parties. Any income from such other employment shall not be applied to reduce the Company's obligations under this Agreement. The Company shall be entitled to deduct from all payments to be made to the Executive during the Disability Period pursuant to this Section 5 an amount equal to all disability payments received by the Executive during the Disability Period from Workmen's Compensation, Social Security and disability insurance policies maintained by the Company; provided, however, that for so long as, and to the extent that, proceeds paid to the Executive from such disability insurance policies are not includible in his income for federal income tax purposes, the Company's deduction with respect to such payments shall be equal to the product of (i) such payments and (ii) a fraction, the numerator of which is one and the denominator of which is one less the maximum marginal rate of federal income taxes applicable to individuals at the time of receipt of such payments. All payments made under this Section 5 with respect to periods after the Disability Date are intended to be disability payments, regardless of the manner in which they are computed. Except as otherwise provided in this Section 5, the term of employment shall continue during the Disability Period and the Executive shall be entitled to all of the rights and benefits provided for in this Agreement, except that Section 4.2 shall not apply during the Disability Period (unless the Company terminates this Agreement in breach hereof in which case Section 4.2 shall apply) and unless the Company has restored the Executive to full-time service at full compensation prior to the end of the Disability Period, the term of employment shall end and the Executive shall cease to be an employee of the Company at the end of the Disability Period and shall not be entitled to notice and severance or to receive or be paid for any accrued vacation time or unused sabbatical.
6. Death. Upon the death of the Executive during the term of employment, this Agreement and all obligations of the Company to make any payments under Sections 3, 4 and 5 shall terminate except that (i) the Executive's estate (or a designated beneficiary) shall be entitled
14
to receive, to the extent being received by the Executive immediately prior to his death, Base Salary to the last day of the month in which his death occurs and (ii) the Trust Account shall be liquidated and revalued as provided in Annex A as of the date of the Executive's death (except that all taxes shall be computed and charged to the Trust Account as of such date of death to the extent not theretofore so computed and charged) and the entire balance thereof (plus any amount due under the last paragraph of Section A.7 of Annex A) shall be paid to the Executive's estate (or a designated beneficiary) in a single payment not later than 75 days following such date of death.
7. Life Insurance. Subject to the Executive's satisfactory completion of any applications and other documentation and any physical examinations that may be required by the insurer for any additional insurance, the Company shall obtain $5,000,000 face amount of split ownership life insurance on the life of the Executive, to be owned by the Executive or the trustees of a trust for the benefit of the Executive's spouse and/or descendants. Until the death of the Executive, and irrespective of any termination of this Agreement except pursuant to Section 4.1, the Company shall pay all premiums on such policy and shall maintain such policy (without reduction of the face amount of the coverage). The Company shall not borrow from the cash value of such policy. The Executive shall be entitled to designate the beneficiary or beneficiaries of such policy, which may include a trust. At the death of the Executive, or on the earlier surrender of such policy by the owner, the Executive agrees that the Executive's estate or the owner of the policy shall promptly pay to the Company an amount equal to the premiums on such policy paid by the Company (net of (i) tax benefits, if any, to the Company in respect of payments of such premiums, (ii) any amounts payable by the Company which had been paid by or on behalf of the Executive with respect to such insurance, (iii) dividends received by the Company in respect of such premiums, but only to the extent such dividends are not used to purchase additional insurance on the life of the Executive, and (iv) any unpaid borrowings by the Company on the policy), whether before, during or after the term of this Agreement but in no event shall such payment to the Company exceed the amount of the death benefit paid under the policy. If other than the Company, the owner of the policy from time to time shall execute, deliver and maintain a customary split dollar insurance and collateral assignment form, assigning to the Company the proceeds of such policy but only to the extent necessary to secure the reimbursement obligation contained in the preceding sentence. In addition to the foregoing,
15
during the Executive's employment with the Company, the Company shall (x)
provide the Executive with $50,000 of group life insurance and (y) pay to the
Executive annually an amount equal to the premium that the Executive would have
to pay to obtain life insurance under the Group Universal Life ("GUL") insurance
program made available by the Company in an amount equal to (i) twice the
Executive's Base Salary minus (ii) $50,000. The Executive shall be under no
obligation to use the payments made by the Company pursuant to the preceding
sentence to purchase GUL insurance or to purchase any other life insurance. If
the Company discontinues its GUL insurance program, the Company shall
nevertheless make the payments required by this Section 7 as if such program
were still in effect. The payments made to the Executive pursuant to this
Section 7 shall not be considered as "salary" or "compensation" or "bonus" in
determining the amount of any payment under any pension, retirement,
profit-sharing or other benefit plan of the Company or any subsidiary of the
Company.
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8. Other Benefits.
8.1 General Availability. To the extent that (a) the Executive is eligible under the general provisions thereof and (b) the Company maintains such plan or program for the benefit of its senior executives, during the term of employment and so long as the Executive is an employee of the Company, the Executive shall be eligible to participate in any pension, profit-sharing, stock option or similar plan or program and in any group life insurance (to the extent set forth in Section 7), hospitalization, medical, dental, accident, disability or similar plan or program of the Company now existing or established hereafter. In addition, the Executive shall be entitled during the term of employment and so long as the Executive is an employee of the Company, to receive other benefits generally available to all senior executives of the Company to the extent the Executive is eligible under the general provisions thereof, including, without limitation, to the extent maintained in effect by the Company for its senior executives, an automobile allowance and financial services.
In addition to any retirement benefits to which the Executive is entitled under the Time Warner Employees' Pension Plan, any supplemental retirement or excess benefit plan maintained by the Company or any of its affiliates or any successor plans thereto (hereinafter collectively referred to as the "Pension Plan"), the Company will, following the Executive's termination of employment for any reason, except by the Company for cause pursuant to Section 4.1 and except for a termination by the Executive in breach of this Agreement, pay or cause to be paid to the Executive or his beneficiary as the case may be, in accordance with the following provisions, an amount which is equivalent to the excess of (the "Excess Amount") (i) the amount such Executive or beneficiary would be entitled to receive under the Pension Plan assuming the Executive had five additional years of service (as such term is defined in the Pension Plan) taking into account all the provisions of the Pension Plan as are from time to time in effect and applicable to the Executive or his beneficiary over (ii) the amount such Executive or beneficiary would be entitled to receive under the Pension Plan based on actual years of service taking into account all the provisions of the Pension Plan as are from time to time in effect and applicable to the Executive or his beneficiary.
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If the Executive or his beneficiary is entitled to an Excess Amount as described in the preceding paragraph, the Company shall pay the Excess Amount to the Executive or his beneficiary as follows. If the Executive is otherwise entitled to benefits under the Pension Plan, then the Excess Amount shall be paid at the same times and in the same manner as shall be elected by the Executive or his beneficiary for payment of amounts under the Pension Plan. If the Executive is not otherwise entitled to benefits under the Pension Plan, then the Excess Amount shall be paid at the time(s) and in one of the forms of payment permitted under the Pension Plan as elected by the Executive or his beneficiary. If the Executive or his beneficiary dies before any payments described above have been made, the payments shall be made to the beneficiary thereof at the same time and in the same manner as they would have been paid if the payments were to be made under the Pension Plan.
8.2 Benefits After a Termination or Disability. During the period the Executive remains on the payroll of the Company after a termination pursuant to Section 4.2 and during the Disability Period, the Executive shall continue to be eligible to participate in the benefit plans and to receive the benefits required to be provided to the Executive under Sections 7 and 8.1 to the extent such benefits are maintained in effect by the Company for its senior executives; provided, however, the Executive shall not be entitled to any additional awards or grants under any stock option, restricted stock or other stock based incentive plan. The Executive shall continue to be an employee of the Company for purposes of any stock option and restricted shares agreements and any other incentive plan awards during the term of employment and until such time as the Executive shall leave the payroll of the Company. At the time the Executive's term of employment with the Company terminates and he leaves the payroll of the Company pursuant to the provisions of Section 4.1, 4.2, 4.3, 4.4, 5 or 6, the Executive's rights to benefits and payments under any benefit plans, programs or practices or any insurance or other death benefit plans or arrangements of the Company or under any stock option, restricted stock, stock appreciation right, bonus unit, management incentive or other plan of the Company shall be determined, subject to the other terms and provisions of this Agreement, in accordance with the terms and provisions of such plans, programs or practices and any agreements under which such stock options, restricted stock or other awards were granted; provided, however, that notwithstanding the foregoing or any more restrictive provisions of any such plan or agreement,
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if the Executive leaves the payroll of the Company as a result of a termination pursuant to Section 4.2 or 4.3, then (i) all stock options granted to the Executive by the Company shall vest and become immediately exercisable at the time the Executive shall leave the payroll of the Company pursuant to Section 4.2 or 4.3, (ii) all stock options granted to the Executive by the Company shall remain exercisable (but not beyond the expiration of the option term) during the remainder of the term of employment and for a period of three months thereafter or such longer period as shall be specified in any applicable stock option agreement and (iii) the Company shall not be permitted to determine that the Executive's employment was terminated for "unsatisfactory performance" within the meaning of any stock option agreement between the Company and the Executive.
8.3 Payments in Lieu of Other Benefits. In the event the term of employment and the Executive's employment with the Company is terminated pursuant to Sections 4.1, 4.2, 4.3, 4.4, 5 or 6, the Executive shall not be entitled to notice and severance or to be paid for any accrued vacation time or unused sabbatical, the payments provided for in such Sections being in lieu thereof.
8.4 Stock Options. During the term of employment, the Executive shall be eligible to receive grants of stock options in the discretion of the Compensation Committee of the Company's Board of Directors. If the term of employment is terminated pursuant to Section 4.3, then all stock options granted to the Executive after the Effective Date shall become immediately exercisable in full on the date of such termination and shall remain exercisable (but not beyond the expiration of the option term) for five years after the date of such termination.
9. Protection of Confidential Information; Non-Compete. The Executive acknowledges that his employment by the Company (which, for purposes of this Section 9 shall mean Time Warner Inc. and its affiliates) will, throughout the term of employment, bring him into close contact with many confidential affairs of the Company, including information about costs, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not readily available to the public, and plans for future development. The Executive further acknowledges that the services to be performed under this Agreement are of a special, unique, unusual,
19
extraordinary and intellectual character. The Executive further acknowledges that the business of the Company is international in scope, that its products are marketed throughout the world, that the Company competes in nearly all of its business activities with other Entities that are or could be located in nearly any part of the world and that the nature of the Executive's services, position and expertise are such that he is capable of competing with the Company from nearly any location in the world. In recognition of the foregoing, the Executive covenants and agrees as set forth below in this Section 9.
9.1 Confidentiality Covenant. The Executive covenants
and agrees that (i) through the date he ceases to be an employee of the Company
and leaves the payroll of the Company for any reason, and (ii) for twelve months
after the effective date of termination of the Executive's employment and of the
other provisions of this Agreement pursuant to Section 4.1, 4.2, 4.3 or 4.4, and
(iii) with respect to Sections 9.1.1. and 9.1.2, for an additional 36 months
after the later of the dates described in clauses (i) and (ii) above:
9.1.1 The Executive shall keep secret all confidential matters of the Company and shall not intentionally disclose such matters to anyone outside of the Company, either during or after the term of employment, except during the term of employment, in connection with his duties hereunder, or except with the Company's written consent, provided that (i) the Executive shall have no such obligation to the extent such matters are or become publicly known other than as a result of the Executive's breach of his obligations hereunder and (ii) the Executive may, after giving prior notice to the Company to the extent practicable under the circumstances, disclose such matters to the extent required by applicable laws or governmental regulations or judicial or regulatory process.
9.1.2 The Executive shall deliver promptly to the Company on termination of his employment by the Company, or at any other time the Company may so request, at the Company's expense, all memoranda, notes, records, reports and other documents (and all copies thereof) relating to the Company's business, other than publicly available documents or documents relating to the terms and conditions of the Executive's employment, which he obtained while employed by, or otherwise serving or acting on behalf of, the Company
20
and which he may then possess or have under his control; provided that if the Executive is to continue as a director, consultant or advisor to the Company after such termination, the Executive may retain such documents as are necessary or appropriate to the performance of his duties unless and until the Company requests that such documents be delivered to it; and
9.1.3 If the term of employment is terminated pursuant to Section 4.1, 4.2 , 4.3 or 4.4, the Executive shall not employ, and shall not cause any Entity of which he is an affiliate to employ, without the prior written consent of the Company, any person who was a full-time exempt employee of the Company at the date of such termination or within six months prior thereto.
9.2 Non-Compete. The Executive covenants and agrees that (i) through the date the Executive ceases to be an employee of the Company and leaves the payroll of the Company for any reason, and (ii) with respect to an Entity that is engaged in competition with the Company and that had, or the parent Entity or predecessor Entity of which had, consolidated gross revenues from all sources, including non-competitive businesses, of $2 billion or more for the fiscal year preceding the Executive's commencement of service for such Entity, through the date that is the earlier of (a) twelve months after the effective date of any notice of termination of the Executive's employment with the Company pursuant to Section 4.1 or 4.2 and (b) the Term Date, the Executive shall not, directly or indirectly, without the prior written consent of the Chief Executive Officer of the Company, render any services to any person or Entity or acquire any interest of any type in any Entity, that shall be deemed in competition with the Company; provided, however, that the foregoing shall not be deemed to prohibit the Executive from (a) acquiring, solely as an investment and through market purchases, securities of any Entity which are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 and which are publicly traded, so long as he is not part of any control group of such Entity and such securities, if converted, do not constitute more than one percent (1%) of the outstanding voting power of that Entity or (b) acquiring, solely as an investment, any securities of an Entity (other than an Entity that has outstanding securities covered by the preceding clause (a)) so long as he remains a passive investor in such Entity and does not become part of any control group thereof. Notwithstanding the foregoing, if the term of employment is terminated pursuant to Section 4.3, then the provisions of the preceding sentence shall not apply to the Executive after the effective
21
date of such termination. For purposes of the foregoing, a person or Entity shall be deemed to be in competition with the Company if such person or it engages in any line of business that is substantially the same as either (i) any line of operating business which the Company engages in, conducts or, to the knowledge of the Executive, has definitive plans to engage in or conduct or (ii) any operating business that is engaged in or conducted by the Company and as to which, to the knowledge of the Executive, the Company covenants in writing, in connection with the disposition of such business, not to compete therewith. Notwithstanding the preceding sentence, following the effective date of any termination under Section 4 of this Agreement (including during the Advisory Period contemplated by Section 4.3), only the following Entities shall be deemed to be in competition with the Company: AT&T Corporation, Bertelsmann A.G., The Walt Disney Company, General Electric Corporation, The News Corporation, The Seagram Company, Ltd., Sony Corporation, Viacom Inc. and their respective subsidiaries and affiliates and any successor to any of the media and entertainment business thereof.
9.3 Specific Remedy. In addition to such other rights and remedies as the Company may have at equity or in law with respect to any breach of this Agreement, if the Executive commits a material breach of any of the provisions of Section 9.1, the Company shall have the right and remedy to have such provisions specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company.
9.4 Liquidated Damages. If the Executive commits a material breach of the provisions of Section 9.2, the Executive shall pay to the Company as liquidated damages an amount equal to three times the Executive's then current Base Salary, or if the Executive is not employed by the Company at the time of such breach, an amount equal to three times the most recent Base Salary paid to the Executive by the Company. The Company shall be entitled to offset any amounts owed by the Executive to the Company under this Section 9.4 against any amounts owed by the Company to the Executive under any provision of this Agreement or otherwise, including without limitation, amounts payable to the Executive under Sections 4.2, 4.3 or 4.4. The Company and the Executive agree that it is impossible to determine with any
22
reasonable accuracy the amount of prospective damages to the Company upon a breach of Section 9.2 by the Executive and further agree that the damages set forth in this Section 9.4 are reasonable, and not a penalty, based upon the facts and circumstances of the parties and with due regard to future expectations.
10. Ownership of Work Product. The Executive acknowledges that during the term of employment, he may conceive of, discover, invent or create inventions, improvements, new contributions, literary property, material, ideas and discoveries, whether patentable or copyrightable or not (all of the foregoing being collectively referred to herein as "Work Product"), and that various business opportunities shall be presented to him by reason of his employment by the Company. The Executive acknowledges that all of the foregoing shall be owned by and belong exclusively to the Company and that he shall have no personal interest therein, provided that they are either related in any manner to the business (commercial or experimental) of the Company, or are, in the case of Work Product, conceived or made on the Company's time or with the use of the Company's facilities or materials, or, in the case of business opportunities, are presented to him for the possible interest or participation of the Company. The Executive shall (i) promptly disclose any such Work Product and business opportunities to the Company; (ii) assign to the Company, upon request and without additional compensation, the entire rights to such Work Product and business opportunities; (iii) sign all papers necessary to carry out the foregoing; and (iv) give testimony in support of his inventorship or creation in any appropriate case. The Executive agrees that he will not assert any rights to any Work Product or business opportunity as having been made or acquired by him prior to the date of this Agreement except for Work Product or business opportunities, if any, disclosed to and acknowledged by the Company in writing prior to the date hereof. Notwithstanding the foregoing, the Executive may, provided that Section 9.2 is complied with, acquire an interest in any business opportunity presented to the Company hereunder if the Company declines to pursue such business opportunity and if such investment is approved by the Chief Executive Officer of the Company in writing.
11. Notices. All notices, requests, consents and other communications required or permitted to be given under this Agreement shall be effective only if given in writing and shall be deemed to have been duly given if delivered personally or sent by prepaid telegram, or
23
mailed first-class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith):
11.1 If to the Company:
Time Warner Inc. 75 Rockefeller Plaza New York, New York 10019 Attention: Chief Executive Officer
(with a copy, similarly addressed but Attention: General Counsel)
11.2 If to the Executive, to his residence address set forth on the records of the Company.
12. General.
12.1 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the substantive laws of the State of New York applicable to agreements made and to be performed entirely in New York.
12.2 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
12.3 Entire Agreement. This Agreement, including Annexes A, B and C, sets forth the entire agreement and understanding of the parties relating to the subject matter of this Agreement and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties, including without limitation, the Prior Agreement.
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12.4 No Other Representations. No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or be liable for any alleged representation, promise or inducement not so set forth.
12.5 Assignability. This Agreement and the Executive's rights and obligations hereunder may not be assigned by the Executive. The Company may (but is not obligated to) assign its rights together with its obligations hereunder (a) to AOL Time Warner Inc., or (b) in connection with any sale, transfer or other disposition of all or substantially all of its business and assets; and upon any such assignment, such rights and obligations shall inure to and be binding upon AOL Time Warner Inc. and any successor to all or substantially all of the business and assets of the Company, whether by merger, purchase of stock or assets or otherwise, as the case may be.
12.6 Amendments; Waivers. This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived only by written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect such party's right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.
12.7 Resolution of Disputes. Any dispute or controversy arising with respect to this Agreement shall, at the election of either the Company or the Executive, be submitted to JAMS/ENDISPUTE for resolution in arbitration in accordance with the rules and procedures of JAMS/ENDISPUTE. Either party shall make such election by delivering written notice thereof to the other party at any time (but not later than 45 days after such party receives notice of the commencement of any administrative or regulatory proceeding or the filing of any lawsuit relating to any such dispute or controversy) and thereupon any such dispute or controversy shall be resolved only in accordance with the provisions of this Section 12.7. Any
25
such proceedings shall take place in New York City before a single arbitrator (rather than a panel of arbitrators), pursuant to any streamlined or expedited (rather than a comprehensive) arbitration process, before a nonjudicial (rather than a judicial) arbitrator, and in accordance with an arbitration process which, in the judgment of such arbitrator, shall have the effect of reasonably limiting or reducing the cost of such arbitration. The resolution of any such dispute or controversy by the arbitrator appointed in accordance with the procedures of JAMS/ENDISPUTE shall be final and binding. Judgment upon the award rendered by such arbitrator may be entered in any court having jurisdiction thereof, and the parties consent to the jurisdiction of the New York courts for this purpose. The prevailing party shall be entitled to recover the costs of arbitration (including reasonable attorneys fees and the fees of experts) from the losing party. If at the time any dispute or controversy arises with respect to this Agreement, JAMS/ENDISPUTE is not in business or is no longer providing arbitration services, then the American Arbitration Association shall be substituted for JAMS/ENDISPUTE for the purposes of the foregoing provisions of this Section 12.7. If the Executive shall be the prevailing party in such arbitration, the Company shall promptly pay, upon demand of the Executive, all legal fees, court costs and other costs and expenses incurred by the Executive in any legal action seeking to enforce the award in any court.
12.8 Beneficiaries. Whenever this Agreement provides for any payment to the Executive's estate, such payment may be made instead to such beneficiary or beneficiaries as the Executive may designate by written notice to the Company. The Executive shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Company (and to any applicable insurance company) to such effect.
12.9 No Conflict. The Executive represents and warrants to the Company that this Agreement is legal, valid and binding upon the Executive and the execution of this Agreement and the performance of the Executive's obligations hereunder does not and will not constitute a breach of, or conflict with the terms or provisions of, any agreement or understanding to which the Executive is a party (including, without limitation, any other employment agreement). The Company represents and warrants to the Executive that this Agreement is legal, valid and binding upon the Company and the execution of this Agreement
26
and the performance of the Company's obligations hereunder does not and will not constitute a breach of, or conflict with the terms or provisions of, any agreement or understanding to which the Company is a party.
12.10 Withholding Taxes. Payments made to the Executive pursuant to this Agreement shall be subject to withholding and social security taxes and other ordinary and customary payroll deductions.
12.11 No Offset. Except as provided in Section 9.4 of this Agreement, neither the Company nor the Executive shall have any right to offset any amounts owed by one party hereunder against amounts owed or claimed to be owed to such party, whether pursuant to this Agreement or otherwise, and the Company and the Executive shall make all the payments provided for in this Agreement in a timely manner.
12.12 Severability. If any provision of this Agreement shall be held invalid, the remainder of this Agreement shall not be affected thereby; provided, however, that the parties shall negotiate in good faith with respect to equitable modification of the provision or application thereof held to be invalid. To the extent that it may effectively do so under applicable law, each party hereby waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect.
12.13 Definitions. The following terms are defined in this Agreement in the places indicated:
Account Retained Income - Section A.6 of Annex A
affiliate - Section 4.2.2
Applicable Tax Law - Section A.5 of Annex A
Base Salary - Section 3.1
cause - Section 4.1
Code - Section 3.2
Company - the first paragraph on page 1 and Section 9.1
deferred compensation - Section 3.3
Disability Date - Section 5
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Disability Period - Section 5
Effective Date - the first paragraph on page 1
eligible securities - Section A.1 of Annex A
Entity - Section 2
Excess Amount - Section 8.1
Executive - the first paragraph in page 1
fair market value - Section A.1 of Annex A
Investment Advisor - Section A.1 of Annex A
Pay-Out Period - Section A.6 of Annex A
Pension Plan - Section 8.1
Prior Account - Section 3.5
Prior Agreement - the second paragraph on page 1
Rabbi Trust - Section 3.3
Retirement Date - Section 4.7
senior executives - Section 3.1
Term Date - the second paragraph on page 1
term of employment - Section 1
Trust Account - Section 3.3
Trust Agreement - Section 3.3
Trustee - Section 3.3
Valuation Date - Section A.6 of Annex A
Work Product - Section 10
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.
TIME WARNER INC.
By ___________________________
Gerald M. Levin
Chairman and Chief
Executive Officer
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1
ANNEX A
Deferred Compensation Account
A.1 Investments. Funds credited to the Trust Account shall be actually invested and reinvested in an account in securities selected from time to time by an investment advisor designated from time to time by the Company (the "Investment Advisor"), substantially all of which securities shall be "eligible securities". The designation from time to time by the Company of an Investment Advisor shall be subject to the approval of the Executive, which approval shall not be withheld unreasonably. "Eligible securities" are common and preferred stocks, warrants to purchase common or preferred stocks, put and call options, and corporate or governmental bonds, notes and debentures, either listed on a national securities exchange or for which price quotations are published in newspapers of general circulation, including The Wall Street Journal, and certificates of deposit. Eligible securities shall not include the common or preferred stock, any warrants, options or rights to purchase common or preferred stock or the notes or debentures of the Company or any corporation or other entity of which the Company owns directly or indirectly 5% or more of any class of outstanding equity securities. The Investment Advisor shall have the right, from time to time, to designate eligible securities which shall be actually purchased and sold for the Trust Account on the date of reference. Such purchases may be made on margin; provided that the Company may, from time to time, by written notice to the Executive, the Trustee and the Investment Advisor, limit or prohibit margin purchases in any manner it deems prudent and, upon three business days written notice to the Executive, the Trustee and the Investment Advisor, cause all eligible securities theretofore purchased on margin to be sold. The Investment Advisor shall send notification to the Executive and the Trustee in writing of each transaction within five business days thereafter and shall render to the Executive and the Trustee written quarterly reports as to the current status of his or her Trust Account. In the case of any purchase, the Trust Account shall be charged with a dollar amount equal to the quantity and kind of securities purchased multiplied by the fair market value of such securities on the date of reference and shall be credited with the quantity and kind of securities so purchased. In the case of any sale, the Trust Account shall be charged with the
2 A-2
quantity and kind of securities sold, and shall be credited with a dollar amount equal to the quantity and kind of securities sold multiplied by the fair market value of such securities on the date of reference. Such charges and credits to the Trust Account shall take place immediately upon the consummation of the transactions to which they relate. As used herein "fair market value" means either (i) if the security is actually purchased or sold by the Rabbi Trust on the date of reference, the actual purchase or sale price per security to the Rabbi Trust or (ii) if the security is not purchased or sold on the date of reference, in the case of a listed security, the closing price per security on the date of reference, or if there were no sales on such date, then the closing price per security on the nearest preceding day on which there were such sales, and, in the case of an unlisted security, the mean between the bid and asked prices per security on the date of reference, or if no such prices are available for such date, then the mean between the bid and asked prices per security on the nearest preceding day for which such prices are available. If no bid or asked price information is available with respect to a particular security, the price quoted to the Trustee as the value of such security on the date of reference (or the nearest preceding date for which such information is available) shall be used for purposes of administering the Trust Account, including determining the fair market value of such security. The Trust Account shall be charged currently with all interest paid by the Trust Account with respect to any credit extended to the Trust Account. Such interest shall be charged to the Trust Account, for margin purchases actually made, at the rates and times actually paid by the Trust Account. The Company may, in the Company's sole discretion, from time to time serve as the lender with respect to any margin transactions by notice to the then Investment Advisor and the Trustee and in such case interest shall be charged at the rate and times then charged by an investment banking firm designated by the Company with which the Company does significant business. Brokerage fees shall be charged to the Trust Account at the rates and times actually paid.
A.2 Dividends and Interest. The Trust Account shall be credited with dollar amounts equal to cash dividends paid from time to time upon the stocks held therein. Dividends shall be credited as of the payment date. The Trust Account shall similarly be credited with interest payable on interest bearing securities held therein. Interest shall be credited as of the payment date, except that in the case of purchases of interest-bearing securities the Trust Account shall be charged with the dollar amount of interest accrued to the
3 A-3
date of purchase, and in the case of sales of such interest-bearing securities
the Trust Account shall be credited with the dollar amount of interest accrued
to the date of sale. All dollar amounts of dividends or interest credited to the
Trust Account pursuant to this Section A.2 shall be charged with all taxes
thereon deemed payable by the Company (as and when determined pursuant to
Section A.5). The Investment Advisor shall have the same right with respect to
the investment and reinvestment of net dividends and net interest as he has with
respect to the balance of the Trust Account.
A.3 Adjustments. The Trust Account shall be equitably adjusted to reflect stock dividends, stock splits, recapitalizations, mergers, consolidations, reorganizations and other changes affecting the securities held therein.
A.4 Obligation of the Company. Without in any way limiting the obligations of the Company otherwise set forth in the Agreement or this Annex A, the Company shall have the obligation to establish, maintain and enforce the Rabbi Trust and to make payments to the Trustee for credit to the Trust Account in accordance with the provisions of Section 3.3 of the Agreement, to use due care in selecting the Trustee or any successor trustee and to in all respects work cooperatively with the Trustee to fulfill the obligations of the Company and the Trustee to the Executive. The Trust Account shall be charged with all taxes (including stock transfer taxes), interest, brokerage fees and investment advisory fees, if any, payable by the Company and attributable to the purchase or disposition of securities designated by the Investment Advisor (in all cases net after any tax benefits that the Company would be deemed to derive from the payment thereof, as and when determined pursuant to Section A.5) and only in the event of a default by the Company of its obligation to pay such fees and expenses, the fees and expenses of the Trustee in accordance with the terms of the Trust Agreement, but no other costs of the Company. Subject to the terms of the Trust Agreement, the securities purchased for the Trust Account as designated by the Investment Advisor shall remain the sole property of the Company, subject to the claims of its general creditors, as provided in the Trust Agreement. Neither the Executive nor his legal representative nor any beneficiary designated by the Executive shall have any right, other
4 A-4
than the right of an unsecured general creditor, against the Company or the Trust in respect of any portion of the Trust Account.
A.5 Taxes. The Trust Account shall be charged with all federal, state and local taxes deemed payable by the Company with respect to income recognized upon the dividends and interest received by the Trust Account pursuant to Section A.2 and gains recognized upon sales of any of the securities which are sold pursuant to Section A.1, A.6 or A.7. The Trust Account shall be credited with the amount of the tax benefit received by the Company as a result of any payment of interest actually made pursuant to Section A.1 or A.2 and as a result of any payment of brokerage fees and investment advisory fees made pursuant to Section A.1. If any of the sales of the securities which are sold pursuant to Section A.1, A.6 or A.7 results in a loss to the Trust Account, such net loss shall be deemed to offset the income and gains referred to in the second preceding sentence (and thus reduce the charge for taxes referred to therein) to the extent then permitted under the Internal Revenue Code of 1986, as amended from time to time, and under applicable state and local income and franchise tax laws (collectively referred to as "Applicable Tax Law"); provided, however, that for the purposes of this Section A.5 the Trust Account shall, except as provided in the third following sentence, be deemed to be a separate corporate taxpayer and the losses referred to above shall be deemed to offset only the income and gains referred to in the second preceding sentence. Such losses shall be carried back and carried forward within the Trust Account to the extent permitted by Applicable Tax Law in order to minimize the taxes deemed payable on such income and gains within the Trust Account. For the purposes of this Section A.5, all charges and credits to the Trust Account for taxes shall be deemed to be made as of the end of the Company's taxable year during which the transactions, from which the liabilities for such taxes are deemed to have arisen, are deemed to have occurred. Notwithstanding the foregoing, if and to the extent that in any year there is a net loss in the Trust Account that cannot be offset against income and gains in any prior year, then an amount equal to the tax benefit to the Company of such net loss (after such net loss is reduced by the amount of any net capital loss of the Trust Account for such year) shall be credited to the Trust Account on the last day of such year. If and to the extent that any such net loss of the Trust Account shall be utilized to determine a credit to the Trust Account pursuant to the preceding sentence, it shall not thereafter be carried forward under this Section A.5. For purposes of determining
5 A-5
taxes payable by the Company under any provision of this Annex A it shall be assumed that the Company is a taxpayer and pays all taxes at the maximum marginal rate of federal income taxes and state and local income and franchise taxes (net of assumed federal income tax benefits) applicable to business corporations and that all of such dividends, interest, gains and losses are allocable to its corporate headquarters, which are currently located in New York City.
A.6 One-Time Transfer to Deferred Plan. So long as the Executive is an employee of the Company, the Executive shall have the right to elect at any time, but only once during the Executive's lifetime, by written notice to the Company to transfer to the Deferred Plan all or a portion of the Net Transferable Balance (determined as provided in the next sentence) of the Trust Account. If the Executive shall make such an election, the Net Transferable Balance shall be determined as of the end of the calendar quarter following the date of such election (unless such election is made during the ten calendar days following the end of a calendar quarter, in which case such determination shall be made as of the end of such preceding calendar quarter) by adjusting all of the securities held in the Trust Account to their fair market value (net of the tax adjustment that would be made thereon if sold, as estimated by the Company or the Trustee) and by deducting from such value the amount of all outstanding indebtedness and any other amounts payable by the Trust Account. Transfers to the Deferred Plan shall be made in cash as promptly as reasonably practicable after the end of such calendar quarter and the Investment Advisor (or the Company or the Trustee if the Investment Advisor shall fail to act in a timely manner) shall cause securities held in the Trust Account to be sold to provide cash equal to the portion of the Net Transferable Balance of the Trust Account selected to be transferred by the Executive. If the Executive elects to transfer more than 75% of the Net Transferable Balance of the Trust Account to the Deferred Plan, the Company or the Trustee shall be permitted to take such action as they may deem reasonably appropriate, including but not limited to, retaining a portion of such Net Transferable Balance in the Trust Account, to ensure that the Trust Account will have sufficient assets to pay the Company the amount of taxes payable on such sales of securities at the end of the year in which such sales are made.
6 A-6
A.7 Payments. Payments of deferred compensation shall be made
as provided in this Section A.7. Unless the Executive makes the election
referred to in the next succeeding sentence, deferred compensation shall be paid
bi-weekly for a period of ten years (the "Pay-Out Period") commencing on the
first Company payroll date in the month following the later of (i) the Term Date
and (ii) the date the Executive ceases to be an employee of the Company and
leaves the payroll of the Company for any reason, provided, however, that if the
Executive was named in the compensation table in the Company's then most recent
proxy statement, such payments shall commence on the first Company payroll date
in January of the year following the year in which the latest of such events
occurs. The Executive may elect a shorter Pay-Out Period by delivering written
notice to the Company or the Trustee at least one-year prior to the commencement
of the Pay-Out Period, which notice shall specify the shorter Pay-Out Period. On
each payment date, the Trust Account shall be charged with the dollar amount of
such payment. On each payment date, the amount of cash held in the Trust Account
shall be not less than the payment then due and the Company or the Trustee may
select the securities to be sold to provide such cash if the Investment Advisor
shall fail to do so on a timely basis. The amount of any taxes payable with
respect to any such sales shall be computed, as provided in Section A.5 above,
and deducted from the Trust Account, as of the end of the taxable year of the
Company during which such sales are deemed to have occurred. Solely for the
purpose of determining the amount of payments during the Pay-Out Period, the
Trust Account shall be valued on the fifth trading day prior to the end of the
month preceding the first payment of each year of the Pay-Out Period, or more
frequently at the Company's or the Trustee's election (the "Valuation Date"), by
adjusting all of the securities held in the Trust Account to their fair market
value (net of the tax adjustment that would be made thereon if sold, as
estimated by the Company or the Trustee) and by deducting from the Trust Account
the amount of all outstanding indebtedness. The extent, if any, by which the
Trust Account, valued as provided in the immediately preceding sentence, plus
any amounts that have been transferred to the Deferred Plan pursuant to Section
A.6 hereof and not theretofore distributed or deemed distributed therefrom,
exceeds the aggregate amount of credits to the Trust Account pursuant to
Sections 3.3, 3.4 and 3.5 of the Agreement as of each Valuation Date and not
theretofore distributed or deemed distributed pursuant to this Section A.6 is
herein called "Account Retained Income". The amount of each payment for the
year, or such shorter period as may be determined by the Company or the Trustee,
of the Pay-Out Period immediately succeeding such Valuation Date, including the
payment then due, shall be
7 A-7
determined by dividing the aggregate value of the Trust Account, as valued and adjusted pursuant to the second preceding sentence, by the number of payments remaining to be paid in the Pay-Out Period, including the payment then due; provided that each payment made shall be deemed made first out of Account Retained Income (to the extent remaining after all prior distributions thereof since the last Valuation Date). The balance of the Trust Account, after all the securities held therein have been sold and all indebtedness liquidated, shall be paid to the Executive in the final payment, which shall be decreased by deducting therefrom the amount of all taxes attributable to the sale of any securities held in the Trust Account since the end of the preceding taxable year of the Company, which taxes shall be computed as of the date of such payment.
If this Agreement is terminated by the Company pursuant to
Section 4.1 or if the Executive terminates this Agreement or the term of
employment in breach of this Agreement, the Trust Account shall be valued as of
the later of (i) the Term Date or (ii) twelve months after termination of the
Executive's employment with the Company, and the balance of the Trust Account,
after the securities held therein have been sold and all related indebtedness
liquidated, shall be paid to the Executive as soon as practicable and in any
event within 75 days following the later of such dates in a final lump sum
payment, which shall be decreased by deducting therefrom the amount of all taxes
attributable to the sale of any securities held in the Trust Account since the
end of the preceding taxable year of the Company, which taxes shall be computed
as of the date of such payment. Payments made pursuant to this paragraph shall
be deemed made first out of Account Retained Income.
If the Executive becomes disabled within the meaning of
Section 5 of the Agreement and is not thereafter returned to full-time
employment with the Company as provided in said Section 5, then deferred
compensation shall be paid bi-weekly during the Pay-Out Period commencing on the
first Company payroll date in the month following the end of the Disability
Period in accordance with the provisions of the first paragraph of this Section
A.7.
If the Executive shall die at any time whether during or after the term of employment, the Trust Account shall be valued as of the date of the Executive's death and the
8 A-7
balance of the Trust Account shall be paid to the Executive's estate or beneficiary within 75 days of such death in accordance with the provisions of the second preceding paragraph.
Notwithstanding the foregoing provisions of this Section A.7, if the Rabbi Trust shall terminate in accordance with the provisions of the Trust Agreement, the Trust Account shall be valued as of the date of such termination and the balance of the Trust Account shall be paid to the Executive within 15 days of such termination in accordance with the provisions of the third preceding paragraph.
If a transfer to the Deferred Plan has been made pursuant to
Section A.6 hereof, payments made to the Executive from the Deferred Plan (a)
shall be deemed made first from the amounts transferred to the Deferred Plan
pursuant to Section A.6 and (b) shall be deemed made first out of Account
Retained Income.
Within 90 days after the end of each taxable year of the
Company in which payments are made, directly or indirectly, to the Executive
from the Trust Account or from the Deferred Plan with respect to amounts
transferred to the Deferred Plan from the Trust Account pursuant to Section A.6
and at the time of the final payment from the Trust Account, the Company or the
Trustee shall compute and the Company shall pay to the Trustee for credit to the
Trust Account, the amount of the tax benefit assumed to be received by the
Company from the payment to the Executive of amounts of Account Retained Income
during such taxable year or since the end of the last taxable year, as the case
may be. No additional credits shall be made to the Trust Account pursuant to the
preceding sentence in respect of the amounts credited to the Trust Account
pursuant to the preceding sentence. Notwithstanding any provision of this
Section A.7, the Executive shall not be entitled to receive pursuant to this
Annex A (including any amounts that have been transferred to the Deferred Plan
pursuant to Section A.6 hereof) an aggregate amount that shall exceed the sum of
(i) all credits made to the Trust Account pursuant to Sections 3.3, 3.4 and 3.5
of the Agreement, (ii) the net cumulative amount (positive or negative) of all
income, gains, losses, interest and expenses charged or credited to the Trust
Account pursuant to this Annex A (excluding credits made pursuant to the second
preceding sentence), after all credits and charges to the Trust Account with
respect to the tax benefits or burdens thereof, and (iii) an amount equal to the
tax benefit to the Company from the payment of the amount (if positive)
determined under clause (ii)
9 A-7
above; and the final payment(s) otherwise due may be adjusted or eliminated accordingly. In determining the tax benefit to the Company under clause (iii) above, the Company shall be deemed to have made the payments under clause (ii) above with respect to the same taxable years and in the same proportions as payments of Account Retained Income were actually made from the Trust Account. Except as otherwise provided in this paragraph, the computation of all taxes and tax benefits referred to in this Section A.7 shall be determined in accordance with Section A.5 above.
1 ANNEX B
RELEASE
Pursuant to the terms of the Employment Agreement made as of _____________, between TIME WARNER INC., a Delaware corporation (the "Company"), 75 Rockefeller Plaza, New York, New York 10019 and the undersigned (the "Agreement"), and in consideration of the payments made to me and other benefits to be received by me pursuant thereto, I, [Name], being of lawful age, do hereby release and forever discharge the Company and its officers, shareholders, subsidiaries, agents, and employees, from any and all actions, causes of action, claims, or demands for general, special or punitive damages, attorney's fees, expenses, or other compensation, which in any way relate to or arise out of my employment with the Company or any of its subsidiaries or the termination of such employment, which I may now or hereafter have under any federal, state or local law, regulation or order, including without limitation, under the Age Discrimination in Employment Act, as amended, through and including the date of this Release; provided, however, that the execution of this Release shall not prevent the undersigned from bringing a lawsuit against the Company to enforce its obligations under the Agreement.
I acknowledge that I have been given at least 21 days from the day I received a copy of this Release to sign it and that I have been advised to consult an attorney. I understand that I have the right to revoke my consent to this Release for seven days following my signing. This Release shall not become effective or enforceable until the expiration of the seven-day period following the date it is signed by me.
I further state that I have read this document and the Agreement referred to herein, that I know the contents of both and that I have executed the same as my own free act.
WITNESS my hand this ____ day of ___________ , ____.
2
3
ANNEX C
RELEASE
In connection with the Employment Agreement made as of
_________, between TIME WARNER INC., (the "Company"), and [TK] (the
"Agreement"), the Company does hereby release and forever discharge [TK] and his
estate, heirs, beneficiaries and representatives, from any and all actions,
causes of action, claims, or demands for general, special or punitive damages,
attorney's fees, expenses, or other compensation, which in any way relate to or
arise out of his employment with the Company or any of its affiliates or the
termination of such employment, which the Company may now or hereafter have
under any federal, state or local law, regulation or order, through and
including the date of this Release; provided, however, that the execution of
this Release shall not prevent the Company from bringing a lawsuit against [TK]
(x) to enforce his obligations under [Section 9] of the Agreement or (y) to seek
damages or reimbursement for fraud or embezzlement committed by him during his
employment with the Company.
IN WITNESS WHEREOF the Company has caused this Release to be executed on its behalf by a duly authorized officer this day of , 199 .
TIME WARNER INC.
April 2001
Exhibit 12.1
AOL TIME WARNER INC.
RATIO OF EARNINGS TO FIXED CHARGES
-------------
Pro Forma (a)
Year ended
December 31,
2000
-------------
Earnings:
Net income (loss) before income taxes and cumulative effect of accounting change $(3,368)
Interest expense 1,690
Amortization of capitalized interest 6
Portion of rents representative of an interest factor 394
Preferred stock dividend requirements of majority-owned
subsidiaries 52
Adjustment for partially owned subsidiaries and 50% owned
companies 235
Undistributed losses (earnings) of less than 50% owned
companies 13
-------
Total earnings $ (978)
=======
Fixed Charges:
Interest expense $ 1,690
Capitalized interest 10
Portion of rents representative of an interest factor 394
Preferred stock dividend requirements of majority-owned
subsidiaries 52
Adjustment for partially owned subsidiaries and 50% owned
companies 121
-------
Total fixed charges $ 2,267
=======
Pretax income necessary to cover preferred dividend requirements 24
-------
Total combined $ 2,291
=======
Ratio of earnings to fixed charges (deficiency in the coverage
of fixed charges by earnings before fixed charges) $(3,245)
=======
Ratio of earnings to combined fixed charges and preferred dividend
requirements (deficiency in the coverage of combined fixed charges
and preferred dividend requirements deficiency) $(3,269)
=======
|
(a) AOL Time Warner's pro forma ratios are presented to give effect to the merger of America Online and Time Warner as if it occurred at the beginning of the period.
Exhibit 12.2
AMERICA ONLINE INC.
RATIO OF EARNINGS TO FIXED CHARGES
--------------------------------------------
Historical
Year Ended December 31,
2000 1999 1998 1997 1996
--------------------------------------------
Earnings:
Net income (loss) before income taxes and cumulative effect of accounting change $1,884 $1,634 $ 145 $ (11) $ (215)
Interest expense 55 23 21 5 2
Amortization of capitalized interest - - - - -
Portion of rents representative of an interest factor 205 163 128 80 36
Preferred stock dividend requirements of majority-owned
subsidiaries - - - - -
Adjustment for partially owned subsidiaries and 50% owned
companies - - - - -
Undistributed losses (earnings) of less than 50% owned
companies - - - - -
------ ------ ------ ------ ------
Total earnings $2,144 $1,820 $ 294 $ 74 $ (177)
====== ====== ====== ====== ======
Fixed Charges:
Interest expense $ 55 $ 23 $ 21 $ 5 $ 2
Capitalized interest 2 2 - - -
Portion of rents representative of an interest factor 205 163 128 80 36
Preferred stock dividend requirements of majority-owned
subsidiaries - - - - -
Adjustment for partially owned subsidiaries and 50% owned
companies - - - - -
------ ------ ------ ------ ------
Total fixed charges $ 262 $ 188 $ 149 $ 85 $ 38
====== ====== ====== ====== ======
Pretax income necessary to cover preferred dividend requirements - - - - -
------ ------ ------ ------ ------
Total combined $ 262 $ 188 $ 149 $ 85 $ 38
====== ====== ====== ====== ======
Ratio of earnings to fixed charges (deficiency in the coverage of
fixed charges by earnings before fixed charges) 8.2x 9.7x 2.0x $ (11) $ (215)
====== ====== ====== ====== ======
Ratio of earnings to combined fixed charges and preferred dividend
requirements (deficiency in the coverage of combined fixed charges
and preferred dividend requirements deficiency) 8.2x 9.7x 2.0x $ (11) $ (215)
====== ====== ====== ====== ======
|
Exhibit 12.3
TIME WARNER INC.
RATIO OF EARNINGS TO FIXED CHARGES
--------------
Pro Forma (a) ---------------------------------------------------------
Year Ended Historical Historical
December 31, Year Ended December 31, Year Ended December 31,
2000 2000(b) 1999(b) 1998 1997 1996
------------- ---------------------------------------------------------
Earnings:
Net income (loss) before income taxes
and cumulative effect of accounting change $(5,252) $ 671 $ 3,500 $ 586 $ 832 $ 4
Interest expense 1,635 1,696 1,512 891 1,049 968
Amortization of capitalized interest 6 6 9 10 18 6
Portion of rents representative of an
interest factor 189 185 172 94 78 63
Preferred stock dividend requirements
of majority-owned subsidiaries 52 52 57 52 72 72
Adjustment for partially owned
subsidiaries and 50% owned companies 235 235 440 960 938 801
Undistributed losses (earnings) of
less than 50% owned companies 13 13 46 42 4 52
------- ------- ------- ------- ------- -------
Total earnings $(3,122) $ 2,858 $ 5,736 $ 2,635 $ 2,991 $ 1,966
======= ======= ======= ======= ======= =======
Fixed Charges:
Interest expense $ 1,635 $ 1,696 $ 1,512 $ 891 $ 1,049 $ 968
Capitalized interest 8 8 6 1 15 7
Portion of rents representative of
an interest factor 189 185 172 94 78 63
Preferred stock dividend requirements
of majority-owned subsidiaries 52 52 57 52 72 72
Adjustment for partially owned
subsidiaries and 50% owned companies 121 121 86 721 622 607
------- ------- ------- ------- ------- -------
Total fixed charges $ 2,005 $ 2,062 $ 1,833 $ 1,759 $ 1,836 $ 1,717
======= ======= ======= ======= ======= =======
Pretax income necessary to cover
preferred dividend requirements 24 24 88 915 541 347
------- ------- ------- ------- ------- -------
Total combined $ 2,029 $ 2,086 $ 1,921 $ 2,674 $ 2,377 $ 2,064
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed
charges (deficiency in
the coverage of fixed
charges by earnings before
fixed charges) $(5,127) 1.4x 3.1x 1.5x 1.6x 1.1x
======= ======= ======= ======= ======= ======
Ratio of earnings to combined
fixed charges and preferred
dividend requirements (deficiency
in the coverage of combined fixed
charges and preferred dividend
requirements deficiency) $(5,151) 1.4x 3.0x $ (39) 1.3x $ (98)
======= ======= ======= ======= ======= ======
|
(a) As a result of the merger of America Online and Time Warner, the pro forma ratios of Time Warner have been adjusted to reflect an allocable portion of AOL Time Warner's new basis of accounting on a pushdown basis. The historical ratios are reflected at Time Warner's historical cost basis of accounting. Time Warner's pro forma ratios are presented to give effect to the merger of America Online and Time Warner as if it occurred on January 1, 2000.
(b) The ratio of earnings to fixed charges for the years ended December 31, 2000 and 1999 reflect the consolidation of the Entertainment Group, which substantially consists of Time Warner Entertainment Company, L.P. ("TWE"), to the beginning of 1999. Because Time Warner's ratio of earnings to fixed charges for all periods presented include 100% of TWE's earnings and fixed charges, the ratios for periods prior to 1999 have not changed as a result of such consolidation. However, the individual components as presented above are no longer comparable.
Exhibit 12.4
TIME WARNER COMPANIES INC.
RATIO OF EARNINGS TO FIXED CHARGES
-------------
Pro Forma (a) -----------------------------------------------
Year Ended Historical
December 31, Year Ended December 31,
2000 2000(b) 1999(b) 1998 1997 1996
------------- -----------------------------------------------
Earnings:
Net income (loss) before income taxes and cumulative effect of
accounting change $(4,145) $ 683 $ 3,320 $ 472 $ 681 $ (15)
Interest expense 1,180 1,237 1,168 710 913 908
Amortization of capitalized interest 6 6 7 2 2 2
Portion of rents representative of an interest factor 154 150 135 64 55 55
Preferred stock dividend requirements of majority-owned
subsidiaries 52 52 57 52 72 72
Adjustment for partially owned subsidiaries and 50% owned
companies 235 235 440 960 938 801
Undistributed losses (earnings) of less than 50% owned
companies 15 15 43 35 (8) 50
------- ------- ------- ------- ------- -------
Total earnings $(2,503) $ 2,378 $ 5,170 $ 2,295 $ 2,653 $ 1,873
======= ======= ======= ======= ======= =======
Fixed Charges:
Interest expense $ 1,180 $ 1,237 $ 1,168 $ 710 $ 913 $ 908
Capitalized interest 8 8 6 1 - 1
Portion of rents representative of an interest factor 154 150 135 64 55 55
Preferred stock dividend requirements of majority-owned
subsidiaries 52 52 57 52 72 72
Adjustment for partially owned subsidiaries and 50% owned
companies 121 121 86 721 622 607
------- ------- ------- ------- ------- -------
Total fixed charges $ 1,515 $ 1,568 $ 1,452 $ 1,548 $ 1,662 $ 1,643
======= ======= ======= ======= ======= =======
Pretax income necessary to cover preferred dividend requirements - - - - - -
------- ------- ------- ------- ------- -------
Total combined $ 1,515 $ 1,568 $ 1,452 $ 1,548 $ 1,662 $ 1,643
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges (deficiency in the coverage
of fixed charges by earnings before fixed charges) $(4,018) 1.5x 3.6x 1.5x 1.6x 1.1x
======= ======= ======= ======= ======= =======
Ratio of earnings to combined fixed charges
and preferred dividend requirements (deficiency
in the coverage of combined fixed charges and
preferred dividend requirements deficiency) $(4,018) 1.5x 3.6x 1.5x 1.6x 1.1x
======= ======= ======= ======= ======= =======
|
(a) As a result of the merger of America Online and Time Warner, the pro forma ratios of Time Warner Companies ("TWC") have been adjusted to reflect an allocable portion of AOL Time Warner's new basis of accounting on a pushdown basis. The historical ratios are reflected at TWC's historical cost basis of accounting. TWC's pro forma ratios are presented to give effect to the merger of America Online and Time Warner as if it occurred on January 1, 2000.
(b) The ratio of earnings to fixed charges for the years ended December 31, 2000 and 1999 reflect the consolidation of the Entertainment Group, which substantially consists of Time Warner Entertainment Company, L.P. ("TWE"), to the beginning of 1999. Because TWC's ratio of earnings to fixed charges for all periods presented include 100% of TWE's earnings and fixed charges, the ratios for periods prior to 1999 have not changed as a result of such consolidation. However, the individual components as presented above are no longer comparable.
Exhibit 12.5
TURNER BROADCASTING SYSTEM, INC.
RATIO OF EARNINGS TO FIXED CHARGES
------------- ------------
------------- Historical Historical
Pro Forma (a) ---------------------------- Three Months Nine Months
Year Ended Historical Ended Ended
December 31, Year Ended December 31, December 31, September 30,
2000 2000 1999 1998 1997 1996(b) 1996(b)
------------ ---------------------------- ------------- ------------
Earnings:
Net income (loss) before income taxes and
cumulative effect of accounting change $(851) $ 518 $ 574 $ 358 $ 265 $ 42 $ (42)
Interest expense 237 242 192 195 211 60 141
Amortization of capitalized interest - - 3 8 16 5 13
Portion of rents representative of an
interest factor 44 44 37 31 23 8 23
Preferred stock dividend requirements
of majority-owned subsidiaries - - - - - - -
Adjustment for partially owned
subsidiaries and 50% owned companies - - - - - - -
Undistributed losses (earnings) of
less than 50% owned companies (2) (2) 3 6 12 2 1
----- ----- ----- ----- ----- ----- -----
Total earnings $(572) $ 802 $ 809 $ 598 $ 527 $ 117 $ 136
===== ===== ===== ===== ===== ===== =====
Fixed Charges:
Interest expense $ 237 $ 242 $ 192 $ 195 $ 211 $ 60 $ 141
Capitalized interest - - - - 13 6 16
Portion of rents representative of an
interest factor 44 44 37 31 23 8 23
Preferred stock dividend requirements
of majority-owned subsidiaries - - - -
Adjustment for partially owned
subsidiaries and 50% owned companies - - - - - - -
----- ----- ----- ----- ----- ----- -----
Total fixed charges $ 281 $ 286 $ 229 $ 226 $ 247 $ 74 $ 180
===== ===== ===== ===== ===== ===== =====
Pretax income necessary to cover
preferred dividend requirements
----- ----- ----- ----- ----- ----- -----
Total combined $ 281 $ 286 $ 229 $ 226 $ 247 $ 74 $ 180
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed charges
(deficiency in the coverage of fixed
charges by earnings before fixed charges) $(853) 2.8x 3.5x 2.6x 2.1x 1.6x $ (44)
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to combined fixed
charges and preferred dividend
requirements (deficiency in the
coverage of combined fixed
charges and preferred dividend
requirements deficiency) $(853) 2.8x 3.5x 2.6x 2.1x 1.6x $ (44)
===== ===== ===== ===== ===== ===== =====
|
(a) As a result of the merger of America Online and Time Warner, the pro forma ratios of Turner Broadcasting System ("TBS") have been adjusted to reflect an allocable portion of AOL Time Warner's new basis of accounting on a pushdown basis. The historical ratios are reflected at TBS's historical cost basis of accounting. TBS's pro forma ratios are presented to give effect to the merger of America Online and Time Warner as if it occurred on January 1, 2000.
(b) Time Warner became the parent company of TWC and TBS on October 10, 1996, upon the merger of TWC and TBS with separate subsidiaries of Time Warner (the "TBS Merger"). The historical ratios of TBS for all periods after the TBS Merger have been adjusted to reflect Time Warner's basis of accounting. The historical ratios of TBS for all periods before the TBS merger are reflected at TBS's historical cost basis of accounting.