Turner Broadcasting System Inc – ‘DEFM14A’ on 9/17/96

As of:  Tuesday, 9/17/96   ·   Accession #:  950109-96-6042   ·   File #:  1-08911

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Definitive Proxy Solicitation Material — Merger or Acquisition   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14A     Definitive Proxy Solicitation Material -- Merger     347   1.90M 
                          or Acquisition                                         

Document Table of Contents

DEFM14A
1st Page of 347
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.  ) 

Filed by the Registrant [x]                                                     

Filed by a Party other than the Registrant [_]                                  

Check the appropriate box:                                                      

[_] Preliminary Proxy Statement           [_] CONFIDENTIAL, FOR USE OF THE      
                                            COMMISSION ONLY (AS PERMITTED BY
[x] Definitive Proxy Statement                RULE 14C-5(D)(2))                 

[_] Definitive Additional Materials                                             

[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12           

TURNER BROADCASTING SYSTEM, INC.  
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):                              

[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or     
Item 22(a)(2) of Schedule 14A.                                          

[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-   
6(i)(3).                                                                

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.    

(1) Title of each class of securities to which transaction applies:     

(2) Aggregate number of securities to which transaction applies:        

(3) Per unit price or other underlying value of transaction computed    
     pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):      

(4) Proposed maximum aggregate value of transaction:                    

(5) Total fee paid:                                                     

[x] Fee paid previously with preliminary materials.                             

[_] Check box if any part of the fee is offset as provided by Exchange Act Rule 
0-11(a)(2) and identify the filing for which the offsetting fee was paid
  previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.                     

(1) Amount Previously Paid:                                             

(2) Form, Schedule or Registration Statement No.:                       

(3) Filing Party:                                                       

(4) Date Filed:                                                         

Notes:                                                                          

DEFM14A
2nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 2nd
TURNER BROADCASTING SYSTEM, INC.  

                                                             September 6, 1996

Dear Shareholder:                                                               

You are cordially invited to attend a Special Meeting of Shareholders (the  
"TBS Meeting") of Turner Broadcasting System, Inc. ("TBS") to be held on        
October 10, 1996 at 2:00 p.m., local time, at the Time & Life Building, 1271    
Avenue of the Americas, New York, New York 10020.                               

At the TBS Meeting you will be considering and voting upon a matter of great
importance to TBS: the combination of TBS and Time Warner Inc. ("Time           
Warner"), which will create the largest media and entertainment company in the  
world. In this merger, TBS and Time Warner will each become a wholly owned      
subsidiary of a new holding company that will be renamed "Time Warner Inc."     
("New Time Warner").                                                            

If the transaction is approved by the shareholders of TBS and the           
stockholders of Time Warner, and is effected, each outstanding share of TBS     
Class A Common Stock and TBS Class B Common Stock will be converted into the    
right to receive 0.75 of a share of common stock of New Time Warner ("New Time  
Warner Common Stock") and each outstanding share of TBS Class C Convertible     
Preferred Stock (each of which is convertible into six shares of TBS Class B    
Common Stock) will be converted into the right to receive 4.80 shares of New    
Time Warner Common Stock. Each outstanding share of common stock of Time        
Warner will be converted into one share of New Time Warner Common Stock and     
each outstanding share of each series of preferred stock of Time Warner will    
be converted into one share of a substantially identical series of preferred    
stock of New Time Warner.                                                       

The attached Joint Proxy Statement/Prospectus provides you with detailed    
information regarding the transaction. I urge you to read it carefully.         

Your Board of Directors (with certain directors not present or abstaining on
the basis that they were interested directors with respect to the transaction)  
has unanimously approved the transaction and has determined that the            
transaction is fair to and in the best interests of TBS and its shareholders,   
and recommends that all TBS shareholders vote for the approval of the           
transaction.                                                                    

Whether or not you are personally able to attend the TBS Meeting, please    
complete, sign, date and return the enclosed proxy card as soon as possible.    
This action will not limit the right of any record holder who desires to        
attend the TBS Meeting to vote in person at the TBS Meeting.                    

                     Very truly yours,

               R.E. Turner
                                       Chairman of the Board and President

DEFM14A
3rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 3rd
TURNER BROADCASTING SYSTEM, INC.  
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS 
TO BE HELD ON 
OCTOBER 10, 1996  

A Special Meeting of Shareholders (the "TBS Meeting") of Turner Broadcasting
System, Inc. ("TBS") will be held at the Time & Life Building, 1271 Avenue of   
the Americas, New York, New York 10020, on October 10, 1996, commencing at      
2:00 p.m., local time, for the following purposes:                              

1. To consider and vote upon a proposal (the "TBS Merger Proposal") to  
approve an Amended and Restated Agreement and Plan of Merger dated as of    
September 22, 1995, as amended as of August 8, 1996 (as so amended, the     
"Merger Agreement"), among Time Warner Inc. ("Time Warner"), TBS, TW Inc.,  
currently a wholly owned subsidiary of Time Warner ("New Time Warner"),     
Time Warner Acquisition Corp., a wholly owned subsidiary of New Time Warner 
("TW Merger Corp."), and TW Acquisition Corp., a wholly owned subsidiary of 
New Time Warner ("TBS Merger Corp."). The Merger Agreement provides, among  
other things, for the following transactions:                               

(a) the merger of TBS Merger Corp. into TBS (the "TBS Merger"), in  
which each share of Class A Common Stock, par value $.0625 per share,   
of TBS ("TBS Class A Common Stock") and each share of Class B Common    
Stock, par value $.0625 per share, of TBS ("TBS Class B Common Stock"   
and, together with the TBS Class A Common Stock, "TBS Common Stock")    
outstanding immediately prior to the effective time of the TBS Merger,  
other than shares held directly or indirectly by Time Warner or New     
Time Warner or in the treasury of TBS and shares with respect to which  
dissenters' rights are properly exercised, will be converted into the   
right to receive 0.75 of a share of Common Stock, par value $.01 per    
share, of New Time Warner ("New Time Warner Common Stock"), and each    
share of Class C Convertible Preferred Stock, par value $.125 per       
share, of TBS ("TBS Class C Preferred Stock" and, together with TBS     
Common Stock, "TBS Capital Stock") outstanding immediately prior to the 
effective time of the TBS Merger, other than shares held directly or    
indirectly by Time Warner or New Time Warner or in the treasury of TBS  
and shares with respect to which dissenters' rights are properly        
exercised, will be converted into the right to receive 4.80 shares of   
New Time Warner Common Stock; and                                       

(b) the merger of TW Merger Corp. into Time Warner (the "Time Warner
Merger" and, together with the TBS Merger, the "Mergers"), in which     
each share of Common Stock, par value $1.00 per share, of Time Warner   
outstanding immediately prior to the effective time of such merger,     
other than shares held directly or indirectly by Time Warner, will be   
converted into one share of New Time Warner Common Stock, and each      
outstanding share of each series of preferred stock of Time Warner,     
other than shares held directly or indirectly by Time Warner and shares 
with respect to which appraisal rights are properly exercised, will be  
converted into one share of a substantially identical series of         
preferred stock of New Time Warner.                                     

The transactions contemplated by the Merger Agreement are referred to   
herein as the "Transaction." As a result of the Transaction, Time Warner    
and TBS will each become a wholly owned subsidiary of New Time Warner. Upon 
consummation of the Mergers, New Time Warner will be renamed "Time Warner   
Inc."                                                                       

2. To consider and transact such other business as may properly come    
before the TBS Meeting or any adjournment or postponement thereof.          

Only holders of record of shares of TBS Class A Common Stock, TBS Class B   
Common Stock and TBS Class C Preferred Stock at the close of business on        
August 26, 1996, the record date for the TBS Meeting fixed by the TBS Board of  
Directors, are entitled to notice of and to vote at the TBS Meeting and any     

                                                                               1

DEFM14A
4th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 4th
adjournment or postponement thereof. A list of such shareholders will be        
available for inspection by any shareholder of TBS at the TBS Meeting.          

Approval of the TBS Merger Proposal by the holders of TBS Capital Stock     
requires the affirmative vote of (a) a majority of the voting power of the      
outstanding shares of TBS Capital Stock, voting together as a single group,     
(b) a majority of the voting power of the outstanding shares of TBS Common      
Stock, voting together as a single group, and (c) a majority of the             
outstanding shares of TBS Class C Preferred Stock, voting as a separate class.  

MR. TURNER, TIME WARNER AND LIBERTY MEDIA CORPORATION HAVE AGREED, SUBJECT  
TO THE SATISFACTION OR WAIVER OF CERTAIN CONDITIONS, TO VOTE OR CAUSE TO BE     
VOTED ALL SHARES OF TBS CAPITAL STOCK OWNED BY THEM AND CERTAIN OF THEIR        
AFFILIATES IN FAVOR OF THE TBS MERGER PROPOSAL. ACCORDINGLY (ASSUMING THE       
SATISFACTION OR WAIVER OF SUCH CONDITIONS), APPROVAL OF THE TBS MERGER          
PROPOSAL BY TBS SHAREHOLDERS IS ASSURED, REGARDLESS OF THE VOTE OF ANY OTHER    
SHAREHOLDER OF TBS.                                                             

Holders of TBS Capital Stock who do not vote in favor of the TBS Merger     
Proposal and who otherwise comply with the provisions of Article 13 of the      
Georgia Business Corporation Code (the "GBCC") are entitled to assert           
dissenters' rights and to obtain payment of the fair value of their shares if   
the Transaction is consummated. A summary of the provisions of Article 13 of    
the GBCC, including a summary of the requirements with which shareholders       
desiring to dissent must comply, is contained in the accompanying Joint Proxy   
Statement/Prospectus under the heading "The Transaction--Appraisal and          
Dissenters' Rights." The entire text of Article 13 of the GBCC is attached as   
Appendix D-2 to the Joint Proxy Statement/Prospectus.                           

The Transaction is of great importance to TBS and its shareholders. The     
accompanying Joint Proxy Statement/Prospectus describes the Transaction in      
detail. Please read the Joint Proxy Statement/Prospectus carefully and then     
complete, sign and date the enclosed proxy card and return it in the enclosed   
envelope.                                                                       

Your prompt response will be appreciated. If you plan to attend the TBS     
Meeting and your shares are held in the name of a broker or other nominee,      
please bring a proxy or letter from the broker or nominee confirming your       
ownership of shares. Only TBS shareholders and their proxies and invited        
guests of TBS will be admitted to the TBS Meeting.                              

                                      By Order of the Board of Directors

                  Steven W. Korn
             Secretary

Atlanta, Georgia                                                                
September 6, 1996                                                               

IMPORTANT 

WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE TBS MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE WHICH HAS   
BEEN PROVIDED. IN THE EVENT YOU ARE ABLE TO ATTEND THE TBS MEETING, YOU MAY     
REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.                               

DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD. 

DEFM14A
5th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 5th
TIME WARNER INC.                                            TURNER BROADCASTING 
                                            SYSTEM, INC.

JOINT PROXY STATEMENT 
FOR A SPECIAL MEETING OF  
STOCKHOLDERS OF TIME WARNER INC.  
TO BE HELD ON OCTOBER 10, 1996  
AND 
FOR A SPECIAL MEETING OF  
SHAREHOLDERS OF TURNER BROADCASTING SYSTEM, INC.  
TO BE HELD ON OCTOBER 10, 1996  
---------------   
TW INC. 
(TO BE RENAMED "TIME WARNER INC." UPON CONSUMMATION OF THE TRANSACTIONS 
DESCRIBED HEREIN) 

PROSPECTUS  
---------------   
An index and glossary of capitalized terms used in this Joint Proxy         
Statement/Prospectus is attached hereto as Schedule 1.                          
---------------   
This Joint Proxy Statement/Prospectus is being furnished to holders of      
Common Stock, par value $1.00 per share ("Time Warner Common Stock"), and       
Preferred Stock, par value $1.00 per share ("Time Warner Preferred Stock" and,  
together with the Time Warner Common Stock, "Time Warner Capital Stock"), of    
Time Warner Inc., a Delaware corporation ("Time Warner"), in connection with    
the solicitation of proxies by the Board of Directors of Time Warner (the       
"Time Warner Board") for use at the Special Meeting of Stockholders of Time     
Warner to be held on October 10, 1996, or any adjournment or postponement       
thereof (the "Time Warner Meeting").                                            

This Joint Proxy Statement/Prospectus is also being furnished to holders of 
Class A Common Stock, par value $.0625 per share ("TBS Class A Common Stock"),  
Class B Common Stock, par value $.0625 per share ("TBS Class B Common Stock"    
and, together with the TBS Class A Common Stock, "TBS Common Stock"), and       
Class C Convertible Preferred Stock, par value $.125 per share ("TBS Class C    
Preferred Stock" and, together with the TBS Common Stock, "TBS Capital          
Stock"), of Turner Broadcasting System, Inc., a Georgia corporation ("TBS"),    
in connection with the solicitation of proxies by the Board of Directors of     
TBS (the "TBS Board") for use at the Special Meeting of Shareholders of TBS to  
be held on October 10, 1996, or any adjournment or postponement thereof (the    
"TBS Meeting" and, together with the Time Warner Meeting, the "Special          
Meetings").                                                                     

The Time Warner Meeting has been called to consider and vote upon a proposal
(the "TW Merger Proposal") to approve and adopt an Amended and Restated         
Agreement and Plan of Merger dated as of September 22, 1995, as amended as of   
August 8, 1996 (as so amended, the "Merger Agreement"), among Time Warner,      
TBS, TW Inc., a Delaware corporation and currently a wholly owned subsidiary    
of Time Warner ("New Time Warner"), Time Warner Acquisition Corp., a Delaware   
corporation and a wholly owned subsidiary of New Time Warner ("TW Merger        
Corp."), and TW Acquisition Corp., a Georgia corporation and a wholly owned     
subsidiary of New Time Warner ("TBS Merger Corp.").                             

The TBS Meeting has been called to consider and vote upon a proposal (the   
"TBS Merger Proposal") to approve the Merger Agreement.                         

As a result of the transactions contemplated by the Merger Agreement, Time  
Warner and TBS will each become a wholly owned subsidiary of New Time Warner.   

THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY                    
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES    
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE          
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED    
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY     
REPRESENTATION TO THE CONTRARY IS A CRIMINALOFFENSE.                            

This Joint Proxy Statement/Prospectus and accompanying forms of proxy and   
voting instructions are first being mailed to the stockholders of Time Warner   
and the shareholders of TBS on or about September 9, 1996.                      

The date of this Joint Proxy Statement/Prospectus is September 6, 1996. 

DEFM14A
6th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 6th
The Merger Agreement contemplates, among other things, that TW Merger Corp. 
will be merged into Time Warner (the "Time Warner Merger") and TBS Merger       
Corp. will be merged into TBS (the "TBS Merger" and, together with the Time     
Warner Merger, the "Mergers"), with the result that (a) Time Warner and TBS     
will each become a wholly owned subsidiary of New Time Warner, (b) each         
outstanding share of Time Warner Common Stock, other than shares held directly  
or indirectly by Time Warner, will be converted into one share of Common        
Stock, par value $.01 per share, of New Time Warner ("New Time Warner Common    
Stock"), (c) each outstanding share of each series of Time Warner Preferred     
Stock, other than shares held directly or indirectly by Time Warner and shares  
with respect to which appraisal rights are properly exercised, will be          
converted into one share of a substantially identical series of Preferred       
Stock, par value $.10 per share, of New Time Warner ("New Time Warner           
Preferred Stock"), (d) each outstanding share of TBS Common Stock, other than   
shares held directly or indirectly by Time Warner or New Time Warner or in the  
treasury of TBS and shares with respect to which dissenters' rights are         
properly exercised, will be converted into the right to receive 0.75 of a       
share of New Time Warner Common Stock and (e) each outstanding share of TBS     
Class C Preferred Stock, other than shares held directly or indirectly by Time  
Warner or New Time Warner or in the treasury of TBS and shares with respect to  
which dissenters' rights are properly exercised, will be converted into the     
right to receive 4.80 shares of New Time Warner Common Stock. Following         
consummation of the Mergers, New Time Warner will be renamed "Time Warner       
Inc." The transactions contemplated by the Merger Agreement are referred to     
herein as the "Transaction."                                                    

It is currently expected that prior to the consummation of the Mergers, New 
Time Warner will adopt a stockholder rights agreement (the "New Time Warner     
Rights Agreement"), which will be the same as Time Warner's existing            
stockholder rights agreement (the "Existing Rights Agreement"), with the        
exception of certain amendments as described herein. See "Certain Related       
Agreements--Rights Amendment" and "Description of New Time Warner Capital       
Stock--New Time Warner Rights Agreement; New Time Warner Series A Preferred     
Stock." If New Time Warner adopts the New Time Warner Rights Agreement, each    
share of New Time Warner Common Stock issued in connection with the Mergers     
will be accompanied by one preferred stock purchase right (a "New Time Warner   
Right").                                                                        

This Joint Proxy Statement/Prospectus constitutes the prospectus of New Time
Warner with respect to (a) the shares of New Time Warner Common Stock (and any  
New Time Warner Rights) that will be issued to (i) holders of outstanding       
shares of Time Warner Common Stock upon consummation of the Time Warner Merger  
and (ii) holders of outstanding shares of TBS Capital Stock upon consummation   
of the TBS Merger, (b) the shares of New Time Warner Preferred Stock that will  
be issued to holders of outstanding shares of Time Warner Preferred Stock upon  
consummation of the Time Warner Merger and (c) the shares of New Time Warner    
Common Stock (and any New Time Warner Rights) issuable upon conversion of       
certain of such shares of New Time Warner Preferred Stock and conversion or     
exercise of certain convertible debt securities and options. See "The Merger    
Agreement--Conversion of Time Warner Capital Stock" and "--Conversion of TBS    
Capital Stock." The capital stock of New Time Warner is referred to             
collectively herein as "New Time Warner Capital Stock."                         

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY           
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE INTO THIS JOINT    
PROXY STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR        
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT    
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A            
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT     
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY            
SECURITIES IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS        
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS       
JOINT PROXY STATEMENT/PROSPECTUS NOR THE SALE OF ANY SECURITIES HEREUNDER       
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO    
CHANGE IN THE AFFAIRS OF TIME WARNER OR TBS SINCE THE DATE HEREOF OR THAT THE   
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.            

2 

DEFM14A
7th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 7th
AVAILABLE INFORMATION 

Time Warner and TBS are each subject to the informational requirements of   
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in    
accordance therewith file reports, proxy statements and other information with  
the Securities and Exchange Commission (the "Commission"). Such reports, proxy  
statements and other information filed with the Commission can be inspected     
and copied at the public reference facilities maintained by the Commission at   
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and  
at the following Regional Offices of the Commission: 7 World Trade Center,      
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison      
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be     
obtained from the Public Reference Section of the Commission at 450 Fifth       
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. The  
Time Warner Common Stock is listed on the New York Stock Exchange, Inc. (the    
"NYSE") and the Pacific Stock Exchange, Inc. (the "PSE"), and such material     
relating to Time Warner may also be inspected at the offices of the NYSE, 20    
Broad Street, New York, New York 10005, and at the offices of the PSE, 115      
Sansome Street, 2nd Floor, San Francisco, California 94104. The TBS Common      
Stock is listed on the American Stock Exchange, Inc. (the "AMEX"), and such     
material relating to TBS may also be inspected at the offices of the AMEX, 86   
Trinity Place, New York, New York 10006. After consummation of the              
Transaction, Time Warner and TBS may no longer file reports, proxy statements   
or other information with the Commission. Instead, such information would be    
provided, to the extent required, in filings made by New Time Warner.           

New Time Warner has filed with the Commission a registration statement on   
Form S-4 (together with all amendments, exhibits and schedules thereto, the     
"Registration Statement") under the Securities Act of 1933, as amended (the     
"Securities Act"), relating to (a) the shares of New Time Warner Common Stock   
(and any New Time Warner Rights) that will be issued to holders of Time Warner  
Common Stock and to holders of TBS Capital Stock in connection with the         
Transaction, (b) the shares of New Time Warner Preferred Stock that will be     
issued to holders of Time Warner Preferred Stock in connection with the         
Transaction and (c) the shares of New Time Warner Common Stock (and any New     
Time Warner Rights) issuable upon conversion of certain of such shares of New   
Time Warner Preferred Stock and conversion or exercise of certain convertible   
debt securities and options. See "The Merger Agreement--Conversion of Time      
Warner Capital Stock" and "--Conversion of TBS Capital Stock." This Joint       
Proxy Statement/Prospectus does not contain all of the information set forth    
in the Registration Statement filed by New Time Warner with the Commission,     
certain portions of which are omitted in accordance with the rules and          
regulations of the Commission. Such additional information is available for     
inspection and copying at the offices of the Commission. Statements contained   
in this Joint Proxy Statement/Prospectus or in any document incorporated into   
this Joint Proxy Statement/Prospectus by reference as to the contents of any    
contract or other document referred to herein or therein are not necessarily    
complete, and in each instance reference is made to the copy of such contract   
or other document filed as an exhibit to the Registration Statement or such     
other document, each such statement being qualified in all respects by such     
reference.                                                                      

3 

DEFM14A
8th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 8th
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 

The following documents previously filed by Time Warner with the Commission 
under the Exchange Act are incorporated herein by reference:                    

(a) Time Warner's Annual Report on Form 10-K for the year ended December
31, 1995, as amended by Time Warner's Form 10-K/A, dated June 27, 1996 (the 
"Time Warner Form 10-K");                                                   

(b) Time Warner's Quarterly Reports on Form 10-Q for the quarters ended 
March 31, 1996 and June 30, 1996 (the "Time Warner Form 10-Qs"); and        

(c) Time Warner's Current Reports on Form 8-K dated January 4, 1996,    
March 22, 1996, March 25, 1996, April 2, 1996, April 4, 1996, April 11,     
1996, May 15, 1996, August 6, 1996, August 14, 1996 and September 6, 1996   
(the "Time Warner Form 8-Ks" and, collectively with the Time Warner         
Form 10-K and the Time Warner Form 10-Qs, the "Time Warner Reports").       

The following documents previously filed by TBS with the Commission under   
the Exchange Act are incorporated herein by reference:                          

 (a) TBS's Annual Report on Form 10-K for the year ended December 31, 1995
(the "TBS Form 10-K");                                                      

 (b) TBS's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996 (the "TBS Form 10-Qs"); and                          

(c) TBS's Current Reports on Form 8-K dated January 3, 1996, June 26,   
1996 and September 6, 1996 (the "TBS Form 8-Ks" and, collectively with the  
TBS Form 10-K and the TBS Form 10-Qs, the "TBS Reports").                   

All documents filed by Time Warner or TBS pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Joint Proxy              
Statement/Prospectus and prior to the Special Meetings shall be deemed to be    
incorporated by reference into this Joint Proxy Statement/Prospectus and to be  
a part hereof from the date of filing of such documents.                        

Any statement contained in a document incorporated or deemed to be          
incorporated by reference herein shall be deemed to be modified or superseded   
for purposes hereof to the extent that a statement contained herein (or in any  
other subsequently filed document that is or is deemed to be incorporated by    
reference herein) modifies or supersedes such previous statement. Any           
statement so modified or superseded shall not be deemed to constitute a part    
hereof except as so modified or superseded.                                     

All information contained or incorporated by reference in this Joint Proxy  
Statement/Prospectus relating to Time Warner, New Time Warner, TW Merger Corp.  
and TBS Merger Corp. has been supplied by Time Warner, and all such             
information relating to TBS has been supplied by TBS.                           

THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE   
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER     
THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY           
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR   
WRITTEN REQUEST BY ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS     
HAS BEEN DELIVERED, IN THE CASE OF DOCUMENTS RELATING TO TIME WARNER, FROM      
TIME WARNER INC., 75 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10019, ATTENTION:    
SHAREHOLDER RELATIONS DEPARTMENT; TELEPHONE NUMBER (212) 484-6971, AND IN THE   
CASE OF DOCUMENTS RELATING TO TBS, FROM TURNER BROADCASTING SYSTEM, INC., ONE   
CNN CENTER, ATLANTA, GEORGIA 30303, ATTENTION: INVESTOR RELATIONS; TELEPHONE    
NUMBER (404) 827-1700. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,     
ANY SUCH REQUEST SHOULD BE MADE BY OCTOBER 3, 1996.                             

4 

DEFM14A
9th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 9th
TABLE OF CONTENTS 

                                                                [Download Table]

                                                                           PAGE
                                                                           ----
                                                                               
AVAILABLE INFORMATION.....................................................   3 
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................   4 
TABLE OF CONTENTS.........................................................   5 
SUMMARY...................................................................   7 
THE SPECIAL MEETINGS......................................................  30 
 Times and Places; Purposes...............................................  30 
 Voting Rights; Votes Required for Approval...............................  30 
 Proxies..................................................................  31 
THE TRANSACTION...........................................................  33 
 Background...............................................................  33 
 Recommendation of the Time Warner Board; Time Warner's Reasons for the        
  Transaction.............................................................  41 
 Recommendation of the TBS Board; TBS's Reasons for the Transaction.......  44 
 Opinion of Time Warner's Financial Advisor...............................  48 
 Opinions of TBS's Financial Advisors.....................................  54 
 Opinion of CS First Boston...............................................  54 
 Opinion of Merrill Lynch.................................................  57 
 Purpose and Certain Effects of the Transaction...........................  65 
 Interests of Certain Persons in the Transaction..........................  65 
 Federal Income Tax Consequences..........................................  69 
 Accounting Treatment.....................................................  72 
 Certain Fees and Expenses................................................  72 
 Regulatory Approvals.....................................................  74 
 Certain Litigation.......................................................  78 
 Stock Exchange Listing...................................................  81 
 Federal Securities Laws Consequences.....................................  81 
 Appraisal and Dissenters' Rights.........................................  81 
 Effect of Transaction on the                                                  
  TBS LYONs ..............................................................  87 
 Effect of Transaction on Certain Outstanding Time Warner Convertible          
  Securities..............................................................  87 
THE MERGER AGREEMENT......................................................  88 
 The Mergers..............................................................  88 
 Conversion of Time Warner Capital Stock..................................  88 
 Conversion of TBS Capital Stock..........................................  89 
 Treatment of Options and Warrants........................................  89 
 Representations and Warranties...........................................  89 
 Certain Covenants........................................................  90 
 Conditions to the Mergers................................................  93 
                                                                [Download Table]

                                                                           PAGE
                                                                           ----
                                                                               
 Termination of the Merger Agreement......................................  93 
 Effects of Termination...................................................  95 
TCI ARRANGEMENTS..........................................................  96 
 LMC Agreement............................................................  96 
 SSSI Agreement and the Distribution Contract............................. 100 
 Program Agreement........................................................ 101 
 Contribution and Exchange Agreement...................................... 101 
 SportSouth Agreement..................................................... 101 
 Sunshine Option.......................................................... 102 
 PPV Output Agreement..................................................... 102 
CERTAIN RELATED AGREEMENTS................................................ 103 
 Rights Amendment......................................................... 103 
 Support Agreement ....................................................... 104 
 Investors' Agreements.................................................... 105 
 Right of First Refusal Agreement......................................... 108 
 Registration Rights Agreements........................................... 108 
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS........... 110 
BUSINESS OF TIME WARNER................................................... 117 
BUSINESS OF TBS........................................................... 119 
BUSINESS OF NEW TIME WARNER............................................... 120 
MANAGEMENT OF NEW TIME WARNER............................................. 120 
 Directors................................................................ 120 
 Compensation of Directors................................................ 123 
 Executive Officers....................................................... 123 
 Compensation of Executive Officers....................................... 124 
DESCRIPTION OF NEW TIME WARNER CAPITAL STOCK.............................. 125 
 Authorized Capital Stock................................................. 125 
 New Time Warner Common Stock............................................. 125 
 LMC Series Common Stock.................................................. 126 
 New Time Warner Rights Agreement; New Time Warner Series A Preferred          
  Stock................................................................... 126 
 New Time Warner Series D Preferred Stock................................. 132 
 New Time Warner Series E Preferred Stock................................. 142 
 New Time Warner Series F Preferred Stock................................. 144 
 New Time Warner Series G Preferred Stock................................. 146 
 New Time Warner Series H Preferred Stock................................. 147 
 New Time Warner Series I Preferred Stock................................. 148 

5 

DEFM14A
10th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 10th
                                                                [Download Table]

                                                                           PAGE
                                                                           ----
                                                                               
 New Time Warner Series J Preferred Stock................................  149 
 New Time Warner Series M Preferred Stock................................  158 
 New Time Warner Series L Preferred Stock................................  167 
OWNERSHIP OF TIME WARNER AND NEW TIME WARNER CAPITAL STOCK...............  168 
 Security Ownership of Directors and Executive Officers..................  168 
 Security Ownership of Certain Beneficial Owners.........................  170 
OWNERSHIP OF TBS CAPITAL STOCK...........................................  173 
 Security Ownership of Directors and Executive Officers..................  173 
 Security Ownership of Certain Beneficial Owners.........................  174 
COMPARISON OF RIGHTS OF STOCKHOLDERS OF NEW TIME WARNER AND TIME WARNER..  176 
COMPARISON OF RIGHTS OF STOCKHOLDERS OF NEW TIME WARNER AND SHAREHOLDERS       
 OF TBS..................................................................  177 
CERTAIN BUSINESS RELATIONSHIPS...........................................  186 
                                                                [Download Table]

                                                                          PAGE
                                                                          ----
                                                                              
SIGNIFICANT LEGISLATION AND REGULATION APPLICABLE TO BROADCASTING AND         
 CABLE TELEVISION SERVICES............................................... 187 
LEGAL MATTERS............................................................ 189 
EXPERTS.................................................................. 189 
STOCKHOLDER PROPOSALS.................................................... 190 
Schedule 1--Index and Glossary of Defined                                     
Terms                                                                         
Appendix A-1(a)--Merger Agreement                                             
Appendix A-1(b)--Amendment No. 1 to Merger Agreement                          
Appendix A-2--LMC Agreement                                                   
Appendix A-3--Support Agreement                                               
Appendix B-1--Certificate of Incorporation of New Time Warner                 
Appendix C-1--Opinion of Morgan Stanley & Co. Incorporated                    
Appendix C-2--Opinion of CS First Boston Corporation                          
Appendix C-3--Opinion of Merrill Lynch & Co.                                  
Appendix D-1--Section 262 of the General Corporation Law of the State of      
           Delaware                                                           
Appendix D-2--Article 13 of the Georgia Business Corporation Code             

6 

DEFM14A
11th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 11th
SUMMARY 

The following summary is intended only to highlight certain information     
contained elsewhere in this Joint Proxy Statement/Prospectus. This summary is   
not intended to be complete and is qualified in its entirety by the more        
detailed information contained elsewhere in this Joint Proxy                    
Statement/Prospectus, the Appendices hereto and the documents incorporated by   
reference or otherwise referred to herein. Stockholders of Time Warner and      
shareholders of TBS are urged to review this entire Joint Proxy                 
Statement/Prospectus carefully, including such Appendices and such other        
documents.                                                                      

An index and glossary of capitalized terms used in this Joint Proxy         
Statement/Prospectus is attached hereto as Schedule 1. References herein to the 
Merger Agreement prior to its amendment and restatement in November 1995, as    
described herein, are references to the Merger Agreement as originally          
executed, and references herein to the Merger Agreement following its amendment 
and restatement in November 1995 but prior to its amendment in August 1996, are 
to the Merger Agreement as amended and restated in November 1995.               

INTRODUCTION AND OVERVIEW OF THE TRANSACTION                                    

As a result of the Mergers, Time Warner and TBS will each become a wholly   
owned subsidiary of New Time Warner, which will be renamed "Time Warner Inc."   
Former stockholders of Time Warner and former shareholders of TBS will become   
stockholders of New Time Warner. In the Mergers, (a) each outstanding share of  
Time Warner Common Stock, other than shares held directly or indirectly by Time 
Warner, will be converted into one share of New Time Warner Common Stock and    
each share of each series of Time Warner Preferred Stock, other than shares     
held directly or indirectly by Time Warner and shares with respect to which     
appraisal rights are properly exercised, will be converted into one share of a  
substantially identical series of New Time Warner Preferred Stock and (b) each  
outstanding share of TBS Common Stock will be converted into the right to       
receive 0.75 of a share of New Time Warner Common Stock and each outstanding    
share of TBS Class C Preferred Stock will be converted into the right to        
receive 4.80 shares of New Time Warner Common Stock (equal to 0.80 of a share   
for each share of TBS Class B Common Stock into which the TBS Class C Preferred 
Stock is convertible), in each case other than shares held directly or          
indirectly by Time Warner or New Time Warner or in the treasury of TBS and      
shares with respect to which dissenters' rights are properly exercised.         

Under the Restated Articles of Incorporation of TBS (the "TBS Articles") and
the Georgia Business Corporation Code (the "GBCC"), in addition to the approval 
of the TBS Merger by a majority of the voting power of the outstanding shares   
of TBS Capital Stock, voting together as a single group, and a majority of the  
voting power of the outstanding shares of TBS Common Stock, voting together as  
a single group, the TBS Merger must be approved by a majority of the            
outstanding shares of TBS Class C Preferred Stock, voting as a separate class.  
Pursuant to a Shareholders' Agreement dated as of September 22, 1995 (the       
"Support Agreement"), among R. E. Turner, the Chairman and President of TBS,    
Turner Outdoor, Inc. ("Turner Outdoor" and, together with Mr. Turner, the       
"Turner Shareholders") and Time Warner, the Turner Shareholders have agreed,    
among other things, to vote all shares of TBS Capital Stock that they are       
entitled to vote at the TBS Meeting in favor of the TBS Merger Proposal.        
Pursuant to the Second Amended and Restated LMC Agreement dated as of September 
22, 1995 (the "LMC Agreement"), among Time Warner, New Time Warner, Liberty     
Media Corporation ("LMC"), a wholly owned subsidiary of Tele-Communications,    
Inc. ("TCI"), and certain subsidiaries of LMC, LMC and such subsidiaries have   
agreed, subject to the conditions specified in the LMC Agreement and described  
herein, to vote all shares of TBS Capital Stock that they are entitled to vote  
at the TBS Meeting in favor of the TBS Merger Proposal. As of June 30, 1996,    
such shares represented, in the aggregate, 81.5% of the total combined voting   
power of the TBS Capital Stock entitled to vote at the TBS Meeting, 80.8% of    
the total combined voting power of the TBS Common Stock entitled to vote at the 
TBS Meeting, and 88.5% of the shares of TBS Class C Preferred Stock entitled to 
vote at the TBS Meeting. Accordingly (assuming the satisfaction or waiver by    
LMC of the conditions contained in the LMC Agreement), approval of the TBS      
Merger Proposal is assured, regardless of the vote of any other shareholder of  
TBS.                                                                            

7 

DEFM14A
12th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 12th
As of June 30, 1996, TCI and Time Warner were entitled to vote shares of TBS
Class C Preferred Stock representing approximately 49.1% and 39.4%,             
respectively, of the total number of shares of TBS Class C Preferred Stock      
outstanding as of such date. Although the shares of TBS Class C Preferred Stock 
that TCI is entitled to vote constitute less than a majority of the outstanding 
shares of TBS Class C Preferred Stock, under an agreement entered into in June  
1987 between TCI and Time Warner (see "The Transaction--Background"), Time      
Warner and TCI must consult and agree with each other as to the voting of all   
TBS Capital Stock owned by them on all matters presented to a vote of holders   
of shares of TBS Capital Stock (other than the election of directors, which is  
separately addressed by such agreement), and Time Warner and TCI must vote      
their shares of TBS Capital Stock in accordance with any such agreement.        
However, if Time Warner and TCI are unable to reach agreement on any such       
matter submitted to a shareholder vote, each of Time Warner and TCI must vote   
all of their shares of TBS Capital Stock against the approval of such matter.   
As a result of TCI's ownership of shares of TBS Class C Preferred Stock and the 
terms of such agreement, the TBS Merger cannot be consummated without the       
approval of TCI. In the course of negotiations among Time Warner, TBS and TCI   
to secure such approval, Time Warner, New Time Warner, TBS and TCI entered into 
or agreed to enter into a number of agreements with or for the benefit of TCI   
and its affiliates. These agreements, as modified in light of the FTC Consent   
Decree (as defined below), are referred to herein collectively as the "TCI      
Arrangements."                                                                  

The TCI Arrangements are:                                                   

(a) the LMC Agreement, a number of the provisions of which will survive the 
consummation of the Mergers and continue for the benefit of LMC and certain of  
its affiliates in their capacities as stockholders of New Time Warner,          
including (i) provisions relating to the exchange by LMC and such LMC           
affiliates of shares of New Time Warner Common Stock for shares of a new series 
of New Time Warner Series Common Stock, par value $.01 per share ("New Time     
Warner Series Common Stock"), exempt from the compulsory redemption provisions  
of the Certificate of Incorporation of New Time Warner (the "New Time Warner    
Charter"), such shares to be either Series LMCN-V Common Stock ("LMC Reduced    
Voting Common Stock"), which will be entitled to one one-hundredth (1/100th) of 
a vote per share with respect to the election of directors and will otherwise   
only be entitled to vote on limited matters (see "Description of New Time       
Warner Capital Stock--LMC Series Common Stock"), or, under very limited         
circumstances, Series LMC Common Stock ("LMC Common Stock" and, together with   
the LMC Reduced Voting Common Stock, "LMC Series Common Stock") and (ii)        
provisions that would require New Time Warner to indemnify LMC and certain of   
its affiliates against certain income tax liabilities that may be incurred in   
the event that certain actions taken by New Time Warner after the consummation  
of the Mergers (including certain actions amending the New Time Warner Rights   
Agreement) require LMC or such LMC affiliates to dispose of their shares of New 
Time Warner Capital Stock or have certain other adverse effects on LMC or such  
LMC affiliates,                                                                 

 (b) an agreement (the "SSSI Agreement"), to be entered into upon consummation
of the Mergers, among New Time Warner, LMC and Southern Satellite Systems, Inc. 
("SSSI"), a subsidiary of LMC that currently uplinks and distributes the signal 
of WTBS, a broadcast television station owned by TBS, to cable systems and      
other video distribution systems, pursuant to which (i) New Time Warner will    
issue to SSSI 4,166,667 shares of LMC Reduced Voting Common Stock and SSSI will 
grant to New Time Warner an option (the "SSSI Option") to cause to become       
effective a distribution contract (the "Distribution Contract") pursuant to     
which SSSI will undertake specified uplinking and distribution activities for   
WTBS in the event WTBS acquires national broadcast rights to all of its         
programming and becomes a copyright-paid cable television programming service,  
enabling WTBS to charge a subscription fee to cable operators and to sell local 
advertising time without any obligation on the part of the cable operators to   
make cable compulsory license payments under the Copyright Act (the "WTBS       
Conversion") and (ii) New Time Warner will issue to LMC 833,333 shares of LMC   
Reduced Voting Common Stock and will pay to LMC approximately $67 million       
(payable, at New Time Warner's option, in cash or additional shares of LMC      
Reduced Voting Common Stock) and LMC and its affiliates will agree not to       
compete in the business of uplinking and distributing the WTBS signal (the "LMC 
Non-competition Covenant"),                                                     

8 

DEFM14A
13th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 13th
 (c) a program services agreement (the "Program Agreement"), between TBS and a
subsidiary of TCI, relating to the mandatory carriage after the consummation of 
the Mergers by TCI-affiliated cable systems of WTBS (once the WTBS Conversion   
has occurred) and Headline News, conditional rebates available to TCI-          
affiliated cable systems for carriage of TBS programming services and other     
related matters,                                                                

(d) a stock purchase agreement dated as of September 22, 1995 (the          
"SportSouth Agreement"), between TBS and a subsidiary of TCI, pursuant to       
which, upon consummation of the Mergers, TBS will sell its interest in          
SportSouth Network, Ltd. ("SportSouth"), a regional sports cable network, to    
such TCI subsidiary for an amount (currently estimated at $65 million)          
determined in accordance with a formula set forth in the SportSouth Agreement,  

 (e) an option agreement (the "Sunshine Option Agreement"), to be entered into
upon consummation of the Mergers, between a subsidiary of TCI and Time Warner   
Entertainment Company, L.P. ("TWE"), pursuant to which TWE will grant to such   
TCI subsidiary an option (the "Sunshine Option") to purchase the interests of   
TWE and certain affiliates in the Sunshine Network, a Florida-based sports      
cable network, for approximately $14 million, and                               

(f) the pay-per-view output agreements (collectively, the "PPV Output       
Agreement") between certain TBS subsidiaries, on the one hand, and certain      
affiliates of TCI, on the other hand, providing for the licensing of all motion 
pictures theatrically released during the term of the agreement by New Line     
Cinema Corporation ("New Line"), Castle Rock Entertainment ("Castle Rock") and  
Turner Pictures Worldwide, Inc. ("Turner Pictures") for exhibition, on a non-   
exclusive basis, on pay-per-view services owned by such TCI affiliates.         

After an extensive review of the Transaction by the staff of the Federal    
Trade Commission (the "FTC") and in order to eliminate concerns raised by the   
staff of the FTC regarding possible competitive effects of the Transaction,     
Time Warner, TBS, TCI and LMC have executed the Agreement Containing Consent    
Order (including the related Interim Agreement, the "FTC Consent Decree") dated 
August 14, 1996 and have submitted the FTC Consent Decree to the commissioners  
of the FTC. The FTC commissioners have not yet initially accepted the FTC       
Consent Decree, and the obligations of Time Warner, TBS and TCI to consummate   
the Transaction are conditioned upon such initial acceptance. The FTC Consent   
Decree contains provisions (a) restricting the amount and type of New Time      
Warner securities that TCI and its affiliates may hold after the consummation   
of the Mergers, (b) requiring that TCI, subject to receipt of a ruling from the 
Internal Revenue Service to the effect that the distribution can be effected on 
a tax-free basis, distribute (the "TCI Spin-off") the stock of SSSI, which will 
hold, directly and indirectly, substantially all the New Time Warner Capital    
Stock received by TCI and its affiliates pursuant to the Transaction, to        
holders of the Liberty Media Group Common Stock issued by TCI, (c) limiting the 
duration of agreements for mandatory analog carriage by TCI cable systems of    
TBS programming services, (d) prohibiting New Time Warner from conditioning the 
availability or terms of certain programming services to any multi-channel      
video programming distributor ("MVPD") on whether that MVPD or any other MVPD   
agrees to carry certain other programming services, (e) prohibiting New Time    
Warner from discriminating in certain respects against MVPDs having             
geographical overlap with New Time Warner's cable systems, in the terms upon    
which TBS programming services are made available to such MVPD in the relevant  
geographical overlap area, (f) prohibiting New Time Warner, in its capacity as  
a cable operator, from improperly discriminating against programmers in its     
purchase of programming based on their ownership and (g) requiring New Time     
Warner's cable systems to carry by a specified date and at specified            
penetration rates a non-affiliated advertiser-supported news and informational  
video programming service.                                                      

 If the FTC does not initially accept the FTC Consent Decree, the FTC may seek
to enjoin the consummation of the Transaction. If the FTC does initially accept 
the FTC Consent Decree, the FTC will publish the FTC Consent Decree for public  
comment for a period of 60 days. If the FTC does not finally accept the FTC     
Consent Decree after the period for public comment, the FTC could take such     
action under the antitrust laws as it deems necessary or desirable in the       
public interest, including seeking divestiture of substantial assets of TBS or  
its subsidiaries or of Time Warner or its subsidiaries. If the FTC does finally 
accept the FTC Consent Decree, the                                              

9 

DEFM14A
14th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 14th
FTC Consent Decree will terminate on the tenth anniversary of such final        
acceptance. See "The Transaction--Regulatory Approvals--FTC Consent Decree" for 
a further description of the FTC Consent Decree.                                

Pursuant to the LMC Agreement, and in order to ensure compliance by TCI with
the FTC Consent Decree, substantially all the shares of New Time Warner Common  
Stock received by TCI and its affiliates pursuant to the Mergers will           
immediately be exchanged on a one-for-one basis for shares of LMC Reduced       
Voting Common Stock. See "Description of New Time Warner Capital Stock--LMC     
Series Common Stock." In addition, if, as is currently contemplated, New Time   
Warner adopts the New Time Warner Rights Agreement, the New Time Warner Rights  
Agreement will be the same as the Existing Rights Agreement, with the exception 
of certain specified amendments (collectively, the "Rights Amendment")          
contemplated by the LMC Agreement. The principal effect of the Rights Amendment 
is to increase the amount of stock that may be acquired by a single person      
without resulting in such person becoming an "Acquiring Person" under the New   
Time Warner Rights Agreement. Upon consummation of the Mergers, certain         
subsidiaries of LMC, the Turner Shareholders and New Time Warner will enter     
into a stockholders' agreement (the "Right of First Refusal Agreement"),        
pursuant to which such LMC subsidiaries, on the one hand, and the Turner        
Shareholders, on the other hand, grant first to the other group and then to New 
Time Warner a right of first refusal with respect to dispositions of voting     
securities of New Time Warner beneficially owned by them, subject, in the case  
of purchases by such LMC subsidiaries, to the FTC Consent Decree. Upon          
consummation of the Mergers, New Time Warner, LMC and certain of its            
subsidiaries will enter into a registration rights agreement (the "LMC          
Registration Rights Agreement"), pursuant to which New Time Warner will grant   
to LMC, such LMC subsidiaries and specified transferees rights to require the   
registration under the Securities Act of resales of certain New Time Warner     
Common Stock held by LMC, such LMC subsidiaries and such transferees.           

In addition, Time Warner, New Time Warner, LMC and two subsidiaries of LMC  
have entered into a contribution and exchange agreement dated as of September   
22, 1995 (the "Contribution and Exchange Agreement"), pursuant to which New     
Time Warner has granted to LMC the right to require New Time Warner to acquire  
approximately 5.8 million shares of TBS Class C Preferred Stock directly from   
LMC simultaneously with consummation of the TBS Merger for the same             
consideration payable for such shares in the TBS Merger.                        

Upon consummation of the Mergers and the exchange of all shares of New Time 
Warner Common Stock received in the Mergers by TCI and its affiliates for LMC   
Reduced Voting Common Stock, the Turner Shareholders and certain associated     
holders are currently expected to own shares of New Time Warner Common Stock    
representing approximately 11% of the aggregate voting power of the outstanding 
New Time Warner Capital Stock (based on the holdings of such holders and the    
number of outstanding shares of Time Warner Capital Stock and TBS Capital Stock 
as of June 30, 1996). Upon consummation of the Mergers, New Time Warner, the    
Turner Shareholders and Turner Partners, L.P. ("Turner Partners") will enter    
into an investors' agreement ("Investors' Agreement (No. 1)"), pursuant to      
which the Turner Shareholders and Turner Partners will agree to certain         
restrictions on their activities as stockholders of New Time Warner and to      
certain restrictions on dispositions by them of shares of New Time Warner       
Capital Stock. In addition, New Time Warner will grant to Mr. Turner, subject   
to certain conditions, the right to designate two candidates to be nominated    
for election to the Board of Directors of New Time Warner (the "New Time Warner 
Board"). New Time Warner will also grant to the Turner Shareholders and certain 
associated holders of New Time Warner Common Stock rights to require the        
registration under the Securities Act of resales of certain New Time Warner     
Common Stock held by them (the "Turner Registration Rights Agreement").         

In this Joint Proxy Statement/Prospectus, all the foregoing agreements,     
including the Merger Agreement, are referred to collectively as the             
"Transaction Agreements." STOCKHOLDERS OF TIME WARNER AND SHAREHOLDERS OF TBS   
ARE URGED TO REVIEW CAREFULLY THE DESCRIPTIONS OF THE TRANSACTION AGREEMENTS    
SET FORTH UNDER "THE MERGER AGREEMENT," "TCI ARRANGEMENTS" AND "CERTAIN RELATED 
AGREEMENTS." Copies of the Merger Agreement, the LMC Agreement and the Support  
Agreement are attached hereto as Appendices A-1(a) and A-1(b), A-2 and A-3,     
respectively, and are incorporated herein by reference.                         

10

DEFM14A
15th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 15th
The diagrams set forth below illustrate the ownership of New Time Warner,   
Time Warner and TBS both prior to and following consummation of the Mergers.    

[Set forth below is a narrative description of a diagram contained in the   
Joint Proxy Statement/Prospectus that has been omitted from this electronically 
filed version thereof because such diagram cannot be reproduced in such         
electronic filing.                                                              

The diagram illustrates (i) the ownership of each of Time Warner, New Time  
Warner, TW Merger Corp., TBS Merger Corp. and TBS prior to the consummation of  
the Mergers, (ii) that, in the Mergers, TW Merger Corp. will be merged into Time
Warner and TBS Merger Corp. will be merged into TBS, (iii) the ratios for       
conversion of Time Warner Common Stock, TBS Common Stock and TBS Class C        
Preferred Stock into shares of New Time Warner Common Stock and for conversion  
of Time Warner Preferred Stock into shares of New Time Warner Preferred Stock,  
(iv) that, following consummation of the Merger, TCI and certain of its         
affiliates will hold LMC Reduced Voting Common Stock and (v) that, as a result  
of the Mergers, Time Warner and TBS will each become a wholly owned subsidiary  
of New Time Warner.]                                                            

11

DEFM14A
16th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 16th
THE COMPANIES                                                                   

Time Warner Inc. ....     Time Warner is the world's leading media company, and 
75 Rockefeller Plaza      has interests in three fundamental areas of         
New York, New York 10019  business: Entertainment, consisting principally of  
(212) 484-8000            interests in recorded music and music publishing,   
                         filmed entertainment, broadcasting, theme parks and
                         cable television programming; News and Information,
                     consisting principally of interests in magazine
                       publishing, book publishing and direct marketing;
                       and Telecommunications, consisting principally of
            interests in cable television systems.

                       TWE was formed as a Delaware limited partnership in
                          1992 and owns and operates substantially all of Time
                 Warner's interests in filmed entertainment,
                 broadcasting, theme parks, cable television
                          programming and a majority of its interests in cable
                        television systems. Time Warner and certain of its
                         wholly-owned subsidiaries (the "Time Warner General
                     Partners") collectively own general and limited
                     partnership interests in 74.49% of the pro rata
                          priority capital and residual equity capital of TWE,
                        and 100% of the senior priority capital and junior
                   priority capital of TWE. The remaining 25.51%
                   limited partnership interests in the Series A
                       Capital and Residual Capital of TWE are held by a
                     wholly-owned subsidiary of U S WEST, Inc. ("U S
WEST").                   

Turner Broadcasting                                                             
System, Inc. ......      TBS is a diversified information and entertainment   
One CNN Center Atlanta,   company. Through its subsidiaries, TBS owns and     
Georgia 30303 (404)       operates four domestic entertainment networks--WTBS 
827-1700                  (commonly known as the "TBS Superstation"), Turner  
                         Network Television ("TNT"), the Cartoon Network and
                       Turner Classic Movies ("TCM"); four international
                        entertainment networks--TNT Latin America, Cartoon
                          Network Latin America, TNT & Cartoon Network Europe,
                   and TNT & Cartoon Network Asia; and four news
                          networks--Cable News Network ("CNN"), Headline News,
                       Cable News Network International ("CNNI") and CNN
                        Financial News Network ("CNNfn"). TBS produces and
                    distributes entertainment and news programming
                   worldwide, with operations in motion picture,
                      animation and television production, home video,
                          television syndication, licensing and merchandising,
and publishing.           

TW Inc.........           New Time Warner is currently a wholly owned           
c/o Time Warner Inc.      subsidiary of Time Warner that does not conduct any 
75 Rockefeller Plaza      substantial business activities. As a result of the 
New York, New York 10019  Transaction, Time Warner and TBS will each become a 
(212) 484-8000            wholly owned subsidiary of New Time Warner.         
                        Accordingly, after consummation of the Mergers the
                        business of New Time Warner will be the businesses
                 currently conducted by Time Warner and TBS.

THE TIME WARNER MEETING                                                         

Time, Place and Date....  The Time Warner Meeting will be held at the Time &    
                     Life Building, 1271 Avenue of the Americas, New
                        York, New York 10020 on October 10, 1996, starting
at 9:00 a.m., local time. 

Record Date, Shares                                                             
Entitled to Vote.......  Holders of record of shares of Time Warner Common    
                        Stock and shares of Series D Convertible Preferred
           Stock of Time Warner, par value $1.00

12

DEFM14A
17th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 17th
                         per share ("Time Warner Series D Preferred Stock"),
                          Series E Convertible Preferred Stock of Time Warner,
                      par value $1.00 per share ("Time Warner Series E
                       Preferred Stock"), Series F Convertible Preferred
                     Stock of Time Warner, par value $1.00 per share
                        ("Time Warner Series F Preferred Stock"), Series G
                     Convertible Preferred Stock of Time Warner, par
                  value $1.00 per share ("Time Warner Series G
                       Preferred Stock"), Series I Convertible Preferred
                     Stock of Time Warner, par value $1.00 per share
                          ("Time Warner Series I Preferred Stock"), and Series
                       J Convertible Preferred Stock of Time Warner, par
                  value $1.00 per share ("Time Warner Series J
                       Preferred Stock" and, together with the foregoing
                    series of preferred stock, "Time Warner Voting
                    Preferred Stock"), at the close of business on
                          August 26, 1996 (the "Time Warner Record Date"), are
                          entitled to notice of and to vote at the Time Warner
                          Meeting. At the close of business on the Time Warner
                        Record Date, there were 384,737,911 shares of Time
                       Warner Common Stock and 33,794,710 shares of Time
                   Warner Voting Preferred Stock outstanding and
                        entitled to vote. Each share of Time Warner Common
                      Stock is entitled to one vote, and each share of
                       Time Warner Voting Preferred Stock is entitled to
           two votes at the Time Warner Meeting.

Approval of the TW                                                              
Merger Proposal........  Under the Restated Certificate of Incorporation of   
                          Time Warner, as amended (the "Time Warner Charter"),
                     and the General Corporation Law of the State of
                     Delaware (the "DGCL"), the affirmative vote, in
                         person or by proxy, of the holders of a majority in
                    voting power of all outstanding shares of Time
                          Warner Common Stock and Time Warner Voting Preferred
                  Stock, voting together as a single class, is
                 required to approve the TW Merger Proposal.

Recommendations of the                                                          
Time Warner Board......  The Time Warner Board has unanimously approved the   
                    Merger Agreement, the LMC Agreement, the other
                          Transaction Agreements to be executed by Time Warner
                          and its subsidiaries and the FTC Consent Decree, and
                         unanimously approved the Transaction and determined
                          that the Transaction is in the best interests of the
                        stockholders of Time Warner. The Time Warner Board
                        unanimously recommends that holders of Time Warner
                        Capital Stock vote FOR the TW Merger Proposal. See
                         "The Transaction--Recommendation of the Time Warner
                        Board; Time Warner's Reasons for the Transaction."

Opinion of Financial                                                            
Advisor to Time                                                               
Warner.................  Time Warner has received the written opinion of      
                Morgan Stanley & Co. Incorporated ("Morgan
                        Stanley"), Time Warner's financial advisor, to the
                          effect that, as of August 8, 1996 and based upon and
                      subject to the matters stated therein, the ratio
                  contemplated by the Merger Agreement for the
                      exchange of New Time Warner Common Stock for TBS
                       Capital Stock and the consideration to be paid by
                          New Time Warner for the SSSI Option and the LMC Non-
           competition Covenant, taken together,
13

DEFM14A
18th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 18th
                      were fair to New Time Warner and its subsidiary,
                      Time Warner, from a financial point of view. The
                       full text of the opinion of Morgan Stanley, which
                 sets forth the assumptions made and matters
                          considered, is attached hereto as Appendix C-1. Each
                      Time Warner stockholder should read such opinion
                      carefully in its entirety. The opinion of Morgan
                       Stanley is directed only to the matters set forth
                         therein and does not constitute a recommendation to
                          any Time Warner stockholder or TBS shareholder as to
                          how such stockholder or shareholder should vote with
                         respect to the TW Merger Proposal or the TBS Merger
                     Proposal. See "The Transaction--Opinion of Time
  Warner's Financial Advisor."

THE TBS MEETING                                                                 

Time, Place and Date....  The TBS Meeting will be held at the Time & Life       
                          Building, 1271 Avenue of the Americas, New York, New
                      York 10020 on October 10, 1996, starting at 2:00
p.m., local time.         

Record Date, Shares                                                             
Entitled to Vote.......  Holders of record of TBS Class A Common Stock, TBS   
                          Class B Common Stock and TBS Class C Preferred Stock
                      at the close of business on August 26, 1996 (the
                          "TBS Record Date"), are entitled to notice of and to
                          vote at the TBS Meeting. At the close of business on
                          the TBS Record Date, there were 68,330,388 shares of
                         TBS Class A Common Stock, 140,379,236 shares of TBS
                       Class B Common Stock and 12,396,976 shares of TBS
                         Class C Preferred Stock outstanding and entitled to
                     vote. Each share of TBS Class A Common Stock is
                      entitled to two votes, each share of TBS Class B
                         Common Stock is entitled to one-fifth of a vote and
                  each share of TBS Class C Preferred Stock is
                    entitled to one and one-fifth votes at the TBS
Meeting.                  

Approval of the TBS                                                             
Merger Proposal........  Under the TBS Articles and the GBCC, the affirmative 
                       vote of (a) a majority of the voting power of the
                     outstanding shares of TBS Capital Stock, voting
                       together as a single group, (b) a majority of the
                          voting power of the outstanding shares of TBS Common
                         Stock, voting together as a single group, and (c) a
                       majority of the outstanding shares of TBS Class C
                     Preferred Stock, voting as a separate class, is
                  required to approve and adopt the TBS Merger
                    Proposal. MR. TURNER, TIME WARNER AND LMC HAVE
                      AGREED, SUBJECT TO THE SATISFACTION OR WAIVER OF
                          CERTAIN CONDITIONS, TO VOTE OR CAUSE TO BE VOTED ALL
                   SHARES OF TBS CAPITAL STOCK OWNED BY THEM AND
                     CERTAIN OF THEIR AFFILIATES IN FAVOR OF THE TBS
                MERGER PROPOSAL. ACCORDINGLY (ASSUMING THE
                          SATISFACTION OR WAIVER OF SUCH CONDITIONS), APPROVAL
                          OF THE TBS MERGER PROPOSAL IS ASSURED, REGARDLESS OF
                   THE VOTE OF ANY OTHER SHAREHOLDER OF TBS. SEE
            "OWNERSHIP OF TBS CAPITAL STOCK," "TCI
                       ARRANGEMENTS--LMC AGREEMENT" AND "CERTAIN RELATED
     AGREEMENTS--SUPPORT AGREEMENT."

Recommendations of the                                                          
TBS Board..............  The TBS Board, with nine directors either not present
               or abstaining on the basis that they were
                      "interested directors" within the meaning of the

14

DEFM14A
19th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 19th
                      TBS By-Laws, has unanimously approved the Merger
                       Agreement, the other Transaction Agreements to be
                     executed by TBS or its subsidiaries and the FTC
                        Consent Decree and determined that the Transaction
                         is fair to and in the best interests of TBS and its
                        shareholders. The TBS Board unanimously (with such
                      nine directors either not present or abstaining)
                          recommends that shareholders of TBS vote FOR the TBS
                       Merger Proposal. Since such nine directors either
                          were not present or abstained on the basis that they
                        were interested directors, only six of the fifteen
                      TBS directors were eligible under the applicable
                         provisions of the TBS By-Laws to vote on the Merger
                         Agreement, the other Transaction Agreements and the
                FTC Consent Decree. See "The Transaction--
                         Background" and "--Recommendation of the TBS Board;
         TBS's Reasons for the Transaction."

Opinions of Financial                                                           
Advisors to TBS........  The TBS Board has received the written opinion of CS 
                     First Boston Corporation ("CS First Boston"), a
                         financial advisor to TBS, to the effect that, as of
                      August 8, 1996 and based upon and subject to the
                     matters stated therein, the consideration to be
                          received by holders of TBS Capital Stock (other than
                         Time Warner and its affiliates) pursuant to the TBS
                      Merger was fair to such holders from a financial
                        point of view. The TBS Board has also received the
                      written opinion of Merrill Lynch & Co. ("Merrill
                        Lynch"), a financial advisor to TBS, to the effect
                   that, as of August 8, 1996 and based upon and
                    subject to the matters stated therein, (a) the
                    consideration to be received by holders of TBS
                          Capital Stock (other than TCI and its affiliates and
                         Time Warner) pursuant to the TBS Merger was fair to
                         such holders from a financial point of view and (b)
                   in the context of the governance arrangements
                     relating to TBS's ability to consummate the TBS
                         Merger, the financial terms of the TCI Arrangements
                         were fair from a financial point of view to TBS and
                         its shareholders (other than TCI and its affiliates
                         and Time Warner). The full texts of the opinions of
                        CS First Boston and Merrill Lynch, which set forth
                         the assumptions made, matters considered and limits
                     of the review undertaken by CS First Boston and
                          Merrill Lynch, are attached hereto as Appendices C-2
                         and C-3, respectively, and should be read carefully
                         in their entirety by TBS shareholders. The opinions
                       of CS First Boston and Merrill Lynch are directed
                  only to the matters set forth therein from a
                     financial point of view and do not constitute a
                          recommendation to any TBS shareholder or Time Warner
               stockholder as to how such shareholder or
                     stockholder should vote with respect to the TBS
                         Merger Proposal or the TW Merger Proposal. See "The
                         Transaction--Opinions of TBS's Financial Advisors."

THE TRANSACTION                                                                 

Purpose of the                                                                  
Transaction............  The purpose of the Transaction is to combine Time    
Warner and TBS.           
Effect of the                                                                   
Transaction Upon Time                                                         
Warner.................  Upon consummation of the Mergers, (a) TW Merger Corp.
               will be merged into Time Warner, (b) each
                          outstanding share of Time Warner Common Stock, other
                     than shares held directly or indirectly by Time
Warner, will              
15

DEFM14A
20th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 20th
                    be converted into one share of New Time Warner
                     Common Stock, and upon such conversion all such
                         shares of Time Warner Common Stock will be canceled
                   and retired and will cease to exist, (c) each
                     outstanding share of each series of Time Warner
                         Preferred Stock, other than shares held directly or
                          indirectly by Time Warner and shares with respect to
                         which appraisal rights are properly exercised, will
                    be converted into one share of a substantially
                          identical series of New Time Warner Preferred Stock,
                      and upon such conversion all such shares of Time
                         Warner Preferred Stock will be canceled and retired
                     and will cease to exist, (d) all shares of Time
                      Warner Capital Stock held by Time Warner will be
                          canceled and retired and will cease to exist without
                       payment of any consideration therefor and (e) all
                 shares of Time Warner Capital Stock held by
                         subsidiaries of Time Warner will continue as shares
                      of Time Warner Capital Stock. As a result of the
                         Transaction, Time Warner will become a wholly owned
    subsidiary of New Time Warner.

Effect of the                                                                   
Transaction Upon TBS...  Upon consummation of the Mergers, (a) TBS Merger     
                         Corp. will be merged into TBS, (b) each outstanding
                       share of TBS Common Stock, other than shares held
                       directly or indirectly by Time Warner or New Time
                      Warner or in the treasury of TBS and shares with
                      respect to which dissenters' rights are properly
                    exercised, will be converted into the right to
                       receive 0.75 of a share of New Time Warner Common
                        Stock, and upon such conversion all such shares of
                       TBS Common Stock will be canceled and retired and
                        will cease to exist, (c) each outstanding share of
                         TBS Class C Preferred Stock, other than shares held
                       directly or indirectly by Time Warner or New Time
                      Warner or in the treasury of TBS and shares with
                      respect to which dissenters' rights are properly
                    exercised, will be converted into the right to
                          receive 4.80 shares of New Time Warner Common Stock,
                     and upon such conversion all such shares of TBS
                          Class C Preferred Stock will be canceled and retired
                    and will cease to exist, (d) all shares of TBS
                    Capital Stock held by TBS will be canceled and
                        retired and will cease to exist without payment of
                          any consideration therefor and (e) all shares of TBS
                       Capital Stock held directly or indirectly by Time
                          Warner or New Time Warner will continue as shares of
                        TBS Capital Stock. As a result of the Transaction,
                      TBS will become a wholly owned subsidiary of New
Time Warner.              

Treatment of Options....  Upon consummation of the Mergers, each outstanding    
                        option to purchase shares of TBS Common Stock will
                         be assumed by New Time Warner and converted into an
                         option to purchase shares of New Time Warner Common
                Stock. Based on the number of such options
                        outstanding as of June 30, 1996, such options will
                          be exercisable in the aggregate for approximately 14
                     million shares of New Time Warner Common Stock.
                          Following the consummation of the Mergers, each such
                       option will continue to have, and will be subject
                    to, the same terms and conditions as in effect
                  immediately prior to the consummation of the
                   Mergers, except that each such option will be
                       exercisable for that number of shares of New Time
                     Warner Common Stock equal to the product of the
                         number of shares of TBS Common Stock for which such
                     option was exercisable immediately prior to the
     consummation of the Mergers and

16

DEFM14A
21st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 21st
                       0.75, and the exercise price per share subject to
                         such option will be equal to the aggregate exercise
                   price of such option immediately prior to the
                          consummation of the Mergers divided by the number of
                      shares of New Time Warner Common Stock for which
                       such option will be exercisable immediately after
                        the consummation of the Mergers. Upon consummation
                          of the Mergers, all such options will become vested.

                       In addition, upon consummation of the Mergers, each
                     option to purchase shares of Time Warner Common
                  Stock will be assumed by New Time Warner and
                        converted into an option to purchase shares of New
                    Time Warner Common Stock on the same terms and
                      conditions as in effect immediately prior to the
                  consummation of the Mergers. See "The Merger
                    Agreement--Treatment of Options and Warrants."

Treatment of                                                                    
Convertible Debt and                                                          
Warrants...............  Upon consummation of the Mergers, the outstanding    
                        Time Warner zero coupon convertible notes due 2013
                          (the "TW LYONs") will become convertible into shares
                        of New Time Warner Common Stock at the rate of one
                          share of New Time Warner Common Stock for each share
                      of Time Warner Common Stock into which they were
                          convertible immediately prior to the consummation of
                  the Mergers. See "The Transaction--Effect of
                    Transaction on Certain Outstanding Time Warner
Convertible Securities."  

                         Upon consummation of the Mergers, the outstanding TBS
                         zero coupon subordinated convertible notes due 2007
                    (the "TBS LYONs") will become convertible into
                        shares of New Time Warner Common Stock at the rate
                        of 0.75 of a share of New Time Warner Common Stock
                       for each share of TBS Common Stock into which the
                         TBS LYONs were convertible immediately prior to the
                         consummation of the Mergers. See "The Transaction--
              Effect of Transaction on the TBS LYONs."

                     Upon consummation of the Mergers, each warrant to
                   purchase Time Warner Common Stock will become
                         exercisable for New Time Warner Common Stock at the
                         same rate, for the same price and on the same terms
                        as in effect immediately prior to the consummation
                          of the Mergers. See "The Merger Agreement--Treatment
of Options and Warrants." 

Interests of Certain                                                            
Persons................  In considering the recommendations of the Time Warner
                 Board and the TBS Board with respect to the
                   Transaction, Time Warner stockholders and TBS
                         shareholders should be aware that certain directors
                         and executive officers of TBS have interests in the
                          Transaction that may be in addition to the interests
                     of other holders of TBS Capital Stock. See "The
                      Transaction--Interests of Certain Persons in the
Transaction."             

Appraisal and                                                                   
Dissenters' Rights.....  Holders of Time Warner Common Stock are not entitled 
                      to appraisal or dissenters' rights in connection
                       with the Time Warner Merger. Holders of record of
                          Time Warner Preferred Stock who do not vote in favor
                        of the TW Merger Proposal and who otherwise comply
with the applicable       

17

DEFM14A
22nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 22nd
                    statutory procedures summarized herein will be
                       entitled to appraisal rights under Section 262 of
the DGCL.                 

                     Holders of shares of TBS Capital Stock who do not
                      vote in favor of the TBS Merger Proposal and who
                    otherwise comply with the applicable statutory
                      procedures summarized herein will be entitled to
                       assert dissenters' rights under Article 13 of the
                          GBCC. The Merger Agreement provides that Time Warner
                       is not obligated to consummate the Transaction if
                          dissenters' rights are asserted with respect to more
                   than 28 million TBS Common Stock equivalents.

                   See "The Transaction--Appraisal and Dissenters'
                          Rights" and "The Merger Agreement--Conditions to the
Mergers."                 

Federal Income Tax                                                              
Consequences...........  It is a condition to the consummation of the Time    
                       Warner Merger that Time Warner receive an opinion
                   from Cravath, Swaine & Moore, counsel to Time
                         Warner, reaffirming, as of the date of consummation
                         of the Mergers, the opinion described in this Joint
                       Proxy Statement/Prospectus to the effect that the
                         Time Warner Merger will be treated for U.S. Federal
                   income tax purposes as a transfer of property
                       governed by Section 351 of the Code. Accordingly,
                  except as set forth below and subject to the
                       qualifications set forth under "The Transaction--
                  Federal Income Tax Consequences--Time Warner
                     Merger," it is the opinion of Cravath, Swaine &
                   Moore that no gain or loss will be recognized
                        pursuant to the Time Warner Merger by (a) New Time
                          Warner, (b) Time Warner, (c) a holder of Time Warner
                     Common Stock whose shares of Time Warner Common
                        Stock are converted into shares of New Time Warner
                 Common Stock or (d) a holder of Time Warner
                 Preferred Stock whose shares of Time Warner
                      Preferred Stock are converted into shares of New
                      Time Warner Preferred Stock. Notwithstanding the
                        foregoing, a holder of Time Warner Preferred Stock
                  may recognize gain or loss by reason of cash
                    received upon the proper exercise of appraisal
                      rights. See "The Transaction--Federal Income Tax
        Consequences--Time Warner Merger."

                    It is a condition to the consummation of the TBS
                      Merger that TBS receive an opinion from Skadden,
                  Arps, Slate, Meagher & Flom, counsel to TBS,
                        reaffirming, as of the date of consummation of the
                        Mergers, the opinion described in this Joint Proxy
                     Statement/Prospectus to the effect that the TBS
                        Merger will be treated for U.S. Federal income tax
                    purposes as a transfer of property governed by
                     Section 351 of the Code. Accordingly, except as
                       described below and subject to the qualifications
                          set forth under "The Transaction--Federal Income Tax
                     Consequences--TBS Merger," it is the opinion of
                          Skadden, Arps, Slate, Meagher & Flom that no gain or
                        loss will be recognized pursuant to the TBS Merger
                        by (a) New Time Warner, (b) TBS or (c) a holder of
                         TBS Capital Stock whose shares of TBS Capital Stock
                       are converted into the right to receive shares of
                       New Time Warner Common Stock. Notwithstanding the
                  foregoing, a holder of TBS Capital Stock may

18

DEFM14A
23rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 23rd
                          recognize gain or loss by reason of cash received in
                  lieu of fractional shares or upon the proper
              exercise of dissenters' rights. See "The
                       Transaction--Federal Income Tax Consequences--TBS
Merger."                  

Accounting Treatment....  The Transaction will be accounted for by New          
                         Time Warner under the purchase method of accounting
                       for business combinations. See "The Transaction--
Accounting Treatment."    

Regulatory Approvals....  The consummation of the Mergers requires, among other 
                       matters, (a) initial acceptance by the FTC of the
                   FTC Consent Decree, (b) the expiration of all
                 waiting periods under the Hart-Scott-Rodino
                         Antitrust Improvements Act of 1976, as amended (the
                     "HSR Act"), and (c) the approval of the Federal
                     Communications Commission (the "FCC"). See "The
                   Merger Agreement--Conditions to the Mergers."

                 The FTC staff has completed its review of the
                     parties' filings under the HSR Act. In order to
                          eliminate concerns raised by the FTC staff regarding
                      possible competitive effects of the Transaction,
                         Time Warner, TBS, TCI and LMC have executed the FTC
                      Consent Decree and have agreed to changes to the
                        terms of the Transaction Agreements to (a) reflect
                      limits on the amount and type of New Time Warner
                     securities that TCI and its affiliates may hold
                        after the consummation of the Mergers, (b) require
                          that the New Time Warner Common Stock to be received
                    by TCI and its affiliates in the TBS Merger be
                   exchanged for New Time Warner securities with
                        reduced voting rights, thus causing the parties to
                         agree to create the LMC Reduced Voting Common Stock
                          and eliminate those provisions that required TCI and
                        its affiliates to place the New Time Warner Common
                        Stock received in the TBS Merger in a voting trust
                 to be voted by Mr. Levin, (c) eliminate the
                         provisions that would have given New Time Warner an
                       option to purchase the outstanding stock of SSSI,
                          (d) eliminate Time Warner's option to purchase TCI's
                      interest in TBS prior to the consummation of the
                          Mergers and (e) reduce substantially the duration of
                         the agreements for mandatory analog carriage by TCI
                         cable systems of TBS programming services after the
  consummation of the Mergers.

                        Time Warner, TBS, TCI and LMC have submitted the FTC
                        Consent Decree to the commissioners of the FTC for
                        initial acceptance, which has not yet occurred and
                          on which the obligations of Time Warner, TBS and TCI
                       to consummate the Transaction are conditioned. If
                       the FTC does not initially accept the FTC Consent
                         Decree, the FTC may seek to enjoin the Transaction.
                      If the FTC does initially accept the FTC Consent
                         Decree, the FTC will publish the FTC Consent Decree
                         for public comment for 60 days. If the FTC does not
                     finally accept the FTC Consent Decree after the
                        period for public comment, the FTC could take such
                 action under the antitrust laws as it deems
                    necessary or desirable in the public interest,
                      including seeking the divestiture of substantial
                         assets of TBS or its subsidiaries or of Time Warner
or its subsidiaries.      

               The FCC has not completed its review of the
                         Transaction. No assurance can be given that the FCC
       will not impose conditions to the

19

DEFM14A
24th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 24th
                          consummation of the Transaction or otherwise require
                   changes to the terms of the Transaction. Such
                         conditions or changes could result in conditions to
                     the obligations of Time Warner or TBS under the
                          Merger Agreement not being satisfied or give LMC the
                          right to require Time Warner to terminate the Merger
                     Agreement and abandon the Transaction. See "The
                Transaction--Background" and "--Regulatory
                       Approvals" and "TCI Arrangements--LMC Agreement."

TCI ARRANGEMENTS                                                                

Class C Premium.........  In the TBS Merger, all holders of shares of TBS Class 
                         C Preferred Stock, including TCI but excluding Time
                      Warner, will receive 0.80 of a share of New Time
                       Warner Common Stock for each share of TBS Class B
                       Common Stock into which the TBS Class C Preferred
                       Stock is convertible. Holders of TBS Common Stock
                     will receive 0.75 of a share of New Time Warner
                         Common Stock for each share of TBS Common Stock. As
                    of June 30, 1996, TCI and its affiliates owned
                        shares of TBS Class C Preferred Stock representing
                          approximately 49.1% of the total number of shares of
                        TBS Class C Preferred Stock outstanding as of such
                     date. Based upon the closing sale price of Time
                          Warner Common Stock on August 7, 1996, the day prior
                        to the date on which the Time Warner Board and the
                  TBS Board approved the Merger Agreement, the
                         incremental value to be received by TCI as a holder
                          of shares of TBS Class C Preferred Stock as a result
                       of the difference between the consideration to be
                          paid for such shares and for the TBS Common Stock is
  approximately $65.5 million.

LMC Agreement...........  Following consummation of the Mergers, a number of    
                       the provisions of the LMC Agreement will continue
                          for the benefit of LMC and certain of its affiliates
                      (and, following the TCI Spin-off, SSSI) in their
                    capacities as stockholders of New Time Warner,
                          including provisions (a) relating to the exchange by
                       LMC and such LMC affiliates of shares of New Time
                       Warner Common Stock for shares of a new series of
                         New Time Warner Series Common Stock exempt from the
                      compulsory redemption provisions of the New Time
                          Warner Charter, such shares to be either LMC Reduced
             Voting Common Stock or, in very limited
                        circumstances, LMC Common Stock and (b) that would
                          require New Time Warner to indemnify LMC and certain
                  of its affiliates against certain income tax
                        liabilities that may be incurred in the event that
                        certain actions taken by New Time Warner after the
                    consummation of the Mergers (including certain
                 actions amending the New Time Warner Rights
                         Agreement) result in (i) the continued ownership of
                       shares of New Time Warner Capital Stock by LMC or
                       any such LMC affiliate becoming illegal, (ii) the
                    imposition on LMC or any such LMC affiliate of
                      damages or penalties by reason of such continued
                         ownership, (iii) the required divestiture by LMC or
                      any such LMC affiliate of any such shares of New
                       Time Warner Capital Stock or (iv) the requirement
                        that LMC or any such LMC affiliate discontinue any
                          business or divest of any business or assets or that
                         any license that such party holds or is required to
                   hold under the Communications Act of 1934, as
                        amended (the "Communications Act"), be modified in
any significant respect or

20

DEFM14A
25th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 25th
                  not be renewed as a result of such continued
                       ownership. See "TCI Arrangements--LMC Agreement."

SSSI Agreement..........  Upon consummation of the Mergers, New Time Warner and 
                        LMC will enter into the SSSI Agreement pursuant to
                  which (a) New Time Warner will issue to SSSI
                         4,166,667 shares of LMC Reduced Voting Common Stock
                     and SSSI will grant to New Time Warner the SSSI
                      Option and (b) New Time Warner will issue to LMC
                       833,333 shares of LMC Reduced Voting Common Stock
                   and will pay to LMC approximately $67 million
                       (payable, at New Time Warner's option, in cash or
                    additional shares of LMC Reduced Voting Common
                          Stock) and LMC will agree to the LMC Non-competition
                         Covenant. See "TCI Arrangements--SSSI Agreement and
 the Distribution Contract."

Program Agreement.......  TBS and a subsidiary of TCI have entered into the     
                          Program Agreement relating to the mandatory carriage
                         after consummation of the Mergers by TCI-affiliated
                         cable systems of WTBS (once the WTBS Conversion has
                      occurred) and Headline News, conditional rebates
                   available to TCI-affiliated cable systems for
                    carriage of TBS programming services and other
                     related matters. See "TCI Arrangements--Program
Agreement."               

SportSouth Agreement....  TBS and a subsidiary of TCI have entered into the     
                  SportSouth Agreement pursuant to which, upon
                    consummation of the Mergers, TBS will sell its
                     interest in SportSouth, a regional sports cable
                   network, to such TCI subsidiary for an amount
                        (currently estimated at $65 million) determined in
                  accordance with the formula set forth in the
                   SportSouth Agreement. See "TCI Arrangements--
SportSouth Agreement."    

Sunshine Option.........  Upon consummation of the Mergers, a subsidiary of TCI 
                 and TWE will enter into the Sunshine Option
                        Agreement pursuant to which TWE will grant to such
                        TCI subsidiary the Sunshine Option to purchase the
                    interests of TWE and certain affiliates in the
                    Sunshine Network, a Florida-based sports cable
                      network, for approximately $14 million. See "TCI
     Arrangements--Sunshine Option."

PPV Output Agreement....  Certain TBS subsidiaries and certain affiliates of    
                     TCI have entered into the PPV Output Agreement,
                        providing for the licensing of all motion pictures
                  theatrically released during the term of the
                   agreement by New Line, Castle Rock and Turner
                        Pictures for exhibition, on a non-exclusive basis,
                on pay-per-view services owned by such TCI
                   affiliates. See "TCI Arrangements--PPV Output
Agreement."               

21

DEFM14A
26th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 26th
TIME WARNER SELECTED HISTORICAL FINANCIAL INFORMATION                           

The selected historical financial information of Time Warner set forth below
has been derived from and should be read in conjunction with the consolidated   
financial statements and other financial information of Time Warner contained   
in the Time Warner Form 10-K and with the unaudited consolidated condensed      
financial statements and other financial information of Time Warner contained   
in the Time Warner Form 10-Q for the quarter ended June 30, 1996, which are     
incorporated herein by reference. The selected historical financial information 
for all periods after 1992 reflects the deconsolidation of the Entertainment    
Group, principally TWE, effective January 1, 1993.                              

The selected historical financial information for 1996 reflects (a) the     
issuance of 1.6 million shares of 10 1/4% Series K Exchangeable Preferred       
Stock, par value $1.00 per share, of Time Warner ("Time Warner Series K         
Preferred Stock"), and the use of approximately $1.55 billion of net proceeds   
therefrom to reduce debt and (b) (i) the issuance of 6.3 million shares of      
convertible Time Warner Preferred Stock having an aggregate liquidation         
preference of $633 million and 2.9 million shares of Time Warner Common Stock   
and (ii) the assumption or incurrence of approximately $2 billion of            
indebtedness in connection with the acquisition by Time Warner of Cablevision   
Industries Corporation ("CVI") and related companies. The selected historical   
financial information for 1995 reflects (a) the issuance of 29.3 million shares 
of convertible Time Warner Preferred Stock having an aggregate liquidation      
preference of $2.926 billion and 2.6 million shares of Time Warner Common Stock 
and (b) the assumption or incurrence of approximately $1.3 billion of           
indebtedness in connection with (x) the acquisitions by Time Warner of KBLCOM   
Incorporated ("KBLCOM") and Summit Communications Group, Inc. ("Summit") and    
(y) the exchange by Toshiba Corporation ("Toshiba") and ITOCHU Corporation      
("ITOCHU") of their direct and indirect interests in TWE. See "Unaudited Pro    
Forma Consolidated Condensed Financial Statements." The selected historical     
financial information for 1993 reflects the issuance of $6.1 billion of long-   
term debt and the use of $500 million of cash and equivalents for the exchange  
or redemption of Time Warner Preferred Stock having an aggregate liquidation    
preference of $6.4 billion. The selected historical financial information for   
1992 reflects the capitalization of TWE on June 30, 1992 and associated         
refinancings, and the acquisition of the 18.7% minority interest in American    
Television and Communications Corporation ("ATC") as of June 30, 1992, using    
the purchase method of accounting for business combinations. Per common share   
amounts and average common shares have been restated to give effect to the      
four-for-one Time Warner Common Stock split that occurred on September 10,      
1992.                                                                           

                                                                [Download Table]

                          SIX MONTHS                                              
                             ENDED                                                
                           JUNE 30,            YEARS ENDED DECEMBER 31,           
                         --------------  ---------------------------------------- 
                          1996    1995    1995    1994    1993    1992     1991   
                         ------  ------  ------  ------  ------  -------  ------- 
                          (MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)         
                                                                                  
OPERATING STATEMENT                                                               
 INFORMATION                                                                      
Revenues................ $4,207  $3,724  $8,067  $7,396  $6,581  $13,070  $12,021 
Depreciation and                                                                  
 amortization...........    452     231     559     437     424    1,172    1,109 
Business segment                                                                  
 operating income(a)....    325     322     697     713     591    1,343    1,154 
Equity in pretax income                                                           
 of Entertainment                                                                 
 Group..................    209     106     256     176     281       --       -- 
Interest and other,                                                               
 net....................    578     356     877     724     718      882      966 
Income (loss) before                                                              
 extraordinary item.....   (124)    (55)   (124)    (91)   (164)      86      (99)
Net income                                                                        
 (loss)(b)(c)...........   (159)    (55)   (166)    (91)   (221)      86      (99)
Net loss applicable to                                                            
 common shares (after                                                             
 preferred dividends)...   (263)    (63)   (218)   (104)   (339)    (542)    (692)
Per share of common                                                               
 stock:                                                                           
 Loss before                                                                      
  extraordinary item.... $ (.58) $ (.17) $ (.46) $ (.27) $ (.75) $ (1.46) $ (2.40)
 Net loss(b)(c)......... $ (.67) $ (.17) $ (.57) $ (.27) $ (.90) $ (1.46) $ (2.40)
 Dividends.............. $  .18  $  .18  $  .36  $  .35  $  .31  $  .265  $   .25 
Average common                                                                    
 shares(c)..............  390.6   380.5   383.8   378.9   374.7    371.0    288.2 
Ratio of earnings to                                                              
 fixed charges(d).......    1.0x    1.1x    1.1x    1.1x    1.1x     1.4x     1.1x
Ratio of earnings to                                                              
 combined fixed charges                                                           
 and preferred stock                                                              
 dividends (deficiency                                                            
 in the coverage of                                                               
 combined fixed charges                                                           
 and preferred stock                                                              
 dividends by earnings                                                            
 before fixed charges                                                             
 and preferred stock                                                              
 dividends)(d).......... $ (127)    1.1x    1.0x    1.1x $  (91) $  (509) $(1,240)

22

DEFM14A
27th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 27th
                                                                [Download Table]

                                JUNE 30,              DECEMBER 31,              
                                -------- ---------------------------------------
                                  1996    1995    1994    1993    1992    1991  
                                -------- ------- ------- ------- ------- -------
                                                   (MILLIONS)                   
                                                                                
BALANCE SHEET INFORMATION                                                       
Investments in and amounts due                                                  
 to and from Entertainment                                                      
 Group........................  $ 5,945  $ 5,734 $ 5,350 $ 5,627 $    -- $    --
Total assets..................   24,508   22,132  16,716  16,892  27,366  24,889
Long-term debt................    9,928    9,907   8,839   9,291  10,068   8,716
Borrowings against future                                                       
 stock option proceeds........      225       --      --      --      --      --
Time Warner-obligated                                                           
 mandatorily redeemable                                                         
 preferred securities of                                                        
 subsidiaries holding                                                           
 solely subordinated notes and                                                  
 debentures of                                                                  
 Time Warner(e)...............      949      949      --      --      --      --
Series K exchangeable                                                           
 preferred stock..............    1,586       --      --      --      --      --
Shareholders' equity:                                                           
 Preferred stock liquidation                                                    
  preference..................    3,559    2,994     140     140   6,532   6,256
 Equity applicable to common                                                    
  stock.......................      284      673   1,008   1,230   1,635   2,242
 Total shareholders' equity...    3,843    3,667   1,148   1,370   8,167   8,498
Total capitalization..........   16,531   14,523   9,987  10,661  18,235  17,214

--------                                                                        
(a) Business segment operating income for the year ended December 31, 1995      
includes $85 million in losses relating to certain businesses and joint 
ventures owned by the Music division which were restructured or closed. 
Business segment operating income for the year ended December 31, 1991, 
includes a $60 million charge relating to the restructuring of the      
Publishing division.                                                    
(b) The net loss for the six months ended June 30, 1996 includes an             
extraordinary loss on the retirement of debt of $35 million ($.09 per   
 common share). The net loss for the year ended December 31, 1995 includes
an extraordinary loss on the retirement of debt of $42 million ($.11 per
 common share). The net loss for the year ended December 31, 1993 includes
an extraordinary loss on the retirement of debt of $57 million ($.15 per
  common share) and an unusual charge of $70 million ($.19 per common share)
  from the effect of the new income tax law on Time Warner's deferred income
tax liability.                                                          
(c) In August 1991, Time Warner completed the sale of 137.9 million shares of   
Time Warner Common Stock pursuant to a rights offering. Net proceeds of 
$2.558 billion from the rights offering were used to reduce indebtedness
  under Time Warner's bank credit agreement. If the rights offering had been
 completed at the beginning of 1991, net loss for the year would have been
reduced to $33 million, or $1.70 per common share, and there would have 
been 369.3 million shares of Time Warner Common Stock outstanding during
the year.                                                               
(d) For purposes of the ratio of earnings to fixed charges and the ratio of     
  earnings to combined fixed charges and preferred stock dividends, earnings
were calculated by adding (i) pretax income, (ii) interest expense,     
including previously capitalized interest amortized to expense and the  
 portion of rents representative of an interest factor for Time Warner and
   its majority-owned subsidiaries, (iii) Time Warner's proportionate share of
the items included in (ii) above for its 50%-owned companies, (iv)      
 preferred stock dividend requirements of majority-owned subsidiaries, (v)
minority interest in the income of majority-owned subsidiaries that have
fixed charges and (vi) undistributed losses of its less-than-50%-owned  
companies. Fixed charges consist of (i) interest expense, including     
   interest capitalized and the portion of rents representative of an interest
factor for Time Warner and its majority-owned subsidiaries, (ii) Time   
  Warner's proportionate share of such items for its 50%-owned companies and
   (iii) preferred stock dividend requirements of majority-owned subsidiaries.
Combined fixed charges and preferred stock dividends also include the   
amount of pretax income necessary to cover preferred stock dividend     
requirements of Time Warner. For periods in which earnings before fixed 
  charges were insufficient to cover fixed charges or combined fixed charges
and preferred stock dividends, the dollar amount of coverage deficiency,
   instead of the ratio, is disclosed. Earnings as defined include significant
noncash charges for depreciation and amortization. With respect to the  
  ratio of earnings to fixed charges, fixed charges for the six months ended
June 30, 1996 and 1995 and the years ended December 31, 1995 and 1994   
   include noncash interest expense of $46 million, $116 million, $176 million
and $219 million, respectively, relating to Time Warner's Zero Coupon   
Convertible Notes due 2012 and 2013 and, in 1995 and 1994 only, Time    
Warner's Redeemable Reset Notes due 2002. With respect to the ratio of  
earnings to combined fixed charges and preferred stock dividends, fixed 
  charges similarly include noncash interest expense as noted above and, for
the six-month period ended June 30, 1996 only, noncash preferred stock  
dividends of $36 million relating to the Time Warner Series K Preferred 
Stock.                                                                  
(e) Includes $374 million of preferred securities that are redeemable for cash  
 or, at Time Warner's option, approximately 12.1 million shares of Hasbro,
Inc. common stock owned by Time Warner.                                 

23

DEFM14A
28th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 28th
TIME WARNER ENTERTAINMENT GROUP SELECTED HISTORICAL FINANCIAL INFORMATION       

The selected historical financial information of the Entertainment Group set
forth below has been derived from and should be read in conjunction with the    
consolidated financial statements and other financial information of Time       
Warner and TWE contained in the Time Warner Form 10-K and with the unaudited    
consolidated condensed financial statements and other financial information of  
Time Warner and TWE contained in the Time Warner Form 10-Q for the quarter      
ended June 30, 1996, which are incorporated herein by reference. For periods    
prior to January 1, 1993, the Entertainment Group is consolidated with Time     
Warner for financial reporting purposes and, accordingly, is also reflected in  
Time Warner's selected historical financial information.                        

The selected historical financial information for 1995 reflects the         
consolidation by TWE of the TWE-Advance/Newhouse Partnership (as defined below) 
resulting from the formation of such partnership, effective as of April 1,      
1995, and the consolidation of Paragon Communications ("Paragon") effective as  
of July 6, 1995. The selected historical financial information gives effect to  
the consolidation of Six Flags Entertainment Corporation ("Six Flags")          
effective as of January 1, 1993 as a result of an increase in TWE's ownership   
of Six Flags from 50% to 100% in September 1993, and the subsequent             
deconsolidation of Six Flags resulting from the disposition by TWE of a 51%     
interest in Six Flags effective as of June 23, 1995. The selected historical    
financial information for 1993 also gives effect to the admission of U S WEST   
as an additional limited partner of TWE as of September 15, 1993 and the        
issuance of $2.6 billion of TWE debentures during the year to reduce            
indebtedness under the TWE credit agreement. For 1992, the selected financial   
information gives effect to the initial capitalization of TWE and associated    
refinancings as of the dates such transactions were consummated and Time        
Warner's acquisition of the ATC minority interest as of June 30, 1992, using    
the purchase method of accounting. Time Warner's cost to acquire the ATC        
minority interest is reflected in the consolidated financial statements of TWE  
under the pushdown method of accounting.                                        

                                                        [Enlarge/Download Table]

                          SIX MONTHS ENDED                                           
                              JUNE 30,             YEARS ENDED DECEMBER 31,          
                          ------------------  -------------------------------------- 
                            1996      1995     1995    1994    1993    1992    1991  
                          --------  --------  ------  ------  ------  ------  ------ 
                                       (MILLIONS, EXCEPT RATIOS)                     
                                                                                     
OPERATING STATEMENT                                                                  
 INFORMATION                                                                         
Revenues................  $  5,097  $  4,508  $9,629  $8,509  $7,963  $6,761  $6,068 
Depreciation and                                                                     
 amortization...........       585       513   1,060     959     909     788     733 
Business segment                                                                     
 operating income.......       568       475     992     852     905     814     724 
Interest and other,                                                                  
 net....................       222       304     539     616     564     531     526 
Income before                                                                        
 extraordinary item.....       170        70     170     136     217     173     103 
Net income (a)..........       170        70     146     136     207     173     103 
TWE ratio of earnings to                                                             
 fixed charges(b).......       2.0x      1.4x    1.6x    1.4x    1.4x    1.4x    1.4x

                                                                [Download Table]

                               JUNE 30,              DECEMBER 31,              
                               -------- ---------------------------------------
                                 1996    1995    1994    1993    1992    1991  
                               -------- ------- ------- ------- ------- -------
                                                  (MILLIONS)                   
                                                                               
BALANCE SHEET INFORMATION                                                      
Total assets.................  $18,968  $18,960 $18,992 $18,202 $15,886 $14,230
Long-term debt...............    5,575    6,137   7,160   7,125   7,171   4,571
Time Warner General Partners'                                                  
 Senior Capital..............    1,483    1,426   1,663   1,536      --      --
Partners' capital............    6,735    6,576   6,491   6,228   6,483   6,717

--------                                                                        
(a) Net income for the years ended December 31, 1995 and 1993 includes an       
extraordinary loss on the retirement of debt of $24 million and $10     
million, respectively.                                                  
(b) For purposes of the ratio of earnings to fixed charges, earnings were       
calculated by adding (i) pretax income, (ii) interest expense, including
previously capitalized interest amortized to expense and the portion of 
 rents representative of an interest factor for TWE and its majority-owned
   subsidiaries, (iii) TWE's proportionate share of the items included in (ii)
  above for its 50%-owned companies, (iv) minority interest in the income of
 majority-owned subsidiaries that have fixed charges and (v) undistributed
 losses of its less-than-50%-owned companies. Fixed charges consist of (i)
 interest expense, including interest capitalized and the portion of rents
representative of an interest factor for TWE and its majority-owned     
  subsidiaries and (ii) TWE's proportionate share of such items for its 50%-
owned companies. Earnings as defined include significant noncash charges
for depreciation and amortization.                                      

24

DEFM14A
29th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 29th
TBS SELECTED HISTORICAL FINANCIAL INFORMATION                                   

 The selected historical financial information of TBS set forth below has been
derived from and should be read in conjunction with the consolidated financial  
statements and other financial information of TBS contained in the TBS Form 10- 
K and with the unaudited consolidated condensed financial statements and other  
financial information of TBS contained in the TBS Form 10-Q for the quarter     
ended June 30, 1996, which are incorporated herein by reference.                

 The selected historical financial information reflects (a) the acquisition of
New Line on January 28, 1994, (b) the acquisition of Castle Rock on December    
22, 1993 and (c) the acquisition on December 29, 1993 of the remaining 50%      
interest in a joint venture (the "HB Joint Venture"), which principally owns    
the Hanna-Barbera Film Library. TBS originally acquired a 50% interest in the   
HB Joint Venture in December 1991. Such acquisitions were accounted for using   
the purchase method of accounting for business combinations.                    

                                                                [Download Table]

                             SIX MONTHS                                        
                                ENDED                                          
                              JUNE 30,         YEARS ENDED DECEMBER 31,        
                            ------------- -------------------------------------
                             1996   1995   1995   1994    1993    1992    1991 
                            ------ ------ ------ ------  ------  ------- ------
                                  (MILLIONS, EXCEPT PER SHARE AMOUNTS)         
                                                                               
OPERATING STATEMENT                                                            
 INFORMATION                                                                   
Revenues..................  $1,675 $1,508 $3,437 $2,809  $1,922  $ 1,770 $1,480
Depreciation and                                                               
 amortization(a)..........      92     85    189    153     115      113    100
Operating profit(b).......      84    173    358    288     302      289    297
Interest and other, net...      81     97    185    208     182      190    196
Income before                                                                  
 extraordinary items and                                                       
 the cumulative effect of                                                      
 a change in accounting                                                        
 for income taxes.........       1     44    103     46      72       34     43
Extraordinary items(c)....      --     --     --    (25)    (11)      44     43
Cumulative effect of a                                                         
 change in accounting for                                                      
 income taxes(d)..........      --     --     --     --    (306)      --     --
Net income (loss).........       1     44    103     21    (244)      78     86
Net income (loss)                                                              
 applicable to common                                                          
 stock(e).................       1     44    103     21    (244)      76     57
Net income (loss) per                                                          
 common share and common                                                       
 stock equivalent.........  $  .01 $  .15 $  .36 $  .08  $ (.92) $   .30 $  .24
Cash dividends declared                                                        
 per common share(f):                                                          
 Class A Common Stock.....  $.0350 $.0350 $.0700 $.0700  $.0700  $.04875     --
 Class B Common Stock.....  $.0350 $.0350 $.0700 $.0700  $.0700  $.05000     --
Weighted average Class A                                                       
 and Class B common shares                                                     
 outstanding(g)...........   287.3  287.3  284.4  281.3   264.4    255.5  238.2

                                                                [Download Table]

                                  JUNE 30,            DECEMBER 31,             
                                  -------- ----------------------------------- 
                                    1996    1995   1994   1993    1992   1991  
                                  -------- ------ ------ ------  ------ ------ 
                                                  (MILLIONS)                   
                                                                               
BALANCE SHEET INFORMATION                                                      
Working capital.................   $  589  $  554 $  642 $  661  $  475 $  379 
Cash and cash equivalents.......      119      85     53    163     126     79 
Total assets....................    4,488   4,395  4,073  3,245   2,524  2,397 
Long-term debt, less current                                                   
 portion........................    2,600   2,480  2,518  2,295   1,709  1,969 
Redeemable preferred stock(h)...       --      --     --     --      --      5 
Stockholders' equity (deficit)..      471     438    344     (1)    233    (38)

--------                                                                        
(a) Principally includes depreciation, amortization of goodwill and other       
intangibles, amortization of purchased programming and non-cash         
amortization of certain acquisition purchase adjustments.               
(b) Operating profit is defined as income before interest expense, interest     
  income, provision for income taxes, extraordinary items and the cumulative
effect of a change in accounting for income taxes. Operating profit     
  includes $16 million, $3 million and $24 million incurred in the six-month
  periods ended June 30, 1996 and 1995 and the year ended December 31, 1995,
 respectively, of non-recurring costs related to the Transaction and costs
related to TBS's accounts receivable securitization program which, when 
 taken together with depreciation and amortization, should be excluded for
purposes of determining the operating cash flow of TBS in such periods. 
(c) Extraordinary items consist of (i) for the years ended December 31, 1994    
and 1993 losses on early extinguishment of indebtedness of $25 million  
($.08 per common share) and $11 million ($.03 per common share),        
respectively, and (ii) for the years ended December 31, 1992 and 1991,  
utilization of operating loss carryforwards.                            
(d) The year ended December 31, 1993 included a charge of $306 million ($1.16   
per common share) from the cumulative effect of adopting Statement of   
Financial Accounting Standards No. 109, "Accounting for Income Taxes."  
(e) Amounts represent net income (loss) less dividends and accretion on the TBS 
Class B Cumulative Preferred Stock of approximately $1 million and $29  
million for the years ended December 31, 1992 and 1991, respectively.   
(f) Holders of TBS Class C Preferred Stock are entitled to a cash dividend for  
each share held based on the number of underlying shares of TBS Class B 
Common Stock.                                                           
(g) Amounts include common stock equivalents.                                   
(h) Represents the accreted value of the TBS Class B Cumulative Preferred Stock 
outstanding at December 31, 1991.                                       

25

DEFM14A
30th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 30th
NEW TIME WARNER SELECTED PRO FORMA FINANCIAL INFORMATION                        

 The unaudited selected pro forma balance sheet information of New Time Warner
at June 30, 1996 set forth below gives effect to the Transaction and certain    
other transactions that Time Warner and TWE have completed, or have entered     
into, as if consummated on such date. The unaudited selected pro forma          
operating statement information of New Time Warner for the six months ended     
June 30, 1996 and the year ended December 31, 1995 set forth below gives effect 
to the Transaction and certain transactions that Time Warner and TWE have       
completed, or have entered into, in each case as if consummated at the          
beginning of 1995. The selected pro forma information set forth below is        
qualified in its entirety by, and should be read in conjunction with, the       
Unaudited Pro Forma Consolidated Condensed Financial Statements included herein 
and the historical financial information of Time Warner and TBS included or     
incorporated by reference herein.                                               

The selected pro forma information is presented for informational purposes  
only and is not necessarily indicative of the financial position or operating   
results that would have occurred if the transactions given retroactive effect   
therein had been consummated as of the dates indicated, nor is it necessarily   
indicative of future financial conditions or operating results. See "Unaudited  
Pro Forma Consolidated Condensed Financial Statements."                         

                                                                [Download Table]

                                                       SIX MONTHS     YEAR    
                                                         ENDED       ENDED    
                                                        JUNE 30,  DECEMBER 31,
                                                          1996        1995    
                                                       ---------- ------------
                                                          (MILLIONS, EXCEPT   
                                                         PER SHARE AMOUNTS)   
                                                                              
PRO FORMA OPERATING STATEMENT INFORMATION                                     
Revenues..............................................   $5,882     $12,179   
Depreciation and amortization.........................      623       1,283   
Business segment operating income.....................      328         832   
Equity in pretax income of Entertainment Group........      209         286   
Interest and other, net...............................      627       1,142   
Loss before extraordinary item........................     (182)       (274)  
Loss before extraordinary item applicable to common                           
 shares (after preferred dividends)...................     (337)       (590)  
Per share of common stock:                                                    
  Loss before extraordinary item......................   $ (.59)    $ (1.04)  
  Dividends...........................................   $  .18     $   .36   
Average common shares.................................    568.9       566.0   
Deficiency in the coverage of fixed charges by                                
 earnings before fixed charges (a)....................   $  (19)    $    (6)  
Deficiency in the coverage of combined fixed charges                          
 and preferred stock dividends by earnings before                             
 fixed charges and preferred stock dividends(a).......   $ (268)    $  (444)  

                                                                [Download Table]

                                                                     JUNE 30, 
                                                                       1996   
                                                                    ----------
                                                                    (MILLIONS)
                                                                              
PRO FORMA BALANCE SHEET INFORMATION                                           
Investments in and amounts due to and from Entertainment Group.....  $ 5,945  
Total assets.......................................................   34,711  
Long-term debt.....................................................   12,690  
Borrowings against future options proceeds.........................      225  
Time Warner-obligated mandatorily redeemable preferred securities             
 of subsidiaries holding solely subordinated notes and debentures             
 of Time Warner(b).................................................      949  
Series K exchangeable preferred stock..............................    1,586  
Shareholders' equity:                                                         
  Preferred stock liquidation preference...........................    3,559  
  Equity applicable to common stock................................    6,308  
  Total shareholders' equity.......................................    9,867  
Total capitalization...............................................   25,317  

--------                                                                        
(a) For purposes of the ratio of earnings to fixed charges and the ratio of     
  earnings to combined fixed charges and preferred stock dividends, earnings
were calculated by adding (i) pretax income, (ii) interest expense,     
including previously capitalized interest amortized to                  

26

DEFM14A
31st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 31st
expense and the portion of rents representative of an interest factor for 
New Time Warner and its majority-owned subsidiaries, (iii) New Time       
Warner's proportionate share of the items included in (ii) above for its  
50%-owned companies, (iv) preferred stock dividend requirements of        
majority-owned subsidiaries, (v) minority interest in the income of       
majority-owned subsidiaries that have fixed charges and (vi) undistributed
losses of its less-than-50%-owned companies. Fixed charges consist of (i) 
interest expense, including interest capitalized and the portion of rents 
representative of an interest factor for New Time Warner and its majority-
owned subsidiaries, (ii) New Time Warner's proportionate share of such    
items for its 50%-owned companies and (iii) preferred stock dividend      
requirements of majority-owned subsidiaries. Combined fixed charges and   
preferred stock dividends also include the amount of pretax income        
necessary to cover preferred stock dividend requirements of New Time      
Warner. For periods in which earnings before fixed charges were           
 insufficient to cover fixed charges or combined fixed charges and preferred
stock dividends, the dollar amount of coverage deficiency, instead of the 
ratio, is disclosed. Earnings as defined include significant noncash      
charges for depreciation and amortization. With respect to the ratio of   
earnings to fixed charges, fixed charges for New Time Warner for the six  
months ended June 30, 1996 and the year ended December 31, 1995 include   
noncash interest expense of $56 million and $101 million, respectively.   
With respect to the ratio of earnings to combined fixed charges and       
 preferred stock dividends, fixed charges similarly include noncash interest
expense as noted above and, for the six-month period ended June 30, 1996  
and the year ended December 31, 1995, noncash preferred stock dividends of
$87 million and $173 million, respectively, relating to the Time Warner   
Series K Preferred Stock.                                                 
(b) Includes $374 million of preferred securities that are redeemable for cash  
 or, at Time Warner's option, approximately 12.1 million shares of Hasbro,
Inc. common stock owned by Time Warner.                                 

27  

DEFM14A
32nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 32nd
COMPARATIVE PER SHARE DATA                                                      

Set forth below are historical earnings per share, cash dividends per share 
and book value per share data of Time Warner and TBS, equivalent pro forma per  
common share data of TBS and pro forma combined per share data of New Time      
Warner. TBS historical and equivalent pro forma information with respect to the 
TBS Class C Preferred Stock has been computed on a TBS Class B Common Stock     
equivalent basis based upon the assumed conversion of each share of TBS Class C 
Preferred Stock into six shares of TBS Class B Common Stock. The data set forth 
below should be read in conjunction with the Time Warner and TBS audited        
consolidated financial statements and unaudited interim consolidated financial  
statements, including the notes thereto, which are incorporated by reference in 
this Joint Proxy Statement/Prospectus. The data should also be read in          
conjunction with the unaudited pro forma consolidated condensed financial       
information included elsewhere herein.                                          

                                                                [Download Table]

                                                                     YEAR ENDED 
                                                   SIX MONTHS ENDED DECEMBER 31,
                                                    JUNE 30, 1996       1995    
                                                   ---------------- ------------
                                                                                
TIME WARNER--HISTORICAL                                                         
 Loss before extraordinary item per share.........     $  (.58)       $  (.46)  
 Cash dividends per share.........................         .18            .36   
 Book value per share(a)..........................        1.65           2.49   
TBS PER COMMON SHARE EQUIVALENT--HISTORICAL                                     
TBS Common Stock                                                                
 Net income per share.............................      $ 0.01        $   .36   
 Cash dividends per share.........................        0.035           .07   
 Book value per share(a)..........................        1.01            .86   
TBS Class C Preferred Stock                                                     
 Net income per share.............................      $ 0.01        $   .36   
 Cash dividends per share.........................        0.035           .07   
 Book value per share(b)..........................        3.50           3.50   
TBS PER COMMON SHARE EQUIVALENT--PRO FORMA                                      
TBS Common Stock(c):                                                            
 Loss before extraordinary item per share.........     $  (.44)       $  (.78)  
 Cash dividends per share.........................         .14            .27   
 Book value per share.............................        8.84           9.44   
TBS Class C Preferred Stock(d):                                                 
 Loss before extraordinary item per share.........        (.47)          (.83)  
 Cash dividends per share.........................         .14            .29   
 Book value per share.............................        9.43          10.07   
NEW TIME WARNER--PRO FORMA                                                      
 Loss before extraordinary item per share.........     $  (.59)       $ (1.04)  
 Cash dividends per share.........................         .18            .36   
 Book value per share(e)..........................       11.79          12.59   

--------                                                                        
(a) Calculated by dividing the historical shareholders' equity less the         
  historical book value of non-mandatorily redeemable preferred stock by the
 number of outstanding common shares. The outstanding common shares do not
include shares issuable upon exercise of stock options or conversion of 
outstanding convertible securities.                                     
(b) Calculated by dividing the historical book value of the TBS Class C         
Preferred Stock by the number of shares of TBS Class B Common Stock into
which the outstanding shares of TBS Class C Preferred Stock are         
convertible.                                                            
(c) Calculated based upon the exchange ratio of 0.75 of a share of New Time     
Warner Common Stock per share of TBS Common Stock.                      
(d) Calculated based upon the exchange ratio of 0.80 of a share of New Time     
Warner Common Stock per share of TBS Class B Common Stock into which the
outstanding shares of TBS Class C Preferred Stock are convertible.      
(e) Calculated by dividing pro forma shareholders' equity less the book value   
of non-mandatorily redeemable preferred stock by the expected number of 
  outstanding shares of New Time Warner Common Stock. The expected number of
  outstanding shares of New Time Warner Common Stock does not include shares
issuable upon exercise of stock options or conversion of outstanding    
convertible securities.                                                 

28

DEFM14A
33rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 33rd
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION                     

The Time Warner Common Stock is listed on the NYSE and the PSE under the    
symbol TWX and on the London Stock Exchange. The Time Warner Preferred Stock is 
not listed on any securities exchange or publicly traded.                       

The TBS Class A Common Stock and the TBS Class B Common Stock are listed on 
the AMEX under the symbols TBS.A and TBS.B, respectively. The TBS Class C       
Preferred Stock is not listed on any securities exchange or publicly traded.    
Each share of TBS Class C Preferred Stock currently is convertible into six     
shares of TBS Class B Common Stock.                                             

 The table below sets forth, for the calendar quarters indicated, the reported
high and low sales prices of Time Warner Common Stock on the NYSE Composite     
Tape and the TBS Class A Common Stock and TBS Class B Common Stock, in each     
case based on published financial sources, and the dividends declared on such   
stock. For each quarter indicated, the cash dividend per share of TBS Class C   
Preferred Stock was six times the dividend per share of TBS Common Stock.       

                                                        [Enlarge/Download Table]

                          TIME WARNER COMMON STOCK       TBS CLASS A COMMON STOCK     TBS CLASS B COMMON STOCK    
                         -----------------------------------------------------------------------------------------
                          HIGH       LOW     DIVIDENDS   HIGH      LOW    DIVIDENDS   HIGH      LOW    DIVIDENDS  
                         --------- --------- ------------------- -------- ------------------- -------- -----------
                                                           (IN DOLLARS)                                           
                                                                                                                  
1994                                                                                                              
 First Quarter..........    44.250    36.625       .08    27.750   19.500     .0175    27.750   19.875     .0175  
 Second Quarter.........    40.625    34.500       .09    20.375   17.000     .0175    20.250   17.000     .0175  
 Third Quarter..........    38.750    34.000       .09    20.000   16.375     .0175    20.000   16.625     .0175  
 Fourth Quarter.........    37.750    31.500       .09    20.125   14.500     .0175    20.375   14.500     .0175  
1995                                                                                                              
 First Quarter..........    39.250    33.625       .09    18.750   16.000     .0175    19.125   16.125     .0175  
 Second Quarter.........    43.500    34.250       .09    20.750   16.500     .0175    21.250   16.625     .0175  
 Third Quarter..........    45.625    38.875       .09    33.500   20.000     .0175    31.875   20.375     .0175  
 Fourth Quarter ........    41.250    35.750       .09    27.625   24.625     .0175    28.000   24.750     .0175  
1996                                                                                                              
 First Quarter..........    45.250    37.250       .09    29.250   24.000     .0175    29.750   24.125     .0175  
 Second Quarter.........    42.875    38.125       .09    28.250   24.750     .0175    28.250   24.875     .0175  
 Third Quarter                                                                                                    
  (through September 4,                                                                                           
  1996).................    39.875    29.750       .09    27.875   22.500     .0175    28.125   22.500     .0175  

On August 29, 1995, the last full trading day preceding the joint public    
announcement by Time Warner and TBS that they were in discussions regarding a   
possible business combination, the closing price of Time Warner Common Stock on 
the NYSE Composite Tape was $42.375 per share, and the closing prices of TBS    
Class A Common Stock and TBS Class B Common Stock on the AMEX were $23.625 and  
$24.000, respectively, in each case based on published financial sources. On    
September 4, 1996, the most recent practicable date prior to the printing of    
this Joint Proxy Statement/Prospectus, the closing price of Time Warner Common  
Stock on the NYSE Composite Tape was $32.750 per share, and the closing prices  
of TBS Class A Common Stock and TBS Class B Common Stock on the AMEX were       
$24.375 and $24.125, respectively. HOLDERS OF TIME WARNER CAPITAL STOCK AND TBS 
CAPITAL STOCK ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING ANY 
DECISION WITH RESPECT TO THE TRANSACTION.                                       

The Merger Agreement contemplates that the New Time Warner Common Stock will
be listed on the NYSE, and Time Warner currently expects that the New Time      
Warner Common Stock will also be listed on the PSE. Time Warner does not expect 
that any of the New Time Warner Preferred Stock will be listed on any           
securities exchange or publicly traded.                                         

The payment of future dividends on New Time Warner Common Stock will be a   
business decision to be made by the New Time Warner Board from time to time     
based upon the results of operations and financial condition of New Time Warner 
and such other factors as the New Time Warner Board considers relevant.         

29

DEFM14A
34th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 34th
THE SPECIAL MEETINGS  

This Joint Proxy Statement/Prospectus is furnished in connection with the   
solicitation of proxies (a) from the holders of Time Warner Common Stock and    
Time Warner Voting Preferred Stock by the Time Warner Board for use at the      
Time Warner Meeting and (b) from the holders of TBS Capital Stock by the TBS    
Board for use at the TBS Meeting.                                               

TIMES AND PLACES; PURPOSES                                                      

The Time Warner Meeting is scheduled to be held at the Time & Life Building,
1271 Avenue of the Americas, New York, New York 10020, on October 10, 1996,     
starting at 9:00 a.m., local time. At the Time Warner Meeting, the              
stockholders of Time Warner will be asked to consider and vote on the TW        
Merger Proposal and such other matters as may properly come before the Time     
Warner Meeting.                                                                 

The TBS Meeting is scheduled to be held at the Time & Life Building, 1271   
Avenue of the Americas, New York, New York 10020, on October 10, 1996,          
starting at 2:00 p.m., local time. At the TBS Meeting, the shareholders of TBS  
will be asked to consider and vote on the TBS Merger Proposal and such other    
matters as may properly come before the TBS Meeting.                            

VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL                                      

Time Warner                                                                   

The Time Warner Board has fixed August 26, 1996, as the Time Warner Record  
Date. Only holders of record of shares of Time Warner Common Stock and Time     
Warner Voting Preferred Stock at the close of business on the Time Warner       
Record Date are entitled to vote at the Time Warner Meeting. At the close of    
business on the Time Warner Record Date, there were 384,737,911 shares of Time  
Warner Common Stock and 33,794,710 shares of Time Warner Voting Preferred       
Stock outstanding and entitled to vote at the Time Warner Meeting held by       
approximately 25,000 stockholders of record of Time Warner Common Stock and 14  
stockholders of record of Time Warner Voting Preferred Stock.                   

Each share of Time Warner Common Stock entitles the holder thereof on the   
Time Warner Record Date to one vote, and each share of Time Warner Voting       
Preferred Stock entitles the holder thereof on the Time Warner Record Date to   
two votes. The presence, in person or by proxy, of the holders of a majority    
of the votes entitled to be cast by the stockholders entitled to vote           
generally is necessary to constitute a quorum at the Time Warner Meeting.       
Approval of the TW Merger Proposal (the "TW Merger Approval") requires the      
affirmative vote, in person or by proxy, of the holders of a majority in        
voting power of all outstanding shares of Time Warner Common Stock and Time     
Warner Voting Preferred Stock, voting together as a single class. Abstentions   
and broker non-votes will have the effect of a vote against the TW Merger       
Proposal. Shares represented by abstentions and broker non-votes will be        
counted for purposes of determining whether there is a quorum at the Time       
Warner Meeting.                                                                 

Holders of Time Warner Common Stock are not entitled to appraisal or        
dissenters' rights in connection with the Time Warner Merger. Holders of        
record of Time Warner Preferred Stock who do not vote in favor of the TW        
Merger Proposal and who otherwise comply with the applicable statutory          
procedures summarized herein will be entitled to appraisal rights under         
Section 262 of the DGCL. See "The Transaction--Appraisal and Dissenters'        
Rights."                                                                        

As of June 30, 1996, directors and executive officers of Time Warner and    
their affiliates as a group beneficially owned 1,705,372 shares of Time Warner  
Common Stock and no shares of Time Warner Voting Preferred Stock, or            
approximately 0.4% of the total number of votes entitled to be cast at the      
Time Warner Meeting.                                                            

TBS                                                                           

The TBS Board has fixed August 26, 1996, as the TBS Record Date. Only       
holders of record of shares of TBS Capital Stock at the close of business on    
the TBS Record Date will be entitled to notice of and to vote at the TBS        
Meeting. At the close of business on the TBS Record Date, there were            
outstanding and entitled to vote                                                

30  

DEFM14A
35th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 35th
68,330,388 shares of TBS Class A Common Stock, 140,379,236 shares of TBS Class  
B Common Stock and 12,396,976 shares of TBS Class C Preferred Stock. Each       
share of TBS Class A Common Stock entitles the holder thereof to two votes,     
each share of TBS Class B Common Stock entitles the holder thereof to one-      
fifth of a vote and each share of TBS Class C Preferred Stock entitles the      
holder thereof to vote as though such holder held the six shares of the TBS     
Class B Common Stock into which each share of TBS Class C Preferred Stock is    
currently convertible (i.e., one and one-fifth votes per share of TBS Class C   
Preferred Stock). At the TBS Meeting, the presence, in person or by proxy, of   
a majority of the votes entitled to be cast by the holders of (a) TBS Capital   
Stock is necessary to constitute a quorum of the TBS Capital Stock, (b) TBS     
Common Stock is necessary to constitute a quorum of the TBS Common Stock and    
(c) TBS Class C Preferred Stock is necessary to constitute a quorum of the TBS  
Class C Preferred Stock.                                                        

Approval of the TBS Merger Proposal by holders of TBS Capital Stock requires
the affirmative vote of (a) a majority of the voting power of the outstanding   
shares of TBS Capital Stock, voting together as a single group, (b) a majority  
of the voting power of the outstanding shares of TBS Common Stock, voting       
together as a single group, and (c) a majority of the outstanding shares of     
TBS Class C Preferred Stock, voting as a separate class (collectively, the      
"TBS Merger Approval"). Abstentions and broker non-votes will have the effect   
of votes against the TBS Merger Proposal.                                       

Holders of TBS Class A Common Stock, TBS Class B Common Stock and TBS Class 
C Preferred Stock who do not vote in favor of the TBS Merger Proposal and who   
otherwise comply with the applicable statutory procedures summarized herein     
will be entitled to assert dissenters' rights with respect to the TBS Merger    
under and in accordance with Article 13 of the GBCC. See "The Transaction--     
Appraisal and Dissenters' Rights."                                              

As of June 30, 1996, TBS's directors, executive officers and their          
affiliates (other than TCI and Time Warner), as a group, were entitled to vote  
57,737,225 shares of TBS Class A Common Stock, 25,544,196 shares of TBS Class   
B Common Stock and no shares of TBS Class C Preferred Stock. Such shares        
represent 67.2% of the total combined voting power of the TBS Capital Stock     
entitled to vote at the TBS Meeting and 73.2% of the total combined voting      
power of the TBS Common Stock entitled to vote at the TBS Meeting.              

Pursuant to the Support Agreement, the Turner Shareholders have agreed to   
vote all shares of TBS Capital Stock that they are entitled to vote at the TBS  
Meeting in favor of the approval of the TBS Merger Proposal. See "Certain       
Related Agreements--Support Agreement." In addition, pursuant to the LMC        
Agreement, LMC and certain of its subsidiaries have agreed, subject to the      
conditions set forth in the LMC Agreement, to vote all shares of TBS Capital    
Stock that they are entitled to vote at the TBS Meeting in favor of the         
approval of the TBS Merger Proposal. See "TCI Arrangements--LMC Agreement."     
Pursuant to the Merger Agreement, Time Warner has agreed to vote or cause to    
be voted all shares of TBS Capital Stock owned of record by Time Warner or any  
of its subsidiaries in favor of the approval of the TBS Merger Proposal. As of  
June 30, 1996, the shares of TBS Capital Stock that the Turner Shareholders,    
LMC and such subsidiaries of LMC and Time Warner and its subsidiaries are       
entitled to vote at the TBS Meeting represented, in the aggregate, 81.5% of     
the total combined voting power of the TBS Capital Stock entitled to vote at    
the TBS Meeting, 80.8% of the total combined voting power of the TBS Common     
Stock entitled to vote at the TBS Meeting, and 88.5% of the shares of TBS       
Class C Preferred Stock entitled to vote at the TBS Meeting. ACCORDINGLY        
(ASSUMING THE SATISFACTION OR WAIVER BY LMC OF THE CONDITIONS CONTAINED IN THE  
LMC AGREEMENT), APPROVAL OF THE TBS MERGER PROPOSAL IS ASSURED, REGARDLESS OF   
THE VOTE OF ANY OTHER SHAREHOLDER OF TBS.                                       

PROXIES                                                                         

Time Warner                                                                   

All shares of Time Warner Common Stock and Time Warner Voting Preferred     
Stock represented at the Time Warner Meeting by properly executed proxies       
received prior to or at the Time Warner Meeting, and not revoked, will be       
voted in accordance with the instructions indicated on such proxies. If no      
instructions are indicated, such proxies will be voted FOR the TW Merger        
Proposal. No stockholder of record may appoint more than three persons to act   
as his or her proxy at the Time Warner Meeting.                                 

31  

DEFM14A
36th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 36th
If any other matters are properly presented for consideration at the Time   
Warner Meeting, the persons named in the enclosed form of proxy and acting      
thereunder will have discretion to vote on those matters in accordance with     
their best judgment to the same extent as the person signing the proxy would    
be entitled to vote, except that any proxy marked AGAINST the TW Merger         
Proposal will not be voted on any proposal to adjourn the Time Warner Meeting.  
In accordance with the Time Warner By-laws, the Time Warner Meeting may be      
adjourned, including by the Chairman, in order to permit the solicitation of    
additional proxies with respect to the TW Merger Proposal. Time Warner does     
not currently anticipate that any other matters will be raised at the Time      
Warner Meeting.                                                                 

Any proxy given pursuant to this solicitation may be revoked by the person  
giving it at any time before it is voted. Proxies may be revoked by (a) filing  
with the Secretary of Time Warner, at or before the taking of the vote at the   
Time Warner Meeting, a written notice of revocation bearing a later date than   
the proxy, (b) duly executing a later dated proxy relating to the same shares   
and delivering it to the Secretary of Time Warner before the taking of the      
vote at the Time Warner Meeting or (c) attending the Time Warner Meeting and    
voting in person (although attendance at the Time Warner Meeting will not in    
and of itself constitute a revocation of a proxy). Any written notice of        
revocation or subsequent proxy should be sent and delivered to Time Warner      
Inc., 75 Rockefeller Plaza, New York, New York 10019, Attention: Secretary, or  
hand delivered to the Secretary of Time Warner at or before the taking of the   
vote at the Time Warner Meeting.                                                

All expenses of solicitation of proxies from Time Warner stockholders will  
be borne by Time Warner. Time Warner will solicit proxies by mail, and Time     
Warner's directors, officers and employees may also solicit proxies by          
telephone, telegram, facsimile or personal interview. These persons will        
receive no additional compensation for these services but may be reimbursed     
for reasonable out-of-pocket expenses in connection with such solicitation. In  
addition, Time Warner has retained D.F. King & Co., Inc., at an estimated cost  
of $40,000, plus reimbursement of expenses, to assist in Time Warner's          
solicitation of proxies from brokers, nominees, institutions and individuals.   
Continuing arrangements also will be made with custodians, nominees and         
fiduciaries for the forwarding of proxy solicitation materials to beneficial    
owners of shares held of record by such custodians, nominees and fiduciaries,   
and Time Warner will reimburse such custodians, nominees and fiduciaries for    
reasonable expenses incurred in connection therewith.                           

HOLDERS OF TIME WARNER CAPITAL STOCK SHOULD NOT SEND ANY CERTIFICATES       
REPRESENTING SHARES OF TIME WARNER CAPITAL STOCK WITH THE ENCLOSED PROXY CARD.  
IF THE TIME WARNER MERGER IS CONSUMMATED, CERTIFICATES THAT, PRIOR TO           
CONSUMMATION OF THE TIME WARNER MERGER, REPRESENTED SHARES OF TIME WARNER       
CAPITAL STOCK WILL, FOLLOWING CONSUMMATION OF THE TIME WARNER MERGER,           
REPRESENT SHARES OF NEW TIME WARNER CAPITAL STOCK WITH NO ACTION REQUIRED ON    
THE PART OF THE HOLDERS OF TIME WARNER CAPITAL STOCK.                           

TBS                                                                           

Shares of TBS Capital Stock entitled to vote at the TBS Meeting (including  
any adjournment or postponement thereof) and which are represented by properly  
executed proxies in the form enclosed with this Joint Proxy                     
Statement/Prospectus will, unless such proxies have previously been revoked,    
be voted in accordance with the instructions indicated in such proxies. To the  
extent instructions are not indicated, shares will be voted FOR the TBS Merger  
Proposal, and in the discretion of the proxy holder as to any other matter      
that may properly come before the TBS Meeting. A TBS shareholder who has given  
a proxy may revoke it at any time prior to its being voted at the TBS Meeting   
by delivering a new duly executed proxy with a later date or by delivering a    
written notice of revocation to the Secretary of TBS prior to the taking of     
the vote at the TBS Meeting or by appearing and voting in person at the TBS     
Meeting. Any written notice of revocation or subsequent proxy should be sent    
or delivered to Turner Broadcasting System, Inc., One CNN Center, Atlanta,      
Georgia 30303, Attention: Secretary, or hand delivered to the Secretary of TBS  
prior to the taking of the vote at the TBS Meeting.                             

32  

DEFM14A
37th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 37th
In addition to mailing this material to TBS shareholders, TBS has asked     
custodians, nominees and fiduciaries to forward copies to persons for whom      
they hold shares of TBS Capital Stock and to request authority for execution    
of proxies. TBS will reimburse such custodians, nominees and fiduciaries for    
their reasonable out-of-pocket expenses in doing so. Officers and employees of  
TBS may, without being additionally compensated, solicit proxies by mail,       
telephone, telegram or personal contact. TBS will pay all of its expenses in    
connection with the solicitation of proxies for the TBS Meeting. TBS does not   
intend to employ any other party to assist in the solicitation of proxies.      

HOLDERS OF TBS CAPITAL STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING  
SHARES OF TBS CAPITAL STOCK WITH THE ENCLOSED PROXY CARD. IF THE TBS MERGER IS  
CONSUMMATED, A LETTER OF TRANSMITTAL WILL BE MAILED TO EACH PERSON WHO WAS A    
HOLDER OF OUTSTANDING SHARES OF TBS CAPITAL STOCK IMMEDIATELY PRIOR TO THE      
CONSUMMATION OF THE TBS MERGER. TBS SHAREHOLDERS SHOULD SEND CERTIFICATES       
REPRESENTING TBS CAPITAL STOCK TO THE EXCHANGE AGENT ONLY AFTER THEY RECEIVE,   
AND IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED IN, THE LETTER OF             
TRANSMITTAL.                                                                    

THE TRANSACTION 

BACKGROUND                                                                      

In June 1987, TBS issued 12,396,976 units of its securities (the "Units     
Offering") to a group of investors that had ongoing business relationships      
with TBS, principally as owners or affiliates of owners of cable television     
systems that distribute TBS's programming services (the "Cable Operators").     
Each unit consisted of one share of TBS Class B Cumulative Preferred Stock      
("TBS Class B Preferred Stock") and one share of TBS Class C Preferred Stock.   
The Cable Operators included affiliates of Time Inc. ("Time"), Warner           
Communications Inc. ("WCI"), TCI and Continental Cablevision, Inc.              
("Continental"). The proceeds from the Units Offering, approximately $561       
million, were used by TBS to redeem all outstanding shares of TBS's Series A    
Cumulative Preferred Stock. References herein to the relative ownership of      
shares of TBS Capital Stock by Time Warner during the period prior to           
consummation in 1990 of the merger of WCI and a subsidiary of Time Warner (the  
"WCI Acquisition") include shares owned by both Time and WCI and their          
respective affiliates.                                                          

Each share of TBS Class C Preferred Stock initially was convertible into one
share of common stock of TBS and, as a result of the August 1987                
reclassification of the TBS common stock into TBS Class A Common Stock and TBS  
Class B Common Stock and a three-for-one stock split in 1990, is currently      
convertible into six shares of TBS Class B Common Stock. Dividends on the TBS   
Class C Preferred Stock are payable pro rata when, as and if declared by the    
TBS Board out of funds legally available therefor as though each share of TBS   
Class C Preferred Stock had been converted into the TBS Class B Common Stock    
underlying such TBS Class C Preferred Stock.                                    

The holders of TBS Class C Preferred Stock are entitled to vote, together   
with holders of TBS Common Stock as a single group except as described below    
and as otherwise required by applicable law, as though the TBS Class C          
Preferred Stock had been converted into TBS Class B Common Stock. As a result,  
each share of TBS Class C Preferred Stock was initially entitled to one vote    
per share (which, as a result of the August 1987 reclassification, was reduced  
to two-fifths vote per share). The shares of TBS Class C Preferred Stock        
issued in the Units Offering in the aggregate represented approximately 36% of  
the combined voting power of the voting securities of TBS outstanding at the    
time of the consummation of the Units Offering (approximately 15% of such       
combined voting power following such August 1987 reclassification). The shares  
of TBS Class C Preferred Stock issued to Time Warner and TCI in the Units       
Offering represented approximately 13% and 16%, respectively, of the combined   
voting power of the TBS common stock and the TBS Class C Preferred Stock        
outstanding upon consummation of the Units Offering and 37% and 44%,            
respectively, of the TBS Class C Preferred Stock outstanding at such time.      

33  

DEFM14A
38th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 38th
In 1988 and 1989, TBS issued an aggregate of approximately four million     
shares of TBS Class B Common Stock to pay accrued dividends on the TBS Class C  
Preferred Stock. In March 1991, TBS issued an additional approximately 2.3      
million shares of TBS Class B Common Stock on the reinvestment by holders of    
86% of the outstanding TBS Class B Preferred Stock of cash dividends paid by    
TBS. In June 1991, holders of 98.6% of the outstanding shares of TBS Class B    
Preferred Stock exchanged their shares for approximately 24.2 million shares    
of TBS Class B Common Stock. TBS redeemed the remaining TBS Class B Preferred   
Stock in December 1992.                                                         

In connection with the Units Offering, the TBS Articles and the By-Laws of  
TBS (the "TBS By-Laws") were amended to extend certain rights to the holders    
of TBS Class C Preferred Stock. The TBS Articles, as so amended, provide that,  
so long as at least four million shares of TBS Class C Preferred Stock are      
outstanding, the holders of the TBS Class C Preferred Stock have the right to   
vote as a separate class for the election of seven directors (the "Class C      
Directors") and on certain other matters as described below (the "Special       
Voting Rights"). Holders of TBS Common Stock, voting as a separate class, are   
entitled to elect the remaining eight TBS directors (the "Common Stock          
Directors"). Pursuant to a Voting Agreement entered into among TCI, Time, WCI   
and Continental and certain of their affiliates concurrently with the Units     
Offering (the "TBS Voting Agreement"), TCI and Time as a group are entitled to  
nominate five Class C Directors and WCI and Continental are each entitled to    
nominate one Class C Director. In addition, such parties agreed to vote all     
shares of TBS Class C Preferred Stock beneficially owned by them in favor of    
the election to the TBS Board of each such nominee. Nominees for election to    
the TBS Board as Class C Directors and Common Stock Directors are selected      
prior to each annual meeting of shareholders by a majority vote of the then     
existing directors of each respective class. Directors of each class may be     
removed only by the holders of shares of such class, and vacancies in any       
class of directors may be filled only by the directors of such class or, in     
the case of removal, by the holders of shares of such class.                    

In addition to the right to elect seven directors, under the TBS Articles   
holders of TBS Class C Preferred Stock have Special Voting Rights with respect  
to certain matters, including (a) the disposition by TBS of shares of capital   
stock of any significant subsidiary of TBS (defined to exclude Atlanta          
National League Baseball Club, Inc. and Atlanta Hawks, Inc.) or of a            
substantial portion of the assets of TBS or any significant subsidiary of TBS   
not in the ordinary course of business, other than pledges or similar security  
interests securing bona fide indebtedness, (b) the merger or consolidation of   
TBS or any significant subsidiary of TBS with any other entity (other than      
certain mergers between subsidiaries of TBS or between TBS and any such         
subsidiary) or the dissolution or liquidation of TBS or any significant         
subsidiary of TBS (with certain exceptions) and (c) issuances by TBS of shares  
of its capital stock (with limited exceptions with respect to issuances         
pursuant to then outstanding or existing options, warrants, convertible         
securities or stock option or stock purchase plans).                            

The TBS By-Laws require the affirmative vote of at least 12 members of the  
TBS Board, at least four of whom must be Class C Directors, on specified        
matters, including (a) approval of certain detailed annual budgets (the         
"Budgets"), (b) the making of commitments by TBS not provided for in the        
Budgets, which involve amounts in excess of $2 million for any one item or $5   
million in the aggregate in any fiscal year, (c) the disposition by TBS of      
assets having an aggregate fair market value in excess of $2 million for any    
one disposition or $5 million for all dispositions by TBS, whether or not       
related, in any fiscal year, except for dispositions contemplated by the        
Budgets, (d) the acquisition by TBS of any other business for a purchase price  
in excess of, the acquisition by TBS of assets not comprising a business        
having an aggregate fair market value in excess of, or the making of any other  
capital expenditures not provided for in the Budgets which are in excess of,    
$2 million for any one acquisition or expenditure or $5 million in the          
aggregate for all such acquisitions or expenditures by TBS in any fiscal year,  
(e) the incurrence by TBS of any indebtedness, any refinancings of outstanding  
indebtedness of TBS, or the issuance by TBS of any debt securities, (f) the     
approval of any amendments to the TBS Articles or the TBS By-Laws, (g) the      
issuance by TBS of any shares of its capital stock or any of its other          
securities or the split-up, combination or reclassification of the capital      
stock of TBS (with limited exceptions), (h) the declaration or payment of any   
dividend on the capital stock or other securities of TBS other than the         
payment of dividends by a subsidiary to TBS, (i) the merger or consolidation    
of TBS with or into any person or the dissolution or liquidation of TBS and     
(j) the entering into by TBS of material contracts, except in the ordinary      

34  

DEFM14A
39th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 39th
course of business. If, as to any matter, a director has an interest either     
himself or herself or through his or her affiliates (an "interested             
director"), such interested director must abstain from the vote on such         
matter, and the total number of affirmative votes required to authorize such    
matter is reduced by one vote for each interested director. If, as to any such  
matter, any of the interested directors is a Class C Director, the required     
vote of the Class C Directors with respect to such matter is deemed satisfied   
only if the matter is approved by the vote of at least 50% of the Class C       
Directors who are not interested directors as to such matter. A director is     
deemed to have an interest in such a matter only if (i) such matter is the      
approval of an agreement or transaction to which TBS (or any of its             
subsidiaries) and such director or any of his or her affiliates are parties or  
(ii) such director otherwise determines that he or she either directly or       
through his or her affiliates has an interest in the matter and advises the     
TBS Board that he or she has determined to abstain from the vote on such        
matter.                                                                         

Concurrently with the closing of the Units Offering, the Cable Operators,   
TBS and Mr. Turner entered into a Shareholders' Agreement (the "TBS             
Shareholders' Agreement"), and TBS and the Cable Operators entered into an      
Investors' Agreement (the "TBS Investors' Agreement"). In addition, Time, TCI,  
and certain affiliates of Time and TCI entered into an agreement (the           
"Time/TCI Agreement") with respect to their rights under the TBS Shareholders'  
Agreement and other matters. Pursuant to the TBS Shareholders' Agreement, Mr.   
Turner agreed to vote all shares of TBS Common Stock held of record by him and  
all shares as to which he has voting control, and each Cable Operator agreed    
to vote all shares of TBS Class C Preferred Stock and all TBS Common Stock      
held of record by such Cable Operator, and all shares as to which such Cable    
Operator has voting control, (a) in accordance with the decision of the TBS     
Board on all matters that require the affirmative vote of at least 12 members   
of the TBS Board (other than those matters that require a separate vote of the  
holders of the TBS Class C Preferred Stock under applicable law or the TBS      
Articles) and (b) for the election of the Common Stock Directors nominated      
from time to time by the TBS Board.                                             

Under the TBS Shareholders' Agreement, Mr. Turner may dispose of TBS Common 
Stock or securities that are convertible into TBS Common Stock ("TBS            
Convertible Securities") unless and until any such disposition would result in  
either (a) Mr. Turner's beneficially owning TBS Common Stock representing less  
than 51% of the combined voting power of the outstanding TBS Common Stock and   
TBS Class C Preferred Stock or (b) Mr. Turner's beneficially owning TBS Common  
Stock, including shares underlying TBS Convertible Securities he owns,          
representing less than 51% of the total voting power represented by the sum of  
the TBS Common Stock then outstanding, the TBS Common Stock underlying all TBS  
Convertible Securities then outstanding and the TBS Common Stock that could be  
issued (either directly or upon conversion of TBS Convertible Securities)       
without the approval of the holders of the TBS Class C Preferred Stock (any     
such effect under such clause (a) or clause (b), a "Prohibited Turner           
Effect"). The TBS Shareholders' Agreement provides that Mr. Turner will not     
make a disposition of TBS Common Stock or TBS Convertible Securities that       
would have a Prohibited Turner Effect, other than a sale of all but not less    
than all of the shares of TBS Capital Stock owned by Mr. Turner to a party      
that is not (and after the purchase would not be) an affiliate of Mr. Turner    
or pursuant to an exercise of the right of first refusal (described below).     
The TBS Shareholders' Agreement provides that if Mr. Turner receives a bona     
fide offer from a third party that is not an affiliate of Mr. Turner to         
purchase his TBS Common Stock and TBS Convertible Securities, he may not        
consummate such sale unless he first offers to sell such securities to the      
Cable Operators for an equivalent cash consideration and on terms no more       
favorable to him than those offered by the third party, and such offer is then  
rejected or does not result in a sale to the Cable Operators. In addition, the  
TBS Shareholders' Agreement provides that a purchaser of Mr. Turner's           
securities, whether purchasing pursuant to a third party bona fide offer or     
pursuant to exercise of the right of first refusal, must also agree to make     
available, or cause TBS to make available, to TBS shareholders (other than Mr.  
Turner, the Cable Operators and the purchasing party) the opportunity to        
receive, in exchange for their shares of TBS Common Stock and TBS Convertible   
Securities, consideration in an amount per share equal to the per share price   
payable to Mr. Turner for his securities. The TBS Shareholders' Agreement also  
includes a "take-along" provision that requires that a third party purchaser    
of all of Mr. Turner's securities must also agree to purchase, and the Cable    
Operators to sell, all the shares of TBS Class C Preferred Stock owned by the   
Cable Operators, and obligates such third party to purchase any shares of TBS   
Common Stock that the Cable Operators desire to sell, in each case for a price  
per share (assuming the conversion of the TBS Class C Preferred Stock into TBS  
Common Stock) equivalent to the consideration per share to be received by Mr.   
Turner.                                                                         

35  

DEFM14A
40th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 40th
The TBS Investors Agreement provides, generally, that none of the Cable     
Operators may convert or make any disposition of any of its shares of TBS       
Class C Preferred Stock unless it first offers to sell to the other Cable       
Operators all of the shares of TBS Class C Preferred Stock that such Cable      
Operator proposes to convert or dispose of for a purchase price equal to the    
current market price of the shares of TBS Class B Common Stock into which such  
shares are convertible.                                                         

Under the Time/TCI Agreement, Time and its controlled affiliates (the "Time 
Group") are entitled to nominate two of the five Class C Directors that Time    
and TCI as a group are entitled to nominate under the terms of the TBS Voting   
Agreement, and TCI and certain of its controlled affiliates (the "TCI Group"    
and each of the Time Group and the TCI Group, a "Group") are entitled to        
nominate three such Class C Directors. The Time/TCI Agreement provides that     
the Time Group will vote all its shares of TBS Capital Stock in favor of the    
election to the TBS Board of each nominee of the TCI Group, and the TCI Group   
will vote all its shares of TBS Capital Stock in favor of the election to the   
TBS Board of each nominee of the Time Group. The Time/TCI Agreement also        
provides, except as to voting for TBS directors (as described in the preceding  
sentence) and except as otherwise provided in the TBS Shareholders' Agreement,  
that each Group will consult and agree with the other Group as to the voting    
of all TBS Capital Stock owned by the members of such Group on all matters      
presented to a vote of holders of shares of TBS Capital Stock, and the members  
of each Group will vote their shares of TBS Capital Stock in accordance with    
any such agreement. However, if the Time Group and the TCI Group are unable to  
reach agreement on any such matter submitted to a shareholder vote, the         
members of each Group must vote all their shares of TBS Capital Stock against   
the approval of such matter. As a result of (a) the obligation described in     
the immediately preceding sentence, (b) the requirement of the TBS Articles     
that any merger involving TBS be approved by a majority of the TBS Class C      
Preferred Stock and (c) the fact that Time Warner and TCI together hold a       
majority of the TBS Class C Preferred Stock, any merger involving TBS           
(including the TBS Merger) requires the approval of both Time Warner and TCI.   

Beginning in late 1992 and continuing through early 1993, representatives of
TBS, Time Warner and TCI discussed a number of potential transactions relating  
to TBS, including potential transactions in which various assets of TBS would   
be sold to, or TBS or related entities would engage in some form of business    
combination with, Time Warner or TCI or both. The parties were unable to reach  
any understanding with respect to any such transaction, and such discussions    
ceased by early May 1993.                                                       

In early 1995, TBS, Time Warner and TCI commenced discussions regarding a   
possible reorganization of Time Warner's and TCI's shareholder interests in     
TBS. Such discussions included consideration of a possible purchase by TCI of   
all of Time Warner's interest in TBS and the implementation of changes to the   
terms of the securities held by TCI to position TBS to pursue the acquisition   
of a broadcast television network consistent with existing regulatory           
restrictions under the Communications Act and the rules and regulations of the  
FCC thereunder. The parties also discussed possible transactions in which TBS   
would participate in such a purchase of Time Warner's interest in TBS through   
the distribution to the holders of TBS Class C Preferred Stock (other than      
Time Warner) of an unspecified amount of cash, the issuance to TCI of           
additional TBS securities, the repurchase of a portion of Time Warner's         
interest by TBS or some combination of the foregoing. During these              
discussions, Time Warner indicated that it would then be willing to sell its    
minority interest in TBS for a cash price equivalent to $30 per share of TBS    
Common Stock on a pretax basis. Ultimately, the parties could not agree on the  
terms of any such transaction and such discussions ceased in late March 1995.   

Following the termination of the discussions related to a direct or indirect
purchase by TCI of Time Warner's interest in TBS, Time Warner and TBS           
continued to discuss the possible repurchase by TBS of all of Time Warner's     
interest in TBS. TBS pursued these discussions in light of Time Warner's        
expressed desire to monetize its interest in TBS, TBS's desire to better        
position TBS to pursue the purchase of a broadcast television network and the   
view of the TBS senior management that Time Warner did not share TBS's vision   
for a long-term strategic plan for TBS as a stand-alone entity. The principal   
areas in which the parties' views of the long-term strategic plan had differed  
were TBS's interest in acquiring theatrical production operations, acquiring a  
broadcast television network and diversifying its programming offerings into    
new areas, such as in-home shopping. The discussions between Time Warner and    
TBS focused on a transaction in which Time Warner would exchange its interest   
in TBS on a tax-free basis for a business consisting of certain operating       
assets of TBS and                                                               

36  

DEFM14A
41st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 41st
cash. Representatives of TBS and Time Warner held a number of meetings during   
the summer of 1995 to develop the overall structure of a possible transaction,  
which was subject to a number of significant uncertainties, including the       
receipt of a favorable ruling from the Internal Revenue Service (the "IRS").    
In August 1995, the legal advisors to TBS and Time Warner began preparing a     
ruling request and had discussions with the IRS regarding its willingness to    
rule that such proposed transaction would qualify for tax-free treatment.       

On August 19, 1995, Gerald M. Levin, Chairman and Chief Executive Officer of
Time Warner, met with Mr. Turner and suggested that Time Warner and TBS         
consider a combination of the two companies on a stock-for-stock basis. Over    
the course of the following week, Mr. Levin, Mr. Turner and John C. Malone,     
Chairman of TCI, discussed a possible stock-for-stock combination of Time       
Warner and TBS and the possible terms of such a combination. Such terms         
included the exchange ratio of shares of Time Warner Common Stock for shares    
of TBS Capital Stock and the terms under which TCI and its affiliates would be  
restricted, for regulatory reasons, in their ability to vote shares of Time     
Warner Common Stock received by them in such a combination. On August 25,       
1995, the parties agreed to proceed to negotiate the terms of a combination of  
Time Warner and TBS on the basis of an exchange ratio of 0.75 of a share of     
Time Warner Common Stock for each share of TBS Common Stock and 4.80 shares of  
Time Warner Common Stock for each share of TBS Class C Preferred Stock and the  
terms upon which TCI would agree to support the proposed stock-for-stock        
combination.                                                                    

On August 26, 1995, Time Warner and TBS executed a confidentiality agreement
and commenced legal and financial due diligence. On August 28, 1995, the Time   
Warner Board held a special meeting to review the status of the discussions     
with TBS regarding a possible stock-for-stock combination.                      

On August 30, 1995, Time Warner and TBS announced that they were negotiating
the terms of a stock-for-stock combination of Time Warner and TBS. On that      
day, a special meeting of the TBS Board was held to consider the proposed       
transaction. During such meeting, (a) members of TBS senior management and      
TBS's legal advisors reviewed with the TBS Board the status of negotiations     
with Time Warner and TCI and the terms of the proposed transaction, (b) CS      
First Boston reviewed certain matters with the TBS Board, including the         
valuation methodologies to be utilized by CS First Boston for purposes of its   
financial analyses, and (c) TBS's legal advisors made a presentation to the     
TBS Board with respect to the fiduciary duties of the TBS directors in          
connection with the proposed transaction.                                       

During the period between August 26, 1995 and September 22, 1995,           
representatives of Time Warner, TBS and TCI, together with their respective     
legal and financial advisors, met frequently to continue to identify and        
resolve open issues and to negotiate the final terms of the proposed            
transaction and the proposed arrangements with TCI.                             

On September 18, 1995, a meeting of the members of the Time Warner Board    
who, in the Time Warner Board's judgment, have no direct or indirect material   
economic relationship with Time Warner other than as a result of stock          
ownership or customary directors' compensation (the "Unaffiliated Directors")   
was held to review the terms of the proposed transaction, including the         
arrangements with TCI. The Unaffiliated Directors determined at such meeting    
to retain separate legal counsel to assist in their review of the proposed      
transaction. On September 19 and 20, 1995, representatives of TBS and its       
legal advisors met in informal informational sessions with certain directors    
of TBS. At such sessions, the status of negotiations with Time Warner and the   
remaining open issues, terms of the proposed arrangements with TCI, legal       
standards applicable to directors and other matters with respect to the         
proposed transaction were discussed. On September 20, 1995, representatives of  
senior management of Time Warner met in informal informational sessions with    
directors of Time Warner to discuss the proposed transaction.                   

A meeting of the Time Warner Board was held on September 21, 1995, to       
consider the proposed Merger Agreement, the other proposed Transaction          
Agreements and the transactions contemplated thereby. At this meeting,          
presentations were made to the Time Warner Board by members of the senior       
management of Time Warner, Time Warner's legal advisors and Morgan Stanley,     
financial advisor to Time Warner. Members of the senior management of Time      
Warner, together with Time Warner's advisors, reviewed with the Time Warner     
Board the background of the proposed transaction, financial and other analyses  
of TBS, required corporate and                                                  

37  

DEFM14A
42nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 42nd
governmental approvals and procedures and the terms of the proposed             
Transaction Agreements and the transactions contemplated thereby. Morgan        
Stanley delivered its oral opinion (subsequently confirmed in writing) to the   
Time Warner Board that, as of the date of such opinion and based upon and       
subject to the matters stated therein, the ratio contemplated by the proposed   
Merger Agreement for the exchange of Time Warner Common Stock for TBS Capital   
Stock and the consideration to be paid by Time Warner for the option to         
acquire SSSI as contemplated by the TCI Arrangements, as proposed at that time  
(the "Prior TCI Arrangements"), taken together, were fair to Time Warner from   
a financial point of view. After discussing the terms of the proposed           
Transaction Agreements and the transactions contemplated thereby and the        
various presentations, the Time Warner Board adjourned its meeting. The         
Unaffiliated Directors also met separately with their legal counsel to review   
the proposed transaction.                                                       

The Time Warner Board reconvened on September 22, 1995. After further       
deliberation, the Time Warner Board unanimously approved the terms of the       
Merger Agreement and the other Transaction Agreements to be executed by Time    
Warner and its subsidiaries and the transactions contemplated thereby and       
authorized the execution of the Merger Agreement and such other Transaction     
Agreements.                                                                     

On September 21, 1995, a special meeting of the TBS Board was held to       
consider the proposed transaction. During such meeting, (a) TBS's legal         
advisors made a presentation to the TBS Board with respect to the fiduciary     
duties of the TBS directors with respect to the proposed transaction and        
related transactions, (b) TBS's legal advisors made a presentation with         
respect to the terms of the Merger Agreement and certain of the other           
Transaction Agreements, members of senior management of TBS made a              
presentation with respect to certain agreements to be entered into by TCI and   
TBS and counsel to TCI (who attended a portion of the meeting at the request    
of TBS) made a presentation with respect to certain agreements to be entered    
into by TCI and Time Warner, (c) CS First Boston made a financial presentation  
to the TBS Board with respect to the proposed transaction, (d) Merrill Lynch    
discussed the proposed transaction with the TBS Board and made a financial      
presentation to the TBS Board with respect to the terms of the Prior TCI        
Arrangements and (e) a member of senior management of TBS and TBS's legal       
advisors made a presentation with respect to the corporate and governmental     
approval procedures in connection with the proposed transaction, including the  
approvals by the TBS Board and TBS shareholders required under the TBS          
Articles and TBS By-Laws and existing contractual arrangements among certain    
shareholders of TBS, and the requisite FCC and antitrust filings and            
approvals. In addition, special counsel to TBS made a presentation to the TBS   
Board with respect to the engagement by TBS of MC Group, an entity of which     
Michael R. Milken is the president, including the terms of the engagement, the  
restrictions imposed on the activities of MC Group as a result of its           
affiliation with Mr. Milken, information with respect to fees paid to           
consultants and advisors in certain other large acquisition transactions and    
the legal standards applicable to directors of a Georgia corporation in         
considering such matters. The information concerning large acquisition          
transactions referred to in the previous sentence included (i) information      
from publicly available sources regarding the fees paid to consultants in       
connection with the acquisition of MCA Inc. ("MCA") by Matsushita Electric      
Industrial Co., Ltd. ("Matsushita"), the acquisition of American Cyanamid       
Company by American Home Products Corp., the acquisition of Squibb Corporation  
by Bristol-Myers Co., the acquisition of Hospital Corporation of America by     
HCA-Hospital Corporation of America, the acquisition of Kraft Inc. by Philip    
Morris Inc. and the acquisition of Fort Howard Corp. by HF Acquisition Corp.,   
in which fees payable to one or more consultants ranged from approximately      
0.20% to 1.1% of the total value of the transaction, as compared to             
approximately 0.47% of the total value of the Transaction in the case of the    
$40 million fee proposed to be paid by TBS to MC Group, or 0.56% of such value  
in the case of the aggregate $48 million of fees proposed to be paid by TBS to  
MC Group, CS First Boston, Merrill Lynch and Capital City Advisors, Inc.        
("Capital City"), another consultant to TBS (the value of the Transaction, in   
each case, based on the closing price of Time Warner Common Stock on September  
21, 1995), and (ii) information provided by representatives of MC Group with    
respect to consulting fees previously paid to MC Group in connection with a     
recent joint venture between The News Corporation Limited and MCI               
Communications Corporation and a recent transaction between Fox Television      
Stations, Inc. and New World Communications Group Incorporated in which the     
fees payable to MC Group, in each case, represented approximately 2% to 3% of   
the total value of the transaction. See "--Certain Fees and Expenses."          

38  

DEFM14A
43rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 43rd
During the Merrill Lynch presentation, the TBS directors raised questions   
regarding certain of the assumptions provided by TBS management as well as      
other assumptions used by Merrill Lynch to prepare its analysis with respect    
to the Prior TCI Arrangements. These questions principally related to (a) the   
assumptions relating to the growth rate in cable subscribers on TCI-affiliated  
cable systems and the growth rate in subscribers for TBS's recently launched    
cable networks and (b) the range of discount rates utilized by Merrill Lynch    
in evaluating the Prior TCI Arrangements generally. The TBS Board requested     
that Merrill Lynch perform additional analyses and make a presentation with     
respect thereto at the continuation of the meeting of the TBS Board to be held  
the following day. In addition, during this meeting, Timothy P. Neher, the      
Vice Chairman of the Board of Continental and a Class C Director of TBS, and    
Brian L. Roberts, the President of Comcast Corporation ("Comcast") and a        
Common Stock Director of TBS, each determined, after consultation with his      
respective counsel, that, due to the interests of his employer in the effects   
of the proposed transaction, he had a conflict of interest, and each declared   
himself to be an interested director with respect to the proposed transaction   
under the TBS By-Laws and informed the TBS Board that he would abstain from     
voting on the proposed transaction. Thereafter, each of Messrs. Neher and       
Roberts recused himself from further consideration of the proposed transaction  
and left the meeting, following which the remaining directors resumed their     
deliberations with respect to the proposed transaction.                         

On September 22, 1995, the special meeting of the TBS Board was reconvened  
to consider and vote upon the Transaction. During such meeting, Merrill Lynch,  
in response to the request of the TBS directors made the prior day, made a      
financial presentation to the TBS Board with respect to the Prior TCI           
Arrangements using certain revised assumptions provided by TBS senior           
management. Merrill Lynch rendered its oral opinion (which was subsequently     
confirmed in writing) to the effect that, as of September 22, 1995, and based   
upon and subject to the matters stated therein, (a) the consideration to be     
received by shareholders of TBS (other than TCI and its affiliates and Time     
Warner) pursuant to the TBS Merger was fair to such holders from a financial    
point of view and (b) in the context of the governance arrangements relating    
to TBS's ability to consummate the TBS Merger, the financial terms of the       
Prior TCI Arrangements were fair from a financial point of view to TBS and its  
shareholders (other than TCI and its affiliates and Time Warner). CS First      
Boston rendered to the TBS Board an oral opinion (which was subsequently        
confirmed in writing) to the effect that, as of September 22, 1995 and based    
upon and subject to the matters stated therein, the consideration to be         
received by the holders of TBS Capital Stock (other than Time Warner and its    
affiliates) in the TBS Merger was fair to such holders from a financial point   
of view. TBS, in consultation with its legal advisors, had determined that Mr.  
Levin, Joseph J. Collins and Michael J. Fuchs, Time Warner's then designees as  
Class C Directors of TBS; Dr. Malone, Peter R. Barton and Fred A. Vierra,       
TCI's designees as Class C Directors of TBS; and Mr. Turner, a Common Stock     
Director, were interested directors under the applicable provisions of the TBS  
By-Laws. In addition, as permitted by the TBS By-Laws and as described above,   
Mr. Neher and Mr. Roberts had each declared himself interested with respect to  
the proposed transaction. Under the TBS By-Laws, none of the interested         
directors of TBS was eligible to vote with respect to the proposed              
transaction. Thereafter, the TBS Board, by a unanimous vote of the six          
directors eligible to vote, approved the terms of the Merger Agreement and the  
other Transaction Agreements to be executed by TBS and its subsidiaries and     
the transactions contemplated thereby and authorized the execution of the       
Merger Agreement and such other Transaction Agreements. In addition, the TBS    
Board approved the payment of fees, conditioned upon consummation of the        
Mergers, of $40 million to MC Group and $3 million to Capital City. See "--     
Certain Fees and Expenses."                                                     

Time Warner and TBS announced on September 22, 1995 that they had agreed to 
the combination of TBS with Time Warner at an exchange ratio of 0.75 of a       
share of Time Warner Common Stock for each share of TBS Common Stock and 4.80   
shares of Time Warner Common Stock for each share of TBS Class C Preferred      
Stock. Thereafter, the parties and their advisors proceeded to finalize the     
forms of the Merger Agreement and the other Transaction Agreements. Following   
the finalization of the Transaction Agreements, the parties executed the        
Merger Agreement (in its original form), the LMC Agreement (in its original     
form), the Support Agreement and certain other Transaction Agreements.          

The Merger Agreement, as originally executed, contemplated a transaction in 
which TBS would be merged with a wholly owned subsidiary of Time Warner but     
contained provisions relating to an amendment to the Merger Agreement if the    
parties agreed to alter the form of the Transaction. Time Warner and TBS        
subsequently                                                                    

39  

DEFM14A
44th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 44th
concluded that it would be desirable to revise the transaction structure such   
that Time Warner and TBS would each become a wholly owned subsidiary of a       
holding company. To give effect to this revised structure, Time Warner and      
TBS, advised by their respective legal counsel, agreed to amend and restate     
the original Merger Agreement. At a meeting of the Time Warner Board held on    
November 16, 1995, the Time Warner Board approved the form of the Merger        
Agreement, as so amended and restated. At the request of the Time Warner        
Board, Morgan Stanley subsequently confirmed its opinion that, as of            
November 16, 1995, and based upon and subject to the matters stated therein,    
the ratio contemplated by the Merger Agreement for the exchange of New Time     
Warner Common Stock for TBS Capital Stock and the consideration to be paid by   
New Time Warner for the option to acquire SSSI as contemplated by the Prior     
TCI Arrangements, taken together, were fair to New Time Warner and its          
subsidiary, Time Warner, from a financial point of view. At a special meeting   
of the TBS Board held on November 21, 1995, the TBS Board approved the form of  
the Merger Agreement, as so amended and restated. At such meeting, CS First     
Boston rendered to the TBS Board an oral opinion (subsequently confirmed in     
writing) to the effect that, as of November 21, 1995 and based upon and         
subject to the matters stated therein, the consideration to be received by the  
holders of TBS Capital Stock (other than Time Warner and its affiliates) in     
the TBS Merger was fair to such holders from a financial point of view. In      
addition, at such meeting Merrill Lynch advised the TBS Board that the          
amendments to the Merger Agreement did not alter the conclusions reached in     
its opinion previously delivered to the TBS Board to the effect that, as of     
September 22, 1995, and based upon and subject to the matters stated therein,   
(a) the consideration to be received by shareholders of TBS (other than TCI     
and its affiliates and Time Warner) pursuant to the TBS Merger was fair to      
such holders from a financial point of view and (b) in the context of the       
governance arrangements relating to TBS's ability to consummate the TBS         
Merger, the financial terms of the Prior TCI Arrangements were fair from a      
financial point of view to TBS and its shareholders (other than TCI and its     
affiliates and Time Warner). The parties thereafter executed the amended and    
restated Merger Agreement, and Time Warner, New Time Warner and LMC executed    
the LMC Agreement, as amended and restated to reflect the revised structure of  
the Transaction.                                                                

The Transaction Agreements, as executed in November 1995, received extensive
scrutiny from the FTC staff. As a result of that scrutiny, the parties entered  
into negotiations with the FTC staff with a view to revising the Transaction    
Agreements to eliminate concerns raised by the FTC staff regarding possible     
competitive effects of the Transaction. These negotiations resulted in the FTC  
Consent Decree, which required that the Transaction Agreements be revised to    
(a) reflect limits on the amount and type of New Time Warner securities that    
TCI and its affiliates may hold after the consummation of the Mergers, (b)      
require that the New Time Warner Common Stock to be received by TCI and its     
affiliates in the TBS Merger be exchanged for New Time Warner securities with   
reduced voting rights, thus causing the parties to agree to create the LMC      
Reduced Voting Common Stock and eliminate those provisions that required TCI    
and its affiliates to place the New Time Warner Common Stock received in the    
TBS Merger in a voting trust to be voted by Mr. Levin, (c) eliminate the        
provisions that would have given New Time Warner an option to purchase the      
outstanding stock of SSSI, (d) eliminate Time Warner's option to purchase       
TCI's interest in TBS prior to the consummation of the Mergers and (e) reduce   
substantially the duration of the agreements for mandatory analog carriage by   
TCI cable systems of TBS programming services after the consummation of the     
Mergers. See "--Regulatory Approvals" below for a discussion of the provisions  
of the FTC Consent Decree.                                                      

Concurrently with the execution of the FTC Consent Decree, the parties      
entered into revised Transaction Agreements to give effect to the FTC Consent   
Decree and to make other revisions as negotiated by the parties. At a meeting   
of the Time Warner Board held on August 8, 1996, the Time Warner Board          
considered and approved the FTC Consent Decree and such revisions to the        
Transaction Agreements. At this meeting, presentations were made to the Time    
Warner Board by members of the senior management of Time Warner, Time Warner's  
legal advisors and Morgan Stanley. Members of the senior management of Time     
Warner, together with Time Warner's advisors, reviewed with the Time Warner     
Board the background of the proposed revisions to the Transaction Agreements,   
financial and other analyses of TBS, required corporate approvals and           
procedures and the status of governmental approvals. At such meeting, Morgan    
Stanley delivered its oral opinion (subsequently confirmed in writing) to the   
Time Warner Board that, as of August 8, 1996 and based upon and subject to the  
matters stated therein, the ratio contemplated by the Merger Agreement for the  
exchange of New                                                                 

40  

DEFM14A
45th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 45th
Time Warner Common Stock for TBS Capital Stock and the consideration to be      
paid by New Time Warner for the SSSI Option and the LMC Non-competition         
Covenant, taken together, were fair to New Time Warner and its subsidiary,      
Time Warner, from a financial point of view. See "--Opinion of Time Warner's    
Financial Advisor" below.                                                       

On August 8, 1996, a special meeting of the TBS Board was held to consider  
the FTC Consent Decree and proposed revisions to the Transaction Agreements     
necessary to give effect to the FTC Consent Decree and to make other changes    
as negotiated by the parties. During such meeting, (a) TBS's legal advisors     
made a presentation to the TBS Board with respect to the fiduciary duties of    
the TBS directors with respect to the Transaction, (b) TBS's management and     
legal advisors made a presentation with respect to the process and status of    
the discussions and negotiations between the parties and with the FTC, (c)      
TBS's management and legal advisors made presentations with respect to the FTC  
Consent Decree, the proposed revisions to the Merger Agreement and the Program  
Agreement and the PPV Output Agreement and counsel to Time Warner (who          
attended a portion of the meeting at the request of TBS) made a presentation    
with respect to the FTC Consent Decree, the proposed revisions to the LMC       
Agreement and the SSSI Agreement and the Distribution Contract to be entered    
into between Time Warner and TCI or its affiliates, (d) CS First Boston made a  
financial presentation (see "--Opinions of TBS's Financial Advisors--Opinion    
of CS First Boston" below) to the TBS Board with respect to the Transaction     
and rendered to the TBS Board an oral opinion (which was subsequently           
confirmed in writing) to the effect that, as of August 8, 1996 and based upon   
and subject to the matters stated therein, the consideration to be received by  
the holders of TBS Capital Stock (other than Time Warner and its affiliates)    
in the TBS Merger was fair to such holders from a financial point of view, (e)  
Merrill Lynch made a financial presentation to the TBS Board with respect to    
the TCI Arrangements and rendered its oral opinion (which was subsequently      
confirmed in writing) to the effect that, as of August 8, 1996, and based upon  
and subject to the matters stated therein, (i) the consideration to be          
received by shareholders of TBS (other than TCI and its affiliates and Time     
Warner) pursuant to the TBS Merger was fair to such holders from a financial    
point of view and (ii) in the context of the governance arrangements relating   
to TBS's ability to consummate the TBS Merger, the financial terms of the TCI   
Arrangements were fair from a financial point of view to TBS and its            
shareholders (other than TCI and its affiliates and Time Warner). See "--       
Opinions of TBS's Financial Advisors" below. Thereafter, the TBS Board, by a    
unanimous vote of the six directors eligible to vote, approved the terms of     
the FTC Consent Decree and the Transaction Agreements, as revised, to be        
executed by TBS and its subsidiaries and the transactions contemplated          
thereby, ratified all action taken by the TBS Board and the officers of TBS     
prior to such meeting (except to the extent amended by the actions taken at     
such special meeting) and authorized the execution of the FTC Consent Decree    
and the revised Transaction Agreements to which TBS or any of its subsidiaries  
is a party.                                                                     

RECOMMENDATION OF THE TIME WARNER BOARD; TIME WARNER'S REASONS FOR THE          
TRANSACTION                                                                     

At meetings of the Time Warner Board and the Unaffiliated Directors held on 
September 21 and 22, 1995, the Time Warner Board received and considered        
presentations of the senior management of Time Warner and its legal and         
financial advisors regarding the Transaction. At its meeting on September 22,   
1995 the Time Warner Board unanimously approved the Merger Agreement, the       
other Transaction Agreements to be executed by Time Warner and its              
subsidiaries and the Transaction and determined that the Transaction was in     
the best interests of the stockholders of Time Warner. Thereafter, on November  
16, 1995, the Time Warner Board held a meeting at which it received and         
considered an additional presentation by the senior management of Time Warner   
regarding revisions to the structure of the Transaction, including revisions    
such that Time Warner and TBS would each become a wholly owned subsidiary of a  
holding company. At this meeting, the Time Warner Board unanimously approved    
the Merger Agreement, as amended and restated to reflect such revisions. On     
August 8, 1996, the Time Warner Board held a meeting at which it received and   
considered presentations from senior management of Time Warner and its legal    
and financial advisors regarding the FTC Consent Decree and the proposed        
amendments to the Transaction Agreements (see "--Regulatory Approvals--FTC      
Consent Decree" below). At this meeting, the Time Warner Board (with one        
member absent) unanimously approved the FTC Consent Decree, such amendments to  
the Transaction Agreements and the Transaction and determined that the          
Transaction is in the best interests of the stockholders of Time Warner. THE    
TIME WARNER BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF TIME WARNER CAPITAL    
STOCK VOTE FOR THE TW MERGER PROPOSAL.                                          

41  

DEFM14A
46th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 46th
In reaching its determination to approve the Merger Agreement, the other    
Transaction Agreements to be executed by Time Warner and its subsidiaries and   
the Transaction, the Time Warner Board considered a number of factors,          
including those listed below. In view of the wide variety of factors            
considered by the Time Warner Board in connection with its evaluation of the    
Transaction Agreements and the Transaction, and the complexity of those         
matters, the Time Warner Board did not consider it practicable to, nor did it   
attempt to, quantify or otherwise assign relative weights to the specific       
factors it considered in reaching its determination. At its meetings held on    
September 21-22, 1995, November 16, 1995 and August 8, 1996, the Time Warner    
Board did not consider any alternative business strategies with respect to      
Time Warner's investment in TBS.                                                

Relationship with Existing Businesses of Time Warner. The Time Warner Board 
reviewed presentations from the senior management of Time Warner with respect   
to the strategic rationale for the Transaction and the potential growth         
opportunities that would be created by the combination of the two companies.    
The Time Warner Board considered the view of senior management that the         
combination of Time Warner and TBS would create an entity with worldwide        
resources in entertainment, news and information and distribution systems. The  
Time Warner Board noted that the combination of TBS with Time Warner was        
expected to strengthen the combined entity, including by increasing the mix of  
revenues and cash flow being derived from "content."                            

TBS's Business, Condition and Prospects. In evaluating the Transaction, the 
Time Warner Board considered information with respect to the financial          
condition, results of operations and businesses of TBS, on both an historical   
and prospective basis, and current industry, economic and market conditions as  
they would be likely to affect TBS. The Time Warner Board considered the three  
segments in which TBS primarily operates--cable networks, news and film         
production and distribution--and noted the performance of TBS and its           
prospects for growth in these segments. Management reviewed with the Time       
Warner Board TBS's historical revenue and cash flow growth rates and the        
growth potential of TBS's established domestic networks, TBS's two new cable    
networks - the Cartoon Network and TCM - and TBS's international operations.    

Benefits of a Combination. The Time Warner Board reviewed the potential     
benefits of a combination of the two companies. The management of Time Warner   
discussed with the Time Warner Board the current operations of WTBS and the     
opportunities that would be created for Time Warner from the ownership of       
WTBS, including those arising after the WTBS Conversion, if effected. The Time  
Warner Board discussed with the senior management how other assets of TBS       
would complement Time Warner's existing assets and provide opportunities for    
revenue enhancements and cost savings, including opportunities for cross        
promotion, to improve TBS's film and television distribution, to leverage       
TBS's characters and brands through Time Warner's consumer products outlets     
and to exploit CNN's news gathering capabilities.                               

Pro Forma Impact on Time Warner. The Time Warner Board also considered      
information relating to the pro forma impact of a combination of TBS with Time  
Warner on the financial condition and results of operations of the combined     
entity. The Time Warner Board also considered the dilutive effect of the        
issuance of additional stock in connection with the Transaction and the likely  
effect of such issuance on the earnings per share and cash flow of the          
combined entity. The Time Warner Board reviewed presentations from senior       
management of Time Warner with respect to the expected effect of such a         
combination on Time Warner's cash flow, credit statistics and balance sheet.    

Opinion of Morgan Stanley. At its meeting on September 22, 1995, the Time   
Warner Board considered as favorable to its determination the oral opinion      
rendered by Morgan Stanley, subsequently confirmed in writing, that, as of      
September 22, 1995, and based upon and subject to the matters expressed in      
that opinion, the ratio contemplated by the Merger Agreement for the exchange   
of Time Warner Common Stock for TBS Capital Stock and the consideration to be   
paid by Time Warner for the option to acquire SSSI as contemplated by the       
Prior TCI Arrangements, taken together, were fair to Time Warner from a         
financial point of view. At the meeting of the Time Warner Board held on        
August 8, 1996, Morgan Stanley rendered its oral opinion, subsequently          
confirmed in writing, that, as of August 8, 1996, the ratio contemplated by     
the Merger Agreement for the exchange of New Time Warner Common Stock for TBS   
Capital Stock and the consideration to be paid by New Time Warner for the SSSI  
Option and the LMC Non-competition Covenant, taken together, were fair to New   
Time Warner and its subsidiary, Time Warner, from a financial point of view.    
See "--Opinion of Time Warner's Financial Advisor" below. The Time Warner       
Board also considered the oral and written presentations made to it             

42  

DEFM14A
47th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 47th
by Morgan Stanley (see "--Opinion of Time Warner's Financial Advisor" below)    
at the meetings of the Time Warner Board held on September 21, 1995 and August  
8, 1996, including the analysis by Morgan Stanley of recent comparable          
acquisition transactions in the entertainment and media industries. The         
written opinion of Morgan Stanley to the Time Warner Board, dated as of August  
8, 1996, is attached hereto as Appendix C-1 and is incorporated herein by       
reference. Time Warner requested that the opinion of Morgan Stanley             
specifically address the consideration to be paid by New Time Warner pursuant   
to the SSSI Agreement in light of the amount of such consideration and the      
fact that such consideration is to be paid by New Time Warner to a TBS          
shareholder (namely LMC and its affiliate SSSI). Time Warner management did     
not believe that the Morgan Stanley Opinion needed specifically to refer to     
the other components of the TCI Arrangements due to the fact that such other    
components either involved transactions that were in the nature of operational  
agreements or did not involve consideration that Time Warner management         
believed to be material to the evaluation of the fairness, from a financial     
point of view, of the Transaction taken as a whole. In the course of its due    
diligence (as discussed below under "--Opinion of Time Warner's Financial       
Advisor"), Morgan Stanley did, however, review certain of the other             
Transaction Agreements in connection with the issuance of the Morgan Stanley    
Opinion.                                                                        

Conditions, Termination Provisions and Termination Fee. The Time Warner     
Board reviewed the conditions to consummation of the Transaction and the        
circumstances under which Time Warner or TBS would have the right to terminate  
the Merger Agreement. In that connection, the Time Warner Board considered the  
provisions of the Merger Agreement that prohibit TBS from soliciting or         
encouraging alternative acquisition proposals or, subject to the fiduciary      
duties of the TBS Board, from negotiating with any third parties with respect   
to alternative proposals. The Time Warner Board also considered the terms of    
the Support Agreement and the LMC Agreement, pursuant to which TBS              
shareholders who, together with Time Warner, beneficially own a majority of     
each class of outstanding TBS Capital Stock would agree to vote all such        
shares in favor of the TBS Merger Proposal. The Time Warner Board also          
reviewed the various amounts that might be payable by or to Time Warner if the  
Merger Agreement were terminated under certain circumstances. See "The Merger   
Agreement--Termination of the Merger Agreement" and "--Effects of               
Termination."                                                                   

Arrangements with TCI. In evaluating the Transaction, the Time Warner Board 
took into account the terms of the TCI Arrangements. The Time Warner Board      
considered the terms of the SSSI Agreement, pursuant to which (a) New Time      
Warner will issue to SSSI 4,166,667 shares of LMC Reduced Voting Common Stock   
in consideration for the SSSI Option and (b) New Time Warner will issue to LMC  
833,333 shares of LMC Reduced Voting Common Stock and will pay to LMC           
approximately $67 million (payable, at New Time Warner's option, in cash or     
additional shares of LMC Reduced Voting Common Stock) and LMC will agree to     
the LMC Non-competition Covenant. The Time Warner Board discussed with senior   
management of Time Warner the business opportunities that may arise from the    
WTBS Conversion and the Distribution Contract. The Time Warner Board also       
noted that the fairness opinion issued by Morgan Stanley took into account the  
payments to be made by New Time Warner as consideration for the SSSI Option     
and the LMC Non-competition Covenant. The Time Warner Board also considered     
that the payments to be made by New Time Warner pursuant to the SSSI Agreement  
and the Distribution Contract will be tax-deductible to New Time Warner. The    
Time Warner Board also reviewed the terms of the LMC Agreement, including the   
provisions pursuant to which (a) under certain circumstances, TCI would be      
entitled to require that the Transaction be abandoned, (b) if the Transaction   
were consummated, New Time Warner would be required to indemnify LMC and        
certain of its affiliates against certain income tax liabilities that may be    
incurred in the event that the activities of New Time Warner after the          
consummation of the Transaction require LMC or such affiliates to dispose of    
their shares of New Time Warner Capital Stock and (c) New Time Warner would be  
prevented from redeeming shares of LMC Common Stock and LMC Reduced Voting      
Common Stock held by LMC and its affiliates even if such redemption would be    
required to preserve a license or franchise from a governmental agency          
necessary to the business of New Time Warner. In conjunction with the           
discussion of the WTBS Conversion, management discussed with the Time Warner    
Board the Program Agreement, including the rebate arrangements available to     
TCI-affiliated cable systems, and the potential impact of that agreement on     
the combined operations of Time Warner and TBS. Management also reviewed with   
the Time Warner Board the terms of the other TCI Arrangements, including the    
PPV Output Agreement, and the recent operating performance of SportSouth and    
the Sunshine Network.                                                           

43  

DEFM14A
48th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 48th
Arrangements with Mr. Turner. The Time Warner Board considered the terms of 
the Transaction Agreements that provide certain rights to Mr. Turner,           
including his right, under certain circumstances, to designate two candidates   
to be nominated for election to the New Time Warner Board. The Time Warner      
Board also considered the general terms of the employment agreement to be       
entered into between New Time Warner and Mr. Turner. See "--Interests of        
Certain Persons in the Transaction" below.                                      

Regulatory Matters. In addition to its consideration of the conditions to   
the consummation of the Transaction, the Time Warner Board also specifically    
considered the various regulatory approvals that are necessary to consummate    
the Transaction, including FCC approvals and the approval of the FTC. At its    
meetings in September and November 1995, the Time Warner Board took into        
account the possibility that such approvals might not be forthcoming without    
changes to the terms of the Transaction Agreements or the Transaction. At its   
meeting held on August 8, 1996, the Time Warner Board also considered the       
terms of the FTC Consent Decree, including the provisions of the FTC Consent    
Decree relating to restrictions to be imposed on New Time Warner following the  
consummation of the Mergers and the changes to the terms of the Transaction     
Agreements that were required in order to comply with the FTC Consent Decree.   
See "--Regulatory Approvals" below. The Time Warner Board also noted that,      
pursuant to the LMC Agreement, and except for changes resulting from the FTC    
Consent Decree, which LMC has agreed to, LMC is not required to agree to or     
accept certain changes adverse to it that may be requested by any regulatory    
authority and that, in the event such changes were required and could not be    
accommodated in a manner satisfactory to LMC, Time Warner would be required,    
upon the written request of LMC, to terminate the Merger Agreement and abandon  
the Transaction. See "TCI Arrangements--LMC Agreement."                         

Certain Stockholder Matters. The Time Warner Board, in evaluating the       
Transaction, also considered the effect that the Transaction would have on the  
composition of the stockholder body of New Time Warner relative to that of      
Time Warner. In particular, the Time Warner Board considered the restrictions   
that would be placed on the shares of New Time Warner Common Stock that would   
be held by Mr. Turner, as described under "Certain Related Agreements--Rights   
Amendment" and "--Investors' Agreements," and LMC, as described under "--       
Regulatory Approvals" below.                                                    

RECOMMENDATION OF THE TBS BOARD; TBS'S REASONS FOR THE TRANSACTION              

At TBS Board meetings held on August 30, 1995 and September 21 and 22, 1995,
the TBS Board received and considered the presentations of the management of    
TBS and its legal advisors and investment bankers regarding the proposed        
transaction. On September 22, 1995, the TBS Board, with nine directors not      
present or abstaining on the basis that they were interested directors with     
respect to the proposed transaction, unanimously approved the terms of the      
Merger Agreement and the other Transaction Agreements to be executed by TBS or  
its subsidiaries and determined that the Transaction was fair to and in the     
best interests of TBS and its shareholders. Thereafter, on November 21, 1995,   
the TBS Board considered the amendment and restatement of the Merger Agreement  
to revise the transaction structure such that Time Warner and TBS would each    
become a wholly owned subsidiary of a holding company and to make other         
revisions negotiated by the parties. At this meeting, the TBS Board (with nine  
directors either not present or abstaining on the basis that they were          
interested directors) unanimously approved the Merger Agreement as so amended   
and restated. On August 8, 1996, the TBS Board held a meeting at which          
presentations were made by TBS senior management and legal and financial        
advisors to TBS with respect to the FTC Consent Decree and the changes to the   
Transaction Agreements required thereby (see "--Regulatory Approvals--FTC       
Consent Decree" below). At such meeting, the TBS Board (with nine directors     
either not present or abstaining on the basis that they were interested         
directors) unanimously approved the FTC Consent Decree and the Transaction      
Agreements to be entered into by TBS and its subsidiaries as so amended and     
determined that the Transaction was fair to and in the best interests of TBS    
and its shareholders. See "--Background" above. THE TBS BOARD HAS DETERMINED    
THAT THE TRANSACTION IS FAIR TO AND IN THE BEST INTERESTS OF TBS AND ITS        
SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF TBS VOTE FOR THE TBS       
MERGER PROPOSAL.                                                                

In reaching its determination to approve the Transaction, the TBS Board     
considered a number of factors, including, without limitation, the factors      
listed below. In view of the number and wide variety of factors                 

44  

DEFM14A
49th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 49th
considered in connection with its evaluation of the Transaction, the TBS Board  
did not consider it practicable to, nor did it attempt to, quantify or          
otherwise assign relative weights to the specific factors considered in         
reaching its determination. At its meetings held on August 30, September 21     
and 22, November 21, 1995 and August 8, 1996, the TBS Board did not consider    
alternative transactions to the Transaction, other than TBS continuing as an    
independent entity.                                                             

Management's Recommendation. The TBS Board received and reviewed            
presentations from, and discussed the terms and conditions of the Merger        
Agreement and the Transaction with, senior executive officers of TBS,           
representatives of its legal counsel and representatives of its investment      
bankers. The TBS Board considered management's view of recent trends in the     
entertainment and media industries, including recently announced acquisitions   
and business combinations in such industries. The TBS Board considered          
management's view that the combination of Time Warner, a leading content        
provider in the global entertainment industry with strong positions in          
critical distribution channels, with TBS, another leading content provider,     
especially with respect to cable programming, would create a significantly      
stronger global competitor in the entertainment and media industries. In        
making its determination, the TBS Board considered that the Transaction would   
benefit the shareholders of TBS because they would participate in the value     
that may be generated through the combination of the two companies through      
their continued equity participation as stockholders of New Time Warner.        

TBS's Business, Condition and Prospects. In evaluating the terms of the     
Transaction, the TBS Board considered information with respect to the           
historical growth and the financial condition, results of operations,           
prospects and businesses of TBS, as well as current industry, economic and      
market conditions. In evaluating TBS's prospects, the TBS Board considered the  
strengths of TBS's cable programming business, the recent strength of the       
advertising market and the performance of TBS's growing filmed entertainment    
production operations, as well as the challenges facing its businesses,         
including higher programming and production costs, increasing capital demands   
and competition from the traditional broadcast media as well as emerging        
distribution channels.                                                          

In addition, senior management of TBS noted that, in certain cases, the     
goals of the major shareholders of TBS had diverged, and such shareholders did  
not share a vision of the future of TBS. The TBS Board considered these         
factors and the potential for conflicts among the shareholder groups created    
by the existing TBS governance arrangements.                                    

Comparison of Historical and Recent Market Prices of TBS Common Stock to the
Market Price of the Transaction Consideration. The TBS Board reviewed the       
historical market prices and recent trading activity of the TBS Class A Common  
Stock and the TBS Class B Common Stock. The TBS Board considered the value to   
be received per share of TBS Class A Common Stock and TBS Class B Common Stock  
(which, as of August 29, 1995, the last trading day prior to the announcement   
that TBS and Time Warner were engaged in merger discussions, represented a      
premium of more than 34.5% and 32.4%, over the respective closing sale prices   
on such date). The TBS Board also noted that the value to be received by        
holders of TBS Class A Common Stock and TBS Class B Common Stock pursuant to    
the TBS Merger was within the reference range of multiples paid in selected     
acquisitions of other companies deemed to be comparable to TBS contained in CS  
First Boston's analysis. At its meeting held on August 8, 1996, the TBS Board   
considered information regarding the historical market prices for the Time      
Warner Common Stock, the TBS Class B Common Stock and a peer group of other     
entertainment and media companies (comprised of The Walt Disney Corporation     
("Disney"), The News Corporation Limited ("News Corp."), TCI and Viacom Inc.    
("Viacom")) during the period from August 29, 1995 through August 2, 1996.      

The TBS Board considered the fact that the Merger Agreement does not contain
any provisions that either limit the effect of changes in the price of Time     
Warner Common Stock prior to consummation of the Mergers on the value of the    
consideration to be received by the holders of TBS Common Stock in the          
Transaction or permit TBS to terminate the Merger Agreement based upon such     
changes and that, accordingly, the value of such consideration could change     
depending upon the performance of Time Warner Common Stock between the          
execution of the Merger Agreement and the consummation of the Mergers. While    
recognizing that the absence of such provisions exposed the TBS shareholders    
to some market risk, the TBS Board considered this risk to be                   

45  

DEFM14A
50th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 50th
mitigated by (a) a review of the historical trading prices of both the Time     
Warner Common Stock and the TBS Common Stock and the fact that, generally,      
industry changes affecting Time Warner Common Stock should similarly affect     
TBS Common Stock and (b) the fact that TBS shareholders would be able to        
participate in any appreciation in the value of Time Warner Common Stock        
between the announcement of the Transaction and the consummation of the         
Mergers. The TBS Board also recognized that, while such provisions might        
provide limited protection against declines in the share price of the New Time  
Warner Common Stock to be received, they also generally would limit the         
benefits from any appreciation in that price.                                   

Consideration Payable to Holders of TBS Class C Preferred Stock. In         
evaluating the terms of the Transaction, the TBS Board considered that the      
holders of TBS Common Stock would receive 0.75 of a share of New Time Warner    
Common Stock per share of TBS Common Stock and that the holders of TBS Class C  
Preferred Stock would receive 4.80 shares of New Time Warner Common Stock per   
share of TBS Class C Preferred Stock, equivalent to 0.80 of a share of New      
Time Warner Common Stock per share of TBS Class B Common Stock into which each  
share of TBS Class C Preferred Stock is convertible. The TBS Board considered   
(a) that, by virtue of the class voting rights to which holders of the TBS      
Class C Preferred Stock are entitled under the TBS Articles, the holders of     
such shares as a group and, by virtue of the TCI/Time Agreement, TCI            
individually in its capacity as a holder of such shares, has the ability to     
veto the Transaction, (b) its understanding that TCI was not willing to vote    
in favor of the Transaction absent the higher exchange ratio for shares of TBS  
Class C Preferred Stock, (c) the significant benefits which the TBS Board       
believed would accrue to holders of TBS Capital Stock as a result of the        
Transaction, (d) the range of premiums paid in other transactions involving     
multiple classes of stock, although the TBS Board recognized that there were a  
small number of such transactions, that each transaction was highly             
individualized and none was precisely comparable, and that in most cases no     
premium was paid to a given class of stock, and (e) the opinions of CS First    
Boston and Merrill Lynch.                                                       

Time Warner's Business, Condition and Prospects. The TBS Board considered,  
among other things, certain publicly available information with respect to the  
financial condition and results of operations of Time Warner and the five       
business segments in which Time Warner operates and limited prospective         
financial data supplied by Time Warner with respect to Time Warner's            
publishing and music businesses and cable systems owned directly by Time        
Warner and for TWE and discussed such information with CS First Boston.         

Lack of Other Proposals. In evaluating the Transaction, the TBS Board also  
considered that no other parties had proposed or expressed an interest in       
exploring a business combination with TBS, particularly in view of the fact     
that any party that desired to do so would have had sufficient time to make an  
alternative proposal during the period between the August 30, 1995 joint        
announcement by TBS and Time Warner that they were in discussions regarding a   
possible business combination and the September 21-22, 1995 meeting of the TBS  
Board. In evaluating this factor, the TBS Board also took into consideration    
the existing governance arrangements that would permit any of Time Warner, Mr.  
Turner or TCI to veto any merger proposal relating to TBS and the provisions    
of the TBS Shareholders' Agreement relating to the Cable Operators' right of    
first refusal on Mr. Turner's shares of TBS Common Stock and the "take-along"   
provisions with respect to the shares of TBS Capital Stock owned by the Cable   
Operators applicable to certain sales of TBS Common Stock by Mr. Turner. In     
light of the arrangements described above and the fact that the TBS Merger      
represented a unique strategic combination for TBS, the TBS Board did not       
solicit other indications of interest from third parties with respect to the    
possible acquisition of TBS or any of its businesses, nor did it authorize or   
instruct its financial advisors to solicit any such indications of interest.    

Termination Provisions and Termination Fee. The TBS Board considered the    
provisions of the Merger Agreement that permit the TBS Board to terminate the   
Merger Agreement if an alternative proposal is received that the TBS Board      
determines, in the exercise of its fiduciary duties, to accept, upon the        
payment to Time Warner of a fee of $175 million (approximately 2.3% of the      
transaction value as of the time the Merger Agreement, as originally executed,  
was entered into). See "The Merger Agreement--Termination of the Merger         
Agreement" and "--Effects of Termination." The TBS Board considered the view    
of its legal advisors that the                                                  

46  

DEFM14A
51st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 51st
termination fee specified in the Merger Agreement was within the range of such  
fees agreed to be paid in transactions of comparable size and determined that   
such fee was not likely, in and of itself, to preclude an alternative           
proposal. The TBS Board also was aware that Mr. Turner and affiliates of TCI    
had agreed to enter into the Support Agreement and the LMC Agreement,           
respectively, pursuant to which, subject to certain conditions, each agreed to  
vote for the Transaction and that the Support Agreement contained certain       
provisions requiring Mr. Turner to pay to Time Warner any amounts received as   
a result of an alternative transaction in excess of the value that would have   
been received by Mr. Turner and certain of his affiliates in the Transaction.   
See "Certain Related Agreements--Support Agreement." In making its              
determination the TBS Board considered the effect of such provisions and the    
existing TBS governance arrangements on the likelihood that Mr. Turner, TCI or  
Time Warner could or would support an alternative transaction.                  

Opinions of CS First Boston and Merrill Lynch. The TBS Board considered the 
oral opinions rendered by CS First Boston on September 22, 1995, November 21,   
1995 and August 8, 1996 (subsequently confirmed in writing) to the effect       
that, as of the dates of such opinions and based upon and subject to the        
matters stated therein, the consideration to be received by the holders of TBS  
Capital Stock (other than Time Warner and its affiliates) pursuant to the TBS   
Merger was fair to such holders from a financial point of view. At its          
September 22, 1995 meeting, the TBS Board also considered the oral opinion      
rendered by Merrill Lynch on such date (subsequently confirmed in writing) to   
the effect that, as of the date of such opinion and based upon and subject to   
the matters stated therein, (a) the consideration to be received by             
shareholders of TBS (other than TCI and its affiliates and Time Warner)         
pursuant to the TBS Merger was fair to such holders from a financial point of   
view and (b) in the context of the governance arrangements relating to TBS's    
ability to consummate the TBS Merger, the financial terms of the Prior TCI      
Arrangements were fair from a financial point of view to TBS and its            
shareholders (other than TCI and its affiliates and Time Warner). In addition,  
the TBS Board considered the oral advice by Merrill Lynch to the TBS Board on   
November 21, 1995 (subsequently confirmed in writing), that the amendments to   
the Merger Agreement did not alter its opinion previously delivered to the TBS  
Board to the effect that as of September 22, 1995 Merrill Lynch was of the      
opinions set forth therein. Furthermore, the TBS Board considered the oral      
opinion rendered by Merrill Lynch on August 8, 1996 (subsequently confirmed in  
writing) to the effect that, as of the date of such opinion and based upon and  
subject to the matters stated therein, (a) the consideration to be received by  
shareholders of TBS (other than TCI and its affiliates and Time Warner)         
pursuant to the TBS Merger was fair to such holders from a financial point of   
view and (b) in the context of the governance arrangements relating to TBS's    
ability to consummate the TBS Merger, the financial terms of the TCI            
Arrangements were fair from a financial point of view to TBS and its            
shareholders (other than TCI and its affiliates and Time Warner). The TBS       
Board also considered the oral and written financial presentations of CS First  
Boston and Merrill Lynch. See "--Opinions of TBS's Financial Advisors" below.   
The written opinions to the TBS Board of CS First Boston and of Merrill Lynch,  
each dated as of August 8, 1996, are attached hereto as Appendices C-2 and C-   
3, respectively, and are incorporated herein by reference.                      

Arrangements with TCI and its Affiliates. The TBS Board considered the terms
of the TCI Arrangements being concurrently entered into by TBS and by Time      
Warner with TCI and its affiliates. See "TCI Arrangements." The TBS Board       
evaluated the TCI Arrangements in light of (a) the presentation by TBS          
management and TBS's legal advisors and, at the August 8, 1996 meeting, by      
legal advisors to Time Warner, as to the terms of the TCI Arrangements, (b)     
TCI's ability as a shareholder to veto the Transaction, (c) the understanding   
of the TBS Board that TCI was not willing to vote its shares of TBS Capital     
Stock in favor of the Transaction in the absence of the TCI Arrangements, (d)   
the significant benefits that the TBS Board believed would accrue to holders    
of TBS Capital Stock as a result of the Transaction, (e) the expected benefits  
to each of TBS and Time Warner of the TCI Arrangements and (f) information      
regarding the range of values represented in the aggregate by such              
arrangements. The TBS Board also reviewed and considered the presentation of    
Merrill Lynch with respect to the ranges of values represented by each of the   
TCI Arrangements and the opinion of Merrill Lynch to the effect that, as of     
August 8, 1996, and based upon and subject to the matters stated therein, in    
the context of the governance arrangements relating to TBS's ability to         
consummate the Transaction, the financial terms of the TCI Arrangements were    
fair from a financial point of view to TBS and its shareholders (other than     
TCI and its affiliates and Time Warner).                                        

47  

DEFM14A
52nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 52nd
Ability of the Shareholders of TBS to Obtain a Continuing Equity Interest in
New Time Warner. The TBS Board considered that, pursuant to the terms of the    
Transaction, holders of TBS Capital Stock will receive equity securities of     
New Time Warner, thus enabling TBS shareholders to participate in the value     
that may be generated through the combination of the two companies through      
their continued equity participation as stockholders of New Time Warner, while  
realizing an immediate premium for their TBS shares and obtaining tax-free      
treatment. The TBS Board also considered that New Time Warner will have         
considerably greater market capitalization and public float than TBS, thus      
providing TBS shareholders who become stockholders of New Time Warner with      
enhanced liquidity.                                                             

The TBS Board also considered that the voting power of TBS is currently     
concentrated and that, by virtue of the existing TBS governance arrangements,   
each of Mr. Turner, Time Warner and TCI has the ability to veto certain         
significant transactions, including certain changes of control of TBS. In       
evaluating the Transaction, the TBS Board reviewed the pro forma stock          
ownership of New Time Warner Common Stock following the Transaction and         
considered the fact that no stockholder would control New Time Warner and that  
shareholders of TBS who become stockholders of New Time Warner would retain     
the potential for obtaining a premium for their shares in the event of any      
subsequent change of control of New Time Warner, although the TBS Board also    
considered the fact that the total capitalization of New Time Warner after the  
consummation of the Mergers would limit the number of potential purchasers of   
New Time Warner.                                                                

OPINION OF TIME WARNER'S FINANCIAL ADVISOR                                      

At the meeting of the Time Warner Board that began on September 21, 1995,   
Morgan Stanley delivered its oral opinion to the Time Warner Board that, as of  
September 22, 1995, the ratio contemplated by the Merger Agreement for the      
exchange of Time Warner Common Stock for TBS Capital Stock and the              
consideration to be paid by Time Warner for the option to acquire SSSI as       
contemplated by the Prior TCI Arrangements, taken together, were fair to Time   
Warner from a financial point of view (the "Original Morgan Stanley Opinion").  
Morgan Stanley confirmed its oral opinion in a written opinion dated as of      
September 22, 1995. In connection with the amendment and restatement of the     
Merger Agreement in November 1995, the Time Warner Board requested that Morgan  
Stanley update the Original Morgan Stanley Opinion, and Morgan Stanley          
subsequently delivered a revised opinion dated as of November 16, 1995,         
confirming as of such date the Original Morgan Stanley Opinion. At the meeting  
of the Time Warner Board held on August 8, 1996, Morgan Stanley delivered its   
oral opinion, that as of such date, the ratio contemplated by the Merger        
Agreement for the exchange of New Time Warner Common Stock for TBS Capital      
Stock (the "Exchange Ratio") and the consideration to be paid by New Time       
Warner for the SSSI Option and the LMC Non-competition Covenant (the "SSSI      
Agreement Consideration"), taken together, were fair to New Time Warner and     
its subsidiary, Time Warner, from a financial point of view. Morgan Stanley     
confirmed its oral opinion in a written opinion dated August 8, 1996 (the       
written opinion of Morgan Stanley dated August 8, 1996 is referred to as the    
"Morgan Stanley Opinion"). Morgan Stanley has consented to the inclusion of     
the Morgan Stanley Opinion as Appendix C-1 to this Joint Proxy                  
Statement/Prospectus.                                                           

A COPY OF THE MORGAN STANLEY OPINION IS ATTACHED HERETO AS APPENDIX C-1.    
STOCKHOLDERS OF TIME WARNER ARE URGED TO READ THE MORGAN STANLEY OPINION IN     
ITS ENTIRETY FOR INFORMATION WITH RESPECT TO THE PROCEDURES FOLLOWED,           
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY MORGAN         
STANLEY IN RENDERING THE MORGAN STANLEY OPINION. REFERENCES TO THE MORGAN       
STANLEY OPINION HEREIN AND THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH  
BELOW ARE QUALIFIED BY REFERENCE TO THE FULL TEXT OF THE MORGAN STANLEY         
OPINION, WHICH IS INCORPORATED HEREIN BY REFERENCE. THE MORGAN STANLEY OPINION  
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY TIME WARNER STOCKHOLDER OR TBS      
SHAREHOLDER AS TO HOW SUCH STOCKHOLDER OR SHAREHOLDER SHOULD VOTE WITH RESPECT  
TO THE TW MERGER PROPOSAL OR THE TBS MERGER PROPOSAL AND SHOULD NOT BE RELIED   
UPON BY ANY TIME WARNER STOCKHOLDER OR TBS SHAREHOLDER AS SUCH.                 

In arriving at its opinion, Morgan Stanley (a) reviewed the publicly        
available consolidated financial statements of Time Warner for recent fiscal    
years and interim periods, and other relevant financial and operating data of   
Time Warner from published sources, as well as information made available to    
Morgan Stanley by Time Warner, including information derived from due           
diligence discussions with Time Warner senior management                        

48  

DEFM14A
53rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 53rd
and discussed with Time Warner senior management their views regarding future   
business, financial and operating benefits arising from the Transaction,        
including such benefits from the possible exercise of the SSSI Option, (b)      
reviewed the publicly available consolidated financial statements of TBS for    
recent fiscal years and interim periods, and other relevant financial and       
operating data of TBS from published sources, as well as limited information    
made available to Morgan Stanley by TBS, including information derived from     
due diligence discussions with TBS senior management relating to the benefits   
from the possible exercise of the SSSI Option, and conducted other due          
diligence discussions with senior management of TBS, (c) analyzed the           
estimated pro forma financial impact of the Transaction, including the impact   
on Time Warner's consolidated capitalization and financial ratios, (d)          
reviewed the historical market prices of Time Warner Common Stock and TBS       
Common Stock, (e) analyzed published information regarding certain relevant     
companies and their equity securities and compared the financial performance    
of TBS and the prices and trading activity of TBS Common Stock with those       
other companies and their equity securities, (f) reviewed the financial terms,  
to the extent publicly available, of certain comparable acquisition             
transactions, (g) reviewed financial information prepared by the management of  
Time Warner and limited financial information prepared by the management of     
TBS, (h) participated in certain due diligence discussions among                
representatives of TBS and Time Warner and their financial and legal advisors,  
(i) reviewed the executed version of the amended and restated Merger Agreement  
and drafts of Amendment No. 1 to the Merger Agreement and the SSSI Agreement    
and related documents in the forms identified by Time Warner as those to be     
entered into by the parties and (j) performed such other analyses and           
examinations (as more fully described below) as Morgan Stanley deemed           
appropriate.                                                                    

In connection with its review, Morgan Stanley did not assume any            
responsibility for independent verification of any of the foregoing             
information and relied on its being complete and accurate in all material       
respects. With respect to the financial projections supplied to Morgan Stanley  
by Time Warner, Morgan Stanley assumed that they had been reasonably prepared   
on bases reflecting the best currently available estimates and good faith       
judgments of Time Warner senior management of the future competitive,           
operating and regulatory environments and related financial performance of      
Time Warner. Morgan Stanley requested from TBS financial projections or long-   
range financial forecasts, and was provided with limited financial forecasts    
and financial targets prepared by TBS management for certain business segments  
of TBS and was orally provided with the views of TBS management as to expected  
results of operations of TBS over a two-year period. Furthermore, Morgan        
Stanley assumed no responsibility for conducting a physical inspection of the   
properties or facilities of Time Warner or TBS or for making or obtaining any   
independent valuation or appraisal of the assets or liabilities of Time Warner  
or TBS, nor was Morgan Stanley furnished with any such valuations or            
appraisals. Morgan Stanley noted that the Mergers are intended to qualify as    
reorganizations within the meaning of Section 368(a) of the Code and/or as      
exchanges under Section 351 of the Code, and assumed with the consent of Time   
Warner that the Mergers would so qualify. Morgan Stanley relied, without        
independent verification, upon the assessment of the managements of Time        
Warner and TBS of the amount and timing of potential cost savings and revenue   
enhancements realizable as a result of the Transaction, including the WTBS      
Conversion. The Morgan Stanley Opinion is necessarily based on economic,        
market and other conditions as in effect on, and any information and            
agreements made available to it as of, the date thereof. Morgan Stanley         
assumed that the transactions described in the Merger Agreement would be        
consummated on the terms set forth therein. Morgan Stanley assumed that the     
executed versions of Amendment No. 1 to the Merger Agreement and the SSSI       
Agreement would not differ in any material respect from the forms Morgan        
Stanley reviewed and that, if the SSSI Option were exercised, the exercise      
thereof would be consummated on the terms set forth therein. Morgan Stanley     
did not express any opinion as to the price or range of prices at which the     
New Time Warner Common Stock might trade subsequent to the consummation of the  
Transaction.                                                                    

At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley      
reviewed with the members of the Time Warner Board the financial, industry and  
market information with respect to TBS used by Morgan Stanley in its analyses   
as described below and the procedures used and the analyses underlying the      
Morgan Stanley Opinion. The summary set forth below does not purport to be a    
complete description of the Morgan Stanley Opinion or Morgan Stanley's          
analyses relating thereto. The preparation of a fairness opinion is a complex   

49  

DEFM14A
54th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 54th
process that is not purely mathematical and is not necessarily susceptible to   
partial analyses or summary description. It involves complex considerations     
and judgments. Time Warner stockholders are encouraged to read the Morgan       
Stanley Opinion in its entirety.                                                

The following is a summary of all material analyses performed by Morgan     
Stanley in connection with the Morgan Stanley Opinion. The principal methods    
that Morgan Stanley used in assessing the fairness of the Exchange Ratio and    
the SSSI Agreement Consideration to New Time Warner and its subsidiary, Time    
Warner, as of August 8, 1996 were (a) an analysis of the variance of TBS's      
actual 1995 operating results and the 1996 operating results forecast by TBS    
management in June 1996 ("TBS 1996 Forecast"), from the 1995 operating results  
forecast by TBS management in August 1995 ("TBS 1995 Forecast") and TBS         
management's 1996 budget ("TBS 1996 Budget"), respectively, (b) an analysis of  
Time Warner's historical public market trading values as compared to a blended  
cable television and entertainment company index composed of the stocks of      
Cablevision Systems Corporation ("Cablevision Systems"), Cox Communications,    
Inc. ("Cox"), Comcast, TCI (adjusted for the distribution of the Liberty Media  
Group Common Stock by TCI), Disney, News Corp. and Viacom (the                  
"Cable/Entertainment Index"), (c) an analysis of Time Warner's historical       
share price since August 29, 1995 as compared to companies included in the      
Cable/Entertainment Index and U S WEST Media Group ("UMG" and, together with    
the Cable/Entertainment Index, the "Modified Cable/Entertainment Index"), (d)   
an analysis of multiples paid in the Transaction and in certain precedent       
acquisition transactions, (e) an analysis of aggregate value multiples of       
certain cable television programming and diversified entertainment companies    
and (f) a discounted cash flow analysis with respect to TBS.                    

Transaction Overview                                                            

At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley      
presented a summary of the principal economic terms of the Merger Agreement,    
the SSSI Agreement and the Distribution Contract. Morgan Stanley noted that,    
based upon a weighted average exchange ratio of 0.759 shares of New Time        
Warner Common Stock for each share of TBS Common Stock, the nominal purchase    
price pursuant to the Merger Agreement, based upon the $36.50 closing price of  
Time Warner Common Stock on August 6, 1996, was approximately $27.71 per share  
of TBS Common Stock, as compared to the approximately $32.17 nominal purchase   
price per share of TBS Common Stock pursuant to the original Merger Agreement   
based upon the $42.375 unaffected closing price of Time Warner Common Stock on  
August 29, 1995. Morgan Stanley also noted that, based upon the $36.50 closing  
price of Time Warner Common Stock on August 6, 1996, assuming exercise of the   
SSSI Option by New Time Warner, the estimated cost of the consideration         
payable by New Time Warner pursuant to the SSSI Agreement and the Distribution  
Contract was approximately $360 million (assuming that such payments would be   
deductible for Federal and state income tax purposes), as compared to the       
estimated $370 million cost for the option to acquire SSSI as contemplated by   
the Prior TCI Arrangements (assuming exercise of such option by New Time        
Warner and based upon the $42.375 unaffected closing price of Time Warner       
Common Stock on August 29, 1995.)                                               

TBS Operating Performance Variance Analysis                                     

At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley      
presented a comparison of the actual results of operations for 1995 for each    
of the major business segments of TBS (comprised of Cable Networks, News, Film  
Production and Distribution, and real estate, sports-related assets and         
certain other assets ("Real Estate/Sports Segment")), as compared to the TBS    
1995 Forecast provided to Morgan Stanley by TBS management in August 1995, as   
well as a comparison of the operating performance of these segments contained   
in the TBS 1996 Forecast provided to Morgan Stanley in June 1996 by TBS         
management, to the 1996 TBS Budget provided to Morgan Stanley. Morgan Stanley   
noted that actual results for 1995 revenue and earnings before interest,        
taxes, depreciation and amortization expenses ("EBITDA") were favorable, as     
compared to the TBS 1995 Forecast, for each of these business segments (other   
than EBITDA results for the Film Production and Distribution Segment). Morgan   
Stanley also noted that the TBS 1996 Forecast showed favorable revenue          
variances for the Cable Networks, News and Real Estate/Sports segments (and a   
negative variance for the Film Production and Distribution segment) as          
compared to the 1996 TBS Budget, and no variance in forecast 1996 EBITDA for    
the Cable Networks and News segments (and negative variances for the Film       
Production and                                                                  

50  

DEFM14A
55th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 55th
Distribution and Real Estate/Sports segments) as compared to the 1996 TBS       
budget. Morgan Stanley noted that, notwithstanding the negative variances at    
the Film Production and Distribution Segment of TBS, which consists primarily   
of New Line and Castle Rock (the "Studios"), in connection with its analyses    
underlying the Morgan Stanley Opinion, Morgan Stanley continued to assume the   
same asset value for the Studios (based on historical cost) that it had         
assumed in connection with its analyses underlying the Original Morgan Stanley  
Opinion.                                                                        

Comparable Time Warner Share Price Analysis                                     

At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley      
reviewed the share price performance of Time Warner Common Stock for the        
period from August 29, 1992 through August 6, 1996, as compared to the          
performance of the Cable/Entertainment Index. The Cable/Entertainment Index     
was based on the assumption that Time Warner's estimated 1996 EBITDA would be   
contributed approximately 41% by its cable operations and 59% by its            
diversified entertainment operations. Specifically, Morgan Stanley noted that   
Time Warner Common Stock had in general performed consistently with the         
Cable/Entertainment Index for the period of comparison.                         

Morgan Stanley also presented an analysis of the share price performance of 
Time Warner Common Stock as compared to each of the companies included in the   
Modified Cable/Entertainment Index from August 29, 1995 to August 6, 1996.      
Morgan Stanley noted that, with the exception of Disney, each of the Modified   
Cable/Entertainment Index companies experienced a decline in its stock price    
and that the 13.9% decline in the Time Warner Common Stock price was below the  
15.0% mean decline experienced by all such companies contained in the Modified  
Cable/Entertainment Index (ranging from a 4.7% stock price increase in the      
case of Disney, to a 38.6% stock price decline in the case of Cablevision       
Systems).                                                                       

Acquisition Multiples Analysis                                                  

At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley      
reviewed and analyzed selected acquisition transactions involving other         
companies in the entertainment and media industries that it deemed relevant.    
Among other factors, Morgan Stanley indicated that the merger and acquisition   
transaction environment varies over time because of macroeconomic factors such  
as interest rate and equity market fluctuations and microeconomic factors such  
as industry results and growth expectations. Morgan Stanley noted that no       
transaction reviewed was identical to the Transaction and that, accordingly,    
an assessment of the results of the following analysis necessarily involves     
complex considerations and judgments concerning differences in financial and    
operating characteristics of TBS and other factors that would affect the        
acquisition value of the companies to which it is being compared. Morgan        
Stanley advised the Time Warner Board that, in analyzing the results of the     
precedent acquisition transactions analysis, the Time Warner Board should       
consider the size and demographic and economic characteristics of the markets   
of each company and the competitive environment in which it operates. Morgan    
Stanley also pointed out that the entertainment and media industries, in        
particular, have undergone dramatic changes in recent years and face continued  
dynamic evolution.                                                              

In analyzing the multiple of forward and current year EBITDA represented by 
the aggregate acquisition price, at the August 8, 1996 meeting of the Time      
Warner Board, Morgan Stanley noted that, based on the $36.50 closing price for  
Time Warner Common Stock on August 6, 1996, Morgan Stanley's analysis yielded   
an aggregate value acquisition multiple for the Transaction of 15.2x based on   
forward year EBITDA (13.2x, after adjusting the aggregate acquisition value     
for the Studios (based on historical cost), the Real Estate/Sports Segment      
(based on private market values) and the WTBS Conversion (the "Specified        
Adjustments") and adjusting EBITDA for the Specified Adjustments) and 20.7x     
based on current year EBITDA (14.6x, after the Specified Adjustments). Morgan   
Stanley noted that, based on the $42.375 unaffected Time Warner Common Stock    
price on August 29, 1995, its analysis yielded an acquisition multiple for the  
Transaction of 17.2x based on forward year EBITDA (15.2x, after the Specified   
Adjustments) and 23.4x based on current year EBITDA (16.8x, after the           
Specified Adjustments). Morgan Stanley also noted that its analysis of          
precedent transactions yielded the following acquisition multiples based on     
forward and current year EBITDA, respectively: TCI-                             

51  

DEFM14A
56th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 56th
Comcast/QVC Network Inc. ("QVC"), 8.9x and 10.5x; Disney/Capital Cities/ABC     
Inc. ("Capital Cities"), 10.1x and 11.5x; Westinghouse Electric Corporation     
("Westinghouse")/CBS Inc. ("CBS"), 12.1x and 13.0x; The Seagram Company Ltd.    
("Seagram")/MCA, 12.5x and 14.2x; Matsushita/MCA, 14.1x and 17.6x;              
Viacom/Paramount Communications Inc. ("Paramount"), 17.6x (16.3x, after giving  
effect to the sale of Paramount's Madison Square Garden assets (the "MSG        
Assets")) and 22.3x (20.5x, after giving effect to the sale of the MSG          
Assets); Sony Corporation ("Sony")/Columbia Pictures Entertainment Inc.         
("Columbia"), 16.2x and 22.9x; and TBS/New Line, 15.3x and 33.6x.               

Public Market Trading Valuation                                                 

At the August 8, 1996 meeting of the Time Warner Board, Morgan Stanley also 
presented a comparison of the multiples derived by dividing the acquisition     
value of TBS in the Transaction (based on the closing price of Time Warner      
Common Stock on August 6, 1996) by forward and current year EBITDA, with the    
multiples derived by dividing the aggregate value (based on closing stock       
prices on August 6, 1996) of three other publicly traded cable television       
programming companies (Gaylord Entertainment Company ("Gaylord"),               
International Family Entertainment, Inc. ("International Family") and BET       
Holdings Inc. ("BET")) and two other publicly traded diversified entertainment  
companies (Viacom and Disney), by their respective forward and current year     
EBITDA. Specifically, Morgan Stanley noted that such multiples, after making    
the Specified Adjustments, and for illustrative purposes assuming incremental   
annual EBITDA from revenue enhancement and cost saving opportunities of $200,   
$100 and $0 million, respectively, were 10.3x, 11.6x and 13.2x for forward      
year EBITDA and 11.2x, 12.7x and 14.6x for current year EBITDA, as compared to  
forward year and current year EBITDA multiples of 11.3x and 13.5x for Gaylord;  
9.5x and 10.7x for International Family; 7.4x and 8.9x for Viacom; 8.0x and     
9.5x for Disney; and 7.4x and 8.4x for BET.                                     

The foregoing companies, in Morgan Stanley's judgment and based in part on  
conversations with the managements of Time Warner and TBS, were comparable to   
TBS for the purposes of Morgan Stanley's analysis. Morgan Stanley noted that    
because of differences between the business mix, operations and other           
characteristics of TBS and the comparable companies, Morgan Stanley did not     
believe that a purely quantitative comparable company analysis would be         
particularly meaningful in this context. Rather, Morgan Stanley believes that   
an appropriate use of the comparable company analysis would also involve        
qualitative judgments concerning differences between the financial and          
operating characteristics of TBS and the comparable companies, which would      
affect the public trading values of the common stock of the comparable          
companies, which judgments are incorporated in the Morgan Stanley Opinion.      

TBS Discounted Cash Flow Analysis                                               

Morgan Stanley also considered a 10-year discounted cash flow valuation     
analysis based upon limited financial forecasts previously prepared by the      
management of TBS for certain businesses of TBS, updated financial targets      
provided by TBS management in July 1996, as well as due diligence discussions   
with Time Warner and TBS management regarding the businesses of TBS. However,   
in its discounted cash flow analysis, Morgan Stanley did not give effect to     
any potential cost saving or revenue enhancement opportunities that may result  
from the Transaction.                                                           

In conducting this discounted cash flow analysis, Morgan Stanley assumed    
discount rates of between 11% and 13%, year 2005 EBITDA exit multiples of       
between 11x and 13x, and adjusted for the value of the Studios based on         
historic cost and for certain real estate, sports teams and certain             
international start-up businesses based on private market value estimates. The  
assumed discount rates were chosen based upon an analysis of the weighted       
average cost of capital of TBS. The range of exit multiples used reflected      
different assumptions regarding the growth and profitability prospects of TBS   
beyond the year 2005. Based on the aforementioned projections and assumptions,  
this discounted cash flow analysis yielded a midpoint reference value of        
approximately $32 per share of TBS Common Stock.                                

Morgan Stanley also considered the Time Warner management projections       
regarding incremental values associated with the WTBS Conversion. This          
analysis yielded an incremental reference value per share of TBS Common Stock   
of approximately $2, net of the estimated $360 million after-tax cost           
associated with the SSSI Agreement and the Distribution Contract (based on the  
unaffected closing price of Time Warner Common Stock                            

52  

DEFM14A
57th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 57th
on August 6, 1996 and assuming that payments to be made by New Time Warner      
under the SSSI Agreement and the Distribution Contract will be deductible or    
amortizable for Federal and state income tax purposes).                         

Morgan Stanley's discounted cash flow analysis was utilized to create points
of reference and not to suggest forecasts of valuation ranges for TBS Common    
Stock.                                                                          

In arriving at its opinion, Morgan Stanley performed a variety of financial 
analyses, the material portions of which are summarized above. The summary set  
forth above does not purport to be a complete description of the analyses       
performed by Morgan Stanley. In addition, Morgan Stanley believes that its      
analyses must be considered as a whole and that selecting portions of its       
analyses and the factors considered by it, without considering all such         
factors and analyses, could create a misleading view of the process underlying  
the analyses set forth in its opinion. The matters considered by Morgan         
Stanley in arriving at its opinion are based on numerous macroeconomic,         
operating and financial assumptions with respect to industry performance,       
general business, regulatory and economic conditions and other matters, many    
of which are beyond the control of Time Warner and TBS. Any estimates or        
financial projections incorporated or used in the analyses performed by Morgan  
Stanley are not necessarily indicative of actual past or future results or      
values, which may be significantly more or less favorable than such             
projections or estimates. Estimated values do not purport to be appraisals and  
do not necessarily reflect the prices at which businesses or companies may be   
sold in the future. Such financial projections and estimates are inherently     
subject to substantial uncertainty. With respect to the financial projections   
and other estimates supplied or prepared by third parties and used by Morgan    
Stanley in its analyses, Morgan Stanley assumed that such financial             
projections and estimates had been reasonably prepared on bases reflecting the  
best currently available estimates and good faith judgments of the third        
parties that supplied or prepared such financial projections or estimates.      
Arriving at a fairness opinion is a complex process, not necessarily            
susceptible to partial summary or description. No company utilized as a         
comparison is identical to Time Warner or TBS or the business segment for       
which a comparison is being made. Accordingly, an analysis of comparable        
companies and comparable business combinations resulting from the transactions  
is not mathematical; rather, it involves complex considerations and judgments   
concerning differences in financial and operating characteristics of the        
comparable companies and other factors that could affect the value of the       
comparable companies or company to which they are being compared.               

The Time Warner Board selected Morgan Stanley as its financial advisor      
because it is an internationally recognized investment banking firm, which has  
substantial experience in transactions similar to the Transaction and is        
familiar with Time Warner and its business. Morgan Stanley is an investment     
banking firm engaged, among other things, in the valuation of businesses and    
their securities in connection with mergers and acquisitions, negotiated        
underwritings, competitive biddings, secondary distributions of listed and      
unlisted securities, private placements and valuations for corporate and other  
purposes. In the ordinary course of Morgan Stanley's trading and brokerage      
activities, Morgan Stanley or its affiliates may at any time hold long or       
short positions, may trade or otherwise effect transactions, for its own        
account or for the account of customers, in debt or equity securities of Time   
Warner and TBS. Morgan Stanley in the past has provided certain investment      
banking, financial advisory and financing services to Time Warner and has       
received customary fees and reimbursement of expenses for such services. Since  
January 1, 1994, Morgan Stanley has received compensation, including            
underwriting fees, from Time Warner for such services of approximately $33      
million, other than the fee paid in connection with the Morgan Stanley          
Opinion.                                                                        

See "--Certain Fees and Expenses" below for a summary of the terms of the   
engagement of Morgan Stanley by Time Warner, including the fee payable by Time  
Warner upon consummation of the Mergers.                                        

Time Warner also retained Bear, Stearns & Co. Inc. to act as an advisor on  
various matters, including the Transaction. Bear, Stearns & Co. Inc. was not    
requested to, and did not, provide a fairness opinion to the Time Warner        
Board.                                                                          

53  

DEFM14A
58th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 58th
OPINIONS OF TBS'S FINANCIAL ADVISORS                                            

OPINION OF CS FIRST BOSTON                                                    

CS First Boston has acted as financial advisor to TBS in connection with the
Transaction. CS First Boston was selected by TBS based on CS First Boston's     
experience and expertise. CS First Boston is an internationally recognized      
investment banking firm and is regularly engaged in the valuation of            
businesses and securities in connection with mergers and acquisitions,          
leveraged buyouts, negotiated underwritings, competitive biddings, secondary    
distributions of listed and unlisted securities, private placements and         
valuations for estate, corporate and other purposes.                            

In connection with CS First Boston's engagement, TBS requested that CS First
Boston evaluate the fairness, from a financial point of view, to the holders    
of TBS Capital Stock (other than Time Warner and its affiliates) of the         
consideration to be received by such holders in the TBS Merger. At a meeting    
of the TBS Board held on September 22, 1995 to evaluate the proposed            
transaction, CS First Boston rendered to the TBS Board an oral opinion          
(subsequently confirmed in writing) to the effect that, as of September 22,     
1995 and based upon and subject to the matters stated therein, the              
consideration to be received by the holders of TBS Capital Stock (other than    
Time Warner and its affiliates) in the TBS Merger was fair to such holders      
from a financial point of view. In connection with the meeting of the Board     
held on November 21, 1995 to consider the amendment and restatement of the      
Merger Agreement to revise the transaction structure and on August 8, 1996 to   
approve the FTC Consent Decree and proposed amendments to the Transaction       
Agreements, TBS requested that CS First Boston confirm its opinions delivered   
on September 22, 1995 and November 21, 1995, respectively. At meetings of the   
TBS Board on November 21, 1995 and August 8, 1996, CS First Boston rendered to  
the TBS Board oral opinions (subsequently confirmed in writing) to the effect   
that, as of the dates of such opinions and based upon and subject to the        
matters stated therein, the consideration to be received by the holders of TBS  
Capital Stock (other than Time Warner and its affiliates) in the TBS Merger     
was fair to such holders from a financial point of view. In connection with     
the CS First Boston opinions dated November 21, 1995 and August 8, 1996, CS     
First Boston updated certain of the analyses performed in connection with its   
opinion delivered November 21, 1995 and reviewed the assumptions on which such  
analyses were based and the factors considered in connection therewith.         

In arriving at its opinion dated August 8, 1996 (the "CS First Boston       
Opinion"), CS First Boston (a) reviewed publicly available business and         
financial information relating to TBS and Time Warner, (b) reviewed other       
information, including financial forecasts, provided to CS First Boston by TBS  
and Time Warner, (c) met with the respective managements of TBS and Time        
Warner for due diligence discussions concerning the businesses and prospects    
of TBS and Time Warner, (d) reviewed the Merger Agreement, as originally        
executed on September 22, 1995 and amended on November 21, 1995, and drafts of  
Amendment No. 1 to the Merger Agreement and other related documents, including  
certain agreements involving TCI and certain of its affiliates, and assumed     
for purposes of its opinion that the final terms of such Amendment No. 1 and    
the other documents reviewed by CS First Boston in draft form would not vary    
materially from the drafts reviewed by CS First Boston and that the terms of    
any additional documents agreed to other than those reviewed by CS First        
Boston would not materially affect CS First Boston's analyses, (e) considered   
financial and stock market data of TBS and Time Warner and compared that data   
with similar data for other publicly held companies in businesses similar to    
those of TBS and Time Warner, (f) considered, to the extent publicly            
available, the financial terms of certain other business combinations and       
other transactions recently effected and (g) considered such other              
information, financial studies, analyses and investigations and financial,      
economic, regulatory and market criteria (as more fully described below) which  
CS First Boston deemed relevant. CS First Boston has consented to the           
inclusion of the CS First Boston Opinion as Appendix C-2 to this Joint Proxy    
Statement/Prospectus.                                                           

In connection with its review, CS First Boston did not assume responsibility
for independent verification of any of the information provided to or           
otherwise reviewed by CS First Boston and relied upon its being complete and    
accurate in all material respects. With respect to the financial forecasts      
reviewed, CS First Boston assumed that such forecasts were reasonably prepared  
on bases reflecting the best currently available estimates and judgments of     
the respective managements of TBS and Time Warner as to the future financial    
performance of TBS and Time Warner. In addition, CS First Boston did not make   
an independent evaluation or appraisal of the assets or liabilities             
(contingent or otherwise) of TBS or Time Warner, nor was CS First Boston        
furnished with                                                                  

54  

DEFM14A
59th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 59th
any such evaluation or appraisal. CS First Boston's opinion was necessarily     
based on information available to it and financial, economic, market,           
regulatory and other conditions as they existed and could be evaluated on the   
date of its opinion. CS First Boston expressed no opinion as to what the value  
of New Time Warner Common Stock actually would be when issued pursuant to the   
Transaction or the prices at which New Time Warner Common Stock would trade     
subsequent to the consummation of the Transaction. CS First Boston was not      
requested to, and did not, solicit third party indications of interest in       
acquiring all or any part of TBS. Although CS First Boston evaluated the        
fairness of the consideration to be received by the holders of TBS Capital      
Stock (other than Time Warner and its affiliates) in the TBS Merger from a      
financial point of view, the specific consideration payable in the Transaction  
was determined by negotiations among the parties to the Transaction. No         
limitations were imposed by TBS on CS First Boston with respect to the          
investigations made or procedures followed by CS First Boston in connection     
with the rendering of its opinions.                                             

THE FULL TEXT OF THE CS FIRST BOSTON OPINION, WHICH SETS FORTH THE          
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN BY CS  
FIRST BOSTON, IS ATTACHED HERETO AS APPENDIX C-2 AND IS INCORPORATED HEREIN BY  
REFERENCE. HOLDERS OF TBS CAPITAL STOCK ARE URGED TO READ THE CS FIRST BOSTON   
OPINION CAREFULLY IN ITS ENTIRETY. THE CS FIRST BOSTON OPINION IS DIRECTED      
ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF TBS      
CAPITAL STOCK (OTHER THAN TIME WARNER AND ITS AFFILIATES) IN THE TBS MERGER     
FROM A FINANCIAL POINT OF VIEW, DOES NOT CONSTITUTE AN OPINION WITH RESPECT TO  
ANY OTHER ASPECT OF THE TRANSACTION OR ANY RELATED TRANSACTION AND DOES NOT     
CONSTITUTE A RECOMMENDATION TO ANY TBS SHAREHOLDER OR TIME WARNER STOCKHOLDER   
AS TO HOW SUCH SHAREHOLDER OR STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE TBS   
MERGER OR THE TIME WARNER MERGER. THE SUMMARY OF THE CS FIRST BOSTON OPINION    
SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS          
ENTIRETY BY REFERENCE TO THE FULL TEXT THEREOF.                                 

In preparing its opinions to the TBS Board, CS First Boston performed a     
variety of financial and comparative analyses, including those described below  
performed by CS First Boston in connection with the CS First Boston Opinion.    
The summary of CS First Boston's analyses set forth below does not purport to   
be a complete description of the analyses underlying the CS First Boston        
Opinion. The preparation of a fairness opinion is a complex analytic process    
involving various determinations as to the most appropriate and relevant        
methods of financial analyses and the application of those methods to the       
particular circumstances and, therefore, such an opinion is not readily         
susceptible to summary description. In arriving at its opinions, CS First       
Boston made qualitative judgments as to the significance and relevance of each  
analysis and factor considered by it. Accordingly, CS First Boston believes     
that its analyses must be considered as a whole and that selecting portions of  
its analyses and factors, without considering all analyses and factors, could   
create a misleading or incomplete view of the processes underlying such         
analyses and opinions. In its analyses, CS First Boston made numerous           
assumptions with respect to TBS, Time Warner, industry performance and          
regulatory, general business, economic, market and financial conditions and     
other matters, many of which are beyond the control of TBS and Time Warner. No  
company, transaction or business used in such analyses as a comparison is       
identical to TBS, Time Warner or the Transaction, nor is an evaluation of the   
results of such analyses entirely mathematical; rather, it involves complex     
considerations and judgments concerning financial and operating                 
characteristics and other factors that could affect the acquisition, public     
trading or other values of the companies, business segments or transactions     
being analyzed. The estimates contained in such analyses and the ranges of      
valuations resulting from any particular analysis are not necessarily           
indicative of actual values or predictive of future results or values, which    
may be significantly more or less favorable than those suggested by such        
analyses. In addition, analyses relating to the value of businesses or          
securities do not purport to be appraisals or to reflect the prices at which    
businesses or securities actually may be sold. Accordingly, such estimates are  
inherently subject to substantial uncertainty.                                  

The following is a summary of all the material analyses performed by CS     
First Boston in connection with the CS First Boston Opinion:                    

Comparable Company Analysis. CS First Boston reviewed and compared certain  
financial, operating and stock market information of TBS with the following     
selected publicly traded entertainment companies: Time                          

55  

DEFM14A
60th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 60th
Warner, News Corp., Disney and Viacom (the "Comparable Companies"). CS First    
Boston compared adjusted market values (equity market value plus net debt) as   
a multiple of estimated fiscal 1996 and estimated fiscal 1997 revenue and       
operating cash flow. CS First Boston multiplied TBS's operating statistics by   
a range of multiples based on the trading performance of the Comparable         
Companies. The ranges of multiples of estimated fiscal 1996 and estimated       
fiscal 1997 revenues and operating cash flow for the Comparable Companies were  
as follows: (a) estimated fiscal 1996 and fiscal 1997 revenues: 1.9x to 2.5x    
and 1.7x to 2.2x, respectively; and (b) estimated fiscal 1996 and fiscal 1997   
operating cash flow: 8.7x to 14.5x and 7.9x to 13.3x, respectively. All         
multiples were based on closing stock prices on August 2, 1996. Estimated       
financial information was based on, in the case of the Comparable Companies,    
estimates of selected investment banking firms and, in the case of TBS and      
Time Warner, estimates of TBS and Time Warner management. Applying multiples    
of estimated 1997 operating cash flow for the Comparable Companies of 10.0x to  
13.0x to corresponding financial statistics for TBS resulted in an enterprise   
reference range for TBS of approximately $7.1 billion to $9.2 billion and an    
equity reference range for TBS of approximately $5.0 billion to $7.1 billion,   
resulting in a reference range per share of TBS Common Stock of approximately   
$16.50 to $23.50.                                                               

Comparable Transaction Analysis. Using publicly available information, CS   
First Boston analyzed the adjusted purchase prices and multiples paid or        
proposed to be paid in the following selected media merger and acquisition      
transactions: A group including Tracinda Corporation and management of Metro-   
Goldwyn Mayer Inc. ("MGM")/MGM, U S WEST/Continental, Westinghouse/CBS,         
Disney/Capital Cities, Gannett Co., Inc./Multimedia, Inc., Seagram/MCA,         
Viacom/Blockbuster and Viacom/Paramount (the "Comparable Transactions"). CS     
First Boston compared adjusted purchase prices as a multiple of latest 12       
months and forward year operating cash flow. The ranges of multiples of latest  
12 months and forward year operating cash flow for the Comparable Transactions  
were as follows: (a) latest 12 months operating cash flow: 9.4x to 25.3x; and   
(b) forward year operating cash flow: 8.2x to 13.1x. All multiples for the      
Comparable Transactions were based on information available at the time of      
announcement of such transaction. Applying multiples of estimated 1997          
operating cash flow for the Comparable Transactions of 16.5x to 19.1x to        
corresponding financial statistics for TBS resulted in an enterprise reference  
range for TBS of approximately $11.7 billion to $13.5 billion and an equity     
reference range for TBS of approximately $9.6 billion to $11.4 billion,         
resulting in a reference range per share of TBS Common Stock of approximately   
$32.00 to $38.00.                                                               

Discounted Cash Flow Analysis. CS First Boston performed a discounted cash  
flow analysis of the projected unlevered free cash flow of TBS for the fiscal   
years ended December 31, 1996 through 2001, based upon operating and financial  
assumptions, forecasts and other information provided by the management of      
TBS. For purposes of this analysis, CS First Boston utilized discount rates of  
11.5%, 12.5% and 13.5% (with particular focus on discount rates of 11.5% and    
12.5%) and terminal value multiples of operating cash flow of 13.0x, 15.0x and  
17.0x (with particular focus on terminal value multiples of 13.0x and 15.0x).   
Based on discount rates of 11.5% to 12.5% and terminal value multiples of       
13.0x to 15.0x, this analysis indicated an enterprise reference range for TBS   
of approximately $8.9 billion to $10.5 billion and an equity reference range    
for TBS of approximately $6.8 billion to $8.4 billion, resulting in a           
reference range per share of TBS Common Stock of approximately $22.50 to        
$28.00.                                                                         

Other Factors and Analyses. In the course of preparing its opinion, CS First
Boston reviewed other matters, including (a) historical and projected           
financial results of TBS and Time Warner, (b) trading characteristics and       
public market valuations of TBS and Time Warner, including the estimated        
public market value of Time Warner based on an analysis of the business         
segments of publishing, music and cable systems owned directly by Time Warner   
and Time Warner's investment in TWE, (c) the pro forma capitalization and       
ownership of the combined company and (d) the material terms of the TCI         
Arrangements (excluding arrangements resulting from the Program Agreement and   
the PPV Output Agreement). CS First Boston was not requested to, and did not,   
express any opinion with respect to the TCI Arrangements. CS First Boston's     
review of those TCI Arrangements evaluated by CS First Boston was focused       
primarily on the potential additional consideration to be received by TCI as a  
result of such TCI Arrangements. In analyzing such potential additional         
consideration, CS First Boston utilized an acquisition multiple of 12.0x        
fiscal 1996 projected operating cash flow                                       

56  

DEFM14A
61st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 61st
with respect to SportSouth. CS First Boston assumed that the maximum value to   
TCI of the SSSI Option equaled the $155 million after-tax purchase price to be  
paid by Time Warner for the SSSI Option (based upon the closing price per       
share of Time Warner Common Stock on August 6, 1996 of $36.50 and assuming      
such payments are deductible by New Time Warner). CS First Boston further       
assumed that Time Warner would not be required to make payments to TCI under    
any tax indemnities or similar arrangements. Based on the foregoing and         
operating and financial assumptions and other information provided by or        
otherwise discussed with TBS management, CS First Boston derived an aggregate   
reference range for such potential additional consideration of approximately    
$15 million to $184 million. CS First Boston noted that, based on a weighted    
average of the per share consideration payable in the TBS Merger in respect of  
shares of TBS Capital Stock beneficially owned by TCI, this reference range     
represented potential additional consideration to TCI for its shares of TBS     
Capital Stock, on a TBS Common Stock equivalent basis, of approximately $1.23   
to $3.77 per share. CS First Boston further noted that such potential           
additional consideration, if allocated among all outstanding shares of TBS      
Capital Stock (excluding shares beneficially owned by Time Warner and its       
affiliates), represented approximately $0.06 to $0.75 per share of additional   
potential consideration for the outstanding shares of TBS Capital Stock, on a   
TBS Common Stock equivalent basis.                                              

Miscellaneous. In the ordinary course of business, CS First Boston and its  
affiliates may actively trade the debt and equity securities of both TBS and    
Time Warner for their own account and for accounts of customers and,            
accordingly, may at any time hold a long or short position in such securities.  
CS First Boston in the past has provided investment banking and financial       
advisory services to TBS, Time Warner and certain shareholders of TBS and Time  
Warner in connection with a number of transactions (including debt and equity   
financing and merger and acquisition activities). Since January 1, 1994, CS     
First Boston has received compensation from TBS and Time Warner for such        
services of approximately $2.1 million and $0.5 million, respectively, other    
than the fee payable to CS First Boston in connection with the CS First Boston  
Opinion. See "--Certain Fees and Expenses" below for a summary of the terms of  
the engagement of CS First Boston by TBS.                                       

OPINION OF MERRILL LYNCH                                                      

On August 8, 1996, Merrill Lynch delivered its oral opinion (which it       
subsequently confirmed in writing) (the "Merrill Lynch Opinion") to the TBS     
Board, to the effect that, as of August 8, 1996, and based upon the             
assumptions made, matters considered and limits of the review as set forth in   
such opinion, (i) the consideration to be received by holders of TBS Capital    
Stock (other than TCI and its affiliates and Time Warner) pursuant to the TBS   
Merger was fair to such holders from a financial point of view and (ii) in the  
context of the governance arrangements relating to TBS's ability to consummate  
the TBS Merger, the financial terms of the TCI Arrangements were fair from a    
financial point of view to TBS and its shareholders (other than TCI and its     
affiliates and Time Warner). For purposes of its opinion, Merrill Lynch         
included as part of the TCI Arrangements the incremental value to be received   
by TCI as a holder of shares of TBS Class C Preferred Stock as a result of the  
difference between the consideration to be received by holders of TBS Common    
Stock and holders of TBS Class C Preferred Stock, on an as-converted basis      
(the "Class C Premium"). Merrill Lynch has consented to the inclusion of the    
Merrill Lynch Opinion as Appendix C-3 to this Joint Proxy                       
Statement/Prospectus.                                                           

Merrill Lynch initially delivered an oral opinion (which it subsequently    
confirmed in writing) to the TBS Board on September 22, 1995 to the effect      
that, as of September 22, 1995, and based upon the assumptions made, matters    
considered and limits of the review as set forth in such opinion, (i) the       
consideration to be received by the holders of TBS Capital Stock (other than    
TCI and its affiliates and Time Warner) pursuant to the TBS Merger was fair to  
such holders from a financial point of view and (ii) in the context of the      
governance arrangements relating to TBS's ability to consummate the TBS         
Merger, the financial terms of the Prior TCI Arrangements were fair from a      
financial point of view to TBS and its shareholders (other than TCI and its     
affiliates and Time Warner). In connection with the execution of the FTC        
Consent Decree, the parties amended and modified the Prior TCI Arrangements     
and, at the request of TBS, Merrill Lynch provided the Merrill Lynch Opinion.   
The methodologies used by Merrill Lynch in the financial analyses relating to   
its September 22, 1995 opinion (the "September 22 Analyses") are similar to     
the methodologies used by Merrill Lynch in the financial analyses relating to   
the Merrill Lynch Opinion, which are described herein. Except as otherwise      
provided herein, the                                                            

57  

DEFM14A
62nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 62nd
following data represents the financial analyses performed by Merrill Lynch in  
connection with the Merrill Lynch Opinion.                                      

A COPY OF THE MERRILL LYNCH OPINION IS ATTACHED HERETO AS APPENDIX C-3.     
HOLDERS OF TBS CAPITAL STOCK ARE URGED TO READ THE MERRILL LYNCH OPINION IN     
ITS ENTIRETY FOR THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE     
REVIEW BY MERRILL LYNCH. THE MERRILL LYNCH OPINION IS DIRECTED ONLY TO THE      
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY  
HOLDERS OF TBS CAPITAL STOCK (OTHER THAN TCI AND ITS AFFILIATES AND TIME        
WARNER) IN THE TBS MERGER AND, IN THE CONTEXT OF THE GOVERNANCE ARRANGEMENTS    
RELATING TO TBS'S ABILITY TO CONSUMMATE THE TBS MERGER, TO THE FAIRNESS FROM A  
FINANCIAL POINT OF VIEW OF THE FINANCIAL TERMS OF THE TCI ARRANGEMENTS TO TBS   
AND ITS SHAREHOLDERS (OTHER THAN TCI AND ITS AFFILIATES AND TIME WARNER), AND   
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY TBS SHAREHOLDER OR TIME WARNER      
STOCKHOLDER AS TO HOW SUCH SHAREHOLDER OR STOCKHOLDER SHOULD VOTE AT THE TBS    
MEETING OR THE TIME WARNER MEETING. THE SUMMARY OF THE MERRILL LYNCH OPINION    
SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS          
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERRILL LYNCH OPINION.            

In arriving at the Merrill Lynch Opinion, Merrill Lynch (a) reviewed TBS's  
Annual Reports to Shareholders, Annual Reports on Form 10-K and related         
financial information for the five fiscal years ended December 31, 1995 and     
TBS's Quarterly Reports on Form 10-Q and the related unaudited financial        
information for the quarterly periods ended March 31, 1996 and June 30, 1996,   
(b) reviewed Time Warner's Annual Reports to Stockholders, Annual Reports on    
Form 10-K and related financial information for the five fiscal years ended     
December 31, 1995 and Time Warner's Quarterly Report on Form 10-Q and the       
related unaudited financial information for the quarterly period ended March    
31, 1996, (c) reviewed information, including financial forecasts, relating to  
the business, earnings, cash flow, assets and prospects of TBS and SportSouth   
furnished to Merrill Lynch by TBS, (d) reviewed information, including          
financial forecasts, relating to the business, earnings, cash flow, assets,     
and prospects of the Sunshine Network furnished to Merrill Lynch by Time        
Warner, (e) reviewed certain publicly available information relating to the     
business, earnings, cash flow, assets and prospects of Time Warner, (f)         
conducted due diligence discussions with members of senior management of TBS    
concerning its business and prospects, conducted due diligence discussions      
with members of senior management of Time Warner concerning its business and    
prospects, and conducted due diligence discussions with members of senior       
management of TBS, Time Warner and TCI concerning the TCI Arrangements,         
(g) reviewed the historical market prices and trading activity for the shares   
of TBS Common Stock and the shares of Time Warner Common Stock and compared     
them with that of publicly traded companies which Merrill Lynch deemed to be    
reasonably similar to TBS and Time Warner, respectively, (h) compared the       
results of operations of TBS and Time Warner with those of companies which      
Merrill Lynch deemed to be reasonably similar to TBS and Time Warner,           
respectively, (i) compared the proposed financial terms of the transactions     
contemplated by the Merger Agreement with the financial terms of other mergers  
and acquisitions which Merrill Lynch deemed to be relevant, (j) compared the    
proposed financial terms of the proposed transactions involving SportSouth and  
the Sunshine Network with the financial terms of other transactions which       
Merrill Lynch deemed to be relevant, (k) reviewed the financial terms of a      
limited number of transactions in which controlling shareholders or persons     
having the right to consent to, or effective veto power over, a transaction     
received different consideration than other shareholders, (l) reviewed the      
financial terms of a limited number of transactions in which an issuer of       
securities sold a non-controlling interest in the issuer to a strategic         
acquiror, (m) reviewed the TCI Arrangements and with respect thereto (i)        
prepared analyses based upon assumptions provided by TBS and Time Warner, (ii)  
analyzed from a financial point of view the impact of the TCI Arrangements on   
TBS and Time Warner and (iii) discussed its analyses with members of senior     
management of TBS who advised Merrill Lynch that its analyses were reasonable,  
(n) reviewed the Merger Agreement and a draft proxy statement relating to the   
Mergers, (o) reviewed a draft of the FTC Consent Decree, and (p) reviewed such  
other financial studies and analyses and performed such other investigations    
and took into account such other matters (as more fully described below) as     
Merrill Lynch deemed necessary.                                                 

In preparing its opinion, Merrill Lynch relied on the accuracy and          
completeness of all information supplied or otherwise made available to it by   
TBS and Time Warner, and Merrill Lynch did not independently verify             

58  

DEFM14A
63rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 63rd
such information or undertake an independent appraisal of the assets or         
liabilities of TBS or Time Warner. With respect to the financial forecasts      
furnished by TBS, Merrill Lynch assumed that they were reasonably prepared and  
reflected the best currently available estimates and judgment of TBS's          
management as to the expected future financial performance of TBS or            
SportSouth, as the case may be. With respect to the financial forecasts         
furnished by Time Warner relating to the Sunshine Network, Merrill Lynch        
assumed that they were reasonably prepared and reflected the best currently     
available estimates and judgments of Time Warner's management as to the         
expected future financial performance of the Sunshine Network for the period    
covered by the forecasts. Merrill Lynch also assumed, based on advice of TBS,   
that the TBS Merger could not be consummated without the support of TCI and     
that TCI would not support the TBS Merger unless the TCI Arrangements were      
entered into and effected. Merrill Lynch further assumed that (i) the payments  
to be made by New Time Warner in connection with the SSSI Agreement would be    
tax-deductible to New Time Warner and (ii) New Time Warner would not be         
required to make any payments to TCI under any tax indemnities or similar       
provisions contained in the TCI Arrangements. In addition, based upon advice    
of TBS senior management, Merrill Lynch assumed that the rebate arrangement     
with TCI under the Program Agreement would commence and terminate at specified  
dates in the case of each particular program service and that the terms of the  
PPV Output Agreement are customary for an arrangement of that type and reflect  
market terms and conditions. Merrill Lynch expressed no opinion as to what the  
value of New Time Warner Common Stock actually will be when issued to the       
shareholders of TBS pursuant to the TBS Merger or the prices at which New Time  
Warner Common Stock will trade subsequent to the Mergers. Merrill Lynch also    
assumed for purposes of its opinion that the terms of any additional documents  
that may be agreed to other than those reviewed by Merrill Lynch would not      
affect Merrill Lynch's analyses. In connection with the preparation of its      
opinion, Merrill Lynch was not authorized by TBS or the TBS Board to solicit,   
nor did Merrill Lynch solicit, third party indications of interest for the      
acquisition of all or any part of TBS. Although Merrill Lynch evaluated the     
fairness of the TBS Merger consideration and the TCI Arrangements from a        
financial point of view, Merrill Lynch was not requested to, and did not,       
participate in the negotiation or structuring of the Transaction or the TCI     
Arrangements and was not asked to, and did not, recommend or determine the      
specific consideration payable in the TBS Merger or the financial terms of the  
TCI Arrangements. The specific consideration payable in the Transaction was     
determined by negotiations among the parties to the Transaction. No             
limitations were imposed by TBS on Merrill Lynch with respect to the            
investigations made or procedures followed by Merrill Lynch in connection with  
the rendering of its opinion.                                                   

Merrill Lynch provided the TBS Board with a summary of valuation results    
obtained by using several different valuation methods, the material portions    
of which are summarized below. While Merrill Lynch advised the TBS Board that   
the consideration to be received by the shareholders of TBS (other than TCI     
and its affiliates and Time Warner) pursuant to the TBS Merger was fair to      
such holders from a financial point of view, in light of the presentation made  
to the TBS Board by CS First Boston, at the request of TBS, Merrill Lynch did   
not provide the TBS Board with the valuation methods and analyses prepared in   
connection with such portion of its opinion. The following is a summary of all  
the material analyses performed by Merrill Lynch with respect to the TCI        
Arrangements.                                                                   

Summary Valuation of TCI Arrangements                                         

In valuing the TCI Arrangements, Merrill Lynch calculated (i) the imputed   
benefit to TCI for each TCI Arrangement (the "TCI Value") and (ii) the imputed  
(cost)/benefit to New Time Warner for each TCI Arrangement (a number in         
parentheses representing the cost to New Time Warner of such TCI Arrangement)   
(the "New Time Warner Value"). In its analysis, Merrill Lynch employed one or   
more of the following valuation methodologies (a) discounted cash flow          
analyses, (b) analyses of selected publicly traded comparable companies and/or  
(c) analyses of selected comparable acquisition transactions. In addition to    
calculating a TCI Value and a New Time Warner Value for each TCI Arrangement,   
Merrill Lynch also calculated (i) the aggregate TCI Value of all the TCI        
Arrangements as a percentage of the offer value of the TBS Merger (calculated   
to be $8.2 billion, based upon the market price of Time Warner Common Stock on  
August 7, 1996) (the "Offer Value Percentage") and (ii) the per share premium   
imputed to TCI with respect to all of the TCI                                   

59  

DEFM14A
64th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 64th
Arrangements (defined to be the aggregate TCI Value of all the TCI              
Arrangements divided by the total number of TBS Common Stock equivalents owned  
by TCI) as a percentage of the per share consideration payable in the TBS       
Merger to each holder of TBS Common Stock (the "Per Share Premium               
Percentage").                                                                   

Merrill Lynch calculated the aggregate TCI Value of all the TCI Arrangements
to be $441.2 million and the aggregate New Time Warner Value of all the TCI     
Arrangements to be $224.3 million. The aggregate TCI Value of all the TCI       
Arrangements to TCI represented (a) an Offer Value Percentage of 5.4% and (b)   
a Per Share Premium Percentage of 24.5% (or a per share premium of $6.60). In   
its analyses, Merrill Lynch calculated the TCI Value and the New Time Warner    
Value of (i) the rebate arrangement under the Program Agreement to be $84.6     
million and ($84.6) million, respectively, (ii) the SSSI Agreement (including   
the carriage arrangements relating to WTBS after the WTBS Conversion) to be     
$246.1 million and $409.4 million, respectively, (iii) the SportSouth           
Agreement to be $35.0 million and ($35.0) million, respectively, (iv) the       
Sunshine Option to be $10.0 million and $0.0, respectively, and (v) the Class   
C Premium to be $65.5 million and ($65.5) million, respectively.                

Following the delivery of its opinion, at the request of TBS management,    
Merrill Lynch reviewed the final terms of the Program Agreement and             
supplementally advised TBS that Merrill Lynch recalculated (a) the TCI Value    
for the Program Agreement to be $76.8 million and the New Time Warner Value     
for the Program Agreement to be ($76.8) million, (b) the aggregate TCI Value    
of all the TCI Arrangements to be $433.4 million and the aggregate New Time     
Warner Value of all TCI Arrangements to be $232.0 million, (c) the Offer Value  
Percentage of all TCI Arrangements to be 5.3% and (d) the Per Share Premium     
Percentage to be 24.1% (or a per share premium of $6.48).                       

In its September 22 Analyses, Merrill Lynch calculated the aggregate TCI    
Value of all the Prior TCI Arrangements to be $401.2 million, representing an   
Offer Value Percentage of 4.4% and a Per Share Premium Percentage of 20.0% (or  
a per share premium of $6.00).                                                  

Analysis of Premiums Paid in Selected Transactions                            

Comparable Public Premium Analysis. Merrill Lynch compared the range of     
Offer Value Percentages to the premiums paid in 26 transactions from 1992 to    
the present in which minority interests (15%-49%) in publicly traded companies  
were acquired in privately negotiated transactions (each such transaction, a    
"Public Premium Transaction" and the company in which such minority interest    
was purchased referred to as the "Public Premium Target"). In connection with   
its analysis, Merrill Lynch reviewed the Public Premium Transactions to         
compare the premium payable to TCI in the TBS Merger with respect to its        
minority interest in TBS to premiums paid in other transactions in which a      
minority interest in a publicly traded company was purchased in order to        
analyze the incremental price a buyer would pay for a significant block of      
stock versus the purchase of shares on the open market. While the Public        
Premium Transactions are not exactly comparable to the TBS Merger (since they   
do not involve a sale of a minority interest with a veto power in the context   
of a sale of a company), Merrill Lynch conducted this analysis in order to      
analyze the fairness of the TCI Arrangements (and the imputed premium to TCI    
as a result thereof) in an alternative manner.                                  

In connection with this analysis, Merrill Lynch analyzed the aggregate      
economic premium (defined as the sum of (a) the market price per share          
multiplied by the number of shares of outstanding stock with respect to which   
no premium is payable and (b) the premium price per share multiplied by the     
number of shares of stock with respect to which such premium is payable) paid   
by the acquiror in each Public Premium Transaction as a percentage of the       
implied market value of the Public Premium Target and compared those results    
to the range of Offer Value Percentages. Merrill Lynch determined the range of  
economic premiums in the Public Premium Transactions to be (i) (5.4%) to 26.3%  
(based on the closing stock price one day prior to the announcement of the      
Public Premium Transaction) and (ii) (3.5%) to 24.4% (based on the closing      
stock price four weeks prior to the announcement of the Public Premium          
Transaction), as compared to an Offer Value Percentage of 5.4%. The Public      
Premium Transactions reviewed were Rebar Financial Group/Ampal-American Israel  
Corp.; DowElan Co./Mycogen Corp.; Travellers Inc./Taco Cabana Inc.; Telecom     
Holding Company Limited/Kopin Corp.; Investor Group/Micros Systems Inc.; The    
Anschutz Corporation/Forest Oil Corporation; Hass Wheat & Partners/Playtex      
Products, Inc.; Samsung Electronics Co., Ltd./AST Research, Inc.; American      
General Corporation/Western National Corporation; CIBA-GEIGY Limited/Chiron     
Corporation; France Telecom,                                                    

60  

DEFM14A
65th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 65th
Deutsche Telekom AG/Sprint Corporation; Nestle USA, Inc./Dreyer's Grand Ice     
Cream, Inc.; Electronic Data Systems Corporation/Video Lottery Technologies     
Incorporated; Bell Canada International, Inc./Jones Intercable, Inc.; Cadbury   
Schweppes P.L.C./Dr. Pepper/Seven-Up Companies, Inc.; Hyundai Electronics       
Industries Co., Ltd./Maxtor Corporation; Burlington Resources Inc./Permian      
Basin Royalty Trust; Rhone-Poulenc Rorer Inc./Applied Immune Sciences, Inc.;    
British Telecommunications plc/MCI Communications Corporation; Blockbuster      
Entertainment Corporation/Republic Pictures Corporation; Figgie International   
Inc./Kirschner Medical Corporation; Traco International NV/Hartmarx             
Corporation; Primerica Corporation/Travelers Corporation; Trian Group L.P./DWG  
Corporation; Archer-Daniels-Midland Company/Pilgrim's Pride Corporation; and    
Intel Corporation/VLSI Technology, Inc.                                         

Merrill Lynch also analyzed the per share premium paid by the acquiror in   
each Public Premium Transaction as a percentage of the closing stock price of   
the Public Premium Target (each such per share premium, a "Public Per Share     
Premium") and compared those results to the Per Share Premium Percentage.       
Merrill Lynch determined the range of Public Per Share Premiums to be (a)       
(16.5%) to 95.8% (based on a closing stock price one day prior to public        
announcement of the Public Premium Transaction) and (b) (12.6%) to 86.5%        
(based on a closing stock price four weeks prior to public announcement of the  
Public Premium Transaction), as compared to a Per Share Premium Percentage of   
24.5%. The foregoing analysis of the Public Premium Transactions takes into     
account solely the purchase price paid for the equity interest in the Public    
Premium Target and does not take into account any value or detriment inherent   
in any strategic arrangements or other agreements that may have been entered    
into in connection with the Public Premium Transactions.                        

Comparable Private Premium Analysis. Merrill Lynch compared the range of    
Offer Value Percentages to the premiums paid (or proposed to be paid) in ten    
recapitalization or acquisition transactions from 1986 to the present in which  
controlling shareholders were paid (or were proposed to be paid) a premium      
versus non-controlling or public shareholders. In conducting this analysis,     
Merrill Lynch reviewed the following ten transactions: General Motors           
Corporation's spin-off of Electronic Data Systems; recapitalization of Fischer  
& Porter Company; recapitalization of Bergen Brunswig Corporation; the          
proposed acquisition in November 1995 by Silver King Communications, Inc.       
("Silver King") of Home Shopping Network, Inc. ("HSN"); The Griffin Co.'s       
acquisition of Resorts International, Inc.; CSX Corporation's acquisition of    
Sea-Land Service; Inc.; Bell Atlantic Corporation's proposed acquisition of     
TCI; AT&T Corp.'s proposed acquisition of McCaw Cellular Communications, Inc.;  
Premark International, Inc.'s acquisition of Sikes Corporation; and The Trump   
Group's acquisition of Pay'n Save Inc. (each a "Private Premium Transaction").  
While there were numerous other instances of acquisitions of companies with     
dual classes of stock, the other transactions considered by Merrill Lynch did   
not involve the payment of a premium to controlling shareholders. Merrill       
Lynch compared the aggregate economic premium paid in each Private Premium      
Transaction as a percentage of the total consideration paid in such             
transaction and compared those results to the range of Offer Value              
Percentages. Merrill Lynch determined the value range of the economic premiums  
in the Private Premium Transactions to be 1.2% to 23.1%, as compared to an      
Offer Value Percentage of 5.4%.                                                 

Merrill Lynch also analyzed the per share premium paid by the acquiror in   
each Private Premium Transaction as a percentage of the per share               
consideration paid to the other shareholders of the target company (the         
"Private Per Share Premium") and compared those results to the Per Share        
Premium Percentages. Merrill Lynch determined the range of Private Per Share    
Premiums to be 6.4% to 852.9%, as compared to a Per Share Premium Percentage    
of 24.5%. The foregoing analysis of the Private Premium Transactions takes      
into account solely the purchase price paid for the equity interest in the      
target company and does not take into account any value or detriment inherent   
in any strategic arrangements or other agreements that may have been entered    
into in connection with the Private Premium Transactions.                       

The Merrill Lynch valuation of each TCI Arrangement is set forth in greater 
detail below.                                                                   

Program Agreement                                                             

Merrill Lynch considered the value of the carriage arrangements under the   
Program Agreement relating to WTBS after the WTBS Conversion in its evaluation  
of the SSSI Agreement. Merrill Lynch assigned no value to the Program           
Agreement as it relates to carriage of Headline News since, while the Program   
Agreement provides                                                              

61  

DEFM14A
66th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 66th
for mandatory carriage of Headline News for a period of at least five years,    
the terms of such carriage are not materially more advantageous to TCI as       
compared to agreements with other cable systems operators.                      

Merrill Lynch performed a discounted cash flow analysis of the value to TCI 
of the rebate arrangement under the Program Agreement. Merrill Lynch's          
calculations were based on the following principal assumptions: (i) that the    
rebates to TCI, in the case of each particular service, would commence and      
terminate at specified dates, (ii) that TCI would meet certain terms and        
conditions so that TCI would be entitled to the maximum rebate throughout the   
rebate period and (iii) certain operating assumptions provided by TBS senior    
management including with respect to pricing and subscriber growth rates.       
Utilizing discount rates ranging from 9% to 13%, Merrill Lynch calculated the   
TCI Value to be $84.6 million and the New Time Warner Value to be ($84.6)       
million. Merrill Lynch did not attempt to quantify the benefit, if any, to New  
Time Warner of any long-term carriage on TCI cable systems as part of its       
analysis described above.                                                       

Following the August 8, 1996 meeting of the TBS Board, the Program Agreement
was executed with certain changes from the draft of such agreement reviewed by  
Merrill Lynch and the TBS Board relating to the timing and duration of the      
rebate arrangements to which TCI would be entitled thereunder. At the request   
of TBS management, Merrill Lynch performed a discounted cash flow analysis of   
the value to TCI of the revised rebate arrangement under the Program            
Agreement, using the same assumptions as in the prior analysis (described in    
the previous paragraph). Utilizing discount rates ranging from 9% to 13%,       
Merrill Lynch calculated the TCI Value of the revised rebate arrangements to    
be $76.8 million and the New Time Warner Value of such arrangements to be       
($76.8) million, as compared to the $84.6 million TCI Value and the ($84.6)     
million New Time Warner Value presented to the TBS Board.                       

PPV Output Agreement                                                          

Merrill Lynch assumed, based on the advice of TBS senior management, that   
the terms of the PPV Output Agreement are customary for an arrangement of that  
type and reflect market terms and conditions.                                   

SSSI Agreement                                                                

Merrill Lynch performed a discounted cash flow analysis of the value of the 
SSSI Agreement to New Time Warner based upon discussions with TBS senior        
management as to the projected license revenues, advertising sales and          
expenses associated with the WTBS Conversion. Utilizing these projections,      
Merrill Lynch calculated a range of present values of the SSSI Agreement based  
upon the discounted net present value of the sum of (a) the projected           
unlevered after-tax free cash flow (defined as operating cash flow available    
after working capital, capital spending and tax requirements) of WTBS to the    
year 2007 and (b) the projected terminal value of SSSI at such year based upon  
a range of multiples of projected operating cash flows ("OCF") of WTBS in the   
year 2007. Merrill Lynch's calculations were based on the following principal   
assumptions: (i) operating assumptions provided by TBS senior management,       
including with respect to pricing and subscriber growth rates, advertising      
revenues and probability of carriage of WTBS by all cable operators (other      
than Time Warner and TCI), (ii) that New Time Warner would make quarterly       
payments of $7.7 million for a period of twelve years and (iii) that all        
payments by New Time Warner in connection with the SSSI Agreement would be      
deductible by New Time Warner for Federal and state income tax purposes.        
Utilizing this methodology, assuming New Time Warner exercised the SSSI Option  
and applying (i) a sensitivity analysis based on the probability of carriage    
of WTBS by all cable operators (other than Time Warner and TCI), (ii) discount  
rates ranging from 11.0% to 13.0% and (iii) multiples of terminal OCF ranging   
from 7.0x to 8.0x, Merrill Lynch calculated the New Time Warner Value of the    
SSSI Agreement to be $409.4 million (net of the $246.1 million cost of the      
SSSI Agreement, which amount represents the sum of (A) 5 million shares of LMC  
Reduced Voting Common Stock being issued to SSSI and LMC in respect of the      
SSSI Option and the LMC Non-competition Covenant, respectively, valued at       
$35.88 per share (the market price per share of Time Warner Common Stock on     
August 7, 1996) plus (B) an approximately $67 million payment, payable in cash  
or stock at New Time Warner's option). Merrill Lynch calculated the TCI Value   
of the SSSI Agreement to be $246.1 million based on the assumption that New     
Time Warner would not exercise the SSSI Option if management of New Time        
Warner did not believe that New Time Warner could obtain sufficient carriage    
of WTBS by cable operators (other than Time Warner and TCI).                    

62  

DEFM14A
67th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 67th
SportSouth Agreement                                                          

Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash    
flow analysis of SportSouth based on its review of SportSouth's historical      
financial performance and projections of SportSouth's financial performance as  
provided by TBS senior management. Utilizing these projections, Merrill Lynch   
calculated a range of present values for SportSouth based upon the discounted   
net present value of the sum of (a) the projected unlevered after-tax free      
cash flow (defined as operating cash flow available after working capital,      
capital spending and tax requirements) of SportSouth to the year 2005 and (b)   
the projected terminal value of SportSouth at such year based upon a range of   
multiples of projected OCF of SportSouth in the year 2005. Merrill Lynch        
subtracted SportSouth's net indebtedness as of June 30, 1996 from each such     
value and multiplied the result by TBS's percentage interest in SportSouth in   
order to determine a range of implied values of TBS's equity interest in        
SportSouth. Utilizing this methodology and applying discount rates ranging      
from 14.0% to 16.0% and multiples of terminal OCF ranging from 10.0x to 12.0x,  
Merrill Lynch calculated the implied value of TBS's equity interest in          
SportSouth to range from $76.8 to $97.7 million.                                

Comparable Public Company Analysis. Merrill Lynch reviewed certain publicly 
available financial information regarding the following four selected publicly  
traded basic cable network companies: Gaylord, HSN, International Family and    
BET (the "Public Programming Companies"). For each Public Programming Company,  
Merrill Lynch derived an OCF multiple by comparing the adjusted enterprise      
value of the Public Programming Company (determined by multiplying the closing  
stock price by the total outstanding shares, adding thereto net indebtedness,   
preferred stock and minority interests and subtracting therefrom, if required,  
the estimated value of all non-programming and non-consolidated assets) to its  
1997 estimated OCF. Applying OCF multiples ranging from 7.0x to 10.0x, which    
multiples were derived from the Public Programming Companies, to SportSouth's   
1997 expected OCF, Merrill Lynch calculated the implied asset value of          
SportSouth. Merrill Lynch subtracted SportSouth's net indebtedness as of June   
30, 1996 from each such value and multiplied the result by TBS's percentage     
interest in SportSouth to determine a range of implied values for TBS's equity  
interest in SportSouth. Utilizing this methodology, the implied value of TBS's  
equity interest in SportSouth was calculated by Merrill Lynch to range from     
$57.9 to $83.9 million.                                                         

Comparable Acquisition Transaction Analysis. Merrill Lynch reviewed certain 
publicly available information regarding ten selected business combinations of  
cable networks (the "Cable Comparables") and five selected business             
combinations in the entertainment industry (the "Entertainment Comparables").   
The Cable Comparables reviewed were Comcast-TCI/QVC, Cablevision Systems--ITT   
Corp./Madison Square Garden Corp., K-III Communications Corp./Whittle           
Educational Network, LMC/Prime Ticket Inc., Capital Cities/Lifetime             
Television, Ellis Communications Inc./Raycom Inc., Cablevision Systems/AMC      
Entertainment Inc., LMC/Sportschannel Chicago Associates, Hearst Corp./ESPN     
Inc., the Wometco sale of its participation interest in SportSouth to TBS and   
TCI and the proposed acquisition in November 1995 by Silver King of HSN. The    
Entertainment Comparables reviewed were Viacom/Paramount, Seagram/MCA,          
Disney/Capital Cities, Westinghouse/CBS and the proposed acquisition of MGM by  
a group including Tracinda Corporation and MGM management. For each such        
transaction, Merrill Lynch compared the transaction value (determined by        
multiplying the consideration per share by the total outstanding shares of the  
target company, adding thereto net indebtedness, preferred stock and minority   
interests of the target company and subtracting therefrom, if required, the     
estimated value of all non-programming and non-consolidated assets of the       
target company) of each such transaction as a multiple of EBITDA for the last   
twelve months of the target company. Applying this analysis to the SportSouth   
transaction, Merrill Lynch calculated the transaction value of the SportSouth   
transaction to be 9.2x SportSouth's OCF for the twelve months ending June 30,   
1996. Merrill Lynch then calculated the implied asset value of SportSouth by    
applying OCF multiples ranging from 10.0x to 12.0x, which multiples were        
derived from the Cable Comparables and the Entertainment Comparables, to        
SportSouth's 1997 expected OCF. Merrill Lynch subtracted SportSouth's net       
indebtedness as of June 30, 1996 from each such value and multiplied the        
result by TBS's equity interest in SportSouth to determine a range of TBS's     
implied equity value in SportSouth. Utilizing this methodology, the implied     
equity value of TBS's interest in SportSouth was calculated by Merrill Lynch    
to range from $83.9 to $101.3 million.                                          

63  

DEFM14A
68th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 68th
Based on its analyses, Merrill Lynch calculated the TCI Value and the New   
Time Warner Value of the SportSouth Agreement to be $35 million and ($35)       
million, respectively.                                                          

Sunshine Option                                                               

Merrill Lynch calculated the implied offer value of the Sunshine Network to 
be $93.3 million based on TCI's purchase of Time Warner's approximately 15.0%   
indirect interest in the Sunshine Network at a purchase price of $14.0 million  
pursuant to the Sunshine Option. Merrill Lynch calculated the implied           
transaction value of the Sunshine Option to be $90.7 million (implied offer     
value of $93.3 million plus ($2.6) million of net indebtedness of the Sunshine  
Network as of June 30, 1996) and determined such value to be a 22.1x, 18.5x     
and 45.4x multiple of the Sunshine Network's 1995 OCF, 1996 OCF and adjusted    
1996 OCF (adjusted 1996 OCF assumes that the Sunshine Network loses a           
significant amount of its programming rights to SportsChannel Florida, a        
competing regional sports programming service controlled by Front Row           
Communications, Inc. (an affiliate of H. Wayne Huizenga, who also controls      
major Florida sports teams) and annual cash flow decreases to approximately $2  
million). Merrill Lynch then analyzed the value of the Sunshine Network based   
on the Sunshine Network's 1996 OCF and adjusted 1996 OCF utilizing OCF          
multiples of 10.0x to 12.0x. In addition, Merrill Lynch also analyzed the       
value of the Sunshine Network based on the terms of the recent sale of the      
Prime Ticket Network. Based on its analyses, Merrill Lynch calculated the TCI   
Value and the New Time Warner Value of the Sunshine Option to be $10.0 million  
and $0.0, respectively.                                                         

Class C Premium Payable to TCI                                                

Pursuant to the TBS Merger, (a) the exchange ratio with respect to each     
share of TBS Common Stock is 0.75 of a share of New Time Warner Common Stock    
and (b) the exchange ratio with respect to each share of TBS Class C Preferred  
Stock (which, by its terms, is convertible into six shares of TBS Class B       
Common Stock) is 4.80 shares of New Time Warner Common Stock. Based on a        
$35.88 price per share of New Time Warner Common Stock (the closing market      
price of Time Warner Common Stock on August 7, 1996), Merrill Lynch calculated  
the aggregate Class C Premium payable to TCI with respect to its holdings of    
TBS Class C Preferred Stock to be $65.5 million.                                

In arriving at the Merrill Lynch Opinion, Merrill Lynch performed a variety 
of financial analyses, the material portions of which are summarized above.     
Merrill Lynch believes that its analyses must be considered as a whole and      
that selecting portions of its analyses and of the factors considered by it,    
without considering all such factors and analyses, could create a misleading    
view of the process underlying its analyses set forth in the Merrill Lynch      
Opinion. Any estimates incorporated in the analyses performed by Merrill Lynch  
are not necessarily indicative of actual past or future results or values,      
which may be significantly more or less favorable than such estimates.          
Estimated values do not purport to be appraisals and do not necessarily         
reflect the prices at which businesses or companies may be sold in the future,  
and such estimates are inherently subject to uncertainty. No company or         
transaction utilized in the comparable company and comparable acquisition       
analyses as a comparison is identical to SportSouth or the Sunshine Network.    
Additionally, no Public Premium Transaction or Private Premium Transaction is   
identical to the Transaction or to the TCI Arrangements. Accordingly, an        
analysis of comparable transactions and/or comparable companies is not          
mathematical; rather, it involves complex considerations and judgments          
concerning differences in financial and operating characteristics and other     
factors that could affect the public trading value of the comparable companies  
or the business segment or company to which they are being compared. The        
preparation of a fairness opinion is a complex analytic process involving       
various determinations as to the most appropriate and relevant methods of       
financial analyses and the application of those methods to the particular       
circumstances and, therefore, such an opinion is not readily susceptible to     
summary description.                                                            

Miscellaneous                                                                 

The TBS Board selected Merrill Lynch to render a fairness opinion because   
Merrill Lynch is an internationally recognized investment banking firm with     
substantial experience in transactions similar to the                           

64  

DEFM14A
69th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 69th
Transaction and because it is familiar with TBS and its business. Merrill       
Lynch has, in the past provided (and may in the future provide), financial      
advisory and/or financing services to TBS, Time Warner and TCI and has          
received fees for the rendering of such services. Specifically, since January   
1, 1989, Merrill Lynch has received fees, including underwriting fees, of       
approximately $18 million, $122 million and $50 million from TBS, Time Warner   
and TCI, respectively, other than the fee paid to Merrill Lynch in connection   
with the Merrill Lynch Opinion. Merrill Lynch has recently provided financial   
advisory services to TCI in connection with other matters for which Merrill     
Lynch expects to receive customary compensation. In addition, an affiliate of   
Merrill Lynch is currently providing commercial lending services to Mr. Turner  
for which it receives customary compensation and Merrill Lynch may in the       
future provide additional services to Mr. Turner. See "Certain Fees and         
Expenses" below for a summary of the terms of the engagement of Merrill Lynch   
by TBS.                                                                         

PURPOSE AND CERTAIN EFFECTS OF THE TRANSACTION                                  

The purpose of the Transaction is to combine Time Warner and TBS. As a      
result of the Transaction, Time Warner and TBS will each become a wholly owned  
subsidiary of New Time Warner. New Time Warner will derive the sole benefit of  
TBS's net earnings and net book value, and former holders of TBS Capital Stock  
will no longer have any direct interest in TBS or be able to vote with respect  
to the future affairs of TBS. Although former holders of TBS Capital Stock      
will no longer enjoy the possibility of a direct interest in any future         
appreciation in their equity interest in TBS, after the Transaction such        
former holders will enjoy the possibility of future appreciation in their       
equity interest in New Time Warner, which will include TBS.                     

Registration of the TBS Common Stock under the Exchange Act may be          
terminated upon application of TBS to the Commission if the TBS Common Stock    
is neither listed on a national securities exchange nor held by more than 300   
holders of record. Following consummation of the Mergers, TBS will be a wholly  
owned subsidiary of New Time Warner and the TBS Common Stock will be delisted   
from the AMEX and will no longer trade publicly. TBS expects that the TBS       
Common Stock will continue to be listed and traded on the AMEX until the        
consummation of the Transaction.                                                

Following consummation of the Mergers, New Time Warner intends to guarantee 
unconditionally the outstanding publicly traded indebtedness of Time Warner     
and TBS. As a result (subject to confirmation from the Commission), neither     
Time Warner nor TBS expects to continue to file financial information or other  
reports under the Exchange Act; however, New Time Warner intends to include     
summarized financial information regarding Time Warner and TBS in its           
financial statements, to the extent required by the rules of the Commission.    

INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION                                 

In considering the recommendations of the Time Warner Board and the TBS     
Board with respect to the Transaction, stockholders of Time Warner and          
shareholders of TBS should be aware that certain members of the TBS Board and   
management of TBS have certain interests in the Transaction that may be in      
addition to the interests of stockholders of Time Warner or shareholders of     
TBS generally. The Time Warner Board and the TBS Board were aware of these      
interests and considered them, among other factors, in approving the            
Transaction. These interests are summarized below.                              

Employment Agreement with R.E. Turner                                         

Upon consummation of the Mergers, New Time Warner and Mr. Turner will enter 
into a five-year employment agreement (the "Turner Employment Agreement"). The  
Turner Employment Agreement provides that, subject to and after consummation    
of the Mergers, Mr. Turner will serve as Vice Chairman of New Time Warner and   
Chief Executive Officer of New Time Warner's newly-created Video Division       
(consisting principally of the businesses of TBS, the Home Box Office division  
of TWE ("Home Box Office") and TWE's interest in Court TV) (the "Video          
Division") until December 31, 2001 (the "Term Date"). He will also continue to  
serve as the Chairman of the Board, President and Chief Executive Officer of    
TBS. Pursuant to the Turner Employment                                          

65  

DEFM14A
70th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 70th
Agreement, Mr. Turner will receive an annual salary of not less than $700,000   
and will have a target annual bonus equal to 90% of the target annual bonus     
paid to the Chief Executive Officer of New Time Warner (assuming comparable     
levels of achievement of their respective qualitative goals established by the  
Compensation Committee of the New Time Warner Board (the "Compensation          
Committee")), with the actual annual bonus paid to be determined by the         
Compensation Committee in accordance with the Time Warner Inc. Annual Bonus     
Plan for Executive Officers, which will be assumed by New Time Warner. In       
addition, the Turner Employment Agreement provides that deferred compensation   
in an amount equal to 50% of Mr. Turner's base salary during each year of the   
term of employment will be credited to an account to be maintained by New Time  
Warner and managed by an investment advisor appointed by New Time Warner,       
subject to Mr. Turner's approval. Funds will be invested or deemed to be        
invested in securities as directed by the investment advisor, with the assumed  
after-tax effect upon New Time Warner of gains, losses and income, and          
distributions thereof, and of interest expenses and brokerage commissions and   
other direct expenses attributed thereto, being credited or charged to the      
account. Payments from his deferred compensation account will be made to Mr.    
Turner in installments over a five-year period beginning after expiration of    
his term of employment. Such payments will include an amount equal to the       
assumed tax benefit to New Time Warner of the compensation deduction available  
for tax purposes for the portion of the account represented by the net          
appreciation in such account, even though New Time Warner might not actually    
receive such tax benefit.                                                       

So long as Mr. Turner is employed by New Time Warner and subject to New Time
Warner's obligations under Investors' Agreement (No. 1), New Time Warner will   
include him in management's slate for election as a director at every           
stockholders' meeting at which his term as a director would otherwise expire    
and will use its best efforts to cause Mr. Turner to be elected to the New      
Time Warner Board.                                                              

In the event Mr. Turner's employment is terminated for cause, Mr. Turner    
will receive earned and unpaid base salary and deferred compensation accrued    
through such date of termination. "Cause" under the Turner Employment           
Agreement will be defined as termination by action of the New Time Warner       
Board, or a committee thereof, because of Mr. Turner's conviction of a felony,  
willful refusal without proper cause to perform his obligations under the       
Turner Employment Agreement or his material breach of certain other provisions  
of the Turner Employment Agreement.                                             

In the event of New Time Warner's material breach or wrongful termination of
the Turner Employment Agreement, Mr. Turner will be entitled to terminate his   
employment with New Time Warner and receive a lump-sum payment (the "Lump Sum   
Payment") equal to the present value of the base salary, bonuses and deferred   
compensation that would otherwise be payable to Mr. Turner through the Term     
Date. In lieu of the Lump Sum Payment, Mr. Turner may elect to remain an        
employee of New Time Warner through the Term Date and, without performing any   
services, receive the base salary, bonuses and deferred compensation payable    
under the Turner Employment Agreement at the times such amounts would have      
been paid had there been no breach or wrongful termination. Mr. Turner is not   
generally required to mitigate his damages after such a termination, other      
than as necessary to prevent New Time Warner from losing any tax deductions     
that it otherwise would have been entitled to receive for any payments deemed   
to be "contingent on a change" in ownership or control of a corporation under   
the Code and applicable regulations.                                            

If Mr. Turner becomes disabled during the term of the Turner Employment     
Agreement, he will receive his full salary, bonus and deferred compensation     
through the sixth month of disability and 75% of his annual salary and bonus    
through the Term Date. Deferred compensation will be maintained and paid after  
giving effect to Mr. Turner's base salary after disability. Any such payments   
will be reduced by amounts received by Mr. Turner from Workers' Compensation,   
Social Security and disability insurance policies maintained by New Time        
Warner.                                                                         

If Mr. Turner dies during the term of the Turner Employment Agreement, his  
beneficiaries will receive Mr. Turner's earned and unpaid salary and deferred   
compensation to the last day of the month in which the death                    

66  

DEFM14A
71st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 71st
occurs and a pro rata portion of Mr. Turner's bonus for the year of his death.  
Deferred compensation will be valued and paid promptly after death.             

Mr. Turner will have the right to terminate the Turner Employment Agreement 
at any time prior to the Term Date. In such event, Mr. Turner will receive      
earned and unpaid salary and deferred compensation and a pro rata portion of    
his bonus through the date of such termination.                                 

New Time Warner is required to maintain for Mr. Turner, throughout his life,
$6 million of split ownership life insurance. At the time of his death, Mr.     
Turner's estate is required to pay New Time Warner an amount equal to the net   
after-tax cost to New Time Warner of the premiums on such policy. Such          
insurance is in addition to any other insurance provided to Mr. Turner under    
any group contract maintained by New Time Warner.                               

Pursuant to the Turner Employment Agreement, Mr. Turner, as Vice Chairman of
New Time Warner, is entitled to receive an initial award of options             
("Options") to purchase 1.3 million shares of New Time Warner Common Stock      
upon consummation of the Mergers (the "Initial Award") and an award of Options  
with respect to an additional 300,000 shares of New Time Warner Common Stock    
on each of the first four anniversaries of the consummation of the Mergers, in  
each case pursuant to the terms of a stock option plan of New Time Warner.      
Pursuant to the Turner Employment Agreement, each such Option will have a ten-  
year term and will become exercisable in installments of one-third on each of   
the first three anniversaries of the date of the grant.                         

Pursuant to the Turner Employment Agreement, the Options included in each of
Mr. Turner's annual awards other than the Initial Award will be awarded at      
exercise prices no less favorable to Mr. Turner (on a percentage basis) than    
those most recently granted to the Chief Executive Officer of New Time Warner.  
With respect to the Initial Award, Options to purchase 650,000 shares of New    
Time Warner Common Stock will be awarded at an exercise price equal to the      
fair market value of Time Warner Common Stock on the date of the Initial        
Award, Options to purchase 325,000 shares of New Time Warner Common Stock will  
be awarded at an exercise price equal to 125% of the fair market value of Time  
Warner Common Stock on the date of the Initial Award and Options to purchase    
325,000 shares of New Time Warner Common Stock will be awarded at an exercise   
price equal to 150% of the fair market value of Time Warner Common Stock on     
the date of the Initial Award. Mr. Turner's Options will become immediately     
exercisable in full in respect of the aggregate number of shares covered        
thereby if Mr. Turner's employment terminates by reason of death or total       
disability. In the event of New Time Warner's material breach or wrongful       
termination of the Turner Employment Agreement, all Options awarded to Mr.      
Turner will become immediately exercisable and all remaining Options under the  
Turner Employment Agreement will be granted.                                    

Options may be exercised after termination of Mr. Turner's employment only  
to the extent provided in the agreement pursuant to which the Options are       
awarded; provided, however, that (a) if his employment terminates by reason of  
death or total disability, Options will remain exercisable for a period of at   
least one year after such termination (but not later than the scheduled         
expiration of such Options), (b) if his employment terminates for cause, then   
all Options awarded to Mr. Turner will terminate immediately and (c) in the     
event of New Time Warner's material breach or wrongful termination of the       
Turner Employment Agreement, the Options will remain exercisable until the      
scheduled expiration of such Options.                                           

Right of R.E. Turner to Name Designees to New Time Warner Board               

Pursuant to Investors' Agreement (No.1), New Time Warner will agree to take 
all action necessary to cause Mr. Turner and a designee of Mr. Turner to be     
elected as directors of New Time Warner. See "Certain Related Agreements--      
Investors' Agreements."                                                         

Certain Arrangements With Officers of TBS                                     

In connection with the execution of the Merger Agreement, Time Warner agreed
to extend certain severance and option arrangements to a group of senior        
executives of TBS and its subsidiaries. Such arrangements are                   

67  

DEFM14A
72nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 72nd
described below. Notwithstanding the entry into such arrangements, Time Warner  
has expressed its desire that such persons remain with the combined enterprise  
following consummation of the Mergers.                                          

With respect to each of Terence F. McGuirk, TBS Executive Vice President, W.
Thomas Johnson, TBS Vice President--News, Scott M. Sassa, TBS Vice President--  
Turner Entertainment Group, Bert Carp, TBS Vice President--Government Affairs,  
William H. Grumbles, TBS Vice President--Worldwide Distribution, Steven J.      
Heyer, TBS Vice President--Advertising Sales and Marketing, Steven W. Korn,     
TBS Vice President, General Counsel and Secretary, and Wayne H. Pace, TBS Vice  
President--Finance and Chief Financial Officer (collectively, the "TBS          
Officers"), Time Warner has acknowledged and agreed that the consummation of    
the Mergers will be deemed a breach of each such officer's employment           
agreement with TBS and that each such officer will have the right thereafter    
at any time to terminate his employment agreement and receive a lump sum        
payment equal to the aggregate of his salary, bonus, long-term bonus, car       
allowance and all other payments due such officer under the terms of his        
employment agreement. Upon consummation of the Mergers, all options to          
purchase shares of TBS Common Stock held by the TBS Officers, whether vested    
or unvested, will, pursuant to their terms, be converted into vested options    
to purchase shares of New Time Warner Common Stock. Currently such options      
terminate between 90 days and one year after the termination of such officer's  
employment. However, in the event such officer's employment is terminated for   
any reason, Time Warner has agreed that each of such options will be            
exercisable until the earlier of the existing expiration date of such option    
and the fifth anniversary of the consummation of the Mergers (the "Five-Year    
Exercise Right"). As of June 30, 1996, the TBS Officers held options to         
acquire in the aggregate 3,661,000 shares of TBS Class B Common Stock. As of    
such date, the net value of such options (i.e., the aggregate positive          
difference between the exercise price of such options and the value of the TBS  
Class B Common Stock that may be purchased pursuant to such options, based on   
the closing sale price of TBS Class B Common Stock on such date (the "Net       
Value")) held by the TBS Officers was $19,499,344. The lump sum payments to     
which the TBS Officers would be entitled upon termination of their employment   
agreements (assuming that each of them terminated his employment agreement as   
of September 30, 1996), in the aggregate, would be approximately $28,336,000    
(exclusive of long-term bonuses, amounts in respect of required continuation    
of certain benefit plans and the value of certain services to be provided       
under such contracts).                                                          

With respect to each of Robert Shaye, Chairman and Chief Executive Officer  
of New Line, Michael Lynne, President and Chief Operating Officer of New Line,  
and Alan F. Horn, Chief Executive Officer of Castle Rock, Time Warner has       
agreed that all options held by such officers that would not otherwise vest     
pursuant to their terms will, upon consummation of the Mergers, be converted    
into vested options to purchase shares of New Time Warner Common Stock and has  
agreed to extend the Five-Year Exercise Right to such officers. Absent the      
Five-Year Exercise Right, the options held by such officers to which such       
right has been extended would otherwise terminate between 90 days and one year  
after the termination of such officer's employment. As of June 30, 1996,        
Messrs. Shaye, Lynne and Horn held options to acquire in the aggregate          
6,046,778 shares of TBS Class B Common Stock. As of such date, the Net Value    
of such options held by such officers was $50,937,000.                          

Director and Officer Liability Insurance and Indemnification                  

The Merger Agreement provides that all rights to indemnification for acts or
omissions occurring prior to the consummation of the Mergers, existing as of    
September 22, 1995, in favor of the current or former directors or officers of  
TBS as provided in the TBS Articles or the TBS By-Laws will survive the TBS     
Merger and will continue in full force and effect in accordance with their      
terms from the consummation of the Mergers until the expiration of the          
applicable statute of limitations with respect to any claims against the        
current or former directors or officers of TBS arising out of such acts or      
omissions. New Time Warner has agreed to cause to be maintained TBS's           
directors' and officers' insurance and indemnification policy in effect as of   
September 22, 1995, to the extent that it provides coverage for events          
occurring prior to the consummation of the Mergers so long as the annual        
premium therefor would not be in excess of 150% of the last annual premium      
paid prior to September 22, 1995 (the "Maximum Premium"). If such policy        
expires, is terminated or canceled during such six-year period,                 

68  

DEFM14A
73rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 73rd
New Time Warner will use all reasonable efforts to cause to be maintained as    
much of such insurance coverage as can be obtained for the remainder of such    
period for an annualized premium not in excess of the Maximum Premium.          

TCI Arrangements                                                              

Certain agreements have been or will be entered into between TCI and Time   
Warner, or their respective affiliates, and between TCI and TBS, or their       
respective affiliates. For a description of the principal terms of these        
agreements, see "TCI Arrangements." As of June 30, 1996, TCI owned 7.7% of the  
voting power of the outstanding TBS Capital Stock and has the right to          
designate three of the seven Class C Directors. See "--Background" above.       

FEDERAL INCOME TAX CONSEQUENCES                                                 

Time Warner Merger                                                            

The discussion set forth below is the opinion of Cravath, Swaine & Moore as 
to the material Federal income tax consequences of the Time Warner Merger.      
Such opinion is not binding on the IRS. The opinion is based upon the           
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),       
applicable Treasury Regulations thereunder, judicial decisions and current      
administrative rulings, any of which may be changed at any time with            
retroactive effect. The opinion does not address all aspects of Federal income  
taxation that may be important to particular taxpayers in light of their        
personal investment circumstances or to taxpayers subject to special treatment  
under the Federal income tax laws (including life insurance companies, foreign  
persons, tax-exempt entities, holders who acquired their Time Warner Capital    
Stock pursuant to the exercise of employee stock options or otherwise as        
compensation and persons who hold, directly or indirectly, 10% or more of Time  
Warner Capital Stock or any class of Time Warner Capital Stock) and does not    
address any aspect of state, local or foreign taxation. The opinion also        
assumes that Time Warner Capital Stock will be held as a capital asset at the   
time of the consummation of the Time Warner Merger. No rulings have been or     
will be requested from the IRS with respect to any of the matters discussed     
herein. There can be no assurance that future legislation, regulations,         
administrative rulings or court decisions would not alter the tax consequences  
set forth below.                                                                

Based upon representation letters, which will be reconfirmed prior to the   
Closing of the Mergers, it is the opinion of Cravath, Swaine & Moore that the   
Time Warner Merger will be treated as a transfer of property to New Time        
Warner by the holders of Time Warner Capital Stock and governed by Section 351  
of the Code. The opinion is based on current law and assumes that the Mergers   
will be consummated as described in this Joint Proxy Statement/Prospectus and   
in accordance with the Merger Agreement and related agreements in their         
current form. It is a condition to the obligation of Time Warner to consummate  
the Time Warner Merger that it shall have received confirmation, dated the      
Closing Date, of the opinion contained in this paragraph.                       

Treatment of New Time Warner, Time Warner and TW Merger Corp. No gain or    
loss will be recognized by New Time Warner, Time Warner or TW Merger Corp. as   
a result of the Time Warner Merger.                                             

Conversion of Time Warner Common Stock into New Time Warner Common Stock. A 
holder of Time Warner Common Stock whose shares of Time Warner Common Stock     
are converted in the Time Warner Merger into shares of New Time Warner Common   
Stock will not recognize gain or loss upon such conversion. The tax basis of    
the New Time Warner Common Stock received by such holder will be equal to the   
tax basis of the Time Warner Common Stock so converted, and the holding period  
of the New Time Warner Common Stock will include the holding period of the      
Time Warner Common Stock so converted.                                          

Conversion of Time Warner Preferred Stock into New Time Warner Preferred    
Stock. A holder of Time Warner Preferred Stock whose shares of Time Warner      
Preferred Stock are converted in the Time Warner Merger                         

69  

DEFM14A
74th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 74th
into shares of New Time Warner Preferred Stock will not recognize gain or loss  
upon such conversion. The tax basis of the New Time Warner Preferred Stock      
received by such holder will be equal to the tax basis of the Time Warner       
Preferred Stock so converted and the holding period of the New Time Warner      
Preferred Stock will include the holding period of the Time Warner Preferred    
Stock so converted.                                                             

Constructive Distributions on the New Time Warner Series M Preferred Stock. 
Section 305 of the Code and the Treasury Regulations thereunder provide that,   
under certain circumstances, the excess of the redemption price of preferred    
stock (as defined for purposes of Section 305 of the Code) over the issue       
price of such preferred stock will be taxable as a constructive distribution    
to the holder (which will be treated as a dividend to the extent of the         
issuer's current and accumulated earnings and profits). None of the New Time    
Warner Preferred Stock except the New Time Warner Series M Preferred Stock      
will be deemed "preferred stock" for purposes of Section 305 of the Code.       

If the redemption price at the issue date of the New Time Warner Series M   
Preferred Stock exceeds, by more than a de minimis amount, the issue price of   
the New Time Warner Series M Preferred Stock (i.e., the fair market value of    
such stock at its date of issue), holders will be required to accrue such       
excess (the "redemption premium") as a constructive dividend distribution (to   
the extent of the issuer's current and accumulated earnings and profits) over   
the term of such stock. In addition, distribution by New Time Warner of any     
additional shares of New Time Warner Series M Preferred Stock, in lieu of a     
cash dividend payment, may give rise to additional redemption premium. Holders  
should consult their tax advisors regarding the application of the above rules  
to their particular situation.                                                  

Dissenting Holders of Time Warner Preferred Stock. A holder of Time Warner  
Preferred Stock that receives solely cash in exchange for such stock in the     
Time Warner Merger pursuant to the exercise of appraisal rights under Section   
262 of the DGCL will recognize capital gain or loss at the time of the          
consummation of the Time Warner Merger equal to the difference between the tax  
basis of the Time Warner Preferred Stock surrendered and the amount of cash     
received therefor. Such capital gain or loss will constitute long-term capital  
gain or loss if such Time Warner Preferred Stock has been held by the holder    
for more than one year at the time of the consummation of the Time Warner       
Merger.                                                                         

Reporting Requirements. Each holder of Time Warner Common Stock that        
receives New Time Warner Common Stock in the Time Warner Merger and each        
holder of Time Warner Preferred Stock that receives New Time Warner Preferred   
Stock in the Time Warner Merger will be required to retain records and file     
with such holder's Federal income tax return a statement setting forth certain  
facts relating to the Time Warner Merger.                                       

TBS Merger                                                                    

The discussion set forth below is the opinion of Skadden, Arps, Slate,      
Meagher & Flom as to the material Federal income tax consequences of the TBS    
Merger. Such opinion is not binding on the IRS. The opinion is based upon the   
provisions of the Code, applicable Treasury Regulations thereunder, judicial    
decisions and current administrative rulings, any of which may be changed at    
any time with retroactive effect. The opinion does not address all aspects of   
Federal income taxation that may be important to particular taxpayers in light  
of their personal investment circumstances or to taxpayers subject to special   
treatment under the Federal income tax laws (including life insurance           
companies, foreign persons, tax-exempt entities, holders who acquired their     
TBS Capital Stock pursuant to the exercise of employee stock options or         
otherwise as compensation and persons who hold, directly or indirectly, 10% or  
more of TBS Capital Stock or any class of TBS Capital Stock) and does not       
address any aspect of state, local or foreign taxation. The opinion also        
assumes that TBS Capital Stock will be held as a capital asset at the time of   
the consummation of the TBS Merger. No rulings have been or will be requested   
from the IRS with respect to any of the matters discussed herein. There can be  
no assurance that future legislation, regulations, administrative rulings or    
court decisions would not alter the tax consequences set forth below.           

70  

DEFM14A
75th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 75th
Based upon representation letters, which will be reconfirmed prior to the   
Closing of the Mergers, it is the opinion of Skadden, Arps, Slate, Meagher &    
Flom that the TBS Merger will be treated as a transfer of property to New Time  
Warner by the holders of TBS Capital Stock governed by Section 351 of the       
Code. The opinion is based on current law and assumes that the Mergers will be  
consummated as described in this Joint Proxy Statement/Prospectus and in        
accordance with the Merger Agreement and related agreements in their current    
form. It is a condition to the obligation of TBS to consummate the TBS Merger,  
that it shall have received confirmation, dated the Closing Date, of the        
opinion contained in this paragraph.                                            

Treatment of New Time Warner, TBS and TBS Merger Corp. No gain or loss will 
be recognized by New Time Warner, TBS or TBS Merger Corp. as a result of the    
TBS Merger.                                                                     

Conversion of TBS Capital Stock into New Time Warner Common Stock. A holder 
of TBS Capital Stock whose shares of TBS Capital Stock are converted in the     
TBS Merger into the right to receive shares of New Time Warner Common Stock     
will not recognize gain or loss upon such conversion, except to the extent      
cash is received in lieu of fractional shares. See "--Cash in Lieu of           
Fractional Shares" below. The aggregate tax basis of the New Time Warner        
Common Stock received by such holder will be equal to the aggregate tax basis   
of the TBS Capital Stock so converted (excluding any portion of the holder's    
basis allocated to fractional shares), and the holding period of the New Time   
Warner Common Stock will include the holding period of the TBS Capital Stock    
so converted. See "--Transfer Taxes" below.                                     

Cash in Lieu of Fractional Shares. A holder of TBS Capital Stock who        
receives cash in lieu of fractional shares of New Time Warner Common Stock      
will be treated as having received such fractional shares pursuant to the TBS   
Merger and then as having exchanged such fractional shares for cash in a        
redemption by New Time Warner. Any gain or loss attributable to fractional      
shares will generally be capital gain or loss. The amount of such gain or loss  
will be equal to the difference between the ratable portion of the tax basis    
of the TBS Capital Stock converted in the TBS Merger that is allocated to such  
fractional shares and the cash received in lieu thereof. Any such capital gain  
or loss will constitute long-term capital gain or loss if such TBS Capital      
Stock has been held by the holder for more than one year at the time of the     
consummation of the TBS Merger.                                                 

Dissenting Holders of TBS Capital Stock. A holder of TBS Capital Stock that 
receives solely cash in exchange for such stock in the TBS Merger pursuant to   
the exercise of dissenter's rights under Article 13 of the GBCC will recognize  
capital gain or loss at the time of the consummation of the TBS Merger equal    
to the difference between the tax basis of the TBS Capital Stock surrendered    
and the amount of cash received therefor. Such capital gain or loss will        
constitute long-term capital gain or loss if such TBS Capital Stock has been    
held by the holder for more than one year at the time of the consummation of    
the TBS Merger. See "--Transfer Taxes" below.                                   

Reporting Requirements. Each holder of TBS Capital Stock that receives New  
Time Warner Common Stock in the TBS Merger will be required to retain records   
and file with such holder's Federal income tax return a statement setting       
forth certain facts relating to the TBS Merger.                                 

Tax Treatment to Holders of TBS LYONs. As a result of the Mergers, the TBS  
LYONs will become convertible into shares of New Time Warner Common Stock. See  
"--Effect of Transaction on TBS LYONs" below. There will be no gain or loss     
recognized for Federal income tax purposes as a result of such modification.    
Any conversion of a TBS LYON into New Time Warner Common Stock after the        
consummation of the Transaction will, however, be a taxable transaction to a    
holder of such TBS LYON.                                                        

THIS FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY  
NOT APPLY TO ALL HOLDERS OF TIME WARNER CAPITAL STOCK OR TBS CAPITAL STOCK.     
SUCH HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX     
CONSEQUENCES OF THE MERGERS.                                                    

71  

DEFM14A
76th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 76th
ACCOUNTING TREATMENT                                                            

The Transaction will be accounted for by New Time Warner under the purchase 
method of accounting for business combinations. See "Unaudited Pro Forma        
Consolidated Condensed Financial Statements."                                   

CERTAIN FEES AND EXPENSES                                                       

TBS retained CS First Boston, pursuant to the terms of a letter agreement   
(the "CSFB Engagement Letter"), as its financial advisor to provide financial   
analyses and advice and to render an opinion to the TBS Board as to the         
fairness to the shareholders of TBS (other than Time Warner and its             
affiliates), from a financial point of view, of the consideration to be         
received by such shareholders pursuant to the terms of a potential business     
combination between Time Warner and TBS. TBS agreed to pay CS First Boston, as  
compensation for its services under the CSFB Engagement Letter, a fee of $4     
million, payable upon delivery of the opinion dated September 22, 1995          
contemplated by the CSFB Engagement Letter, and to reimburse CS First Boston    
for reasonable out-of-pocket expenses, including reasonable fees and expenses   
of counsel, incurred in connection with its services to TBS. TBS also agreed    
to pay CS First Boston an additional fee of $500,000 as compensation for        
additional services, payable upon delivery of the opinion dated August 8,       
1996. TBS also agreed to indemnify CS First Boston and certain related persons  
and entities against certain liabilities, including liabilities under the       
Federal securities laws.                                                        

TBS retained Merrill Lynch, pursuant to the terms of a letter agreement (the
"Merrill Lynch Engagement Letter"), as its financial advisor to assist in       
analyzing the proposed transaction and the Prior TCI Arrangements and to        
render an opinion to the TBS Board as to (a) the fairness to the shareholders   
of TBS (other than TCI and its affiliates and Time Warner), from a financial    
point of view, of the consideration to be received by such shareholders         
pursuant to the Transaction and (b) in the context of the governance            
arrangements relating to TBS's ability to consummate the Transaction, the       
fairness of the financial terms of the Prior TCI Arrangements, from a           
financial point of view, to TBS and its shareholders (other than TCI and its    
affiliates and Time Warner). TBS and Merrill Lynch subsequently entered into    
an amendment to the Merrill Lynch Engagement Letter pursuant to which TBS       
retained Merrill Lynch to render an additional opinion to the TBS Board with    
respect to the amended TCI Arrangements. TBS agreed to (i) pay Merrill Lynch    
(x) as compensation for its services under the Merrill Lynch Engagement         
Letter, a fee of $1 million, payable upon delivery of the opinion contemplated  
by the Merrill Lynch Engagement Letter and (y) as compensation for its          
services under the amendment to the Merrill Lynch Engagement Letter, an         
additional fee of $500,000, payable upon delivery of the opinion contemplated   
by that amendment, and (ii) to reimburse Merrill Lynch for certain out-of-      
pocket expenses incurred in connection with its services to TBS. TBS also       
agreed to indemnify Merrill Lynch, its affiliates, the respective directors,    
officers, agents and employees of Merrill Lynch and its affiliates, and each    
person, if any, controlling Merrill Lynch or any of its affiliates, against     
certain liabilities, including liabilities under the Federal securities laws.   

The TBS Board has approved the payment to Capital City of $3 million upon   
consummation of the Mergers in addition to monthly retainer fees payable by     
TBS pursuant to a consulting agreement dated May 1, 1994, between TBS and       
Capital City (as amended, the "Capital City Consulting Agreement"). The         
principal of Capital City, Randolph L. Booth, was formerly the Chief Financial  
Officer of TBS and provided certain consulting services to TBS relating to the  
development and implementation of plans and strategies related to mergers,      
acquisitions, financings and such additional matters as mutually agreed upon    
pursuant to the Capital City Consulting Agreement, which expired on April 30,   
1996. The services performed by Capital City included (a) meeting with members  
of TBS's senior management and other advisors to TBS to discuss potential       
business opportunities identified by TBS and under consideration from time to   
time by TBS, (b) meeting with representatives of TBS and its advisors and with  
representatives of Time Warner and TCI to identify unresolved business issues   
relating to the proposed Transaction, (c) meeting with representatives of TBS   
to discuss strategies for resolving open business issues, (d) assisting TBS in  
developing its presentations addressing the strategic benefits of the           
Transaction for the meetings of the TBS Board held in August and September of   
1995 and (e) assisting in the resolution of issues related to the arrangements  
to be put in place for executive officers of TBS                                

72  

DEFM14A
77th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 77th
upon consummation of the Mergers. The Capital City Consulting Agreement         
provided for a monthly retainer of $50,000, certain transaction fees, as        
described therein, and the reimbursement of certain out-of-pocket expenses.     
Pursuant to the Capital City Consulting Agreement, each of TBS and Capital      
City also agreed to indemnify the other against certain liabilities arising as  
a result of the consulting services provided under the Capital City Consulting  
Agreement.                                                                      

TBS and MC Group are parties to a letter agreement (the "MC Group Consulting
Agreement"), pursuant to which MC Group agreed to provide certain consulting    
services to TBS. Such services have included (a) meeting with representatives   
of TBS and Capital City to discuss and provide MC Group's views and             
perspective on the future of the entertainment/telecommunications industry and  
TBS's position in such industry, (b) consulting with respect to TBS's long-     
term goals, including discussing with Mr. Turner his desire to position TBS to  
acquire a broadcast television network, to establish a presence in the          
interactive television and computer technologies industries and to enhance      
TBS's international businesses, (c) assisting TBS in identifying strategic      
partners for TBS in the pursuit of these long-term goals, (d) providing TBS     
with MC Group's views with respect to the manner in which certain potential     
opportunities identified and under consideration from time to time by TBS       
could contribute to TBS's long-term strategy, (e) providing TBS with            
introductions to other operating companies for the purpose of exploring         
potential business opportunities, (f) meeting with representatives of TBS and   
Capital City to discuss and provide MC Group's views and perspective on the     
strategic benefits to TBS of the proposed merger with Time Warner in the        
context of TBS's long-term strategic goals, (g) meeting with Mr. Turner and     
representatives of TCI and Time Warner to identify business issues relating to  
the proposed merger to be resolved by the parties, (h) providing Mr. Turner     
with advice with respect to keeping the parties to the Transaction focused on   
resolving open business issues, and (i) providing Mr. Turner and                
representatives of TCI and Time Warner with MC Group's views with respect to    
the long-term benefit of the proposed merger for each such party. TBS agreed    
to pay MC Group a fee of $100,000 per month during the term of the engagement   
of MC Group, which commenced on July 1, 1995 and extended to June 30, 1996. In  
addition, the MC Group Consulting Agreement provided that an additional fee,    
in an amount to be agreed upon between MC Group and TBS, would be payable to    
MC Group with respect to any transaction between TBS and any other entity       
during the term of the MC Group Consulting Agreement or within 12 months        
thereafter which resulted from or was otherwise facilitated by the services of  
MC Group under the MC Group Consulting Agreement. At the meeting held in        
September 1995, the TBS Board approved the payment of $40 million to MC Group   
upon consummation of the Mergers as such additional fee. In reviewing and       
approving such fee, the TBS Board was aware that, in connection with the        
settlement of civil proceedings brought by the Commission, Mr. Milken entered   
into a consent decree (the "Consent Decree") with the Commission in 1991 which  
prohibits Mr. Milken from association with any broker, dealer, investment       
adviser, investment company or municipal securities dealer. The effect of the   
Consent Decree is to limit the activities in which MC Group and Mr. Milken may  
engage. In addition, prior to the approval of the MC Group fee, Mr. Turner      
informed the TBS Board that, in view of the substantial benefits that would     
accrue to him as a result of the Transaction in his capacity as the largest     
shareholder of TBS, he thought it appropriate, and had agreed with MC Group,    
that he would pay MC Group a fee of $10 million, in addition to the fee         
proposed to be paid by TBS. Pursuant to the MC Group Consulting Agreement,      
each of TBS and MC Group also agreed to indemnify the other, and the other's    
affiliates, directors, officers, employees, agents and controlling persons,     
against certain liabilities.                                                    

Time Warner retained Morgan Stanley, pursuant to the terms of a letter      
agreement (the "Morgan Stanley Engagement Letter"), as its financial advisor    
to provide financial analyses and advice and to render an opinion to the Time   
Warner Board as to the fairness to New Time Warner and its subsidiary, Time     
Warner, from a financial point of view, of the Exchange Ratio and the SSSI      
Agreement Consideration, taken as a whole. Time Warner agreed to pay Morgan     
Stanley, as compensation for its services under the Morgan Stanley Engagement   
Letter, a fee of $13 million, $4 million of which was payable upon              
announcement of the Transaction and $9 million of which is payable upon         
consummation of the Mergers, and to reimburse Morgan Stanley for certain out-   
of-pocket expenses incurred in connection with its services to Time Warner.     
Time Warner also agreed to indemnify Morgan Stanley, its affiliates, the        
respective directors, officer, partners, agents and employees of                

73  

DEFM14A
78th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 78th
Morgan Stanley and its affiliates, and each person, if any, controlling Morgan  
Stanley or any of its affiliates, against certain liabilities, including        
liabilities under the Federal securities laws.                                  

REGULATORY APPROVALS                                                            

FCC Approval Process                                                          

Regulation of Broadcast Stations. Television and radio broadcasting are     
subject to the jurisdiction of the FCC under the Communications Act. The        
Communications Act prohibits the operation of broadcasting stations except      
under licenses issued by the FCC. The Communications Act further prohibits the  
assignment of a station license or the transfer of control of a broadcast       
station licensee without prior approval of the FCC. Because the Transaction     
will result in the transfer of control of TBS, which, through a subsidiary      
(Superstation, Inc.), is the licensee of one television broadcasting station    
(WTBS, Channel 17, Atlanta, Georgia), the prior approval of the FCC is          
necessary before the Transaction may be consummated.                            

Upon the filing of an application for consent to the transfer of control of 
a broadcast station licensee, the FCC will issue an official public notice of   
such filing. Interested parties have a period of 30 days following issuance of  
the public notice in which to petition to deny such application. An             
application for consent to the transfer of control to New Time Warner of        
Superstation, Inc., the licensee of WTBS, and associated broadcast auxiliary    
licenses, was filed with the FCC on October 20, 1995 (the "FCC Application").   
On December 1, 1995, the deadline for filing petitions to deny the FCC          
Application, comments were filed with regard to the FCC Application by the      
United States Telephone Association and The Small Cable Business Association.   
Comments were filed after that deadline by The Center for Media                 
Education/Consumer Federation of America and Peoples Network Inc. No comments   
were filed with regard to the transfer of any other TBS facilities. Such        
comments primarily expressed concern about the effect of the Transaction on     
competition in the video programming market and requested that the FCC impose   
conditions to ensure the continued availability of programming at               
nondiscriminatory prices, terms and conditions.                                 

In reviewing applications for its consent to transfer of control, the FCC   
considers whether such transfers will serve the "public interest, convenience   
and necessity," as well as whether the proposed transferee has the requisite    
legal, financial, technical and other qualifications to operate the licensed    
entities. In making its decision, the FCC has the authority to approve or deny  
the application, or to condition its approval in ways which the FCC believes    
would best serve the public interest. Following the FCC's approval or denial    
with respect to such a transfer, any "person who is aggrieved or whose          
interests are adversely affected" may appeal such action to the United States   
Court of Appeals for the District of Columbia Circuit. In addition, under       
certain circumstances, the FCC may reconsider its action at the request of a    
third party or on its own motion.                                               

License Grant and Renewal. The Telecommunications Act of 1996 (the          
"Telecommunications Act"), which substantially amends the Communications Act,   
was enacted on February 8, 1996. The Telecommunications Act authorizes the FCC  
to extend television license terms to eight years from current terms of five    
years. The FCC has initiated a rulemaking proceeding which proposes to          
implement eight-year terms for television stations commencing with their next   
renewal application. The Telecommunications Act also directs the FCC to grant   
renewal of a broadcast license if it finds that the station has served the      
public interest, convenience, and necessity, and that there have been no        
serious violations (or other violations which would constitute a "pattern of    
abuse") by the licensee of the Communications Act or FCC rules. If the FCC      
finds that a licensee has failed to meet these standards and there are not      
sufficient mitigating factors, it may deny renewal or condition renewal         
appropriately, including renewing for less than a full term. Any other party    
with standing may petition the FCC to deny a broadcaster's application for      
renewal. However, only if the FCC issues an order denying renewal will it       
accept and consider applications from other parties for a construction permit   
for a new station to operate on the channel subject to such denial. The FCC     
may not consider any such applicant in making determinations concerning the     
grant or denial of the licensee's renewal application.                          

74  

DEFM14A
79th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 79th
The license for WTBS was last renewed on April 1, 1992. There were no       
petitions to deny the renewal application or competing applications filed.      
WTBS's current five-year term expires on April 1, 1997. An application for      
renewal, which must be filed four months prior to the scheduled expiration of   
the license, must therefore be filed on or before December 1, 1996.             

Regulation of Other Facilities. TBS, in connection with the operation of its
news and entertainment networks, holds licenses for broadcast auxiliary         
facilities, private operational fixed microwave facilities and fixed satellite  
earth stations. Applications to transfer control of these facilities have been  
granted by the FCC. The broadcast auxiliary and fixed satellite applications    
were subject to the same public notice and 30-day comment period procedures as  
is the broadcast station transfer application. No comments or oppositions were  
filed with regard to those applications.                                        

Cable Television/Television Cross-Ownership Rule. The FCC's rules prohibit  
the common ownership or control of a cable television system located in whole   
or in part within the predicted Grade B service contour of a television         
broadcast station. The Telecommunications Act eliminated a similar provision    
in the Communications Act, but preserved the parallel FCC rule pending FCC      
review. Time Warner has an ownership interest in a cable system serving         
approximately 60,000 subscribers which is located within the Grade B service    
contour of WTBS. Time Warner has asked the FCC for a temporary waiver of this   
rule for a period of 18 months to allow for the orderly divestiture of its      
interest in the affected cable system. The "Grade B service contour" is an      
FCC-promulgated technical description of the strength of a television           
station's signal which demarks an area in which a certain minimum signal        
strength can be received. Generally, this defines an area where, on average, a  
television station can be expected to be viewable with the aid of a rooftop     
antenna. The FCC uses this contour measurement as a geographical demarcation    
in several of its ownership rules.                                              

Cable Television Multiple Ownership Rule. Pursuant to the Communications    
Act, the FCC has imposed limits on the number of cable television systems in    
which a single entity may hold an attributable interest. In general, no cable   
operator may have an attributable interest in cable systems which pass more     
than 30% of all cable homes passed nationwide. In the context of the cable      
television multiple ownership rule, the term "homes passed" means the number    
of homes which are or could be readily connected to a cable system's            
distribution wires running along the street on which the homes are located.     
Attributable interests for these purposes include voting stock interests of 5%  
or more, officerships, directorships and general partnership interests. The     
FCC has stayed the effectiveness of this rule pending the outcome of its        
appeal of a U.S. District Court decision holding the multiple ownership limit   
provision of the Communications Act unconstitutional. Because TCI would         
receive more than 5% of the voting securities of New Time Warner pursuant to    
the TBS Merger, TCI would be in violation of the multiple ownership rule if     
the rule were again made effective. The provisions of the LMC Agreement         
regarding the exchange of TCI's New Time Warner Common Stock for shares of LMC  
Reduced Voting Common Stock will render LMC's interest in New Time Warner non-  
attributable for purposes of current FCC rules. See "TCI Arrangements--LMC      
Agreement." The FCC is currently engaged in an extensive review of its          
attribution rules and its broadcast ownership rules. In connection with such    
review, it has sought comment on whether non-voting stock should be deemed      
attributable for purposes of multiple ownership rules in certain                
circumstances. The cable television multiple ownership rule which has been      
stayed incorporates the broadcast attribution standard. Time Warner cannot      
predict the outcome of the FCC's attribution rules review or what impact it     
may ultimately have.                                                            

FTC Consent Decree                                                            

Under the HSR Act and the rules promulgated thereunder by the FTC,          
transactions such as the Transaction may not be consummated until               
notifications have been given and certain information has been furnished to     
the Antitrust Division of the United States Department of Justice and the FTC   
and specified waiting period requirements have been satisfied. In October       
1995, Time Warner, TBS and TCI filed all appropriate Notification and Report    
Forms with the Antitrust Division and the FTC with respect to the Transaction.  
After an extensive                                                              

75  

DEFM14A
80th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 80th
review of the Transaction by the FTC and in order to eliminate concerns raised  
by the FTC regarding possible competitive effects of the Transaction, Time      
Warner, TBS, TCI and LMC have executed the FTC Consent Decree and have          
submitted the FTC Consent Decree to the commissioners of the FTC. The FTC       
commissioners have not yet initially accepted the FTC Consent Decree, and the   
obligations of Time Warner, TBS and TCI to consummate the Transaction are       
conditioned upon such initial acceptance. For purposes of the FTC Consent       
Decree, TCI and its affiliates include John C. Malone and Robert Magness. The   
material provisions of the FTC Consent Decree are described below.              

TCI/LMC Equity Interest in New Time Warner. TCI and its affiliates will not 
be permitted to hold voting securities of New Time Warner (other than           
securities, such as LMC Reduced Voting Common Stock, that have limited voting   
rights). In addition, TCI and its affiliates will not be permitted to hold      
more than the lesser of (a) 9.2% of the outstanding New Time Warner Common      
Stock (calculated on a fully diluted basis) and (b) 12.4% of the outstanding    
common stock of New Time Warner (calculated on an actual outstanding basis),    
without the prior approval of the FTC. The effect of this provision, among      
other things, was to require (a) the elimination of the provisions of the       
Transaction Agreements that permitted LMC to hold voting securities of New      
Time Warner if such securities were placed in a voting trust to be voted by     
Mr. Levin, (b) significant restrictions to be placed upon the exercise by LMC   
of its rights under the Right of First Refusal Agreement to purchase shares of  
New Time Warner Common Stock from Mr. Turner and (c) the elimination of the     
provisions of the Transaction Agreements under which LMC agreed to give Time    
Warner an option to purchase LMC's interest in TBS directly.                    

TCI will be required under the FTC Consent Decree to use its best efforts to
obtain a ruling (the "Letter Ruling") from the IRS to the effect that the       
distribution of SSSI, which at the time of the such distribution will hold,     
directly and indirectly, substantially all the New Time Warner Capital Stock    
received by TCI and its affiliates pursuant to the Transaction, to holders of   
the Liberty Media Group Common Stock issued by TCI would be a non-taxable       
transaction under Section 355 of the Code. If the Letter Ruling is obtained,    
TCI will implement the TCI Spin-off within 30 days after making required        
regulatory filings. If the TCI Spin-off takes place, Mr. Magness, Dr. Malone    
and Kearns-Tribune Corporation (together, the "TCI Control Shareholders") will  
exchange all of the shares of SSSI they receive in the TCI Spin-off for a       
convertible preferred security of SSSI that will have limited voting rights in  
SSSI. TCI's officers, directors and employees (including the TCI Control        
Shareholders) will be prohibited from communicating with the management of      
SSSI, except on those limited matters on which the TCI Control Shareholders     
are entitled to vote. Following the TCI Spin-off, SSSI will be prohibited from  
holding more than 14.99% of the outstanding New Time Warner Common Stock        
(calculated on a fully diluted basis), and from holding New Time Warner         
securities with voting rights (other than securities, such as LMC Reduced       
Voting Common Stock, that have limited voting rights). The restrictions         
described in the immediately preceding sentence will terminate if the TCI       
Control Shareholders hold no more than 0.1% of the ownership interest and the   
voting power of SSSI or if the TCI Control Shareholders hold no more than 0.1%  
of the ownership interest and the voting power of both of TCI and LMC.          
Following such distribution, TCI and its affiliates will not be permitted to    
purchase more than the lesser of (a) an additional 1% of the outstanding New    
Time Warner Common Stock (calculated on a fully diluted basis) and (b) 1.35%    
of the outstanding common stock of New Time Warner (calculated on an actual     
outstanding basis), without the prior approval of the FTC.                      

Program Carriage Agreements. Time Warner, TBS and TCI were required to      
eliminate from the Transaction Agreements provisions providing for long-term,   
mandatory carriage by TCI cable systems of TBS programming services, except     
that the parties were permitted to enter into five-year agreements providing    
for the mandatory carriage after consummation of the Mergers by TCI cable       
systems of WTBS (once the WTBS Conversion has occurred) and Headline News.      
Prior to six months after the consummation of the Mergers, Time Warner and TCI  
will not be permitted to enter into any new agreement providing for the         
mandatory carriage by TCI cable systems on their analog tiers of any other      
video programming service offered by TBS, and any such mandatory carriage       
agreement entered into thereafter will be limited in effective duration to      
five years.                                                                     

Anti-bundling Provision. New Time Warner will not be permitted to condition 
the availability or terms of providing its HBO video programming service to     
any MVPD on whether that MVPD or any other MVPD agrees to carry any national    
video programming service offered by TBS. New Time Warner will not be           
permitted to                                                                    

76  

DEFM14A
81st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 81st
condition the availability or terms of providing CNN, TNT or WTBS to any MVPD   
on whether that MVPD or any other MVPD agrees to carry any national video       
programming service offered by TWE.                                             

Price Discrimination Provision. New Time Warner will be prohibited from     
discriminating, in certain respects, against MVPDs having geographical overlap  
with New Time Warner's cable systems in the terms upon which TBS programming    
services are made available to such MVPDs in the relevant geographical overlap  
area.                                                                           

Programming Foreclosure Provision. The FTC Consent Decree provides that New 
Time Warner will be prohibited generally from requiring a financial interest    
in any video programming service as a condition for carriage or otherwise       
improperly discriminating against unaffiliated national video programming       
vendors in the provision of access to New Time Warner's cable systems.          

New Time Warner will be required to collect, on a quarterly basis, certain  
information relating to the terms under which New Time Warner cable systems     
carry national video programming services, including information relating to    
pricing, commitments, if any, to a roll-out schedule and penetration rates.     
This information is to be provided to each member of the Management Committee   
of TWE on a quarterly basis.                                                    

By February 1, 1997, New Time Warner will be required to enter into a       
programming service agreement with at least one nationally significant          
advertising-supported news and informational national video programming         
service not affiliated with New Time Warner. Under the terms of the FTC         
Consent Decree, New Time Warner will be required to carry such national video   
programming service in accordance with a roll-out schedule incorporated in the  
FTC Consent Decree.                                                             

To the extent applicable to New Time Warner, the foregoing provisions are   
generally consistent with existing legal requirements or Time Warner's          
existing business practices and will not impose undue financial burdens on New  
Time Warner and, accordingly, Time Warner does not believe that the FTC         
Consent Decree will have an adverse effect on the businesses of New Time        
Warner and TBS following consummation of the Mergers.                           

If the FTC does not initially accept the FTC Consent Decree, the FTC may    
seek to enjoin the consummation of the Transaction. If the FTC does initially   
accept the FTC Consent Decree, the FTC will publish the FTC Consent Decree for  
public comment for a period of 60 days. If the FTC does not finally accept the  
FTC Consent Decree after the period for public comment, the FTC could take      
such action under the antitrust laws as it deems necessary or desirable in the  
public interest, including seeking the divestiture of substantial assets of     
TBS or its subsidiaries or of Time Warner or its subsidiaries. If the FTC does  
finally accept the FTC Consent Decree, the FTC Consent Decree will terminate    
on the tenth anniversary of such final acceptance.                              

Other Antitrust                                                               

Other antitrust authorities may also bring legal action under state or      
federal antitrust laws. Such action could include seeking to enjoin the         
consummation of the Transaction or seeking divestiture of certain assets of     
Time Warner or TBS. Private parties may also seek to take legal action under    
the antitrust laws under certain circumstances. There can be no assurance that  
a challenge to the Transaction on antitrust grounds will not be made or, if     
such a challenge is made, with respect to the result thereof.                   

Further, although the Transaction is not subject to preclosing notification 
and approval requirements of the Merger Regulation of the European Community,   
separate regulatory approvals are required in certain European jurisdictions.   

Status of Regulatory Approvals and Other Information                          

Time Warner and TBS have filed applications with all applicable domestic    
regulatory agencies and have taken, or will take, other appropriate action      
with respect to any requisite approvals or other action of any court,           
administrative agency or commission or other governmental authority or          
instrumentality, domestic or foreign, whose consent, approval, order or         
authorization, or with whom registration, declaration or filing of the Merger   
Agreement is required to consummate the Transaction, subject to the provisions  
of the Merger Agreement. Time Warner has determined that franchise agreements   
covering approximately 10% of the total number of subscribers to cable systems  
owned by Time Warner and TWE contain provisions that may result in the          
Transaction being                                                               

77  

DEFM14A
82nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 82nd
treated as a "transfer of control" of the franchise for which approval of the   
franchising authority is required. Time Warner expects to obtain any required   
approvals prior to consummation of the Transaction.                             

The Merger Agreement provides that the obligation of each of Time Warner and
TBS to consummate the Transaction is conditioned upon, among other things, the  
approval of the FCC, the termination of any applicable waiting period under     
the HSR Act, initial acceptance of the FTC Consent Decree and the absence of    
any injunction restraining consummation of the Transaction. In addition, the    
Merger Agreement also provides that the obligation of Time Warner to            
consummate the Transaction is conditioned upon receipt of all necessary orders  
and permits approving the Mergers from all applicable cable franchising         
authorities having jurisdiction over all or any portion of a material cable     
system operated by Time Warner. See "The Merger Agreement--Conditions to the    
Mergers." There can be no assurance that any governmental agency will approve   
or take any other required action with respect to the Transaction, and, if      
approvals are received or action is taken, that such approvals or action will   
not be conditioned upon matters that would cause the parties to abandon the     
Transaction. In addition, there can be no assurance that an action will not be  
brought challenging such approvals or action, including a challenge by the      
FTC, or, if such challenge is made, with respect to the result thereof. Other   
than the FTC Consent Decree, which TCI has agreed to, the LMC Agreement         
provides that neither TCI nor any of its affiliates is required to agree to,    
approve or otherwise be bound by or satisfy any condition upon the grant or     
effectiveness of any consent or approval of any governmental agency required    
in connection with the consummation of the transactions contemplated by the     
Merger Agreement and the LMC Agreement that requires the surrender or           
modification in any significant respect of any license held by TCI or any of    
its affiliates, the divestiture of any assets of TCI or any of its affiliates,  
the holding of any such assets in a trust or otherwise separate and apart from  
such person's other assets, limitations on such person's freedom of action,     
any change in such person's ownership or any rights or arrangements among its   
equity holders or any other restrictions, limitations, requirements or          
conditions which are or might be burdensome or adverse to any such person. See  
"TCI Arrangements--LMC Agreement."                                              

Time Warner and TBS are not aware of any material governmental approvals or 
actions that may be required for consummation of the Transaction other than as  
described above. Should any other approval or action be required, it is         
presently contemplated that such approval or action would be sought. There can  
be no assurance, however, that any such approval or action, if needed, could    
be obtained and would not be conditioned in a manner that would cause the       
parties to abandon the Transaction.                                             

CERTAIN LITIGATION                                                              

U S WEST Litigation                                                           

On September 22, 1995, U S WEST and U S WEST Multimedia Communications, Inc.
("USWMC"), a wholly owned subsidiary of U S WEST, filed a complaint in the      
Court of Chancery of the State of Delaware individually and allegedly in a      
derivative capacity on behalf of TWE against Time Warner and four of TWE's      
general partners, ATC, Time Warner Operations Inc., WCI and Warner Cable        
Communications Inc. ("WCCI"), as well as TWE (as a nominal defendant) alleging  
that the Transaction would breach fiduciary duties owed by the defendants to U  
S WEST and that the Transaction would breach certain provisions of the          
agreement pursuant to which TWE is organized and managed (the "TWE Partnership  
Agreement") and the agreement pursuant to which USWMC was admitted as a         
limited partner in TWE (the "Admission Agreement"). U S WEST, Inc., et al. v.   
Time Warner Inc., et al., Case No. 14555. U S WEST sought equitable relief,     
including an injunction against consummation of the Transaction. On October     
11, 1995, Time Warner and the other defendants filed an answer and              
counterclaims denying the material allegations contained in U S WEST's          
complaint. The trial of this action was completed in March 1996. On June 6,     
1996, the Court of Chancery ruled in Time Warner's favor on all of U S WEST's   
claims and denied U S WEST's application for an injunction against              
consummation of the Transaction. U S WEST has not appealed the court's          
decision and the period for filing a notice of appeal expired on July 12,       
1996. Thereafter, Time Warner consented to the dismissal of its counterclaims.  

TBS Shareholder Litigation                                                    

Seventeen complaints have been filed against TBS, Time Warner, certain      
officers and directors of TBS, Time Warner or TWE, and other defendants,        
purportedly on behalf of a class of TBS shareholders, two of which              

78  

DEFM14A
83rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 83rd
have been voluntarily dismissed. Sixteen of the seventeen complaints were       
filed in Superior Court, Fulton County, Georgia; the other was filed in the     
Court of Chancery of the State of Delaware in and for New Castle County. Of     
the complaints filed in Georgia, fourteen were filed prior to the approval of   
the Transaction on September 22, 1995 by the Time Warner Board and the TBS      
Board (Shingala v. Turner Broadcasting Sys., Inc., et al., Case No. E-41502;    
Schrank v. R. E. Turner, et al., Case No. E-41501; Lewis, et al. v. Turner      
Broadcasting Sys., Inc., et al., Case No. E-41500; Silverstein and Silverstein  
v. Turner Broadcasting Sys., Inc., et al., Case No. E-41526; Strauss v. Turner  
Broadcasting Sys., Inc., et al., Case No. E-41538; Hoffman v. Ted Turner, et    
al., Case No. E-41544; Barry v. Turner Broadcasting Sys., Inc., et al., Case    
No. E-41545; Mersel and Mersel v. R. E. Turner, et al., Case No. E-41554;       
Friedland and Friedland v. Turner Broadcasting Sys., Inc., et al., Case No. E-  
41562; Schwarzchild v. Turner Broadcasting Sys., Inc., et al., Case No. E-      
41586; Turner and Hanson v. Turner Broadcasting Sys., Inc., et al., Case No.    
E-41637; H. Mark Solomon v. Turner Broadcasting Sys., Inc., et al., Case No.    
E-41685; Shores v. Turner Broadcasting Sys., Inc., et al., Case No. E-41749;    
and Krim and Davidson v. Turner Broadcasting Sys., Inc., et al., Case No. E-    
41779). Two of the complaints filed in Georgia were filed after the             
Transaction was approved by the Time Warner Board and the TBS Board on          
September 22, 1995 (Altman v. Turner Broadcasting Sys., Inc., et al., Case No.  
E-43205; Joyce v. Tele-Communications, Inc., et al., Case No. E-43321). The     
plaintiff in Altman filed a voluntary dismissal of the action without           
prejudice on November 10, 1995. On September 27, 1995, an amended complaint     
was filed in Shingala. On October 24, 1995, an amended complaint was filed in   
Lewis, apparently on behalf of the named plaintiffs in twelve of the sixteen    
actions filed in Georgia. On November 1, 1995, a second amended complaint (the  
"Second Amended Complaint") was filed in Lewis which is virtually identical to  
the first amended Lewis complaint except that the plaintiff in the Joyce        
action was no longer included as a named plaintiff. The purported class action  
filed by a TBS shareholder in Delaware was filed on October 2, 1995 (Joyce v.   
John C. Malone, et al., Case No. 14592) and subsequently dismissed voluntarily  
without prejudice by the plaintiff on November 15, 1995. As noted above, a      
substantially similar action on behalf of the same plaintiff was filed in       
Georgia on October 23, 1995 (Joyce v. Tele-Communications, Inc., et al., Case   
No. E-43321).                                                                   

On November 13, 1995, Judge Elizabeth Long, to whom all remaining actions   
had been assigned, consolidated the actions, except the Joyce action. On        
November 20, 1995, subject to court approval, the plaintiff in Joyce proposed   
to file an amended and consolidated class action complaint which also includes  
a derivative claim. Also on November 20, 1995, plaintiffs in the actions other  
than Joyce filed a motion for the recusal of Judge Long, which motion was       
denied on January 22, 1996. On December 20, 1995, the defendants filed answers  
in response to the Second Amended Complaint previously filed in Lewis. On       
January 19, 1996, defendants in these actions filed a motion for judgment on    
the pleadings on all claims asserted in the Second Amended Complaint filed in   
Lewis on the grounds that, under Georgia law, the valid grant of dissenters'    
rights to TBS shareholders with respect to the TBS Merger prohibits plaintiffs  
from maintaining the claims asserted in the Second Amended Complaint.           

On January 31, 1996, the court consolidated the Joyce action with the other 
consolidated actions, and ordered plaintiffs to file a consolidated amended     
complaint within thirty days of the date of the order. Additionally, the court  
stayed discovery in these consolidated actions until the court rules on the     
defendants' motion for judgment on the pleadings.                               

On February 29, 1996, plaintiffs filed their third amended consolidated     
supplemental and derivative class action complaint (the "Third Amended          
Complaint"). The Third Amended Complaint, which includes a derivative claim,    
alleges, among other things, that the terms of the TBS Merger are unfair to     
TBS shareholders and that the defendants have breached or aided and abetted     
the breach of fiduciary common law and statutory duties owned to TBS            
shareholders by (a) conferring benefits on controlling shareholders at the      
expense of other shareholders, (b) committing corporate waste and (c) taking    
actions to entrench TBS Board members. The Third Amended Complaint further      
alleges that the defendants acted fraudulently in negotiating and approving     
the proposed TBS Merger, that the approval of the TBS Merger by the TBS Board   
was fraudulently obtained, and that the vote of the TBS Board approving the     
TBS Merger did not comply with the TBS Articles and TBS                         

79  

DEFM14A
84th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 84th
Bylaws or with Georgia law. Among other relief demanded, the Third Amended      
Complaint seeks damages, an injunction against the consummation of the TBS      
Merger and related transactions, and an auction of TBS. On April 1, 1996,       
defendants in this action filed motions for judgment on the pleadings on all    
claims asserted in the Third Amended Complaint. On June 17, 1996, the court     
transformed the defendants' motion for judgment on the pleadings into a motion  
for summary judgment with respect to two of the plaintiffs' claims and denied   
the plaintiffs' request for discovery on those claims. The court has not yet    
ruled on the defendants' motion.                                                

Time Warner and TBS intend to continue to defend vigorously these actions.  

By letter dated October 20, 1995, plaintiffs in certain of the Georgia suits
made a demand upon TBS to repudiate the SportSouth Agreement and the fee        
authorized to be paid by TBS to MC Group as corporate waste or, absent          
repudiation, to seek indemnification from any officers or directors of TBS who  
authorized the challenged matters. These plaintiffs indicated that a            
shareholders' derivative suit seeking injunctive relief would be filed in less  
than 90 days. These derivative claims were asserted four days later in the      
first amended complaint filed in Lewis and later asserted in both the Second    
Amended Complaint and the Third Amended Complaint. The TBS Board has            
established a committee of the TBS Board to investigate such claims.            

Time Warner Stockholder Litigation                                            

Three complaints have been filed against Time Warner, certain officers and  
directors of Time Warner, and other defendants, by Time Warner stockholders,    
purportedly derivatively on behalf of Time Warner. The first two complaints     
filed by Time Warner stockholders were filed in the Court of Chancery of the    
State of Delaware in and for New Castle County on October 30, 1995 (Bernard v.  
Time Warner Inc., et al., Case No. 14651; Parnes v. Time Warner Inc., et al.,   
Case No. 14660). These two complaints allege that some or all of the            
defendants have violated fiduciary duties owed to Time Warner and its           
stockholders by (a) seeking to entrench themselves in board and management      
positions and to eliminate the threat of a hostile takeover, (b) securing       
economic benefits for themselves or conferring special benefits on TCI and      
others at the expense of Time Warner's public stockholders and (c) structuring  
the Transaction so as to place Time Warner's chief executive officer in a       
position which allegedly will involve a conflict between the interests of TCI   
and Time Warner. Both complaints seek an injunction against consummation of     
the Transaction and an order directing the individual defendants to account to  
Time Warner for their alleged profits and plaintiffs' alleged damages. On       
November 22, 1995, Time Warner and the other defendants named in the Bernard    
complaint moved to dismiss such complaint on the ground that the plaintiff has  
failed to comply with the Delaware Chancery Court Rule 23.1. As of December 5,  
1995, the parties in Bernard agreed to stay discovery and to stay briefing of   
the pending motions to dismiss.                                                 

The third complaint, brought by a Time Warner stockholder against the       
directors and certain officers of Time Warner and nominally against Time        
Warner, was filed in the Court of Chancery of the State of Delaware in and for  
New Castle County on March 12, 1996 (Trust for the Benefit of Paula C. Rand v.  
Levin, et al., Case No. 14890). The Rand complaint alleges that some or all of  
the defendants have breached or will in the future breach fiduciary duties      
owed to Time Warner and its stockholders in furtherance of an entrenchment      
scheme by, among other things, (a) forcing the resignations of or firing        
certain Time Warner directors and officers, (b) conferring special benefits on  
TCI, Mr. Turner and Mr. Milken in connection with the Transaction and (c)       
agreeing in the future to settle the ongoing dispute with U S WEST in order to  
remove U S WEST's opposition to the Transaction. The complaint seeks (a) an     
injunction against consummation of the Transaction, (b) voiding of a voting     
trust agreement that, prior to the amendment of the Transaction Agreements      
pursuant to the FTC Consent Decree, was intended to hold the shares of LMC      
Common Stock received by TCI and its affiliates, (c) an injunction against any  
settlement of the U S WEST dispute and (d) damages. On April 8, 1996, the       
defendants moved to dismiss the Rand complaint.                                 

Time Warner intends to continue to defend vigorously each of these actions. 

80  

DEFM14A
85th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 85th
Other Litigation                                                              

In Bartholdi Cable Company, Inc., and LVE, L.L.C. v. Time Warner Inc., et   
al., Case No. 96-2687 (E.D.N.Y.), the plaintiffs have filed an amended          
complaint adding TBS as a defendant and alleging, among other things, that the  
Transaction would violate the antitrust laws. The amended complaint seeks       
injunctive relief, divestiture and damages. Time Warner intends to defend       
vigorously this action.                                                         

STOCK EXCHANGE LISTING                                                          

New Time Warner will apply for the listing of New Time Warner Common Stock  
on the NYSE and the PSE under the symbol TWX. It is a condition to the          
consummation of the Mergers that the shares of New Time Warner Common Stock to  
be issued in connection with the Mergers shall have been approved for listing   
on the NYSE, subject only to official notice of issuance.                       

FEDERAL SECURITIES LAWS CONSEQUENCES                                            

All shares of New Time Warner Capital Stock received by Time Warner         
stockholders and TBS shareholders in the Mergers will be freely transferable    
under the Federal securities laws, except that shares of New Time Warner        
Capital Stock received by persons who are deemed to be "affiliates" (as such    
term is defined under the Securities Act) of Time Warner or TBS prior to the    
consummation of the Mergers may be resold by them only in transactions          
permitted by the resale provisions of Rule 145 promulgated under the            
Securities Act (or Rule 144 in the case of such persons who become affiliates   
of New Time Warner) or as otherwise permitted under the Securities Act.         
Persons who may be deemed to be affiliates of Time Warner, TBS or New Time      
Warner generally include individuals or entities that control, are controlled   
by, or are under common control with, such party and may include certain        
officers and directors of such party as well as principal stockholders of such  
party. Upon the consummation of the Mergers, New Time Warner, the Turner        
Shareholders and certain associated holders will enter into the Turner          
Registration Rights Agreement, and New Time Warner and the LMC Holders (as      
defined below) will enter into the LMC Registration Rights Agreement. See       
"Certain Related Agreements--Registration Rights Agreements."                   

APPRAISAL AND DISSENTERS' RIGHTS                                                

Time Warner                                                                   

Under the DGCL, holders of Time Warner Common Stock are not entitled to     
appraisal or dissenters' rights in connection with the Time Warner Merger       
because the Time Warner Common Stock is listed on a national securities         
exchange and the consideration which such holders will be entitled to receive   
in the Time Warner Merger will consist solely of New Time Warner Common Stock   
which will also be listed on a national securities exchange.                    

Holders of record of Time Warner Preferred Stock who do not vote in favor of
the TW Merger Proposal and who otherwise comply with the applicable statutory   
procedures summarized herein will be entitled to appraisal rights under         
Section 262 of the DGCL ("Section 262"). A person having a beneficial interest  
in shares of Time Warner Preferred Stock held of record in the name of another  
person, such as a broker or nominee, must act promptly to cause the record      
holder to follow the steps summarized below properly and in a timely manner to  
perfect appraisal rights.                                                       

THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING  
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE      
FULL TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX D-1.    
ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER" OR         
"HOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF TIME WARNER PREFERRED STOCK  
AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED.                                      

Under the DGCL, holders of shares of Time Warner Preferred Stock ("Appraisal
Shares") who follow the procedures set forth in Section 262 will be entitled    
to have their Appraisal Shares appraised by the Delaware                        

81  

DEFM14A
86th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 86th
Chancery Court and to receive payment in cash of the "fair value" of such       
Appraisal Shares, exclusive of any element of value arising from the            
accomplishment or expectation of the Transaction, together with a fair rate of  
interest, if any, as determined by such court.                                  

Under Section 262, where a proposed merger is to be submitted for approval  
at a meeting of stockholders, the corporation, not less than 20 days prior to   
the meeting, must notify each of its stockholders who was such on the record    
date for such meeting with respect to shares for which appraisal rights are     
available, that appraisal rights are so available, and must include in such     
notice a copy of Section 262.                                                   

This Joint Proxy Statement/Prospectus constitutes such notice to the holders
of Appraisal Shares and the applicable statutory provisions of the DGCL are     
attached to this Joint Proxy Statement/Prospectus as Appendix E-1. Any          
stockholder who wishes to exercise such appraisal rights or who wishes to       
preserve his right to do so should review the following discussion and          
Appendix D-1 carefully, because failure to timely and properly comply with the  
procedures specified will result in the loss of appraisal rights under the      
DGCL.                                                                           

A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL    
RIGHTS (A) MUST NOT VOTE IN FAVOR OF THE TW MERGER PROPOSAL AND (B) MUST        
DELIVER TO TIME WARNER PRIOR TO THE VOTE ON THE TW MERGER PROPOSAL AT THE TIME  
WARNER MEETING TO BE HELD ON OCTOBER 10, 1996, A WRITTEN DEMAND FOR APPRAISAL   
OF SUCH HOLDER'S APPRAISAL SHARES. A HOLDER OF APPRAISAL SHARES WISHING TO      
EXERCISE SUCH HOLDER'S APPRAISAL RIGHTS MUST BE THE RECORD HOLDER OF SUCH       
APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL IS MADE AND MUST  
CONTINUE TO HOLD SUCH APPRAISAL SHARES OF RECORD UNTIL THE CONSUMMATION OF THE  
TIME WARNER MERGER. ACCORDINGLY, A HOLDER OF APPRAISAL SHARES WHO IS THE        
RECORD HOLDER OF APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL  
IS MADE, BUT WHO THEREAFTER TRANSFERS SUCH APPRAISAL SHARES PRIOR TO THE        
CONSUMMATION OF THE TIME WARNER MERGER, WILL LOSE ANY RIGHT TO APPRAISAL IN     
RESPECT OF SUCH APPRAISAL SHARES.                                               

Only a holder of record of Appraisal Shares is entitled to assert appraisal 
rights for the Appraisal Shares registered in that holder's name. A demand for  
appraisal should be executed by or on behalf of the holder of record, fully     
and correctly, as such holder's name appears on such holder's stock             
certificates. If the Appraisal Shares are owned of record in a fiduciary        
capacity, such as by a trustee, guardian or custodian, execution of the demand  
should be made in that capacity, and if the Appraisal Shares are owned of       
record by more than one person as in a joint tenancy or tenancy in common, the  
demand should be executed by or on behalf of all joint owners. An authorized    
agent, including one or more joint owners, may execute a demand for appraisal   
on behalf of a holder of record; however, the agent must identify the record    
owner or owners and expressly disclose the fact that, in executing the demand,  
the agent is agent for such owner or owners. A record holder such as a broker   
who holds Appraisal Shares as nominee for several beneficial owners may         
exercise appraisal rights with respect to the Appraisal Shares held for one or  
more beneficial owners while not exercising such rights with respect to the     
Appraisal Shares held for other beneficial owners; in such case, the written    
demand should set forth the number of Appraisal Shares as to which appraisal    
is sought. When no number of Appraisal Shares is expressly mentioned the        
demand will be presumed to cover all Appraisal Shares held in the name of the   
record owner. Stockholders who hold their Appraisal Shares in brokerage         
accounts or other nominee forms and who wish to exercise appraisal rights are   
urged to consult with their brokers to determine the appropriate procedures     
for the making of a demand for appraisal by such a nominee.                     

ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO TIME WARNER
INC. AT 75 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10019, ATTENTION: SECRETARY.   

Within 10 days after the consummation of the Time Warner Merger, Time Warner
will notify each stockholder who has properly asserted appraisal rights under   
Section 262 and has not voted in favor of the TW Merger Proposal of the date    
the Time Warner Merger became effective.                                        

Within 120 days after the consummation of the Time Warner Merger, but not   
thereafter, Time Warner or any stockholder who has complied with the statutory  
requirements summarized above may file a petition in the Delaware Chancery      
Court demanding a determination of the fair value of the Appraisal Shares.      
Time Warner is under no obligation to and has no present intention to file a    
petition with respect to the appraisal of the fair value of the Appraisal       
Shares. Accordingly, it is the obligation of the stockholders to initiate all   
necessary action to perfect their appraisal rights within the time prescribed   
in Section 262.                                                                 

82  

DEFM14A
87th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 87th
Within 120 days after the consummation of the Time Warner Merger, any       
stockholder who has complied with the requirements for exercise of appraisal    
rights will be entitled, upon written request, to receive from Time Warner a    
statement setting forth the aggregate number of Appraisal Shares not voted in   
favor of adoption of the TW Merger Proposal and with respect to which demands   
for appraisal have been received and the aggregate number of holders of such    
Appraisal Shares. Such statements must be mailed within ten days after a        
written request therefor has been received by Time Warner.                      

If a petition for an appraisal is timely filed, after a hearing on such     
petition, the Delaware Chancery Court will determine the stockholders entitled  
to appraisal rights and will appraise the "fair value" of their Appraisal       
Shares, exclusive of any element of value arising from the accomplishment or    
expectation of the Time Warner Merger, together with a fair rate of interest,   
if any, to be paid upon the amount determined to be the fair value.             
Stockholders considering seeking appraisal should be aware that the fair value  
of their Appraisal Shares as determined under Section 262 could be more than,   
the same as or less than the value of the consideration they would receive      
pursuant to the Merger Agreement if they did not seek appraisal of their        
Appraisal Shares and that investment banking opinions as to fairness from a     
financial point of view are not necessarily opinions as to fair value under     
Section 262. The Delaware Supreme Court has stated that "proof of value by any  
techniques or methods which are generally considered acceptable in the          
financial community and otherwise admissible in court" should be considered in  
the appraisal proceedings.                                                      

The Delaware Chancery Court will determine the amount of interest, if any,  
to be paid upon the amounts to be received by persons whose Appraisal Shares    
have been appraised. The costs of the action may be determined by the Delaware  
Chancery Court and taxed upon the parties as the Delaware Chancery Court deems  
equitable. The Delaware Chancery Court may also order that all or a portion of  
the expenses incurred by any stockholder in connection with an appraisal,       
including, without limitation, reasonable attorneys' fees and the fees and      
expenses of experts utilized in the appraisal proceeding, be charged pro rata   
against the value of all of the Appraisal Shares entitled to appraisal.         

Any holder of Appraisal Shares who has duly demanded an appraisal in        
compliance with Section 262 will not, after the consummation of the Time        
Warner Merger, be entitled to vote the Appraisal Shares subject to such demand  
for any purpose or be entitled to the payment of dividends or other             
distributions on those Appraisal Shares (except dividends or other              
distributions payable to holders of record of Appraisal Shares as of a record   
date prior to the consummation of the Time Warner Merger).                      

If any stockholder who properly demands appraisal of his Appraisal Shares   
under Section 262 fails to perfect, or effectively withdraws or loses, his      
right to appraisal, as provided in the DGCL the Appraisal Shares of such        
stockholder will be converted into the right to receive the consideration       
receivable with respect to such Appraisal Shares in accordance with the Merger  
Agreement. A stockholder will fail to perfect, or effectively lose or           
withdraw, his right to appraisal if, among other things, no petition for        
appraisal is filed within 120 days after the consummation of the Time Warner    
Merger, or if the stockholder delivers to Time Warner a written withdrawal of   
his demand for appraisal. Any such attempt to withdraw an appraisal demand      
more than 60 days after the consummation of the Time Warner Merger will         
require the written approval of Time Warner.                                    

FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING APPRAISAL
RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A STOCKHOLDER      
WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH RESPECT TO SUCH   
APPRAISAL SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT).                      

The holders of all the outstanding Time Warner Series J Preferred Stock have
agreed not to exercise appraisal rights with respect to the Time Warner         
Merger.                                                                         

TBS                                                                           

Holders of TBS Capital Stock will be entitled to assert dissenters' rights  
with respect to the TBS Merger under and in accordance with Article 13 of the   
GBCC. The Merger Agreement provides that Time Warner is not obligated to        
consummate the TBS Merger if dissenters' rights are exercised with respect to   
more than 28 million                                                            

83  

DEFM14A
88th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 88th
TBS Common Stock equivalents (calculated on the basis of each share of TBS      
Common Stock representing one TBS Common Stock equivalent and each share of     
TBS Class C Preferred Stock representing six TBS Common Stock equivalents),     
which represent approximately 10% of the TBS Common Stock equivalents           
outstanding as of June 30, 1996. Holders of 73.35% of the TBS Common Stock      
equivalents outstanding as of June 30, 1996 have agreed to vote all shares of   
TBS Capital Stock owned by them in favor of the TBS Merger Proposal and thus    
will not exercise dissenters' rights.                                           

THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING  
TO DISSENTERS' RIGHTS UNDER THE GBCC AND IS QUALIFIED IN ITS ENTIRETY BY THE    
FULL TEXT OF ARTICLE 13 OF THE GBCC, WHICH IS REPRINTED IN ITS ENTIRETY AS      
APPENDIX D-2. ALL REFERENCES IN ARTICLE 13 OF THE GBCC AND IN THIS SUMMARY TO   
A "SHAREHOLDER" OR "HOLDER" ARE TO THE RECORD HOLDER OF TBS CAPITAL STOCK AS    
TO WHICH DISSENTERS' RIGHTS ARE ASSERTED.                                       

This Joint Proxy Statement/Prospectus constitutes notice to holders of TBS  
Capital Stock of the applicable statutory provisions of Article 13 of the       
GBCC. Any shareholder who wishes to assert such dissenters' rights or who       
wishes to preserve his right to do so should review the following discussion    
and Appendix D-2 carefully because failure to comply timely and properly with   
the procedures specified will result in the loss of dissenters' rights under    
Article 13 of the GBCC.                                                         

A shareholder of TBS is entitled to dissent, and obtain payment of the Fair 
Value (as hereinafter defined) of his shares of TBS Capital Stock ("Dissenting  
Shares"), if the TBS Merger is consummated. For purposes of Article 13 of the   
GBCC, "Fair Value" means the value of the Dissenting Shares immediately before  
the consummation of the TBS Merger, excluding any appreciation or depreciation  
in anticipation of the TBS Merger. Each record holder of Dissenting Shares who  
wishes to assert dissenters' rights (a) must deliver to TBS, before the TBS     
Merger Proposal is voted upon at the TBS Meeting, written notice of his intent  
to demand payment for his Dissenting Shares if the TBS Merger is consummated    
(a "Notice of Intent") and (b) must not vote his Dissenting Shares in favor of  
the TBS Merger Proposal (any such holder, a "Dissenting TBS Holder"). A         
shareholder of TBS who does not satisfy such requirements is not entitled to    
payment for his Dissenting Shares under Article 13 of the GBCC. All Notices of  
Intent should be sent or delivered to TBS at One CNN Center, Atlanta, Georgia   
30303, Attention: Secretary.                                                    

A TBS shareholder entitled to dissent and obtain payment for his shares of  
TBS Capital Stock under Article 13 of the GBCC may not challenge the TBS        
Merger unless the TBS Merger fails to comply with certain procedural            
requirements of the GBCC or the TBS Articles or the TBS By-Laws or the vote     
required to obtain approval of the TBS Merger was obtained by fraudulent and    
deceptive means, regardless of whether such shareholder has exercised           
dissenters' rights.                                                             

A shareholder of record of TBS may assert dissenters' rights as to fewer    
than all shares of TBS Capital Stock registered in his name only if he          
dissents with respect to all shares of TBS Capital Stock beneficially owned by  
any one beneficial shareholder and notifies TBS in writing of the name and      
address of each person on whose behalf he asserts dissenters' rights. The       
rights of such a partial dissenter are determined as if the shares of TBS       
Capital Stock as to which he dissents and his other shares of TBS Capital       
Stock were registered in the names of different shareholders. A beneficial      
owner of shares of TBS Capital Stock that are held of record in the name of     
another person, such as a broker or nominee, must act promptly to cause the     
record holder to follow the steps summarized herein properly and in a timely    
manner to assert any dissenters' rights on behalf of such beneficial owner.     

If the TBS Merger is authorized at the TBS Meeting, TBS must deliver a      
written dissenters' notice (the "Dissenters' Notice") to all Dissenting TBS     
Holders. The Dissenters' Notice must be sent no later than ten days after       
consummation of the TBS Merger and must (a) state where the payment demand      
must be sent and where and when certificates for certificated Dissenting        
Shares must be deposited, (b) set a date by which TBS must                      

84  

DEFM14A
89th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 89th
receive the payment demand, which date may not be fewer than 30 nor more than   
60 days after the date the Dissenters' Notice is delivered, and (c) be          
accompanied by a copy of Article 13 of the GBCC.                                

A Dissenting TBS Holder to whom a Dissenters' Notice is sent must demand    
payment and deposit his certificates representing Dissenting Shares in          
accordance with the terms of the Dissenters' Notice. Upon consummation of the   
TBS Merger, the rights of a Dissenting TBS Holder are limited to the right to   
receive the Fair Value of his Dissenting Shares, assuming compliance with       
Article 13 of the GBCC. A Dissenting TBS Holder who does not demand payment or  
deposit his certificates representing Dissenting Shares where required, each    
by the date set in the Dissenters' Notice, will not be entitled to payment for  
his Dissenting Shares under Article 13 of the GBCC and, thereafter, will no     
longer be deemed a Dissenting TBS Holder.                                       

Except as described below, within ten days of the later of consummation of  
the TBS Merger or receipt of a payment demand, TBS must by written notice (the  
"Offer of Payment") offer to pay to each Dissenting TBS Holder, who complied    
with the payment demand and deposit requirements specified in the Dissenters'   
Notice, the amount TBS estimates to be the Fair Value of his Dissenting         
Shares, plus accrued interest from the date of consummation of the TBS Merger.  
The Offer of Payment must be accompanied by (a) certain recent TBS financial    
statements, (b) a statement of TBS's estimate of the Fair Value of the          
Dissenting Shares, (c) an explanation of how the interest was calculated, (d)   
a statement of the Dissenting TBS Holder's right under the GBCC to notify TBS   
of his own estimate of the Fair Value of his Dissenting Shares and the amount   
of interest due and (e) a copy of Article 13 of the GBCC. If such Dissenting    
TBS Holder accepts TBS's Offer of Payment by written notice to TBS within 30    
days after TBS's Offer of Payment or is deemed to have accepted the Offer of    
Payment by failure to respond within such 30-day period, payment by TBS for     
such Dissenting TBS Holder's Dissenting Shares must be made within 60 days      
after the later of the making of the Offer of Payment or the consummation of    
the TBS Merger.                                                                 

If the TBS Merger is not consummated within 60 days after the date set in   
the Dissenters' Notice for demanding payment and depositing certificates        
representing Dissenting Shares, TBS must return the deposited certificates.     
If, after such return, the TBS Merger is consummated, TBS must send a new       
Dissenters' Notice and repeat the payment demand procedure described above.     

A Dissenting TBS Holder may notify TBS in writing of his own estimate of the
Fair Value of his Dissenting Shares and amount of interest due, and demand      
payment of such estimate (a "Dissenting TBS Holder Demand"), if (a) such        
Dissenting TBS Holder believes that the amount offered by TBS in the Offer of   
Payment is less than the Fair Value of his Dissenting Shares or that the        
interest is incorrectly calculated or (b) TBS, having failed to consummate the  
TBS Merger, does not return the deposited certificates within 60 days after     
the date set in the Dissenter's Notice for demanding payment. A Dissenting TBS  
Holder waives his right to demand payment pursuant to a Dissenting TBS Holder   
Demand and is deemed to have accepted TBS's offer contained in the Offer of     
Payment unless he notifies TBS of his demand in writing within 30 days after    
TBS's Offer of Payment for his Dissenting Shares. If TBS does not make an       
Offer of Payment to any Dissenting TBS Holder within ten days of the later of   
the consummation of the TBS Merger or receipt of a payment demand, then (a)     
such Dissenting TBS Holder may demand the financial statements and other        
information required to accompany the Offer of Payment, and TBS must provide    
such information within ten days after receipt of written demand for such       
information, and (b) such Dissenting TBS Holder may, at any time within three   
years after the TBS Merger is consummated, notify TBS of his own estimate of    
the Fair Value of his Dissenting Shares and the amount of interest due and      
demand payment of such estimate.                                                

If a Dissenting TBS Holder Demand remains unsettled, TBS must commence a    
nonjury equitable valuation proceeding (the "Appraisal Proceeding") in the      
Superior Court of Fulton County, Georgia (the "Court"), within 60 days after    
receiving such Dissenting TBS Holder Demand and must petition the Court to      
determine the Fair Value of the Dissenting Shares and accrued interest. If TBS  
does not commence the Appraisal Proceeding within                               

85  

DEFM14A
90th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 90th
such 60-day period, it must pay each Dissenting TBS Holder whose demand         
remains unsettled, the amount demanded. TBS must make all Dissenting TBS        
Holders whose demands remain unsettled parties to the Appraisal Proceeding and  
must serve a copy of the petition in the Appraisal Proceeding upon each         
Dissenting TBS Holder. The Court may appoint one or more persons as appraisers  
to receive evidence and recommend a decision on the Fair Value of the           
Dissenting Shares. Each Dissenting TBS Holder made a party to the Appraisal     
Proceeding will be entitled to judgment for the amount that the Court finds to  
be the Fair Value of such holder's Dissenting Shares plus interest to the date  
of judgment. Under existing Georgia case law, claims arising by virtue of a     
person's status as a shareholder, including claims relating to breaches by      
directors of a Georgia corporation of their fiduciary duties to shareholders,   
are generally not maintainable following consummation of a transaction to       
which dissenters' rights apply except as an element of the determination of     
the fair value of the dissenting shares in an Appraisal Proceeding. TBS has     
moved to dismiss all of the pending litigation filed in connection with the     
Transaction in the Georgia state court actions on behalf of purported           
shareholders of TBS on that basis. See "--Certain Litigation--TBS Shareholder   
Litigation."                                                                    

The Court in the Appraisal Proceeding will determine all costs of the       
Appraisal Proceeding, including the reasonable compensation and expenses of     
appraisers appointed by the Court, but not including fees and expenses of       
attorneys and experts for the respective parties. The Court will assess such    
costs against TBS, except that the Court may assess the costs against all or    
some of the Dissenting TBS Holders, in amounts the Court finds equitable, to    
the extent the Court finds they acted arbitrarily, vexatiously or not in good   
faith in making a Dissenting TBS Holder Demand. The Court also may assess the   
fees and expenses of attorneys and experts for the respective parties against   
TBS and in favor of all Dissenting TBS Holders if the Court finds that TBS did  
not substantially comply with the requirements of certain provisions of         
Article 13 of the GBCC, or against either TBS or a Dissenting TBS Holder, in    
favor of the other party, if the Court finds that the party against whom such   
fees and expenses are assessed acted arbitrarily, vexatiously, or not in good   
faith with respect to the rights provided by Article 13 of the GBCC.            

If the Court finds that the services of attorneys for any Dissenting TBS    
Holder were of substantial benefit to other Dissenting TBS Holders similarly    
situated, and that the fees for those services should not be assessed against   
TBS, the Court may award such attorneys reasonable fees to be paid out of the   
amounts awarded the Dissenting TBS Holders who were benefitted.                 

No action by any Dissenting TBS Holder to enforce dissenters' rights may be 
brought more than three years after consummation of the TBS Merger, regardless  
of whether notice of the Transaction and of the right to dissent was given by   
TBS in accordance with the relevant provisions of Article 13 of the GBCC.       

Any Dissenting TBS Holder who has duly asserted dissenters' rights in       
compliance with Article 13 of the GBCC will not, after the consummation of the  
TBS Merger, be entitled to vote the Dissenting Shares subject to such demand    
for any purpose or be entitled to the payment of dividends or other             
distributions on those Dissenting Shares (except dividends or other             
distributions payable to holders of record of Dissenting Shares as of a record  
date prior to the consummation of the TBS Merger).                              

If any shareholder who properly asserts dissenters' rights under Article 13 
of the GBCC fails to perfect such rights, or effectively withdraws such         
assertion or loses such rights, as provided in Article 13 of the GBCC, the      
Dissenting Shares of such shareholder will be converted into the right to       
receive the consideration receivable with respect to such Dissenting Shares in  
accordance with the Merger Agreement.                                           

FAILURE TO FOLLOW THE STEPS REQUIRED BY ARTICLE 13 OF THE GBCC FOR ASSERTING
DISSENTERS' RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN VIEW OF THE        
COMPLEXITY OF THE PROVISIONS OF ARTICLE 13 OF THE GBCC, SHAREHOLDERS OF TBS     
WHO ARE CONSIDERING DISSENTING FROM THE TBS MERGER PROPOSAL SHOULD CONSULT      
THEIR OWN LEGAL ADVISORS.                                                       

86  

DEFM14A
91st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 91st
EFFECT OF TRANSACTION ON THE TBS LYONS                                          

As of June 30, 1996, there was $582,056,000 aggregate principal amount at   
maturity of the TBS LYONs outstanding. The TBS LYONs were issued under an       
Indenture dated as of February 13, 1992 (the "TBS LYONs Indenture"), between    
TBS and The Bank of New York, as successor trustee. The TBS LYONs are           
convertible at the option of the holder thereof into shares of TBS Class B      
Common Stock at a conversion rate of 12.783 shares of TBS Class B Common Stock  
per $1,000 principal amount at maturity of the TBS LYONs, subject to            
adjustment upon the happening of certain events. Accordingly, the effective     
conversion price at June 30, 1996, based upon the original issue price and the  
accrued original issue discount at such date, would have been                   
$36.72 per share. Upon consummation of the Mergers, New Time Warner will enter  
into a supplemental indenture to the TBS LYONs Indenture providing that         
thereafter, subject to the terms and conditions set forth in the TBS LYONs      
Indenture, the TBS LYONs will be convertible into the number of shares of New   
Time Warner Common Stock which a holder of such TBS LYONs would have received   
if such holder had converted such TBS LYONs immediately prior to the            
consummation of the Mergers, subject to adjustment thereafter upon the          
happening of the same events that would currently result in an adjustment       
pursuant to the TBS LYONs Indenture. Accordingly, assuming no events occur      
prior to consummation of the Mergers that would result in an adjustment to the  
current conversion rate, upon consummation of the Mergers the TBS LYONs will    
become convertible into 9.587 shares of New Time Warner Common Stock for each   
$1,000 principal amount at maturity of the TBS LYONs. The TBS LYONs also        
provide that, in the event of a "Change in Control" (as defined in the TBS      
LYONs Indenture) occurring on or prior to February 13, 1997, each holder of     
TBS LYONs will have the right to require TBS to purchase all or any part of     
such holder's TBS LYONs at a cash purchase price equal to the original issue    
price plus accrued original issue discount to the repurchase date. Because New  
Time Warner is a "Permitted Other Holder," within the meaning of the TBS LYONs  
Indenture, the Transaction will not constitute a "Change In Control" as         
defined in the TBS LYONs Indenture and, accordingly, holders of TBS LYONs will  
not have the right to require TBS to repurchase TBS LYONs as a result of the    
consummation of the Mergers. Following consummation of the Mergers, it is       
expected that New Time Warner will guarantee the obligations of TBS under the   
TBS LYONs.                                                                      

EFFECT OF TRANSACTION ON CERTAIN OUTSTANDING TIME WARNER CONVERTIBLE            
SECURITIES                                                                      

TW LYONs                                                                      

As of June 30, 1996, there was $2,415,000,000 aggregate principal amount at 
maturity of the TW LYONs outstanding. The TW LYONs were issued under an         
Indenture dated as of January 15, 1993 (the "TW Indenture"), between Time       
Warner and Chemical Bank, as trustee. The TW LYONs are convertible at the       
option of the holder thereof into shares of Time Warner Common Stock at a       
conversion rate of 7.759 shares of Time Warner Common Stock per $1,000          
principal amount at maturity of TW LYONs, subject to adjustment upon the        
happening of certain events. Upon consummation of the Mergers, New Time Warner  
will enter into a supplemental indenture to the TW Indenture providing that     
thereafter, subject to the terms and conditions set forth in the TW Indenture,  
the TW LYONs will be convertible into the number of shares of New Time Warner   
Common Stock which a holder of TW LYONs would have received if such holder had  
converted such TW LYONs immediately prior to the Mergers, subject to            
adjustment thereafter upon the happening of the same events that would          
currently result in an adjustment to the TW LYONs pursuant to the TW            
Indenture. Following consummation of the Mergers, it is expected that New Time  
Warner will guarantee the obligations of Time Warner under the TW LYONs.        

Hasbro LYONs                                                                  

The Transaction will not result in any adjustment to Time Warner's Liquid   
Yield Option Notes due 2012 (the "Hasbro LYONs"), which are exchangeable for    
shares of the common stock of Hasbro, Inc. held indirectly by Time Warner.      
Following consummation of the Mergers, it is expected that New Time Warner      
will guarantee the obligations of Time Warner under the Hasbro LYONs.           

87  

DEFM14A
92nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 92nd
THE MERGER AGREEMENT  

The following is a summary of certain provisions of the Merger Agreement, a 
copy of which is attached hereto as Appendix A-1(a), and Amendment No. 1        
thereto, a copy of which is attached hereto as Appendix A-1(b), each of which   
is incorporated herein by reference. The following summary is qualified in its  
entirety by reference to the complete text of the Merger Agreement.             

THE MERGERS                                                                     

Pursuant to the Merger Agreement and on the terms and subject to the        
conditions set forth in the Merger Agreement, TW Merger Corp. and TBS Merger    
Corp. will be merged into Time Warner and TBS, respectively. Following the      
Mergers, Time Warner and TBS will each become a wholly owned subsidiary of New  
Time Warner.                                                                    

Subject to the conditions set forth in the Merger Agreement, the closing of 
the Mergers (the "Closing") will take place on a date to be specified by the    
parties, which shall be no later than the second business day after             
satisfaction of the conditions described in the first paragraph under "--       
Conditions to the Mergers" below (the "Closing Date"). The Mergers will become  
effective at the time specified in the certificate of merger filed with the     
Secretary of State of the State of Delaware with respect to the Time Warner     
Merger and the articles of merger filed with the Secretary of State of the      
State of Georgia with respect to the TBS Merger. The time at which the Mergers  
become effective is referred to as the "Effective Time of the Mergers."         

CONVERSION OF TIME WARNER CAPITAL STOCK                                         

At the Effective Time of the Mergers, pursuant to the Merger Agreement (a)  
each issued and outstanding share of Time Warner Common Stock, other than       
shares held directly or indirectly by Time Warner, will be converted into one   
share of New Time Warner Common Stock, and upon such conversion all such        
shares of Time Warner Common Stock will be canceled and retired and will cease  
to exist, (b) each issued and outstanding share of each series of Time Warner   
Preferred Stock, other than shares held directly or indirectly by Time Warner   
and shares with respect to which appraisal rights are properly exercised, will  
be converted into one share of a substantially identical series of New Time     
Warner Preferred Stock having the same designation as the shares of Time        
Warner Preferred Stock so converted, and upon such conversion all such shares   
of Time Warner Preferred Stock will be canceled and retired and will cease to   
exist, (c) all shares of Time Warner Capital Stock held by Time Warner will be  
canceled and retired and will cease to exist without payment of any             
consideration therefor and (d) all shares of Time Warner Capital Stock held by  
subsidiaries of Time Warner shall continue as shares of Time Warner Capital     
Stock.                                                                          

Holders of Time Warner Common Stock will not receive any payment or other   
consideration in the Time Warner Merger in respect of the preferred stock       
purchase rights (the "Rights") outstanding under the Existing Rights            
Agreement.                                                                      

AT THE EFFECTIVE TIME OF THE MERGERS, (A) EACH CERTIFICATE REPRESENTING     
OUTSTANDING SHARES OF TIME WARNER COMMON STOCK WILL, WITHOUT ANY ACTION ON THE  
PART OF THE HOLDER THEREOF, BE DEEMED TO REPRESENT AN EQUAL NUMBER OF SHARES    
OF NEW TIME WARNER COMMON STOCK AND (B) EACH CERTIFICATE REPRESENTING           
OUTSTANDING SHARES OF TIME WARNER PREFERRED STOCK (OTHER THAN SHARES OF TIME    
WARNER PREFERRED STOCK WITH RESPECT TO WHICH APPRAISAL RIGHTS ARE PROPERLY      
EXERCISED) WILL, WITHOUT ANY ACTION ON THE PART OF THE HOLDER THEREOF, BE       
DEEMED TO REPRESENT AN EQUAL NUMBER OF SHARES OF NEW TIME WARNER PREFERRED      
STOCK OF THE SAME DESIGNATION.                                                  

HOLDERS OF TIME WARNER CAPITAL STOCK SHOULD NOT SUBMIT CERTIFICATES         
REPRESENTING THEIR SHARES OF TIME WARNER CAPITAL STOCK FOR EXCHANGE.            

88  

DEFM14A
93rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 93rd
CONVERSION OF TBS CAPITAL STOCK                                                 

At the Effective Time of the Mergers, pursuant to the Merger Agreement (a)  
each issued and outstanding share of TBS Common Stock, other than shares held   
directly or indirectly by Time Warner or New Time Warner or in the treasury of  
TBS and shares with respect to which dissenters' rights are properly            
exercised, will be converted into the right to receive 0.75 of a share of New   
Time Warner Common Stock, and upon such conversion all such shares of TBS       
Common Stock will be canceled and retired and will cease to exist, (b) each     
issued and outstanding share of TBS Class C Preferred Stock, other than shares  
held directly or indirectly by Time Warner or New Time Warner or in the         
treasury of TBS and shares with respect to dissenters' rights are properly      
exercised, will be converted into the right to receive 4.80 shares of New Time  
Warner Common Stock, and upon such conversion all such shares of TBS Class C    
Preferred Stock will be canceled and retired and will cease to exist, (c) all   
shares of TBS Capital Stock held by TBS will be canceled and retired and will   
cease to exist without payment of any consideration therefor and (d) all        
shares of TBS Capital Stock directly or indirectly held by Time Warner or New   
Time Warner will continue as shares of TBS.                                     

HOLDERS OF TBS CAPITAL STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING  
SHARES OF TBS CAPITAL STOCK WITH THE ENCLOSED PROXY CARD. IF THE TRANSACTION    
IS APPROVED, A LETTER OF TRANSMITTAL WILL BE MAILED AFTER THE EFFECTIVE TIME    
OF THE MERGERS TO EACH PERSON WHO WAS A HOLDER OF OUTSTANDING SHARES OF TBS     
CAPITAL STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE MERGERS. TBS       
SHAREHOLDERS SHOULD SEND CERTIFICATES REPRESENTING TBS CAPITAL STOCK TO THE     
EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH THE              
INSTRUCTIONS CONTAINED IN, THE LETTER OF TRANSMITTAL.                           

TREATMENT OF OPTIONS AND WARRANTS                                               

At the Effective Time of the Mergers, pursuant to the Merger Agreement, each
outstanding option or warrant to purchase Time Warner Common Stock and each     
outstanding option to purchase TBS Common Stock will be assumed by New Time     
Warner and converted into an option or warrant to purchase shares of New Time   
Warner Common Stock. Following the Effective Time of the Mergers, each such     
option or warrant will continue to have, and will be subject to, the same       
terms and conditions as in effect immediately prior to the Effective Time of    
the Mergers, except that each option to purchase shares of TBS Common Stock     
shall be exercisable for that number of shares of New Time Warner Common Stock  
equal to the product of the number of shares of TBS Common Stock for which      
such option was exercisable immediately prior to the Effective Time of the      
Mergers and 0.75, and the exercise price per share of such option will be       
equal to the aggregate exercise price of such option immediately prior to the   
Effective Time of the Mergers divided by the number of shares of New Time       
Warner Common Stock for which such option will be exercisable immediately       
after the Effective Time of the Mergers. At the Effective Time of the Mergers,  
all options to purchase TBS Common Stock will become vested.                    

REPRESENTATIONS AND WARRANTIES                                                  

The Merger Agreement contains customary representations and warranties by   
both Time Warner and TBS as to, among other things, (a) due organization, good  
standing and absence of violations of constitutive documents, (b) ownership of  
subsidiaries and other investments, (c) capital structure, (d) requisite        
corporate power and authority to enter into the Merger Agreement and to         
consummate the transactions contemplated by the Merger Agreement, due           
authorization, execution and delivery of the Merger Agreement, validity and     
enforceability of the Merger Agreement and the compliance of the Mergers with   
constitutive documents, agreements and applicable laws, (e) required filings    
and approvals, (f) the disclosure contained in documents filed with the         
Commission and absence of certain undisclosed liabilities, (g) absence of       
certain material changes or events, (h) absence of certain litigation,          
(i) absence of certain changes in benefit plans, (j) compliance with laws       
applicable to employee benefit plans, (k) matters relating to financial         
advisors, (l) receipt of fairness opinions, (m) tax matters, and (n)            
compliance with laws.                                                           

89  

DEFM14A
94th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 94th
CERTAIN COVENANTS                                                               

Conduct of Business Pending the Mergers                                       

Pursuant to the Merger Agreement, TBS has agreed that, prior to the         
Effective Time of the Mergers, TBS will, and will cause its subsidiaries to,    
carry on their respective businesses in the usual, regular and ordinary course  
in substantially the manner as conducted prior to September 22, 1995 and in     
compliance in all material respects with all applicable laws and regulations    
(including the Communications Act and the FCC's rules and regulations).         
Specifically, prior to the Effective Time of the Mergers, and except for        
Approved Matters (as defined below), TBS has agreed, among other things, not    
to (a) declare any dividends or make any other distributions in respect of any  
TBS Capital Stock, other than regular quarterly cash dividends, or purchase,    
redeem or otherwise acquire any shares of TBS Capital Stock, (b) subject to     
certain exceptions, issue or sell any shares of TBS Capital Stock, (c) amend    
the TBS Articles or the TBS By-Laws, (d)(i) make any material acquisition,      
(ii) subject to certain exceptions, sell or otherwise dispose of its            
properties or assets, (iii) incur any indebtedness for borrowed money, except   
for short-term borrowings incurred in the ordinary course of business           
consistent with past practice, or make any loans, advances or capital           
contributions to, or investments in, any other person or (iv) make any new      
capital expenditures, (e) make any material tax election or settle or           
compromise any material tax liability or refund, (f) subject to certain         
exceptions or in the ordinary course of business pursuant to existing           
employment agreements or benefit plans, or as required by applicable laws, (i)  
increase the compensation payable to its executive officers or employees, (ii)  
grant any severance or termination pay to, or enter into any employment or      
severance arrangement with, any director, executive officer or employee or      
(iii) establish, adopt, enter into or amend in any material respect or take     
action to accelerate any rights or benefits under any employee benefit plan or  
(g) terminate or amend on terms less favorable to TBS certain material          
agreements. For purposes of the Merger Agreement, "Approved Matters" means      
matters that are (x) expressly included in a master budget contemplated by the  
TBS By-Laws as in effect on September 22, 1995, or thereafter approved by Time  
Warner or (y) otherwise approved in writing by Time Warner.                     

Pursuant to the Merger Agreement, Time Warner has agreed that (a)           
simultaneously with or prior to the Effective Time of the Mergers, it will      
cause the New Time Warner Charter to be amended to read in the form of the      
Time Warner Charter, and will cause the by-laws of New Time Warner (the "New    
Time Warner By-laws") to be amended to read in the form of the Time Warner By-  
laws, in each case as in effect immediately prior to the Effective Time of the  
Mergers, together with such changes thereto as Time Warner and TBS may from     
time to time agree, and (b) during the period from September 22, 1995, to the   
Effective Time of the Mergers, Time Warner will not amend the Time Warner       
Charter or the Time Warner By-laws in any manner that would be materially       
adverse to the holders of Time Warner Common Stock.                             

Pursuant to the Merger Agreement, TBS and Time Warner have each agreed that 
it will not take any action that would, or that could reasonably be expected    
to, result in (a) any of the representations and warranties of such party set   
forth in the Merger Agreement that are qualified as to materiality becoming     
untrue, (b) any of such representations and warranties that are not so          
qualified becoming untrue in any material respect or (c) any of the conditions  
to the Mergers not being satisfied.                                             

Solicitation of Takeover Proposals                                            

Pursuant to the Merger Agreement, TBS has agreed that it will not, nor will 
it permit any of its subsidiaries to, nor will it authorize or permit any of    
its officers, directors or employees or any investment banker, attorney or      
other advisor or representative of TBS to (a) solicit, initiate or encourage    
the submission of any Takeover Proposal (as defined below), (b) enter into any  
agreement with respect to any Takeover Proposal or (c) participate in any       
discussions or negotiations regarding, or furnish to any person any             
information with respect to, or take any other action to facilitate any         
inquiries or the making of any proposal that constitutes, or may reasonably be  
expected to lead to, any Takeover Proposal. TBS and the TBS Board, however,     
may (i) furnish nonpublic information to, or enter into discussions or          
negotiations with, any person in connection with an unsolicited bona fide       
written Takeover Proposal to TBS or its shareholders if and to the extent that  
(A) the TBS Board determines                                                    

90  

DEFM14A
95th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 95th
in good faith based on written advice of its outside legal counsel that such    
action is necessary for the TBS Board to comply with its fiduciary duties to    
TBS shareholders under applicable law and (B) prior to furnishing such          
nonpublic information to, or entering into discussions or negotiations with,    
such person, the TBS Board receives from such person or entity an executed      
confidentiality agreement with terms no less favorable to TBS than those        
contained in TBS's confidentiality agreement with Time Warner and (ii) comply   
with Rule 14e-2 under the Exchange Act with respect to any Takeover Proposal.   
TBS has also agreed to advise Time Warner of any Takeover Proposal or any       
inquiry with respect to or which could lead to any Takeover Proposal and the    
identity of the person making any such Takeover Proposal or inquiry and to      
keep Time Warner promptly and fully informed in all material respects of the    
status and details of any such Takeover Proposal or inquiry. For purposes of    
the Merger Agreement, "Takeover Proposal" means any proposal for a merger,      
consolidation or other business combination involving TBS or any of its         
material subsidiaries or any proposal or offer to acquire in any manner,        
directly or indirectly, more than 15% of any class of voting securities of TBS  
or any of its material subsidiaries, or assets representing a substantial       
portion of the assets of TBS and its subsidiaries, taken as a whole.            

Material Transactions by Time Warner                                          

Pursuant to the Merger Agreement, Time Warner has agreed to notify TBS if,  
prior to the Effective Time of the Mergers, Time Warner or any of its           
subsidiaries enters into a definitive agreement for the implementation of a     
Material Transaction (as defined below). In such event, the TBS Board may       
request CS First Boston to deliver a written opinion, substantially in the      
same form as the opinion attached as Appendix C-2, that, after giving effect    
to the Material Transaction, the consideration to be received by holders of     
TBS Capital Stock in the TBS Merger is fair to such holders (other than Time    
Warner) from a financial point of view. If CS First Boston is unable to         
deliver such opinion, TBS will have the right to terminate the Merger           
Agreement. See "--Termination of the Merger Agreement" below. For purposes of   
the Merger Agreement, a "Material Transaction" means, subject to specified      
exceptions, (a) the issuance by Time Warner of more than 90 million shares of   
Time Warner Common Stock or their equivalent in any single transaction or       
series of individual transactions, each of which involves the issuance of more  
than 20 million shares of Time Warner Common Stock or their equivalent, or      
(b) the sale or other disposition by Time Warner in any transaction or series   
of transactions of any business or assets with an aggregate fair market value   
in excess of $3.5 billion, excluding from such amount sales of inventory in     
the ordinary course of business and the sale, in a single transaction or a      
series of related transactions, of assets with an aggregate fair market value   
of $500 million or less.                                                        

Other Actions                                                                 

Pursuant to the Merger Agreement, each party has agreed to use its best     
efforts to take, or cause to be taken, all actions, and to do, or cause to be   
done, and to assist and cooperate with the other parties in doing, all things   
necessary, proper or advisable to consummate and make effective, in the most    
expeditious manner practicable, the Mergers and the other transactions          
contemplated by the Merger Agreement; provided, however, that a party shall     
not be obligated to take any such action if the taking of such action is        
reasonably likely (a) to be materially burdensome to such party and its         
subsidiaries taken as a whole or to impact in a materially adverse manner the   
economic or business benefits of the transactions contemplated by the Merger    
Agreement, the Support Agreement and the LMC Agreement so as to render          
inadvisable the consummation of the Time Warner Merger or the TBS Merger, as    
the case may be, or (b) to result in any suit, action or proceeding by a        
governmental entity that seeks to (i) prohibit or limit the ownership or        
operation by TBS, Time Warner, New Time Warner or any of their respective       
material subsidiaries, of any material portion of their businesses or assets,   
(ii) impose limitations on the ability of New Time Warner to acquire or hold    
any shares of capital stock of Time Warner or TBS, including, without           
limitation, the right to vote such capital stock, or (iii) prohibit New Time    
Warner from effectively controlling in any material respect the business or     
operations of TBS or any of its material subsidiaries (collectively, the        
"Ownership Limitations").                                                       

Board Authority                                                               

Pursuant to the Merger Agreement, the TBS Board has adopted resolutions     
providing that (a) any action to be subsequently taken by the TBS Board to      
implement the transactions contemplated by the Merger Agreement                 

91  

DEFM14A
96th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 96th
shall be authorized if approved by a majority vote of the directors of TBS      
(other than any directors that are "interested directors" under the TBS By-     
Laws) present and voting at a meeting at which a quorum is present, without     
regard to class, and (b) any action to be taken subsequently by TBS to          
implement the transactions contemplated by the Merger Agreement that otherwise  
requires the approval of the TBS Board shall be authorized if approved by a     
majority vote of the directors of TBS (other than any directors that are        
"interested directors") present and voting at a meeting at which a quorum is    
present, without regard to class. TBS has agreed that the TBS Board will not    
amend, rescind or repeal any of such resolutions and that TBS will not enter    
into any contract, agreement or other instrument, or adopt any resolution       
that, directly or indirectly, would result in any action to be taken by the     
TBS Board to implement the transactions contemplated by the Merger Agreement    
requiring (i) any approval other than the approval by the majority vote of all  
the directors of TBS (other than any directors that are "interested             
directors") present and voting at a meeting at which a quorum is present,       
without regard to class or (ii) the approval (if not required as of September   
22, 1995) of the directors of TBS or any group or committee thereof.            

Benefit Plans                                                                 

Pursuant to the Merger Agreement, New Time Warner has agreed that, for a    
period of two years after the Effective Time of the Mergers, New Time Warner    
will (a) either (i) maintain the employee benefit plans (other than medical     
plans) for TBS at the benefit levels in effect on September 22, 1995, or (ii)   
provide benefits to employees of TBS and its subsidiaries that are not          
materially less favorable in the aggregate to such employees than are those     
that were in effect on September 22, 1995, and (b) provide or cause to be       
provided medical benefits to employees of TBS and its subsidiaries that are     
substantially equivalent to those provided to similarly situated employees of   
Time Warner.                                                                    

Indemnification and Insurance                                                 

Pursuant to the Merger Agreement, New Time Warner, Time Warner and TBS      
Merger Corp. have agreed that all rights to indemnification for acts or         
omissions occurring prior to the Effective Time of the Mergers existing as of   
September 22, 1995 in favor of the current or former directors or officers of   
TBS as provided in the TBS Articles or the TBS By-Laws shall survive the TBS    
Merger and shall continue in full force and effect in accordance with their     
terms. New Time Warner has agreed to cause to be maintained for a period of     
not less than six years from the Effective Time of the Mergers TBS's            
directors' and officers' insurance and indemnification policy in effect as of   
September 22, 1995, to the extent that it provides coverage for events          
occurring prior to the Effective Time of the Mergers, so long as the annual     
premium therefor would not be in excess of the Maximum Premium. If such policy  
expires, is terminated or canceled during such six-year period, Time Warner     
will use all reasonable efforts to cause to be obtained as much of such         
insurance coverage as can be obtained for the remainder of such six-year        
period for an annualized premium not in excess of the Maximum Premium.          

Access to Information                                                         

Pursuant to the Merger Agreement, each of TBS and Time Warner has agreed to 
afford to the other and to its officers, employees, accountants, counsel,       
financial advisors and other representatives, reasonable access during normal   
business hours prior to the Effective Time of the Mergers to all its            
respective properties, books, contracts, commitments, personnel and records.    
Except as required by law, each of TBS and Time Warner has agreed to hold any   
non-public information in confidence.                                           

Certain Other Covenants                                                       

The Merger Agreement also contains customary covenants applicable to        
transactions like the Mergers, including covenants relating to (a) delivery of  
letters of accountants relating to financial information included in this       
Joint Proxy Statement/Prospectus, (b) consultation prior to the issuance of     
any press release or other public statement, (c) each party's obligation to     
pay its own fees and expenses, (d) the listing on the NYSE of the shares of     
New Time Warner Common Stock to be issued in the Mergers, (e) execution and     
delivery of closing                                                             

92  

DEFM14A
97th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 97th
documentation and (f) use of reasonable best efforts to cause the Mergers to    
qualify as a tax-free incorporation transaction under Section 351 of the Code.  

CONDITIONS TO THE MERGERS                                                       

The obligations of Time Warner and TBS to consummate the Mergers are subject
to certain conditions, including the following: (a) the TBS Merger Approval     
and the TW Merger Approval shall have been obtained; (b) the shares of New      
Time Warner Common Stock issuable pursuant to the Merger Agreement shall have   
been approved for listing on the NYSE, subject to official notice of issuance;  
(c) the waiting periods (and any extensions thereof) applicable to the          
transactions contemplated by the Merger Agreement under the HSR Act and         
applicable foreign antitrust laws shall have been terminated or shall have      
expired, and the FTC shall have initially accepted the FTC Consent Decree; (d)  
no temporary restraining order, preliminary or permanent injunction or other    
order issued by any court of competent jurisdiction or other legal restraint    
or prohibition preventing the consummation of the Mergers or preventing LMC or  
any of its subsidiaries from voting, as contemplated by the LMC Agreement,      
shares of TBS Capital Stock that LMC or any such subsidiary is otherwise        
entitled to vote, shall be in effect; (e) the Registration Statement shall      
have become effective under the Securities Act and shall not be the subject of  
any stop order or proceedings seeking a stop order; and (f) all orders and      
approvals of the FCC required in connection with the consummation of the        
transactions contemplated by the Merger Agreement shall have been obtained      
without the imposition of any Ownership Limitation.                             

The obligation of Time Warner to consummate the Mergers is also subject to  
certain additional conditions, including the following: (a) the accuracy of     
the representations and warranties of TBS set forth in the Merger Agreement;    
(b) TBS having performed in all material respects all obligations required to   
be performed by TBS under the Merger Agreement at or prior to the Closing; (c)  
receipt by Time Warner of a satisfactory opinion of its tax counsel; (d)        
absence of certain pending suits, actions or proceedings by governmental        
agencies; (e) receipt of all necessary orders and permits approving the         
transactions contemplated by the Merger Agreement by all applicable cable       
franchising authorities having jurisdiction over all or any portion of any      
material cable system operated by Time Warner or any of its subsidiaries; and   
(f) dissenters' rights not having been asserted with respect to shares of TBS   
Capital Stock representing more than 28 million TBS Common Stock equivalents    
(calculated on the basis of each share of TBS Common Stock representing one     
TBS Common Stock equivalent and each share of Class C Preferred Stock           
representing six TBS Common Stock equivalents).                                 

The obligation of TBS to consummate the TBS Merger is also subject to       
additional conditions, including the following: (a) the accuracy of the         
representations and warranties of Time Warner set forth in the Merger           
Agreement; (b) Time Warner having performed in all material respects all        
obligations required to be performed by it under the Merger Agreement at or     
prior to the Closing; (c) the absence of certain pending suits, actions or      
proceedings by governmental agencies; and (d) receipt by TBS of a satisfactory  
opinion of its tax counsel.                                                     

TERMINATION OF THE MERGER AGREEMENT                                             

The Merger Agreement may be terminated at any time prior to the Effective   
Time of the Mergers pursuant to the mutual written consent of Time Warner and   
TBS and at the option of either Time Warner or TBS under certain                
circumstances, including the following (a) if at the TBS Meeting the TBS        
Merger Approval is not obtained, (b) if at the Time Warner Meeting the TW       
Merger Approval is not obtained, (c) if the Mergers shall not have been         
consummated on or before December 31, 1996, unless the failure to consummate    
the Mergers is the result of a willful and material breach of the Merger        
Agreement by the party seeking to terminate the Merger Agreement, (d) if any    
court or other governmental agency shall have issued an order, decree or        
ruling or taken any other action permanently enjoining, restraining or          
otherwise prohibiting the Mergers, and such order, decree, ruling or other      
action shall have become final and nonappealable, (e) in the event of a         
material breach by the other party to the Merger Agreement, (f) if the FCC      
shall have issued an order or ruling or taken other action denying approval of  
the transactions contemplated by the Merger Agreement, and such order, ruling   
or other action shall have become final and nonappealable or (g) if (i) all     
the conditions to the Mergers that are conditions                               

93  

DEFM14A
98th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 98th
to the obligations of both Time Warner and TBS have been satisfied and (ii)     
any of the conditions to the obligations of the terminating party to            
consummate the Mergers cannot be satisfied on or before December 31, 1996.      

The Merger Agreement may also be terminated at the option of Time Warner    
under certain circumstances, including: (a) if any order or approval of the     
FCC, receipt of which is a condition to the obligation of Time Warner to        
consummate the Mergers, when obtained shall include any Ownership Limitation    
that is not acceptable to Time Warner in its sole discretion and such order or  
approval shall have become final and nonappealable; or (b) if Time Warner is    
required to terminate the Merger Agreement pursuant to the LMC Agreement. For   
a description of the circumstances under which LMC may require Time Warner to   
terminate the Merger Agreement and abandon the Mergers, see "TCI                
Arrangements--LMC Agreement--Covenants With Respect to the Mergers."            

The Merger Agreement may also be terminated at the option of TBS under      
certain circumstances, including: (a) if Time Warner enters into a definitive   
agreement providing for the implementation of a Material Transaction and CS     
First Boston is unable to deliver to the TBS Board its opinion that, after      
giving effect to such Material Transaction, the consideration to be received    
by holders of TBS Capital Stock in the TBS Merger is fair to such holders       
(other than Time Warner) from a financial point of view (see "--Certain         
Covenants--Material Transactions" above); or (b) within 30 days of (i) Time     
Warner entering into an agreement providing for the merger or consolidation of  
Time Warner in which the Time Warner Capital Stock is exchanged for or          
converted into the right to receive anything other than Time Warner Common      
Stock, (ii) any person becoming the beneficial owner of more than 15% of the    
outstanding Time Warner Common Stock, other than with the prior approval of     
the Time Warner Board or (iii) any person becoming the beneficial owner of      
more than 30% of the outstanding Time Warner Common Stock, regardless of        
whether approved by the Time Warner Board.                                      

In addition, the Merger Agreement may be terminated at the option of TBS if 
the TBS Board determines that a Takeover Proposal is more favorable to the      
shareholders of TBS than the transactions contemplated by the Merger Agreement  
and the TBS Board shall concurrently approve, and TBS shall concurrently enter  
into, a definitive agreement providing for the implementation of the            
transactions contemplated by such Takeover Proposal. In order to terminate the  
Merger Agreement under this provision, TBS must give Time Warner at least two   
business days' notice of its intention to terminate, and the TBS Board is       
required to take into account the terms of any revised proposal made by Time    
Warner during such two business-day period.                                     

In considering the effect of the termination provisions described in the    
immediately preceding paragraph, TBS shareholders should consider the existing  
governance arrangements with respect to TBS, certain provisions of the Support  
Agreement and the termination fee provisions of the Merger Agreement described  
below. The effect of such governance arrangements is that any of Time Warner,   
TCI or Mr. Turner may veto any transaction involving a merger or consolidation  
of TBS. The Support Agreement provides that if the Merger Agreement is          
terminated pursuant to such termination provisions, Mr. Turner is required to   
pay to Time Warner all "profit" of Mr. Turner and certain other holders of TBS  
Capital Stock from the consummation of any Takeover Proposal that is            
consummated, or with respect to which a definitive agreement is executed,       
within 18 months of the termination of the Merger Agreement. See "Certain       
Related Agreements--Support Agreement." Finally, any such termination pursuant  
to such termination provisions will obligate TBS to pay to Time Warner a        
termination fee of $175 million upon execution of a definitive agreement with   
respect to any Takeover Proposal. See "--Effects of Termination" below. As a    
result, in considering whether to exercise the right to terminate the Merger    
Agreement in order to enter into a definitive agreement with respect to a       
Takeover Proposal, the TBS Board would necessarily have to consider the         
likelihood that any such Takeover Proposal would be consummated, based in part  
upon whether each of Time Warner, TCI and Mr. Turner would support such         
Takeover Proposal and the fact that the termination fee would be payable by     
TBS upon execution of a definitive agreement with respect to such Takeover      
Proposal, regardless of whether such Takeover Proposal, or any other Takeover   
Proposal, is consummated.                                                       

94  

DEFM14A
99th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 99th
EFFECTS OF TERMINATION                                                          

If any person makes a Takeover Proposal and thereafter (a) the Merger       
Agreement is terminated (i) for failure to obtain the TBS Merger Approval,      
(ii) because the Closing shall not have occurred on or before December 31,      
1996 (if at the time of termination TBS is in material breach of the Merger     
Agreement and such breach cannot be or has not been cured within 30 days after  
TBS becomes aware of such breach or such shorter period as may elapse between   
the date TBS becomes aware of such breach and the time of termination), (iii)   
by TBS because a court of competent jurisdiction or other governmental agency   
shall have issued an order, decree or ruling or taken any other action          
permanently enjoining, restraining or otherwise prohibiting the Mergers (if at  
the time of termination TBS is in material breach of the Merger Agreement and   
such breach cannot be or has not been cured within 30 days after TBS becomes    
aware of such breach), (iv) by Time Warner as a result of the breach of the     
Merger Agreement by TBS, (v) because the FCC has issued an order or ruling or   
taken other action denying approval of the transactions contemplated by the     
Merger Agreement (if at the time of termination TBS is in material breach of    
the Merger Agreement and such breach cannot be or has not been cured within 30  
days after TBS becomes aware of such breach), (vi) by TBS because any of the    
conditions to its obligations is not capable of being satisfied prior to        
December 31, 1996 (or as extended pursuant to the Merger Agreement) or          
(vii) by TBS to permit TBS to enter into a definitive agreement providing for   
the implementation of another Takeover Proposal, and (b) a definitive           
agreement with respect to a Takeover Proposal is executed, or a Takeover        
Proposal is consummated, at or within 18 months after such termination, then    
TBS shall pay to Time Warner a fee of $175 million (reduced by any amount       
actually paid by TBS pursuant to the next paragraph in connection with such     
termination).                                                                   

If the Merger Agreement is terminated for the failure to obtain the TBS     
Merger Approval or terminated by Time Warner as a result of a breach of the     
Merger Agreement by TBS, then TBS shall reimburse Time Warner for all its       
reasonable out-of-pocket expenses actually incurred in connection with the      
Merger Agreement and the transactions contemplated thereby, up to a maximum of  
$15 million.                                                                    

If the Merger Agreement is terminated for the failure to obtain the TW      
Merger Approval or terminated by TBS as a result of a breach of the Merger      
Agreement by Time Warner, then Time Warner shall reimburse TBS for all its      
reasonable out-of-pocket expenses actually incurred in connection with the      
Merger Agreement and the transactions contemplated thereby, up to a maximum of  
$15 million.                                                                    

In the event of termination of the Merger Agreement, the Merger Agreement   
shall forthwith become void and have no effect, without any liability or        
obligation on the part of Time Warner or TBS, other than (a) liability with     
respect to termination payments and reimbursement of fees and expenses as       
described above, (b) each party's obligation to pay its own fees and expenses   
(except as set forth above with respect to reimbursement of fees and            
expenses), (c) certain obligations of confidentiality and (d) liability         
resulting from any willful and material breach by any party to the Merger       
Agreement.                                                                      

95  

DEFM14A
100th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 100th
TCI ARRANGEMENTS  

The following is a summary of certain provisions of the Transaction         
Agreements that provide for the TCI Arrangements. Copies of these Transaction   
Agreements are filed as Exhibits to the Registration Statement and, in the      
case of the LMC Agreement, attached hereto as Appendix A-2, and are             
incorporated herein by reference. The following summaries are qualified by      
reference to the complete text of the relevant Transaction Agreement.           

LMC AGREEMENT                                                                   

Covenants with Respect to the Mergers                                         

Pursuant to the LMC Agreement, LMC has agreed to cause each of its          
subsidiaries that holds shares of TBS Capital Stock to attend the TBS Meeting   
and to vote all such shares in favor of the approval of the TBS Merger and      
each of the other transactions contemplated by the Merger Agreement and in      
favor of the approval of the Merger Agreement. This obligation of LMC is        
subject to the satisfaction of the following conditions as of the time of the   
TBS Meeting (a) the Merger Agreement shall not have been amended in any         
respect, nor shall any right of TBS or Time Warner thereunder have been         
waived, other than any amendments and waivers that do not change the            
consideration to be received in exchange for TBS Capital Stock in the TBS       
Merger or the exchange ratio therefor and that, when taken together with all    
other amendments and waivers, do not have a material adverse effect on the      
value of the consideration to be received in exchange for TBS Capital Stock in  
the TBS Merger, (b) Mr. Turner, as a shareholder of TBS, shall have voted or    
shall simultaneously be voting all his shares of TBS Capital Stock in favor of  
the approval of the TBS Merger, (c) if the Time Warner Meeting shall have been  
held, the TW Merger Approval shall have been obtained, (d) no judgment shall    
have been entered and be continuing that restrains or enjoins LMC or any of     
its subsidiaries from voting its shares of TBS Capital Stock, (e) no person     
shall have become the beneficial owner of more than 15% of the Time Warner      
Common Stock on a fully-diluted basis and (f) Time Warner shall not have        
entered into an agreement (other than the Merger Agreement) providing for the   
merger of Time Warner in which shares of Time Warner Capital Stock are          
exchanged for or converted into the right to receive anything other than Time   
Warner Common Stock.                                                            

Pursuant to the LMC Agreement, TCI and LMC have agreed to, and LMC has      
agreed to cause each of its subsidiaries that holds shares of TBS Capital       
Stock to, and Time Warner has agreed to, use reasonable efforts (a) to take     
all actions and to do, and to assist and cooperate with each other in good      
faith in doing, all things necessary to obtain all approvals from governmental  
agencies as may be necessary for the consummation of the transactions           
contemplated by the Merger Agreement and the LMC Agreement and (b) to defend    
any lawsuits or other legal proceedings challenging the Merger Agreement or     
the LMC Agreement or the consummation of the transactions contemplated          
thereby; provided, however, that the foregoing obligation shall not, subject    
to limited exceptions, require any such person to agree to enter into or be     
bound by any settlement or judgment, or to agree to any change in the terms of  
the LMC Agreement or any of the other agreements contemplated by the LMC        
Agreement. Notwithstanding the foregoing, nothing in the LMC Agreement imposes  
any obligation or duty on the part of TCI or any of its affiliates to agree     
to, approve or otherwise be bound by or satisfy, any condition in connection    
with the grant or effectiveness of any approval of any governmental agency      
required in connection with the consummation of the transactions contemplated   
by the Merger Agreement and the LMC Agreement that requires the surrender or    
modification in any significant respect of any license held by TCI or any of    
its affiliates, the divestiture of any assets of TCI or any of its affiliates,  
the holding of any such assets in a trust or otherwise separate and apart from  
such person's other assets, limitations on such person's freedom of action      
with respect to future acquisitions of assets or with respect to any existing   
or future business or activities or its enjoyment of the full rights of         
ownership, possession and use of any asset now owned or hereafter acquired by   
such person (including any requirement not to receive shares of New Time        
Warner Common Stock or LMC Reduced Voting Common Stock pursuant to the Merger   
Agreement, the SSSI Agreement or otherwise), any agreement to divest any such   
shares, any requirement not to receive, or to agree to divest, shares of LMC    
Common Stock or LMC Reduced Voting Common Stock to be received pursuant to the  
LMC Agreement, any change in such person's ownership or any rights or           
arrangements among its equity holders or any other restrictions, limitations,   
requirements or conditions which are or might be burdensome or adverse to any   
such person (in any such case, other than such items as are contemplated by     
the Transaction Agreements or the FTC Consent Decree).                          

96  

DEFM14A
101st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 101st
Pursuant to the LMC Agreement, Time Warner has agreed, upon the written     
request of LMC, to terminate the Merger Agreement and abandon the Mergers in    
certain circumstances, including if (a) on the date fixed for the consummation  
of the Mergers, the LMC Agreement, any agreement contemplated by the LMC        
Agreement or the Merger Agreement or the consummation of the Mergers or any     
other transaction contemplated thereby shall be illegal or would result in the  
imposition on the Liberty Parties (as defined below) or the SpinCo Parties (as  
defined below) of damages or penalties or the FTC shall have failed to accept   
or denied acceptance of the FTC Consent Decree for public comment or there      
shall be pending any suit by any governmental agency in which the relief        
sought would have any such effects or any effect described in the last          
sentence of the immediately preceding paragraph (including any proceeding with  
respect to an alleged violation of the FTC Consent Decree, but excluding any    
other proceeding contemplated by the FTC Consent Decree), (b) on the date       
fixed for the consummation of the Mergers, any consent or approval of any       
governmental agency required in connection with the consummation of the         
transactions contemplated by the Merger Agreement and the LMC Agreement shall   
be subject to any condition referred to in the last sentence of the             
immediately preceding paragraph, (c) the New Time Warner Rights Agreement, if   
adopted, shall differ in any material respect, other than as contemplated by    
the Rights Amendment, from the Existing Rights Agreement, (d) on the date       
fixed for the consummation of the Mergers (i) any person shall have become the  
beneficial owner of more than 15% of the Time Warner Common Stock on a fully-   
diluted basis, (ii) Time Warner shall have entered into an agreement (other     
than the Merger Agreement) providing for the merger of Time Warner in which     
shares of Time Warner Capital Stock are exchanged for or converted into the     
right to receive anything other than Time Warner Common Stock or (iii) any      
bona fide tender or exchange offer for the Time Warner Common Stock shall have  
been commenced or publicly announced and not terminated or withdrawn if         
consummation of such offer in accordance with its terms would result in the     
consequence described in clause (i) or (ii) above, (e) on the date fixed for    
the consummation of the Mergers, the condition to the obligation of TBS to      
consummate the TBS Merger that relates to the representations and warranties    
of Time Warner in the Merger Agreement shall not have been satisfied, (f) any   
action shall have been taken by Time Warner that if taken after the Effective   
Time of the Mergers would result in a Prohibited Effect (as defined below),     
(g) as of the date fixed for the consummation of the Mergers, any party (other  
than LMC and its affiliates) shall be in breach of its obligations under the    
LMC Agreement or any other agreement contemplated by the LMC Agreement or (h)   
as of the date fixed for the consummation of the Mergers, any required          
approval by the stockholders of Time Warner for the consummation of the         
transactions contemplated by the Merger Agreement, the LMC Agreement and the    
other agreements contemplated by the LMC Agreement shall not have been          
obtained.                                                                       

Pursuant to the LMC Agreement, Time Warner and LMC have agreed to execute   
and deliver to the other parties thereto, at the Closing, the LMC Registration  
Rights Agreement, the Right of First Refusal Agreement, the SSSI Agreement,     
the Distribution Contract and the Sunshine Agreement, each of which is          
discussed below or under "Certain Related Agreements."                          

Post-Closing Covenants                                                        

Pursuant to the LMC Agreement, and subject to certain exceptions, (a) all   
shares of New Time Warner Common Stock received by LMC or any of its            
subsidiaries in connection with the Mergers and related transactions will be    
exchanged on a one-for-one basis for shares of LMC Reduced Voting Common Stock  
and (b) prior to the expiration of the Restriction Period (as defined below)    
and for so long as any of the Liberty Parties or SpinCo Parties hold any        
shares of LMC Reduced Voting Common Stock, all shares of New Time Warner        
Common Stock and shares of LMC Common Stock from time to time owned             
beneficially or of record by any Liberty Party or SpinCo Party, as applicable,  
shall be exchanged on a one-for-one basis for shares of LMC Reduced Voting      
Common Stock. See "Description of New Time Warner Capital Stock" for a          
discussion of the relative rights of the New Time Warner Common Stock and the   
LMC Reduced Voting Common Stock.                                                

Pursuant to the New Time Warner Charter, New Time Warner will have the right
to redeem at fair market value shares of New Time Warner Common Stock to the    
extent necessary to prevent the loss or to secure the                           

97  

DEFM14A
102nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 102nd
reinstatement of any license or franchise issued by any governmental agency.    
New Time Warner has agreed pursuant to the LMC Agreement that it will not       
exercise such right to require the redemption from any Liberty Party or any     
SpinCo Party of any shares of New Time Warner Common Stock unless it has first  
given prior written notice of such proposed redemption, whereupon such Liberty  
Party or SpinCo Party will have the right to exchange on a one-for-one basis    
the shares to be redeemed for shares of LMC Common Stock. LMC Common Stock and  
LMC Reduced Voting Common Stock, by their terms, will not be subject to         
redemption at the option of New Time Warner.                                    

The LMC Agreement also provides that if, during the Restriction Period, New 
Time Warner takes certain actions that have a Prohibited Effect and such        
Prohibited Effect did not exist prior to the taking of such action and did not  
result from any breach of the LMC Agreement or the FTC Consent Decree by LMC    
or any of its affiliates, then New Time Warner will be required to compensate   
the Liberty Parties or the SpinCo Parties, as applicable, for income taxes      
incurred by them in disposing of Covered TW Securities (as defined below). New  
Time Warner will not be required to compensate the Liberty Parties or the       
SpinCo Parties under this provision unless the Liberty Parties or the SpinCo    
Parties, as applicable, comply with certain notice requirements and New Time    
Warner is given the opportunity, at its expense, to try to mitigate the effect  
of the actions taken by New Time Warner or otherwise to avoid the Prohibited    
Effect. If New Time Warner becomes obligated to compensate the Liberty Parties  
or the SpinCo Parties, as applicable, for taxes pursuant to this provision,     
(a) New Time Warner will be required so to compensate any Liberty Party or      
SpinCo Party that disposes of Covered TW Securities to the extent required or   
to the extent necessary to avoid the applicable Prohibited Effect and (b) if    
the aggregate number of Covered TW Securities disposed of by the Liberty        
Parties or the SpinCo Parties, as applicable, pursuant to clause (a) above      
equals or exceeds (on an "as converted" basis, if applicable) 5% of the number  
of Covered TW Securities held by LMC and all its subsidiaries immediately       
after the Effective Time of the Mergers, then, at the option of LMC, New Time   
Warner will be required to compensate the Liberty Parties or the SpinCo         
Parties, as applicable, for the disposition of all the Covered TW Securities    
if all equity securities of New Time Warner held by the Liberty Parties are     
disposed of within twelve months. For the purposes of this compensation         
obligation, the taxes incurred by any Liberty Party or SpinCo Party will be     
calculated by reference to the gain or income recognized by such Liberty Party  
or SpinCo Party for Federal income tax purposes from the disposition of the     
Covered TW Securities at the highest combined corporate Federal, state and      
local marginal capital gains tax rate applicable to such Liberty Party or       
SpinCo Party during the year of disposition and will be calculated on a fully   
grossed-up basis.                                                               

The covenants described in the two preceding paragraphs may have the effect,
for so long as the Liberty Parties and the SpinCo Parties have any significant  
interest in New Time Warner, of requiring New Time Warner to pay amounts to     
the Liberty Parties and the SpinCo Parties in order to engage in (or requiring  
New Time Warner to refrain from engaging in) activities that the Liberty        
Parties and the SpinCo Parties would be prohibited under the Federal            
communications laws from engaging in. The extent and duration of these          
requirements will vary as a result of changes in the nature or scope of the     
businesses of New Time Warner, the Liberty Parties and the SpinCo Parties and   
their respective affiliates as well as changes in applicable law. Based on the  
current businesses of Time Warner, TBS, the Liberty Parties and the SpinCo      
Parties and based upon Time Warner's current understanding of applicable law,   
Time Warner does not expect these requirements to have a material effect on     
the business of New Time Warner.                                                

In the LMC Agreement, New Time Warner has also agreed that, if New Time     
Warner amends the New Time Warner Rights Agreement to reduce the threshold for  
determining an "Acquiring Person" and such reduction results in any Liberty     
Party or SpinCo Party being required to dispose of Covered TW Securities, then  
New Time Warner will compensate such Liberty Party or SpinCo Party for income   
taxes incurred in such disposition.                                             

98  

DEFM14A
103rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 103rd
Certain Definitions                                                           

In the LMC Agreement:                                                       

"Covered TW Securities" means (a)(i) if the Mergers are consummated, the    
shares of New Time Warner Common Stock beneficially owned by LMC immediately    
following the consummation of the TBS Merger as a result of the conversion in   
the TBS Merger of the shares of TBS Capital Stock beneficially owned by LMC on  
September 22, 1995, and (ii) if the Contribution Election (as defined in the    
Contribution and Exchange Agreement (see "--Contribution and Exchange           
Agreement" below)) is made, the shares of New Time Warner Common Stock          
received by the Liberty Parties in connection therewith, determined assuming    
that the shares of TBS Capital Stock contributed to New Time Warner or owned    
by the subsidiaries of LMC so contributed did not include any shares of TBS     
Capital Stock not beneficially owned by LMC on September 22, 1995, (b) the      
shares of LMC Reduced Voting Common Stock issued pursuant to the SSSI           
Agreement and (c) all shares of LMC Common Stock and LMC Reduced Voting Common  
Stock for which the shares of New Time Warner Common Stock and LMC Reduced      
Voting Common Stock referred to in clauses (a) and (b) above and in this        
clause (c) may be exchanged pursuant to the provisions of the LMC Agreement     
described above.                                                                

"Liberty Party" means LMC and each affiliate of LMC that is controlled by   
LMC from time to time and, for so long as LMC is controlled by TCI, shall also  
mean TCI and each affiliate of TCI that is controlled by TCI from time to       
time.                                                                           

"Prohibited Effect" means the effect or consequence (a) (i) of making the   
continuing ownership by the Liberty Parties or any of them of any equity        
securities of New Time Warner then owned by the Liberty Parties or any of them  
illegal under any Federal or state law or (ii) of making the continued          
ownership by the SpinCo Parties or any of them of any equity securities owned   
by the SpinCo Parties or any of them illegal under any Federal or state law,    
(b) of imposing or resulting in the imposition under any Federal or state law   
on the Liberty Parties or any of them or the SpinCo Parties or any of them of   
damages or penalties by reason of or as a result of such continued ownership,   
(c) of requiring the divestiture of, or resulting in the requirement to         
divest, any such securities by any Liberty Party or SpinCo Party under any      
Federal or state law or (d) of requiring, or resulting in the requirement,      
under any Federal or state law that any Liberty Party or SpinCo Party           
discontinue any business or divest of any business or assets or that any        
license that such Liberty Party or SpinCo Party holds or is required to hold    
under any Federal communications law be modified in any significant respect or  
not be renewed as a result of such continued ownership.                         

"Restriction Period" means that period of time commencing on the date any   
Covered TW Securities are first issued and (a) if the TCI Spin-off does not     
occur, continuing until the first time that the ownership or deemed ownership   
by the Liberty Parties of the New Time Warner Common Stock and other voting     
securities of New Time Warner then owned by the Liberty Parties (assuming       
conversion in full of all LMC Reduced Voting Common Stock and the absence of    
any restriction on the exercise by the Liberty Parties of the rights of a       
holder of New Time Warner Common Stock), would not have a Prohibited Effect     
under any Federal communications law or violate the FTC Consent Decree, and     
(b) if the TCI Spin-off occurs, continuing until the first time that both the   
ownership by the SpinCo Parties of the New Time Warner Common Stock and the     
other voting securities of New Time Warner then owned by the SpinCo Parties     
(assuming conversion in full of all LMC Reduced Voting Common Stock and the     
absence of any restriction on the exercise by the SpinCo Parties of the rights  
of a holder of New Time Warner Common Stock), and the deemed ownership of such  
New Time Warner securities by the Liberty Parties (assuming such conversion     
and absence of restrictions) pursuant to any relevant attribution rules of the  
Federal communications laws would not have a Prohibited Effect under any        
Federal communications law or violate the FTC Consent Decree.                   

"SpinCo Party" means, after the TCI Spin-off, SSSI and each affiliate of    
SSSI that is controlled by SSSI from time to time and, for so long as SSSI is   
an affiliate of TCI, shall also mean TCI and each affiliate of TCI that is      
controlled by TCI from time to time.                                            

99  

DEFM14A
104th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 104th
SSSI AGREEMENT AND THE DISTRIBUTION CONTRACT                                    

General                                                                       

Pursuant to the LMC Agreement, each of New Time Warner, LMC and SSSI will   
execute and deliver, at the Closing, the SSSI Agreement. Pursuant to the SSSI   
Agreement, upon the earliest of (a) receipt by TCI of the Letter Ruling, (b)    
the date on which TCI shall have been advised by the IRS, or TCI shall have     
notified New Time Warner in writing that it has determined, that TCI will not   
obtain the Letter Ruling and (c) May 31, 1997, (i) SSSI will grant to New Time  
Warner the SSSI Option and New Time Warner will issue to SSSI 4,166,667 shares  
of LMC Reduced Voting Common Stock in a transaction taxable to SSSI in          
consideration for the SSSI Option and (ii) LMC will agree to the LMC Non-       
competition Covenant in consideration of which New Time Warner will issue to    
LMC 833,333 shares of LMC Reduced Voting Common Stock and will pay to LMC       
approximately $67 million (payable, at New Time Warner's option, in cash or     
additional shares of LMC Reduced Voting Common Stock) in a transaction taxable  
to LMC.                                                                         

SSSI Option Exercise                                                          

The SSSI Option will be exercisable by New Time Warner at any time prior to 
the sixth anniversary of the Closing. Upon exercise of the SSSI Option by New   
Time Warner, the Distribution Contract will become effective. The               
consideration payable by New Time Warner for the exercise of the SSSI Option    
consists of the payments due under the Distribution Contract described below.   

Distribution Contract                                                         

Pursuant to the Distribution Contract, New Time Warner will be required to  
make payments to SSSI in an amount sufficient to ensure that, on and after the  
effective date of the Distribution Contract, the sum of (a) SSSI's aggregate    
Net Cash Flows (as defined in the Distribution Contract) subsequent to such     
effective date and (b) all payments received by SSSI from New Time Warner       
under the Distribution Contract will have a net present value (calculated in    
accordance with the Distribution Contract) as of such effective date of         
$213,333,333. In addition, until the aggregate amounts required to be paid      
pursuant to the immediately preceding sentence have been received by SSSI, New  
Time Warner will make minimum quarterly payments to SSSI in an amount           
sufficient to ensure that, with respect to each fiscal quarter of SSSI ending   
after such effective date, the sum of (i) SSSI's aggregate Net Cash Flows in    
respect of such fiscal quarter and (ii) New Time Warner's payments in respect   
of such fiscal quarter under the Distribution Contract is not less than         
$7,681,000.                                                                     

Pursuant to the Distribution Contract, SSSI will, to the extent requested by
New Time Warner, provide satellite uplink and distribution services with        
respect to WTBS if the WTBS Conversion shall have occurred.                     

Limitation on Competitive Activities by LMC                                   

Pursuant to the SSSI Agreement and the Distribution Contract, LMC will agree
to the SSSI Non-competition Covenant. The SSSI Non-competition Covenant         
provides that, other than through SSSI, LMC will not and will cause its         
affiliates not to (a) engage in the business of uplinking or distributing the   
WTBS signal to video programming distribution systems until the sixth           
anniversary of the consummation of the Mergers or, if the SSSI Option has been  
exercised, the fifth anniversary of the termination of the last programming     
agreement between SSSI and any MVPD for the distribution of the WTBS signal     
and (b) if the SSSI Option has been exercised, solicit any MVPD to terminate    
the carriage of WTBS or, except as contemplated by the Distribution Contract,   
terminate any programming agreement with SSSI with respect to WTBS until the    
fifth anniversary of the termination of the last programming agreement between  
SSSI and any MVPD for the distribution of the WTBS signal.                      

100 

DEFM14A
105th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 105th
PROGRAM AGREEMENT                                                               

The Program Agreement provides that, subject to consummation of the Mergers,
TCI and its affiliated cable systems will continue to carry Headline News,      
where it was carried and on the same tier of service as it was carried as of    
September 15, 1995, for a term of five years from the consummation of the       
Mergers, with four five-year renewal terms at TCI's election. The Program       
Agreement also provides that if the WTBS Conversion occurs, then, subject to    
certain terms and conditions, such service will be carried by TCI and its       
affiliated cable systems that carried WTBS on September 15, 1995, at the rates  
set forth therein through the fifth anniversary of the WTBS Conversion, with    
four five-year renewal terms at TCI's election. The Program Agreement also      
contemplates, subject to certain conditions, an annual rebate (determined       
pursuant to the Program Agreement) for TCI and its affiliated cable systems     
with respect to the carriage of TBS programming services, which rebate          
commences at various dates for various services.                                

CONTRIBUTION AND EXCHANGE AGREEMENT                                             

Pursuant to the Contribution and Exchange Agreement, LMC may elect (the     
"Contribution Election") to contribute all the capital stock of United Cable    
Turner Investment Inc. ("UCTI"), a wholly owned subsidiary of LMC that owned,   
as of June 30, 1996, approximately 2.06% of the outstanding TBS Common Stock    
equivalents, to New Time Warner simultaneously with the Closing. If LMC makes   
the Contribution Election, LMC will be entitled to receive from New Time        
Warner 0.75 of a share of New Time Warner Common Stock for each share of TBS    
Common Stock and 4.80 shares of New Time Warner Common Stock for each share of  
TBS Class C Preferred Stock owned by UCTI. All the provisions of the            
Transaction Agreements that relate to New Time Warner Capital Stock acquired    
by LMC and its affiliates pursuant to the Merger Agreement, including the LMC   
Agreement, the Right of First Refusal Agreement and the LMC Registration        
Rights Agreement, will apply to shares of New Time Warner Common Stock issued   
as a result of the exercise of the Contribution Election. See "--LMC            
Agreement" above and "Certain Related Agreements" for a description of these    
agreements.                                                                     

SPORTSOUTH AGREEMENT                                                            

TBS and LMC Southeast Sports, Inc. ("LSSI") have entered into the SportSouth
Agreement, whereby LSSI has agreed to purchase from TBS, and TBS has agreed to  
sell to LSSI, all of the issued and outstanding capital stock of Turner Sports  
Programming, Inc. ("TSP"). The only asset of TSP is a 44% partnership interest  
in SportSouth. The purchase price is payable by delivery to TBS of a            
promissory note of LSSI with a principal amount equal to 44% of the Net         
Partnership Value. For purposes of the SportSouth Agreement, "Net Partnership   
Value" means (a) $153.7 million, plus (b) the net difference between certain    
current assets and certain current liabilities of SportSouth, minus (c) the     
amount of certain indebtedness of SportSouth. The purchase price is currently   
estimated to be approximately $65 million. The promissory note will be due on   
the second anniversary of the closing under the SportSouth Agreement, will      
bear interest, payable quarterly, at 7.50% per annum, and will be secured by a  
first priority security interest in the TSP shares purchased by LSSI and TSP's  
partnership interest in SportSouth. Affiliates of LMC currently own a 44%       
partnership interest in SportSouth. The transactions contemplated by the        
SportSouth Agreement are conditioned upon the consummation of the Transaction   
and will close on the same date as the Transaction, or, if all the conditions   
to the parties' obligations set forth in the SportSouth Agreement have not      
been satisfied on or prior to such date, on the third business day after all    
such conditions have been satisfied or waived. The SportSouth Agreement         
contains customary representations, warranties, covenants and conditions.       

The SportSouth Agreement may be terminated (a) by LSSI, if TBS has not      
complied with or performed its obligations in all material respects under the   
SportSouth Agreement prior to the closing of the transactions contemplated by   
the SportSouth Agreement, (b) by TBS, if LSSI has not complied with its         
obligations under the SportSouth Agreement prior to the closing of the          
transactions contemplated by the SportSouth Agreement, (c) by LSSI, if in       
connection with its HSR filing, it in its sole opinion considers a request      
from a governmental authority for additional data and information to be unduly  
burdensome, (d) by TBS or LSSI, if the Merger Agreement is terminated or        
otherwise ceases to be in effect pursuant to its terms or (e) by TBS or LSSI,   
if the                                                                          

101 

DEFM14A
106th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 106th
closing of the transactions contemplated by the SportSouth Agreement has not    
been consummated on or prior to the consummation of the Transaction or the      
date that is 92 days after the earlier of the two dates referred to in the      
Merger Agreement as the outside date by which the Transaction may be            
consummated, for any reason other than (i) a breach or default by such party    
in the performance of any of its obligations under the SportSouth Agreement or  
(ii) the failure of any representation or warranty of such party to be true.    

LSSI's obligations under the SportSouth Agreement are conditioned upon TBS  
and Time Warner, on the one hand, and SportSouth, on the other, entering into   
an agreement (the "Agreement Restricting Activities") restricting certain       
activities of TBS, Time Warner and their respective affiliates. The Agreement   
Restricting Activities will provide that, for a period of twelve years          
beginning on the closing under the SportSouth Agreement, and subject to         
certain exceptions, none of TBS, Time Warner or any of their respective         
affiliates will in any way engage or participate in (a) a Competing Business    
(as hereinafter defined), (b) the formation or ownership of a Competing Person  
(as hereinafter defined) or (c) any purchase or other acquisition of any right  
to transmit or distribute any collegiate or professional athletic game,         
competition or event for exhibition in the states of Kentucky, North Carolina,  
South Carolina, Tennessee, Georgia, Alabama and Mississippi (the "SportSouth    
Region") for or on behalf of a Competing Business. "Competing Business" means   
the organization, ownership or operation of a regional cable television sports  
network offered primarily to viewers in the SportSouth Region. "Competing       
Person" means a person engaged, directly or indirectly, in a Competing          
Business.                                                                       

The obligations of both LSSI and TBS under the SportSouth Agreement are     
conditioned upon SportSouth's entering into telecast rights agreements with     
respect to the broadcast by SportSouth of games of the Atlanta Hawks and the    
Atlanta Braves for the period from the closing under the SportSouth Agreement   
through the end of such sports teams' seasons in 2007.                          

SUNSHINE OPTION                                                                 

Pursuant to the LMC Agreement, at the Closing, TWE and a subsidiary of LMC  
will enter into the Sunshine Option Agreement pursuant to which such            
subsidiary of LMC will be granted the Sunshine Option to purchase the           
approximately 15% interest of TWE and certain of its affiliates in the          
Sunshine Network, a Florida-based sports cable channel, for $14 million in      
cash. The Sunshine Option will expire on December 31, 2005, and may be          
exercised in whole but not in part. If the Sunshine Option is exercised, then   
until December 31, 2010, none of New Time Warner or any of its affiliates       
will, directly or indirectly, in any way engage or participate in (a) the       
formation, ownership, or operation of a regional television sports network (by  
any distribution technology) distributing sports programming primarily to       
viewers in the State of Florida or (b) any purchase or other acquisition of,    
or any other offer to purchase or otherwise acquire, any right to televise or   
otherwise transmit or distribute any collegiate or professional athletic game,  
competition, or competitive sporting event taking place in the State of         
Florida (excluding professional boxing matches) or involving any team (whether  
collegiate or professional) from or based in the State of Florida, for          
exhibition on television in the State of Florida (except any exhibition as      
part of a national exhibition) for or on behalf of itself or any other person   
or entity.                                                                      

PPV OUTPUT AGREEMENT                                                            

The PPV Output Agreement provides for the licensing of all motion pictures  
theatrically released during a four-year period commencing August 13, 1996 by   
New Line, Castle Rock and Turner Pictures for exhibition, on a non-exclusive    
basis, on pay-per-view services owned by certain affiliates of TCI. The PPV     
Output Agreement provides for a specified number of showings of each such       
motion picture, which varies depending upon the domestic box office results     
for such motion picture.                                                        

102 

DEFM14A
107th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 107th
CERTAIN RELATED AGREEMENTS  

The following is a summary of certain provisions of the Transaction         
Agreements other than the Merger Agreement and the Transaction Agreements       
described under "TCI Arrangements." Copies of these Transaction Agreements are  
filed as Exhibits to the Registration Statement and, in the case of the         
Support Agreement, attached hereto as Appendix A-3, and are incorporated        
herein by reference. The following summaries are qualified by reference to the  
complete text of the relevant Transaction Agreement.                            

RIGHTS AMENDMENT                                                                

The LMC Agreement contemplates (but does not require) that New Time Warner  
will adopt, at or prior to the Closing, the New Time Warner Rights Agreement.   
It is currently expected that prior to the Closing, New Time Warner will adopt  
the New Time Warner Rights Agreement. If adopted, it is contemplated that the   
New Time Warner Rights Agreement would be the same as the Existing Rights       
Agreement, other than the changes required to give effect to the Rights         
Amendment. The following is a discussion of the principal changes to be         
effected by the Rights Amendment.                                               

The Rights Amendment contemplates a change to the definition of             
"outstanding" shares of New Time Warner Common Stock to include (a) all issued  
and outstanding securities generally entitled to vote together with the shares  
of New Time Warner Common Stock actually issued, except such other securities,  
if any, owned by New Time Warner or any subsidiary of New Time Warner which     
could not be voted at a meeting called for the purpose of electing the          
directors of New Time Warner plus (b) the maximum aggregate number of shares    
of New Time Warner Common Stock and such other securities which would be        
issued upon the exercise in full of all outstanding options, warrants and       
rights (other than the New Time Warner Rights), however denominated, to         
subscribe for, purchase or otherwise acquire any shares of New Time Warner      
Common Stock or such other securities, and the exchange for, or conversion      
into, shares of New Time Warner Common Stock or such other securities in full   
of all outstanding securities of New Time Warner or any of its subsidiaries     
that are exchangeable for, or convertible into, shares of New Time Warner       
Common Stock or such other securities. The effect of this change is to          
increase the amount of New Time Warner Common Stock that a person may acquire   
before becoming an "Acquiring Person" and causing the New Time Warner Rights    
to be exercisable. For example, based upon the Time Warner Common Stock and     
TBS Capital Stock and the options, warrants and convertible securities of Time  
Warner and TBS outstanding on June 30, 1996, and assuming consummation of the   
Transaction, a person would have been able to beneficially own approximately    
20.2% of the New Time Warner Common Stock outstanding on that date without      
becoming an "Acquiring Person" if the Rights Amendment had been in effect on    
that date. Such beneficial ownership of New Time Warner Common Stock would      
represent approximately 18% of the aggregate voting power of the outstanding    
New Time Warner Capital Stock on that date.                                     

In addition, the Rights Amendment contemplates a change to the definition of
"Beneficial Ownership." The Existing Rights Agreement provides that a person    
will be deemed the "Beneficial Owner" of, among others, any securities which    
are beneficially owned, directly or indirectly, by any other person with which  
such person or any of such person's affiliates or associates has any            
agreement, arrangement or understanding for the purpose of acquiring, holding,  
voting or disposing of any "securities of the Company." The Rights Amendment    
will limit "securities of the Company" to any other securities of New Time      
Warner generally entitled to vote together with the New Time Warner Common      
Stock or any rights (other than the New Time Warner Rights), warrants, options  
or other securities exercisable or exchangeable for, or convertible into,       
shares of New Time Warner Common Stock or other securities of New Time Warner   
generally entitled to vote together with such shares. In addition, under the    
Rights Amendment, a person will be deemed to be the "Beneficial Owner" of       
shares of New Time Warner Common Stock if such person is the Beneficial Owner   
of any other securities of New Time Warner (whether or not exchangeable for,    
or convertible into, shares of New Time Warner Common Stock) generally          
entitled to vote together with the New Time Warner Common Stock. The Rights     
Amendment also contemplates that, in the event any securities of New Time       
Warner are subject to a voting trust, each beneficiary of any such voting       
trust, and not the trustee or trustees thereunder, will be deemed to be the     
"Beneficial Owner" of all such securities.                                      

103 

DEFM14A
108th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 108th
The Rights Amendment also contemplates that no person will be deemed to be  
the "Beneficial Owner" of any securities by reason of such person or any of     
such person's affiliates or associates having the right to acquire (whether     
such right is exercisable immediately or only after the passage of time) such   
securities pursuant to a right of first refusal, right of first offer or        
similar agreement, arrangement or understanding granted by another person (the  
"subject person") (a) that does not provide any direct or indirect limitations  
or restrictions on the ability of the subject person to exercise (or refrain    
from exercising) any voting rights associated with such securities or contain   
any other agreement, arrangement or understanding with respect to such voting   
rights, (b) that does not contain any incentive for the subject person to       
support or oppose any particular business combination with an "Acquiring        
Person" (as defined in the New Time Warner Rights Agreement) or otherwise to    
exercise (or refrain from exercising) any voting rights associated with such    
securities in a manner advantageous to such person or any of such person's      
affiliates or associates and (c) with respect to which prior written notice is  
given to New Time Warner. This change is intended to ensure that LMC and the    
Turner Shareholders will not be regarded as the "Beneficial Owners" of New      
Time Warner Capital Stock solely by reason of the Right of First Refusal        
Agreement. See "--Right of First Refusal Agreement" below.                      

If New Time Warner adopts the New Time Warner Rights Agreement, each share  
of New Time Warner Common Stock issued pursuant to the Transaction will be      
accompanied by one New Time Warner Right.                                       

SUPPORT AGREEMENT                                                               

The Turner Shareholders have entered into the Support Agreement with Time   
Warner. Pursuant to the Support Agreement, at any meeting of the shareholders   
of TBS held prior to the termination of the Support Agreement, each Turner      
Shareholder is required to vote the shares of TBS Capital Stock that such       
Turner Shareholder is entitled to vote (the "Turner Shareholder Shares") (a)    
in favor of the approval of the Transaction and each of the other transactions  
contemplated by the Merger Agreement and in favor of the approval and adoption  
of the Merger Agreement, and any actions required in furtherance thereof, (b)   
against any action or agreement that would result in a breach in any material   
respect of any provision of the Merger Agreement and (c) against any takeover   
proposal or any other action or agreement that is inconsistent with or that is  
reasonably likely to impede, interfere with, delay, postpone or attempt to      
discourage the Transaction or any other transaction contemplated by the Merger  
Agreement. The Support Agreement also provides that the Turner Shareholders     
will not assert dissenters' rights with respect to the Transaction.             

The Support Agreement provides that if the Merger Agreement is terminated by
TBS in accordance with its terms because the TBS Board shall have concurrently  
approved, and TBS shall have concurrently entered into, a definitive agreement  
providing for a Takeover Proposal, each Turner Shareholder must pay to Time     
Warner an amount in cash equal to all "profit" of such Turner Shareholder       
(and, in the case of Mr. Turner, the profit of certain other holders of TBS     
Capital Stock) from the consummation of any Takeover Proposal (a) that is       
consummated within 18 months of such termination or (b) with respect to which   
a definitive agreement is executed within 18 months of such termination.        

For purposes of the Support Agreement, the "profit" of any shareholder from 
any Takeover Proposal subject to the provision described in the immediately     
preceding paragraph is equal to (a) the aggregate consideration received by     
such shareholder pursuant to such Takeover Proposal, valuing any non-cash       
consideration (including any residual interest in TBS) at its fair market       
value on the date such Takeover Proposal is consummated, plus (b) the fair      
market value, on the date of disposition, of all shares of TBS Capital Stock    
disposed of by such shareholder after the termination of the Merger Agreement   
and prior to the date such Takeover Proposal is consummated, less (c) the       
aggregate consideration that such shareholder would have received pursuant to   
the Transaction, valuing each share of New Time Warner Common Stock at the      
average of the closing price per share of Time Warner Common Stock on the NYSE  
for the five trading days prior to the first public announcement by TBS of its  
intention to terminate the Merger Agreement. The foregoing profit calculation   
does not give effect to any taxes that would be payable by such shareholders    
as a result of the consummation of the Takeover Proposal.                       

104 

DEFM14A
109th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 109th
The Support Agreement (other than the provisions described in the previous  
two paragraphs) will terminate upon the termination of the Merger Agreement in  
accordance with its terms or, if earlier, upon consummation of the              
Transaction.                                                                    

INVESTORS' AGREEMENTS                                                           

Investors' Agreement (No. 1)                                                  

The Merger Agreement contemplates that at the Closing New Time Warner will  
enter into Investors' Agreement (No. 1) with Mr. Turner, Turner Outdoor and     
Turner Partners and thereafter with each successor, assign and other person     
that, pursuant to the terms of Investors' Agreement (No. 1), is required to     
become a party thereto (each, an "Investor"). Investors' Agreement (No. 1)      
contains certain "standstill" restrictions and restrictions on dispositions of  
New Time Warner Common Stock applicable to the Investors and also provides for  
the election to the New Time Warner Board of two persons designated by Mr.      
Turner, in each case as more fully described below.                             

Pursuant to Investors' Agreement (No. 1), from and after the consummation of
the Mergers, the Investors may not (and each Investor will cause its            
affiliates and associates that it controls, and use reasonable efforts to       
cause its other affiliates and associates, not to), without the prior written   
consent of the New Time Warner Board (a) publicly propose that any Investor or  
any Qualified Stockholder (as defined below) or any of their respective         
affiliates or associates enter into any merger or other business combination    
involving New Time Warner or propose to purchase a material portion of the      
assets of New Time Warner or any of its material subsidiaries, or make any      
such proposal privately if it would reasonably be expected to require New Time  
Warner to make a public announcement regarding such proposal, (b) make or in    
any way participate in any solicitation of proxies to vote or consent with      
respect to any voting securities of New Time Warner or become a participant in  
any election contest with respect to New Time Warner, (c) form, join, or        
participate in or encourage the formation of a group with respect to any        
voting securities of New Time Warner, other than a group consisting solely of   
Investors and Qualified Stockholders, (d) deposit any voting securities of New  
Time Warner into a voting trust or subject any such voting securities to any    
voting agreement or arrangement, other than any such trust, arrangement or      
agreement (i) the only parties to or beneficiaries of which are Investors and   
Qualified Stockholders and (ii) the terms of which do not require or expressly  
permit any party thereto to act in a manner inconsistent with Investors'        
Agreement (No. 1), (e) initiate, propose or otherwise solicit stockholders of   
New Time Warner for the approval of one or more stockholder proposals with      
respect to New Time Warner, or induce or attempt to induce any other person to  
initiate any stockholder proposal with respect to New Time Warner, (f) except   
with respect to Mr. Turner's rights to designate nominees to the New Time       
Warner Board (as described below), seek election to or seek to place a          
representative on the New Time Warner Board, or seek the removal of any member  
of the New Time Warner Board, (g) call or seek to have called any meeting of    
the stockholders of New Time Warner, (h)(i) solicit, seek to effect, negotiate  
with or provide non-public information to any other person with respect to,     
(ii) make any statement or proposal, whether written or oral, to the New Time   
Warner Board or any director or officer of New Time Warner with respect to, or  
(iii) otherwise make any public announcement or proposal whatsoever with        
respect to, any form of business combination transaction (with any person)      
involving a change of control of New Time Warner or the acquisition of a        
substantial portion of the equity securities or assets of New Time Warner or    
any of its material subsidiaries; provided, however, that the foregoing will    
not (A) apply to any discussion between or among the Investors and the          
Qualified Stockholders or any of their respective officers, employees, agents   
or representatives or (B) in the case of the immediately preceding clause (ii)  
above, be interpreted to limit the ability of any Investor or Qualified         
Stockholder, or any designee of any Investor or Qualified Stockholder, on the   
New Time Warner Board to make any such statement or proposal or to discuss any  
such proposal with any officer or director of or advisor to the New Time        
Warner Board unless, in either case, it would reasonably be expected to         
require New Time Warner to make a public announcement regarding such            
discussion, statement or proposal, (i) otherwise act, alone or in concert with  
others, to seek to control or influence the management or policies of New Time  
Warner (except for voting as a holder of voting securities in accordance with   
the terms of such voting securities and actions taken as a director or officer  
of New Time Warner), (j) publicly disclose any intention, plan or arrangement   
inconsistent with any of the foregoing, or make any such disclosure privately   
if it would reasonably be expected to require New Time                          

105 

DEFM14A
110th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 110th
Warner to make a public announcement regarding such intention, plan or          
arrangement or (k) advise, assist (including by knowingly providing or          
arranging financing for that purpose) or knowingly encourage any other person   
in connection with any of the foregoing. "Qualified Stockholder" means any      
Charitable Transferee or Qualified Trust from time to time bound under          
Investors' Agreement (No. 2) (as hereinafter defined and described below). A    
"Charitable Transferee" means any charitable organization described in Section  
501(c)(3) of the Code. A "Qualified Trust" means any trust described in         
Section 664 of the Code of which Mr. Turner or members of his family are        
income beneficiaries.                                                           

Investors' Agreement (No. 1) provides that none of the Investors may,       
without the prior written consent of New Time Warner, sell, transfer, pledge,   
encumber or otherwise dispose of, or agree to sell, transfer, pledge, encumber  
or otherwise dispose of, any voting securities of New Time Warner, or any       
rights or options to acquire such voting securities, except (a) to the          
underwriters in connection with an underwritten public offering of shares of    
such securities on a firm commitment basis registered under the Securities      
Act, pursuant to which the sale of such securities is in a manner that is       
intended to effect a broad distribution, (b) to any wholly owned subsidiary of  
such Investor or any partnership of which such Investor is the sole general     
partner; provided, however, that such transferee becomes a party to Investors'  
Agreement (No. 1) as an Investor, (c) to any person in a transaction that       
complies with the volume and manner of sale provisions contained in Rule        
144(e) and Rule 144(f) under the Securities Act; provided, however, that no     
such disposition may be made during any period that a person has made and not   
withdrawn or terminated a tender or exchange offer for voting securities of     
New Time Warner or has announced its intention to make such an offer, (d) to    
any person, other than a person that such Investor, or any of its affiliates    
or associates, knows or, after commercially reasonable inquiry should have      
known, beneficially owns or, after giving effect to such sale, will             
beneficially own more than 5% of the aggregate voting power of the voting       
securities of New Time Warner, (e) in the case of a natural person, to any      
Permitted Transferee (as defined below) of such person; provided, however,      
that such transferee becomes a party to Investors' Agreement (No. 1) as an      
Investor, (f) in a bona fide pledge of shares of voting securities of New Time  
Warner to a financial institution to secure borrowings; provided, however,      
that such financial institution agrees to be bound by the transfer              
restrictions contained in Investors' Agreement (No. 1) and the borrowings so    
secured are full recourse obligations of the pledgor entered into               
substantially simultaneously with such pledge, (g) upon five business days'     
prior notice to New Time Warner, pursuant to the terms of any tender or         
exchange offer for voting securities of New Time Warner or pursuant to any      
merger or consolidation of New Time Warner, subject to certain limitations,     
(h) a gift to a Charitable Transferee or Qualified Trust, subject to certain    
limitations, (i) to TCITP, or its designee in accordance with the Right of      
First Refusal Agreement or (j) to New Time Warner. A "Permitted Transferee" of  
any natural person means (i) in the case of the death of such person, such      
person's executors, administrators, testamentary trustees, heirs, devisees and  
legatees and (ii) such person's current or future spouse, parents, siblings or  
descendants or such parents', siblings' or descendants' spouses (the "Family    
Members").                                                                      

In addition, Investors' Agreement (No. 1) will provide that none of the     
Investors may (and each Investor will cause its controlled affiliates and       
associates, and use reasonable efforts to cause its other affiliates and        
associates, not to) (a) publicly request New Time Warner or any of its agents   
to amend or waive any provision of Investors' Agreement (No. 1) or (b)          
knowingly take any action that would reasonably be expected to require New      
Time Warner to make a public announcement regarding the possibility of a        
transaction with such Investor.                                                 

Investors' Agreement (No. 1) will provide that New Time Warner will use     
reasonable efforts to cause to be elected to the New Time Warner Board two      
persons designated by Mr. Turner who are Eligible Persons. "Eligible Person"    
means Mr. Turner and any other individual (a) who is reasonably acceptable to   
the New Time Warner Board, (b) whose election to the New Time Warner Board      
would not, in the opinion of counsel for New Time Warner, violate, conflict     
with, or result in any material limitation on the ownership or operation of     
any business or assets of New Time Warner or any of its subsidiaries under,     
any statute, law, ordinance, regulation, rule, judgment, decree or order of     
any governmental entity and (c) who has agreed in writing to comply with the    
standstill covenants, and to resign as a director of New Time Warner if         
requested to do so upon a reduction in the number of designees to the New Time  
Warner Board to which Mr. Turner is entitled, as described below.               

106 

DEFM14A
111th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 111th
Upon the Investors and the Qualified Stockholders, taken together, ceasing to   
own of record and beneficially at least 50% of the voting securities of New     
Time Warner owned by the Investors and the Qualified Stockholders, taken        
together, immediately following consummation of the Transaction ("Initial       
Shares"), the number of persons that Mr. Turner will be entitled to designate   
for election to the New Time Warner Board will be reduced to one. Upon (i) the  
Investors and the Qualified Stockholders, taken together, ceasing to own of     
record and beneficially at least one-third of the Initial Shares and Mr.        
Turner ceasing to be an employee of New Time Warner or any of its               
subsidiaries, (ii) the death or incapacity of Mr. Turner, (iii) the willful     
violation in any material respect of certain covenants contained in Investors'  
Agreement (No. 1) by any Investor or (iv) the fifth business day following      
written notice of termination of Investors' Agreement (No. 1) from Mr. Turner,  
the number of persons that Mr. Turner will be entitled to designate for         
election to the New Time Warner Board will be reduced to zero. If at any time   
Mr. Turner and his Family Members cease to constitute a sufficient number of    
the directors or trustees, as applicable, of any Qualified Stockholder to       
permit approval of matters by such Qualified Stockholder without the approval   
of any other director or trustee of such Qualified Stockholder, the voting      
securities of New Time Warner held by such Qualified Stockholder will           
thereafter be deemed not to be owned of record and beneficially by such         
Qualified Stockholder (or any Investor) for purposes of determining Mr.         
Turner's entitlement to representation on the New Time Warner Board.            

The standstill covenants of Investors' Agreement (No. 1) will terminate upon
the last to occur of (a) Mr. Turner ceasing to be an employee of New Time       
Warner or any of its subsidiaries, (b) Mr. Turner ceasing to be a member of     
the New Time Warner Board and (c) Mr. Turner ceasing to be entitled to          
designate any Eligible Persons for election to the New Time Warner Board. In    
addition, the transfer restrictions of Investors' Agreement (No. 1) will        
terminate on the fifth anniversary of the consummation of the Mergers. Without  
limiting the foregoing, the standstill covenants and transfer restrictions      
will terminate if the New Time Warner Board does not (i) on the date of         
execution of Investors' Agreement (No. 1), elect to the New Time Warner Board   
the two Eligible Persons designated by Mr. Turner, (ii) recommend for election  
by the stockholders of New Time Warner to the New Time Warner Board any         
Eligible Person designated by Mr. Turner in accordance with the terms of        
Investors' Agreement (No. 1) or (iii) reasonably promptly after any request     
from Mr. Turner, fill any vacancy created on the New Time Warner Board upon     
the death, resignation or removal of any designee of Mr. Turner on the New      
Time Warner Board with another Eligible Person designated by Mr. Turner, in     
each case if the effect of such failure is that Mr. Turner does not have the    
representation on the New Time Warner Board to which he is entitled under       
Investors' Agreement (No. 1).                                                   

Investors' Agreement (No. 2)                                                  

The Merger Agreement also contemplates that any Charitable Transferee or    
Qualified Trust to whom any Turner Shareholder transfers voting securities of   
New Time Warner must enter into an Investors' Agreement ("Investors' Agreement  
(No. 2)") with New Time Warner, whereupon such transferee will become a         
Qualified Stockholder.                                                          

Investors' Agreement (No. 2) will provide that none of the Qualified        
Stockholders may, without the prior written consent of New Time Warner, sell,   
transfer, pledge, encumber or otherwise dispose of, or agree to sell,           
transfer, pledge, encumber or otherwise dispose of, any Covered New Time        
Warner Common Stock (as hereinafter defined), or any rights or options to       
acquire Covered New Time Warner Stock, except in a transaction complying with   
clause (a), (c), (d), (f), (g), (i) or (j) contained in the summary of the      
transfer restrictions of Investors' Agreement (No. 1) set forth above (except   
that, in the case of such clause (f), the financial institution must agree to   
be bound by the transfer restrictions contained in Investors' Agreement (No.    
2) rather than the transfer restrictions contained in Investors' Agreement      
(No. 1)). "Covered New Time Warner Common Stock" means (i) any shares of New    
Time Warner Common Stock transferred to a Qualified Stockholder by an Investor  
pursuant to Investors' Agreement (No. 1) and (ii) any shares of New Time        
Warner Common Stock acquired by a Qualified Stockholder pursuant to the         
Transaction otherwise than in exchange for any shares of TBS Common Stock       
owned by such Qualified Stockholder on September 22, 1995.                      

107 

DEFM14A
112th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 112th
The transfer restrictions contained in Investors' Agreement (No. 2) will    
terminate on the earlier of (a) the fifth anniversary of the consummation of    
the Mergers and (b) the date on which the transfer restrictions contained in    
Investors' Agreement (No. 1) have been terminated.                              

RIGHT OF FIRST REFUSAL AGREEMENT                                                

Pursuant to the LMC Agreement, at the Closing, TCI Turner Preferred, Inc.   
("TCITP") and certain of its subsidiaries (the "TCITP Stockholders") will       
enter into the Right of First Refusal Agreement with the Turner Shareholders    
(any TCITP Stockholder or Turner Shareholder is referred to herein as a         
"Subject Stockholder") and New Time Warner. As used below, the term "Other      
Stockholder" means, with respect to any TCITP Stockholder, Mr. Turner, and      
with respect to any Turner Shareholder, TCITP.                                  

The Right of First Refusal Agreement places various restrictions on         
dispositions by any Subject Stockholder of New Time Warner Capital Stock, New   
Time Warner securities convertible into such capital stock, or options,         
warrants or other rights to purchase such capital stock or such securities      
convertible into such capital stock (collectively, "Covered Securities").       
Among other restrictions, if a Subject Stockholder intends to sell any or all   
of its Covered Securities (the "Subject Shares"), such Subject Stockholder      
must give the Other Subject Stockholder an opportunity to purchase such         
Subject Shares for a consideration no more favorable to such Subject            
Stockholder than the consideration that would apply if such Subject             
Stockholder consummated such proposed sale (the "First Refusal Right"). Under   
certain circumstances, New Time Warner will also have a similar First Refusal   
Right with respect to Subject Shares that are not purchased by the Other        
Stockholder.                                                                    

REGISTRATION RIGHTS AGREEMENTS                                                  

Turner Registration Rights Agreement                                          

Pursuant to the Merger Agreement, at the Closing, the Turner Registration   
Rights Agreement will be entered into by New Time Warner, on the one hand, and  
Mr. Turner, Turner Outdoor, Turner Partners and certain associated holders of   
New Time Warner Common Stock, on the other (collectively, and together with     
certain specified entities to whom the Registrable Shares (as defined below)    
are transferred, the "Turner Holders"). For a three-year period, the Turner     
Holders will have the right (a "Turner Demand Registration"), by written        
notice, to require New Time Warner, on three separate occasions, to register    
under the Securities Act sales of shares of New Time Warner Common Stock        
issued to them (the "Registrable Shares") . Each Turner Demand Registration     
must include at least five million Registrable Shares. Except to the extent     
required by agreements entered into prior to September 22, 1995, New Time       
Warner will not include any securities that are not Registrable Shares in any   
Turner Demand Registration without the prior written consent of the Turner      
Holders who hold a majority in number of the Registrable Shares covered by      
such Turner Demand Registration.                                                

If New Time Warner proposes to file a registration statement under the      
Securities Act with respect to securities of the same type as the Registrable   
Shares pursuant to a firm commitment underwritten offering solely for cash for  
its own account (other than a registration statement on Form S-8 or filed in    
connection with a dividend reinvestment plan or an employee benefit plan        
covering officers or directors of New Time Warner or its affiliates) or for     
the account of any holders of securities of the same type as the Registrable    
Shares (to the extent that New Time Warner has the right to include             
Registrable Shares in any registration statement to be filed by New Time        
Warner on behalf of such holders), then New Time Warner will be required to     
offer the Turner Holders the opportunity, subject to certain conditions, to     
include in such registration statement such number of Registrable Shares as     
such Turner Holders may request.                                                

New Time Warner will be required to pay all costs, fees and expenses        
incident to its performance of the Turner Registration Rights Agreement,        
except that the fees and expenses of any Turner Holder other than for one       
counsel for all Turner Holders, and any discounts, commissions, brokers' fees   
or fees of similar securities industry professionals and any transfer taxes     
relating to the disposition of Registrable Shares by a Turner Holder, will be   
payable by such Turner Holder, and New Time Warner will have no obligation to   
pay any such amounts.                                                           

108 

DEFM14A
113th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 113th
The Turner Registration Rights Agreement will contain provisions under which
New Time Warner may require the Turner Holders temporarily to refrain from      
effecting public sales of Registrable Shares. In addition, under the Turner     
Registration Rights Agreement, New Time Warner and the Turner Holders will      
indemnify each other against certain liabilities, including liabilities         
arising under the Federal securities laws.                                      

LMC Registration Rights Agreement                                             

Pursuant to the LMC Agreement, at the Closing, the LMC Registration Rights  
Agreement will be entered into by New Time Warner, on the one hand, and LMC,    
on the other (together with certain specified entities to whom the LMC          
Registrable Shares (as defined below) are transferred pursuant to the LMC       
Registration Rights Agreement, the "LMC Holders"). The LMC Holders of not less  
than a majority of the LMC Registrable Shares then held by all LMC Holders      
will have the right, by written notice, to require New Time Warner, on three    
separate occasions, to register under the Securities Act all or any portion of  
the LMC Registrable Shares designated by such LMC Holders (an "LMC Demand       
Registration"). In addition, if a Prohibited Effect occurs, certain LMC         
Holders may have an additional demand registration right. Each LMC Demand       
Registration must include at least four million LMC Registrable Shares or the   
remaining LMC Registrable Shares, if less.                                      

If New Time Warner proposes to file a registration statement under the      
Securities Act with respect to a public offering of securities of the same      
type as the LMC Registrable Shares pursuant to an underwritten offering solely  
for cash for its own account (other than a registration statement on Form S-8   
or filed in connection with a dividend reinvestment plan or an employee         
benefit plan covering officers or directors of New Time Warner or its           
affiliates), then New Time Warner will be required to offer the LMC Holders     
the opportunity, subject to certain limitations, to include in such             
registration statement such number of LMC Registrable Shares as such LMC        
Holders may request.                                                            

The rights of an LMC Holder under the LMC Registration Rights Agreement will
terminate upon the later of (a) the third anniversary of the Closing Date and   
(b) if such LMC Holder is an affiliate of New Time Warner, the date such LMC    
Holder ceases to be an affiliate of New Time Warner.                            

New Time Warner will be required to pay all costs, fees and expenses        
incident to its performance of the LMC Registration Rights Agreement, except    
that the fees and expenses of any LMC Holder other than for one counsel for     
all such LMC Holders, and any discounts, commissions or brokers' fees or fees   
of similar securities industry professionals and any transfer taxes relating    
to the disposition of the LMC Registrable Shares by an LMC Holder, will be      
payable by such LMC Holder and New Time Warner will have no obligation to pay   
any such amounts.                                                               

The LMC Registration Rights Agreement will contain provisions under which   
New Time Warner may require the LMC Holders temporarily to refrain from         
effecting public sales of Registrable Shares. In addition, under the LMC        
Registration Rights Agreement New Time Warner and the LMC Holders will          
indemnify each other against certain liabilities, including liabilities         
arising under the Federal securities laws.                                      

"LMC Registrable Shares" means shares of New Time Warner Common Stock issued
to any of the initial LMC Holders pursuant to the Merger Agreement, or any      
securities into which such shares may be exchanged or converted and any such    
shares issued to any Turner Holder and acquired by any LMC Holder pursuant to   
the Right of First Refusal Agreement.                                           

109 

DEFM14A
114th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 114th
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 

The following pro forma consolidated condensed financial information of New 
Time Warner gives effect to the consummation of the Transaction and a number    
of transactions that Time Warner and TWE have completed, or have entered into,  
during the periods presented below (the "TW Transactions"). The pro forma       
effect on Time Warner's historical financial statements resulting from the TW   
Transactions is set forth under the heading "Time Warner Adjusted." The TW      
Transactions for which adjustments have been made, as more fully described in   
the Time Warner Form 8-K, dated August 14, 1996 and the Time Warner Form 10-K,  
each of which is incorporated by reference herein, are as follows:              

(a) on April 11, 1996, Time Warner issued 1.6 million shares of Time    
Warner Series K Preferred Stock for approximately $1.55 billion of net      
proceeds. Such proceeds were used by Time Warner to redeem all $250 million 
principal amount of its outstanding 8.75% Debentures due 2017 (the "TW      
8.75% Debentures") for $265 million (including redemption premiums and      
accrued interest thereon of $15 million) and to reduce indebtedness of TWI  
Cable Inc. ("TWI Cable"), a wholly-owned subsidiary of Time Warner, under   
the New Credit Agreement (as defined below) by approximately $1.3 billion.  
The issuance of the Time Warner Series K Preferred Stock and the use of the 
proceeds therefrom to reduce outstanding indebtedness of Time Warner are    
referred to herein as the "Series K Refinancing";                           

(b) on February 1, 1996, Time Warner redeemed the remaining $1.2 billion
principal amount of 8.75% Convertible Subordinated Debentures due 2015 (the 
"TW 8.75% Convertible Debentures") for $1.28 billion, including redemption  
premiums and accrued interest thereon (the "February 1996 Redemption"). In  
addition, in September 1995, Time Warner redeemed approximately $1 billion  
principal amount of TW 8.75% Convertible Debentures for $1.06 billion,      
including redemption premiums and accrued interest thereon (the "September  
1995 Redemption"). The September 1995 Redemption was financed with          
(1) approximately $500 million of proceeds raised in June 1995 from the     
issuance of 7.75% notes due 2005 (the "TW 7.75% Notes"), (2) $363 million   
of net proceeds raised in August 1995 from the issuance of approximately    
12.1 million Time Warner-obligated mandatorily redeemable preferred         
securities of a subsidiary ("PERCS") that are redeemable for cash or, at    
Time Warner's option, approximately 12.1 million shares of Hasbro, Inc.     
common stock owned by Time Warner and that pay cash distributions at a rate 
of 4% per annum and (3) available cash and equivalents (the "1995           
Convertible Debt Refinancing"). The February 1996 Redemption was financed   
with (1) $557 million of net proceeds raised in December 1995 from the      
issuance of Time Warner-obligated mandatorily redeemable preferred          
securities of a subsidiary ("Preferred Trust Securities") that pay cash     
distributions at a rate of 8 7/8% per annum and (2) proceeds raised from    
the $750 million issuance of debentures in January 1996, consisting of (i)  
$400 million principal amount of 6.85% debentures due 2026, which are       
redeemable at the option of the holders thereof in 2003, (ii) $200 million  
principal amount of 8.3% discount debentures due 2036, which do not pay     
cash interest until 2016, (iii) $166 million principal amount of 7.48%      
debentures due 2008 and (iv) $150 million principal amount of 8.05%         
debentures due 2016 (collectively referred to herein as the "January 1996   
Debentures"). The issuance of the Preferred Trust Securities and the        
January 1996 Debentures, together with the February 1996 Redemption are     
collectively referred to herein as the "1996 Convertible Debt Refinancing." 
The 1995 Convertible Debt Refinancing and the 1996 Convertible Debt         
Refinancing are collectively referred to herein as the "Convertible Debt    
Refinancings";                                                              

(c) on January 4, 1996, Time Warner completed its acquisition of CVI and
certain affiliated entities of CVI (the "Gerry Companies") (the "CVI        
Acquisition"). CVI and the Gerry Companies owned cable television systems   
serving approximately 1.3 million subscribers;                              

(d) on October 2, 1995 and September 5, 1995, Toshiba and ITOCHU,       
respectively, each exchanged (i) their 5.61% pro rata equity interests in   
TWE, (ii) their 6.25% residual equity interests in TW Service Holding I,    
L.P. and TW Service Holding II, L.P., each of which owned certain assets    
related to the TWE businesses (the "Time Warner Service Partnerships") and  
(iii) their options to increase their interests in TWE under certain        
circumstances for, in the case of ITOCHU, 6.2 million shares of Time Warner 
Series G Preferred Stock and 1.8 million shares of Time Warner Series H     
Preferred Stock and, in the case of Toshiba,                                

110 

DEFM14A
115th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 115th
7 million shares of Time Warner Series I Preferred Stock and $10 million in 
cash (the "ITOCHU/Toshiba Transaction"). As a result of the ITOCHU/Toshiba  
Transaction, Time Warner and certain of its wholly owned subsidiaries       
collectively now own 74.49% of TWE's Series A Capital and Residual Capital  
and 100% of TWE's Senior Capital and Series B Capital. A subsidiary of U S  
WEST owns the remaining 25.51% of TWE's Series A Capital and Residual       
Capital;                                                                    

(e) on August 15, 1995, Time Warner redeemed all of its $1.8 billion    
principal amount of outstanding Redeemable Reset Notes due 2002 (the "Reset 
Notes") in exchange for new securities (the "Reset Notes Refinancing"),     
consisting of approximately $454 million aggregate principal amount of      
Floating Rate Notes due 2000, approximately $272 million aggregate          
principal amount of 7.975% Notes due 2004, approximately $545 million       
aggregate principal amount of 8.11% Debentures due 2006, and approximately  
$545 million aggregate principal amount of 8.18% Debentures due 2007;       

(f) on July 6, 1995, Time Warner acquired KBLCOM, which owned cable     
television systems serving approximately 700,000 subscribers and a 50%      
interest in Paragon, which owned cable television systems serving an        
additional 972,000 subscribers (the "KBLCOM Acquisition"). The other 50%    
interest in Paragon was already owned by TWE;                               

(g) on June 30, 1995, TWI Cable, TWE and the TWE-Advance/Newhouse       
Partnership (as defined below) executed a five-year revolving credit        
facility (the "New Credit Agreement"). The New Credit Agreement enabled     
such entities to refinance certain indebtedness assumed in connection with  
the Cable Acquisitions (as defined below), to refinance TWE's indebtedness  
under a pre-existing bank credit agreement and to finance the ongoing       
working capital, capital expenditure and other corporate needs of each      
borrower (the "Bank Refinancing"). The Series K Refinancing, the            
Convertible Debt Refinancings, the Reset Notes Refinancing and the Bank     
Refinancing are referred to herein as the "Debt Refinancings";              

(h) on June 23, 1995, (i) Six Flags was recapitalized, (ii) TWE sold a  
51% interest in Six Flags to an investment group led by Boston Ventures and 
(iii) TWE granted certain licenses to Six Flags (collectively, the "Six     
Flags Transaction");                                                        

(i) on May 2, 1995, Time Warner acquired Summit, which owned cable      
television systems serving approximately 162,000 subscribers (the "Summit   
Acquisition" and, together with the CVI Acquisition and the KBLCOM          
Acquisition, the "Cable Acquisitions");                                     

(j) on April 1, 1995, TWE closed its transaction (the "TWE-A/N          
Transaction") with the Advance/Newhouse Partnership ("Advance/Newhouse"),   
pursuant to which TWE and Advance/Newhouse formed the Time Warner           
Entertainment-Advance/Newhouse Partnership, a New York general partnership  
(the "TWE-Advance/Newhouse Partnership"), and to which Advance/Newhouse and 
TWE contributed cable television systems (or interests therein) serving     
approximately 4.5 million subscribers, as well as certain foreign cable     
investments and certain programming investments that included               
Advance/Newhouse's 10% interest in Primestar Partners, L.P. TWE owns a two- 
thirds equity interest in the TWE-Advance/Newhouse Partnership and is the   
managing partner and Advance/Newhouse owns a one-third equity interest; and 

(k) during 1995, TWE entered into agreements to sell, or announced its  
intention to sell, 17 of its unclustered cable television systems serving   
approximately 180,000 subscribers, of which certain of the transactions     
closed during 1995 and the remaining transactions, which are not material,  
have closed or are expected to close in 1996 (the "Unclustered Cable        
Transactions").                                                             

The pro forma consolidated condensed balance sheet of New Time Warner at    
June 30, 1996 gives effect to the Transaction as if it was consummated on such  
date. The pro forma consolidated statements of operations of New Time Warner    
for the six months ended June 30, 1996 and the year ended December 31, 1995     
give effect to the Transaction and the TW Transactions, as if such              
transactions had occurred at the beginning of 1995. The pro forma consolidated  
condensed financial statements should be read in conjunction with (a) the       
historical financial statements of Time Warner and TWE, including the notes     
thereto, which are contained in the Time Warner Form 10-Q for the quarter       
ended June 30, 1996 and the Time Warner Form 10-K, (b) the historical           
financial statements                                                            

111 

DEFM14A
116th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 116th
of TBS, including the notes thereto, which are contained in the TBS Form 10-Q   
for the quarter ended June 30, 1996 and the TBS Form 10-K and (c) the           
historical financial statements and pro forma consolidated condensed financial  
statements included or incorporated by reference in the Time Warner Form 8-K    
dated August 14, 1996.                                                          

The pro forma consolidated condensed financial statements are presented for 
informational purposes only and are not necessarily indicative of the           
financial position or operating results that would have occurred if the         
transactions had been consummated as of the dates indicated, nor are they       
necessarily indicative of future financial conditions or operating results.     

Pro forma adjustments for the Transaction reflect (a) the issuance by New   
Time Warner of approximately 173.3 million shares of New Time Warner Capital    
Stock to be issued to the holders of TBS Capital Stock, including               
approximately 50.6 million shares of LMC Series Common Stock to be received by  
LMC, (b) the issuance by New Time Warner of an additional five million shares   
of LMC Series Common Stock to be received by LMC and its affiliates and the     
payment of $67 million in cash in connection with the SSSI Agreement, (c) the   
issuance by New Time Warner of options to purchase approximately 14 million     
shares of New Time Warner Common Stock to replace all outstanding TBS options,  
(d) the assumption of approximately $2.6 billion of indebtedness, including     
$273 million of TBS LYONs and (e) the payment of approximately $95 million for  
transaction costs and other related liabilities of Time Warner and TBS. The     
TBS LYONs may be converted at the option of the holders into an additional 7.4  
million shares of TBS Class B Common Stock prior to the consummation of the     
Transaction. Should such conversion occur, (i) New Time Warner's pro forma      
shareholders' equity at June 30, 1996 would be increased by approximately $186  
million to reflect the issuance of approximately 5.6 million additional shares  
of New Time Warner Common Stock, (ii) New Time Warner's pro forma indebtedness  
at June 30, 1996 would be reduced by $273 million and (iii) New Time Warner's   
pro forma loss before extraordinary item and loss before extraordinary item     
per common share for the six months ended June 30, 1996 and the year ended      
December 31, 1995 would be reduced by $6 million and $.01 per common share and  
$11 million and $.03 per common share, respectively.                            

The pro forma consolidated condensed financial statements reflect an        
assumption that New Time Warner will elect to satisfy a portion of the          
consideration to be paid to LMC in connection with the SSSI Agreement in cash,  
rather than in additional shares of LMC Series Common Stock. Should New Time    
Warner elect otherwise, the effect on New Time Warner's pro forma financial     
condition and operating results would not be material.                          

The Transaction will be accounted for by the purchase method of accounting  
for business combinations and, accordingly, the estimated cost to acquire such  
assets will be allocated to the underlying net assets in proportion to their    
respective fair values. The valuations and other studies which will provide     
the basis for such an allocation have not been completed. As more fully         
described in the notes to the pro forma consolidated condensed financial        
statements, a preliminary allocation of the excess of cost over the book value  
of the net assets to be acquired has been made to goodwill.                     

Time Warner expects to realize certain revenue enhancements and cost        
reductions as a result of strategic and cost-saving initiatives relating to     
the integration of the operations of TBS into Time Warner's operating           
structure; however, such incremental revenues and cost savings have not been    
reflected in the pro forma consolidated condensed statements of operations of   
New Time Warner.                                                                

112 

DEFM14A
117th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 117th
NEW TIME WARNER 

PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1996 
(MILLIONS, UNAUDITED) 

                                                                [Download Table]

                                                 TBS TRANSACTION        NEW TIME
                                           ----------------------------  WARNER 
                               TIME WARNER      TBS        PRO FORMA      PRO   
                               HISTORICAL  HISTORICAL(A) ADJUSTMENTS(B)  FORMA  
                               ----------- ------------- -------------- --------
                                                                                
           ASSETS                                                               
Cash and equivalents.........    $   482      $  119         $   --     $   601 
Other current assets.........      2,742       1,292           (174)      3,860 
                                 -------      ------         ------     ------- 
Total current assets.........      3,224       1,411           (174)      4,461 
Investments in and amounts                                                      
 due to and from                                                                
 Entertainment Group.........      5,945          --             --       5,945 
Other investments............      2,507          --           (539)      1,968 
Noncurrent inventories.......         --       2,042             --       2,042 
Property, plant and                                                             
 equipment...................      1,481         368             --       1,849 
Cable television franchises..      3,970          --             --       3,970 
Goodwill.....................      5,825         260          6,428      12,513 
Other assets.................      1,556         407             --       1,963 
                                 -------      ------         ------     ------- 
Total assets.................    $24,508      $4,488         $5,715     $34,711 
                                 =======      ======         ======     ======= 
  LIABILITIES AND SHAREHOLDERS' EQUITY                                          
Total current liabilities....    $ 2,762      $  822         $   --     $ 3,584 
Long-term debt...............      9,928       2,600            162      12,690 
Borrowings against future                                                       
 stock option proceeds.......        225          --             --         225 
Deferred income taxes........      3,983         421             --       4,404 
Other long-term liabilities..      1,232         174             --       1,406 
Time Warner-obligated                                                           
 mandatorily redeemable                                                         
 preferred securities of                                                        
 subsidiaries holding solely                                                    
 subordinated notes and                                                         
 debentures of Time                                                             
 Warner(1)...................        949          --             --         949 
Series K exchangeable                                                           
 preferred stock.............      1,586          --             --       1,586 
Shareholders' equity:                                                           
 Preferred stock.............         36          --           (32)           4 
 Common stock................        387          --           (381)          6 
 Paid-in capital.............      5,866          --          6,437      12,303 
 Unrealized gains on certain                                                    
  marketable securities......        177          --             --         177 
 TBS shareholders' equity....         --         471           (471)         -- 
 Accumulated deficit.........     (2,623)         --             --      (2,623)
                                 -------      ------         ------     ------- 
Total shareholders' equity...      3,843         471          5,553       9,867 
                                 -------      ------         ------     ------- 
Total liabilities and                                                           
 shareholders' equity........    $24,508      $4,488         $5,715     $34,711 
                                 =======      ======         ======     ======= 

-----------------                                                               
(1) Includes $374 million of preferred securities that are redeemable for cash  
 or, at Time Warner's option, approximately 12.1 million shares of Hasbro,
Inc. common stock owned by Time Warner.                                 

See accompanying notes.                                                         

113 

DEFM14A
118th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 118th
NEW TIME WARNER 

PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(MILLIONS, UNAUDITED) 

                                                        [Enlarge/Download Table]

                                                       TBS TRANSACTION        NEW TIME
                                                 ----------------------------  WARNER 
                         TIME WARNER TIME WARNER      TBS        PRO FORMA      PRO   
                         HISTORICAL  ADJUSTED(C) HISTORICAL(E) ADJUSTMENTS(F)  FORMA  
                         ----------- ----------- ------------- -------------- --------
                                                                                      
Revenues................   $4,207      $4,207       $1,675          $ --       $5,882 
Cost of revenues*.......    2,525       2,525        1,101            97        3,723 
Selling, general and                                                                  
 administrative*........    1,357       1,357          474            --        1,831 
                           ------      ------       ------          ----       ------ 
Operating expenses......    3,882       3,882        1,575            97        5,554 
                           ------      ------       ------          ----       ------ 
Business segment                                                                      
 operating income                                                                     
 (loss).................      325         325          100           (97)         328 
Equity in pretax income                                                               
 of Entertainment                                                                     
 Group..................      209         209           --            --          209 
Interest and other,                                                                   
 net....................     (578)       (540)         (97)           10         (627)
Corporate expenses......      (36)        (36)          --            --          (36)
                           ------      ------       ------          ----       ------ 
Income (loss) before                                                                  
 income taxes...........      (80)        (42)           3           (87)        (126)
Income tax (provision)                                                                
 benefit................      (44)        (60)          (2)            6          (56)
                           ------      ------       ------          ----       ------ 
Income (loss) before                                                                  
 extraordinary item.....     (124)       (102)           1           (81)        (182)
Preferred dividend                                                                    
 requirements...........     (104)       (155)          --            --         (155)
                           ------      ------       ------          ----       ------ 
Income (loss) before                                                                  
 extraordinary item                                                                   
 applicable to common                                                                 
 shares.................   $ (228)     $ (257)      $    1          $(81)      $ (337)
                           ======      ======       ======          ====       ====== 
Loss before                                                                           
 extraordinary item per                                                               
 common share...........   $(.58)      $ (.66)                                 $ (.59)
                           ======      ======                                  ====== 
Average common shares...    390.6       390.6                                   568.9 
                           ======      ======                                  ====== 
--------                                                                              
* Includes depreciation                                                               
   and amortization                                                                   
   expense of: .........   $  452      $  452       $   92          $ 79       $  623 
                           ======      ======       ======          ====       ====== 

See accompanying notes.                                                         

114 

DEFM14A
119th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 119th
NEW TIME WARNER 

PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(MILLIONS, UNAUDITED) 

                                                        [Enlarge/Download Table]

                                                       TBS TRANSACTION        NEW TIME
                                                 ----------------------------  WARNER 
                         TIME WARNER TIME WARNER      TBS        PRO FORMA      PRO   
                         HISTORICAL  ADJUSTED(D) HISTORICAL(E) ADJUSTMENTS(F)  FORMA  
                         ----------- ----------- ------------- -------------- --------
                                                                                      
Revenues................   $8,067      $8,742       $3,437         $  --      $12,179 
Cost of revenues*.......    4,682       5,236        2,166           206        7,608 
Selling, general and                                                                  
 administrative*........    2,688       2,850          889            --        3,739 
                           ------      ------       ------         -----      ------- 
Operating expenses......    7,370       8,086        3,055           206       11,347 
                           ------      ------       ------         -----      ------- 
Business segment                                                                      
 operating income                                                                     
 (loss).................      697         656          382          (206)         832 
Equity in pretax income                                                               
 of Entertainment                                                                     
 Group..................      256         286           --            --          286 
Interest and other,                                                                   
 net....................     (877)       (926)        (209)           (7)      (1,142)
Corporate expenses......      (74)        (74)          --            --          (74)
                           ------      ------       ------         -----      ------- 
Income (loss) before                                                                  
 income taxes...........        2         (58)         173          (213)         (98)
Income tax (provision)                                                                
 benefit................     (126)       (132)         (70)           26         (176)
                           ------      ------       ------         -----      ------- 
Income (loss) before                                                                  
 extraordinary item.....     (124)       (190)         103          (187)        (274)
Preferred dividend                                                                    
 requirements...........      (52)       (316)          --            --         (316)
                           ------      ------       ------         -----      ------- 
Income (loss) before                                                                  
 extraordinary item                                                                   
 applicable to common                                                                 
 shares.................   $ (176)     $ (506)      $  103         $(187)     $  (590)
                           ======      ======       ======         =====      ======= 
Loss before                                                                           
 extraordinary item per                                                               
 common share...........   $ (.46)     $(1.30)                                $ (1.04)
                           ======      ======                                 ======= 
Average common shares...    383.8       387.7                                   566.0 
                           ======      ======                                 ======= 
--------                                                                              
* Includes depreciation                                                               
   and amortization                                                                   
   expense of: .........   $  559      $  935       $  189         $ 159      $ 1,283 
                           ======      ======       ======         =====      ======= 

See accompanying notes.                                                         

115 

DEFM14A
120th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 120th
NOTES TO THE NEW TIME WARNER PRO FORMA CONSOLIDATED CONDENSED FINANCIAL 
STATEMENTS  

(a) Reflects the historical financial position of TBS at June 30, 1996,     
including $2.6 billion of long-term indebtedness that will be assumed pursuant  
to the Transaction.                                                             

(b) Pro forma adjustments to record the Transaction reflect (1) a           
reclassification in shareholders' equity from common stock and preferred stock  
to paid-in capital to reflect the reduction in the par value, in the case of    
common stock, from $1.00 per share to $.01 per share, and, in the case of       
preferred stock, from $1.00 per share to $.10 per share, (2) the issuance of    
(i) 173.3 million shares of New Time Warner Capital Stock to be issued to the   
holders of TBS Capital Stock, including approximately 50.6 million shares of    
LMC Series Common Stock to be received by LMC, (ii) an additional 5 million     
shares of LMC Series Common Stock to be received by LMC and its affiliates in   
connection with the SSSI Agreement and (iii) approximately 14 million stock     
options to replace all outstanding TBS stock options, valued at an aggregate    
of $6.024 billion for pro forma purposes based on a New Time Warner Common      
Stock price of $33.25 per share, (3) the write-off of approximately $260        
million of pre-existing goodwill of TBS and approximately $174 million of TBS   
inventory to conform TBS's accounting policy with respect to the                
capitalization and amortization of film exploitation costs to Time Warner's     
accounting policy, (4) the incurrence of $162 million of additional             
indebtedness for the payment of (i) $67 million in connection with the SSSI     
Agreement and (ii) $95 million in connection with transaction costs and other   
related liabilities of Time Warner and TBS, (5) the allocation of the excess    
of the purchase price over the book value of the net assets acquired of $6.688  
billion to goodwill and (6) the elimination of (i) Time Warner's historical     
investment in TBS in the amount of $539 million and (ii) TBS's historical       
stockholders' equity in the amount of $471 million.                             

(c) Reflects Time Warner's pro forma consolidated condensed statement of    
operations for the six months ended June 30, 1996 as previously reported in     
the Time Warner Form 8-K dated August 14, 1996, which gives effect to the       
Series K Refinancing and the 1996 Convertible Debt Refinancing as if such       
transactions occurred at the beginning of 1995.                                 

(d) Reflects Time Warner's pro forma consolidated condensed statement of    
operations for the year ended December 31, 1995 as previously reported in the   
Time Warner Form 8-K dated August 14, 1996, which gives effect to the Cable     
Acquisitions, the Six Flags Transaction, the Unclustered Cable Disposition,     
the TWE-A/N Transaction, the Debt Refinancings and the ITOCHU/Toshiba           
Transaction, as if each applicable transaction had occurred at the beginning    
of such period.                                                                 

(e) Reflects the historical operating results of TBS for the six months     
ended June 30, 1996 and the year ended December 31, 1995, including certain     
reclassifications to conform to Time Warner's financial statement               
presentation.                                                                   

(f) Pro forma adjustments to record the Transaction for the six months ended
June 30, 1996 and the year ended December 31, 1995 reflect (1) the exclusion    
of $7 million and $10 million, respectively, of merger costs directly related   
to the Transaction expensed by TBS in each respective period, (2) an increase   
of $97 million and $206 million, respectively, in cost of revenues consisting   
of (i) a $5 million and $8 million reduction, respectively, of TBS's            
historical amortization of pre-existing goodwill, (ii) an $84 million and $167  
million increase, respectively, in amortization with respect to the excess      
cost to acquire TBS that has been allocated to goodwill and amortized on a      
straight-line basis over a forty-year period and (iii) an $18 million and $47   
million increase, respectively, in the amortization of capitalized film         
exploitation costs to conform TBS's accounting policy to Time Warner's          
accounting policy, (3) an increase of $5 million and $9 million, respectively,  
in interest expense on the $162 million of additional indebtedness for the      
payment of (i) $67 million in connection with the SSSI Agreement and (ii) $95   
million in connection with transaction costs and other related liabilities of   
Time Warner and TBS, (4) a decrease of $8 million and an increase of $8         
million, respectively, in interest and other, net due to the elimination of     
Time Warner's historical equity accounting for its investment in TBS and (5) a  
decrease of $6 million and $26 million, respectively, in income tax expense as  
a result of income tax benefits provided at a 41% tax rate.                     

116 

DEFM14A
121st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 121st
BUSINESS OF TIME WARNER 

Time Warner is the world's leading media company, and has interests in three
fundamental areas of business: Entertainment, consisting principally of         
interests in recorded music and music publishing, filmed entertainment,         
broadcasting, theme parks and cable television programming; News and            
Information, consisting principally of interests in magazine publishing, book   
publishing and direct marketing; and Telecommunications, consisting             
principally of interests in cable television systems.                           

Time Warner was incorporated in the State of Delaware in August 1983 and is 
the successor to a New York corporation that was originally organized in 1922.  
Time Warner changed its name from Time Incorporated to Time Warner Inc.         
following its acquisition of 59.3% of the common stock of WCI in July 1989.     
WCI became a wholly owned subsidiary of Time Warner in January 1990 upon the    
completion of the WCI Acquisition.                                              

TWE was formed as a Delaware limited partnership in 1992 and owns           
substantially all of Time Warner's interests in filmed entertainment,           
broadcasting, theme parks, cable television programming and a majority of its   
interests in cable television systems. Time Warner and the Time Warner General  
Partners collectively own general and limited partnership interests in 74.49%   
of the Series A Capital and Residual Capital of TWE and 100% of the Senior      
Capital and Series B Capital of TWE. The remaining 25.51% limited partnership   
interests in the Series A Capital and Residual Capital of TWE are held by U S   
WEST.                                                                           

Publishing. Time Warner's publishing operations are conducted through wholly
owned subsidiaries and include the publication of magazines such as TIME,       
PEOPLE, SPORTS ILLUSTRATED, FORTUNE, MONEY, ENTERTAINMENT WEEKLY and PARENTING  
and regional magazines such as SOUTHERN LIVING and SUNSET. The publication and  
distribution of books is conducted by Time Life Inc., Book-of-the-Month Club,   
Inc., Warner Books, Inc., Little, Brown and Company, Oxmoor House and Sunset    
Books.                                                                          

Music. Time Warner's worldwide music business is conducted through wholly   
owned subsidiaries and includes the production and sale of compact discs and    
cassette tapes marketed throughout the world under various labels, including    
the proprietary labels "Warner Bros.," "Elektra," "Atlantic," "Reprise,"        
"Sire," "EastWest," "WEA," "Teldec," "Erato" and "Carrere." Time Warner also    
owns 50% of the Columbia House Company, a direct marketer of compact discs,     
cassette tapes and videocassettes in the U.S. and Canada. Time Warner's music   
publishing subsidiaries, headed by Warner/Chappell, Inc., own or control the    
rights to many standard and contemporary compositions, and CPP/Belwin, Inc.     
and other subsidiaries market sheet music and song books throughout the world.  

Filmed Entertainment. Time Warner's filmed entertainment operations are     
conducted primarily as a division of TWE. These operations include Warner       
Bros. which produces and distributes feature motion pictures, television        
programming and animated programming for theatrical and television exhibition.  
Warner Home Video distributes home videocassettes and laser discs throughout    
the world. In addition, TWE is engaged in product licensing and the ownership   
and operation of retail stores, movie theaters and theme parks, including the   
management of TWE's interest in Six Flags Theme Parks.                          

Programming-HBO. Programming-HBO, a division of TWE, consists principally of
Home Box Office, which operates two pay television programming services, HBO    
and Cinemax. Home Box Office also has a number of international joint           
ventures, including HBO Ole in Latin America and a movie-based HBO service in   
Asia. The Home Box Office division also produces television programming and     
operates TVKO, an entity that produces boxing matches and other programming     
for pay-per-view.                                                               

Cable. Time Warner Cable, a division of TWE, is the second largest multiple 
system cable operator in the United States. In addition, as a result of the     
recent acquisitions of Summit, KBLCOM and CVI, wholly owned subsidiaries of     
Time Warner own cable television systems that are managed by Time Warner        
Cable. Time Warner may transfer certain of these newly-acquired cable systems   
to the TWE-Advance/Newhouse Partnership on a tax-efficient basis. Such          
transfers, if they are made, are expected to be structured so that the systems  
will be                                                                         

117 

DEFM14A
122nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 122nd
transferred subject to a portion of Time Warner's debt, thereby reducing the    
financial leverage of Time Warner and increasing the under-leveraged            
capitalization of the TWE-Advance/Newhouse Partnership and consequently, TWE.   
As of June 30, 1996, Time Warner's wholly and partially owned cable systems     
served a total of approximately 11.8 million subscribers.                       

The WB Television Network. Warner Bros., a division of TWE, launched The WB,
a new national television network, which completed its first full year of       
broadcast operations in January 1996. Combining The WB's current broadcast      
affiliate line-up of 95 stations with the reach of Tribune Broadcasting         
Company's WGN Superstation, The WB's national coverage is more than 80% of all  
United States television households.                                            

Six Flags Theme Parks. Six Flags, in which TWE currently owns a 49%         
interest, operates 11 theme parks in seven locations, making it the second      
largest operator of theme parks in the United States and the leading operator   
of a national system of regional theme parks. Six Flags' theme parks include    
seven major ride-based theme parks, as well as three separately-gated water     
parks and one wildlife safari park.                                             

TWE is the principal component of Time Warner's Entertainment Group, which  
is not consolidated with Time Warner for financial reporting purposes.          
Although TWE manages substantially all the cable systems owned by Time Warner,  
TWE and the TWE-Advance/Newhouse Partnership, the results of operations of the  
cable systems owned by Time Warner's consolidated subsidiaries are included in  
Time Warner's consolidated results, while the results of operations of the      
cable systems owned by TWE and the TWE-Advance/Newhouse Partnership are         
included in the consolidated results of the Entertainment Group.                

Time Warner is a holding company and its assets consist primarily of        
investments in its consolidated and unconsolidated subsidiaries, including      
TWE. Time Warner's ability to service its indebtedness is dependent primarily   
upon the earnings of its consolidated and unconsolidated subsidiaries,          
including TWE, and the distribution or other payment of such earnings to Time   
Warner.                                                                         

Additional information concerning Time Warner is included in the Time Warner
Reports incorporated by reference in this Joint Proxy Statement/Prospectus.     
See "Available Information" and "Incorporation of Certain Documents By          
Reference."                                                                     

118 

DEFM14A
123rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 123rd
BUSINESS OF TBS 

TBS is a diversified information and entertainment company which was        
incorporated in the State of Georgia in 1965. TBS's operations are in two       
primary industry segments: Entertainment and News. The Entertainment Segment,   
which consists of Entertainment Networks and Entertainment Production and       
Distribution, accounted for approximately 73% of TBS's consolidated revenue     
for the year ended December 31, 1995. The News Segment, which consists of       
domestic and international news networks, accounted for approximately 22% of    
TBS's consolidated revenue for the year ended December 31, 1995.                

Entertainment                                                                 

The TBS domestic Entertainment Networks include WTBS (commonly known as the 
"TBS Superstation"), TNT, the Cartoon Network and TCM. The international        
Entertainment Networks comprise TNT Latin America, Cartoon Network Latin        
America, TNT & Cartoon Network Europe and TNT & Cartoon Network Asia.           

TBS Superstation is a 24-hour per day independent UHF television station    
that is transmitted over the air to the Atlanta, Georgia area and is also       
retransmitted by SSSI via satellite to cable systems located in all 50 states,  
Puerto Rico and the Virgin Islands. TNT is a 24-hour per day advertiser-        
supported cable television entertainment program service. The Cartoon Network   
is a 24-hour per day advertiser-supported cable television animated program     
service. TCM is a 24-hour per day, subscriber supported, commercial-free cable  
television entertainment program service.                                       

TNT Latin America is a 24-hour per day trilingual entertainment program     
service and Cartoon Network Latin America is a 24-hour per day trilingual       
animated program service, each distributed principally to subscribing cable     
systems in Latin America and the Caribbean. TNT & Cartoon Network Europe is a   
24-hour per day program service which originates in the United Kingdom and is   
distributed throughout Europe. TNT & Cartoon Network Asia is a 24-hour per day  
program service which originates in Hong Kong and is distributed throughout     
the Asia Pacific region.                                                        

The Entertainment Production and Distribution companies are involved in the 
creation of programming or the distribution of original and library products    
to the Entertainment Networks and third parties. The Production companies       
include New Line, Castle Rock and Turner Pictures, each of which is             
principally involved in motion picture and television production. In 1995,      
these entities released an aggregate of 28 theatrical films.                    

TBS owns two major copyright libraries. The Turner Entertainment Co. library
(the "TEC Library") contains approximately 3,400 MGM, RKO Pictures, Inc. and    
pre-1950 Warner Bros. films, 3,000 short subjects and 1,850 cartoon episodes,   
and a number of television shows. The Hanna-Barbera library consists of over    
3,000 half-hours of animation programming.                                      

News                                                                          

TBS's news networks are CNN, Headline News, CNNI and CNNfn.                 

CNN is a 24-hour per day cable television news service. CNN uses a format   
consisting of up-to-the minute national and international news, sports news,    
financial news, science news, medical news, weather, interviews, analysis and   
commentary. Headline News is a 24-hour per day cable television news service    
which uses a concise, fast-paced format to provide constantly updated half-     
hour newscasts. CNNI is a 24-hour per day television news service consisting    
of programming produced by CNN and Headline News, as well as original           
programming, which is distributed to cable systems, broadcasters, hotels,       
direct-to-home satellite viewers and businesses around the world on a network   
of 12 satellites outside the United States. CNNfn is a 12-hour per day, 5-day   
per week financial news service which was launched in the United States on      
December 29, 1995. CNNfn provides live, global market news and information,     
business news, political-economic analysis, consumer news and personal          
financial reports and is broadcast domestically in connection with the CNNI     
domestic feed.                                                                  

119 

DEFM14A
124th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 124th
Other                                                                         

TBS also owns the Atlanta Braves, the 1995 World Series champions, and has a
96% limited partnership interest in the Atlanta Hawks, a member of the          
National Basketball Association.                                                

Additional information concerning TBS is included in the TBS Reports        
incorporated by reference in this Joint Proxy Statement/Prospectus. See         
"Available Information" and "Incorporation of Certain Documents by Reference."  

BUSINESS OF NEW TIME WARNER 

New Time Warner is currently a wholly owned subsidiary of Time Warner that  
does not conduct any substantial business activities. As a result of the        
Transaction, Time Warner and TBS will each become a wholly owned subsidiary of  
New Time Warner. Accordingly, the business of New Time Warner will be the       
businesses currently conducted by Time Warner and TBS. See "Business of Time    
Warner" and "Business of TBS."                                                  

MANAGEMENT OF NEW TIME WARNER 

DIRECTORS                                                                       

The following table sets forth the name, age as of June 30, 1996 and        
principal positions held during the past five years by each of the persons who  
are expected to serve as directors of New Time Warner following consummation    
of the Mergers. Immediately following consummation of the Mergers, the New      
Time Warner Board is expected to consist of the members of the Time Warner      
Board as constituted immediately prior to the consummation of the Mergers,      
except that pursuant to Investors' Agreement (No. 1), Mr. Turner is also        
expected to be appointed as a director of New Time Warner. In addition,         
pursuant to Investors Agreement (No. 1), Mr. Turner will be entitled to         
designate another person for election to the New Time Warner Board. The New     
Time Warner Board will be divided into three classes consisting of five         
directors each. The directors in each class will serve staggered three-year     
terms expiring in 1997, 1998 or 1999, respectively. Mr. Turner's designee to    
the New Time Warner Board will be elected to the class with a term expiring in  
1998.                                                                           

                                                        [Enlarge/Download Table]

                                                   BUSINESS EXPERIENCE                   
NAME AND YEAR FIRST BECAME                      DURING THE PAST FIVE YEARS               
A DIRECTOR OF TIME WARNER   AGE                   AND OTHER INFORMATION                  
--------------------------  ---                 --------------------------               

                              DIRECTORS WHOSE TERMS EXPIRE IN 1997                       

                                                                                         
Lawrence B.                  64 Partner, Rosenman & Colin. Mr. Buttenwieser served as a  
 Buttenwieser...........         director of WCI from 1963 to 1990. Mr. Buttenwieser has 
 (1989)                          been a partner at Rosenman & Colin (attorneys) for more 
                                 than the past five years. He is also Chairman of the    
                                 Board of Directors of General American Investors        
                                 Company, Inc.                                           
David T. Kearns.........     65 Retired Chairman and Chief Executive Officer of Xerox    
 (1993)                          Corporation. Mr. Kearns served as a Senior University   
                                 Fellow at Harvard University from August 1993 to March  
                                 1995 and served as Deputy Secretary of the U.S.         
                                 Department of Education from May 1991 until January     
                                 1993. Prior to that, he served as Chairman of Xerox     
                                 Corporation from 1985 until May 1991, having served as  
                                 its Chief Executive Officer from 1982 to August 1990. He
                                 previously served as a director of Time Warner from 1978
                                 until May 1991 when he resigned to accept his government
                                 appointment. He is also a director of Ryder System, Inc.

120 

DEFM14A
125th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 125th
                                                        [Enlarge/Download Table]

                                                   BUSINESS EXPERIENCE                   
NAME AND YEAR FIRST BECAME                      DURING THE PAST FIVE YEARS               
A DIRECTOR OF TIME WARNER   AGE                   AND OTHER INFORMATION                  
--------------------------  ---                 --------------------------               
                                                                                         
Gerald M. Levin.........     57 Chairman of the Board and Chief Executive Officer of Time
 (1988)                          Warner. Mr. Levin became Chairman of the Board and Chief
                                 Executive Officer of Time Warner on January 21, 1993,   
                                 having served as President and Co-Chief Executive       
                                 Officer from February 20, 1992. Prior to that, Mr. Levin
                                 served as Vice Chairman of the Board and Chief Operating
                                 Officer of Time Warner from May 1991, having served as  
                                 Vice Chairman of the Board from July 1988. He previously
                                 served as a director of Time Warner from 1983 until     
                                 January 1987. He is also a director of TBS and a member 
                                 of the Board of Representatives of TWE.                 
J. Richard Munro........     65 Former Chairman of the Board of, and advisor to, Time    
 (1978)                          Warner. Mr. Munro became an advisor to Time Warner in   
                                 July 1994. He served as the Chairman of the Executive   
                                 Committee of the Time Warner Board from May 1990 until  
                                 January 1993 when he became Chairman of the             
                                 Executive/Finance Committee following the combination of
                                 the Executive Committee and the Finance Committee. He   
                                 served in such position until May 1996. He is also a    
                                 director of Genentech, Inc., Kellogg Company, Kmart     
                                 Corporation and Mobil Corporation.                      
Richard D. Parsons......     48 President of Time Warner. Mr. Parsons became President of
 (1991)                          Time Warner on February 1, 1995. Prior to that, Mr.     
                                 Parsons served as the Chairman and Chief Executive      
                                 Officer of The Dime Savings Bank of New York, FSB from  
                                 January 1991. He served as a director of ATC, then an   
                                 82%-owned subsidiary of Time Warner, from 1989 until    
                                 1991 and is currently also a director of Citicorp, the  
                                 Federal National Mortgage Association and Philip Morris 
                                 Companies Inc. and a member of the Board of             
                                 Representatives of TWE.                                 
                              DIRECTORS WHOSE TERMS EXPIRE IN 1998                       
Merv Adelson............     66 Chairman of East-West Capital Associates and former      
 (1989)                          Chairman and Chief Executive Officer of Lorimar         
                                 Telepictures. Mr. Adelson has served as Chairman of     
                                 East-West Capital Associates (private investment        
                                 company) since April 1989. Mr. Adelson served as Vice   
                                 Chairman and a director of WCI from January 1989 through
                                 August 1991. Prior to that, Mr. Adelson served as       
                                 Chairman and Chief Executive Officer of Lorimar         
                                 Telepictures Corporation from February 1986 until its   
                                 acquisition by WCI in January 1989. He is also a        
                                 director of 7th Level, Inc.                             
Michael A. Miles........     57 Former Chairman of the Board and Chief Executive Officer 
 (1995)                          of Philip Morris Companies Inc. Mr. Miles served as     
                                 Chairman of the Board and Chief Executive Officer of    
                                 Philip Morris Companies Inc. (consumer products) from   
                                 September 1991 until July 1994, having served as Vice   
                                 Chairman and a member of the Board of Directors of      
                                 Philip Morris Companies Inc. and Chairman and Chief     
                                 Executive Officer of Kraft General Foods, Inc. from     
                                 December 1989. He is also a director of Allstate Corp., 
                                 Dean Witter, Discover & Co., Dell Computer Corporation  
                                 and Sears, Roebuck and Co. and is also a Special Limited
                                 Partner in Forstmann Little and Co.                     

121 

DEFM14A
126th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 126th
                                                        [Enlarge/Download Table]

                                                   BUSINESS EXPERIENCE                   
NAME AND YEAR FIRST BECAME                      DURING THE PAST FIVE YEARS               
A DIRECTOR OF TIME WARNER   AGE                   AND OTHER INFORMATION                  
--------------------------  ---                 --------------------------               
                                                                                         
Donald S. Perkins.......     69 Former Chairman of Jewel Companies, Inc. Mr. Perkins     
 (1979)                          became President of Jewel Companies, Inc. (retailing) in
                                 1965, Chairman of its Board in 1970, and served as      
                                 Chairman of its Executive Committee from 1980 to June   
                                 1983. He is also a director of AON Corporation, Cummins 
                                 Engine Company, Inc., Current Assets, Illinova and      
                                 Illinois Power Company, Inland Steel Industries, Inc.,  
                                 LaSalle Street Fund, Inc., Lucent Technologies Inc., The
                                 Putnam Funds (including all 97 of its funds), Ryerson   
                                 Tull, Inc. and Spring Industries, Inc.                  
Raymond S. Troubh.......     70 Financial Consultant and Director of various companies.  
 (1989)                          Mr. Troubh served as a director of WCI from 1979 to     
                                 1990. Mr. Troubh has been a financial consultant and a  
                                 corporate director for more than the past five years. He
                                 is also a director of ADT Limited, America West         
                                 Airlines, Inc., Applied Power Inc., ARIAD               
                                 Pharmaceuticals, Inc., Becton, Dickinson and Company,   
                                 Diamond Offshore Drilling, Inc., Foundation Health      
                                 Corporation, General American Investors Company, Inc.,  
                                 Olsten Corporation, Petrie Stores Corporation, Triarc   
                                 Companies, Inc. and WHX Corporation.                    
                              DIRECTORS WHOSE TERMS EXPIRE IN 1999                       
Beverly Sills                67 Chairman of Lincoln Center for the Performing Arts. Mrs. 
 Greenough..............         Greenough served as a director of WCI from 1982 to 1990.
 (1989)                          Mrs. Greenough has served as the Chairman of Lincoln    
                                 Center for the Performing Arts since June 1994, having  
                                 served as a Managing Director of The Metropolitan Opera 
                                 from 1991 and the President of the New York City Opera  
                                 Inc. from March 1989 through 1990. She has also served  
                                 as National Chairman of the March of Dimes Birth Defects
                                 Foundation. She is also a director of American Express  
                                 Company and Human Genome Sciences Inc.                  
Carla A. Hills..........     62 Chairman and Chief Executive Officer of Hills & Company  
 (1993)                          and former United States Trade Representative.          
                                 Ambassador Hills became Chairman and Chief Executive    
                                 Officer of Hills & Company (international trade         
                                 consultants) in March 1993, having served in President  
                                 Bush's Cabinet as the United States Trade Representative
                                 from February 1989 to January 20, 1993. Ambassador Hills
                                 is also a director of American International Group,     
                                 Inc., Chevron Corporation, Lucent Technologies Inc. and 
                                 Trust Company of the West.                              
Reuben Mark.............     57 Chairman and Chief Executive Officer of Colgate-Palmolive
 (1993)                          Company. Mr. Mark has served as the Chief Executive     
                                 Officer of Colgate-Palmolive Company (consumer products)
                                 since May 1984. In May 1986, he was elected Chairman.   
                                 Mr. Mark is also a director of Citicorp, Toys 'R' Us,   
                                 Inc. and The New York Stock Exchange, Inc.              
R.E. Turner.............     57 Chairman of the Board and President of TBS. Mr. Turner   
                                 has served as Chairman of the Board and President of TBS
                                 since 1970 and is a controlling shareholder of TBS. Mr. 
                                 Turner will become Vice Chairman of New Time Warner upon
                                 consummation of the Mergers.                            

122 

DEFM14A
127th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 127th
                                                        [Enlarge/Download Table]

                                                   BUSINESS EXPERIENCE                   
NAME AND YEAR FIRST BECAME                      DURING THE PAST FIVE YEARS               
A DIRECTOR OF TIME WARNER   AGE                   AND OTHER INFORMATION                  
--------------------------  ---                 --------------------------               
                                                                                         
Francis T. Vincent,          58 Chairman of Vincent Enterprises. Mr. Vincent has been a  
 Jr. ............ (1993)         private investor at Vincent Enterprises since January 1,
                                 1995. Prior to that, Mr. Vincent served as the          
                                 Commissioner of Major League Baseball from September    
                                 1989 until September 1992. He is also a director of     
                                 Culbro Corporation, Horizon Group and Oakwood Homes     
                                 Corporation.                                            

For certain additional information concerning the persons expected to serve 
as directors of New Time Warner, see Time Warner's Proxy Statement used in      
connection with its 1996 Annual Meeting of Stockholders (the "1996 Proxy        
Statement for Time Warner"), the relevant portions of which are incorporated    
by reference into the Time Warner Form 10-K. See "Incorporation of Certain      
Documents by Reference."                                                        

COMPENSATION OF DIRECTORS                                                       

In accordance with existing Time Warner practice, it is expected that       
directors who are also full-time employees of New Time Warner will receive no   
additional compensation for their services as directors. Each non-employee      
director will initially receive the same compensation for service on the New    
Time Warner Board as received by non-employee directors on the Time Warner      
Board.                                                                          

For information concerning the compensation paid to non-employee directors  
on the Time Warner Board, see the 1996 Proxy Statement for Time Warner, the     
relevant portions of which are incorporated by reference into the Time Warner   
Form 10-K. See "Incorporation of Certain Documents by Reference."               

EXECUTIVE OFFICERS                                                              

Set forth below are the name and expected title of each person who is       
expected to serve as an executive officer of New Time Warner following          
consummation of the Mergers and the age as of June 30, 1996 and principal       
positions held by each such person during the past five years. With the         
exception of Mr. Turner, these are the current executive officers of Time       
Warner.                                                                         

                                                        [Enlarge/Download Table]

          NAME           AGE                           OFFICE                         
          ----           ---                           ------                         
                                                                                      
Gerald M. Levin ........  57 Chairman of the Board of Directors and Chief Executive   
                              Officer of Time Warner since January 21, 1993. Prior to 
                              that he served as President and Co-Chief Executive      
                              Officer from February 20, 1992; Vice Chairman and Chief 
                              Operating Officer from May 1991; and Vice Chairman of   
                              the Board prior to that.                                
R.E. Turner.............  57 Vice Chairman of New Time Warner upon consummation of the
                              Mergers. Currently, Chairman of the Board and President 
                              of TBS. Mr. Turner has served as Chairman of the Board  
                              and President of TBS since 1970 and is a controlling    
                              shareholder of TBS.                                     
Richard D. Parsons......  48 President of Time Warner since February 1, 1995. Prior to
                              that he served as Chairman and Chief Executive Officer  
                              of the Dime Savings Bank of New York, FSB from January  
                              1991.                                                   
Peter R. Haje ..........  61 Executive Vice President and General Counsel of Time     
                              Warner since October 1, 1990 and Secretary since May 20,
                              1993.                                                   
Timothy A. Boggs........  46 Senior Vice President of Time Warner since November 19,  
                              1992. Prior to that he served as Vice President of      
                              Public Affairs.                                         

123 

DEFM14A
128th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 128th
                                                        [Enlarge/Download Table]

          NAME           AGE                           OFFICE                         
          ----           ---                           ------                         
                                                                                      
Richard J. Bressler.....  38 Senior Vice President and Chief Financial Officer of Time
                              Warner since March 16, 1995. Prior to that he served as 
                              Senior Vice President, Finance from January 2, 1995; and
                              as a Vice President prior to that.                      
Tod R. Hullin ..........  53 Senior Vice President of Time Warner since February 7,   
                              1991.                                                   
Philip R. Lochner, Jr.    53 Senior Vice President of Time Warner since July 18, 1991.
 .......................      Prior to that, he was a Commissioner of the Securities  
                              and Exchange Commission from March 1990 to June 1991.   

For certain additional information concerning the persons expected to serve 
as executive officers of New Time Warner, see the 1996 Proxy Statement for      
Time Warner, the relevant portions of which are incorporated by reference into  
the Time Warner Form 10-K. See "Incorporation of Certain Documents by           
Reference."                                                                     

COMPENSATION OF EXECUTIVE OFFICERS                                              

New Time Warner has not yet paid any compensation to its Chief Executive    
Officer or any other person anticipated to become an executive officer, and     
the form and amount of such compensation to be paid to each such executive      
officer in any future period is expected to be substantially similar to the     
form and amount of such compensation that Time Warner would have paid to such   
executive officer in such period. New Time Warner will assume employment        
agreements that are currently in effect between such executive officers and     
Time Warner. Upon consummation of the Mergers, New Time Warner will enter into  
the Employment Agreement with Mr. Turner. For a description of the Employment   
Agreement with Mr. Turner, see "The Transaction--Interests of Certain Persons   
in the Transaction--Employment Agreement with R.E. Turner."                     

For information concerning the employment agreements with, and the          
compensation paid to, the Chief Executive Officer and the other four most       
highly compensated executive officers of Time Warner for the 1995 fiscal year,  
see the 1996 Proxy Statement for Time Warner, the relevant portions of which    
are incorporated by reference into the Time Warner Form 10-K. For information   
concerning the compensation paid to Mr. Turner by TBS for the 1995 fiscal       
year, see TBS's Proxy Statement used in connection with its 1996 Annual         
Meeting of Shareholders, the relevant portions of which are incorporated by     
reference into the TBS Form 10-K. See "Incorporation of Certain Documents by    
Reference."                                                                     

124 

DEFM14A
129th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 129th
DESCRIPTION OF NEW TIME WARNER CAPITAL STOCK  

The following summary of the capital stock of New Time Warner is qualified  
in its entirety by reference to the complete text of the proposed New Time      
Warner Charter. Attached hereto as Appendix B-1 and incorporated herein by      
reference is a copy of the proposed New Time Warner Charter, excluding the      
certificates of designations for the LMC Series Common Stock and the various    
series of New Time Warner Preferred Stock expected to be outstanding            
immediately following the consummation of the Mergers. The forms of such        
certificates of designations are filed as Exhibits to the Registration          
Statement and are incorporated herein by reference.                             

AUTHORIZED CAPITAL STOCK                                                        

New Time Warner will be authorized by the New Time Warner Charter to issue  
(a) 2.0 billion shares of New Time Warner Common Stock, (b) 200 million shares  
of New Time Warner Series Common Stock, issuable in series, of which the        
following series will be designated: (i) 60 million shares of LMC Common Stock  
and (ii) 60 million shares of LMC Reduced Voting Common Stock and (c) 250       
million shares of New Time Warner Preferred Stock, issuable in series, of       
which the following series will be designated: (i) 8.0 million shares of        
Series A Participating Cumulative Preferred Stock ("New Time Warner Series A    
Preferred Stock"), (ii) 11 million shares of Series D Convertible Preferred     
Stock ("New Time Warner Series D Preferred Stock"), (iii) 3.25 million shares   
of Series E Convertible Preferred Stock ("New Time Warner Series E Preferred    
Stock"), (iv) 3.08 million shares of Series F Convertible Preferred Stock       
("New Time Warner Series F Preferred Stock"), (v) 6.2 million shares of         
Series G Convertible Preferred Stock ("New Time Warner Series G Preferred       
Stock"), (vi) 1.8 million shares of Series H Convertible Preferred Stock ("New  
Time Warner Series H Preferred Stock"), (vii) 7.0 million shares of Series I    
Convertible Preferred Stock ("New Time Warner Series I Preferred Stock"),       
(viii) 3.35 million shares of Series J Convertible Preferred Stock ("New Time   
Warner Series J Preferred Stock") and (ix) 15.2 million shares of 10 1/4%       
Series M Exchangeable Preferred Stock ("New Time Warner Series M Preferred      
Stock"). In addition, the New Time Warner Board will authorize 9.0 million      
shares of 10 1/4% Series L Exchangeable Preferred Stock ("New Time Warner       
Series L Preferred Stock") issuable upon exchange for shares of New Time        
Warner Series M Preferred Stock.                                                

The New Time Warner Board is authorized to issue shares of New Time Warner  
Series Common Stock and New Time Warner Preferred Stock, in one or more         
series, and to fix for each such series voting powers, preferences and          
relative, participating, optional or other special rights and such              
qualifications, limitations or restrictions thereof as are permitted by the     
DGCL. The additional shares of authorized stock available for issuance by New   
Time Warner may be issued at such times and under such circumstances as to      
have a dilutive effect on earnings per share and on the equity ownership of     
the holders of New Time Warner Capital Stock. The ability of the New Time       
Warner Board to issue additional shares of stock could enhance the New Time     
Warner Board's ability to negotiate on behalf of the stockholders in a          
takeover situation. However, the New Time Warner Board could authorize the      
issuance of additional shares of New Time Warner Series Common Stock or New     
Time Warner Preferred Stock with terms and conditions that could make a change  
in control more difficult or discourage a takeover or other transaction in      
which such holders might receive a premium for their shares of stock over the   
then market price of such shares that holders of some or a majority of shares   
of New Time Warner Common Stock might believe to be in their best interests.    

NEW TIME WARNER COMMON STOCK                                                    

The holders of New Time Warner Common Stock will be entitled to receive     
dividends when, as and if declared by the New Time Warner Board out of funds    
legally available therefor, subject to the rights of any shares of New Time     
Warner Preferred Stock or New Time Warner Series Common Stock at the time       
outstanding. The holders of New Time Warner Common Stock will be entitled to    
one vote for each share on all matters voted on by stockholders under the New   
Time Warner Charter, including elections of directors. The holders of New Time  
Warner Common Stock do not have any cumulative voting, conversion, redemption   
or preemptive rights. In the event of dissolution, liquidation or winding up    
of New Time Warner, holders of the New Time Warner                              

125 

DEFM14A
130th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 130th
Common Stock will be entitled to share ratably with the holders of LMC Series   
Common Stock in any assets remaining after the satisfaction in full of the      
prior rights of creditors, including holders of New Time Warner's               
indebtedness, and subject to the aggregate liquidation preference and           
participation rights of any New Time Warner Preferred Stock or other series of  
New Time Warner Series Common Stock then outstanding.                           

Pursuant to the New Time Warner Charter, outstanding shares of New Time     
Warner Common Stock may be redeemed by action of the New Time Warner Board to   
the extent necessary to prevent the loss of any governmental license or         
franchise, the holding of which is conditioned upon stockholders possessing     
prescribed qualifications.                                                      

LMC SERIES COMMON STOCK                                                         

Pursuant to the LMC Agreement, New Time Warner will be required to issue    
either LMC Common Stock or LMC Reduced Voting Common Stock to the Liberty       
Parties in exchange for New Time Warner Common Stock issued to the Liberty      
Parties in the TBS Merger. In addition, from time to time following             
consummation of the Mergers, New Time Warner may be required to issue shares    
of LMC Common Stock or LMC Reduced Voting Common Stock to the Liberty Parties   
in exchange for shares of New Time Warner Common Stock. See "TCI                
Arrangements--LMC Agreement" for a description of the circumstances under       
which such exchanges will be required.                                          

The holders of LMC Series Common Stock will be entitled to receive dividends
ratably with the holders of New Time Warner Common Stock when, as and if        
declared by the New Time Warner Board out of funds legally available            
therefore, subject to the terms of any New Time Warner Preferred Stock at the   
time outstanding. In the event of dissolution, liquidation or winding up of     
New Time Warner, holders of LMC Series Common Stock will be entitled to share   
ratably with the holders of New Time Warner Common Stock in any assets          
remaining after the satisfaction in full of the prior rights of creditors,      
including holders of New Time Warner's indebtedness, and subject to the         
aggregate liquidation preference and participation rights of any New Time       
Warner Preferred Stock or other series of New Time Warner Series Common Stock   
then outstanding. The holders of LMC Series Common Stock do not have any        
conversion, redemption or preemptive rights, except that (i) each share of LMC  
Common Stock will be convertible at any time at the option of the holder on a   
one-for-one basis for a share of either LMC Reduced Voting Common Stock or a    
share of New Time Warner Common Stock and (ii) subject to the federal           
communications laws, each share of LMC Reduced Voting Common Stock will be      
convertible at any time at the option of the holder on a one-for-one basis for  
a share of either LMC Common Stock or a share of New Time Warner Common Stock.  

The holders of LMC Common Stock will be entitled to one vote for each share 
on all matters voted on by holders of New Time Warner Common Stock, including   
elections of directors. The holders of LMC Common Stock do not have any         
cumulative voting rights. Holders of LMC Reduced Voting Common Stock will be    
entitled to one one-hundredth (1/100th) of a vote for each share with respect   
to the election of directors. Holders of LMC Reduced Voting Common Stock will   
not have any other voting rights, except as required by law or with respect to  
limited matters, including amendments of the terms of the LMC Reduced Voting    
Common Stock adverse to such holders.                                           

Unlike shares of New Time Warner Common Stock, shares of LMC Series Common  
Stock will not be redeemable by action of the New Time Warner Board to the      
extent necessary to prevent the loss of any governmental license or franchise,  
the holding of which is conditioned upon stockholders possessing prescribed     
qualifications.                                                                 

The LMC Series Common Stock will not be transferable, except in limited     
circumstances, and will not be listed on any securities exchange.               

NEW TIME WARNER RIGHTS AGREEMENT; NEW TIME WARNER SERIES A PREFERRED STOCK      

The following description of the terms of the New Time Warner Rights        
Agreement and the New Time Warner Rights is qualified in its entirety by        
reference to the form of the New Time Warner Rights Agreement,                  

126 

DEFM14A
131st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 131st
which is filed as an Exhibit to the Registration Statement and is incorporated  
herein by reference. The following description assumes that the New Time        
Warner Rights Agreement is adopted. The New Time Warner Rights Agreement will   
be the same as the Existing Rights Agreement, except for the amendments         
contemplated by the Rights Amendment. See "Certain Related Agreements--Rights   
Amendment."                                                                     

New Time Warner Rights Agreement                                              

Each share of New Time Warner Common Stock issued pursuant to the Mergers or
otherwise from time to time and prior to redemption or expiration of the        
Rights, will be accompanied by one New Time Warner Right. Each New Time Warner  
Right, when it becomes exercisable as described below, will entitle the         
registered holder thereof to purchase from New Time Warner one one-thousandth   
( 1/1000th) of a share of New Time Warner Series A Preferred Stock at a price   
of $150 (the "Purchase Price").                                                 

Until the earlier of (a) such time as New Time Warner learns that a person  
or group (including an affiliate of such person or group) has acquired, or has  
obtained the right to acquire, Beneficial Ownership (as defined below) of more  
than 15% of the "outstanding" shares of New Time Warner Common Stock (as        
defined in the New Time Warner Rights Agreement, see "Certain Related           
Agreements--Rights Amendment"), other than pursuant to a Qualifying Offer (as   
defined below) (such person or group being an "Acquiring Person"), and (b)      
such date, if any, as may be designated by the New Time Warner Board following  
the commencement of, or first public announcement of intent to commence, a      
tender or exchange offer for outstanding shares of New Time Warner Common       
Stock which could result in such person or group becoming the beneficial owner  
of more than 15% of the New Time Warner Common Stock on a fully diluted basis,  
other than pursuant to a Qualifying Offer (the earlier of such dates being      
called the "Distribution Date"), the New Time Warner Rights will be evidenced   
by the certificates for the New Time Warner Common Stock registered in the      
names of the holders thereof (which certificates for New Time Warner Common     
Stock will also be deemed to be Rights Certificates, as defined below) and not  
by separate Rights Certificates. Therefore, until the Distribution Date, the    
New Time Warner Rights will be transferred with and only with the New Time      
Warner Common Stock. As soon as practicable following the Distribution Date,    
separate certificates evidencing the New Time Warner Rights ("Rights            
Certificates") will be mailed to holders of record of shares of New Time        
Warner Common Stock as of the close of business on the Distribution Date and    
to each initial record holder of certain shares of New Time Warner Common       
Stock issued after the Distribution Date, and such separate Rights              
Certificates alone will thereafter evidence the New Time Warner Rights. The     
New Time Warner Rights will not be exercisable until the Distribution Date and  
will expire on January 20, 2004 (the "Expiration Date"), unless earlier         
redeemed by New Time Warner as described below. The number of shares of New     
Time Warner Series A Preferred Stock or other securities issuable upon          
exercise of a New Time Warner Right, the Purchase Price, the Redemption Price   
(as defined below) and the number of New Time Warner Rights associated with     
each outstanding share of New Time Warner Common Stock are all subject to       
adjustment in the event of any change in the New Time Warner Common Stock or    
the New Time Warner Series A Preferred Stock, whether by reason of stock        
dividends, stock splits, recapitalizations, mergers, consolidations,            
combinations or exchanges of securities, split-ups, split-offs, spin-offs,      
liquidations, other similar changes in capitalization, any distribution or      
issuance of cash, assets, evidences of indebtedness or subscription rights,     
options or warrants to holders of shares of New Time Warner Common Stock or     
New Time Warner Series A Preferred Stock, as the case may be (other than        
distribution of the New Time Warner Rights or regular quarterly dividends) or   
otherwise.                                                                      

The shares of New Time Warner Series A Preferred Stock will be authorized to
be issued in fractions which are an integral multiple of one one-thousandth (   
1/1000th) of a share of New Time Warner Series A Preferred Stock. New Time      
Warner may, but will not be required to, issue fractions of shares upon the     
exercise of New Time Warner Rights and, in lieu of fractional shares, New Time  
Warner may issue certificates or utilize a depositary arrangement as provided   
by the terms of the New Time Warner Series A Preferred Stock and, in the case   
of fractions other than one one-thousandth ( 1/1000th) of a share of New Time   
Warner Series A Preferred Stock or an integral multiple thereof, may make a     
cash payment based on the market value of such shares.                          

127 

DEFM14A
132nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 132nd
At such time that there is an Acquiring Person, the New Time Warner Rights  
will entitle each registered holder (other than such Acquiring Person or any    
associate or affiliate of such Acquiring Person) of a New Time Warner Right to  
purchase, for the Purchase Price, that number of one-thousandths ( 1/1000ths)   
of a share of New Time Warner Series A Preferred Stock that is equivalent in    
value to the number of shares of New Time Warner Common Stock that at the time  
of such event would have a market value of twice the Purchase Price.            

In the event New Time Warner is acquired in a merger or other business      
combination by an Acquiring Person or an associate or affiliate of an           
Acquiring Person that is a publicly traded corporation or 50% or more of New    
Time Warner's assets or assets representing 50% or more of New Time Warner's    
revenues or cash flow are sold, leased, exchanged or otherwise transferred (in  
one or more transactions) to an Acquiring Person or an associate or affiliate   
of an Acquiring Person that is a publicly traded corporation, each New Time     
Warner Right will entitle its holder (subject to the next paragraph) to         
purchase, for the Purchase Price, that number of common shares of such          
corporation that at the time of the transaction would have a market value of    
twice the Purchase Price. In the event New Time Warner is acquired in a merger  
or other business combination by an Acquiring Person or an associate or         
affiliate of an Acquiring Person that is not a publicly traded corporation or   
50% or more of New Time Warner's assets or assets representing 50% or more of   
New Time Warner's revenues or cash flow are sold, leased, exchanged or          
otherwise transferred (in one or more transactions) to an Acquiring Person or   
an associate or affiliate of an Acquiring Person that is not a publicly traded  
entity, each New Time Warner Right will entitle its holder (subject to the      
next paragraph) to purchase, for the Purchase Price, at such holder's option,   
(a) that number of shares of the surviving corporation in the transaction with  
such entity (which surviving corporation could be New Time Warner) that at the  
time of the transaction would have a book value of twice the Purchase Price,    
(b) that number of shares of such entity that at the time of the transaction    
would have a book value of twice the Purchase Price or (c) if such entity has   
an affiliate that has publicly traded shares, that number of shares of such     
affiliate that at the time of the transaction would have a market value of      
twice the Purchase Price.                                                       

Any New Time Warner Rights that are at any time beneficially owned by an    
Acquiring Person (or any affiliate or associate of an Acquiring Person) will    
be null and void and nontransferable and any holder of any such New Time        
Warner Right (including any purported transferee or subsequent holder) will be  
unable to exercise or transfer any such New Time Warner Right.                  

The New Time Warner Rights Agreement will not apply to any Qualifying Offer.
Accordingly, the New Time Warner Rights will not become exercisable in the      
case of a tender offer that constitutes a Qualifying Offer or a merger or       
business combination consummated in compliance with the requirements of a       
Qualifying Offer. The New Time Warner Rights Agreement will define a            
"Qualifying Offer" as an all-cash tender offer for all outstanding shares of    
New Time Warner Common Stock which meets the following requirements (a) the     
person or group making the tender offer must, prior to or upon commencing such  
offer, have provided to New Time Warner firm written commitments from           
responsible financial institutions, which have been accepted by such person or  
group, to provide, subject only to customary terms and conditions, funds for    
such offer which, when added to the amount of cash and cash equivalents which   
such person or group then has available and has irrevocably committed in        
writing to New Time Warner to utilize for purposes of the offer, will be        
sufficient to pay for all shares of New Time Warner Common Stock outstanding    
on a fully diluted basis pursuant to the offer and the second-step transaction  
required by clause (e) below and all related expenses, together with copies of  
all written materials prepared by such person or group for such financial       
institutions in connection with obtaining such financing commitments, (b) such  
person or group must own, after consummating such offer, shares of New Time     
Warner Capital Stock representing a majority of the shares of New Time Warner   
Common Stock outstanding on a fully diluted basis, (c) such offer must in all   
events remain open for at least 45 business days and must be extended for at    
least 20 business days after the last increase or permitted decrease in the     
price offered and after any bona fide higher alternative offer (except in       
certain limited circumstances to be set forth in the New Time Warner Rights     
Agreement), (d) such offer is accompanied by a written opinion, in customary    
form, of a nationally recognized investment banking firm which is addressed to  
the holders of the shares of New Time Warner Common Stock other than such       
person or group and states that the price to be paid to such holders pursuant   
to the offer is fair from a financial point of view to such holders and which   
includes any written                                                            

128 

DEFM14A
133rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 133rd
presentation of such firm showing the analysis and range of the values          
underlying such conclusion, and (e) prior to or upon commencing such offer,     
such person or group must irrevocably commit in writing to New Time Warner (i)  
to consummate promptly upon completion of the offer a transaction or            
transactions whereby all remaining shares of New Time Warner Common Stock will  
be acquired for the same price per share paid pursuant to the offer, subject    
only to the condition that the New Time Warner Board has granted any approvals  
required to enable such person or group to consummate such transaction or       
transactions without obtaining the vote of any other stockholder, (ii) that     
such person or group will not amend such offer to reduce the per share price    
offered (except in certain limited circumstances to be set forth in the New     
Time Warner Rights Agreement), to change the form of consideration offered or   
to reduce the number of shares being sought or in any other respect which is    
materially adverse to New Time Warner's stockholders, (iii) that such person    
or group will not make any offer for any equity securities of New Time Warner   
for six months after commencement of the original offer if the original offer   
does not result in the tender of the number of shares required to be purchased  
pursuant to clause (b) above, unless another tender offer by another party for  
all outstanding shares of New Time Warner Common Stock (x) constitutes a        
Qualifying Offer and (y) is approved by the New Time Warner Board (in which     
event any new offer by such person or group must be at a price no less than     
that provided for in such approved offer).                                      

At any time prior to the earlier of (a) such time as a person becomes an    
Acquiring Person and (b) the Expiration Date, the New Time Warner Board may     
redeem the New Time Warner Rights in whole, but not in part, at a price (in     
cash or shares of New Time Warner Common Stock or other securities of New Time  
Warner deemed by the New Time Warner Board to be at least equivalent in value)  
of $0.01 per New Time Warner Right, subject to adjustment as provided in the    
New Time Warner Rights Agreement (the "Redemption Price"); provided, however,   
that, for the 120-day period after any date of a change (resulting from a       
proxy or consent solicitation) in a majority of the New Time Warner Board in    
office at the commencement of such solicitation, the New Time Warner Rights     
will be able to be redeemed only if (i) there are directors then in office who  
were in office at the commencement of such solicitation and (ii) the New Time   
Warner Board, with the concurrence of a majority of such directors then in      
office, determines that such redemption is, in their judgment, in the best      
interests of New Time Warner and its stockholders. Immediately upon the action  
of the New Time Warner Board electing to redeem the New Time Warner Rights,     
and without any further action and without any notice, the right to exercise    
the New Time Warner Rights will terminate, and the only right of the holders    
of New Time Warner Rights will be to receive the Redemption Price.              

After there is an Acquiring Person, the New Time Warner Board may elect to  
exchange each New Time Warner Right (other than New Time Warner Rights that     
become null and void and nontransferable as is described above) for             
consideration per New Time Warner Right consisting of one-half of the           
securities that would be issuable at such time upon the exercise of one New     
Time Warner Right pursuant to the terms of the New Time Warner Rights           
Agreement. Until a New Time Warner Right is exercised, the holder thereof, as   
such, will have no rights as a stockholder of New Time Warner, including the    
right to vote or to receive dividends.                                          

At any time prior to the Distribution Date, New Time Warner will be able,   
without the approval of any holder of New Time Warner Rights, to supplement or  
amend any provision of the New Time Warner Rights Agreement (including the      
date on which the Distribution Date shall occur, the time during which the New  
Time Warner Rights may be redeemed or the terms of the New Time Warner Series   
A Preferred Stock), except that no supplement or amendment shall be made that   
reduces the Redemption Price (other than pursuant to certain adjustments        
therein) or provides for an earlier Expiration Date. However, during the 120-   
day period after any date of a change (resulting from a proxy or consent        
solicitation) in a majority of the New Time Warner Board in office at the       
commencement of such solicitation, the New Time Warner Rights Agreement will    
be able to be supplemented or amended only if (a) there are directors then in   
office who were in office at the commencement of such solicitation and (b) the  
New Time Warner Board, with the concurrence of a majority of such directors     
then in office, determines that such supplement or amendment is, in their       
judgment, in the best interests of New Time Warner and its stockholders.        

129 

DEFM14A
134th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 134th
The New Time Warner Rights Agreement and the New Time Warner Rights will    
have certain antitakeover effects. The exercise of the New Time Warner Rights   
will cause substantial dilution to any person or group that attempts to         
acquire New Time Warner unless (a) such acquisition is approved by the New      
Time Warner Board (since the New Time Warner Board may, at its option, at any   
time prior to any person becoming an Acquiring Person, redeem the New Time      
Warner Rights), (b) such acquisition meets the standard for a Qualifying Offer  
or (c) such acquisition is conditioned upon substantially all the New Time      
Warner Rights being acquired.                                                   

Under the New Time Warner Rights Agreement, a person shall be deemed the    
"Beneficial Owner" of, and shall be deemed to "beneficially own," and shall be  
deemed to have "Beneficial Ownership" of, any securities:                       

 (a) which such person or any of such person's affiliates or associates is
deemed to "beneficially own" within the meaning of Rule 13d-3 under the     
Exchange Act;                                                               

(b) which such person or any of such person's affiliates or associates  
has (i) the right to acquire (whether such right is exercisable immediately 
or only after the passage of time) pursuant to any agreement, arrangement   
or understanding (written or oral), or upon the exercise of conversion      
rights, exchange rights, rights (other than the New Time Warner Rights),    
warrants or options, or otherwise; provided, however, that a person shall   
not be deemed under this clause (i) to be the Beneficial Owner of, or to    
beneficially own, or to have Beneficial Ownership of, any securities        
tendered pursuant to a tender or exchange offer made by or on behalf of     
such person or any of such person's affiliates or associates until such     
tendered securities are accepted for purchase or exchange thereunder or     
(ii) the right to vote pursuant to any agreement, arrangement or            
understanding (written or oral); provided, however, that a person shall not 
be deemed under this clause (ii) to be the Beneficial Owner of, or to       
beneficially own, any security if (A) the agreement, arrangement or         
understanding (written or oral) to vote such security arises solely from a  
revocable proxy or consent given to such person in response to a public     
proxy or consent solicitation made pursuant to, and in accordance with, the 
applicable rules and regulations under the Exchange Act and (B) the         
beneficial ownership of such security is not also then reportable on        
Schedule 13D under the Exchange Act (or any comparable or successor         
report); or                                                                 

(c) which are beneficially owned, directly or indirectly, by any other  
person with which such person or any of such person's affiliates or         
associates has any agreement, arrangement or understanding (written or      
oral) for the purpose of acquiring, holding, voting or disposing of any     
shares of New Time Warner Common Stock, any other securities of New Time    
Warner generally entitled to vote together with the shares of New Time      
Warner Common Stock or any rights, warrants, options or other securities    
exercisable or exchangeable for, or convertible into, shares of New Time    
Warner Common Stock or other securities of New Time Warner generally        
entitled to vote together with the shares of New Time Warner Common Stock.  

A person shall also be deemed to be the "Beneficial Owner" of, and to       
"beneficially own," and to have "Beneficial Ownership" of, shares of New Time   
Warner Common Stock if such person is the Beneficial Owner of, or beneficially  
owns, or has Beneficial Ownership of (as the case may be), any other            
securities of New Time Warner (whether or not convertible into or exchangeable  
for shares of New Time Warner Common Stock) generally entitled to vote          
together with the shares of New Time Warner Common Stock. If the preceding      
sentence is applicable in any case, such person shall be deemed by virtue of    
Beneficial Ownership of such other securities to be the "Beneficial Owner" of,  
and to "beneficially own," and to have "Beneficial Ownership" of, that number   
of shares of New Time Warner Common Stock equal to the greater of (a) the       
number of votes entitled to be cast in respect of such other securities upon    
any matter being voted upon by the holders of shares of New Time Warner Common  
Stock and the holders of such other securities, voting together as a single     
class, and (b) if applicable, the number of shares of New Time Warner Common    
Stock issuable upon conversion in full into, or exchange in full for, shares    
of New Time Warner Common Stock of such other securities.                       

In the event any New Time Warner securities are subject to an approved      
voting trust, then (a) the trustee or trustees under such voting trust shall    
be deemed not to be the "Beneficial Owner" of any such New Time Warner          
securities and (b) each beneficiary of such voting trust shall be deemed to be  
the "Beneficial Owner" of all such New Time Warner securities.                  

130 

DEFM14A
135th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 135th
Notwithstanding the foregoing, (a) no person ordinarily engaged in business 
as an underwriter of securities shall be deemed to be the "Beneficial Owner"    
of, to "beneficially own," or to have any "Beneficial Ownership" of, any        
securities acquired in a bona fide firm commitment underwriting pursuant to an  
underwriting agreement with New Time Warner and (b) no person shall be deemed   
to be the "Beneficial Owner" of, to "beneficially own," or to have any          
"Beneficial Ownership" of, any securities by reason of such person or any of    
such person's affiliates or associates having the right to acquire (whether     
such right is exercisable immediately or only after the passage of time) such   
securities pursuant to a right of first refusal, right of first offer or        
similar agreement, arrangement or understanding granted by another person (the  
"subject person") (i) that does not provide any direct or indirect limitations  
or restrictions on the ability of the subject person to exercise (or refrain    
from exercising) any voting rights associated with such securities or contain   
any other agreement, arrangement or understanding with respect to such voting   
rights, (ii) that does not contain any incentive for the subject person to      
support or oppose any particular business combination with an Acquiring Person  
or otherwise to exercise (or refrain from exercising) any voting rights         
associated with such securities in a manner advantageous to such person or any  
of such person's affiliates or associates and (iii) with respect to which       
prior written notice of which shall have been given to New Time Warner. For     
purposes of the New Time Warner Rights Agreement, neither TCITP and its         
affiliates nor Mr. Turner and his affiliates will be deemed to "beneficially    
own" any shares of New Time Warner Capital Stock held by the other party        
solely as a result of their respective rights to purchase the other parties'    
shares of New Time Warner Capital Stock pursuant to the Right of First Refusal  
Agreement. See "Certain Related Agreements--Right of First Refusal Agreement."  

New Time Warner Series A Preferred Stock                                      

The holders of New Time Warner Series A Preferred Stock will be entitled to 
receive (a) quarterly cumulative dividends payable in cash in an amount per     
share equal to $0.01 per share less the amount of cash dividends received       
pursuant to the following clause (b) (but not less than zero) and (b) cash and  
in-kind dividends on each payment date for similar dividends on the shares of   
New Time Warner Common Stock in an amount per share of New Time Warner Series   
A Preferred Stock equal to 1,000 (subject to adjustment) times the per share    
amount of all cash dividends then to be paid on each share of New Time Warner   
Common Stock.                                                                   

Holders of New Time Warner Series A Preferred Stock will be entitled to vote
on each matter on which holders of New Time Warner Common Stock are entitled    
to vote and will have 1,000 (subject to adjustment) votes for each share of     
New Time Warner Series A Preferred Stock held. Holders of any fraction of a     
share of                                                                        
New Time Warner Series A Preferred Stock that is not smaller than one one-      
thousandth (1/1,000th) of a share will be entitled to vote such fraction.       
Holders of New Time Warner Series A Preferred Stock will have certain special   
voting rights in the election of directors when the equivalent of six           
quarterly dividends are in default. Whenever quarterly dividends or             
distributions on the New Time Warner Series A Preferred Stock shall be in       
arrears, New Time Warner's right to declare or pay dividends or other           
distributions on, redeem or purchase any shares of stock ranking junior to or   
on a parity with the New Time Warner Series A Preferred Stock will be subject   
to certain restrictions.                                                        

Upon any liquidation, dissolution or winding up of New Time Warner, whether 
voluntary or involuntary, the holders of shares of New Time Warner Series A     
Preferred Stock will be entitled to receive, before any distribution is made    
to holders of shares of stock ranking in junior to the New Time Warner Series   
A Preferred Stock or any distribution (other than a ratable distribution) is    
made to the holders of stock ranking on a parity with the New Time Warner       
Series A Preferred Stock in an amount equal to the accrued dividends thereon    
plus the greater of (a) $1,000 per share or (b) an amount per share equal to    
1,000 (subject to adjustment) times the amount per share to be distributed to   
holders of New Time Warner Common Stock. The New Time Warner Series A           
Preferred Stock will rank junior to all other series of New Time Warner         
Preferred Stock outstanding immediately following the consummation of the       
Mergers. The shares of New Time Warner Series A Preferred Stock will not be     
redeemable.                                                                     

131 

DEFM14A
136th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 136th
NEW TIME WARNER SERIES D PREFERRED STOCK                                        

General                                                                       

The New Time Warner Series D Preferred Stock is identical to the Time Warner
Series D Preferred Stock, except for (a) the items described under "Comparison  
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain   
technical, immaterial changes (primarily giving precise dates for certain       
matters rather than anniversaries of dates of issuance, changing the            
definition of "Parity Stock" to include all the pari passu New Time Warner      
Preferred Stock and changing the definition of "Junior Stock" to include the    
LMC Series Common Stock).                                                       

Dividend Rights                                                               

Holders of New Time Warner Series D Preferred Stock will be entitled to     
receive quarter-annual dividends, as and when declared by the New Time Warner   
Board out of funds legally available for payment in the amount per share equal  
to (i) in the case of each Series D Dividend Payment Date (as defined below)    
occurring on or before July 6, 1999, the greater of (A) $.9375 (which is        
equivalent to $3.75 per annum) per $100 in liquidation value, and (B) the       
product of (1) the Series D Conversion Rate (as defined below) and (2) the      
aggregate per share amount of regularly scheduled dividends paid in cash on     
the New Time Warner Common Stock during the period from but excluding the       
immediately preceding Series D Dividend Payment Date to and including such      
Series D Dividend Payment Date. Dividends on New Time Warner Series D           
Preferred Stock will be payable in cash on or about January 1, April 1, July 1  
and October 1 of each year, as fixed by the New Time Warner Board, or such      
other dates as are fixed by the New Time Warner Board (provided that July 6,    
1999 shall be a Series D Dividend Payment Date) (each a "Series D Dividend      
Payment Date"), to the holders of record on such record dates as are fixed by   
the New Time Warner Board of Directors (each a "Series D Record Date").         
Dividends payable in respect of periods prior to July 6, 1999 will be           
cumulative and will accrue on each share on a daily basis, whether or not       
there are unrestricted funds legally available for the payment of such          
dividends and whether or not earned or declared. Any such dividends that        
become payable for any partial dividend period shall be computed on the basis   
of the actual days elapsed in such period; provided, however, that the          
dividend payable on the first Series D Dividend Payment Date shall be computed  
as if the period in respect of which such dividend is payable commenced on the  
date of payment of the last dividend paid on the Time Warner Series D           
Preferred Stock and no payments will be made by Time Warner with respect to     
the Time Warner Series D Preferred Stock for the dividend period ending on the  
first Series D Dividend Payment Date. From and after July 6, 1999, dividends    
on New Time Warner Series D Preferred Stock shall accrue to the extent, but     
only to the extent, that regularly scheduled cash dividends are declared by     
the New Time Warner Board on the New Time Warner Common Stock with a payment    
date after July 6, 1999 (or, in the case of shares of New Time Warner Series D  
Preferred Stock originally issued after July 6, 1999, after the Series D        
Dividend Payment Date next preceding such date of original issuance).           

So long as any New Time Warner Series D Preferred Stock is outstanding, New 
Time Warner may not declare or pay any dividend on the New Time Warner Common   
Stock or other stock ranking as to the right to receive dividends or to         
participate in any distribution of assets other than by way of dividends        
junior to or on a parity with the New Time Warner Series D Preferred Stock      
(other than a dividend payable in New Time Warner Common Stock or other junior  
stock), nor may New Time Warner or any of its subsidiaries purchase, redeem or  
otherwise acquire New Time Warner Common Stock or any other stock ranking as    
to the right to receive dividends or to participate in any distribution of      
assets other than by way of dividends junior to or on a parity with the New     
Time Warner Series D Preferred Stock (except by conversion into or exchange     
for stock of New Time Warner ranking junior to the New Time Warner Series D     
Preferred Stock as to dividends and other distributions), nor shall any monies  
be paid or made available for a purchase, redemption or sinking fund therefor,  
unless all dividends on the New Time Warner Series D Preferred Stock and any    
other New Time Warner Capital Stock ranking as to dividends on a parity with    
the New Time Warner Series D Preferred Stock that shall have accrued and be     
payable as of any date shall have been paid, or declared and funds set apart    
for payment thereof. Should dividends not be paid in full on any outstanding    
New Time Warner Series D Preferred                                              

132 

DEFM14A
137th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 137th
Stock or any other New Time Warner Capital Stock ranking as to dividends on a   
parity with the New Time Warner Series D Preferred Stock, all dividends         
declared on the New Time Warner Series D Preferred Stock and any other New      
Time Warner Capital Stock ranking as to dividends on a parity with the New      
Time Warner Series D Preferred Stock will be declared pro rata, so that the     
amount of dividends declared per share of New Time Warner Series D Preferred    
Stock and such other New Time Warner Capital Stock will bear to each other the  
same ratio that accrued dividends per share on the shares of each series of     
New Time Warner Series D Preferred                                              
Stock and such other New Time Warner Capital Stock bear to each other. No       
interest, or sum of money in lieu of interest, shall be payable in respect of   
any dividend payment or payments on New Time Warner Series D Preferred Stock    
which may be in arrears. The New Time Warner Series D Preferred Stock will      
rank on a parity with the New Time Warner Series E Preferred Stock, the New     
Time Warner Series F Preferred Stock, the New Time Warner Series G Preferred    
Stock, the New Time Warner Series H Preferred Stock, the New Time Warner        
Series I Preferred Stock, the New Time Warner Series J Preferred Stock and the  
New Time Warner Series K Preferred Stock and will rank senior to the New Time   
Warner Common Stock and the LMC Series Common Stock and, if issued, the New     
Time Warner Series A Preferred Stock.                                           

If New Time Warner distributes (other than a distribution in liquidation of 
New Time Warner) to all holders of New Time Warner Common Stock any assets or   
property, including debt or equity securities, of New Time Warner or cash       
(excluding regularly scheduled cash dividends payable on shares of New Time     
Warner Common Stock), or if New Time Warner distributes (other than a           
distribution in liquidation of New Time Warner) rights, options or warrants to  
subscribe for or purchase any securities, assets or property (in each case,     
whether of New Time Warner or otherwise, but other than any distribution of     
rights to purchase securities of New Time Warner if the holder of New Time      
Warner Series D Preferred Stock would otherwise be entitled to receive such     
rights upon conversion of shares of New Time Warner Series D Preferred Stock    
for New Time Warner Common Stock; provided, however, that if such rights are    
subsequently redeemed by New Time Warner, such redemption will be treated for   
purposes of the provisions described in this paragraph as a cash dividend on    
the New Time Warner Common Stock), New Time Warner must simultaneously          
distribute such assets, property, securities, rights, options or warrants pro   
rata to the holders of New Time Warner Series D Preferred Stock in an amount    
equal to the amount that such holders would have been entitled to receive had   
their shares of New Time Warner Series D Preferred Stock been converted into    
New Time Warner Common Stock immediately prior to the applicable record date.   

If a distribution is made to the holders of New Time Warner Series D        
Preferred Stock in accordance with the provisions described in the immediately  
preceding paragraph, no adjustment to the Series D Conversion Rate shall be     
effected by reason of the distribution of such assets, property, securities,    
rights, options or warrants or any subsequent modification, exercise,           
expiration or termination of such securities, rights, options or warrants. If   
holders of New Time Warner Common Stock are entitled to make any election with  
respect to the kind or amount of securities or other property receivable by     
them in any such distribution, the kind and amount of securities or other       
property that shall be distributable to the holders of the New Time Warner      
Series D Preferred Stock shall be based on (a) the election, if any, made by    
the record holder (as of the date used for determining the holders of New Time  
Warner Common Stock entitled to make such election) of the largest number of    
shares of New Time Warner Series D Preferred Stock in writing to New Time       
Warner on or prior to the last date on which a holder of New Time Warner        
Common Stock may make such an election and (b) if no such election is timely    
made, an assumption that such holder failed to exercise any such rights         
(provided that if the kind or amount of securities or other property is not     
the same for each nonelecting holder, then the kind and amount of securities    
or other property receivable by holders of New Time Warner Series D Preferred   
Stock shall be based on the kind or amount of securities or other property      
receivable by a plurality of shares held by the nonelecting holders of New      
Time Warner Common Stock).                                                      

Conversion Provisions                                                         

General. Holders of New Time Warner Series D Preferred Stock shall have the 
right at any time or, as to any share of New Time Warner Series D Preferred     
Stock called for redemption or exchange, at any time prior to the close of      
business on the date fixed for redemption or exchange (unless New Time Warner   
defaults in the                                                                 

133 

DEFM14A
138th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 138th
payment of the Series D Redemption Price (as defined below) or fails to         
exchange the shares of New Time Warner Series D Preferred Stock for the         
applicable number of shares of New Time Warner Common Stock and any cash        
portion of the Series D Exchange Price (as defined) or exercises its right to   
rescind such redemption, in which case such right shall not terminate at the    
close of business on such date), to convert such share into (a) a number of     
shares of New Time Warner Common Stock equal to 2.08264 shares of New Time      
Warner Common Stock for each share of New Time Warner Series D Preferred        
Stock, subject to adjustment as described herein                                
(such rate, as so adjusted from time to time, is herein called the "Series D    
Conversion Rate;" and the "Series D Conversion Price" at any time shall mean    
the liquidation value per share of New Time Warner Series D Preferred Stock     
divided by the Series D Conversion Rate in effect at such time (rounded to the  
nearest one hundredth of a cent)) plus (b) a number of shares of New Time       
Warner Common Stock equal to                                                    

(A) (1) the aggregate amount of accrued and unpaid dividends on such    
share to and including the Conversion Date (as defined below) excluding, if 
such Conversion Date occurs after a Series D Record Date and prior to the   
related Series D Dividend Payment Date, accrued and unpaid dividends for    
the period from and after the most recent Series D Dividend Payment Date    
(the "Series D Accrued Dividend Amount") minus (2) unless clause (3) below  
is applicable, the product of (x) the Series D Conversion Rate, (y) the     
regular quarterly cash dividend per share, if any, paid by New Time Warner  
on the New Time Warner Common Stock on the most recent dividend payment     
date for the New Time Warner Common Stock occurring during the four months  
immediately preceding such Conversion Date and (z) a fraction (I) the       
numerator of which is the number of calendar days from and excluding such   
most recent dividend payment date to and including such Conversion Date     
(or, if such Conversion Date falls after a Series D Record Date and on or   
prior to the related Series D Dividend Payment Date, to and including such  
Series D Dividend Payment Date) and (II) the denominator of which is 91     
days (provided that in no event shall such fraction be greater than one) or 
plus (3) if such Conversion Date falls after a record date and prior to the 
related payment date for a regularly scheduled cash dividend on the New     
Time Warner Common Stock, the product of (x) the Series D Conversion Rate,  
(y) the amount per share of New Time Warner Common Stock of the regularly   
scheduled cash dividend for which the record date has been set but a        
payment date has not yet occurred and (z) a fraction (I) the numerator of   
which is the number of calendar days from and including such Conversion     
Date (or, if such Conversion Date falls after a Series D Record Date and on 
or prior to the related Series D Dividend Payment Date, from and excluding  
such Series D Dividend Payment Date) to and including such related payment  
date for such regularly scheduled cash divided and (II) the denominator of  
which is 91 (provided that in no event shall such fraction be greater than  
one) (the amount calculated pursuant to this clause (A) being the "Series D 
Net Dividend Amount") divided by                                            

(B) the closing price of the New Time Warner Common Stock on the last   
NYSE trading day prior to the Conversion Date;                              

provided, however, that in the event that the Series D Net Dividend Amount is   
a negative number, the number of shares deliverable upon conversion of a share  
of New Time Warner Series D Preferred Stock shall be equal to                   

(I) the number of shares determined pursuant to clause (a) minus        

(II) a number of shares equal to (x) the absolute value of the Series D 
Net Dividend Amount divided by (y) the closing price of the New Time Warner 
Common Stock on the last NYSE trading day prior to the Conversion Date.     

If the Series D Net Dividend Amount is positive, New Time Warner may deliver
cash equal to the Series D Net Dividend Amount or any portion thereof in lieu   
of New Time Warner Common Stock. The obligations of New Time Warner to issue    
the New Time Warner Common Stock or make the cash payments upon the exercise    
of conversion rights is absolute whether or not any accrued dividend by which   
such issuance or payment is measured has been declared by the New Time Warner   
Board and whether or not New Time Warner would have adequate surplus or net     
profits to pay such dividend if declared or is otherwise restricted from        
making such dividend.                                                           

134 

DEFM14A
139th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 139th
Except as described herein, no adjustments in respect of payments of        
dividends on shares surrendered for conversion or any dividend on the New Time  
Warner Common Stock issued upon conversion will be made upon the conversion of  
any shares of New Time Warner Series D Preferred Stock (it being understood     
that if any conversion of shares of New Time Warner Series D Preferred Stock    
occurs after a record date for any Series D Dividend Payment Date and on or     
prior to such Series D Dividend Payment Date, the holder of record on such      
record date will be entitled to receive the dividend payable with respect to    
such shares on the related Series D Dividend Payment Date).                     

New Time Warner may, but is not required to, in connection with any         
conversion of shares of New Time Warner Series D Preferred Stock, issue a       
fraction of a share of New Time Warner Common Stock, and if New Time Warner     
does not issue any such fraction, New Time Warner shall, except as described    
below, make a cash payment (rounded to the nearest cent) equal to such          
fraction multiplied by the closing price of the New Time Warner Common Stock    
on the last NYSE trading day prior to the Conversion Date.                      

Conversion of shares of New Time Warner Series D Preferred Stock will be    
deemed to have been made as of the date (the "Conversion Date") that            
certificates for such shares, and a written notice of election to convert, are  
received by the transfer agent or agents for the New Time Warner Series D       
Preferred Stock; and the person entitled to receive the New Time Warner Common  
Stock issuable upon such conversion will be treated for all purposes as the     
record holder of such New Time Warner Common Stock on such date. If New Time    
Warner has rescinded a redemption of shares of New Time Warner Series D         
Preferred Stock, any holder of shares of New Time Warner Series D Preferred     
Stock that shall have surrendered such shares for conversion following the day  
on which notice of the subsequently rescinded redemption shall have been given  
but prior to the close of business on the later of (a) the NYSE trading day     
next succeeding the date on which public announcement of the rescission of      
such redemption was made and (b) the NYSE trading day on which the notice of    
rescission is deemed given (a "Converting Holder") may rescind the conversion   
of such shares surrendered for conversion by properly completing a form         
prescribed by New Time Warner and mailed to holders of shares of the New Time   
Warner Series D Preferred Stock (including Converting Holders) with New Time    
Warner's notice of rescission delivering such form to New Time Warner no later  
than the close of business on that date that is 10 NYSE trading days following  
the date on which notice of rescission is deemed given.                         

New Time Warner is required to pay any and all issue or other taxes that may
be payable in respect of any issue or delivery of shares on conversion of New   
Time Warner Series D Preferred Stock. New Time Warner is not, however,          
required to pay any tax which is payable in respect of any transfer involved    
in the issue or delivery of such shares in a name other than that in which the  
shares of the New Time Warner Series D Preferred Stock so converted were        
registered, and no such issue or delivery is permitted unless and until the     
person requesting such issue has paid to New Time Warner the amount of such     
tax, or has established, to the satisfaction of New Time Warner, that such tax  
has been paid.                                                                  

Adjustment of Series D Conversion Rate for Certain Actions or Events. The   
Series D Conversion Rate will be adjusted from time to time as follows:         

(a) In case New Time Warner (i) pays a dividend in shares of New Time   
Warner Common Stock, (ii) combines the outstanding shares of New Time       
Warner Common Stock into a smaller number of shares, (iii) subdivides the   
outstanding shares of New Time Warner Common Stock or (iv) reclassifies     
(other than by way of a merger or consolidation that is described below)    
the shares of New Time Warner Common Stock, then the Series D Conversion    
Rate in effect immediately before such action will be adjusted so that      
immediately following such event the holders of such shares will be         
entitled to receive upon conversion or exchange thereof the kind and amount 
of shares of capital stock of New Time Warner which they would have owned   
or been entitled to receive upon or by reason of such event if such shares  
had been converted or exchanged immediately before the record date (or, if  
no record date, the effective date) for such event (it being understood     
that any distribution of cash or of capital stock (other than New Time      
Warner Common Stock), including any distribution of capital stock that will 
accompany a reclassification of the New Time Warner Common Stock, will have 
the effect described under "--Dividend Rights" above). Any such             

135 

DEFM14A
140th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 140th
adjustment will become effective retroactively immediately after the record 
date in the case of a dividend or distribution and will become effective    
retroactively immediately after the effective date in the case of a         
subdivision, combination or reclassification. If holders of New Time Warner 
Common Stock are entitled to make any election with respect to the kind or  
amount of securities receivable by them in any transaction described in     
this paragraph (including any election that would result in all or a        
portion of the transaction being treated as described under "--Dividend     
Rights" above), the kind and amount of securities that will be              
distributable to the holders of New Time Warner Series D Preferred Stock    
will be based on (i) the election, if any, made by the record holder (as of 
the date used for determining the holders of New Time Warner Common Stock   
entitled to make such election) of the largest number of shares of New Time 
Warner Series D Preferred Stock in writing to New Time Warner on or prior   
to the last date on which a holder of New Time Warner Common Stock may make 
such an election or (ii) if no such election is timely made, an assumption  
that such holder failed to exercise any such rights (provided that if the   
kind or amount of securities is not the same for each nonelecting holder,   
then the kind and amount of securities receivable will be based on the kind 
or amount of securities receivable by a plurality of nonelecting holders of 
New Time Warner Common Stock).                                              

(b) If a Change of Control (as defined below) occurs, the Series D      
Conversion Rate in effect immediately prior to the Change of Control Date   
(as defined below) will be increased (but not decreased) by multiplying     
such rate by a fraction as follows (i) in the case of a Change of Control   
specified in clause (A) of the definition of "Change of Control" set forth  
below, a fraction in which the numerator is the Series D Conversion Price   
prior to adjustment pursuant hereto and the denominator is the current      
market price of the New Time Warner Common Stock at the Change of Control   
Date, (ii) in the case of a Change of Control specified in clause (B) of    
the definition "Change of Control" set forth below, the greater of the      
following fractions: (x) a fraction the numerator of which is the highest   
price per share of New Time Warner Common Stock paid by the acquiring       
person in connection with the transaction giving rise to the Change of      
Control or in any transaction within six months prior to or after the       
Change of Control Date (the "highest price"), and the denominator of which  
is the current market price of the New Time Warner Common Stock as of the   
date (but not earlier than six months prior to the Change of Control Date)  
on which the first public announcement is made by the acquiring person that 
it intends to acquire or that it has acquired 40% or more of the            
outstanding shares of New Time Warner Common Stock (the "announcement       
date") or (y) a fraction the numerator of which is the Series D Conversion  
Price prior to adjustment pursuant hereto and the denominator of which is   
the current market price of the New Time Warner Common Stock on the         
announcement date and (iii) in the case where there co-exists a Change of   
Control specified in both clauses (A) and (B) of this paragraph, the        
greatest of the fractions determined pursuant to clauses (i) and (ii). Such 
adjustment will become effective immediately after the Change of Control    
Date and will be made, in the case of clauses (ii) and (iii) above,         
successively for six months thereafter in the event and at the time of any  
increase in the highest price after the Change of Control Date; provided,   
however, that no such successive adjustment shall be made with respect to   
the Series D Conversion Rate of the shares of this Series in respect of any 
event occurring after the Conversion Date. For the purposes of the New Time 
Warner Series D Preferred Stock, "Change of Control" means the occurrence   
of one or both of the following events: (A) individuals who would           
constitute a majority of the members of the New Time Warner Board elected   
at any meeting of stockholders or by written consent (without regard to any 
members of the New Time Warner Board elected pursuant to the terms of any   
New Time Warner Preferred Stock) shall be elected to the Board of Directors 
and the election or the nomination for election by the stockholders of such 
directors was not approved by a vote of at least a majority of the          
directors in office immediately prior to such election (in which event      
"Change of Control Date" shall mean the date of such election) or (B) a     
person or group of persons acting in concert as a partnership, limited      
partnership, syndicate or other group within the meaning of Rule 13d-3      
under the Exchange Act shall, as a result of a tender or exchange offer,    
open market purchases, privately negotiated purchases, share repurchases or 
redemptions or otherwise, have become the beneficial owner (within the      
meaning of Rule 13d-3 under the Exchange Act) of 40% or more of the         
outstanding shares of New Time Warner Common Stock (in which event "Change  
of Control Date" shall mean the date of the event resulting in such 40%     
ownership).                                                                 

136 

DEFM14A
141st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 141st
(c) New Time Warner is entitled to make such additional adjustments in  
the Series D Conversion Rate, in addition to those described above in       
paragraphs (a) and (b) as are necessary in order that any dividend or       
distribution in New Time Warner Common Stock or any subdivision,            
reclassification or combination of shares of New Time Warner Common Stock   
referred to above, will not be taxable to the holders of New Time Warner    
Common Stock for United States Federal income tax purposes so long as such  
additional adjustments do not decrease the Series D Conversion Rate.        

(d) New Time Warner may elect to defer (but only for five NYSE trading  
days following the occurrence of an event which necessitates adjustment of  
the Series D Conversion Rate) issuing to the holder of any shares of a      
series of New Time Warner Series D Preferred Stock converted after such     
record date the shares of New Time Warner Common Stock and other capital    
stock of New Time Warner issuable upon such conversion over and above the   
shares of New Time Warner Common Stock and other capital stock of New Time  
Warner issuable upon such conversion on the basis of the Series D           
Conversion Rate prior to adjustment; provided, however, that New Time       
Warner must 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.                 

 (e) No adjustment will be made to the Series D Conversion Rate (i) if the
effect thereof would be to reduce the Series D Conversion Price below the   
par value of the New Time Warner Common Stock or (ii) subject to paragraph  
(c) above, with respect to any share of New Time Warner Series D Preferred  
Stock that is converted, prior to the time such adjustment otherwise would  
be made.                                                                    

Adjustment of Series D Conversion Rate upon Consolidation, Merger or Sale of
Assets. If:                                                                     

(a) any consolidation or merger to which New Time Warner is a party,    
other than a merger or consolidation in which New Time Warner is the        
surviving or continuing corporation and which does not result in any        
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, or as a result 
of a subdivision or combination) in, outstanding shares of New Time Warner  
Common Stock, occurs, or;                                                   

(b) any sale or conveyance of all or substantially all of the property  
and assets of New Time Warner occurs,                                       

then lawful provision will be made as part of the terms of such transaction     
whereby the holder of each share of New Time Warner Series D Preferred Stock    
will have the right thereafter, during the period such share is convertible or  
exchangeable, to convert such share into or have such share exchanged for the   
kind and amount of shares of stock or other securities and property receivable  
upon such consolidation, merger, sale or conveyance by a holder of the number   
of shares of New Time Warner Common Stock into which such share could have      
been converted or exchanged immediately prior to such consolidation, merger,    
sale or conveyance, subject to adjustment which shall be as nearly equivalent   
as may be practicable to the adjustments described herein (based on (i) the     
election, if any, made in writing to New Time Warner by the record holder (as   
of the date used for determining holders of New Time Warner Common Stock        
entitled to make such election) of the largest number of shares of New Time     
Warner Series D Preferred Stock on or prior to the last date on which a holder  
of New Time Warner Common Stock may make an election regarding the kind or      
amount of securities or other property receivable by such holder in such        
transaction or (ii) if no such election is timely made, an assumption that      
such holder failed to exercise any such rights (provided that if the kind or    
amount of securities or other property is not the same for each nonelecting     
holder, then the kind and amount of securities or other property receivable     
will be based upon the kind and amount of securities or other property          
receivable by a plurality of the nonelecting holders of New Time Warner Common  
Stock)).                                                                        

If any of the transactions referred to in clauses (a) or (b) of the         
immediately preceding paragraph involves the distribution of cash (or property  
other than equity securities) to a holder of New Time Warner Common Stock,      
lawful provision will be made as part of the terms of the transaction whereby   
the holder of each share of New Time Warner Series D Preferred Stock on the     
record date fixed for determining holders of New Time Warner Common Stock       
entitled to receive such cash or property (or if no such record date is         
established, the                                                                

137 

DEFM14A
142nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 142nd
effective date of such transaction) will be entitled to receive the amount of   
cash or property that such holder would have been entitled to receive had such  
holder converted his shares of New Time Warner Series D Preferred Stock into    
New Time Warner Common Stock immediately prior to such record date (or          
effective date) (based on the election or nonelection made by the record        
holder of the largest number of shares of New Time Warner Series D Preferred    
Stock, as provided above). New Time Warner will not enter into any of the       
transactions referred to in clause (a) or (b) of the immediately preceding      
paragraph unless effective provision shall be made in the certificate or        
articles of incorporation or other constituent documents of New Time Warner or  
the entity surviving the consolidation or merger, if other than New Time        
Warner, or the entity acquiring New Time Warner's assets, as the case may be,   
so as to give effect to the provisions set forth in the immediately preceding   
paragraph. The provisions of this paragraph shall apply similarly to            
successive consolidations, mergers, sales or conveyances.                       

Redemption or Exchange at New Time Warner's Option                            

General. New Time Warner may, at its sole option from time to time on and   
after July 6, 2000, in the case of clause (i) or (iii) of the immediately       
succeeding paragraph and on and after July 6, 1999, in the case of clause (ii)  
of the immediately succeeding paragraph, redeem, out of funds legally           
available therefor, or exchange, as provided below, shares of New Time Warner   
Common Stock for, all (or in the case of a cash redemption, any part) of the    
outstanding shares of the New Time Warner Series D Preferred Stock. The         
redemption price for each such share called for cash redemption shall be the    
liquidation value together with an amount equal to the accrued and unpaid       
dividends to the date fixed for redemption (hereinafter collectively referred   
to as the "Series D Redemption Price"). The exchange price for each share of    
New Time Warner Series D Preferred Stock called for exchange shall be a number  
of shares of New Time Warner Common Stock equal to the Series D Conversion      
Rate, together with, at the option of New Time Warner, either (x) cash or (y)   
a number of shares of New Time Warner Common Stock, valued at the closing       
price on the NYSE trading day immediately preceding the date fixed for          
exchange, equal, in either case, to the aggregate amount of accrued and unpaid  
dividends on New Time Warner Series D Preferred Stock to the date fixed for     
exchange (provided that any dividends which are in arrears must be paid in      
cash) (hereinafter collectively referred to as the "Series D Exchange Price").  

On the date fixed for redemption or exchange of shares of New Time Warner   
Series D Preferred Stock, New Time Warner will, at its option, effect either    

(i) a redemption of the shares of New Time Warner Series D Preferred    
Stock to be redeemed by way of payment, out of funds legally available      
therefor, of cash equal to the aggregate Series D Redemption Price for the  
shares then being redeemed;                                                 

(ii) an exchange of the shares of New Time Warner Series D Preferred    
Stock for the Series D Exchange Price in shares of New Time Warner Common   
Stock (provided that New Time Warner (A) will be entitled to deliver cash   
(1) in lieu of any fractional share of New Time Warner Common Stock and (2) 
equal to accrued and unpaid dividends to the date fixed for exchange in     
lieu of shares of New Time Warner Common Stock and (B) will be required to  
deliver cash in respect of any dividends that are in arrears); or           

(iii) any combination of a cash redemption and an exchange with respect 
to the shares of New Time Warner Series D Preferred Stock called for        
redemption or exchange.                                                     

In the event that fewer than all the outstanding shares of the New Time     
Warner Series D Preferred Stock are to be redeemed, the number of shares to be  
redeemed from each holder of shares of New Time Warner Series D Preferred       
Stock shall be determined by New Time Warner by lot or pro rata or by any       
other method as may be determined by the New Time Warner Board.                 

Notice of any proposed redemption or exchange may be given by New Time      
Warner by mailing a copy of such notice not less than 15 nor more than 60 days  
prior to the date fixed for redemption or exchange, to the                      
record holder of the shares to be redeemed or exchanged, at their addresses as  
reported on the books of New Time Warner.                                       

138 

DEFM14A
143rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 143rd
All dividends on the shares so called for redemption or exchange shall cease
to accrue and all rights of the holders thereof as stockholders of New Time     
Warner with respect to shares so called for redemption or exchange (except (i)  
in the case of redemption, the right to receive the Series D Redemption Price   
without interest and in the case of exchange, the right to receive the Series   
D Exchange Price without interest and (ii) the right to convert such shares as  
described above under "--Conversion Provisions" above) shall terminate          
(including any right to receive dividends otherwise payable on any Series D     
Dividend Payment Date that would have occurred after the time and date of       
redemption or exchange) either in the case of a redemption or exchange, from    
and after the time and date fixed in the notice of redemption or exchange as    
the time and date of redemption or exchange (unless New Time Warner shall (x)   
in the case of a redemption, default in the payment of the Series D Redemption  
Price, (y) in the case of an exchange, fail to exchange the applicable number   
of shares of New Time Warner Common Stock and any cash portion of the Series D  
Exchange Price or (z) exercise its right to rescind such redemption or          
exchange, in which case such rights shall not terminate at such time and date)  
or, if New Time Warner shall so elect and state in the notice of redemption or  
exchange, from and after the time and date (which date shall be the date fixed  
for redemption or exchange or an earlier date not less than 15 days after the   
date of mailing of the redemption or exchange notice) on which New Time Warner  
shall irrevocably deposit with a designated bank or trust company designated    
as paying agent, money sufficient to pay at the office of such paying agent,    
on the redemption date, the Series D Redemption Price, in the case of           
redemption, or certificates representing the shares of New Time Warner Common   
Stock to be so exchanged and any cash portion of the Series D Exchange Price,   
in the case of an exchange. Subject to applicable escheat laws, any moneys or   
certificates so set aside by New Time Warner and unclaimed at the end of one    
year from the redemption date will revert to the general funds of New Time      
Warner, after which reversion the holders of such shares so called for          
redemption or exchange may look only to New Time Warner for the payment of the  
Series D Redemption Price or the Series D Exchange Price, as applicable,        
without interest. Any interest accrued on funds so deposited shall be paid to   
New Time Warner from time to time.                                              

The New Time Warner Series D Preferred Stock will not be subject to         
redemption at the option of New Time Warner pursuant to Section 5 of Article    
IV of the New Time Warner Charter.                                              

Right to Rescind Redemption. If a Redemption Rescission Event (as defined   
below) shall occur following any day on which a notice of cash redemption       
shall have been given but at or prior to the earlier of (a) the time and date   
fixed for cash redemption as set forth in such notice of cash redemption and    
(b) the time and date at which New Time Warner shall have irrevocably           
deposited funds or certificates with a designated bank or trust company, New    
Time Warner may, at its sole option, at any time prior to the earliest of (i)   
the close of business on that day which is two NYSE trading days following      
such Redemption Rescission Event, (ii) the time and date fixed for redemption   
as set forth in such notice and (iii) the time and date on which New Time       
Warner shall have irrevocably deposited such funds or certificates with a       
designated bank or trust company, rescind the cash redemption to which such     
notice of redemption shall have related by making a public announcement of      
such rescission. From and after the making of such announcement, New Time       
Warner shall have no obligation to redeem shares of New Time Warner Series D    
Preferred Stock called for cash redemption pursuant to such notice of           
redemption or to pay the Series D Redemption Price therefor and all rights of   
holders of New Time Warner Series D Preferred Stock shall be restored as if     
such notice of redemption had not been given. New Time Warner will give notice  
of any such rescission as promptly as practicable, but in no event later than   
the close of business on that date which is five NYSE trading days following    
the date of public announcement of such rescission to each record holder of     
shares of New Time Warner Series D Preferred Stock at the close of business on  
such date and to any other person or entity that was a record holder of shares  
of New Time Warner Series D Preferred Stock and that shall have surrendered     
shares of New Time Warner Series D Preferred Stock for conversion following     
the giving of notice of the subsequently rescinded redemption. For purposes of  
the New Time Warner Series D Preferred Stock, a "Redemption Rescission Event"   
means 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 New Time Warner Common Stock are registered and     
listed for trading (or, if shares of New Time Warner Common Stock are not       
registered and listed for trading on any such exchange, in the over-the-        
counter market)                                                                 

139 

DEFM14A
144th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 144th
for more than six-and-one-half consecutive trading hours, (b) any decline in    
either the Dow Jones Industrial Average or the Standard & Poor's Index of 400   
Industrial Companies (or any successor index published by Dow Jones & Company,  
Inc. or Standard & Poor's Corporation) by either (i) an amount in excess of     
10%, measured from the close of business on any NYSE trading day to the close   
of business on the next succeeding NYSE trading day during the period           
commencing on the NYSE trading day preceding the day notice of any redemption   
of shares is given (or, if such notice is given after the close of business on  
a NYSE trading day, commencing on such NYSE trading day) and ending at the      
earlier of (x) the time and date fixed for redemption in such notice and (y)    
the time and date at which New Time Warner shall have irrevocably deposited     
funds or certificates with a designated bank or trust company 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 notice of redemption is given, 20%),   
measured from the close of business on the NYSE trading day preceding the day   
notice of such redemption is given (or, if such notice is given after the       
close of business on a NYSE trading day, from such NYSE trading day) to the     
close of business on any NYSE trading day on or prior to the earlier of the     
dates specified in clauses (x) and (y) above, (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 New  
Time Warner could have a material adverse effect on the market for the New      
Time Warner Common Stock.                                                       

Pro Rata Repurchase                                                           

Upon a Pro Rata Repurchase (as defined below), each holder of shares of New 
Time Warner Series D Preferred Stock will have the right to require New Time    
Warner to repurchase, out of funds legally available therefor, a Pro Rata       
Portion (as defined below) of the shares of New Time Warner Series D Preferred  
Stock of such holder, or any lesser number requested by the holder, at a price  
per share equal to the highest price per share of New Time Warner Common Stock  
paid in the Pro Rata Repurchase multiplied by the Series D Conversion Rate      
then in effect plus an amount equal to the accrued but unpaid dividends on      
such shares to the date of repurchase.                                          

The Board of Directors of New Time Warner may not approve any tender or     
exchange offer by New Time Warner or a third party for shares of New Time       
Warner Common Stock or recommend that the holders of New Time Warner Common     
Stock accept any offer or tender their shares into any offer unless a Pro Rata  
Portion of the shares of New Time Warner Series D Preferred Stock of all        
holders are entitled to be tendered into such offer at a price not less than    
the price per share for shares of New Time Warner Common Stock pursuant to      
such offer multiplied by the Series D Conversion Rate then in effect plus an    
amount equal to accrued but unpaid dividends on such shares to the date of      
payment for such shares in such tender or exchange offer.                       

"Pro Rata Portion" with respect to the shares of New Time Warner Series D   
Preferred Stock held by any holder shall mean all the shares of New Time        
Warner Series D Preferred Stock then owned by such holder times a fraction,     
the numerator of which is the number of outstanding shares of New Time Warner   
Common Stock (a) purchased in the applicable Pro Rata Repurchase or (b) for     
which a tender or exchange offer referred to above is made, as the case may     
be, and the denominator of which is the number of outstanding shares of New     
Time Warner Common Stock immediately prior to such Pro Rata Repurchase or the   
commencement of such tender or exchange offer, as the case may be.              

"Pro Rata Repurchase" shall mean the purchase of shares of New Time Warner  
Common Stock by New Time Warner or by any of its subsidiaries, whether for      
cash or other property or securities of New Time Warner, which purchase is      
subject to Section 13(e) of the Exchange Act or is made pursuant to an offer    
made available to all holders of New Time Warner Common Stock, but excluding    
any purchase made in open market transactions that satisfies the conditions of  
clause (b) of Rule 10b-18 under the Exchange Act or has been designed (as       
reasonably determined by the New Time Warner Board or a committee thereof) to   
prevent such purchase from having a material effect on the trading market of    
the New Time Warner Common Stock. The "Effective Date" of a Pro Rata            
Repurchase shall mean the applicable expiration date (including all extensions  

140 

DEFM14A
145th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 145th
thereof) of any tender or exchange offer which is a Pro Rata Repurchase or the  
date of purchase with respect to any Pro Rata Repurchase which is not a tender  
or exchange offer.                                                              

Liquidation Rights                                                            

Upon the dissolution, liquidation or winding up of New Time Warner, whether 
voluntary or involuntary, holders of shares of New Time Warner Series D         
Preferred Stock shall be entitled to receive out of the assets of New Time      
Warner available for distribution to stockholders, in preference to the         
holders of, and before any payment or distribution shall be made on, junior     
stock, the liquidation value in respect of such share, plus an amount equal to  
all accrued and unpaid dividends to the date of final distribution. The         
liquidation value applicable to shares of New Time Warner Series D Preferred    
Stock shall initially be $100 per share, subject to adjustment from time to     
time to appropriately give effect to any split or combination of such share.    
In the event the assets of New Time Warner available for distribution to the    
holders of New Time Warner Series D Preferred Stock upon any dissolution,       
liquidation or winding up of New Time Warner, whether voluntary or              
involuntary, are insufficient to pay in full all amounts to which such holders  
are entitled, no such distribution may be made on account of any shares of any  
parity stock upon such dissolution, liquidation or winding up unless            
proportionate distributive amounts shall be paid on account of shares of the    
New Time Warner Series D Preferred Stock, ratably, in proportion to the full    
distributable amounts for which holders of all parity stock are entitled upon   
such dissolution, liquidation or winding up.                                    

Voting Rights                                                                 

Each share of New Time Warner Series D Preferred Stock will be entitled to  
vote together with holders of the shares of New Time Warner Common Stock (and   
any other class or series which may similarly be entitled to vote with the      
shares of New Time Warner Common Stock) as a single class upon all matters      
upon which holders of New Time Warner Common Stock are entitled to vote. In     
any such vote, the holder of such share shall be entitled to two votes per      
$100 in liquidation value of such share, subject to adjustment at the same      
time and in the same manner as each adjustment of the Series D Conversion       
Rate, so that the holders of New Time Warner Series D Preferred Stock shall be  
entitled following such adjustment to the number of votes equal to the number   
of votes such holders were entitled to immediately prior to such adjustment     
multiplied by a fraction (x) the numerator of which is the Series D Conversion  
Rate as adjusted and (y) the denominator of which is the Series D Conversion    
Rate immediately prior to such adjustment.                                      

So long as any shares of New Time Warner Series D Preferred Stock shall be  
outstanding, unless a greater percentage is required by law, New Time Warner    
will not, without the affirmative vote at a meeting or the written consent      
with or without a meeting of the holders of shares of New Time Warner Series D  
Preferred Stock representing at least two-thirds of the aggregate voting power  
of shares of New Time Warner Series D Preferred Stock then outstanding, (i)     
authorize any class or series of stock ranking prior to the New Time Warner     
Series D Preferred Stock and the parity stock or reclassify any parity stock    
or junior stock into shares of stock ranking prior to the New Time Warner       
Series D Preferred Stock, (ii) merge into or consolidate with any person where  
the surviving or continuing corporation will have any authorized senior stock   
(other than capital stock corresponding to shares of senior stock of New Time   
Warner existing immediately before such merger or consolidation), or (iii)      
amend, alter or repeal (by operation of law or otherwise) any provision of the  
Certificate of Designations of New Time Warner Series D Preferred Stock or the  
New Time Warner Charter so as in any such case to materially and adversely      
affect the voting powers, designations, preferences and relative,               
participating, optional or other special rights, and qualifications,            
limitations or restrictions of, the shares of New Time Warner Series D          
Preferred Stock.                                                                

No consent of holders of the New Time Warner Series D Preferred Stock is    
required for (i) the creation of any indebtedness of any kind of New Time       
Warner, (ii) the authorization or issuance of any class of junior stock or      
parity stock, (iii) in certain circumstances, the authorization, designation    
or issuance of additional shares of New Time Warner Series D Preferred Stock    
or (iv) subject to the immediately preceding paragraph, the authorization or    
issuance of any other shares of New Time Warner Preferred Stock.                

141 

DEFM14A
146th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 146th
If and whenever at any time or times dividends payable on shares of the New 
Time Warner Series D Preferred Stock shall have been in arrears and unpaid in   
an aggregate amount equal to or exceeding the amount                            
of dividends payable thereon for six quarterly dividend periods, then the       
number of directors constituting the New Time Warner Board shall be increased   
by two (without duplication of any such increase in directorships required by   
the terms of any other New Time Warner Capital Stock which has similar rights)  
and the holders of shares of the New Time Warner Series D Preferred Stock,      
together with the holders of any shares of any parity stock as to which in      
each case dividends are in arrears and unpaid in an aggregate amount equal to   
or exceeding the amount of dividends payable thereon for six quarterly          
dividend periods, shall have the exclusive right, voting separately as a class  
with such other series, to elect two directors of New Time Warner.              

NEW TIME WARNER SERIES E PREFERRED STOCK                                        

General                                                                       

The New Time Warner Series E Preferred Stock is identical to the Time Warner
Series E Preferred Stock, except for (a) the items described under "Comparison  
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain   
technical, immaterial changes (primarily giving precise dates for certain       
matters rather than anniversaries of dates of issuance, changing the            
definition of "Parity Stock" to include all the pari passu New Time Warner      
Preferred Stock and changing the definition of "Junior Stock" to include the    
LMC Series Common Stock).                                                       

Dividend Rights                                                               

Holders of New Time Warner Series E Preferred Stock will be entitled to the 
same dividend rights as holders of New Time Warner Series D Preferred Stock     
described in "--New Time Warner Series D Preferred Stock--Dividend Rights"      
above, except that (i) all references to the date July 6, 1999, in "--New Time  
Warner Series D Preferred Stock--Dividend Rights" shall instead apply to        
November 30, 2000, (ii) all references to January 1, April 1, July 1 and        
October 1 in "--New Time Warner Series D Preferred Stock--Dividend Rights"      
shall instead apply to March 1, June 1, September 1 and December 1,             
respectively, and (iii) dividends payable in respect of periods prior to        
November 30, 2000, will be cumulative and will accrue on each share on a daily  
basis, whether or not there are unrestricted funds legally available for the    
payment of such dividends and whether or not declared.                          

Conversion Provisions                                                         

General. The New Time Warner Series E Preferred Stock shall be subject to   
the same general conversion provisions as the New Time Warner Series D          
Preferred Stock described in "--New Time Warner Series D Preferred Stock--      
Conversion Provisions--General" above, except that the following two            
paragraphs shall apply instead of the first and second paragraphs,              
respectively, of "--New Time Warner Series D Preferred Stock--Conversion        
Provisions--General."                                                           

Holders of New Time Warner Series E Preferred Stock shall have the right at 
any time or, as to any share of New Time Warner Series E Preferred Stock        
called for redemption or exchange, at any time prior to the close of business   
on the date fixed for redemption or exchange (unless New Time Warner defaults   
in the payment of the Series E Redemption Price (as defined below) or fails to  
exchange the shares of New Time Warner Series E Preferred Stock for the         
applicable number of shares of New Time Warner Common Stock and any cash        
portion of the Series E Exchange Price (as defined) or exercises its right to   
rescind such redemption, in which case such right shall not terminate at the    
close of business on such date), to convert such share into (a) a number of     
shares of New Time Warner Common Stock equal to 2.08264 shares of New Time      
Warner Common Stock for each share of New Time Warner Series E Preferred        
Stock, subject to appropriate adjustment in the event of a split or             
combination of shares of New Time Warner Series E Preferred Stock and subject   
to further adjustment as described herein (such rate, as so adjusted from time  
to time, is herein called the "Series E Conversion Rate"; and the "Series E     
Conversion Price" at any time shall mean the liquidation value per share of     
New Time Warner                                                                 

142 

DEFM14A
147th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 147th
Series E Preferred Stock divided by the Series E Conversion Rate in effect at   
such time (rounded to the nearest one hundredth of a cent)) plus (b) if there   
shall be any dividends on shares of New Time Warner Series E Preferred Stock    
which shall be accrued and unpaid as of the immediately preceding Series E      
Dividend Payment Date, a number of shares of New Time Warner Common Stock       
equal to                                                                        

 (A) the aggregate amount of accrued and unpaid dividends on such share to
and including the most recent scheduled Series E Dividend Payment Date      
(whether or not such dividends were declared and whether or not there are   
unrestricted funds legally available for the payment thereof) (the "Series  
E Accrued Dividend Amount") divided by                                      

(B) the closing price of the New Time Warner Common Stock on the last   
NYSE trading day prior to the Conversion Date.                              

New Time Warner may deliver cash equal to the Series E Accrued Dividend     
Amount or any portion thereof in lieu of New Time Warner Common Stock. The      
obligations of New Time Warner to issue the New Time Warner Common Stock (or    
its option to make cash payments) upon the exercise of conversion rights is     
absolute whether or not any accrued dividend by which such issuance (or         
payment) is measured has been declared by the New Time Warner Board and         
whether or not New Time Warner would have adequate surplus or net profits to    
pay such dividend if declared or is otherwise restricted from paying such       
dividend.                                                                       

Adjustment of Series E Conversion Rate for Certain Actions or Events. The   
Series E Conversion Rate will be adjusted from time to time in the same manner  
and under the same circumstances as the Series D Conversion Rate described in   
"--New Time Warner Series D Preferred Stock--Conversion Provisions--Adjustment  
of Series D Conversion Rate for Certain Actions or Events" above, except that   
the Series E Conversion Rate will also be adjusted from time to time as         
follows:                                                                        

 If New Time Warner or any subsidiary thereof makes a Pro Rata Repurchase,
the Series E Conversion Rate in effect immediately prior to such action     
shall be adjusted (but shall not be decreased) by multiplying such Series E 
Conversion Rate by a fraction, the numerator of which shall be the product  
of (i) the number of shares of New Time Warner Common Stock outstanding     
immediately before such Pro Rata Repurchase minus the number of shares of   
New Time Warner Common Stock repurchased by New Time Warner or any          
subsidiary thereof in such Pro Rata Repurchase and (ii) the current market  
price of the New Time Warner Common Stock as of the day immediately         
preceding the first public announcement by New Time Warner of the intent to 
effect such Pro Rata Repurchase, and the denominator of which shall be (i)  
the product of (x) the number of shares of New Time Warner Common Stock     
outstanding immediately before such Pro Rata Repurchase and (y) the current 
market price of the New Time Warner Common Stock as of the day immediately  
preceding the first public announcement by New Time Warner of the intent to 
effect such Pro Rata Repurchase minus (ii) the aggregate purchase price of  
the Pro Rata Repurchase (provided that such fraction shall never be less    
than 1). Such adjustment shall become effective immediately after the       
Effective Date of such Pro Rata Repurchase.                                 

Adjustment of Series E Conversion Rate upon Consolidation, Merger or Sale of
Assets. Holders of New Time Warner Series E Preferred Stock will be entitled    
to the same rights upon a consolidation, merger or sale of assets by New Time   
Warner as the holders of New Time Warner Series D Preferred Stock described in  
"--New Time Warner Series D Preferred Stock--Conversion Provisions--Adjustment  
of Series D Conversion Rate upon Consolidation, Merger or Sale of Assets"       
above.                                                                          

Redemption or Exchange at New Time Warner's Option                            

New Time Warner may redeem or exchange the New Time Warner Series E         
Preferred Stock in the same manner and under the same circumstances as it may   
redeem or exchange the New Time Warner Series D Preferred Stock described in    
"--New Time Warner Series D Preferred Stock--Redemption or Exchange at New      
Time Warner's Option" above, except that (i) all references to July 6, 2000 or  
July 6, 1999 shall instead apply to November 30, 2000, and (ii) dividends       
which are in arrears need not be paid in cash.                                  

143 

DEFM14A
148th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 148th
Liquidation Rights                                                            

Holders of New Time Warner Series E Preferred Stock will be entitled to the 
same rights upon the dissolution, liquidation or winding up of New Time Warner  
as the holders of New Time Warner Series D Preferred Stock described in "--New  
Time Warner Series D Preferred Stock--Liquidation Rights" above.                

Voting Rights                                                                 

Holders of each share of New Time Warner Series E Preferred Stock will be   
entitled to the same general voting rights as holders of each share of New      
Time Warner Series D Preferred Stock described in "--New Time Warner Series D   
Preferred Stock--Voting Rights" above.                                          

NEW TIME WARNER SERIES F PREFERRED STOCK                                        

General                                                                       

The New Time Warner Series F Preferred Stock is identical to the Time Warner
Series F Preferred Stock, except for (a) the items described under "Comparison  
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain   
technical, immaterial changes (primarily giving precise dates for certain       
matters rather than anniversaries of dates of issuance, changing the            
definition of "Parity Stock" to include all the pari passu New Time Warner      
Preferred Stock and changing the definition of "Junior Stock" to include the    
LMC Series Common Stock).                                                       

Dividend Rights                                                               

Holders of New Time Warner Series F Preferred Stock will be entitled to the 
same dividend rights as holders of New Time Warner Series D Preferred Stock     
described in "--New Time Warner Series D Preferred Stock--Dividend Rights"      
above, except that (i) all references to the date July 6, 1999, in "--New Time  
Warner Series D Preferred Stock--Dividend Rights" shall instead apply to        
November 30, 1999, (ii) all references to January 1, April 1, July 1 and        
October 1 in "--New Time Warner Series D Preferred Stock--Dividend Rights"      
shall instead apply to March 1, June 1, September 1 and December 1,             
respectively, and (iii) dividends payable in respect of periods prior to        
November 30, 1999, will be cumulative and will accrue on each share on a daily  
basis, whether or not there are unrestricted funds legally available for the    
payment of such dividends and whether or not declared.                          

Conversion Provisions                                                         

General. The New Time Warner Series F Preferred Stock shall be subject to   
the same general conversion provisions as the New Time Warner Series D          
Preferred Stock described in "--New Time Warner Series D Preferred Stock--      
Conversion Provisions--General" above, except that the following two            
paragraphs shall apply instead of the first and second paragraphs,              
respectively, of "--New Time Warner Series D Preferred Stock--Conversion        
Provisions--General."                                                           

Holders of New Time Warner Series F Preferred Stock shall have the right at 
any time or, as to any share of New Time Warner Series F Preferred Stock        
called for redemption or exchange, at any time prior to the close of business   
on the date fixed for redemption or exchange (unless New Time Warner defaults   
in the payment of the Series F Redemption Price (as defined below) or fails to  
exchange the shares of New Time Warner Series F Preferred Stock for the         
applicable number of shares of New Time Warner Common Stock and any cash        
portion of the Series F Exchange Price (as defined) or exercises its right to   
rescind such redemption, in which case such right shall not terminate at the    
close of business on such date), to convert such share into (a) a number of     
shares of New Time Warner Common Stock equal to 2.08264 shares of New Time      
Warner Common Stock for each share of New Time Warner Series F Preferred        
Stock, subject to appropriate adjustment in the event of a split or             
combination of shares of New Time Warner Series F Preferred Stock and subject   
to further adjustment as described herein (such rate, as so adjusted from time  
to time, is herein called the "Series F Conversion Rate";                       

144 

DEFM14A
149th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 149th
and the "Series F Conversion Price" at any time shall mean the liquidation      
value per share of New Time Warner Series F Preferred Stock divided by the      
Series F Conversion Rate in effect at such time (rounded to the nearest one     
hundredth of a cent)) plus (b) if there shall be any dividends on shares of     
New Time Warner Series F Preferred Stock which shall be accrued and unpaid as   
of the immediately preceding Series F Dividend Payment Date, a number of        
shares of New Time Warner Common Stock equal to                                 

 (A) the aggregate amount of accrued and unpaid dividends on such share to
and including the most recent scheduled Series F Dividend Payment Date      
(whether or not such dividends were declared and whether or not there are   
unrestricted funds legally available for the payment thereof) (the "Series  
F Accrued Dividend Amount") divided by                                      

(B) the closing price of the New Time Warner Common Stock on the last   
NYSE trading day prior to the Conversion Date.                              

New Time Warner may deliver cash equal to the Series F Accrued Dividend     
Amount or any portion thereof in lieu of New Time Warner Common Stock. The      
obligations of New Time Warner to issue the New Time Warner Common Stock (or    
its option to make cash payments) upon the exercise of conversion rights is     
absolute whether or not any accrued dividend by which such issuance (or         
payment) is measured has been declared by the New Time Warner Board and         
whether or not New Time Warner would have adequate surplus or net profits to    
pay such dividend if declared or is otherwise restricted from paying such       
dividend.                                                                       

Adjustment of Series F Conversion Rate for Certain Actions or Events. The   
Series F Conversion Rate will be adjusted from time to time in the same manner  
and under the same circumstances as the Series D Conversion Rate described in   
"--New Time Warner Series D Preferred Stock--Conversion Provisions--Adjustment  
of Series D Conversion Rate for Certain Actions or Events" above, except that   
the Series F Conversion Rate will also be adjusted from time to time as         
follows                                                                         

 If New Time Warner or any subsidiary thereof makes a Pro Rata Repurchase,
the Series F Conversion Rate in effect immediately prior to such action     
shall be adjusted (but shall not be decreased) by multiplying such Series F 
Conversion Rate by a fraction, the numerator of which shall be the product  
of (i) the number of shares of New Time Warner Common Stock outstanding     
immediately before such Pro Rata Repurchase minus the number of shares of   
New Time Warner Common Stock repurchased by New Time Warner or any          
subsidiary thereof in such Pro Rata Repurchase and (ii) the current market  
price of the New Time Warner Common Stock as of the day immediately         
preceding the first public announcement by New Time Warner of the intent to 
effect such Pro Rata Repurchase, and the denominator of which shall be (i)  
the product of (x) the number of shares of New Time Warner Common Stock     
outstanding immediately before such Pro Rata Repurchase and (y) the current 
market price of the New Time Warner Common Stock as of the day immediately  
preceding the first public announcement by New Time Warner of the intent to 
effect such Pro Rata Repurchase minus (ii) the aggregate purchase price of  
the Pro Rata Repurchase (provided that such fraction shall never be less    
than 1). Such adjustment shall become effective immediately after the       
Effective Date of such Pro Rata Repurchase.                                 

Adjustment of Series F Conversion Rate upon Consolidation, Merger or Sale of
Assets.  Holders of New Time Warner Series F Preferred Stock will be entitled   
to the same rights upon a consolidation, merger or sale of assets by New Time   
Warner as holders of New Time Warner Series D Preferred Stock described in "--  
New Time Warner Series D Preferred Stock--Conversion Provisions--Adjustment of  
Series D Conversion Rate upon Consolidation, Merger or Sale of Assets" above.   

Redemption or Exchange at New Time Warner's Option                            

New Time Warner may redeem or exchange the New Time Warner Series F         
Preferred Stock in the same manner and under the same circumstances as it may   
redeem or exchange the New Time Warner Series D Preferred Stock described in    
"--New Time Warner Series D Preferred Stock--Redemption or Exchange at New      
Time Warner's Option" above, except that (i) all references to July 6, 2000     
shall instead apply to November 30,                                             

145 

DEFM14A
150th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 150th
2000, (ii) all references to July 6, 1999 shall instead apply to November 30,   
1999, and (iii) dividends which are in arrears need not be paid in cash.        

Liquidation Rights                                                            

Holders of New Time Warner Series F Preferred Stock will be entitled to the 
same rights upon the dissolution, liquidation or winding up of New Time Warner  
as the holders of New Time Warner Series D Preferred Stock described in "--New  
Time Warner Series D Preferred Stock--Liquidation Rights" above.                

Voting Rights                                                                 

Holders of each share of New Time Warner Series F Preferred Stock will be   
entitled to the same general voting rights as holders of each share of New      
Time Warner Series D Preferred Stock described in "--New Time Warner Series D   
Preferred Stock--Voting Rights" above.                                          

NEW TIME WARNER SERIES G PREFERRED STOCK                                        

General                                                                       

The New Time Warner Series G Preferred Stock is identical to the Time Warner
Series G Preferred Stock, except for (a) the items described under "Comparison  
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain   
technical, immaterial changes (primarily giving precise dates for certain       
matters rather than anniversaries of dates of issuance, changing the            
definition of "Parity Stock" to include all the pari passu New Time Warner      
Preferred Stock and changing the definition of "Junior Stock" to include the    
LMC Series Common Stock).                                                       

Dividend Rights                                                               

Holders of New Time Warner Series G Preferred Stock will be entitled to the 
same dividend rights as holders of New Time Warner Series D Preferred Stock     
described in "--New Time Warner Series D Preferred Stock--Dividend Rights"      
above, except that (i) all references to the date July 6, 1999, in "--New Time  
Warner Series D Preferred Stock--Dividend Rights" shall instead apply to        
September 5, 1999, and (ii) all references to January 1, April 1, July 1 and    
October 1 in "--New Time Warner Series D Preferred Stock--Dividend Rights"      
shall instead apply to March 1, June 1, September 1 and December 1,             
respectively.                                                                   

Conversion Provisions                                                         

The New Time Warner Series G Preferred Stock will be subject to the same    
conversion provisions as the New Time Warner Series D Preferred Stock           
described in "--New Time Warner Series D Preferred Stock--Conversion            
Provisions" above.                                                              

Redemption or Exchange at New Time Warner's Option                            

New Time Warner may redeem or exchange the New Time Warner Series G         
Preferred Stock in the same manner and under the same circumstances as it may   
redeem or exchange the New Time Warner Series D Preferred Stock described in    
"--New Time Warner Series D Preferred Stock--Redemption or Exchange at New      
Time Warner's Option" above, except that all references to July 6, 2000 or      
July 6, 1999 shall instead apply to September 5, 1999.                          

Pro Rata Repurchase                                                           

Holders of New Time Warner Series G Preferred Stock will be entitled to the 
same rights, and New Time Warner and the New Time Warner Board will be subject  
to the same obligations and restrictions, as those described in "--New Time     
Warner Series D Preferred Stock--Pro Rata Repurchase" above.                    

146 

DEFM14A
151st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 151st
Liquidation Rights                                                            

Holders of New Time Warner Series G Preferred Stock will be entitled to the 
same rights upon the dissolution, liquidation or winding up of New Time Warner  
as the holders of New Time Warner Series D Preferred Stock described in "--New  
Time Warner Series D Preferred Stock--Liquidation Rights" above.                

Voting Rights                                                                 

Holders of each share of New Time Warner Series G Preferred Stock will be   
entitled to the same voting rights as holders of each share of New Time Warner  
Series D Preferred Stock described in "--New Time Warner Series D Preferred     
Stock--Voting Rights" above.                                                    

NEW TIME WARNER SERIES H PREFERRED STOCK                                        

General                                                                       

The New Time Warner Series H Preferred Stock is identical to the Series H   
Convertible Preferred Stock, par value $1.00 per share, of Time Warner (the     
"Time Warner Series H Preferred Stock"), except for (a) the items described     
under "Comparison of Rights of Stockholders of New Time Warner and Time         
Warner" and (b) certain technical, immaterial changes (primarily giving         
precise dates for certain matters rather than anniversaries of dates of         
issuance, changing the definition of "Parity Stock" to include all the pari     
passu New Time Warner Preferred Stock and changing the definition of "Junior    
Stock" to include the LMC Series Common Stock).                                 

Dividend Rights                                                               

Holders of New Time Warner Series H Preferred Stock will be entitled to the 
same dividend rights as holders of New Time Warner Series D Preferred Stock     
described in "--New Time Warner Series D Preferred Stock--Dividend Rights"      
above, except that (i) all references to the date July 6, 1999, in "--New Time  
Warner Series D Preferred Stock--Dividend Rights" shall instead apply to        
September 5, 1999, and (ii) all references to January 1, April 1, July 1 and    
October 1 in "--New Time Warner Series D Preferred Stock--Dividend Rights"      
shall instead apply to March 1, June 1, September 1 and December 1,             
respectively.                                                                   

Conversion Provisions                                                         

The New Time Warner Series H Preferred Stock shall be subject to the same   
conversion provisions as the New Time Warner Series D Preferred Stock           
described in "'--New Time Warner Series D Preferred Stock--Conversion           
Provisions" above, except that holders of New Time Warner Series H Preferred    
Stock shall only have the right to convert shares of New Time Warner Series H   
Preferred Stock during the Conversion Period (as defined below).                

The "Conversion Period" shall mean (i) the period commencing on September 5,
2000, and (ii) any period prior to September 5, 2000 (A) during which there     
shall remain open (within the meaning of Rule 14e-1(a) under the Exchange Act)  
a tender or exchange offer for 40% or more of the outstanding shares of New     
Time Warner Common Stock; provided, however, that New Time Warner shall have    
filed a Schedule 14D-9 with respect to such tender or exchange offer and such   
tender or exchange offer shall not have been opposed by the New Time Warner     
Board or (B) immediately prior to the effective time of any consolidation or    
merger to which New Time Warner is a party, other than a merger or              
consolidation in which New Time Warner is the surviving or continuing           
corporation and which does not result in any reclassification of, or change     
(other than a change in par value or as a result of a division or combination)  
in outstanding shares of New Time Warner Common Stock.                          

Redemption or Exchange at New Time Warner's Option                            

New Time Warner may redeem or exchange the New Time Warner Series H         
Preferred Stock in the same manner and under the same circumstances as it may   
redeem or exchange the New Time Warner Series D Preferred Stock described in    
"--New Time Warner Series D Preferred Stock--Redemption or Exchange at New      

147 

DEFM14A
152nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 152nd
Time Warner's Option" above, except that New Time Warner may only redeem or     
exchange New Time Warner Series H Preferred Stock (a) as described in clause    
(i) of the second paragraph of "--New Time Warner Series D Preferred Stock--    
Redemption at New Time Warner's Option" on and after September 5, 1999, and     
(b) as described in clause (ii) or (iii) of the same paragraph on or after      
September 5, 2000.                                                              

Pro Rata Repurchase                                                           

Holders of New Time Warner Series H Preferred Stock will have the same      
rights, and New Time Warner and the New Time Warner Board will be subject to    
the same obligations and restrictions, as those described in "--New Time        
Warner Series D Preferred Stock--Pro Rata Repurchase" above.                    

Liquidation Rights                                                            

Holders of New Time Warner Series H Preferred Stock will be entitled to the 
same rights upon the dissolution, liquidation or winding up of New Time Warner  
as the holders of New Time Warner Series D Preferred Stock described in "--New  
Time Warner Series D Preferred Stock--Liquidation Rights" above.                

Voting Rights                                                                 

Holders of New Time Warner Series H Preferred Stock will have no voting     
rights, except as required by law or with respect to certain limited            
circumstances, including certain amendments to the terms of the New Time        
Warner Series H Preferred Stock.                                                

NEW TIME WARNER SERIES I PREFERRED STOCK                                        

General                                                                       

The New Time Warner Series I Preferred Stock is identical to the Time Warner
Series I Preferred Stock, except for (a) the items described under "Comparison  
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain   
technical, immaterial changes (primarily giving precise dates for certain       
matters rather than anniversaries of dates of issuance, changing the            
definition of "Parity Stock" to include all the pari passu New Time Warner      
Preferred Stock and changing the definition of "Junior Stock" to include the    
LMC Series Common Stock).                                                       

Dividend Rights                                                               

Holders of New Time Warner Series I Preferred Stock will be entitled to the 
same dividend rights as holders of New Time Warner Series D Preferred Stock     
described in "--New Time Warner Series D Preferred Stock--Dividend Rights"      
above, except that (i) all references to the date July 6, 1999, in "--New Time  
Warner Series D Preferred Stock--Dividend Rights" shall instead apply to        
October 2, 1999, and (ii) all references to January 1, April 1, July 1 and      
October 1 in "--New Time Warner Series D Preferred Stock--Dividend Rights"      
shall instead apply to March 1, June 1, September 1, and December 1,            
respectively.                                                                   

Conversion Provisions                                                         

The New Time Warner Series I Preferred Stock shall be subject to the same   
conversion provisions as the New Time Warner Series D Preferred Stock           
described in "--New Time Warner Series D Preferred Stock--Conversion            
Provisions" above.                                                              

Redemption or Exchange at New Time Warner's Option                            

New Time Warner may redeem or exchange the New Time Warner Series I         
Preferred Stock in the same manner and under the same circumstances as it may   
redeem or exchange the New Time Warner Series D Preferred Stock described in    
"--New Time Warner Series D Preferred Stock--Redemption or Exchange at New      

148 

DEFM14A
153rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 153rd
Time Warner's Option" above, except that all references to July 6, 2000, and    
July 6, 1999, shall instead apply to October 2, 1999.                           

Pro Rata Repurchase                                                           

Holders of New Time Warner Series I Preferred Stock will be entitled to the 
same rights, and New Time Warner and the New Time Warner Board will be subject  
to the same obligations and restrictions, as those described in "--New Time     
Warner Series D Preferred Stock--Pro Rata Repurchase" above.                    

Liquidation Rights                                                            

Holders of New Time Warner Series I Preferred Stock will be entitled to the 
same rights upon the dissolution, liquidation or winding up of New Time Warner  
as the holders of New Time Warner Series D Preferred Stock described in "--New  
Time Warner Series D Preferred Stock--Liquidation Rights" above.                

Voting Rights                                                                 

Holders of each share of New Time Warner Series I Preferred Stock will be   
entitled to the same general voting rights as holders of each share of New      
Time Warner Series D Preferred Stock described in "--New Time Warner Series D   
Preferred Stock--Voting Rights" above.                                          

NEW TIME WARNER SERIES J PREFERRED STOCK                                        

General                                                                       

The New Time Warner Series J Preferred Stock is identical to the Time Warner
Series J Preferred Stock, except for (a) the items described under "Comparison  
of Rights of Stockholders of New Time Warner and Time Warner" and (b) certain   
technical, immaterial changes (primarily giving precise dates for certain       
matters rather than anniversaries of dates of issuance, changing the            
definition of "Parity Stock" to include all the pari passu New Time Warner      
Preferred Stock and changing the definition of "Junior Stock" to include the    
LMC Series Common Stock).                                                       

Dividend Rights                                                               

Holders of New Time Warner Series J Preferred Stock will be entitled to     
receive quarter-annual dividends, as and when declared by the New Time Warner   
Board out of funds legally available for payments in the amount per share of    
New Time Warner Series J Preferred Stock equal to (i) in the case of each       
Series J Dividend Payment Date (as defined below) occurring on or before May    
2, 2000, the greater of (A) $.9375 (which is equivalent to $3.75 per annum)     
per $100 in liquidation value, and (B) the product of (1) the Series J          
Conversion Rate (as defined below) and (2) the aggregate per share amount of    
regularly scheduled dividends paid in cash on the New Time Warner Common Stock  
during the period from but excluding the immediately preceding Series J         
Dividend Payment Date to and including such Series J Dividend Payment Date and  
(ii) in the case of each Series J Dividend Payment Date occurring thereafter,   
the product of (1) the Series J Conversion Rate and (2) the aggregate per       
share amount of regularly scheduled dividends paid in cash on the New Time      
Warner Common Stock during the period from but excluding the immediately        
preceding Series J Dividend Payment Date to and including such Series J         
Dividend Payment Date. Dividends on New Time Warner Series J Preferred Stock    
will be payable in cash on or about February 1, May 1, August 1 and November 1  
of each year, as fixed by the New Time Warner Board of Directors, or such       
other dates as are fixed by the New Time Warner Board (provided that May 2,     
2000, shall be a Series J Dividend Payment Date) (each a "Series J Dividend     
Payment Date"), to the holders of record on or about the 15th day of the month  
next preceding such February 1, May 1, August 1 and November 1 (or immediately  
preceding May 2, 2000, as the case may be,) as fixed by the New Time Warner     
Board, or such other dates as are fixed by the New Time Warner Board (each a    
"Series J Record Date"). Dividends payable in respect of periods prior to May   
2, 2000, will be cumulative and will accrue on each share on a day-to-day       
basis, whether or not declared. Any such dividends that become payable for any  
partial dividend                                                                

149 

DEFM14A
154th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 154th
period shall be computed on the basis of the actual days elapsed in such        
period; provided, however, that the dividend payable on the first Series J      
Dividend Payment Date shall be computed as if the period in respect of which    
such dividend is payable commenced on the date of payment of the last dividend  
paid on the Time Warner Series J Preferred Stock. From and after May 2, 2000,   
dividends on the New Time Warner Series J Preferred Stock shall accrue to the   
extent, but only to the extent, that regularly scheduled cash dividends are     
declared by the New Time Warner Board on the New Time Warner Common Stock with  
a payment date after May 2, 2000 (or, in the case of shares of New Time Warner  
Series J Preferred Stock originally issued after May 2, 2000, after the Series  
J Dividend Payment Date next preceding such date of original issuance).         

So long as any New Time Warner Series J Preferred Stock is outstanding, New 
Time Warner may not declare or pay any dividend on the New Time Warner Common   
Stock or other stock ranking as to the right to receive dividends or to         
participate in any distribution of assets other than by way of dividends        
junior to or on a parity with the New Time Warner Series J Preferred Stock      
(other than a dividend payable in New Time Warner Common Stock or other junior  
stock), nor may New Time Warner or any of its subsidiaries purchase or redeem   
New Time Warner Common Stock or any other stock ranking as to the right to      
receive dividends or to participate in any distribution of assets other than    
by way of dividends junior to or on a parity with the New Time Warner Series J  
Preferred Stock (except by conversion into or exchange for, or out of the net   
cash proceeds from the concurrent sale of, stock of New Time Warner ranking     
junior to the New Time Warner Series J Preferred Stock as to dividends and      
other distributions), nor shall any monies be paid or made available for a      
purchase, redemption or sinking fund therefor, unless all dividends on the New  
Time Warner Series J Preferred Stock and any other New Time Warner Capital      
Stock ranking as to dividends on a parity with the New Time Warner Series J     
Preferred Stock that shall have accrued and be payable as of any date shall     
have been paid, or declared and funds set apart for payment thereof; provided,  
however, that nothing herein shall prevent New Time Warner from completing the  
purchase of New Time Warner Series J Preferred Stock, parity stock or junior    
stock for which a purchase contract was entered into, or the notice of          
redemption of which was originally published, prior to the date on which any    
such dividends were first required to be paid. Should dividends not be paid in  
full on any outstanding New Time Warner Series J Preferred Stock or any other   
New Time Warner Capital Stock ranking as to dividends on a parity with the New  
Time Warner Series J Preferred Stock, all dividends declared on the New Time    
Warner Series J Preferred Stock and any other New Time Warner Capital Stock     
ranking as to dividends on a parity with the New Time Warner Series J           
Preferred Stock will be declared pro rata, so that the amount of dividends      
declared per share of New Time Warner Series J Preferred Stock and such other   
New Time Warner Capital Stock will bear to each other the same ratio that       
accrued dividends per share on the shares of each series of New Time Warner     
Series J Preferred Stock and such other New Time Warner Capital Stock bear to   
each other. No interest, or sum of money in lieu of interest, shall be payable  
in respect of any dividend payment or payments on New Time Warner Series J      
Preferred Stock which may be in arrears. The New Time Warner Series J           
Preferred Stock will rank on a parity with the New Time Warner Series D         
Preferred Stock, the New Time Warner Series E Preferred Stock, the New Time     
Warner Series F Preferred Stock, the New Time Warner Series G Preferred Stock,  
the New Time Warner Series H Preferred Stock, the New Time Warner Series I      
Preferred Stock and the New Time Warner Series K Preferred Stock and will rank  
senior to the New Time Warner Common Stock and the LMC Series Common Stock      
and, if issued, the New Time Warner Series A Preferred Stock.                   

If New Time Warner distributes (other than a distribution in liquidation of 
New Time Warner) to all holders of New Time Warner Common Stock any assets or   
property, including evidences of indebtedness or securities, of New Time        
Warner or cash (excluding regularly scheduled cash dividends payable on shares  
of New Time Warner Common Stock) or if New Time Warner distributes (other than  
a distribution in liquidation of New Time Warner) rights, options or warrants   
to subscribe for or purchase any securities, assets or property (in each case,  
whether of New Time Warner or otherwise, but other than any distribution of     
rights to purchase securities of New Time Warner if the holder of New Time      
Warner Series J Preferred Stock would otherwise be entitled to receive such     
rights upon conversion of shares of New Time Warner Series J Preferred Stock    
for New Time Warner Common Stock; provided, however, that if such rights are    
subsequently redeemed by New Time Warner, such redemption will be treated for   
purposes of the provisions described in this paragraph as a cash dividend on    

150 

DEFM14A
155th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 155th
the New Time Warner Common Stock), New Time Warner must simultaneously          
distribute such assets, property, securities, rights, options or warrants pro   
rata to the holders of New Time Warner Series J Preferred Stock in an amount    
equal to the amount that such holders would have been entitled to receive had   
their shares of New Time Warner Series J Preferred Stock been converted into    
New Time Warner Common Stock immediately prior to the applicable record date.   

If a distribution is made to the holders of New Time Warner Series J        
Preferred Stock in accordance with the provisions described in the immediately  
preceding paragraph, no adjustment to the Series J Conversion Rate shall be     
effected by reason of the distribution of such assets, property, securities,    
rights, options or warrants or the subsequent modification, exercise,           
expiration or termination of such securities, rights, options or warrants. If   
holders of New Time Warner Common Stock are entitled to make any election with  
respect to the kind or amount of securities or other property receivable by     
them in any such distribution, the kind and amount of securities or other       
property that shall be distributable to the holders of the New Time Warner      
Series J Preferred Stock shall be based on (a) the election, if any, made by    
the record holder (as of the date used for determining the holders of New Time  
Warner Common Stock entitled to make such election) of the largest number of    
shares of New Time Warner Series J Preferred Stock in writing to New Time       
Warner on or prior to the last date on which a holder of New Time Warner        
Common Stock may make such an election and (b) if no such election is timely    
made, an assumption that such holder failed to exercise any such rights         
(provided that if the kind or amount of securities or other property is not     
the same for each nonelecting holder, then the kind and amount of securities    
or other property receivable by holders of New Time Warner Series J Preferred   
Stock shall be based on the kind or amount of securities or other property      
receivable by a plurality of the shares held by the nonelecting holders of New  
Time Warner Common Stock).                                                      

Conversion Provisions                                                         

General. Holders of New Time Warner Series J Preferred Stock shall have the 
right at any time or, as to any share of New Time Warner Series J Preferred     
Stock called for redemption or exchange, at any time prior to the close of      
business on the date fixed for redemption or exchange (unless New Time Warner   
defaults in the payment of the Series J Redemption Price (as defined below) or  
fails to exchange the shares of New Time Warner Series J Preferred Stock for    
the applicable number of shares of New Time Warner Common Stock and any         
applicable cash amount, or exercises its right to rescind such redemption or    
exchange, in which case such right shall not terminate at the close of          
business on such date), to convert such share into a number of shares of New    
Time Warner Common Stock equal to 2.08264 shares of New Time Warner Common      
Stock for each share of New Time Warner Series J Preferred Stock, subject to    
adjustment as described herein (such rate, as so adjusted from time to time,    
is herein called the "Series J Conversion Rate;" and the "Series J Conversion   
Price" at any time shall mean the liquidation value per share of New Time       
Warner Series J Preferred Stock divided by the Series J Conversion Rate in      
effect at such time (rounded to the nearest one hundredth of a cent)).          

If any shares of New Time Warner Series J Preferred Stock are surrendered   
for conversion subsequent to the Series J Record Date immediately preceding a   
Series J Dividend Payment Date but on or prior to such Series J Dividend        
Payment Date (except shares called for redemption or exchange on a redemption   
date or exchange date between such Series J Record Date and Series J Dividend   
Payment Date and with respect to which such redemption or exchange has not      
been rescinded), the registered holder of such shares at the close of business  
on such Series J Record Date shall be entitled to receive the dividend, if      
any, payable on such shares on such Series J Dividend Payment Date              
notwithstanding the conversion thereof. Shares of New Time Warner Series J      
Preferred Stock surrendered for conversion during the period from the close of  
business on any Series J Record Date next preceding any Series J Dividend       
Payment Date to the opening of business on such Series J Dividend Payment Date  
shall (except in the case of shares which have been called for redemption or    
exchange on a redemption date or exchange date within such period and with      
respect to which such redemption or exchange has not been rescinded) be         
accompanied by payment of an amount equal to the dividend payable on such       
Series J Dividend Payment Date on the shares being surrendered for conversion.  
Except as described herein, no adjustments in respect of payments of dividends  
on shares surrendered for conversion or any dividend on the New Time Warner     

151 

DEFM14A
156th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 156th
Common Stock issued upon conversion will be made upon the conversion of any     
shares of New Time Warner Series J Preferred Stock.                             

New Time Warner may, but is not required to, in connection with any         
conversion of shares of New Time Warner Series J Preferred Stock, issue a       
fraction of a share of New Time Warner Common Stock, and if New                 
Time Warner does not to issue any such fraction, New Time Warner shall, except  
as described below, make a cash payment (rounded to the nearest cent) equal to  
such fraction multiplied by the closing price of the New Time Warner Common     
Stock on the last NYSE trading day prior to the date of conversion.             

Conversion of shares of New Time Warner Series J Preferred Stock will be    
deemed to have been made as of the date that certificates for such shares, and  
a written notice of election to convert and any required payment, are received  
by the transfer agent or agents for the New Time Warner Series J Preferred      
Stock; and the person entitled to receive the New Time Warner Common Stock      
issuable upon such conversion will be treated for all purposes as the record    
holder of such New Time Warner Common Stock on such date. If New Time Warner    
has rescinded a redemption or exchange of shares of New Time Warner Series J    
Preferred Stock, any holder of shares of New Time Warner Series J Preferred     
Stock that shall have surrendered such shares for conversion following the day  
on which notice of the subsequently rescinded redemption or exchange shall      
have been given but prior to the close of business on the later of (a) the      
NYSE trading day next succeeding the date on which public announcement of the   
rescission of such redemption or exchange was made and (b) the NYSE trading     
day on which the notice of rescission is deemed given (a "Converting Holder")   
may rescind the conversion of such shares surrendered for conversion by         
properly completing a form prescribed by New Time Warner and mailed to holders  
of shares of the New Time Warner Series J Preferred Stock (including            
Converting Holders) with New Time Warner's notice of rescission delivering      
such form to New Time Warner no later than the close of business on that date   
that is 15 NYSE trading days following the date of mailing of New Time          
Warner's notice of rescission.                                                  

If any shares of New Time Warner Common Stock which would be issuable upon  
conversion of shares of the New Time Warner Series J Preferred Stock require    
registration with or approval of any governmental authority before such shares  
may be issued upon conversion, New Time Warner is required to cause such        
shares to be duly registered or approved, as the case may be, and to endeavor   
to list the shares of (or depositary shares representing fractional interests   
in) New Time Warner Common Stock required to be delivered upon conversion of    
shares of the New Time Warner Series J Preferred Stock prior to such delivery   
upon the principal national securities exchange upon which the outstanding New  
Time Warner Common Stock is listed at the time of such delivery.                

New Time Warner is required to pay any and all issue or other taxes that may
be payable in respect of any issue or delivery of shares of New Time Warner     
Common Stock on conversion of shares of the New Time Warner Series J Preferred  
Stock. New Time Warner is not, however, required to pay any tax which is        
payable in respect of any transfer involved in the issue or delivery of New     
Time Warner Common Stock in a name other than that in which the shares of the   
New Time Warner Series J Preferred Stock so converted were registered, and no   
such issue or delivery is permitted unless and until the person requesting      
such issue has paid to New Time Warner the amount of such tax, or has           
established, to the satisfaction of New Time Warner, that such tax has been     
paid.                                                                           

Adjustment of Series J Conversion Rate for Certain Actions or Events. The   
Series J Conversion Rate will be adjusted from time to time as follows:         

(a) In case New Time Warner (i) pays a dividend in shares of New Time   
Warner Common Stock, (ii) combines the outstanding shares of New Time       
Warner Common Stock into a smaller number of shares, (iii) subdivides the   
outstanding shares of New Time Warner Common Stock or (iv) issues by        
reclassification of the shares of New Time Warner Common Stock any shares   
of New Time Warner Capital Stock, then the Series J Conversion Rate in      
effect immediately before such action will be adjusted so that the holders  
of New Time Warner Series J Preferred Stock will be entitled to receive     
upon conversion the kind and amount                                         

152 

DEFM14A
157th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 157th
of shares of capital stock of New Time Warner which they would have owned   
or been entitled to receive upon or by reason of such event if such shares  
had been converted immediately before the record date (or, if no record     
date, the effective date) for such event. Any such adjustment will become   
effective retroactively immediately after the record date in the case of a  
dividend or distribution and will become effective retroactively            
immediately after the effective date in the case of a subdivision,          
combination or reclassification. Each holder of New Time Warner Series J    
Preferred Stock 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 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).                        

 (b) If New Time Warner issues rights or warrants to all holders of shares
of New Time Warner Common Stock entitling them (for a period expiring       
within 45 days after the record date for such issuance) to subscribe for or 
purchase shares of New Time Warner Common Stock (or securities convertible  
into shares of New Time Warner Common Stock) at a price per share less than 
the current market price of the New Time Warner Common Stock at such record 
date (treating the price per share of the securities convertible into New   
Time Warner Common Stock as equal to (x) the sum of (i) the price for a     
unit of the security convertible into New Time Warner Common Stock plus     
(ii) any additional consideration initially payable upon the conversion of  
such security into New Time Warner Common Stock divided by (y) the number   
of shares of New Time Warner Common Stock initially underlying such         
convertible security), the Series J Conversion Rate shall be adjusted so    
that it shall equal the rate determined by multiplying the Series J         
Conversion Rate 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 New Time Warner Common Stock outstanding on the date of 
issuance of such rights or warrants plus the number of additional shares of 
New Time Warner Common Stock 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 New Time Warner   
Common Stock outstanding on the date of issuance of such rights or warrants 
plus the number of shares which the aggregate offering price of the total   
number of shares 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    
into New Time Warner Common Stock) would purchase at such current market    
price of the New Time Warner Common Stock. Such adjustment shall become     
effective retroactively immediately after the record date for the           
determination of stockholders entitled to receive such rights or warrants.  

(c) If New Time Warner distributes to all holders of shares of New Time 
Warner Common Stock (including any such distribution made in connection     
with a consolidation or merger in which New Time Warner is the continuing   
corporation and the New Time Warner Common Stock is not changed or          
exchanged) cash, evidences of its indebtedness, securities or assets        
(excluding (i) regularly scheduled cash dividends or (ii) dividends payable 
in shares of New Time Warner Common Stock for which adjustment is made      
under the second preceding paragraph) or rights or warrants to subscribe    
for or purchase securities of New Time Warner, then in each such case the   
Series J Conversion Rate shall be adjusted so that it shall equal the rate  
determined by multiplying the Series J Conversion Rate 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 New Time Warner 
Common Stock on the record date referred to below, and the denominator of   
which shall be such current market price of the New Time Warner Common      
Stock less the then fair market value 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 New Time Warner  
Common Stock (provided that such denominator shall never be less than one); 
provided, however, that no adjustment shall be made with respect to any     
distribution of rights to purchase securities of New Time Warner if the     
holder of shares of New Time Warner Series J Preferred Stock would          
otherwise be entitled to receive such rights upon conversion at any time of 
shares of New Time Warner Series J Preferred Stock into New Time Warner     
Common Stock unless                                                         

153 

DEFM14A
158th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 158th
such rights are subsequently redeemed by New Time Warner, in which case     
such redemption shall be treated for purposes of this Section as a dividend 
on the New Time Warner Common Stock. Such adjustment shall be made whenever 
any such distribution is made and shall become effective retroactively      
immediately after the record date for the determination of stockholders     
entitled to receive such distribution.                                      

(d) If New Time Warner or any subsidiary thereof makes a Pro Rata       
Repurchase (as defined below), the Series J Conversion Rate in effect       
immediately prior to such action shall be adjusted (but shall not be        
decreased) by multiplying such Series J Conversion Rate by a fraction, the  
numerator of which shall be the product of (i) the number of shares of New  
Time Warner Common Stock outstanding immediately before such Pro Rata       
Repurchase minus the number of shares of New Time Warner Common Stock       
repurchased by New Time Warner or any subsidiary thereof in such Pro Rata   
Repurchase and (ii) the current market price of the New Time Warner Common  
Stock as of the day immediately preceding the first public announcement by  
New Time Warner of the intent to effect such Pro Rata Repurchase, and the   
denominator of which shall be (i) the product of (x) the number of shares   
of New Time Warner Common Stock outstanding immediately before such Pro     
Rata Repurchase and (y) the current market price of the New Time Warner     
Common Stock as of the day immediately preceding the first public           
announcement by New Time Warner of the intent to effect such Pro Rata       
Repurchase minus (ii) the aggregate purchase price of the Pro Rata          
Repurchase (provided that such denominator shall never be less than one).   
Such adjustment shall become effective immediately after the effective date 
of such Pro Rata Repurchase. For purposes of the New Time Warner Series J   
Preferred Stock, "Pro Rata Repurchase" means the purchase of shares of New  
Time Warner Common Stock by New Time Warner or by any of its subsidiaries,  
which purchase is subject to Section 13(e) of the Exchange Act or is made   
pursuant to an offer made available to all holders of New Time Warner       
Common Stock, but excluding any purchase made in open market transactions   
that satisfies the conditions of clause (b) of Rule 10b-18 under the        
Exchange Act or has been designed (as reasonably determined by the New Time 
Warner Board or a committee thereof) to prevent such purchase from having a 
material effect on the trading market of the Common Stock. The "effective   
date" of a Pro Rata Repurchase means the applicable expiration date         
(including all extensions thereof) of any tender or exchange offer which is 
a Pro Rata Repurchase or the date of purchase with respect to any Pro Rata  
Repurchase which is not a tender or exchange offer. The "current market     
price" of the New Time Warner Common Stock, as used with respect to the New 
Time Warner Series J Preferred Stock, on any date shall mean the average of 
the daily closing prices per share of the New Time Warner Common Stock for  
the five consecutive NYSE trading days ending on the NYSE trading day       
immediately preceding the applicable conversion, redemption or exchange     
date.                                                                       

(e) New Time Warner is entitled to make such additional adjustments in  
the Series J Conversion Rate, in addition to those described above in       
paragraphs (a), (b), (c) and (d) as are necessary in order that any         
dividend or distribution in New Time Warner Common Stock or any             
subdivision, reclassification or combination of shares of New Time Warner   
Common Stock referred to above, will not be taxable to the holders of New   
Time Warner Common Stock for United States Federal income tax purposes, so  
long as such additional adjustments do not decrease the Series J Conversion 
Rate.                                                                       

(f) New Time Warner may elect to defer (but only for five trading days  
following the occurrence of an event which necessitates adjustment of the   
Series J Conversion Rate) issuing to the holder of any shares of New Time   
Warner Series J Preferred Stock converted after such record date (i) the    
shares of New Time Warner Common Stock and other capital stock of New Time  
Warner issuable upon such conversion over and above (ii) the shares of New  
Time Warner Common Stock and other capital stock of New Time Warner         
issuable upon such conversion on the basis of the Series J Conversion Rate  
prior to adjustment; provided, however, that New Time Warner must 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.                                            

 (g) No adjustment will be made to the Series J Conversion Rate (i) if the
effect thereof would be to reduce the Series J Conversion Price below the   
par value of the New Time Warner Common Stock or                            

154 

DEFM14A
159th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 159th
(ii) subject to paragraph (e) above, with respect to any share of New Time  
Warner Series J Preferred Stock that is converted, prior to the time such   
adjustment otherwise would be made.                                         

Adjustment of Series J Conversion Rate upon Consolidation, Merger or Sale of
Assets. If                                                                      

(a) any consolidation or merger to which New Time Warner is a party,    
other than a merger or consolidation in which New Time Warner is the        
surviving or continuing corporation and which does not result in any        
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, or as a result 
of a subdivision or combination) in, outstanding shares of New Time Warner  
Common Stock, occurs; or                                                    

(b) any sale or conveyance of all or substantially all of the property  
and assets of New Time Warner occurs,                                       

then each share of New Time Warner Series J Preferred Stock outstanding after   
the date of such consolidation, merger, sale or conveyance shall be             
convertible from and after such consolidation, merger, sale or conveyance into  
the kind and amount of shares of stock or other securities and property         
receivable upon such consolidation, merger, sale or conveyance by a holder of   
the number of shares of New Time Warner Common Stock into which such share      
could have been converted immediately prior to such consolidation, merger,      
sale or conveyance, subject to adjustment which shall be as nearly equivalent   
as may be practicable to the adjustments described herein. New Time Warner      
will not enter into any of the transactions referred to in clause (a) or (b)    
of the immediately preceding paragraph unless effective provision shall be      
made so as to give effect to the provisions set forth in the immediately        
preceding paragraph. The provisions of this paragraph shall apply similarly to  
successive consolidations, mergers, sales or conveyances.                       

Redemption or Exchange at New Time Warner's Option                            

General. New Time Warner may, at its sole option from time to time on and   
after May 2, 2000, redeem, out of funds legally available therefor, or          
exchange, as provided below, shares of New Time Warner Common Stock for, all    
or any part of the outstanding shares of the New Time Warner Series J           
Preferred Stock. The redemption or exchange price for each such share called    
for redemption or exchange pursuant to clause (i) of the immediately            
succeeding paragraph shall be the liquidation value together with an amount     
equal to the accrued and unpaid dividends to the date fixed for redemption or   
exchange (hereinafter collectively referred to as the "Series J Redemption      
Price").                                                                        

On the date fixed for redemption or exchange of shares of New Time Warner   
Series J Preferred Stock, New Time Warner will, at its option, effect either    

(i) (A) a redemption of the shares of New Time Warner Series J      
Preferred Stock to be redeemed by way of payment, out of funds legally  
available therefor, of cash equal to the aggregate Series J Redemption  
Price for the shares then being redeemed, (B) an exchange of the shares 
of New Time Warner Series J Preferred Stock being exchanged for shares  
of New Time Warner Common Stock the aggregate current market price of   
which shall be equal to the aggregate Series J Redemption Price of the  
shares then being exchanged (provided that New Time Warner will be      
entitled to deliver cash in lieu of any fractional share of New Time    
Warner Common Stock or (C) any combination of a cash redemption and an  
exchange with respect to the shares of New Time Warner Series J         
Preferred Stock called for redemption or exchange; provided, however,   
that the Corporation may not redeem or exchange any shares of New Time  
Warner Series J Preferred Stock pursuant to this clause (i) unless the  
closing price of the New Time Warner Common Stock shall have equalled   
or exceeded 125% of the Series J Conversion Price for at least twenty   
NYSE trading days within thirty consecutive NYSE trading days ending    
within fifteen NYSE trading days prior to the date notice of redemption 
is given; or                                                            

(ii) an exchange of the shares of New Time Warner Series J Preferred
Stock for shares of New Time Warner Common Stock at a rate of exchange  
per $100 in liquidation value of New Time Warner                        

155 

DEFM14A
160th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 160th
Series J Preferred Stock equal to the Series J Conversion Rate          
(provided that New Time Warner will be entitled to deliver cash in lieu 
of any fractional share of New Time Warner Common Stock; provided,      
however, that New Time Warner may not exchange any shares of New Time   
Warner Series J Preferred Stock pursuant to this clause (ii) unless all 
dividends with respect to such shares accrued through the Series J      
Dividend Payment Date immediately prior to the date fixed for such      
exchange shall have been declared and paid. Except as provided in the   
proviso in the previous sentence, upon                                  
receipt of shares of New Time Warner Common Stock in exchange for       
shares of New Time Warner Series J Preferred Stock being exchanged      
pursuant to this clause (ii), the holders of such shares of New Time    
Warner Series J Preferred Stock shall not be entitled to any accrued    
and unpaid dividends to the date fixed for exchange.                    

In the event that fewer than all the outstanding shares of the New Time     
Warner Series J Preferred Stock are to be redeemed or exchanged, the number of  
shares to be redeemed or exchanged from each holder of shares of New Time       
Warner Series J Preferred Stock shall be determined by New Time Warner by lot   
or pro rata or by any other method as may be determined by the New Time Warner  
Board.                                                                          

Notice of any proposed redemption or exchange may be given by New Time      
Warner by mailing a copy of such notice not less than 15 nor more than 60 days  
prior to the date fixed for redemption or exchange, to the record holder of     
the shares to be redeemed or exchanged, at their addresses as reported on the   
books of New Time Warner.                                                       

All dividends on the shares so called for redemption or exchange shall cease
to accrue and all rights of the holders thereof as stockholders of New Time     
Warner with respect to shares so called for redemption or exchange (except (i)  
in the case of redemption, the right to receive the Series J Redemption Price   
without interest and, in the case of exchange, the right to receive the shares  
of New Time Warner Common Stock and cash, if any, exchanged therefor and (ii)   
the right to convert such shares as described above under "--Conversion         
Provisions" above) shall terminate (including any right to receive dividends    
otherwise payable on any Series J Dividend Payment Date that would have         
occurred after the time and date of redemption or exchange) either in the case  
of a redemption or exchange, from and after the time and date fixed in the      
notice of redemption or exchange as the time and date of redemption or          
exchange (unless New Time Warner shall (x) in the case of a redemption,         
default in the payment of the Series J Redemption Price, (y) in the case of an  
exchange, fail to exchange the shares of New Time Warner Series J Preferred     
Stock for the applicable number of shares of New Time Warner Common Stock and   
any applicable cash amount or (z) exercise its right to rescind such            
redemption or exchange, in which case such rights shall not terminate at such   
time and date) or, if New Time Warner shall so elect and state in the notice    
of redemption or exchange, from and after the time and date (which date shall   
be the date of redemption or exchange or an earlier date not less than 15 days  
after the date of mailing of the redemption or exchange notice) on which New    
Time Warner shall irrevocably deposit with a designated bank or trust company   
designated as paying agent, money sufficient to pay at the office of such       
paying agent, on the redemption date, the Series J Redemption Price, in the     
case of redemption, or certificates representing the shares of New Time Warner  
Common Stock to be so exchanged and any applicable cash amount, in the case of  
an exchange. Subject to applicable escheat laws, any moneys or certificates so  
set aside by New Time Warner and unclaimed at the end of one year from the      
redemption date will revert to the general funds of New Time Warner, after      
which reversion the holders of such shares so called for redemption or          
exchange may look only to New Time Warner for the payment of the Series J       
Redemption Price or the Series J Exchange Price, as applicable, without         
interest. Any interest accrued on funds so deposited shall be paid to New Time  
Warner from time to time.                                                       

The New Time Warner Series J Preferred Stock will also be subject to        
redemption at the option of New Time Warner pursuant to Section 5 of Article    
IV of the New Time Warner Charter.                                              

Right to Rescind Redemption. If a Redemption Rescission Event (as defined   
below) shall occur following any day on which a notice of redemption or         
exchange shall have been given but at or prior to the earlier of (a) the time   
and date fixed for redemption or exchange as set forth in such notice of        
redemption or exchange and (b) the time and date at which New Time Warner       
shall have irrevocably deposited funds or certificates with a                   

156 

DEFM14A
161st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 161st
designated bank or trust company, New Time Warner may, at its sole option, at   
any time prior to the earliest of (i) the close of business on that day which   
is two NYSE trading days following such Redemption Rescission Event, (ii) the   
time and date fixed for redemption or exchange as set forth in such notice and  
(iii) the time and date on which New Time Warner shall have irrevocably         
deposited such funds or certificates with a designated bank or trust company,   
rescind the redemption or exchange to which such notice of redemption or        
exchange shall have related by making a public announcement of such             
rescission. From and after the making of such announcement, New Time Warner     
shall have no obligation to redeem or exchange shares of New Time Warner        
Series J Preferred Stock called for redemption or exchange pursuant to such     
notice of redemption or exchange or to pay the redemption price or exchange     
price therefor and all rights of holders of New Time Warner Series J Preferred  
Stock shall be restored as if such notice of redemption or exchange had not     
been given. New Time Warner will give notice of any such rescission as          
promptly as practicable, but in no event later than the close of business on    
that date which is five NYSE trading days following the date of public          
announcement of such rescission to each record holder of shares of New Time     
Warner Series J Preferred Stock at the close of business on such date and to    
any other person or entity that was a record holder of shares of New Time       
Warner Series J Preferred Stock and that shall have surrendered shares of New   
Time Warner Series J Preferred Stock for conversion following the giving of     
notice of the subsequently rescinded redemption or exchange. For purposes of    
the New Time Warner Series J Preferred Stock, a "Redemption Rescission Event"   
means 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 New Time Warner Common Stock are registered and     
listed for trading (or, if shares of New Time Warner Common Stock are not       
registered and listed for trading on any such exchange, in the over-the-        
counter market) for more than six-and-one-half consecutive trading hours, (b)   
any decline in either the Dow Jones Industrial Average or the Standard &        
Poor's Index of 400 Industrial Companies (or any successor index published by   
Dow Jones & Company, Inc. or Standard & Poor's Corporation) by either (i) an    
amount in excess of 10%, measured from the close of business on any NYSE        
trading day to the close of business on the next succeeding NYSE trading day    
during the period commencing on the NYSE trading day preceding the day notice   
of any redemption or exchange of shares is given (or, if such notice is given   
after the close of business on a NYSE trading day, commencing on such NYSE      
trading day) and ending at the earlier of (x) the time and date fixed for       
redemption or exchange in such notice and (y) the time and date at which New    
Time Warner shall have irrevocably deposited funds or certificates with a       
designated bank or trust company or (ii) an amount in excess of 15% (or, if     
the time and date fixed for redemption or exchange is more than 15 days         
following the date on which notice of redemption or exchange is given, 20%),    
measured from the close of business on the NYSE trading day preceding the day   
notice of such redemption or exchange is given (or, if such notice is given     
after the close of business on a NYSE trading day, from such NYSE trading day)  
to the close of business on any NYSE trading day on or prior to the earlier of  
the dates specified in clauses (x) and (y) above, (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   
New Time Warner could have a material adverse effect on the market for the New  
Time Warner Common Stock.                                                       

Liquidation Rights                                                            

Upon the dissolution, liquidation or winding up of New Time Warner, whether 
voluntary or involuntary, holders of shares of New Time Warner Series J         
Preferred Stock shall be entitled to receive out of the assets of New Time      
Warner available for distribution to stockholders, in preference to the         
holders of, and before any payment or distribution shall be made on, junior     
stock, the liquidation value in respect of such share, plus an amount equal to  
all accrued and unpaid dividends to the date of final distribution. The         
liquidation value applicable to shares of New Time Warner Series J Preferred    
Stock shall initially be $100 per share, subject to adjustment from time to     
time to appropriately give effect to any split or combination of such share.    
In the event the assets of New Time Warner available for distribution to the    
holders of New Time Warner Series J Preferred Stock upon any dissolution,       
liquidation or winding up of New Time Warner, whether voluntary or              
involuntary, are insufficient to pay in full all amounts to which such holders  
are entitled, no such distribution may be made on account of any shares of any  
parity stock upon such dissolution, liquidation or winding up unless            

157 

DEFM14A
162nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 162nd
proportionate distributive amounts shall be paid on account of shares of the    
New Time Warner Series J Preferred Stock, ratably, in proportion to the full    
distributable amounts for which holders of all parity stock are entitled upon   
such dissolution, liquidation or winding up.                                    

Voting Rights                                                                 

Each share of New Time Warner Series J Preferred Stock will be entitled to  
vote together with holders of the shares of New Time Warner Common Stock (and   
any other class or series which may similarly be entitled to vote with the      
shares of New Time Warner Common Stock) as a single class upon all matters      
upon which holders of New Time Warner Common Stock are entitled to vote. In     
any such vote, the holder of such share shall be entitled to two votes per      
$100 in liquidation value of such share, subject to adjustment at the same      
time and in the same manner as each adjustment of the Series J Conversion       
Rate, so that the holders of New Time Warner Series J Preferred Stock shall be  
entitled following such adjustment to the number of votes equal to the number   
of votes such holders were entitled to immediately prior to such adjustment     
multiplied by a fraction (x) the numerator of which is the Series J Conversion  
Rate as adjusted and (y) the denominator of which is the Series J Conversion    
Rate immediately prior to such adjustment.                                      

So long as any shares of New Time Warner Series J Preferred Stock shall be  
outstanding, unless a greater percentage is required by law, New Time Warner    
will not, without the affirmative vote at a meeting or the written consent      
with or without a meeting of the holders of shares of New Time Warner Series J  
Preferred Stock representing at least two-thirds of the aggregate voting power  
of shares of New Time Warner Series J Preferred Stock then outstanding, (i)     
authorize any class or series of stock ranking prior to the New Time Warner     
Series J Preferred Stock or reclassify any parity stock or junior stock into    
shares of stock ranking prior to the New Time Warner Series J Preferred Stock,  
(ii) amend, alter or repeal any provision of the Certificate of Designations    
of New Time Warner Series J Preferred Stock or the New Time Warner Certificate  
of Incorporation so as in any such case to materially and adversely affect the  
preferences, special rights, powers or privileges of the shares of New Time     
Warner Series J Preferred Stock.                                                

No consent of holders of the New Time Warner Series J Preferred Stock is    
required for (i) the creation of any indebtedness of any kind of New Time       
Warner, (ii) the authorization or issuance of any class of junior stock or      
parity stock, (iii) in certain circumstances, the authorization, designation    
or issuance of additional shares of New Time Warner Series J Preferred Stock    
or (iv) subject to the immediately preceding paragraph, the authorization or    
issuance of any other shares of New Time Warner Preferred Stock.                

If and whenever at any time or times dividends payable on shares of the New 
Time Warner Series J Preferred Stock shall have been in arrears and unpaid in   
an aggregate amount equal to or exceeding the amount of dividends payable       
thereon for six quarterly dividend periods, then the number of directors        
constituting the New Time Warner Board shall be increased by two (without       
duplication of any such increase in directorships required by the terms of any  
other New Time Warner Capital Stock which has similar rights) and the holders   
of shares of the New Time Warner Series J Preferred Stock, together with the    
holders of any shares of any parity stock as to which in each case dividends    
are in arrears and unpaid in an aggregate amount equal to or exceeding the      
amount of dividends payable thereon for six quarterly dividend periods, shall   
have the exclusive right, voting separately as a class with such other series,  
to elect two directors of New Time Warner.                                      

NEW TIME WARNER SERIES M PREFERRED STOCK                                        

General                                                                       

The New Time Warner Series M Preferred Stock is identical to the 10 1/4%    
Series M Exchangeable Preferred Stock, par value $1.00 per share, of Time       
Warner (the "Time Warner Series M Preferred Stock"), except for (a) the items   
described under "Comparison of Rights of Stockholders of New Time Warner and    
Time Warner" and (b) certain technical, immaterial changes (primarily giving    
precise dates for certain matters rather than anniversaries of dates of         
issuance, changing the definition of "Parity Stock" to include all the pari     
passu New                                                                       

158 

DEFM14A
163rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 163rd
Time Warner Preferred Stock and changing the definition of "Junior Stock" to    
include the LMC Series Common Stock). The Time Warner Series M Preferred Stock  
is being issued to the holders of Time Warner Series K Preferred Stock in a     
registered exchange offer. Holders of shares of Time Warner Series M Preferred  
Stock, if any, and holders of shares of Time Warner Series K Preferred Stock,   
if any, will receive shares of New Time Warner Series M Preferred Stock in the  
Time Warner Merger.                                                             

Dividend Rights                                                               

Holders of New Time Warner Series M Preferred Stock are entitled, when, as  
and if declared by the New Time Warner Board out of funds legally available     
therefor, to receive dividends on each outstanding share of New Time Warner     
Series M Preferred Stock, at the rate of 10 1/4% per annum. Dividends on the    
New Time Warner Series M Preferred Stock are payable quarterly in arrears on    
March 30, June 30, September 30 and December 30 of each year (each a "Series M  
Dividend Payment Date"), to holders of record of the New Time Warner Series M   
Preferred Stock on March 10, June 10, September 10 and December 10,             
respectively (each a "Series M Record Date"), immediately preceding such        
Series M Dividend Payment Date; provided, however, that the dividend payable    
on the first Series M Dividend Payment Date shall be computed as if the period  
in respect of which such dividend is payable commenced on the date of payment   
of the last dividend paid on the Time Warner Series M Preferred Stock or the    
Time Warner Series K Preferred Stock, as applicable, and no payments will be    
made by Time Warner with respect to the Time Warner Series M Preferred Stock    
or the Time Warner Series K Preferred Stock, as applicable, for the dividend    
period ending on the first Series M Dividend Payment Date. Dividends on the     
New Time Warner Series M Preferred Stock will be cumulative (whether or not     
earned or declared) and dividends that are not declared and paid when due will  
compound quarterly on each Series M Dividend Payment Date at the dividend rate  
until payment is made.                                                          

Dividends may, at the option of New Time Warner, be paid on any Series M    
Dividend Payment Date either in cash or by issuing fully paid and               
nonassessable shares of New Time Warner Series M Preferred Stock with an        
aggregate liquidation preference equal to the amount of such dividends;         
provided, however, that dividends payable on any Series M Dividend Payment      
Date shall be paid (i) in cash, to the extent of an amount equal to the Pro     
Rata Percentage as of the Series M Record Date applicable to the immediately    
preceding Series M Dividend Payment Date, multiplied by the amount of cash      
distributions, excluding Tax Distributions other than Included Tax              
Distributions, if any, received by New Time Warner (and its subsidiaries) on    
or after the Series M Record Date applicable to the immediately preceding       
Series M Dividend Payment Date, to, but not including, the current Series M     
Record Date with respect to its TWE Series B Capital and TWE Junior Capital     
and (ii) in New Time Warner Series M Preferred Stock or cash, at New Time       
Warner's option, to the extent of any balance.                                  

No dividends may be declared or paid or set apart for payment on New Time   
Warner Series M Preferred Stock or any other Parity Stock, and no Parity        
Stock, including the New Time Warner Series M Preferred Stock, may be           
repurchased, exchanged, redeemed or otherwise retired by New Time Warner, nor   
may funds be set apart for payment with respect thereto, unless full            
cumulative dividends shall have been paid or set apart for such payment on,     
and all applicable redemption, exchange and repurchase obligations shall have   
been satisfied with respect to, all outstanding shares of New Time Warner       
Series M Preferred Stock and such other Parity Stock; provided that dividends   
may be paid on Parity Stock if they are payable in Junior Stock; and provided   
further that Parity Stock may be converted into or exchanged for Parity Stock   
(having the same liquidation preference) or Junior Stock. If full dividends     
are not so paid, the New Time Warner Series M Preferred Stock will share        
dividends with all other Parity Stock so that the amount of dividends declared  
per share on the New Time Warner Series M Preferred Stock and all such other    
Parity Stock will in all cases bear the same ratio that cumulative dividends    
per share on the New Time Warner Series M Preferred Stock and all such other    
Parity Stock bear to each other. No dividends may be paid or set apart for      
such payment on Junior Stock, and no Junior Stock may be repurchased,           
exchanged, redeemed or otherwise retired nor may funds be set apart for         
payment with respect thereto, if full cumulative dividends have not been paid   
on the New Time Warner Series M Preferred Stock or any applicable redemption,   
exchange and repurchase obligation has not been satisfied with respect to all   

159 

DEFM14A
164th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 164th
outstanding shares of New Time Warner Series M Preferred Stock; provided that   
dividends or distributions may be made on Junior Stock if they are payable-in-  
kind in additional shares of, or warrants, rights, calls or options             
exercisable for or convertible into additional shares of Junior Stock; and      
provided further that Junior Stock may be converted into or exchanged for       
Junior Stock. In addition, in the event that there shall have occurred certain  
events of default in connection with New Time Warner's debt, New Time Warner    
will not declare or pay or make any distributions on or with respect to, or     
purchase, redeem or exchange any New Time Warner Capital Stock, except where    
such dividend or payment is made in the form of, or such exchange is for, New   
Time Warner Capital Stock.                                                      

Optional Redemption                                                           

The New Time Warner Series M Preferred Stock may not be redeemed at the     
option of New Time Warner prior to July 1, 2006. Thereafter, the New Time       
Warner Series M Preferred Stock will be redeemable at New Time Warner's         
option, in whole or in part, at any time and from time to time upon not less    
than 30 nor more than 60 days' prior notice mailed by first-class mail to the   
registered address of each holder of the New Time Warner Series M Preferred     
Stock as of the record date for such redemption. The redemption price for each  
share of New Time Warner Series M Preferred Stock called for redemption during  
the 12-month period commencing on July 1 of the years set forth below shall be  
the amounts (expressed as percentages of the liquidation preference thereof)    
set forth opposite such years, plus accrued and unpaid dividends to the         
redemption date.                                                                

                                                                [Download Table]

                                                         PERCENTAGE OF    
                                                          LIQUIDATION     
PERIOD                                                    PREFERENCE      
------                                                   ------------- ---
                                                                          
2006....................................................    105.125%      
2007....................................................    103.844       
2008....................................................    102.563       
2009....................................................    101.281       
2010 and thereafter.....................................    100.000       

No optional redemption shall be effected unless New Time Warner shall have  
obtained a Rating Confirmation with respect to such redemption.                 

Mandatory Redemption                                                          

On July 1 of 2012, 2013, 2014 and 2015 (each, a "Series M Mandatory         
Redemption Date"), New Time Warner is required to redeem the Redeemable Number  
of shares of New Time Warner Series M Preferred Stock at the Mandatory          
Redemption Price.                                                               

On July 1, 2016 (the "Final Redemption Date"), New Time Warner is required  
to redeem all of the then outstanding shares of New Time Warner Series M        
Preferred Stock at the lesser of the Mandatory Redemption Amount and the        
Mandatory Redemption Price; provided that if New Time Warner does not obtain a  
TWE Valuation within 150 days following the final Series B Redemption date or   
if the TWE Series B Capital has been fully redeemed in accordance with the TWE  
Partnership Agreement, New Time Warner shall redeem the New Time Warner Series  
M Preferred Stock at the Mandatory Redemption Price.                            

Upon the redemption of New Time Warner Series M Preferred Stock on the Final
Redemption Date, New Time Warner's obligations with respect thereto will be     
discharged, and if such redemption is effected at the Mandatory Redemption      
Amount, holders of shares of New Time Warner Series M Preferred Stock may have  
received less than the liquidation preference thereof plus accumulated and      
accrued and unpaid dividends thereon. New Time Warner's obligation to redeem    
the New Time Warner Series K Preferred Stock is subject to the legal            
availability at New Time Warner of funds therefor.                              

160 

DEFM14A
165th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 165th
Redemption Upon Insolvency of TWE                                             

In the event of a liquidation, winding up or dissolution of TWE as a result 
of the insolvency of TWE, the New Time Warner Series M Preferred Stock will be  
mandatorily redeemable at the Insolvency Redemption                             
Amount. Upon such a redemption of New Time Warner Series M Preferred Stock,     
New Time Warner's obligation with respect thereto will be discharged and        
holders of New Time Warner Series M Preferred Stock may have received less      
than the liquidation preference thereof plus accrued and unpaid dividends       
thereon. New Time Warner's obligations to redeem the New Time Warner Series M   
Preferred Stock upon an insolvency of TWE is subject to the legal availability  
at New Time Warner of funds therefor.                                           

Reorganization of TWE                                                         

Upon a Reorganization of TWE, New Time Warner will, within 90 days, make a  
public announcement that it intends to either (i) exchange each outstanding     
share of New Time Warner Series M Preferred Stock for shares of New Time        
Warner Series L Preferred Stock having an aggregate liquidation preference      
equal to the liquidation preference of such share of New Time Warner Series M   
Preferred Stock plus accrued and unpaid dividends thereon at the date of        
exchange or (ii) redeem the outstanding shares of New Time Warner Series M      
Preferred Stock at the Reorganization Redemption Price; provided, however,      
that no such redemption shall be effected prior to July 1, 2011 unless New      
Time Warner shall have obtained a Rating Confirmation with respect to such      
redemption. New Time Warner's ability to effect such redemption is subject to   
the legal availability at New Time Warner of funds therefor.                    

Change of Control                                                             

Upon the occurrence of a Series M Change of Control, New Time Warner will   
make an offer to each holder of New Time Warner Series M Preferred Stock to     
repurchase all or any part of such holder's New Time Warner Series M Preferred  
Stock at a purchase price in cash equal to 101% of the liquidation preference   
thereof, plus an amount equal to all accrued and unpaid dividends per share to  
the date of purchase. Such offer must be made within 30 days following a        
Series M Change of Control, must remain open for at least 30 and not more than  
40 days and must comply with the requirements of Rule 14e-1 under the Exchange  
Act and any other applicable securities laws and regulations. New Time          
Warner's obligation to offer to purchase the New Time Warner Series M           
Preferred Stock is subject to the legal availability at New Time Warner of      
funds therefor.                                                                 

Procedure for Redemption or Exchange                                          

On and after a redemption or exchange date, unless New Time Warner defaults 
in the payment of the applicable redemption price or exchange obligations,      
dividends will cease to accrue on shares of New Time Warner Series M Preferred  
Stock called for redemption or exchange and all rights of holders of such       
shares will terminate except for the right to receive the redemption price or   
New Time Warner Series L Preferred Stock, as the case may be, without           
interest. New Time Warner will send a written notice of redemption by first     
class mail to each holder of record of shares of New Time Warner Series M       
Preferred Stock, not fewer than 30 days nor more than 60 days prior to the      
date fixed for such redemption.                                                 

In the event of partial redemptions of New Time Warner Series M Preferred   
Stock, the shares to be redeemed will be determined pro rata or by lot, as      
determined by New Time Warner, except that New Time Warner may redeem such      
shares held by any holder of fewer than 100 shares (or shares held by holders   
who would hold less than 100 shares as a result of such redemption), as may be  
determined by New Time Warner.                                                  

Liquidation Preference                                                        

In the event of any liquidation, winding-up or dissolution of New Time      
Warner, holders of New Time Warner Series M Preferred Stock will be entitled    
to their pro rata portion of the assets of New Time Warner                      

161 

DEFM14A
166th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 166th
available for distribution to holders of Parity Stock up to the liquidation     
preference of the New Time Warner Series M Preferred Stock, plus accrued and    
unpaid dividends, before any distribution is made on any Junior Stock,          
including, without limitation, on any New Time Warner Common Stock. If upon     
any liquidation, winding-up or dissolution of New Time Warner, the amounts      
payable with respect to the New Time Warner Series M Preferred Stock and the    
other Parity Stock are not paid in full, the holders of the New Time Warner     
Series M Preferred Stock and the other Parity Stock will share equally and      
ratably in any distribution of assets of New Time Warner in proportion to the   
full liquidation preference to which each is entitled. After payment of the     
full amount of the liquidation preferences to which they are entitled, the      
holders of shares of New Time Warner Series M Preferred Stock will not be       
entitled to any further participation in any distribution of assets of New      
Time Warner. Neither the sale, conveyance, exchange or transfer (for cash,      
shares of stock, securities or other consideration) of all or substantially     
all of the property or assets of New Time Warner nor the consolidation or       
merger of New Time Warner with one or more corporations will be deemed to be a  
liquidation, winding-up or dissolution of New Time Warner.                      

Voting Rights                                                                 

Holders of the New Time Warner Series M Preferred Stock will have no voting 
rights with respect to general corporate matters except as provided by law or   
as set forth in the Certificate of Designation therefor. The Certificate of     
Designation for the New Time Warner Series M Preferred Stock provides that      
upon a failure of New Time Warner to (a) pay dividends on the New Time Warner   
Series M Preferred Stock in cash or, to the extent permitted by its terms, by   
the issuance of additional shares of New Time Warner Series M Preferred Stock,  
for more than six consecutive quarterly dividend periods or (b) discharge any   
redemption or exchange obligation with respect to the New Time Warner Series M  
Preferred Stock, the size of the New Time Warner Board will be increased by     
two directors, and holders of the outstanding shares of New Time Warner Series  
M Preferred Stock, voting or consenting, as the case may be, together as a      
class with the holders of any shares of Parity Stock as to which dividends are  
similarly in arrears or unpaid or New Time Warner's redemption or exchange      
obligation has not been satisfied, and to which similar voting rights apply,    
will be entitled to elect two directors to fill the newly created               
directorships. Such voting rights will continue until such time as all          
dividends in arrears on the New Time Warner Series M Preferred Stock are paid   
in full and any failure, breach or default referred to in clause (b) is         
remedied, at which time the term of the directors elected pursuant to the       
provisions of this paragraph will terminate. Any vacancy occurring in the       
office of the directors elected by holders of the New Time Warner Series M      
Preferred Stock (and such other Parity Stock) may be filled by the remaining    
director elected by such holders unless and until such vacancy shall be filled  
by such holders.                                                                

The Certificate of Designation for the New Time Warner Series M Preferred   
Stock will also provide that New Time Warner will not create, authorize or      
issue any new class of New Time Warner Capital Stock senior to the New Time     
Warner Series M Preferred Stock without the affirmative vote or consent of      
holders of at least a majority of the outstanding shares of New Time Warner     
Series M Preferred Stock, voting or consenting, as the case may be, separately  
as one class. The Certificate of Designation for the New Time Warner Series M   
Preferred Stock will also provide that New Time Warner may not amend such       
Certificate of Designation or the New Time Warner Charter so as to affect       
adversely the specified rights, preferences, privileges or voting rights of     
holders of shares of the New Time Warner Series M Preferred Stock, without the  
affirmative vote or consent of the holders of at least a majority of the        
outstanding shares of New Time Warner Series M Preferred Stock, voting or       
consenting, as the case may be, separately as one class. The holders of at      
least a majority of the outstanding shares of New Time Warner Series M          
Preferred Stock, voting or consenting, as the case may be, separately as one    
class, may also waive compliance with any provision of such Certificate of      
Designation. The Certificate of Designation for the New Time Warner Series M    
Preferred Stock will also provide that, except as set forth above, (a) the      
creation, authorization or issuance of any shares of Junior Stock or Parity     
Stock or (b) the increase or decrease in the amount of authorized New Time      
Warner Capital Stock of any class, including any New Time Warner Preferred      
Stock, shall not require the consent of the holders of New Time Warner Series   
M Preferred Stock, voting or consenting separately as one class, and shall not  
be deemed to affect adversely the rights, preferences, privileges or voting     
rights of holders of shares of New Time Warner Series M Preferred Stock.        

162 

DEFM14A
167th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 167th
Under Delaware law, holders of New Time Warner Series M Preferred Stock will
be entitled to vote together as a class with holders of any shares of New Time  
Warner Preferred Stock upon a proposed amendment to the New Time Warner         
Charter, whether or not entitled to vote thereon by the New Time Warner         
Charter, if the amendment would increase or decrease the par value of the       
shares of such class or alter or change the powers, preferences or special      
rights of the shares of such class so as to affect them adversely. If any       
proposed amendment would alter or change the powers, preferences or special     
rights of one or more series of any class so as to affect them adversely, but   
shall not so affect the entire class, then only the shares of the series so     
affected by such amendment will be entitled to vote thereon separately as one   
class.                                                                          

Certain Definitions                                                             

As used in this description of the New Time Warner Series M Preferred Stock,
the following terms have the meanings set forth below:                          

"Contributed Capital" means the initial priority capital and residual equity
amounts that were assigned to the partners in TWE based on the estimated fair   
value of the net assets each contributed to TWE, as adjusted for the fair       
value of certain assets distributed by TWE to the Time Warner General Partners  
in 1993 which were not subsequently reacquired by TWE in 1995.                  

"Cumulative Priority Capital" means the sum of Contributed Capital and the  
undistributed priority capital return. The priority capital return consists of  
net partnership income allocated to date in accordance with the provisions of   
the TWE Partnership Agreement and the right to be allocated additional          
partnership income which, together with any previously allocated net            
partnership income, provides for the various priority capital rates of return   
specified in the following table:                                               

                                                                [Download Table]

                                                            PRIORITY CAPITAL 
                                                           RATES OF RETURN(A)
                                                           ------------------
                                                              (% PER ANNUM   
                                                               COMPOUNDED    
                                                               QUARTERLY)    
                                                                             
TWE Senior Capital........................................        8.00%      
TWE Series A Capital......................................       13.00%(b)   
TWE Series B Capital......................................       13.25%(c)   
TWE Residual Capital......................................         --  (d)   

--------                                                                        
(a) Income allocations related to priority capital rates of return are based    
on partnership income after any special income allocations for tax      
purposes.                                                               

(b) 11.00% to the extent concurrently distributed.                              

(c) 11.25% to the extent concurrently distributed.                              

(d) TWE Residual Capital is not entitled to stated priority rates of return     
  and, as such, the Cumulative Priority Capital relating thereto is equal to
the Contributed Capital. However, in the case of certain events such as 
the liquidation or dissolution of TWE, the TWE Residual Capital is      
entitled to any excess of the then fair value of the net assets of TWE  
over the aggregate amount of Cumulative Priority Capital and special tax
allocations.                                                            

"Included Tax Distributions" means, with respect to any period, Tax         
Distributions made by TWE during such period with respect to the TWE Series B   
Capital, but only if the total distributions made by TWE during such period     
with respect to the TWE Series B Capital exceed such Tax Distributions.         

"Insolvency Redemption Amount" means an amount equal to the lesser of (i)   
the sum of (a) the Pro Rata Percentage multiplied by the sum of cash            
distributions and non-cash distributions (the value of which shall be           
determined pursuant to a TWE Insolvency Valuation) received by New Time Warner  
(and its subsidiaries) with respect to its TWE Series B Capital and its TWE     
Junior Capital in connection with such liquidation, winding-up or dissolution,  
in accordance with the TWE Partnership Agreement and (b) an amount equal to     
dividends on the                                                                

163 

DEFM14A
168th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 168th
outstanding shares of New Time Warner Series M Preferred Stock for four         
quarters and one day and (ii) the liquidation preference of New Time Warner     
Series M Preferred Stock plus accumulated and accrued and unpaid dividends      
thereon.                                                                        

"Junior Stock" means New Time Warner Common Stock, New Time Warner Series A 
Preferred Stock, LMC Series Common Stock and all classes of New Time Warner     
Capital Stock established after the initial issuance of New Time Warner Series  
M Preferred Stock by the New Time Warner Board that by their terms are junior   
in right of payment to the Parity Stock.                                        

"Mandatory Redemption Amount" means an amount equal to (i) the Pro Rata     
Percentage (determined as of June 30, 2015 without giving effect to the Series  
B Redemption occurring on such date) multiplied by the amount (as determined    
by a TWE Valuation) that New Time Warner (and its subsidiaries) would have      
received in accordance with the TWE Partnership Agreement with respect to its   
TWE Series B Capital and its TWE Junior Capital had TWE sold all of its assets  
and liquidated on June 30, 2015 plus (ii) dividends on the outstanding shares   
of Series M Preferred Stock from July 1, 2015 to July 1, 2016.                  

"Mandatory Redemption Price" means a redemption price equal to the          
liquidation preference of the New Time Warner Series M Preferred Stock to be    
redeemed, plus accumulated and accrued and unpaid dividends thereon.            

"Parity Stock" means the New Time Warner Series D Preferred Stock, New Time 
Warner Series E Preferred Stock, New Time Warner Series F Preferred Stock, New  
Time Warner Series G Preferred Stock, New Time Warner Series H Preferred        
Stock, New Time Warner Series I Preferred Stock, New Time Warner Series J       
Preferred Stock, New Time Warner Series M Preferred Stock and all classes of    
New Time Warner Capital Stock established after the initial issuance of Time    
Warner Series M Preferred Stock that by their terms are pari passu with the     
New Time Warner Series M Preferred Stock.                                       

"Pro Rata Percentage" means, as of any date, a fraction, the numerator of   
which shall be the aggregate liquidation preference of the outstanding shares   
of New Time Warner Series M Preferred Stock, as of such date, plus accumulated  
and unpaid dividends thereon, and the denominator of which shall be the         
Cumulative Priority Capital of the TWE Series B Capital as of such date. In     
calculating the Pro Rata Percentage in connection with the final mandatory      
redemption or upon the insolvency of TWE, the Cumulative Priority Capital of    
the TWE Series B Capital shall be increased by the sum of all Tax               
Distributions (other than Included Tax Distributions) made by TWE to Time       
Warner or New Time Warner (and their respective subsidiaries) following the     
initial issuance of the Time Warner Series K Preferred Stock with respect to    
the TWE Series B Capital.                                                       

"Rating Confirmation" means either (i) a confirmation from each of Moody's  
Investors Service, Inc. or any successor to its rating agency business          
("Moody's") and Standard and Poor's Corporation or any successor to its rating  
agency business ("S&P") that any contemplated redemption or exchange by New     
Time Warner would not result in a downgrade of its rating of New Time Warner    
senior unsecured long-term debt or (ii) a good faith determination by the New   
Time Warner Board or any committee thereof (after consultation with a           
nationally recognized investment banking firm meeting certain requirements)     
that any contemplated redemption or exchange by New Time Warner should not      
result in a downgrade in the rating of New Time Warner's senior unsecured       
long-term debt by either Moody's or S&P.                                        

"Redeemable Number" means, with respect to any Series M Mandatory Redemption
Date, a number (rounded down to the nearest whole number) of shares of New      
Time Warner Series M Preferred Stock equal to (i) the Pro Rata Percentage       
(determined as of the June 30 occurring one year and one day prior to such      
Series M Mandatory Redemption Date without giving effect to the Series B        
Redemption occurring on such date) of the amount of (a) cash distributions      
received by Time Warner (and its subsidiaries) or New Time Warner (and its      
subsidiaries), as the case may be, in respect of the Series B Redemption        
occurring on such June 30 plus (b) cash distributions received by Time Warner   
or New Time Warner in respect of its TWE Junior Capital from such June 30 to    
such Series M Mandatory Redemption Date, divided by (ii) the liquidation        
preference of $1,000 per                                                        

164 

DEFM14A
169th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 169th
share plus accumulated and accrued and unpaid dividends thereon; provided,      
however, that in no event shall the Redeemable Number exceed 20%, 25%, 33 1/3%  
and 50% of the number of shares of New Time Warner Series M Preferred Stock     
outstanding on the Series M Mandatory Redemption Dates occurring on July 1 of   
2012, 2013, 2014 and 2015, respectively.                                        

"Reorganization of TWE" means (i) any merger or consolidation of TWE or any 
sale of all or substantially all of the assets of TWE, (ii) the liquidation,    
winding up or dissolution of TWE other than as a result of the insolvency of    
TWE, (iii) the making of any distributions, in cash or other property (other    
than cash distributions in accordance with the TWE Partnership Agreement), on   
the partnership interests in TWE from and after the date of initial issuance    
of the Time Warner Series K Preferred Stock having an aggregate fair market     
value (together with any such prior distributions) in excess of $500,000,000    
as determined by the New Time Warner Board in good faith, (iv) any transaction  
or series of related transactions which results in a sale or transfer of 10%    
or more of the total assets of TWE (excluding asset swaps and contributions to  
subsidiaries or joint ventures, other than joint ventures with any existing     
partner of TWE that is not a subsidiary of New Time Warner) unless such sale    
or transfer is made at fair market value, the net proceeds of such sale or      
transfer are substantially in cash and such cash is used to repay debt or is    
reinvested in the business of TWE, (v) any transfer of the beneficial           
ownership of a class of partnership interests in TWE that would result in New   
Time Warner (directly or indirectly) owning (after giving effect to any         
reductions permitted by clause (a) or (b)) less than 90% or more than 110% of   
its percentage ownership interests in any class as of the date of initial       
issuance of the Time Warner Series K Preferred Stock, other than any change     
resulting from (a) cash distributions in accordance with the TWE Partnership    
Agreement or (b) the issuance of partnership interests upon exercise of the U   
S WEST Option, (vi) any material reduction in voting or management rights of    
New Time Warner (and its subsidiaries) in TWE, (vii) any issuance of            
additional partnership interests which rank senior to the TWE Series B Capital  
(other than (a) the TWE Contingent Capital, (b) partnership interests issued    
upon exercise of the U S WEST Option or (c) partnership interests having a      
fair market value (together with any such prior issuances) no greater than      
$500,000,000, as determined by the New Time Warner Board in good faith, issued  
in connection with any contribution of assets to TWE), it being understood      
that allocations of income or accretion with respect to the capital accounts    
associated with the outstanding partnership interests shall not be considered   
issuances of additional partnership interests in TWE, (viii) any amendment      
(other than an amendment to effectuate an issuance permitted by clause          
(vii)(c) above) to the TWE Partnership Agreement that adversely affects the     
allocation of income, payment of distributions, priority capital rate of        
return or the priority of the TWE Series B Capital or (ix) the six month        
anniversary of a contribution to TWE of filmed entertainment or programming     
assets currently owned or subject to an agreement to be acquired by New Time    
Warner or any of its subsidiaries (other than TWE) net of associated debt, the  
fair market value of which is in excess of $1 billion, which does not           
otherwise result in the occurrence of an event specified in (i) through (ix)    
above.                                                                          

"Reorganization Redemption Price" means 110% of the liquidation preference  
of the New Time Warner Series M Preferred Stock, plus accumulated and accrued   
and unpaid dividends, or, if the New Time Warner Series M Preferred Stock may   
be redeemed at the option of New Time Warner at such time, the optional         
redemption price then in effect.                                                

"Series B Redemption" means the distributions with respect to the TWE Series
B Capital on June 30 of each of 2011, 2012, 2013, 2014 and 2015.                

"Series M Change of Control" means:                                         

(i) whenever in any three-year period, a majority of the members of the 
New Time Warner Board elected during such three-year period shall have been 
so elected against the recommendation of the management of New Time Warner  
or the New Time Warner Board in office immediately prior to such election;  
provided, however, that for purposes of this clause (i) a member of the New 
Time Warner Board will be deemed to have been elected against the           
recommendation of the New Time Warner Board if his or her initial election  
occurs as a result of either an actual or threatened election contest (as   
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the  
Exchange Act) or other actual or threatened solicitation of proxies or      
consents by or on behalf of a person other than the New Time Warner Board;  
or                                                                          

165 

DEFM14A
170th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 170th
 (ii) whenever any person shall acquire (whether by merger, consolidation,
sale, assignment, lease, transfer or otherwise, in one transaction or any   
related series of transactions) or otherwise beneficially own voting        
securities of New Time Warner that represent in excess of 50% of the voting 
power of all outstanding voting securities of New Time Warner generally     
entitled to vote for the election of directors, if such person had acquired 
or publicly announced its intention to initially acquire ten percent or     
more of such voting securities in a transaction that had not been approved  
by the management of New Time Warner within 30 days after the date of such  
acquisitions or public announcement.                                        
"Tax Distributions" means cash distributions to Time Warner (and its        
subsidiaries) or New Time Warner (and its subsidiaries), as the case may be,    
required to be made under the TWE Partnership Agreement to the partners of TWE  
to permit them to pay taxes at assumed statutory rates on their allocations of  
income from TWE.                                                                

"TWE Contingent Capital" means increased partnership interests in TWE, which
generally would be junior to the TWE Series B Capital but senior to the TWE     
Residual Capital, to which the Time Warner General Partners would be entitled   
if certain operating performance targets are achieved by TWE with respect to    
the five-year period ending December 31, 1996 and the ten-year period ending    
December 31, 2001.                                                              
"TWE Insolvency Valuation" means the average of the determinations of two   
nationally recognized investment banking firms meeting certain requirements     
with respect to the fair market values of any non-cash distributions from TWE   
received by New Time Warner (and its subsidiaries) upon a liquidation, winding  
up or distribution of TWE as a result of the insolvency of TWE. Such            
investment banking firms shall be selected by New Time Warner within 30 days    
following the date of the completion of the liquidation, winding up or          
dissolution of TWE and shall render their opinions within 90 days following     
such date. For purposes of the foregoing, (i) the fair market value of such     
non-cash distributions shall be based on the price at which such property       
would be sold in an arm's length transaction between a willing buyer and a      
willing seller, and to the extent such property comprises an operating          
business, it shall be valued on a going concern basis and (ii) such value       
shall be increased by the sum of all Tax Distributions other than Included Tax  
Distributions made by TWE following the initial issuance of the Time Warner     
Series K Preferred Stock with respect to the TWE Series B Capital.              

"TWE Residual Capital" means the residual equity partnership interests in   
TWE that, in the case of certain events such as the liquidation or dissolution  
of TWE, are entitled to any excess of the then fair value of the net assets of  
TWE over the aggregate amount of Cumulative Priority Capital and special tax    
allocations.                                                                    

"TWE Senior Capital" means the senior priority capital interests in TWE that
provide Time Warner with certain priority claims to the net partnership income  
of TWE and distributions of TWE partnership capital, including certain          
priority distributions of partnership capital in the event of liquidation or    
dissolution of TWE.                                                             
"TWE Series A Capital" means the pro rata priority capital interests in TWE 
that provide Time Warner and U S WEST with certain priority claims to the net   
partnership income of TWE and distributions of TWE partnership capital,         
including certain priority distributions of partnership capital in the event    
of liquidation or dissolution of TWE.                                           

"TWE Series B Capital" means the priority capital interests in TWE that are 
junior to the TWE Series A Capital and provide Time Warner with certain         
priority claims to the net partnership income of TWE and distributions of TWE   
partnership capital, including certain priority distributions of partnership    
capital in the event of liquidation or dissolution of TWE.                      
"TWE Valuation" means the average of the determinations of two nationally   
recognized investment banking firms meeting certain requirements with respect   
to the fair market values of the assets of TWE as of June 30, 2015 (without     
giving effect to the Series B Redemption or any distribution in respect of TWE  
Junior Capital occurring on such date). Such investment banking firms shall be  
selected by New Time Warner within 90 days following the final Series B         
Redemption date and shall render their opinions within 150 days following the   
final Series B Redemption date. For purposes of the foregoing, (i) the fair     
market value of the assets of TWE shall be determined on a going concern        
basis, assuming that each division of TWE is sold in a separate arm's length    
transaction between a willing buyer and a willing seller and (ii) such value    
shall be increased by the sum of all Tax Distributions (other than Included     
Tax Distributions) made by TWE following the initial issuance of the Time       
Warner Series K Preferred Stock with respect to the TWE Series B Capital.       

166 

DEFM14A
171st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 171st
"U S WEST Option" means an option for U S WEST to increase its share of the 
TWE Series A Capital and the TWE Residual Capital by up to 6.33%, depending on  
the operating performance of TWE's cable business, exercisable between January  
1, 1999 and on or about May 1, 2005 at a maximum exercise price of $1.25        
billion to $1.8 billion, depending on the year of exercise.                     

NEW TIME WARNER SERIES L PREFERRED STOCK                                        

The provisions of the New Time Warner Series L Preferred Stock are          
substantially similar to those of the New Time Warner Series M Preferred        
Stock, except as set forth below. See "--New Time Warner Series M Preferred     
Stock." The definitions of certain capitalized terms used in the following      
summary are used as defined under "--New Time Warner Series M Preferred Stock"  
above.                                                                          

Dividends                                                                     

Holders of the New Time Warner Series L Preferred Stock are entitled, when, 
as and if declared by the New Time Warner Board out of funds legally available  
therefor, to receive dividends on each outstanding share of New Time Warner     
Series L Preferred Stock, at the rate of 10 1/4% per annum. Dividends on New    
Time Warner Series L Preferred Stock are payable quarterly in arrears on each   
Series M Dividend Payment Date, commencing on the first Series M Dividend       
Payment Date following the exchange of the New Time Warner Series M Preferred   
Stock for the New Time Warner Series L Preferred Stock to holders of record as  
of the immediately preceding March 15, June 15, September 15 and December 15,   
respectively. Dividends on the New Time Warner Series L Preferred Stock will    
be cumulative (whether or not earned or declared) and dividends which are not   
declared and paid when due will compound quarterly on each Series M Dividend    
Payment Date at the dividend rate until payment is made.                        

Until June 30, 2006, dividends payable on any Series M Dividend Payment Date
may, at the option of New Time Warner, be paid either in cash or by issuing     
fully paid and nonassessable shares of New Time Warner Series L Preferred       
Stock with an aggregate liquidation preference equal to the amount of such      
dividends. Thereafter, dividends are payable only in cash.                      

Mandatory Redemption                                                          

New Time Warner is required to redeem the outstanding shares of New Time    
Warner Series L Preferred Stock on July 1, 2011 at a price equal to the         
liquidation preference thereof plus accrued and unpaid dividends thereon. New   
Time Warner's obligation to redeem the New Time Warner Series L Preferred       
Stock is subject to the legal availability at New Time Warner of funds          
therefor.                                                                       

Exchange at Option of New Time Warner                                         

New Time Warner has the option on any Series M Dividend Payment Date to     
exchange, in whole but not in part, outstanding shares of New Time Warner       
Series L Preferred Stock for 10 1/4% Senior Subordinated Debentures due 2011    
(the "Series L Debentures") having a principal amount equal to the liquidation  
preference of the New Time Warner Series L Preferred Stock plus accrued and     
unpaid dividends thereon; provided that such exchange shall not be effected     
unless all accrued dividends have been paid in full and New Time Warner shall   
have obtained a Rating Confirmation with respect to such exchange; provided     
further that, (a) if substantially all the debt of Time Warner immediately      
prior to consummation of the Mergers is assumed by New Time Warner and is       
guaranteed by Time Warner, Time Warner shall similarly provide a senior         
subordinated guarantee for the Series L Debentures and (b) if substantially     
all of the debt of Time Warner is not assumed by New Time Warner upon the       
consummation of the Mergers, New Time Warner may, at its option, exchange the   
New Time Warner Series L Preferred Stock for (i) Series L Debentures issued by  
Time Warner or (ii) Series L Debentures issued by New Time Warner with a        
senior subordinated guarantee of Time Warner. New Time Warner's ability to      
exchange New Time Warner Series L Preferred Stock for the Series L Debentures   
is subject to the legal availability at New Time Warner of funds therefor.      

167 

DEFM14A
172nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 172nd
OWNERSHIP OF TIME WARNER AND NEW TIME WARNER CAPITAL STOCK  

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS                          

The following table sets forth, based on information as of June 30, 1996,   
the beneficial ownership of Time Warner Common Stock and the anticipated        
beneficial ownership, after giving effect to the Transaction, of New Time       
Warner Common Stock, as to (a) each Time Warner director and each person        
expected to be a New Time Warner director upon consummation of the Mergers,     
(b) each of the five most highly compensated executive officers of Time Warner  
and each person expected to be one of the five most highly compensated          
executive officers of New Time Warner, based on 1995 compensation of Time       
Warner executive officers, and (c) all current Time Warner directors and        
executive officers, as a group, and all persons expected to be New Time Warner  
directors and executive officers, as a group.                                   

                                                                [Download Table]

                          BENEFICIAL OWNERSHIP(1)                                   
                          ------------------------                                  
                                                   PERCENT OF CLASS PERCENT OF CLASS
                           NUMBER OF     OPTION       PRIOR TO           AFTER      
          NAME               SHARES     SHARES(2)    TRANSACTION      TRANSACTION   
          ----            ------------ ----------- ---------------- ----------------
                                                                                    
Merv Adelson............       700,143                    *                *        
Richard J. Bressler(3)..         5,491     122,804        *                *        
Lawrence B.                                                                         
 Buttenwieser(4)........        87,325                    *                *        
Beverly Sills                                                                       
 Greenough(5)...........        22,087                    *                *        
Peter R. Haje(3)........         9,867     691,954        *                *        
Carla A. Hills..........         3,787                    *                *        
Tod R. Hullin(3)........         2,409     278,058        *                *        
David T. Kearns.........         3,487                    *                *        
Gerald M. Levin(3)(6)...       400,817   2,485,600        *                *        
Reuben Mark.............        11,187                    *                *        
Michael A. Miles........         5,034                    *                *        
J. Richard Munro(3)(7)..       332,570     316,832        *                *        
Richard D. Parsons(3)...        10,259     100,000        *                *        
Donald S. Perkins.......        14,871                    *                *        
Raymond S. Troubh(8)....        10,247                    *                *        
R.E. Turner(9)..........    64,212,957                    NA             12.6%      
Francis T. Vincent......        18,187                    *                *        
All New Time Warner                                                                 
 directors and executive                                                            
 officers as a group (19    65,918,329   4,436,909       1.6%            13.7%      
 persons, including the                                                             
 foregoing)(3)-(9)......                                                            
All current Time Warner                                                             
 directors and executive                                                            
 officers as a group (18     1,705,372   4,436,909       1.6%             1.2%      
 persons, including the                                                             
 foregoing)(3)-(8)......                                                            

--------                                                                        
* Represents beneficial ownership of less than one percent of issued and  
  outstanding Time Warner Common Stock or New Time Warner Common Stock, as
the case may be.                                                      
(1) Beneficial ownership as reported in the above table has been determined   
in accordance with Rule 13d-3 under the Exchange Act. Unless otherwise
indicated, beneficial ownership includes both sole voting and sole    
investment power. This table does not reflect, unless otherwise       
indicated, any shares of Time Warner Common Stock or other equity     
   securities of Time Warner which may be held by pension and profit-sharing
plans of other corporations or endowment funds of educational and     
   charitable institutions for which various directors and officers serve as
directors or trustees. The shares of Time Warner Common Stock held by 
 certain subsidiaries of Time Warner, which are not entitled to be voted
  at the Time Warner Meeting, are excluded for purposes of calculating the
   Percent of Class. As of June 30, 1996, none of the named persons or group
  beneficially owns any Time Warner Preferred Stock, TW LYONs or TBS LYONs
nor are they expected to own any LMC Series Common Stock.             
(2) Reflects shares of Time Warner Common Stock subject to options to         
   purchase Time Warner Common Stock issued by Time Warner which on June 30,
1996, were unexercised but were exercisable on, or would become       
  exercisable within a period of 60 days from, that date. These shares are
excluded from the column headed "Number of Shares."                   

168 

DEFM14A
173rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 173rd
(3) Includes an aggregate of approximately 54,833 shares of Time Warner       
   Common Stock held by two trusts under employee stock plans of Time Warner
for the benefit of current directors and executive officers of Time   
Warner (including 4,356 shares for Mr. Bressler, 3,379 shares for Mr. 
Haje, 2,409 shares for Mr. Hullin, 10,812 shares for Mr. Levin, 18,550
 shares for Mr. Munro and 46 shares for Mr. Parsons) and an aggregate of
 55,710 shares of Time Warner Common Stock beneficially owned by certain
relatives of such persons.                                            
(4) Includes 1,280 shares of Time Warner Common Stock owned of record and     
  beneficially by Mr. Buttenwieser's wife and 22,656 shares of Time Warner
Common Stock held of record by a trust of which Mr. Buttenwieser and  
  others are trustees in which Mr. Buttenwieser has no beneficial interest
and as to all of which Mr. Buttenwieser disclaims any beneficial      
ownership.                                                            
(5) Includes 10,240 shares of Time Warner Common Stock held by a trust of     
   which Mrs. Greenough is the beneficiary but as to which she has no voting
or investment power.                                                  
(6) Includes 15,000 shares of Time Warner Common Stock held by Mr. Levin's    
wife, as to which Mr. Levin disclaims any beneficial ownership.       
(7) Includes 35,830 shares of Time Warner Common Stock held of record and     
beneficially by members of Mr. Munro's family, as to which Mr. Munro  
disclaims any beneficial ownership.                                   
(8) Includes 3,200 shares of Time Warner Common Stock held beneficially by    
Mr. Troubh's wife, as to which Mr. Troubh disclaims any beneficial    
ownership.                                                            
(9) Based on Mr. Turner's beneficial ownership of TBS Capital Stock as of     
June 30, 1996. Includes (a) 839,942 shares of New Time Warner Common  
Stock expected to be owned by Turner Outdoor, a corporation that is   
wholly owned by Mr. Turner, (b) 2,250,000 shares of New Time Warner   
Common Stock as to which Mr. Turner is expected to have voting control
but not dispositive control, (c) 1,568,234 shares of New Time Warner  
Common Stock expected to be held by the Robert E. Turner Charitable   
Remainder Unitrust No. 2, as to which Mr. Turner shares voting and    
   dispositive control, (d) 4,500,000 shares of New Time Warner Common Stock
 expected to be owned by Turner Partners, a limited partnership of which
Mr. Turner is the sole general partner, (e) 375,000 shares of New Time
Warner Common Stock expected to be owned by Mr. Turner's wife and (f) 
 3,750,000 shares of New Time Warner Common Stock expected to be held by
  the Turner Foundation, Inc. Mr. Turner disclaims beneficial ownership of
   shares held by his spouse and the Turner Foundation, Inc. Excludes shares
subject to options to purchase New Time Warner Common Stock which are 
expected to be awarded to Mr. Turner but are not expected to be       
exercisable within 60 days of the consummation of the Mergers. See    
"Ownership of TBS Capital Stock--Security Ownership of Directors and  
Executive Officers."                                                  

169 

DEFM14A
174th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 174th
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS                                 

The following table sets forth information as to (a) the beneficial         
ownership of each person known to Time Warner to own more than 5% of the        
outstanding shares of Time Warner Common Stock or any series of Time Warner     
Voting Preferred Stock and (b) the anticipated beneficial ownership of each     
person expected by Time Warner to own more than 5% of the outstanding shares    
of New Time Warner Common Stock, LMC Reduced Voting Common Stock and each       
series of New Time Warner Voting Preferred Stock after giving effect to the     
Transaction (including the SSSI Agreement). The information with respect to     
New Time Warner Capital Stock is based on information known to Time Warner as   
of June 30, 1996 regarding the beneficial ownership of voting securities of     
Time Warner and TBS.                                                            

                                                        [Enlarge/Download Table]

                                                                 PERCENT OF COMMON                PERCENT OF VOTING   
                                       PERCENT OF CLASS(1)   STOCK UPON CONVERSION(2)                 POWER(3)        
                                     ----------------------- -----------------------------     -----------------------
  NAME AND ADDRESS OF     NUMBER OF    BEFORE       AFTER       BEFORE           AFTER           BEFORE       AFTER   
    BENEFICIAL OWNER        SHARES   TRANSACTION TRANSACTION TRANSACTION      TRANSACTION      TRANSACTION TRANSACTION
  -------------------     ---------- ----------- ----------- ------------     ------------     ----------- -----------
                                                                                                                      
COMMON STOCK                                                                                                          
The Capital Group                                                                                                     
 Companies, Inc.(4).....  45,121,394     8.78%       8.86%               NA                NA      7.21%       7.48%  
 333 South Hope Street                                                                                                
 Los Angeles, CA 90871                                                                                                
The Seagram Company       56,763,349    14.67       11.15                NA                NA     12.49        9.83   
 Ltd.(5)................                                                                                              
 1430 Peel Street                                                                                                     
 Montreal, Quebec,                                                                                                    
 Canada                                                                                                               
 M3A1S9                                                                                                               
R.E. Turner(6)..........  64,212,957      --        12.61               --                 NA     --          11.12   
 c/o Turner Broadcasting                                                                                              
 System, Inc.                                                                                                         
 One CNN Center                                                                                                       
 Atlanta, GA 30303                                                                                                    
LMC REDUCED VOTING                                                                                                    
 COMMON STOCK                                                                                                         
Tele-Communications,      55,642,172       NA         100                NA             10.08%    NA          *       
 Inc.(7)................                                                                                              
 5619 DTC Parkway                                                                                                     
 Englewood, CO 80111                                                                                                  
SERIES D PREFERRED STOCK                                                                                              
Houston Industries                                                                                                    
 Incorporated(8)........  11,000,000      100         100              5.84%             4.49      5.06        3.98   
 1111 Louisiana                                                                                                       
 Houston, TX 77002                                                                                                    
SERIES E AND F PREFERRED                                                                                              
 STOCK                                                                                                                
Alan Gerry(9)...........  Series E                                                                                    
 Loomis Road              3,107,956     95.63       95.63                                                             
 Liberty, NY 12754                                                     3.89              2.98      3.31        2.61   
                          Series F                                                                                    
                          2,945,580     95.63       95.63                                                             
SERIES G PREFERRED STOCK                                                                                              
ITOCHU Corporation(10)..  6,200,000       100         100              4.13              3.17      2.73        2.15   
 5-1, Kita-Aoyama 2-                                                                                                  
 Chome                                                                                                                
 Minato-Ku, Tokyo 107-77                                                                                              
 Japan                                                                                                                
SERIES I PREFERRED STOCK                                                                                              
Toshiba                   7,000,000       100         100              3.63              2.78      3.08        2.42   
 Corporation(11)........                                                                                              
 1-1, Shibaura 1-Chome                                                                                                
 Minato-Ku, Tokyo 105                                                                                                 
 Japan                                                                                                                
SERIES J PREFERRED                                                                                                    
 STOCK(12)                                                                                                            
Trust for the benefit of                                                                                              
 Gordon Gray, Jr........  769,043       23.56       23.56                 *                 *     *           *       
Trust for the benefit of                                                                                              
 C. Boyden Gray.........  664,583       20.36       20.36                 *                 *     *           *       

170 

DEFM14A
175th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 175th
                                                        [Enlarge/Download Table]

                                                                PERCENT OF COMMON        PERCENT OF VOTING   
                                      PERCENT OF CLASS(1)   STOCK UPON CONVERSION(2)         POWER(3)        
                                    ----------------------- ------------------------- -----------------------
  NAME AND ADDRESS OF     NUMBER OF   BEFORE       AFTER       BEFORE       AFTER       BEFORE       AFTER   
    BENEFICIAL OWNER       SHARES   TRANSACTION TRANSACTION TRANSACTION  TRANSACTION  TRANSACTION TRANSACTION
  -------------------     --------- ----------- ----------- ------------ ------------ ----------- -----------
                                                                                                             
Trust for the benefit of                                                                                     
 Burton C. Gray.........   769,043     23.56       23.56        *            *            *           *      
Trust for the benefit of                                                                                     
 Bernard Gray                                                                                                
 c/o Wachovia Bank, N.A.   745,035     22.82       22.82        *            *            *           *      
 .......................                                                                                     
 P.O. Box 3099                                                                                               
 Winston-Salem, NC 27150                                                                                     
Nancy Maguire Gray,                                                                                          
 Trustee of the                                                                                              
 Nancy Maguire Gray                                                                                          
 Trust u/a                 188,336      5.77        5.77        *            *            *           *      
 dated 12/16/94.........                                                                                     
 P.O. Box 3199                                                                                               
 Church Street Station                                                                                       
 New York, NY 10008                                                                                          

--------                                                                        
*Less than 1%                                                                 
(1) The shares of Time Warner Common Stock held by certain subsidiaries of    
 Time Warner, which are not entitled to be voted at the Time Warner Meeting,
are excluded for purposes of calculating the percentages.                 
(2) Each share of Time Warner Voting Preferred Stock and New Time Warner      
Series H Preferred Stock is convertible into 2.08264 shares of Time   
Warner Common Stock or New Time Warner Common Stock, as applicable.   
Shares issuable upon such conversion are included in the "Percent of  
Common Stock Upon Conversion" calculation pursuant to Rule 13d-3 under
the Exchange Act.                                                     
(3) Each share of Time Warner Voting Preferred Stock currently has two votes  
 per share as will each share of New Time Warner Voting Preferred Stock.
(4) Based on information provided by The Capital Group Companies, Inc. ("The  
Capital Group") as of June 30, 1996. Beneficial ownership includes    
33,977,860 shares of Time Warner Common Stock beneficially owned as of
June 30, 1996, which will be converted into shares of New Time Warner 
  Common Stock in the Time Warner Merger, and 11,143,533 shares (including
719,043 shares issuable upon conversion of the TBS LYONs) of New Time 
 Warner Common Stock which The Capital Group will be entitled to receive
  in the TBS Merger as a result of its beneficial ownership of TBS Capital
Stock as of June 30, 1996. The Capital Group, a holding company, has  
   advised Time Warner that it (directly or indirectly) has sole dispositive
 power over all its shares of Time Warner Common Stock, that it has sole
voting power over 6,491,170 of these shares and that these shares are 
held principally by Capital Research and Management Company, an       
investment adviser, and Capital Guardian Trust Company, a bank. The   
   Capital Group has also advised Time Warner that the shares of Time Warner
  Common Stock reported as beneficially owned includes 1,213,500 shares of
Time Warner Common Stock issuable upon conversion of TW LYONs that it 
beneficially owns, that all of the reported shares are held for the   
  benefit of its clients and that it and each of its subsidiary investment
  management companies acts separately in exercising investment discretion
over its managed accounts. For information on ownership of TBS Capital
   Stock, see "Ownership of TBS Capital Stock--Security Ownership of Certain
Beneficial Owners." Shares issuable upon conversion of convertible    
securities have been excluded from the calculation of voting power.   
(5) Beneficial ownership and percentage calculations are as of June 30, 1996. 
 The Seagram Company Ltd. has filed with the Commission Amendment No. 7,
   dated April 13, 1994, to its Statement on Schedule 13D and a Statement of
   Changes in Beneficial Ownership on Form 4 dated May 9, 1994 to the effect
that indirectly through its indirect wholly owned subsidiary, Seagram 
 Inc., has sole voting and sole dispositive power over all these shares.
(6) Based on information provided by TBS as of June 30, 1996. See "Ownership  
of TBS Capital Stock--Security Ownership of Directors and Executive   
Officers." Includes (a) 839,942 shares of New Time Warner Common Stock
expected to be owned by Turner Outdoor, a corporation that is wholly  
   owned by Mr. Turner, (b) 2,250,000 shares of New Time Warner Common Stock
as to which Mr. Turner is expected to have voting control but not     
   dispositive control, (c) 1,568,234 shares of New Time Warner Common Stock
   expected to be held by the Robert E. Turner Charitable Remainder Unitrust
No. 2, as to which Mr. Turner shares voting and dispositive control,  
   (d) 4,500,000 shares of New Time Warner Common Stock expected to be owned
   by Turner Partners, a limited partnership of which Mr. Turner is the sole
general partner, (e) 375,000 shares of New Time Warner Common Stock   
   expected to be owned by Mr. Turner's wife and (f) 3,750,000 shares of New
Time Warner Common Stock expected to be held by the Turner Foundation,
Inc. Mr. Turner disclaims beneficial ownership of shares held by his  
   spouse and the Turner Foundation, Inc. Excludes shares subject to options
   to purchase New Time Warner Common Stock which are expected to be awarded
to Mr. Turner but are not expected to be exercisable within 60 days of
the consummation of the Mergers.                                      
(7) Based on information provided by TBS as of June 30, 1996. See "Ownership  
 of TBS Capital Stock--Security Ownership of Certain Beneficial Owners."
  Consists of (a) shares of LMC Reduced Voting Common Stock expected to be
held by entities in which TCI claims beneficial ownership, including  
  United Cable Turner Investment, Inc. (27,938,169), Communication Capital
   Corporation (21,928,253) and TCITP (775,750), (b) 5,000,000 shares of LMC
Reduced Voting Common Stock that are expected to be issued to LMC and 
SSSI pursuant to the SSSI Agreement and (c) shares of New Time Warner 
Common Stock expected to be held by TCI TKR of Southern Kentucky, Inc.
   (279,533) and TKR Cable Company (1,048,517), entities in which TCI claims
beneficial ownership,                                                 

171 

DEFM14A
176th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 176th
(8) Beneficial ownership is as of July 17, 1995. Houston Industries           
Incorporated has filed with the Commission a Statement on Schedule 13D
dated July 17, 1995 to the effect that it also beneficially owns      
1,000,000 shares of Time Warner Common Stock and has sole voting and  
dispositive power over all these shares.                              
(9) Mr. Gerry also beneficially owns 2,941,392 shares of Time Warner Common   
  Stock. This information has been provided to Time Warner, as of June 30,
1996, by Mr. Gerry.                                                   
(10) Includes 1,200,000 shares of Time Warner Series G Preferred Stock held by  
ITOCHU International Inc., 335 Madison Avenue, New York, NY 10017, a  
wholly owned subsidiary of ITOCHU Corporation. ITOCHU Corporation and 
 ITOCHU International Inc. each also holds 1,440,000 and 360,000 shares,
   respectively, of Time Warner Series H Preferred Stock. Each share of Time
Warner Series H Preferred Stock is convertible into 2.08264 shares of 
 Time Warner Common Stock but has no voting rights. This information has
   been provided to Time Warner, as of June 30, 1996, by the holders of Time
Warner Series G Preferred Stock.                                      
(11) Includes 177,500 shares of Time Warner Series I Preferred Stock held by    
   Toshiba America, Inc., 1251 Avenue of the Americas, New York, NY 10020, a
   wholly owned subsidiary of Toshiba Corporation. This information has been
provided to Time Warner, as of June 30, 1996, by the holders of Time  
Warner Series I Preferred Stock.                                      
(12) This information has been provided to Time Warner, as of June 30, 1996,    
by the holders of Time Warner Series J Preferred Stock. The trusts for
the benefit of each of Gordon Gray, Jr. and C. Boyden Gray each also  
 holds 365,365 shares of Time Warner Common Stock and the trusts for the
benefit of each of Burton C. Gray and Bernard Gray each also holds    
  315,365 and 265,365 shares of Time Warner Common Stock, respectively (of
   which 146,870 shares are, in each case, held in an escrow account subject
  to restrictions on disposition). The Nancy Maguire Gray Trust also holds
89,476 shares of Time Warner Common Stock.                            

172 

DEFM14A
177th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 177th
OWNERSHIP OF TBS CAPITAL STOCK  

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS                          

The following table contains certain information as of June 30, 1996        
concerning shares of TBS Class A Common Stock and TBS Class B Common Stock      
owned by (a) all of the directors of TBS, (b) the five most highly compensated  
executive officers of TBS serving as of December 31, 1995 and (c) all           
directors and executive officers of TBS as a group. Under the rules of the      
Commission, generally a person is deemed to be a "beneficial owner" of a        
security if he or she has or shares the power to vote or direct the voting of   
such security, or the power to dispose or to direct the disposition of such     
security. Thus, more than one person may be deemed a beneficial owner of the    
same security. Because holders of TBS Class A Common Stock, holders of TBS      
Class B Common Stock and holders of TBS Class C Preferred Stock generally vote  
together on matters other than the election of directors, with each share of    
TBS Class A Common Stock having two votes, each share of TBS Class B Common     
Stock having one-fifth of a vote and each share of TBS Class C Preferred Stock  
having one and one-fifth votes, the percentages of such combined voting power   
held by the persons listed in the table below are reflected in a separate       
column. Except as otherwise noted, the persons referred to below had sole       
voting and investment power with respect to the shares set forth as             
beneficially owned by them.                                                     

                                                                [Download Table]

                                                                    PERCENT OF
                                            SHARES                   COMBINED 
                               TITLE OF  BENEFICIALLY    PERCENT OF   VOTING  
  NAME OF BENEFICIAL OWNER    SECURITIES    OWNED          CLASS      POWER   
  ------------------------    ---------- ------------    ---------- ----------
                                                                              
R. E. Turner.................  Class A    57,730,053(1)     84.5%      64.3%  
                               Class B    27,887,224(1)     19.9%       3.1%  
Henry L. Aaron...............  Class B         1,000(2)        *          *   
Peter R. Barton..............  Class A           600(3)        *          *   
                               Class B           300(3)        *          *   
Jeffrey L. Bewkes............  NA                 NA          NA         NA   
Joseph J. Collins............  NA                 NA          NA         NA   
W. Thomas Johnson............  Class B       335,466(4)        *          *   
Gerald M. Levin..............  NA                 NA          NA         NA   
Rubye M. Lucas...............  Class A           400           *          *   
                               Class B         1,053(5)        *          *   
John C. Malone...............  NA                 NA          NA         NA   
Terence F. McGuirk...........  Class B       535,351(6)        *          *   
Timothy P. Neher.............  Class A         5,000(7)        *          *   
                               Class B        15,000(7)        *          *   
Brian L. Roberts.............  NA                 NA          NA         NA   
Scott M. Sassa...............  Class B       340,061(8)        *          *   
Robert Shaye.................  Class B     5,005,211(9)      3.6%         *   
Fred A. Vierra...............  Class A           950           *          *   
All directors and executive                                                   
 officers as a group                                                          
 (25 persons)................  Class A    57,737,225        84.5%      64.3%  
                               Class B    34,816,750(10)    24.9%       3.9%  

--------                                                                        
* Indicates beneficial ownership of less than 1.0%.                         
(1) Includes (a) 559,962 shares of TBS Class A Common Stock and 559,962       
   shares of TBS Class B Common Stock owned by Turner Outdoor, a corporation
 that is wholly-owned by Mr. Turner, (b) 3 million shares of TBS Class B
Common Stock as to which Mr. Turner has voting control but not        
dispositive control, (c) 2,090,979 shares of TBS Class B Common Stock 
held by the Robert E. Turner Charitable Remainder Unitrust No. 2 as to
which shares Mr. Turner shares voting and dispositive control, (d) 6  
million shares of TBS Class A Common Stock held by Turner Partners, a 
  limited partnership of which Mr. Turner is the sole general partner, (e)
   500,000 shares of TBS Class B Common Stock owned by Mr. Turner's wife and
(f) 5 million shares of TBS Class B Common Stock held by the Turner   
Foundation, Inc. Mr. Turner disclaims beneficial ownership of those   
shares which are held by his wife and the Turner Foundation, Inc.     
(2) Represents 1,000 shares which are subject to purchase upon exercise of    
options.                                                              
(3) All of such shares are held in trust for the benefit of Mr. Barton's      
children.                                                             

173 

DEFM14A
178th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 178th
(4) Includes 321,666 shares which are subject to purchase upon exercise of    
options.                                                              
(5) Includes 1,000 shares which are subject to purchase upon exercise of      
options.                                                              
(6) Includes 479,999 shares which are subject to purchase upon exercise of    
options.                                                              
(7) Includes 2,500 shares of TBS Class A Common Stock and 2,500 shares of TBS 
Class B Common Stock held in trust for the benefit of Mr. Neher's     
children.                                                             
(8) Includes 323,332 shares which are subject to purchase upon exercise of    
options.                                                              
(9) Includes (a) 107,348 shares held in trusts for Mr. Shaye's family which   
are subject to voting control by Mr. Shaye, (b) 214,696 shares held in
trust by Mr. Shaye for his children, (c) 176,544 shares owned by Mr.  
Shaye's spouse, (d) 49,637 shares held by a private foundation, (e)   
   31,295 shares held by the 401(k) defined contribution plan of New Line in
  which Mr. Shaye has a vested interest and (f) 2,458,088 shares which are
subject to purchase upon exercise of options. Mr. Shaye disclaims     
beneficial ownership of those shares which are held of record by his  
spouse, by trusts for the benefit of family members and the private   
foundation.                                                           
(10) Includes an aggregate of 4,272,554 shares which are subject to purchase    
  upon the exercise of options held by directors and executive officers of
TBS.                                                                  

Except as discussed below under "--Security Ownership of Certain Beneficial 
Owners," TBS knows of no person other than Mr. Turner who, as of June 30,       
1996, owns beneficially more than 5% of any class of TBS Common Stock. Mr.      
Turner's address is One CNN Center, Atlanta, Georgia 30303.                     

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS                                 

The following table contains certain information as of June 30, 1996        
concerning shares of TBS Class C Preferred Stock and TBS Class B Common Stock   
beneficially owned by each person (other than the person set forth in the       
preceding table under the caption "Security Ownership of Directors and          
Executive Officers") known to TBS to be the beneficial owner of more than 5%    
of the outstanding shares of either of these classes of securities, and         
reflects information presented in each such person's Schedule 13D and           
amendments (if any) thereto as filed with the Commission and provided to TBS    
or quarterly reports of ownership generated by such person and provided to      
TBS. Because holders of the TBS Class C Preferred Stock generally vote          
together with the holders of the TBS Common Stock on matters other than         
election of directors, the percentages of the combined voting power             
represented by the persons listed in the table below are reflected in a         
separate column. Because the TBS Class C Preferred Stock is convertible into    
TBS Class B Common Stock at a present conversion rate of six shares of TBS      
Class B Common Stock for each share of TBS Class C Preferred Stock, the         
percentages of TBS Class B Common Stock which would be held by the persons      
listed below if their presently outstanding shares of TBS Class C Preferred     
Stock were presently converted are reflected in a separate column. Except as    
otherwise noted, the persons referred to below had sole voting and investment   
power with respect to the shares set forth as beneficially owned by them.       

                                                        [Enlarge/Download Table]

                                 CLASS C               CLASS B            % OF             
                             PREFERRED STOCK        COMMON STOCK        CLASS B     % OF   
                             -------------------  --------------------   COMMON   COMBINED 
                             BENEFICIAL    % OF   BENEFICIAL     % OF     UPON     VOTING  
ADDRESS OF BENEFICIAL OWNER  OWNERSHIP     CLASS  OWNERSHIP     CLASS  CONVERSION  POWER   
---------------------------  ----------    -----  ----------    ------ ---------- -------- 
                                                                                           
Tele-Communications,         6,087,080(2)  49.1%  30,111,320(2)  21.5%    31.1%     7.7%(3)
 Inc.(1)................                                                                   
 5619 DTC Parkway                                                                          
 Englewood, Colorado                                                                       
 80111                                                                                     
Time Warner Inc.(1).....     4,890,457(4)  39.4%  25,349,085(5)  18.1%    25.6%     6.4%(6)
 75 Rockefeller Plaza                                                                      
 New York, New York                                                                        
 10019                                                                                     
The Capital Group                   NA       NA   14,858,045(7)  10.5%      NA      1.7%   
 Companies, Inc. .......                                                                   
 333 South Hope Street                                                                     
 Los Angeles, California                                                                   
 90071                                                                                     

--------                                                                        
(1) These entities are, directly or through subsidiaries, Cable Operators and   
are parties to certain agreements entered into in connection with the   
Units Offering, including (a) the TBS Shareholders' Agreement, which    
provides for certain voting and disposition arrangements with respect to
the parties' respective equity interests in TBS, and (b) the TBS        
Investors' Agreement, which provides for certain conversion and         
disposition arrangements with respect to the TBS Class C Preferred Stock
held by the Cable Operators. By virtue of such agreements and certain   
other agreements hereinafter referenced in this footnote, such entities 
may be deemed, together with the other parties to such respective       
  agreements, to constitute "groups" (within the meaning of Section 13(d)(3)
of the Exchange Act) for purposes of determining beneficial ownership of
the TBS Class C Preferred Stock and the TBS Class B Common Stock. Except
as set forth in the table above and as otherwise acknowledged in these  
footnotes, each of the above entities disclaims beneficial ownership of 

174 

DEFM14A
179th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 179th
the shares owned by any other persons in such "groups." These entities may  
also be deemed to constitute a group for purposes of Section 13(d) (3) by   
virtue of an agreement entered into by these and certain other parties in   
connection with the Units Offerings which contains provisions relating to   
the acquisition, disposition and voting of the TBS Capital Stock. In        
addition, by virtue of the Time/TCI Agreement entered into in connection    
with the Units Offering among subsidiaries of these entities and certain    
other Cable Operators, such companies might constitute a group for the      
purposes of Section 13(d) (3).                                              
(2) Consists of shares TBS Class C Preferred Stock and TBS Class B Common       
Stock, respectively, held by entities in which TCI claims beneficial    
ownership, including United Cable Turner Investment, Inc. (5,820,452 and
none), Communication Capital Corporation (none and 29,237,671), TCITP   
(119,099 and 47,100), TCI TKR of Southern Kentucky, Inc. (none and      
372,711), and TKR Cable Company (147,529 and 453,838).                  
(3) The percentage of combined voting power includes 225,000 shares of TBS      
Class A Common Stock held by TCITP.                                     
(4) Consists of shares held by entities in which Time Warner claims beneficial  
ownership, including Time TBS Holdings, Inc. (4,221,619) and WCCI       
(668,838).                                                              
(5) Consists of shares held by entities in which Time Warner claims beneficial  
ownership, including ATC (17,010,889), Time Warner Operations, Inc.     
(4,881,687), WCCI (1,991,310) and WCI (1,465,199).                      
(6) The percentage of combined voting power includes 254,100 shares of TBS      
Class A Common Stock held by WCI.                                       
(7) Certain operating subsidiaries of The Capital Group exercised investment    
 discretion over various institutional accounts which held, as of June 30,
1996, 13,899,320 shares of TBS Class B Common Stock. The total number of
  shares set forth in the above table includes 958,725 shares of TBS Class B
Common Stock which would be received upon the conversion, at the current
conversion rate, of $75,000,000 principal amount of the TBS LYONs       
currently held by The Capital Group.                                    

175 

DEFM14A
180th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 180th
COMPARISON OF RIGHTS OF STOCKHOLDERS  
OF NEW TIME WARNER AND TIME WARNER  

New Time Warner and Time Warner are both organized under the laws of the    
State of Delaware. Any differences, therefore, in the rights of holders of      
Time Warner Common Stock and New Time Warner Common Stock arise primarily from  
differences in their respective certificates of incorporation and by-laws. The  
New Time Warner Charter and the New Time Warner By-laws are substantially       
similar to the Time Warner Charter and the Time Warner By-laws, respectively,   
except for certain matters described below.                                     

Voting Rights                                                                 

Under the DGCL, an increase or decrease in the number of authorized shares  
of any class of the capital stock of a Delaware corporation requires the        
affirmative vote of the holders of a majority of the outstanding shares of      
such class unless otherwise provided in the certificate of incorporation of     
such corporation. The Time Warner Charter does not otherwise so provide and,    
accordingly, the number of authorized shares of Time Warner Common Stock or     
Time Warner Preferred Stock may be increased or decreased only with the         
affirmative vote of both (a) a majority of the outstanding shares of Time       
Warner Common Stock or Time Warner Preferred Stock, as the case may be, voting  
separately as a class, and (b) a majority in voting power of the outstanding    
Time Warner Common Stock and Time Warner Voting Preferred Stock, voting         
together as a single class. Under the New Time Warner Charter, an increase or   
decrease in the number of authorized shares of New Time Warner Common Stock,    
New Time Warner Preferred Stock or New Time Warner Series Common Stock will     
require only the approval of a majority in voting power of the outstanding      
shares of New Time Warner Common Stock and any New Time Warner Preferred        
Stock, New Time Warner Series Common Stock or other New Time Warner Capital     
Stock entitled generally to vote with the New Time Warner Common Stock, voting  
together as a single class, and will not require any separate class vote of     
any class of the New Time Warner Capital Stock.                                 

Under the DGCL and the Time Warner Charter, any amendment to the Time Warner
Charter (including each certificate of designations forming a part thereof)     
requires the approval of a majority in voting power of the outstanding Time     
Warner Common Stock and the Time Warner Voting Preferred Stock, voting          
together as a single class, in addition to any approval of any single class or  
series of Time Warner Capital Stock that may be required by the nature of such  
amendment. Under the New Time Warner Charter, any amendment to the New Time     
Warner Charter (or any certificate of designations forming a part thereof)      
that relates solely to the terms of an outstanding series of New Time Warner    
Preferred Stock or New Time Warner Series Common Stock will not require the     
approval of the holders of the New Time Warner Common Stock (and therefore      
will not require the approval of the holders of any series of New Time Warner   
Capital Stock that would vote on such amendment only together with the New      
Time Warner Common Stock) if the holders of the affected series of New Time     
Warner Preferred Stock or New Time Warner Series Common Stock are separately    
entitled to vote on such amendment.                                             

Par Value                                                                     

The par value of the Time Warner Capital Stock is $1.00 per share. The par  
value of the New Time Warner Common Stock will be $0.01 per share, and the par  
value of the New Time Warner Preferred Stock will be $0.10 per share. The       
principal effect of this change will be to increase the amount that New Time    
Warner will have available to pay dividends or repurchase or redeem stock. New  
Time Warner does not currently intend to adopt dividend and stock repurchase    
policies different from those of Time Warner.                                   

Series Common Stock                                                           

Unlike the Time Warner Charter, the New Time Warner Charter will authorize  
New Time Warner Series Common Stock. See "Description of New Time Warner        
Capital Stock--Authorized Capital Stock."                                       

Certain Change of Control Matters                                             

A number of aspects of the Transaction will affect the ability of a         
potential acquiror to complete an acquisition of New Time Warner relative to    
the ability of a potential acquiror currently to complete an acquisition        

176 

DEFM14A
181st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 181st
of Time Warner. These aspects include (a) the fact that Mr. Turner, who will    
hold a substantial amount of New Time Warner Common Stock, will be Vice         
Chairman, a director and an employee of New Time Warner and, while in any of    
these positions, will be subject to restrictions on his activities as a         
stockholder of New Time Warner (see "Certain Related Agreements-- Investors'    
Agreements"), (b) the FTC Consent Decree, which will limit additional           
purchases of New Time Warner Capital Stock by TCI and its affiliates (see "The  
Transaction--Regulatory Approvals"), (c) the existence of the Right of First    
Refusal Agreement (see "Certain Related Agreements--Right of First Refusal      
Agreement") and (d) the changes contemplated by the Rights Amendment (see       
"Certain Related Agreements--Rights Amendment").                                

COMPARISON OF RIGHTS OF STOCKHOLDERS OF 
NEW TIME WARNER AND SHAREHOLDERS OF TBS 

TBS is incorporated under the laws of the State of Georgia and New Time     
Warner is incorporated under the laws of the State of Delaware. TBS's           
shareholders, whose rights as shareholders currently are governed by Georgia    
law, the TBS Articles and the TBS By-Laws, will become, upon consummation of    
the Mergers, stockholders of New Time Warner, and their rights as stockholders  
of New Time Warner will then be governed by Delaware law, the New Time Warner   
Charter and the New Time Warner By-laws.                                        

The following summary sets forth the material differences between the rights
of TBS shareholders and New Time Warner stockholders. This summary does not     
purport to be a complete description of the differences between the rights of   
such holders, and is subject, and qualified in its entirety by reference, to    
the New Time Warner Charter, a copy of which is attached hereto as Appendix B-  
1, and the New Time Warner By-laws, a copy of which is filed as an Exhibit to   
the Registration Statement, and both of which are incorporated herein by        
reference, the TBS Articles, the TBS By-Laws, the GBCC and the DGCL.            

CHANGES IN CONTROL AND BUSINESS COMBINATIONS                                    

Certain provisions of the TBS Articles and the TBS By-Laws, and the New Time
Warner Charter and the New Time Warner By-laws, as well as certain provisions   
of the GBCC and the DGCL, may have the effect of discouraging certain           
transactions that involve an actual or threatened change in control of TBS or   
New Time Warner.                                                                

The GBCC contains provisions that restrict certain business combinations    
with interested shareholders (the "Georgia Business Combination Statute") and   
require that certain fair price criteria be satisfied with respect to certain   
business combinations with interested shareholders (the "Georgia Fair Price     
Statute"), as summarized below. In accordance with the provisions of these      
statutes, the restrictions imposed by these statutes do not apply unless TBS    
elects to be covered by such statutes. TBS has not elected to be covered by     
such statutes, but it could do so at any time by amending the TBS By-Laws.      

Under the Georgia Business Combination Statute, any person who is (a) the   
beneficial owner of 10% or more of the voting power of a Georgia corporation's  
outstanding voting stock or (b) is an affiliate of the corporation and, at any  
time within the two-year period immediately prior to the date in question, was  
the beneficial owner of 10% or more of the voting power of the corporation's    
then outstanding voting stock (an "interested shareholder") generally may not   
engage in certain business combinations with that corporation for a period of   
five years following the time such person became an interested shareholder.     
The prohibitions do not apply if (i) prior to the time such person became an    
interested shareholder, the corporation's board of directors approved either    
the business combination or the transaction which resulted in such person       
becoming an interested shareholder, (ii) in the transaction which resulted in   
such person becoming an interested shareholder, the person became the           
beneficial owner of at least 90% of the voting stock of the corporation         
outstanding at the time the transaction commenced, excluding for purposes of    
determining the number of shares outstanding those shares owned by (x)          
directors or officers of the corporation or their affiliates or associates,     
(y) subsidiaries of the                                                         

177 

DEFM14A
182nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 182nd
corporation and (z) any employee stock plan of the corporation under which      
participants do not have the right (as determined exclusively by reference to   
the terms of such plan and any trust which is part of such plan) to determine   
confidentially the extent to which shares held under such plan will be          
tendered in a tender or exchange offer (any such holder described in clause     
(ii)(x), (y) or (z) being referred to herein as an "Excluded Holder") or (iii)  
subsequent to becoming an interested shareholder (x) such person acquired       
additional shares resulting in such person being the beneficial owner of at     
least 90% of the outstanding voting stock of the corporation, excluding any     
shares owned by the Excluded Holders and (y) the business combination was       
approved by the holders of a majority of the voting stock entitled to vote      
thereon (excluding voting stock beneficially owned by the interested            
shareholder or by the Excluded Holders). The restrictions in the Georgia        
Business Combination Statute do not apply if a person (i) becomes an            
interested shareholder inadvertently, (ii) as soon as practicable divests       
sufficient shares so that such person ceases to be an interested shareholder    
and (iii) would not, at any time within the five-year period immediately prior  
to a business combination between the corporation and such person, have been    
an interested shareholder but for the inadvertent acquisition. The law          
restricting business combinations is broad in its scope and is designed to      
inhibit unfriendly acquisitions.                                                

In addition, the Georgia Fair Price Statute prohibits certain business      
combinations between a Georgia corporation and an interested shareholder,       
unless certain requirements are met. The Georgia Fair Price Statute would       
permit a business combination to be effected if (i) the business combination    
is unanimously approved by the "continuing directors" of the corporation        
(generally, directors who served prior to the time the person became an         
interested shareholder and who are unaffiliated with the interested             
shareholder), (ii) the business combination is recommended by at least two-     
thirds of the continuing directors and approved by a majority of the votes      
entitled to be cast by holders of voting shares, other than voting shares       
beneficially owned by the interested shareholder or (iii) certain fair price    
criteria and dividend requirements are met, and the interested shareholder has  
neither increased the percentage of his ownership by more than 1% in any 12-    
month period nor received certain benefits from the corporation. The Georgia    
Fair Price Statute is designed to inhibit unfriendly acquisitions that do not   
satisfy the specified "fair price" requirements.                                

Section 203 of the DGCL is similar to the Georgia Business Combination      
Statute, but is, in some ways, less restrictive. Section 203 of the DGCL        
provides that an "interested stockholder" is any person who acquires            
beneficial ownership of 15% (rather than 10% under the Georgia Business         
Combination Statute) or more of the voting power of a corporation's voting      
stock. Additionally, the prohibition on specified business combinations does    
not apply if, on or subsequent to the date the interested stockholder became    
an interested stockholder, the transaction is approved by the board and         
authorized at a meeting of stockholders by the affirmative vote of at least     
two-thirds of the voting stock not owned by the interested stockholder.         
Moreover, the mandatory waiting period for such business combinations under     
Section 203 is three years instead of five years under the Georgia Business     
Combination Statute. A Delaware corporation will be subject to the provisions   
of Section 203 of the DGCL unless it specifically elects to opt out of Section  
203 of the DGCL. New Time Warner has not made such an election and, therefore,  
is subject to the terms thereof.                                                

The New Time Warner Charter requires the affirmative vote of (a) 80% of the 
combined voting power of the then outstanding shares of Voting Stock (as        
defined therein), voting together as a single class, and (b) the affirmative    
vote of a majority of the combined voting power of the then outstanding Voting  
Stock held by Disinterested Stockholders (as defined below), voting together    
as a single class, to approve any Business Combination (as defined therein,     
which term includes a merger, sale of all or substantially all the assets, the  
adoption of a plan of liquidation and similar extraordinary corporate           
transactions) between, or otherwise involving, New Time Warner and any          
Interested Stockholder (as defined below), unless (i) the Business Combination  
has been approved by a majority of the Disinterested Directors (as defined      
below), and the Interested Stockholder became an Interested Stockholder in a    
manner substantially consistent, and has complied, with an agreement approved   
by the New Time Warner Board, (ii) in the case of certain Business              
Combinations, the Business Combination has been approved by a majority of the   
Disinterested Directors, such Business Combination does not result in an        
increase of more than 10% in the amount of equity securities of any class or    
series of New Time Warner or any New Time Warner subsidiary beneficially owned  
by an Interested Stockholder                                                    

178 

DEFM14A
183rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 183rd
and its affiliates and associates at the time of such approval, and the         
Business Combination is not consummated within two years after the              
consummation of any other Business Combination in which the proportionate       
share of equity securities of any class or series of New Time Warner or any     
New Time Warner subsidiary beneficially owned by such Interested Stockholder    
and its affiliates and associates was increased, (iii) in the case of certain   
other Business Combinations, such Business Combination is approved by a         
majority of the Disinterested Directors, or (iv) certain minimum price, form    
of consideration and procedural requirements are met. The TBS Articles contain  
no similar provisions.                                                          

As used in the New Time Warner Charter:                                     

"Interested Stockholder" means any person who or which:                     

(1) is the beneficial owner, directly or indirectly, of 20% or more of  
the combined voting power of the then outstanding shares of New Time Warner 
stock entitled to vote generally in the election of directors ("Voting      
Stock"); or                                                                 

(2) is an affiliate of New Time Warner and at any time within the two-  
year period immediately prior to the date in question was the beneficial    
owner, directly or indirectly, of 20% or more of the combined voting power  
of the then outstanding shares of Voting Stock; or                          

(3) is an assignee of or has otherwise succeeded to the beneficial      
ownership of any shares of Voting Stock which were at any time within the   
two-year period immediately prior to the date in question beneficially      
owned by any Interested Stockholder, if such assignment or succession shall 
have occurred in the course of a transaction or series of transactions not  
involving a public offering within the meaning of the Securities Act.       

"Disinterested Stockholder" means a stockholder of New Time Warner who is   
not an Interested Stockholder or an affiliate or an associate of an Interested  
Stockholder.                                                                    

"Disinterested Director" means any member of the New Time Warner Board who  
is unaffiliated with, and not a nominee of, the Interested Stockholder and was  
a member of the New Time Warner Board prior to the time that the Interested     
Stockholder became an Interested Stockholder, and any successor of a            
Disinterested Director who is unaffiliated with, and not a nominee of, the      
Interested Stockholder and who is recommended to succeed a Disinterested        
Director by a majority of Disinterested Directors then on the New Time Warner   
Board.                                                                          

CERTAIN VOTING RIGHTS                                                           

In general, the GBCC requires a majority of the outstanding shares entitled 
to vote thereon to approve certain mergers. Under the GBCC, a board of          
directors need not submit a plan of merger to the shareholders of the           
surviving corporation if: (a) the merger does not amend the articles of         
incorporation of the surviving corporation; (b) each shareholder whose shares   
of the surviving corporation were outstanding immediately prior to the          
effectiveness of the merger retains the same number of shares with identical    
designations, preferences, limitations and relative rights after the merger;    
and (c) the number and kind of shares outstanding after the merger will not     
exceed the total number and kind of shares of the surviving corporation         
authorized before the merger.                                                   

The DGCL requires the affirmative vote of the holders of at least a majority
of the outstanding shares entitled to vote thereon to approve certain mergers.  
Under Delaware law, the stockholders of the surviving corporation are not       
required to approve a merger if certain conditions, similar to those required   
under Georgia law, are satisfied, except that with respect to (c) above, such   
merger need not be approved by such stockholders where either no new shares of  
common stock of the surviving corporation or securities convertible into such   
stock are to be issued under the plan of merger, or any such shares to be       
issued in the merger plus the shares initially issuable upon conversion of any  
such convertible securities issued in the merger will not exceed 20% of the     
number of shares outstanding immediately prior to the merger. The DGCL further  
provides that no stockholder approval is required in a merger of a corporation  
with or into a single direct or indirect wholly-owned                           

179 

DEFM14A
184th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 184th
subsidiary of such corporation for the purpose of effecting a holding company   
reorganization, if certain conditions are met, including (a) as a result of     
the merger, the corporation or its successor becomes a direct or indirect       
wholly-owned subsidiary of the new holding company, (b) stockholders of the     
corporation receive in the merger the same number of shares of the new holding  
company as they owned in the corporation prior to the merger, which stock has   
the same designations, rights, powers and preferences, and the qualifications,  
limitations and restrictions thereof, with respect to the holding company as    
such stock had with respect to the corporation prior to the merger, (c) the     
certificate of incorporation and by-laws of the new holding company contain     
provisions identical to the certificate of incorporation and by-laws of the     
corporation immediately prior to the effective time of the merger (except for   
provisions that could have been amended or deleted without stockholder          
approval), (d) the directors of the new holding company will be the same as     
the directors of the corporation immediately prior to the merger, (e) the       
certificate of incorporation of the corporation or its successor immediately    
following the merger is identical in all substantive respects to the            
certificate of incorporation of the corporation immediately prior to the        
merger, provided that the certificate of incorporation of the corporation or    
its successor shall be amended in the merger to contain a provision requiring   
that any act or transaction by or involving such corporation that requires for  
its adoption under the DGCL or its certificate of incorporation the approval    
of the stockholders of such corporation shall require, in addition, the         
approval of the stockholders of the new holding company or any successor        
thereto by merger and (f) the merger is tax-free for Federal income tax         
purposes to the stockholders of the corporation.                                

The TBS Articles provide that the holders of TBS Class C Preferred Stock    
have the right to vote as a separate class on certain matters. See "The         
Transaction--Background." In addition, under the TBS Articles, the holders of   
TBS Class C Preferred Stock, voting as a separate class, are entitled to elect  
seven Class C Directors to the TBS Board, and the holders of TBS Class A        
Common Stock and TBS Class B Common Stock, voting together as a single group,   
are entitled to elect eight Common Stock Directors to the TBS Board. Under the  
GBCC, the holders of each class of TBS Capital Stock are entitled to vote as a  
separate class with respect to certain matters, and the holders of TBS Class A  
Common Stock and TBS Class B Common Stock are entitled to vote as a single      
group with respect to certain matters. Upon consummation of the Mergers, the    
holders of each of the TBS Class A Common Stock, the TBS Class B Common Stock   
and the TBS Class C Preferred Stock will become holders of a single class of    
equity securities, New Time Warner Common Stock. As a result, at and after the  
consummation of the Mergers, the current holders of the various classes of TBS  
Capital Stock will no longer have separate voting rights but will vote          
together with all other holders of New Time Warner Common Stock as a single     
class on matters that are presented to the holders of New Time Warner Common    
Stock.                                                                          

NEW TIME WARNER RIGHTS AGREEMENT                                                

Upon the consummation of the Mergers, it is contemplated that New Time      
Warner will enter into the New Time Warner Rights Agreement and each            
outstanding share of New Time Warner Common Stock will thereafter be            
accompanied by one New Time Warner Right issued thereunder. See "Description    
of New Time Warner Capital Stock--New Time Warner Rights Agreement; New Time    
Warner Series A Preferred Stock" for a description of the New Time Warner       
Rights Agreement. TBS currently has no shareholder rights plan.                 

DIRECTORS                                                                       

The TBS Articles provide that during such period as there are at least 4    
million outstanding shares of TBS Class C Preferred Stock (the "Effective       
Period"), the TBS Board shall consist of fifteen persons. During the Effective  
Period, which is currently in effect, the holders of TBS Class C Preferred      
Stock are entitled to elect seven Class C Directors, and the holders of TBS     
Common Stock are entitled to elect eight Common Stock Directors. Vacancies      
with respect to a Common Stock Director may be filled by the affirmative vote   
of a majority of the remaining Common Stock Directors, unless such vacancy      
occurred by reason of the removal (with or without cause) of such Common Stock  
Director, in which case such vacancy shall be filled by the affirmative vote    
of the holders of the TBS Common Stock. Vacancies with respect to a Class C     
Director may be filled by the affirmative vote of a majority of the remaining   
Class C Directors, unless such vacancy occurred by reason of the removal (with  
or without cause) of such Class C Director, in which case such vacancy must be  
filled by the                                                                   

180 

DEFM14A
185th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 185th
affirmative vote of the holders of a majority of TBS Class C Preferred Stock.   
Upon termination of the Effective Period, the TBS Board shall consist of        
eleven persons, such persons being those nominees receiving the largest number  
of votes of the TBS Capital Stock, voting together as a single group. Under     
Georgia law, shareholders may remove directors with or without cause unless     
the articles of incorporation or a bylaw adopted by the shareholders provides   
otherwise. The TBS By-Laws provide that Class C Directors may be removed, with  
or without cause, solely by the vote or written consent of the holders of a     
majority of the outstanding shares of TBS Class C Preferred Stock. TBS Common   
Stock Directors may be removed, with or without cause, solely by the vote of    
the holders of a majority of the voting power of TBS Common Stock, or by the    
unanimous written consent of the holders of the outstanding shares of TBS       
Common Stock.                                                                   

The New Time Warner By-laws will provide that the number of directors on the
New Time Warner Board shall be determined from time to time by the affirmative  
vote of directors constituting at least a majority of the entire New Time       
Warner Board, provided that the number of New Time Warner directors may not be  
less than three. Upon the consummation of the Mergers, the New Time Warner      
Board will consist of 14 directors, and will be classified into three classes,  
with each class as nearly equal in number as possible. At each annual meeting   
of the stockholders of New Time Warner, the successors of the class of          
directors whose term expires at that meeting shall be elected to hold office    
for a term expiring at the third succeeding annual meeting of stockholders. In  
any election of New Time Warner directors, the persons receiving a plurality    
of the votes cast, up to the number of directors to be elected in such          
election, shall be deemed elected. Any vacancies on the New Time Warner Board   
may be filled only by the affirmative vote of a majority of the remaining New   
Time Warner directors then in office. The New Time Warner Charter will provide  
that any New Time Warner director may be removed from office only for cause     
and only by the affirmative vote of the holders of a majority of the combined   
voting power of the then outstanding shares of voting stock, voting together    
as a single class. "Cause" will be defined as the willful and continuous        
failure of a director to substantially perform such director's duties to New    
Time Warner (other than any such failure resulting from incapacity due to       
physical or mental illness) or the willful engaging by a director in gross      
misconduct materially and demonstrably injurious to New Time Warner. In         
addition, pursuant to Investors' Agreement (No. 1), upon the consummation of    
the Transaction, Mr. Turner will have the right to designate two persons for    
election to the New Time Warner Board. See "Certain Related Agreements--        
Investors' Agreements."                                                         

REDEMPTION OF STOCK                                                             

Under the New Time Warner Charter, subject to the resolutions of the New    
Time Warner Board designating any series of New Time Warner Preferred Stock or  
New Time Warner Series Common Stock, outstanding shares of New Time Warner      
Capital Stock may be redeemed, upon action of the New Time Warner Board, to     
the extent necessary to prevent the loss or secure the reinstatement of any     
license or franchise from a governmental agency held by New Time Warner or any  
of its subsidiaries to conduct any portion of the business of New Time Warner   
or such subsidiary, which license or franchise is conditioned upon some or all  
of the holders of New Time Warner's stock of any class or series possessing     
prescribed qualifications. LMC Series Common Stock will not be subject to the   
foregoing rights of redemption. The redemption price of any stock so redeemed   
is payable in cash, debt or equity securities of New Time Warner or another     
corporation, or any combination thereof, as described in the New Time Warner    
Charter, equal to the Fair Market Value (as defined therein) of the stock to    
be so redeemed.                                                                 

RESTRICTIONS ON FOREIGN OWNERSHIP OF SHARES                                     

The TBS Articles provide that at no time shall more than 25% of the issued  
and outstanding TBS Capital Stock (or 20% if TBS shall directly hold or shall   
apply to directly hold a broadcast license granted by the FCC under the         
Communications Act), or any class thereof, be owned of record or voted by       
aliens or their representatives or by a foreign government or representative    
thereof or any corporation organized under the laws of a foreign country. The   
TBS Articles provide that the TBS By-Laws may contain provisions to implement   
the provisions of this paragraph and to avoid certain prohibitions under the    
Communications Act.                                                             

181 

DEFM14A
186th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 186th
The TBS By-Laws provide that if, at any time that TBS holds a broadcast     
license granted by the FCC, TBS is controlled directly or indirectly by any     
other corporation of which any officer is, or more than 25% of the members of   
the board of directors are, aliens, or of which more than 25% of the capital    
stock is owned of record or voted by or for the account of aliens, then such    
other corporation shall, so long as such condition continues to exist, have no  
voting, dividend or other rights with respect to the shares of TBS which it     
owns, except the right to transfer such shares in such manner that such         
conditions will cease to exist.                                                 

Neither the New Time Warner Charter nor the New Time Warner By-laws will    
initially contain any such provisions, although the New Time Warner Charter     
will contain the redemption provision described above.                          

LIABILITY OF DIRECTORS                                                          

Both the GBCC and the DGCL allow a corporation to limit the personal        
liability of directors with certain similar exceptions. As permitted by the     
GBCC, the TBS Articles provide that no director shall be personally liable to   
TBS or its shareholders for monetary damages for breach of duty of care or      
other duty as a director, except for liability (a) for any appropriation, in    
violation of his duties, of any business opportunity of TBS, (b) for acts or    
omissions not in good faith or which involve intentional misconduct or a        
knowing violation of law, (c) for unlawful distributions or (d) for any         
transaction from which the director derived an improper personal benefit.       

The New Time Warner Charter will provide that, to the fullest extent        
permitted by the DGCL, no director of New Time Warner shall be liable to New    
Time Warner or its stockholders for monetary damages for breach of fiduciary    
duty as a director. The DGCL allows a corporation to limit in this manner the   
personal liability of a director, except for liability for (a) any breach of    
the director's duty of loyalty to the corporation or its stockholders, (b)      
acts or omissions not in good faith or which involve intentional misconduct or  
a knowing violation of law, (c) an unlawful payment of a dividend or an         
unlawful stock purchase or redemption or (d) any transaction from which the     
director derived an improper personal benefit.                                  

INDEMNIFICATION AND LIABILITY OF DIRECTORS AND OFFICERS                         

The GBCC permits, and the TBS By-Laws provide, that TBS may indemnify any   
director or officer of TBS for any liability and expense that may be incurred   
in connection with or resulting from any threatened, pending or completed       
civil, criminal, administrative or investigative action, suit or proceeding     
(whether brought by or in the right of TBS or otherwise), in which he may       
become involved by reason of his being or having been a director or officer of  
TBS; provided, that such person acted in a manner he believed in good faith to  
be in or not opposed to the best interests of TBS, and, with respect to any     
criminal action or proceeding, had no reasonable cause to believe his conduct   
was unlawful. Except where the indemnified individual is successful on the      
merits or otherwise in defense of any such action, suit or proceeding, in       
which case indemnification is as of right, indemnification is at the            
discretion of TBS, as determined by the TBS Board, the shareholders, or legal   
counsel in accordance with the GBCC. Under the GBCC, directors may not be       
indemnified in connection with (a) any proceeding by or in the right of the     
corporation in which such individual is adjudged liable to TBS or (b) any       
other proceeding in which such individual is adjudged liable on the basis that  
such individual received an improper personal benefit.                          

Under the DGCL, a corporation generally may indemnify its officers and      
directors for expenses, judgments or settlements actually and reasonably        
incurred by them in connection with suits and other legal proceedings if they   
acted in good faith and in a manner reasonably believed to be in or not         
opposed to the best interests of the corporation and, with respect to any       
criminal proceeding, had no reasonable cause to believe their conduct was       
unlawful. If the action is brought by or in the right of the corporation, the   
DGCL limits indemnification to the expenses (including attorneys' fees)         
reasonably incurred and provides that no such indemnification can be made when  
the individual is adjudged liable to the corporation, unless and only to the    
extent the Delaware Court of Chancery deems such indemnification fair and       
reasonable under the circumstances. The New Time Warner By-laws will provide    
that New Time Warner shall indemnify, to the fullest extent permitted by        
applicable law, any person who is or was a director or officer of New Time      
Warner for any liability and expense in connection with                         

182 

DEFM14A
187th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 187th
any threatened, pending or completed investigation, claim, action, suit or      
proceeding, whether civil or criminal, administrative or investigative          
(including, without limitation, any action, suit or proceeding by or in the     
right of New Time Warner to procure a judgment in its favor) by reason of the   
fact that such person is or was a director or officer of New Time Warner;       
provided, however, that no such indemnification will be available to such       
director or officer with respect to such a proceeding that was commenced by     
such director or officer unless such proceeding was commenced after a Change    
in Control (as defined therein).                                                

Under both Georgia and Delaware law, a corporation may adopt procedures for 
advancing expenses to directors and officers without a case-by-case             
determination of eligibility as long as any director or officer receiving an    
advance undertakes to repay the amounts advanced if it is ultimately            
determined that such director or officer was not entitled to be indemnified.    
The TBS By-Laws contain, and the New Time Warner By-laws will contain,          
provisions for advancing expenses.                                              

AMENDMENT OF CERTIFICATE OR ARTICLES OF INCORPORATION AND BY-LAWS               

Generally, the GBCC requires a majority vote of the outstanding shares of   
each voting group entitled to vote to amend the articles of incorporation of a  
Georgia corporation. Under Georgia law, shareholder action is generally not     
necessary to amend the by-laws, unless the articles of incorporation provide    
otherwise. The shareholders do, however, have the right to amend, repeal or     
adopt by-laws. Furthermore, the shareholders may restrict the right of the      
board of directors to amend, alter or repeal a particular bylaw. The TBS By-    
Laws expressly provide the TBS shareholders with the right to amend the TBS     
By-Laws. The TBS By-Laws may be altered, amended or repealed (a) by the         
affirmative vote of the holders of at least a majority of the voting power of   
TBS, (b) by a majority vote of the TBS Board at a regular or special meeting    
of the TBS Board, or (c) by the unanimous written consent of either all         
shareholders or all directors; provided, however, that during the Effective     
Period, neither the TBS By-Laws nor the TBS Articles may be amended unless      
authorized by (i) the affirmative vote of no less than twelve members of the    
TBS Board (not less than four of whom must be Class C Directors), or by         
unanimous written consent of the TBS Board, and (ii) with respect to certain    
amendments, the affirmative vote of the holders of a majority of the            
outstanding shares of TBS Class C Preferred Stock.                              

The DGCL also generally requires a majority vote of the outstanding shares  
entitled to vote to amend a Delaware corporation's certificate of               
incorporation, although the certificate of incorporation may require a          
greater-than-majority shareholder vote. Under New Time Warner's Charter, the    
alteration, amendment, repeal or adoption of any provision inconsistent with    
the provisions of the New Time Warner Charter relating to (a) the classified    
New Time Warner Board, (b) filling vacancies on the New Time Warner Board, (c)  
prohibiting stockholder action by written consent, (d) prohibitions on the      
calling of special meetings by New Time Warner stockholders, (e) approval of    
Business Combinations, (f) redemption of New Time Warner Capital Stock to       
preserve any license or franchise of New Time Warner, (g) limitation of the     
liability of directors and (h) amendments to the New Time Warner By-laws will   
require the affirmative vote of the holders of at least 80% in voting power of  
the then outstanding Voting Stock and, in the case of provisions of the New     
Time Warner Charter relating to Business Combinations, the affirmative vote of  
a majority of such voting power held by Disinterested Stockholders. The New     
Time Warner Board will have the power to adopt, alter, amend or repeal          
provisions of the New Time Warner By-laws by a majority vote of the entire New  
Time Warner Board at any meeting thereof, provided that such proposed action    
in respect thereof shall be stated in the notice of such meeting. Under the     
New Time Warner Charter, stockholders will have the power to adopt, alter,      
amend or repeal provisions of the New Time Warner By-laws by the affirmative    
vote of 80% in voting power of the outstanding Voting Stock.                    

DIVIDENDS                                                                       

The ability of TBS and New Time Warner to pay dividends is governed by      
different standards. Under the GBCC, TBS is permitted to pay dividends or make  
other distributions with respect to its stock unless, after giving effect to    
the dividend or other distribution, either TBS would not be able to pay its     
debts as they become due in the usual course of business, or TBS's total        
assets would be less than the sum of its total liabilities plus the amount      
that would be needed, if TBS were to be dissolved at the time of the dividend   
or other distribution, to                                                       

183 

DEFM14A
188th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 188th
satisfy the preferential rights upon dissolution of shareholders whose          
preferential rights are superior to those receiving the dividend or other       
distribution. The TBS Articles contain no provisions restricting dividends on   
TBS Common Stock, except (a) to the extent TBS preferred stock has preference   
as to dividends, (b) that no dividends can be paid on TBS Class A Common Stock  
unless the same dividend is paid on TBS Class B Common Stock, or vice versa     
(other than in-kind stock dividends) and (c) holders of TBS Class C Preferred   
Stock are entitled to receive all dividends (other than in-kind stock           
dividends) declared on TBS Class B Common Stock, as if the TBS Class C          
Preferred Stock had been converted into TBS Class B Common Stock.               

A Delaware corporation, unless otherwise restricted by its certificate of   
incorporation, may pay dividends out of surplus or, if no surplus exists, out   
of net profits for the fiscal year in which the dividend is declared and/or     
for the preceding fiscal year (but the directors may not declare and pay        
dividends out of such net profits if the capital of the corporation shall have  
diminished to an amount less than the aggregate amount of capital represented   
by the issued and outstanding stock of all classes having preference upon the   
distribution of assets). The New Time Warner Charter will contain no            
provisions restricting dividends on New Time Warner Common Stock, except to     
the extent New Time Warner Preferred Stock has preference as to dividends.      

SPECIAL MEETINGS                                                                

Under Georgia and Delaware law, special meetings of shareholders may be     
called by the board of directors or by such other persons as are authorized by  
the by-laws or articles or certificate of incorporation, as the case may be.    

The TBS By-Laws provide that special meetings of the shareholders may be    
called by the President of TBS, by a majority of the TBS Board or by the        
Secretary of TBS upon the request of holders owning 25% of the outstanding      
stock entitled to vote at such meeting, unless otherwise prescribed by law.     
The New Time Warner Charter will provide that a special meeting of the          
stockholders may be called only by a resolution approved by a majority of the   
entire New Time Warner Board or by the Chairman of the New Time Warner Board,   
the Chief Executive Officer or the President of New Time Warner. Stockholders   
of New Time Warner will not have the right to call special meetings.            

ACTION BY SHAREHOLDERS OR STOCKHOLDERS WITHOUT MEETING                          

The GBCC permits shareholders of a Georgia corporation to act without a     
meeting only by unanimous written consent of all shareholders entitled to vote  
on the action, unless otherwise provided by the articles of incorporation. The  
TBS Articles do not provide for action by the holders of the TBS Common Stock   
by less than unanimous written consent.                                         

The DGCL provides that, unless otherwise provided in the certificate of     
incorporation, stockholders of a Delaware corporation may take any action       
without a meeting by written consent signed by the holders of outstanding       
stock having not less than the minimum number of votes that would be necessary  
to authorize or take such action at a meeting at which all shares entitled to   
vote thereon were present and voted. Prompt notice of the taking of any action  
by less than unanimous consent must be given to stockholders who did not        
consent to such action. Under the New Time Warner Charter, any action           
permitted or required to be taken by the stockholders must be effected at a     
meeting of the stockholders, and may not be effected by written consent.        

SHAREHOLDER OR STOCKHOLDER PROPOSALS                                            

None of the GBCC, the TBS Articles or the TBS By-Laws provides TBS          
shareholders with the right to propose business at annual meetings of           
shareholders. The TBS By-Laws provide that at annual meetings of shareholders,  
the order of business shall be determined by the Chairman of the meeting. As    
permitted by the GBCC, the TBS By-Laws allow the holders of at least 25% of     
the outstanding stock entitled to vote on any issue to demand that TBS hold a   
special meeting for the purpose of voting on such issue.                        

The New Time Warner By-laws will require stockholders of New Time Warner to 
provide advance notice of proposals of business to be considered at the annual  
meeting of stockholders of New Time Warner, including                           

184 

DEFM14A
189th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 189th
the nomination of directors. With respect to special meetings of stockholders   
of New Time Warner (which New Time Warner stockholders will have no right to    
call), the New Time Warner By-laws will provide that only such business as is   
specified in the notice of any such meeting shall come before such meeting.     
See "--Special Meetings" above.                                                 

SHAREHOLDER OR STOCKHOLDER INSPECTION RIGHTS                                    

The GBCC provides that a shareholder, after giving advance notice, is       
entitled to inspect and copy, among other things, the corporation's articles    
of incorporation, by-laws, certain board of directors' and shareholders'        
resolutions, and minutes of shareholders' meetings by right, and, among other   
things, the corporation's minutes of board of directors' meetings and           
accounting records only if (a) its demand is made in good faith and for a       
proper purpose that is reasonably relevant to its legitimate interest as a      
shareholder, (b) it describes with reasonable particularity its purpose and     
the records it desires to inspect, (c) the records are directly connected with  
its purpose and (d) the records are to be used only for the stated purpose;     
provided, however, that the right to inspect the latter set of records may be   
limited by a corporation's articles of incorporation or by-laws for             
shareholders owning two percent or less of the corporation's outstanding        
shares. The TBS By-Laws provide that the TBS Board has the authority to so      
limit the inspection rights of shareholders owning two percent or less of the   
outstanding shares of TBS.                                                      

Under the DGCL, upon written demand under oath, any stockholder of record   
may inspect the stock ledger, a list of the stockholders and the other books    
and records of a corporation so long as such inspection is for a purpose        
reasonably related to such person's interest as a stockholder.                  

DISSENTERS' OR APPRAISAL RIGHTS                                                 

Subject to the exception provided below, under the GBCC, shareholders who   
comply with certain procedural requirements of the GBCC are entitled to assert  
dissenters' rights with respect to such shareholder's shares upon the merger    
of a corporation, the consummation of a plan of share exchange to which the     
corporation is the acquired party, the sale or other disposition of all or      
substantially all of the corporation's assets, an amendment of the articles of  
incorporation of the corporation that materially and adversely affects rights   
in respect of such shareholder's shares in ways specified in the GBCC, or any   
corporate action taken pursuant to a shareholder vote to the extent that the    
articles of incorporation, by-laws or a resolution of the board of directors    
of the corporation provides that shareholders are entitled to rights of         
appraisal. The TBS Articles do not currently provide for dissenters' rights in  
any situation other than those enumerated above. Unless the articles of         
incorporation or resolution of the board of directors of the corporation        
provides otherwise, however, holders of any class of shares which are listed    
on a "national securities exchange" or are held of record by more than 2,000    
shareholders are not entitled to assert dissenters' rights under Georgia law    
if the shareholder receives shares of the surviving corporation or another      
corporation whose shares are listed on a national securities exchange or are    
held of record by at least 2,000 shareholders. The TBS Board has, by            
resolution, granted dissenters' rights to the holders of TBS Common Stock with  
respect to the TBS Merger. See "The Transaction--Appraisal and Dissenters'      
Rights."                                                                        

Like the GBCC, the DGCL provides stockholders of a Delaware corporation with
appraisal rights in connection with mergers and consolidations generally, but   
does not provide appraisal rights for holders of any class or series of stock   
which, at the record date fixed to determine stockholders entitled to receive   
notice of and to vote at the meeting to act upon the agreement of merger or     
consolidation, were either (a) listed on a national securities exchange or      
designated as a national market security on an inter-dealer quotation system    
by the National Association of Securities Dealers, Inc., or (b) held of record  
by more than 2,000 stockholders, so long as, in either case, such stockholders  
are not required by the terms of the agreement of merger or consolidation to    
receive as consideration in such merger or consolidation anything other than    
shares of stock of the surviving corporation or another corporation whose       
shares are so listed or designated or held of record by more than 2,000         
stockholders. In addition, the DGCL does not provide appraisal rights for       
stockholders of the surviving corporation, or for stockholders of the subject   
corporation, as applicable, for mergers for which the DGCL does not require     
stockholder approval described under "--Certain Voting Rights" above.           

185 

DEFM14A
190th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 190th
CERTAIN BUSINESS RELATIONSHIPS  

During 1995, TBS recorded subscription fees from Time Warner and TCI and    
their respective affiliates for their receipt of CNN, TNT, Headline News, the   
Cartoon Network and TCM and certain international networks, before deductions   
for advertising allowances, as follows: Time Warner--$96,184,000; and TCI--     
$165,273,000. These amounts constituted approximately 13% and 22%,              
respectively, of TBS's total subscription fees recorded during 1995.            
Advertising revenues received by TBS during 1995 were also indirectly           
dependent on cable television systems operated by Time Warner and TCI or their  
respective affiliates since subscribers to those systems, in the aggregate,     
constituted approximately 40%, 41%, 41%, 42% and 31% of the cable audience      
coverage for TBS Superstation, TNT, CNN, Headline News and the Cartoon          
Network, respectively.                                                          

Warner Home Video ("WHV"), a former subsidiary of Time Warner and now a     
division of TWE, is the distributor in the home video market of most MGM and    
pre-1950 Warner Bros. films in the TEC Library, both domestically and           
internationally, and certain RKO films internationally. The related             
distribution agreement (the "Home Video Agreement") provides for a fifteen-     
year term commencing June 6, 1986 with distribution fees payable based          
primarily on the suggested retail price of the films sold. During 1995, TBS     
paid an aggregate of $54,441,000 to WHV, which amount included reimbursement    
of distribution expenses payable by TBS and a distribution fee payable to WHV.  

Time Warner and its subsidiaries have entered into license agreements with  
TBS pursuant to which TBS has acquired broadcast rights to certain television   
and theatrical product. TBS paid an aggregate of approximately $18,236,000 for  
license fees during 1995 under these agreements and, as of December 31, 1995,   
was committed to pay $59,946,000 through 2001 under these agreements. Time      
Warner also has an investment in n-tv, a 24-hour German language news channel   
in which TBS owned a 33.1% limited partnership interest as of December 31,      
1995.                                                                           

In February 1989, TBS entered into a joint venture arrangement with Home Box
Office to purchase satellite transponders. The joint venture is structured so   
that the purchased transponders are allocated by agreement between TBS and      
Home Box Office, and TBS's obligations are limited solely to those              
transponders and ancillary service arrangements which are to be allocated to    
and used by TBS and its subsidiaries.                                           

Pursuant to a lease agreement entered into in 1992 relating to a satellite  
transponder, TBS recorded revenue from LMC of $1,824,000 in 1995. LMC is        
committed to pay approximately $8,816,000 through 2000 under such lease.        

Pursuant to an agreement entered into in between New Line and Encore Media  
Corporation ("Encore"), New Line has agreed to supply, on an exclusive basis,   
a maximum of 16 feature films per year for exhibition on Starz!, a premium      
cable programming service, or other pay television services owned or operated   
by Encore. LMC has a 90% interest in Encore. For the year ended December 31,    
1995, New Line recorded revenue from Encore of $42,198,000 pursuant to such     
agreement. In September 1995, such agreement was amended to provide for an      
extension of the agreement through December 31, 2005 and the inclusion of up    
to three films from New Line's Fine Line division per year as of 1996           
(increasing annually to ten films per year as of 1998) and up to two films      
from Turner Pictures per year as of 1996 (increasing annually to ten films per  
year as of 2004) in addition to the 16 New Line films per year throughout the   
extended term.                                                                  

In addition to the New Line Agreement, Encore has entered into certain other
license agreements with TBS and certain of its other subsidiaries pursuant to   
which Encore has acquired broadcast rights to certain television and            
theatrical product owned by TBS. TBS recorded revenue under these agreements    
of approximately $1,820,000 in 1995.                                            

TBS and its subsidiaries have licensed the pay television broadcast rights  
to certain of TBS's programming to other pay television services owned or       
operated by Time Warner and TCI. In 1995, TBS recorded aggregate revenue from   
such licensing arrangements of approximately $18,583,000.                       

In connection with the advertising and promotion of its cable services in   
1995, TBS purchased advertising space in certain of the magazines that are      
published by Time Warner. TBS recorded expenses in connection with those        
purchases in 1995 of approximately $3,722,000. TBS recorded advertising         
revenues in 1995 of approximately $5,306,000 for advertising placed on TBS's    
services by Time Warner and its subsidiaries.                                   

186 

DEFM14A
191st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 191st
SIGNIFICANT LEGISLATION AND REGULATION  
APPLICABLE TO BROADCASTING AND CABLE TELEVISION SERVICES  

Television broadcasting and cable television are subject to the jurisdiction
of the FCC under the Communications Act. The Communications Act empowers the    
FCC to adopt such regulations as may be necessary to carry out the provisions   
of the Communications Act and to impose certain penalties for violation of its  
regulations. The Telecommunications Act, which substantially amends the         
Communications Act, was enacted on February 8, 1996. Set forth below is a       
general description of some of the principal areas of FCC regulation of the     
broadcast and cable television industries and some of the possible effects      
thereon of the Telecommunications Act.                                          

ALIEN OWNERSHIP                                                                 

The Communications Act prohibits a broadcast licensee (as well as certain   
other FCC licensees, but not operators of cable systems) from being organized   
under the laws of a foreign country or having more than 20% of its capital      
stock owned or voted (directly or indirectly) by foreign nationals, foreign     
governments or by corporations organized under the laws of a foreign country.   
A company that directly or indirectly controls a subsidiary licensee may not    
be organized under the laws of a foreign country or may not have more than 25%  
of its capital stock owned or voted (directly or indirectly) by foreign         
nationals, foreign governments or by corporations organized under the laws of   
a foreign country, if the FCC finds that the public interest would be served    
by the refusal of a license to such subsidiary. Time Warner and TBS are now,    
and upon the consummation of the Mergers, New Time Warner is expected to be in  
compliance with these restrictions.                                             

BROADCAST LICENSE RENEWAL                                                       

Broadcast stations must seek renewal of their licenses from the FCC at the  
end of each license term. The Telecommunications Act authorizes the FCC to      
extend television license terms to eight years from current terms of five       
years. The FCC has initiated a rulemaking proceeding which proposes to          
implement such eight-year terms for television stations commencing with their   
next renewal application. The Telecommunications Act directs the FCC to grant   
renewal of a broadcast license if it finds that the station has served the      
public interest, convenience, and necessity and that there have been no         
serious violations (or other violations which would constitute a "pattern of    
abuse") by the licensee of the Communications Act or FCC rules. If the FCC      
finds that a licensee has failed to meet these standards, and there are not     
sufficient mitigating factors, it may deny renewal or condition renewal         
appropriately, including renewing for less than a full term. Any other party    
with standing may petition the FCC to deny a broadcaster's application for      
renewal. However, only if the FCC issues an order denying renewal will it       
accept and consider applications from other parties for a construction permit   
for a new station to operate on the channel subject to such denial. The FCC     
may not consider any such applicant in making determinations concerning the     
grant or denial of the licensee's renewal application. The license for WTBS     
was most recently renewed on April 1, 1992. There were no petitions to deny or  
mutually exclusive applications filed in connection with such renewal.          

OWNERSHIP                                                                       

The Communications Act and the FCC's rules restrict ownership of            
"attributable interests" in broadcast licensees and cable television systems    
on both the national and local level. Generally, ownership is attributed to     
officers, directors and shareholders who own more than 5% of the outstanding    
voting stock of a licensee or cable operator (except for certain institutional  
shareholders who may own up to 10%). A single entity is now restricted as to    
the percentage of the national audience that it may reach from all television   
stations in which it holds attributable interests. The Telecommunications Act   
eliminates a prior FCC restriction on the number of television stations in      
which an entity may hold an attributable interest and raises the national       
audience limit from 25 percent to 35 percent of the national television         
audience. In addition, the FCC restricts the percentage of homes passed         
nationwide by cable systems in which any entity holds a common attributable     
interest. This latter rule is currently in abeyance pending an appeal to the    
U.S. Court of Appeals for the D.C. Circuit of a lower court decision holding    
the statutory provision underlying such rule unconstitutional. As required by   
the Telecommunications Act, the FCC has eliminated its previous limitations on  
the common ownership or control of a national broadcast network and a cable     
system, subject to possible new FCC regulations in the future to ensure         
nondiscriminatory treatment of nonaffiliated television stations by any such    
cable systems/national broadcast network combination.                           

187 

DEFM14A
192nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 192nd
The Telecommunications Act eliminates the statutory prohibition on the      
common ownership or control of cable systems and local television broadcast     
stations with overlapping service contours. A parallel prohibition in the FCC   
rules remains, however, pending FCC review. The Grade B service contour of      
WTBS overlaps the service area of a cable system owned by Time Warner in the    
Atlanta, Georgia area. Time Warner has requested a temporary waiver from the    
FCC for a limited period to allow for the divestiture of the cable system at    
issue. In addition, the Telecommunications Act requires the FCC to conduct a    
rulemaking to determine whether to retain, modify or eliminate existing         
restrictions on the number of television stations in which one entity may hold  
an attributable interest in a given market. The Telecommunications Act also     
affects other FCC local ownership restrictions.                                 

Pursuant to the Telecommunications Act, the FCC must review all of its      
ownership rules biennially, and repeal or modify any regulation it deems to be  
no longer in the public interest.                                               

Apart from the Telecommunications Act, the FCC is currently engaged in an   
extensive review of its attribution rules and its broadcast ownership rules.    
While the FCC has tentatively suggested that it might relax some of its         
ownership restrictions, it also has intimated that certain of its attribution   
rules might be modified, such that certain ownership interests that currently   
are not attributable would become attributable. Time Warner cannot predict      
what impact such revisions, if adopted, will have on the operations of New      
Time Warner or its subsidiaries if the Mergers are consummated.                 

ADVANCED TELEVISION SERVICES                                                    

The Telecommunications Act requires the FCC to adopt certain requirements   
with respect to the implementation of advanced television services ("ATV"),     
which will employ digital or other advanced technology. For example, if an      
additional ATV license is issued to an existing broadcast licensee to permit    
additional use of the spectrum, that grant must be conditioned upon the         
ultimate surrender of one of those licenses. In addition, various members of    
Congress have expressed an interest in continuing to explore issues related to  
the license of additional use of the spectrum for ATV services. It is possible  
that Congress will ultimately subject the award of such use of the spectrum to  
competitive bidding. In May 1996, as part of an ongoing proceeding, the FCC     
proposed to mandate a specific ATV technological standard.                      

VERTICAL INTEGRATION RULE                                                       

The FCC has adopted rules which, with certain exceptions, preclude a cable  
television system from devoting more than 40% of its activated channels to      
national video programming services in which the entity which owns the cable    
television system has an attributable interest. Because of Time Warner's pre-   
existing interest in TBS, the cable programming services owned and operated by  
TBS have already been factored into Time Warner's compliance with this rule.    
Thus, the Transaction will not further implicate this rule.                     

LEGISLATIVE REFORMS                                                             

The Telecommunications Act and FCC rules implementing it could affect       
whatever decision the FCC may make with respect to the FCC Application (see     
"The Transaction--Regulatory Approvals--FCC Approval Process") in additional    
respects not described herein. Neither Time Warner nor TBS can predict the      
impact of any telecommunications legislation on the FCC approval process        
relating to the                                                                 
FCC Application or on the operations of New Time Warner and its subsidiaries    
following consummation of the Mergers. However, the Telecommunications Act is   
expected to affect the operations of Time Warner in the following areas, in     
addition to those described above.                                              

Cable Television. The Telecommunications Act deregulates the rates charged  
by larger multiple system operators such as Time Warner for tiers of cable      
programming service ("CPS") (generally, optional packages of satellite-         
delivered programming, over and above the basic tier which contains over-the-   
air broadcast signals) as of March 31, 1999. Prior to such CPS rate             
deregulation, individual subscribers may not initiate CPS rate complaint        
proceedings directly with the FCC. Rather, only the local franchising           
authority or state cable regulatory body may do so upon receipt of complaints   
filed by more than one subscriber from that community.                          

188 

DEFM14A
193rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 193rd
Moreover, the Telecommunications Act adds a new alternate test to the           
"effective competition" definition, whereby CPS rates would be deregulated as   
soon as a telephone company, or other multichannel video program provider       
using the telephone company's facilities, begins to offer comparable video      
programming by any means, such as open video systems, franchised cable or       
wireless cable (but not direct broadcast satellite), regardless of market       
penetration. Under the prior law, effective competition is deemed present only  
if (a) fewer than 30 percent of the households in the franchise area subscribe  
to the cable system or (b)(i) the cable system faces competition from a         
multichannel video programming distributor which offers comparable programming  
to at least 50 percent of the households served by the cable operator and (ii)  
at least 15 percent of the households in the franchise area subscribe to        
competing providers.                                                            

Telephone Competition. The Telecommunications Act creates opportunities for 
cable television operators and other entities to compete with incumbent local   
exchange carriers ("LECs") in the provision of local telecommunications         
services, including local exchange telephone service. The Telecommunications    
Act preempts the states from erecting or maintaining barriers to entry which    
restrict local telephone competition. The Telecommunications Act also           
establishes a general obligation for telecommunications providers to            
interconnect their networks with those of other telecommunications providers.   
LECs may not prohibit, nor may they impose unreasonable conditions or           
limitations on, the resale of their services. Under the Telecommunications      
Act, LECs must provide, "to the extent technically feasible," the opportunity   
for consumers to retain their telephone numbers when changing local service     
providers. LECs will be required to provide dialing parity to competing         
providers, so a customer can place calls using a competitor's services by       
dialing the same number of digits as would be required using the LEC's          
services. In addition, LECs will be required to afford access to their poles,   
ducts, conduits and rights-of-way to competitors on rates, terms and            
conditions subject to regulation by the FCC or the states. LECs and             
competitors will also be required to establish reciprocal compensation          
arrangements for terminating calls over their networks originated by the        
other. Finally, LECs will be required to make available to competitors public   
switched network technology, information and telecommunications facilities and  
functions as necessary to enable the competitor to provide telecommunications   
services or access to information services. The                                 
Telecommunications Act, with limited exceptions, also prohibits an LEC and a    
cable operator within the same service area from acquiring more than a 10%      
interest in each other or forming a joint venture to provide cable or           
telephone service in that area.                                                 

The information contained under this heading does not purport to be a       
complete summary of all the provisions of the Communications Act, the FCC       
rules thereunder, the Telecommunications Act or of pending proposals in FCC     
rulemaking proceedings or for other legislation regarding the regulation of     
broadcasting and cable television. For a complete statement of such             
provisions, reference is made to the Communications Act, the FCC Rules, the     
Telecommunications Act and such pending proposals.                              

LEGAL MATTERS 

The validity of the New Time Warner Common Stock and the New Time Warner    
Preferred Stock to be issued in connection with the Transaction will be passed  
upon by Cravath, Swaine & Moore.                                                

Cravath, Swaine & Moore, counsel for Time Warner, and Skadden, Arps, Slate, 
Meagher & Flom, counsel for TBS, will pass on certain Federal income tax        
consequences of the Transaction for Time Warner and TBS, respectively.          

EXPERTS 

The consolidated financial statements of Time Warner and TWE appearing in   
the Time Warner Form 10-K, and the combined financial statements of the Time    
Warner Service Partnerships incorporated by reference therein, have been        
audited by Ernst & Young LLP, independent auditors, as set forth in their       
reports thereon set forth therein and incorporated herein by reference. Such    
financial statements have been incorporated herein by reference in reliance     
upon such reports given upon the authority of such firm as experts in           
accounting and auditing.                                                        

189 

DEFM14A
194th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 194th
The financial statements of TBS as of December 31, 1994 and 1995, and for   
the three years ended December 31, 1995, incorporated by reference in this      
Joint Proxy Statement/Prospectus, have been audited by Price Waterhouse LLP,    
independent accountants, as set forth in their report thereon and incorporated  
herein by reference. Such financial statements are incorporated herein by       
reference in reliance upon such report given upon the authority of such firm    
as experts in accounting and auditing.                                          

The financial statements of Newhouse Broadcasting Cable Division of Newhouse
Broadcasting Corporation and subsidiaries as of July 31, 1993 and 1994, and     
for the three years ended July 31, 1994, incorporated by reference in this      
Joint Proxy Statement/Prospectus, have been audited by Ernst & Young LLP,       
independent auditors, as set forth in their report thereon and incorporated     
herein by reference. Such financial statements are incorporated herein by       
reference in reliance upon such report given upon the authority of such firm    
as experts in accounting and auditing.                                          

The financial statements of Vision Cable Division of Vision Cable           
Communications, Inc. and subsidiaries as of December 31, 1993 and 1994, and     
for the three years ended December 31, 1994, incorporated by reference in this  
Joint Proxy Statement/Prospectus, have been audited by Ernst & Young LLP,       
independent auditors, as set forth in their report thereon and incorporated     
herein by reference. Such financial statements are incorporated herein by       
reference in reliance upon such report given upon the authority of such firm    
as experts in accounting and auditing.                                          

The financial statements of Cablevision Industries Corporation as of        
December 31, 1994, and for the three years ended December 31, 1994,             
incorporated by reference in this Joint Proxy Statement/Prospectus, have been   
audited by Arthur Andersen LLP, independent public accountants, as set forth    
in their report thereon and incorporated herein by reference. Such financial    
statements are incorporated herein by reference in reliance upon such report    
given upon the authority of such firm as experts in accounting and auditing.    

The financial statements of KBLCOM as of December 31, 1994, and for the two 
years ended December 31, 1994, incorporated by reference in this Joint Proxy    
Statement/Prospectus, have been audited by Deloitte & Touche LLP, independent   
auditors, as set forth in their report thereon and incorporated herein by       
reference. Such financial statements are incorporated herein by reference in    
reliance upon such report given upon the authority of such firm as experts in   
accounting and auditing.                                                        

The financial statements of Paragon as of December 31, 1993 and 1994, and   
for the three years ended December 31, 1994, incorporated by reference in this  
Joint Proxy Statement/Prospectus, have been audited by Price Waterhouse LLP,    
independent accountants, as set forth in their report thereon and incorporated  
herein by reference. Such financial statements are incorporated herein by       
reference in reliance upon such report given upon the authority of such firm    
as experts in accounting and auditing.                                          

It is expected that representatives of Ernst & Young LLP, Time Warner's     
independent auditors, will be present at the Time Warner Meeting and            
representatives of Price Waterhouse LLP, TBS's independent accountants, will    
be present at the TBS Meeting where they will have an opportunity to respond    
to appropriate questions of stockholders and to make a statement if they so     
desire.                                                                         

STOCKHOLDER PROPOSALS 

The date by which proposals of stockholders of Time Warner must be submitted
to Time Warner in order to be included in Time Warner's proxy materials for     
the next annual meeting of Time Warner stockholders is December 2, 1996. If     
the date of such annual meeting is advanced or delayed, Time Warner will        
comply with any applicable provision concerning submission of stockholder       
proposals under Regulation 14A under the Exchange Act and the Time Warner By-   
laws.                                                                           

The date by which proposals of shareholders of TBS must be submitted to TBS 
in order to be included in TBS's proxy materials for the next annual meeting    
of TBS shareholders is January 3, 1997. If the date of such annual meeting is   
advanced or delayed, TBS will comply with any applicable provision concerning   
submission of shareholder proposals under Regulation 14A under the Exchange     
Act.                                                                            

190 

DEFM14A
195th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 195th
If the Mergers are consummated, the first annual meeting of the public      
stockholders of New Time Warner after such consummation is expected to be held  
on or about May 15, 1997. If any New Time Warner stockholder intends to         
present a proposal at such New Time Warner annual meeting and wishes to have    
such proposal considered for inclusion in the proxy materials for such          
meeting, such holder must submit the proposal to the Secretary of New Time      
Warner in writing so as to be received at the executive offices of New Time     
Warner by December 2, 1996. Such proposals must also meet the other             
requirements of the rules of the Commission relating to stockholders'           
proposals. In addition, the New Time Warner By-laws will establish an advance   
notice procedure with regard to certain matters, including stockholder          
proposals not included in New Time Warner's proxy statement, to be brought      
before an annual meeting of stockholders. In general, notice must be received   
by the Secretary of New Time Warner not less than 70 days nor more than 90      
days prior to the anniversary date of the immediately preceding annual meeting  
and must contain specified information concerning the matters to be brought     
before such meeting and concerning the stockholder proposing such matters. If   
the date of the annual meeting is more than 30 days earlier or more than 60     
days later than such anniversary date, notice must be received not earlier      
than the 90th day prior to such annual meeting and not later than the close of  
business on the later of the 70th day prior to such annual meeting or the 10th  
day following the day on which public announcement of the date of such meeting  
is first made. If a stockholder who has notified New Time Warner of his         
intention to present a proposal at an annual meeting does not appear or send a  
qualified representative to present his proposal at such meeting, New Time      
Warner need not present the proposal for a vote at such meeting. If the date    
of such annual meeting is advanced or delayed, New Time Warner will comply      
with any applicable provision concerning submission of stockholder proposals    
under Regulation 14A under the Exchange Act and the New Time Warner By-laws.    

----------------  

The following information is being disclosed pursuant to Florida law and is 
accurate as of the date hereof: A subsidiary of Warner Communications Inc.      
pays royalties to Artex, S.A., a corporation organized under the laws of Cuba,  
in connection with the distribution in the United States of certain Cuban       
musical recordings. Current information concerning this matter may be obtained  
from the State of Florida Department of Banking & Finance, The Capital,         
Tallahassee, Florida 32399-0350, 904-488-9805.                                  

191 

DEFM14A
196th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 196th
                                                                      SCHEDULE 1

INDEX AND GLOSSARY OF DEFINED TERMS 

                                                                [Download Table]

INDEX OF DEFINED TERMS                                                      PAGE
----------------------                                                      ----
                                                                                
1995 Convertible Debt Refinancing.......................................... 110 
1996 Convertible Debt Refinancing.......................................... 110 
1996 Proxy Statement for Time Warner....................................... 123 
Acquiring Person........................................................... 104 
Admission Agreement........................................................  78 
Advance/Newhouse........................................................... 111 
Agreement Restricting Activities........................................... 102 
AMEX.......................................................................   3 
announcement date.......................................................... 136 
Appraisal Proceeding.......................................................  85 
Appraisal Shares...........................................................  81 
Approved Matters...........................................................  90 
ATC........................................................................  22 
ATV........................................................................ 188 
Bank Refinancing........................................................... 111 
BET........................................................................  52 
Budgets....................................................................  34 
Cable Acquisitions......................................................... 111 
Cable Comparables..........................................................  63 
Cable/Entertainment Index..................................................  50 
Cable Operators............................................................  33 
Cablevision Systems........................................................  50 
Capital Cities.............................................................  52 
Capital City...............................................................  38 
Capital City Consulting Agreement..........................................  72 
Castle Rock................................................................   9 
CBS........................................................................  52 
Change of Control.......................................................... 136 
Change of Control Date..................................................... 136 
Charitable Transferee...................................................... 106 
Class C Directors..........................................................  34 
Class C Premium............................................................  57 
Closing....................................................................  88 
Closing Date...............................................................  88 
CNN........................................................................  12 
CNNfn......................................................................  12 
CNNI.......................................................................  12 
Code.......................................................................  69 
Columbia...................................................................  52 
Comcast....................................................................  39 
Commission.................................................................   3 
Common Stock Directors.....................................................  34 
Communications Act.........................................................  20 
Comparable Companies.......................................................  56 
Comparable Transactions....................................................  56 
Compensation Committee.....................................................  66 
Competing Business......................................................... 102 

i 

DEFM14A
197th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 197th
                                                                [Download Table]

INDEX OF DEFINED TERMS                                                      PAGE
----------------------                                                      ----
                                                                                
Competing Person........................................................... 102 
Consent Decree.............................................................  73 
Continental................................................................  33 
Contributed Capital........................................................ 163 
Contribution and Exchange Agreement........................................  10 
Contribution Election...................................................... 101 
Conversion Date............................................................ 135 
Conversion Period.......................................................... 147 
Converting Holder.......................................................... 135 
Convertible Debt Refinancings.............................................. 110 
Court......................................................................  85 
Covered New Time Warner Common Stock....................................... 107 
Covered Securities......................................................... 108 
Covered TW Securities......................................................  99 
Cox........................................................................  50 
CPS........................................................................ 188 
CS First Boston............................................................  15 
CS First Boston Opinion....................................................  54 
CSFB Engagement Letter.....................................................  72 
Cumulative Priority Capital................................................ 163 
current market price....................................................... 154 
CVI........................................................................  22 
CVI Acquisition............................................................ 110 
Debt Refinancings.......................................................... 111 
DGCL.......................................................................  13 
Disinterested Director..................................................... 179 
Disinterested Stockholder.................................................. 179 
Disney.....................................................................  45 
Dissenters' Notice.........................................................  84 
Dissenting Shares..........................................................  84 
Dissenting TBS Holder......................................................  84 
Dissenting TBS Holder Demand...............................................  85 
Distribution Contract......................................................   8 
Distribution Date.......................................................... 127 
EBITDA.....................................................................  50 
Effective Date............................................................. 140 
Effective Period........................................................... 180 
Effective Time of the Mergers..............................................  88 
Eligible Person............................................................ 106 
Encore..................................................................... 186 
Entertainment Comparables..................................................  63 
Exchange Act...............................................................   3 
Exchange Ratio.............................................................  48 
Excluded Holder............................................................ 178 
Existing Rights Agreement..................................................   2 
Expiration Date............................................................ 127 
Fair Value.................................................................  84 
Family Members............................................................. 106 
FCC........................................................................  19 
FCC Application............................................................  74 
February 1996 Redemption................................................... 110 
Final Redemption Date...................................................... 160 
First Refusal Right........................................................ 108 

ii

DEFM14A
198th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 198th
                                                                [Download Table]

INDEX OF DEFINED TERMS                                                      PAGE
----------------------                                                      ----
                                                                                
Five-Year Exercise Right...................................................  68 
FTC........................................................................   9 
FTC Consent Decree.........................................................   9 
Gaylord....................................................................  52 
GBCC.......................................................................   7 
Georgia Business Combination Statute....................................... 177 
Georgia Fair Price Statute................................................. 177 
Gerry Companies............................................................ 110 
Grade B Service Contour....................................................  75 
Group......................................................................  36 
Hasbro LYONs...............................................................  87 
HB Joint Venture...........................................................  25 
highest price.............................................................. 136 
Home Box Office............................................................  65 
Home Video Agreement....................................................... 186 
homes passed...............................................................  75 
HSN........................................................................  61 
HSR Act....................................................................  19 
Included Tax Distributions................................................. 163 
Initial Award..............................................................  67 
Initial Shares............................................................. 107 
Insolvency Redemption Amount............................................... 163 
interested director........................................................  35 
interested shareholder..................................................... 177 
Interested Stockholder..................................................... 179 
International Family.......................................................  52 
Investor................................................................... 105 
Investors' Agreement (No. 1)...............................................  10 
Investors' Agreement (No. 2)............................................... 107 
IRS........................................................................  37 
ITOCHU.....................................................................  22 
ITOCHU/Toshiba Transaction................................................. 111 
January 1996 Debentures.................................................... 110 
Junior Stock............................................................... 164 
KBLCOM.....................................................................  22 
KBLCOM Acquisition......................................................... 111 
LECs....................................................................... 189 
Letter Ruling..............................................................  76 
Liberty Party..............................................................  99 
LMC........................................................................   7 
LMC Agreement..............................................................   7 
LMC Common Stock...........................................................   8 
LMC Demand Registration.................................................... 109 
LMC Holders................................................................ 109 
LMC Non-competition Covenant...............................................   8 
LMC Reduced Voting Common Stock............................................   8 
LMC Registrable Shares..................................................... 109 
LMC Registration Rights Agreement..........................................  10 
LMC Series Common Stock....................................................   8 
LSSI....................................................................... 101 
Lump Sum Payment...........................................................  66 

iii 

DEFM14A
199th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 199th
                                                                [Download Table]

INDEX OF DEFINED TERMS                                                      PAGE
----------------------                                                      ----
                                                                                
Mandatory Redemption Amount................................................ 164 
Mandatory Redemption Price................................................. 164 
Material Transaction.......................................................  91 
Matsushita.................................................................  38 
Maximum Premium............................................................  68 
MC Group Consulting Agreement..............................................  73 
MCA........................................................................  38 
Merger Agreement...........................................................   1 
Mergers....................................................................   2 
Merrill Lynch..............................................................  15 
Merrill Lynch Engagement Letter............................................  72 
Merrill Lynch Opinion......................................................  57 
MGM........................................................................  56 
Moody's.................................................................... 164 
Morgan Stanley.............................................................  13 
Morgan Stanley Engagement Letter...........................................  73 
Morgan Stanley Opinion.....................................................  48 
MSG Assets.................................................................  52 
MVPD.......................................................................   9 
Net Partnership Value...................................................... 101 
Net Value..................................................................  68 
New Credit Agreement....................................................... 111 
New Line...................................................................   9 
News Corp..................................................................  45 
New Time Warner............................................................   1 
New Time Warner Board......................................................  10 
New Time Warner By-laws....................................................  90 
New Time Warner Capital Stock..............................................   2 
New Time Warner Charter....................................................   8 
New Time Warner Common Stock...............................................   2 
New Time Warner Preferred Stock............................................   2 
New Time Warner Right......................................................   2 
New Time Warner Rights Agreement...........................................   2 
New Time Warner Series A Preferred Stock................................... 125 
New Time Warner Series Common Stock........................................   8 
New Time Warner Series D Preferred Stock................................... 125 
New Time Warner Series E Preferred Stock................................... 125 
New Time Warner Series F Preferred Stock................................... 125 
New Time Warner Series G Preferred Stock................................... 125 
New Time Warner Series H Preferred Stock................................... 125 
New Time Warner Series I Preferred Stock................................... 125 
New Time Warner Series J Preferred Stock................................... 125 
New Time Warner Series M Preferred Stock................................... 125 
New Time Warner Series L Preferred Stock................................... 125 
New Time Warner Value......................................................  59 
Notice of Intent...........................................................  84 
NYSE.......................................................................   3 
OCF........................................................................  62 
Offer of Payment...........................................................  85 
Offer Value Percentage.....................................................  59 
Options....................................................................  67 

iv

DEFM14A
200th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 200th
                                                                [Download Table]

INDEX OF DEFINED TERMS                                                      PAGE
----------------------                                                      ----
                                                                                
Original Morgan Stanley Opinion............................................  48 
Other Stockholder.......................................................... 108 
Ownership Limitations......................................................  91 
Paragon....................................................................  24 
Paramount..................................................................  52 
Parity Stock............................................................... 164 
PERCS...................................................................... 110 
Permitted Other Holder.....................................................  87 
Permitted Transferee....................................................... 106 
Per Share Premium Percentage...............................................  60 
Preferred Trust Securities................................................. 110 
Prior TCI Arrangements.....................................................  38 
Private Per Share Premium..................................................  61 
Private Premium Transaction................................................  61 
Pro Rata Percentage........................................................ 164 
Pro Rata Portion........................................................... 140 
Pro Rata Repurchase........................................................ 140 
Program Agreement..........................................................   9 
Prohibited Effect..........................................................  99 
Prohibited Turner Effect...................................................  35 
PPV Output Agreement.......................................................   9 
PSE........................................................................   3 
Public Per Share Premium...................................................  61 
Public Premium Target......................................................  60 
Public Premium Transaction.................................................  60 
Public Programming Companies...............................................  63 
Purchase Price............................................................. 127 
Qualified Stockholder...................................................... 106 
Qualified Trust............................................................ 106 
QVC........................................................................  52 
Rating Confirmation........................................................ 164 
Real Estate/Sports Segment.................................................  50 
Redeemable Number.......................................................... 164 
redemption premium.........................................................  70 
Redemption Price........................................................... 129 
Redemption Recission Event................................................. 139 
Registrable Shares......................................................... 108 
Registration Statement.....................................................   3 
Reorganization of TWE...................................................... 165 
Reorganization Redemption Price............................................ 165 
Reset Notes................................................................ 111 
Reset Notes Refinancing.................................................... 111 
Restriction Period.........................................................  99 
Right of First Refusal Agreement...........................................  10 
Rights.....................................................................  88 
Rights Amendment...........................................................  10 
Rights Certificates........................................................ 127 
S&P........................................................................ 164 
Seagram....................................................................  52 
Second Amended Complaint...................................................  79 
Section 262................................................................  81 

v 

DEFM14A
201st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 201st
                                                                [Download Table]

INDEX OF DEFINED TERMS                                                      PAGE
----------------------                                                      ----
                                                                                
Securities Act.............................................................   3 
September 1995 Redemption.................................................. 110 
September 22 Analyses......................................................  57 
Series B Redemption ....................................................... 165 
Series D Accrued Dividend Amount........................................... 134 
Series D Conversion Price.................................................. 134 
Series D Conversion Rate................................................... 134 
Series D Dividend Payment Date............................................. 132 
Series D Exchange Price.................................................... 138 
Series D Net Dividend Amount............................................... 134 
Series D Record Date....................................................... 132 
Series D Redemption Price.................................................. 138 
Series E Accrued Dividend Amount........................................... 143 
Series E Conversion Price.................................................. 142 
Series E Conversion Rate................................................... 142 
Series F Accrued Dividend Amount........................................... 145 
Series F Conversion Price.................................................. 145 
Series F Conversion Rate................................................... 144 
Series J Conversion Price.................................................. 151 
Series J Conversion Rate................................................... 151 
Series J Dividend Payment Date............................................. 149 
Series J Record Date....................................................... 149 
Series J Redemption Price.................................................. 155 
Series K Refinancing....................................................... 110 
Series L Debentures........................................................ 167 
Series M Change of Control................................................. 165 
Series M Dividend Payment Date............................................. 159 
Series M Mandatory Redemption Date......................................... 160 
Series M Record Date....................................................... 159 
Silver King................................................................  61 
Six Flags..................................................................  24 
Six Flags Transaction...................................................... 111 
Sony.......................................................................  52 
Special Meetings...........................................................   1 
Special Voting Rights......................................................  34 
Specified Adjustment.......................................................  51 
SpinCo Party...............................................................  99 
SportSouth.................................................................   9 
SportSouth Agreement.......................................................   9 
SportSouth Region.......................................................... 102 
SSSI.......................................................................   8 
SSSI Option................................................................   8 
SSSI Agreement.............................................................   8 
SSSI Agreement Consideration...............................................  48 
Studios....................................................................  51 
subject person............................................................. 104 
Subject Shares............................................................. 108 
Subject Stockholder........................................................ 108 
Summit.....................................................................  22 
Summit Acquisition......................................................... 111 
Sunshine Option............................................................   9 
Sunshine Option Agreement..................................................   9 
Support Agreement..........................................................   7 

vi

DEFM14A
202nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 202nd
                                                                [Download Table]

INDEX OF DEFINED TERMS                                                      PAGE
----------------------                                                      ----
                                                                                
Takeover Proposal..........................................................  91 
Tax Distributions.......................................................... 166 
TBS........................................................................   1 
TBS 1995 Forecast..........................................................  50 
TBS 1996 Forecast..........................................................  50 
TBS 1996 Budget............................................................  50 
TBS Articles...............................................................   7 
TBS Board..................................................................   1 
TBS By-Laws................................................................  34 
TBS Capital Stock..........................................................   1 
TBS Class A Common Stock...................................................   1 
TBS Class B Common Stock...................................................   1 
TBS Class B Preferred Stock................................................  33 
TBS Class C Preferred Stock................................................   1 
TBS Common Stock...........................................................   1 
TBS Convertible Securities.................................................  35 
TBS Form 8-Ks..............................................................   4 
TBS Form 10-K..............................................................   4 
TBS Form 10-Qs.............................................................   4 
TBS Investors' Agreement...................................................  35 
TBS LYONs..................................................................  17 
TBS LYONs Indenture........................................................  87 
TBS Meeting................................................................   1 
TBS Merger.................................................................   2 
TBS Merger Approval........................................................  31 
TBS Merger Corp............................................................   1 
TBS Merger Proposal........................................................   1 
TBS Officers...............................................................  68 
TBS Record Date............................................................  14 
TBS Reports................................................................   4 
TBS Shareholders' Agreement................................................  35 
TBS Superstation...........................................................  12 
TBS Voting Agreement.......................................................  34 
TCI........................................................................   7 
TCI Arrangements...........................................................   8 
TCI Control Shareholders...................................................  76 
TCI Group..................................................................  36 
TCI Spin-off...............................................................   9 
TCI Value..................................................................  59 
TCITP...................................................................... 108 
TCITP Stockholders......................................................... 108 
TCM........................................................................  12 
TEC Library................................................................ 119 
Telecommunications Act.....................................................  74 
Term Date..................................................................  65 
The Capital Group.......................................................... 171 
Third Amended Complaint....................................................  79 
Time.......................................................................  33 

vii 

DEFM14A
203rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 203rd
                                                                [Download Table]

INDEX OF DEFINED TERMS                                                      PAGE
----------------------                                                      ----
                                                                                
Time Group.................................................................  36 
Time/TCI Agreement.........................................................  35 
Time Warner................................................................   1 
Time Warner Board..........................................................   1 
Time Warner Capital Stock..................................................   1 
Time Warner Charter........................................................  13 
Time Warner Common Stock...................................................   1 
Time Warner Form 8-Ks......................................................   4 
Time Warner Form 10-K......................................................   4 
Time Warner Form 10-Qs.....................................................   4 
Time Warner General Partners...............................................  12 
Time Warner Meeting........................................................   1 
Time Warner Merger.........................................................   2 
Time Warner Preferred Stock................................................   1 
Time Warner Record Date....................................................  13 
Time Warner Reports........................................................   4 
Time Warner Series D Preferred Stock.......................................  13 
Time Warner Series E Preferred Stock.......................................  13 
Time Warner Series F Preferred Stock.......................................  13 
Time Warner Series G Preferred Stock.......................................  13 
Time Warner Series H Preferred Stock....................................... 147 
Time Warner Series I Preferred Stock.......................................  13 
Time Warner Series J Preferred Stock.......................................  13 
Time Warner Series K Preferred Stock.......................................  22 
Time Warner Series M Preferred Stock....................................... 158 
Time Warner Service Partnerships........................................... 110 
Time Warner Voting Preferred Stock.........................................  13 
TNT........................................................................  12 
Toshiba....................................................................  22 
Transaction................................................................   2 
Transaction Agreements.....................................................  10 
TSP........................................................................ 101 
Turner Demand Registration................................................. 108 
Turner Employment Agreement................................................  65 
Turner Holders............................................................. 108 
Turner Outdoor.............................................................   7 
Turner Partners............................................................  10 
Turner Pictures............................................................   9 
Turner Registration Rights Agreement.......................................  10 
Turner Shareholders........................................................   7 
Turner Shareholder Shares.................................................. 104 
TW 7.75% Notes............................................................. 110 
TW 8.75% Convertible Debentures............................................ 110 
TW 8.75% Debentures........................................................ 110 
TW Indenture...............................................................  87 
TW LYONs...................................................................  17 
TW Merger Approval.........................................................  30 
TW Merger Corp.............................................................   1 
TW Merger Proposal.........................................................   1 
TW Transactions............................................................ 110 
TWE........................................................................   9 
TWE Contingent Capital..................................................... 166 

viii

DEFM14A
204th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 204th
                                                                [Download Table]

INDEX OF DEFINED TERMS                                                      PAGE
----------------------                                                      ----
                                                                                
TWE Insolvency Valuation................................................... 166 
TWE Partnership Agreement..................................................  78 
TWE Residual Capital....................................................... 166 
TWE Senior Capital......................................................... 166 
TWE Series A Capital....................................................... 166 
TWE Series B Capital....................................................... 166 
TWE Valuation.............................................................. 166 
TWE-Advance/Newhouse Partnership........................................... 111 
TWE-A/N Transaction........................................................ 111 
TWI Cable.................................................................. 110 
UCTI....................................................................... 101 
UMG........................................................................  50 
Unaffiliated Directors.....................................................  37 
Unclustered Cable Transactions............................................. 111 
Units Offering.............................................................  33 
U S WEST...................................................................  12 
U S WEST Option............................................................ 167 
USWMC......................................................................  78 
Viacom.....................................................................  45 
Video Division.............................................................  65 
Voting Stock............................................................... 179 
WCCI.......................................................................  78 
WCI........................................................................  33 
WCI Acquisition............................................................  33 
Westinghouse...............................................................  52 
WHV........................................................................ 186 
WTBS Conversion............................................................   8 

ix

DEFM14A
205th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 205th
GLOSSARY OF DEFINED TERMS 

The following are definitions of certain capitalized terms defined in the   
Joint Proxy Statement/Prospectus (other than the capitalized terms defined in   
the Joint Proxy Statement/Prospectus under "Description of New Time Warner      
Capital Stock") and referenced in the foregoing Index to Defined Terms. Each    
such term should be considered in the context in which it is used in the Joint  
Proxy Statement/Prospectus.                                                     

1995 CONVERTIBLE DEBT REFINANCING--the financing of the September 1995      
Redemption.                                                                     

1996 CONVERTIBLE DEBT REFINANCING--the issuance of the Preferred Trust      
Securities and the January 1996 Debentures, together with the financing of the  
February 1996 Redemption.                                                       

1996 PROXY STATEMENT FOR TIME WARNER--Time Warner's Proxy Statement used in 
connection with its 1996 Annual Meeting of Stockholders.                        

ADMISSION AGREEMENT--the agreement pursuant to which USWMC was admitted as a
limited partner in TWE.                                                         

ADVANCE/NEWHOUSE--the Advance/Newhouse Partnership.                         

AGREEMENT RESTRICTING ACTIVITIES--an agreement to be entered into by TBS and
Time Warner, on the one hand, and SportSouth, on the other, restricting         
certain activities of TBS, Time Warner and their respective affiliates.         

AMEX--the American Stock Exchange, Inc.                                     

APPRAISAL PROCEEDING--a nonjury equitable valuation proceeding to be        
commenced by TBS if a Dissenting TBS Holder Demand remains unsettled.           

APPRAISAL SHARES--the shares of Time Warner Preferred Stock whose holders   
follow the procedures set forth in Section 262 of the DGCL to have their        
shares of Time Warner Preferred Stock appraised by the Delaware Chancery Court  
and to receive payment in cash of the "fair value" of such shares, exclusive    
of any element of value arising from the accomplishment or expectation of the   
Transaction, together with a fair rate of interest, if any, as determined by    
such court.                                                                     

APPROVED MATTERS--the matters that are (x) expressly included in a master   
budget contemplated by the TBS By-Laws as in effect on September 22, 1995, or   
thereafter approved by Time Warner or (y) otherwise approved in writing by      
Time Warner.                                                                    

ATC--American Television and Communications Corporation.                    

ATV--advanced television services.                                          

BANK REFINANCING--the use of the New Credit Agreement to refinance certain  
indebtedness assumed in connection with the Cable Acquisitions, to refinance    
TWE's indebtedness under a pre-existing bank credit agreement and to finance    
the ongoing working capital, capital expenditures and other corporate needs of  
each borrower under the New Credit Agreement.                                   

BET--BET Holdings Inc.                                                      

CABLE ACQUISITIONS--the CVI Acquisition, KBLCOM Acquisition and the Summit  
Acquisition.                                                                    

CABLE/ENTERTAINMENT INDEX--a blended cable television and entertainment     
company index composed of the stocks of Cablevision Systems, Cox, Comcast, TCI  
(adjusted for the LMC spin-off), Disney, News Corp. and Viacom.                 

x 

DEFM14A
206th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 206th
CABLE OPERATORS--the group of investors that participated in the Units      
Offering.                                                                       

CABLEVISION SYSTEMS--Cablevision Systems Corporation.                       

CAPITAL CITIES--Capital Cities/ABC, Inc.                                    

CAPITAL CITY--Capital City Advisors, Inc.                                   

CAPITAL CITY CONSULTING AGREEMENT--the consulting agreement dated May 1,    
1994, between TBS and Capital City, as amended.                                 

CASTLE ROCK--Castle Rock Entertainment.                                     

CBS--CBS Inc.                                                               

CHARITABLE TRANSFEREE--any charitable organization described in Section     
501(c)(3) of the Code.                                                          

CLASS C DIRECTORS--the seven TBS directors elected by the holders of the TBS
Class C Preferred Stock.                                                        

CLASS C PREMIUM--the incremental value to be received by TCI as a holder of 
shares of TBS Class C Preferred Stock as a result of the difference between     
the consideration to be received by holders of TBS Common Stock and holders of  
TBS Class C Preferred Stock, on an as-converted basis.                          

CLOSING--the closing of the Mergers.                                        

CLOSING DATE--the date to be specified by the parties to the Merger         
Agreement, which, unless otherwise agreed by the parties, shall be no later     
than the second business day after the satisfaction of certain conditions       
precedent to the consummation of the Mergers.                                   

CNN--Cable News Network.                                                    

CNNFN--CNN Financial News Network.                                          

CNNI--Cable News Network International.                                     

CODE--the Internal Revenue Code of 1986, as amended.                        

COLUMBIA--Columbia Pictures Entertainment, Inc.                             

COMCAST--Comcast Corporation.                                               

COMMISSION--the Securities and Exchange Commission.                         

COMMON STOCK DIRECTORS--the eight TBS directors that the holders of TBS     
Common Stock are entitled to elect.                                             

COMMUNICATIONS ACT--the Communications Act of 1934.                         

COMPARABLE COMPANIES--Time Warner, The News Corporation Limited, Disney and 
Viacom.                                                                         

COMPARABLE TRANSACTIONS--the proposed acquisition of MGM by a group         
including Tracinda Corporation and MGM management, U S WEST/Continental,        
Westinghouse/CBS, Disney/Capital Cities, Gannet Co., Inc./Multimedia, Inc.,     
Seagram/MCA, Viacom/Blockbuster and Viacom/Paramount.                           

xi  

DEFM14A
207th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 207th
COMPENSATION COMMITTEE--the Compensation Committee of the New Time Warner   
Board.                                                                          

COMPETING BUSINESS--the organization, ownership or operation of a regional  
cable television sports network offered primarily to viewers in the SportSouth  
Region.                                                                         

COMPETING PERSON--a person engaged, directly or indirectly, in a Competing  
Business.                                                                       

CONSENT DECREE--consent decree entered into by Michael Milken with the      
Commission in 1991 which prohibits Mr. Milken from association with any         
broker, dealer, investment adviser, investment company or municipal securities  
dealer.                                                                         

CONTRIBUTED CAPITAL--the initial priority capital and residual equity       
amounts that were assigned to the partners in TWE based on the estimated fair   
value of the net assets each contributed to TWE, as adjusted for the fair       
value of certain assets distributed by TWE to the Time Warner General Partners  
in 1993 which were not subsequently reacquired by TWE in 1995.                  

CONTINENTAL--Continental Cablevision, Inc.                                  

CONTRIBUTION AND EXCHANGE AGREEMENT--the Contribution and Exchange Agreement
dated as of September 22, 1995, pursuant to which New Time Warner has granted   
to LMC the right to require New Time Warner to acquire substantially all        
shares of TBS Capital Stock owned by TCI and its affiliates directly from LMC   
simultaneously with the Closing for the same consideration payable for such     
shares in the TBS Merger.                                                       

CONTRIBUTION ELECTION--the election by LMC to contribute all the capital    
stock of UCTI to New Time Warner simultaneously with the Closing pursuant to    
the Contribution and Exchange Agreement.                                        

CONVERTIBLE DEBT REFINANCINGS--the 1995 Convertible Debt Refinancing and the
1996 Convertible Debt Refinancing.                                              

COURT--the Superior Court of Fulton County, Georgia.                        

COVERED NEW TIME WARNER COMMON STOCK--(i) any shares of New Time Warner     
Common Stock transferred to a Qualified Stockholder by an Investor pursuant to  
Investors' Agreement (No. 1) and (ii) any shares of New Time Warner Common      
Stock acquired by a Qualified Stockholder pursuant to the Transaction           
otherwise than in exchange for any shares of TBS Common Stock owned by such     
Qualified Stockholder on September 22, 1995.                                    

COVERED SECURITIES--New Time Warner Capital Stock, New Time Warner          
securities convertible into such capital stock, or options, warrants or other   
rights to purchase such capital stock or such securities convertible into such  
capital stock on which the Right of First Refusal Agreement places various      
restrictions on dispositions by any Subject Stockholder.                        

COVERED TW SECURITIES--(a)(i) if the Mergers are consummated, the shares of 
New Time Warner Common Stock beneficially owned by LMC immediately following    
the consummation of the TBS Merger as a result of the conversion in the TBS     
Merger of the shares of TBS Capital Stock beneficially owned by LMC on          
September 22, 1995 and (ii) if the Contribution Election is made, the shares    
of New Time Warner Common Stock received by the Liberty Parties in connection   
therewith, determined assuming that the shares of TBS Capital Stock             
contributed to New Time Warner or owned by the subsidiaries of LMC so           
contributed did not include any shares of TBS Capital Stock not beneficially    
owned by LMC on September 22, 1995, (b) the shares of LMC Reduced Voting        
Common Stock issued pursuant to the SSSI Agreement and (c) all shares of LMC    
Common Stock and LMC Reduced Voting Common Stock for which the shares of New    
Time Warner Common Stock and LMC Common Stock referred to in clauses (a) and    
(b) above and in this clause (c) may be exchanged pursuant to the provisions    
of the LMC Agreement.                                                           

COX--Cox Communications, Inc.                                               

CPS--cable programming service.                                             

CS FIRST BOSTON--CS First Boston Corporation.                               

CS FIRST BOSTON OPINION--the oral opinion of CS First Boston (subsequently  
confirmed in writing) delivered on August 8, 1996 to the TBS Board.             

xii 

DEFM14A
208th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 208th
CSFB ENGAGEMENT LETTER--the letter agreement pursuant to which TBS retained 
CS First Boston as its financial advisor to provide financial analyses and      
advice and to render an opinion to the TBS Board.                               

CUMULATIVE PRIORITY CAPITAL--the sum of Contributed Capital and the         
undistributed priority capital return. The priority capital return consists of  
net partnership income allocated to date in accordance with the provisions of   
the TWE Partnership Agreement and the right to be allocated additional          
partnership income which, together with any previously allocated net            
partnership income, provides for the various priority capital rates of return   
specified in the following table:                                               

                                                                [Download Table]

                                                            PRIORITY CAPITAL 
                                                           RATES OF RETURN(A)
                                                           ------------------
                                                              (% PER ANNUM   
                                                               COMPOUNDED    
                                                               QUARTERLY)    
                                                                             
TWE Senior Capital........................................        8.00%      
TWE Series A Capital......................................       13.00%(b)   
TWE Series B Capital......................................       13.25%(c)   
TWE Residual Capital......................................         --  (d)   

--------                                                                        
(a) Income allocations related to priority capital rates of return are based    
on partnership income after any special income allocations for tax      
purposes.                                                               

(b) 11.00% to the extent concurrently distributed.                              

(c) 11.25% to the extent concurrently distributed.                              

(d) TWE Residual Capital is not entitled to stated priority rates of return     
  and, as such, the Cumulative Priority Capital relating thereto is equal to
the Contributed Capital. However, in the case of certain events such as 
the liquidation or dissolution of TWE, the TWE Residual Capital is      
entitled to any excess of the then fair value of the net assets of TWE  
over the aggregate amount of Cumulative Priority Capital and special tax
allocations.                                                            

CVI--Cablevision Industries Corporation.                                    

CVI ACQUISITION--the acquisition by Time Warner of CVI.                     

DEBT REFINANCINGS--collectively, the Series K Refinancing, the Bank         
Refinancing, the Convertible Debt Refinancings and the Reset Notes              
Refinancing.                                                                    

DGCL--the General Corporation Law of the State of Delaware.                 

DISINTERESTED DIRECTOR--any member of the New Time Warner Board who is      
unaffiliated with, and not a nominee of, an Interested Stockholder and was a    
member of the New Time Warner Board prior to the time that such Interested      
Stockholder became an Interested Stockholder, and any successor of a            
Disinterested Director who is unaffiliated with, and not a nominee of, such     
Interested Stockholder and who is recommended to succeed a Disinterested        
Director by a majority of Disinterested Directors then on the New Time Warner   
Board.                                                                          

DISINTERESTED STOCKHOLDER--a stockholder of New Time Warner who is not an   
Interested Stockholder or an affiliate or an associate of an Interested         
Stockholder.                                                                    

DISNEY--The Walt Disney Company.                                            

DISSENTERS' NOTICE--a written dissenters' notice to be delivered by TBS to  
Dissenting TBS Holders if the TBS Merger is authorized.                         

DISSENTING SHARES--the shares of TBS Capital Stock owned by a Dissenting TBS
Holder.                                                                         

xiii  

DEFM14A
209th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 209th
DISSENTING TBS HOLDER--a record holder of shares of TBS Capital Stock who   
properly exercises dissenters' rights pursuant to Article 13 of the GBCC.       

DISSENTING TBS HOLDER DEMAND--a Dissenting TBS Holder's notification to TBS 
in writing of his own estimate of the Fair Value of his Dissenting Shares and   
amount of interest due, and demand for payment of such estimate.                

DISTRIBUTION CONTRACT--distribution contract pursuant to which SSSI will    
undertake specified uplinking and distribution activities for New Time Warner   
in the event of the WTBS Conversion.                                            

EFFECTIVE PERIOD--the period during which there are at least 4 million      
outstanding shares of TBS Class C Preferred Stock.                              

EFFECTIVE TIME OF THE MERGERS--the time at which the Mergers become         
effective.                                                                      

ELIGIBLE PERSON--Mr. Turner and any other individual (a) who is reasonably  
acceptable to the New Time Warner Board, (b) whose election to the New Time     
Warner Board would not, in the opinion of counsel for New Time Warner,          
violate, conflict with, or result in any material limitation on the ownership   
or operation of any business or assets of New Time Warner or any of its         
subsidiaries under, any statute, law, ordinance, regulation, rule, judgment,    
decree or order of any governmental entity and (c) who has agreed in writing    
to comply with the standstill covenants, and to resign as a director of New     
Time Warner if requested to do so upon a reduction in the number of designees   
to the New Time Warner Board to which Mr. Turner is entitled.                   

ENCORE--Encore Media Corporation.                                           

ENTERTAINMENT COMPARABLES--the five selected business combinations in the   
entertainment industry reviewed by Merrill Lynch.                               

EXCHANGE ACT--Securities Exchange Act of 1934, as amended.                  

EXCHANGE RATIO--the ratio contemplated by the Merger Agreement for the      
exchange of New Time Warner Common Stock for TBS Capital Stock.                 

EXISTING RIGHTS AGREEMENT--Time Warner's existing stockholder rights        
agreement.                                                                      

EXPIRATION DATE--January 20, 2004, the date the New Time Warner Rights will 
expire.                                                                         

FAIR VALUE--the value of Dissenting Shares immediately before the           
consummation of the TBS Merger, excluding any appreciation or depreciation in   
anticipation of the TBS Merger.                                                 

FAMILY MEMBERS--a Permitted Transferee's current or future spouse, parents, 
siblings or descendants or such parents', siblings' or descendants' spouses.    

FCC--the Federal Communications Commission.                                 

FCC APPLICATION--an application for consent to the transfer of control to   
New Time Warner of Superstation, Inc., the licensee of WTBS, and associated     
broadcast auxiliary licenses, filed with the FCC on October 20, 1995.           

FEBRUARY 1996 REDEMPTION--the redemption by Time Warner in February 1996 of 
approximately $1.2 billion principal amount of TW 8.75% Convertible             
Debentures.                                                                     

FIRST REFUSAL RIGHT--the right of a Subject Stockholder, in connection with 
any proposed sale of Subject Shares by any Other Subject Stockholder, to        
purchase the Subject Shares of such Other Subject Stockholder for a             
consideration no more favorable to the Subject Stockholder than the             
consideration that would apply if such Subject Stockholder consummated such     
proposed sale.                                                                  

xiv 

DEFM14A
210th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 210th
FIVE-YEAR EXERCISE RIGHT--the right of certain officers of TBS, in the event
any such officer's employment is terminated for any reason, for each of the     
options to purchase New Time Warner Common Stock held by such officer to        
remain exercisable until the earlier of the existing expiration date of such    
option and the fifth anniversary of the consummation of the Mergers.            

FTC--the Federal Trade Commission.                                          

FTC CONSENT DECREE--Agreement Containing Consent Order dated August 14,     
1996, among Time Warner, TBS, TCI, LMC and the FTC, including the related       
Interim Agreement dated August 14, 1996, among Time Warner, TBS, TCI, LMC and   
the FTC. The FTC has not yet initially accepted the FTC Consent Decree.         

GAYLORD--Gaylord Entertainment Company.                                     

GBCC--the Georgia Business Corporation Code.                                

GERRY COMPANIES--certain affiliated entities of CVI.                        

GRADE B SERVICE CONTOUR--an FCC-promulgated technical description of the    
strength of a television station's signal which demarks an area in which a      
certain minimum signal strength can be received; generally defining an area     
where, on average, a television station can be expected to be viewable with     
the aid of a rooftop antenna.                                                   

GROUP--the TCI Group or the Time Group.                                     

HASBRO LYON--Time Warner's Liquid Yield Option Notes due 2012.              

HB JOINT VENTURE--joint venture which principally owns the Hanna-Barbera    
Film Library.                                                                   

HOME BOX OFFICE--the Home Box Office division of TWE.                       

HOMES PASSED--the number of homes that are or could be readily connected to 
a cable system's distribution wires running along the street on which the       
homes are located.                                                              

HSN--Home Shopping Network, Inc.                                            

HSR ACT--the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as       
amended.                                                                        

INITIAL SHARES--the voting securities of New Time Warner owned by the       
Investors and the Qualified Stockholders, taken together, immediately           
following consummation of the Transaction.                                      

INTERNATIONAL FAMILY--International Family Entertainment, Inc.              

INVESTOR--Mr. Turner and Turner Outdoor and each successor, assign and other
person that, pursuant to the terms of Investors' Agreement (No. 1), is          
required to become a party thereto.                                             

INVESTORS' AGREEMENT (NO. 1)--the Investors' Agreement to be entered into by
New Time Warner, the Turner Shareholders and Turner Partners upon consummation  
of the Mergers, pursuant to which, among other matters, the Turner              
Shareholders will agree to certain restrictions on their activities as          
stockholders of New Time Warner and to certain restrictions on dispositions by  
them of shares of New Time Warner Capital Stock.                                

INVESTORS' AGREEMENT (NO. 2)--the Investors' Agreement to be entered into by
any Charitable Transferee or Qualified Trust to whom any Turner Shareholder     
transfers voting securities of New Time Warner, whereupon such transferee will  
become a Qualified Stockholder and become subject to certain restrictions on    
dispositions of shares of New Time Warner Common Stock.                         

xv  

DEFM14A
211th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 211th
IRS--the Internal Revenue Service.                                          

ITOCHU--ITOCHU Corporation.                                                 

ITOCHU/TOSHIBA TRANSACTION--the exchange by each of Toshiba and ITOCHU of   
(i) their 5.61% pro rata equity interests in TWE, (ii) their 6.25% residual     
equity interests in the Time Warner Service Partnerships and (iii) their        
options to increase their interests in TWE under certain circumstances for, in  
the case of ITOCHU, 6.2 million shares of Time Warner Series G Preferred Stock  
and 1.8 million shares of Time Warner Series H Preferred Stock and, in the      
case of Toshiba, 7 million shares of Time Warner Series I Preferred Stock and   
$10 million in cash.                                                            

JANUARY 1996 DEBENTURES--(a) the 6.85% debentures due 2026 of Time Warner,  
(b) the 8.3% discount debentures due 2036 of Time Warner, (c) the 7.48%         
debentures due 2008 of Time Warner and (d) the 8.05% debentures due 2016 of     
Time Warner.                                                                    

KBLCOM--KBLCOM Incorporated.                                                

KBLCOM ACQUISITIONS--the acquisition by Time Warner of KBLCOM.              

LECS--local exchange carriers.                                              

LETTER RULING--ruling from the Internal Revenue Service that the TCI Spin-  
off would be a non-taxable transaction under Section 355 of the Code.           

LIBERTY PARTY--LMC and each affiliate of LMC that is controlled by LMC from 
time to time and, for so long as LMC is controlled by TCI, TCI and each         
affiliate of TCI that is controlled by TCI from time to time.                   

LMC--Liberty Media Corporation.                                             

LMC AGREEMENT--the Second Amended and Restated LMC Agreement dated as of    
September 22, 1995.                                                             

LMC COMMON STOCK--Series LMC Common Stock of New Time Warner.               

LMC DEMAND REGISTRATION--the right of the LMC Holders holding not less than 
a majority of the LMC Registrable Shares then held by all LMC Holders to        
require New Time Warner, on three separate occasions, to register under the     
Securities Act all or any portion of the LMC Registrable Shares designated by   
such LMC Holders.                                                               

LMC HOLDERS--LMC and certain specified entities to whom the LMC Registrable 
Shares are transferred pursuant to the LMC Registration Rights Agreement.       

LMC NON-COMPETITION COVENANT--agreement by LMC not to compete in the        
business of uplinking and distributing the WTBS signal.                         

LMC REDUCED VOTING COMMON STOCK--Series LMCN-V Common Stock of New Time     
Warner.                                                                         

LMC REGISTRABLE SHARES--the shares of New Time Warner Common Stock issued to
any of the initial LMC Holders pursuant to the Merger Agreement, or any         
securities into which such shares may be exchanged or converted and any such    
shares issued to any Turner Holder and acquired by any LMC Holder pursuant to   
the Right of First Refusal Agreement.                                           

LMC REGISTRATION RIGHTS AGREEMENT--the Registration Rights Agreement to be  
entered into by New Time Warner, LMC and certain of its subsidiaries upon       
consummation of the Mergers, pursuant to which New Time Warner will grant to    
LMC, such subsidiaries and specified transferees rights to require the          
registration                                                                    
under the Securities Act of sales of certain New Time Warner Common Stock held  
by LMC, such subsidiaries and such transferees.                                 

xvi 

DEFM14A
212th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 212th
LMC SERIES COMMON STOCK--the LMC Reduced Voting Common Stock and the LMC    
Common Stock.                                                                   

LSSI--LMC Southeast Sports, Inc.                                            

MATERIAL TRANSACTION--subject to certain exceptions, (a) the issuance by    
Time Warner of more than 90 million shares of Time Warner Common Stock or       
their equivalent in any single transaction or series of individual              
transactions, each of which involves the issuance of more than 20 million       
shares of Time Warner Common Stock or their equivalent, or (b) the sales of     
other disposition by Time Warner in any transaction or series of transactions   
of any business or assets with an aggregate fair market value in excess of      
$3.5 billion, excluding from such amount sales of inventory in the ordinary     
course of business and the sale, in a single transaction or a series of         
related transactions, of assets with an aggregate fair market value of $500     
million or less.                                                                

MATSUSHITA--Matsushita Electric Industrial Co., Ltd.                        

MAXIMUM PREMIUM--150% of the last annual premium paid for TBS's directors'  
and officers' insurance and indemnification policy in effect as of September    
22, 1995.                                                                       

MC GROUP CONSULTING AGREEMENT--the letter agreement between TBS and MC      
Group, pursuant to which MC Group agreed to provide certain consulting          
services to TBS.                                                                

MCA--MCA Inc.                                                               

MERGER AGREEMENT--the Amended and Restated Agreement and Plan of Merger     
dated as of September 22, 1995, among Time Warner, TBS, TW Inc., New Time       
Warner, TW Merger Corp. and TBS Merger Corp., as amended as of August 8, 1996.  

MERGERS--the Time Warner Merger and the TBS Merger.                         

MERRILL LYNCH--Merrill Lynch & Co.                                          

MERRILL LYNCH ENGAGEMENT LETTER--the letter agreement pursuant to which TBS 
retained Merrill Lynch as its financial advisor to assist in analyzing the      
proposed transaction and the TCI Arrangements and to render an opinion to the   
TBS Board.                                                                      

MERRILL LYNCH OPINION--the oral opinion of Merrill Lynch (subsequently      
confirmed in writing) delivered on August 8, 1996 to the TBS Board.             

MGM--Metro-Goldwyn-Mayer, Inc.                                              

MOODY'S--Moody's Investors Service, Inc. or any successor to its rating     
agency business.                                                                

MORGAN STANLEY--Morgan Stanley & Co. Incorporated.                          

MORGAN STANLEY ENGAGEMENT LETTER--the letter agreement pursuant to which    
Time Warner retained Morgan Stanley as its financial advisor to provide         
financial analyses and advice and to render an opinion to the Time Warner       
Board.                                                                          

MORGAN STANLEY OPINION--the written opinion of Morgan Stanley delivered on  
August 8, 1996 to the Time Warner Board.                                        

MSG ASSETS--the Madison Square Garden assets disposed of by Paramount.      

MVPD--multi-channel video programming distributor.                          

NET PARTNERSHIP VALUE--(a) $153.7 million, plus (b) the net difference      
between certain current assets and certain current liabilities of SportSouth,   
minus (c) the amount of certain indebtedness of SportSouth.                     

xvii  

DEFM14A
213th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 213th
NET VALUE--the net value of options to purchase TBS Class B Common Stock    
held by certain officers of TBS (i.e., the aggregate positive difference        
between the exercise price of such options and the value of the TBS Class B     
Common Stock that may be purchased pursuant to such options, based on the       
closing sale price of TBS Class B Common Stock on such date).                   

NEW CREDIT AGREEMENT--the five-year revolving credit facility for TWE, the  
TWE-Advance/Newhouse Partnership and a wholly owned subsidiary of Time Warner.  

NEW LINE--New Line Cinema Corporation.                                      

NEWS CORP.--The News Corporation Limited.                                   

NEW TIME WARNER--TW Inc., a Delaware corporation and currently a wholly     
owned subsidiary of Time Warner.                                                

NEW TIME WARNER BOARD--the Board of Directors of New Time Warner.           

NEW TIME WARNER BY-LAWS--the by-laws of New Time Warner.                    

NEW TIME WARNER CAPITAL STOCK--the capital stock of New Time Warner.        

NEW TIME WARNER CHARTER--the Restated Certificate of Incorporation of New   
Time Warner.                                                                    

NEW TIME WARNER COMMON STOCK--Common Stock, par value $.01 per share, of New
Time Warner.                                                                    

NEW TIME WARNER PREFERRED STOCK--Preferred Stock, par value $.10 per share, 
of New Time Warner.                                                             

NEW TIME WARNER RIGHT--the preferred stock purchase right to accompany each 
share of New Time Warner Common Stock issued in connection with the Mergers if  
New Time Warner adopts the New Time Warner Rights Agreement.                    

NEW TIME WARNER RIGHTS AGREEMENT--the stockholder rights agreement expected 
to be adopted prior to the consummation of the Mergers.                         

NEW TIME WARNER SERIES A PREFERRED STOCK--Series A Participating Cumulative 
Preferred Stock, par value $.10 per share, of New Time Warner.                  

NEW TIME WARNER SERIES COMMON STOCK--Series Common Stock, par value $.01 per
share, of New Time Warner.                                                      

NEW TIME WARNER SERIES D PREFERRED STOCK--Series D Convertible Preferred    
Stock, par value $.10 per share, of New Time Warner.                            

NEW TIME WARNER SERIES E PREFERRED STOCK--Series E Convertible Preferred    
Stock, par value $.10 per share, of New Time Warner.                            

NEW TIME WARNER SERIES F PREFERRED STOCK--Series F Convertible Preferred    
Stock, par value $.10 per share, of New Time Warner.                            

NEW TIME WARNER SERIES G PREFERRED STOCK--Series G Convertible Preferred    
Stock, par value $.10 per share, of New Time Warner.                            

NEW TIME WARNER SERIES H PREFERRED STOCK--Series H Convertible Preferred    
Stock, par value $.10 per share, of New Time Warner.                            

NEW TIME WARNER SERIES I PREFERRED STOCK--Series I Convertible Preferred    
Stock, par value $.10 per share, of New Time Warner.                            

xviii 

DEFM14A
214th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 214th
NEW TIME WARNER SERIES J PREFERRED STOCK--Series J Convertible Preferred    
Stock, par value $.10 per share, of New Time Warner.                            

NEW TIME WARNER SERIES L PREFERRED STOCK--10 1/4% Series L Exchangeable     
Preferred Stock, par value $.10 per share, of New Time Warner.                  

NEW TIME WARNER SERIES M PREFERRED STOCK--10 1/4% Series M Exchangeable     
Preferred Stock, par value $.10 per share, of New Time Warner.                  

NEW TIME WARNER VALUE--the imputed (cost)/benefit to New Time Warner for    
each TCI Arrangement.                                                           

NOTICE OF INTENT--the written notice of intent by a Dissenting TBS Holder to
demand payment for Dissenting Shares if the TBS Merger is consummated.          

NYSE--New York Stock Exchange, Inc.                                         

OCF--operating cash flows.                                                  

OFFER OF PAYMENT--the offer by TBS to each Dissenting TBS Holder, who       
complied with the payment demand and deposit requirements specified in the      
Dissenters' Notice, to pay the amount TBS estimates to be the Fair Value of     
such Dissenting TBS Holder's Dissenting Shares, plus accrued interest from the  
date of consummation of the TBS Merger.                                         

OFFER VALUE PERCENTAGE--the value of all of the TCI Arrangements as a       
percentage of the offer value of the TBS Merger.                                

ORIGINAL MORGAN STANLEY OPINION--the oral opinion of Morgan Stanley         
(subsequently confirmed in writing) delivered on September 22, 1995 to the      
Time Warner Board.                                                              

OTHER STOCKHOLDER--with respect to any TCITP Stockholder, Mr. Turner, and   
with respect to any Turner Shareholder, TCITP.                                  

OWNERSHIP LIMITATIONS--any suit, action or proceeding by a governmental     
entity that seeks to (i) prohibit or limit the ownership or operation by TBS,   
Time Warner, New Time Warner or any of their respective material subsidiaries,  
of any material portion of their businesses or assets, (ii) impose limitations  
on the ability of New Time Warner to acquire or hold any shares of capital      
stock of Time Warner or TBS, including, without limitation, the right to vote   
such capital stock, or (iii) prohibit New Time Warner from effectively          
controlling in any material respect the business or operations of TBS or any    
of its material subsidiaries.                                                   

PARAGON--Paragon Communications.                                            

PARAMOUNT--Paramount Communications Inc.                                    

PERCS--Time Warner-obligated mandatorily redeemable preferred securities of 
a subsidiary issued in August 1995.                                             

PERMITTED TRANSFEREE--of any person means (i) in the case of the death of   
such person, such person's executors, administrators, testamentary trustees,    
heirs, devisees and legatees and (ii) such person's current or future spouse,   
parents, siblings or descendants or such parents', siblings' or descendants'    
spouses.                                                                        

PER SHARE PREMIUM PERCENTAGE--the per share premium imputed to TCI with     
respect to all of the TCI Arrangements (defined to be the aggregate value       
imputed to TCI as a result of the TCI Arrangements divided by the total number  
of TBS Common Stock equivalents owned by TCI) as a percentage of the per share  
consideration payable in the TBS Merger to each other holder of TBS Common      
Stock.                                                                          

xix 

DEFM14A
215th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 215th
PREFERRED SECURITIES--Time Warner-obligated mandatorily redeemable preferred
securities of a subsidiary issued in December 1995.                             

PRIOR TCI ARRANGEMENTS--the agreements Time Warner, New Time Warner, TBS and
TCI had entered into or proposed to enter into prior to the execution of        
Amendment No. 1 to the Merger Agreement.                                        

PRIVATE PER SHARE PREMIUM--the per share premium paid by the acquiror in    
each Private Premium Transaction as a percentage of the per share               
consideration paid to the other shareholders of the target company.             

PRIVATE PREMIUM TRANSACTION--each of the following eight transactions       
Merrill Lynch reviewed: General Motors Corporation's spin-off of Electronic     
Data Systems; recapitalization of Fischer & Porter Company; recapitalization    
of Bergen Brunswig Corporation; the acquisition by Silver King of HSN; The      
Griffin Co.'s acquisition of Resorts International, Inc.; CSX Corporation's     
acquisition of Sea-Land Service, Inc.; Bell Atlantic Corporation's proposed     
acquisition of TCI; AT&T Corp.'s acquisition of McCaw Cellular Communications,  
Inc.; Premark International, Inc.'s acquisition of Sikes Corporation; and The   
Trump Group's acquisition of Pay'n Save Inc.                                    

PROGRAM AGREEMENT--the agreement between TBS and a subsidiary of TCI,       
relating to the carriage after the consummation of the Mergers by TCI-          
affiliated cable systems of WTBS (once the WTBS Conversion has occurred) and    
Headline News.                                                                  

PROHIBITED EFFECT--the effect or consequence (a) of making the continuing   
ownership by the Liberty Parties or any of them of any equity securities of     
New Time Warner then owned by the Liberty Parties or any of them illegal under  
any Federal or state law, or (b) of imposing or resulting in the imposition     
under any Federal or state law on the Liberty Parties or any of them of         
damages or penalties by reason of or as a result of such continued ownership,   
or (c) of requiring the divestiture of, or resulting in the requirement to      
divest, any such securities by any Liberty Party under any Federal or state     
law, or (d) of requiring, or resulting in the requirement, under any Federal    
or state law that any Liberty Party discontinue any business or divest of any   
business or assets or that any license that such Liberty Party holds or is      
required to hold under any Federal communications law be modified in any        
significant respect or not be renewed as a result of such continued ownership.  

PROHIBITED TURNER EFFECT--(a) Mr. Turner's owning TBS Common Stock          
representing less than 51% of the combined voting power of the outstanding TBS  
Common Stock and TBS Class C Preferred Stock or (b) Mr. Turner's owning TBS     
Common Stock, including shares underlying TBS Convertible Securities owned by   
him, representing less than 51% of the total voting power represented by the    
sum of the TBS Common Stock then outstanding, the TBS Common Stock underlying   
all TBS Convertible Securities then outstanding and the TBS Common Stock that   
could be issued (either directly or upon conversion of TBS Convertible          
Securities), without the approval of the holders of the TBS Class C Preferred   
Stock.                                                                          

PPV OUTPUT AGREEMENT--the agreement between TBS and certain affiliates of   
TCI providing for the licensing of all motion pictures theatrically released    
during the term of the agreement by New Line, Castle Rock and Turner Pictures   
for exhibition, on a non-exclusive basis on pay-per-view services owned by      
such TCI affiliates.                                                            

PSE--Pacific Stock Exchange, Inc.                                           

PUBLIC PER SHARE PREMIUM--the per share premium paid by the acquiror in each
Public Premium Transaction as a percentage of the closing stock price of the    
Public Premium Target.                                                          

PUBLIC PREMIUM TARGET--the publicly traded company in which a minority      
interest was purchased in a Public Premium Transaction.                         

PUBLIC PREMIUM TRANSACTION--each of 21 transactions from 1992 to the present
in which minority interests in publicly traded companies were acquired in       
privately negotiated transactions.                                              

xx  

DEFM14A
216th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 216th
PUBLIC PROGRAMMING COMPANIES--Gaylord, Home Shopping Network, Inc.,         
International Family and BET.                                                   

QUALIFIED STOCKHOLDER--any Charitable Transferee or Qualified Trust from    
time to time required to become a party to Investors' Agreement (No. 2).        

QUALIFIED TRUST--any trust described in Section 664 of the Code of which Mr.
Turner or members of his family are income beneficiaries.                       

QVC--QVC Network, Inc.                                                      

REAL ESTATE/SPORTS SEGMENT--the real estate, sports-related assets and      
certain other assets of TBS.                                                    

REGISTRABLE SHARES--the shares of New Time Warner Common Stock requested by 
the Turner Holders to be registered under the Securities Act pursuant to the    
Turner Registration Rights Agreement.                                           

REGISTRATION STATEMENT--the registration statement on Form S-4 (together    
with all amendments, exhibits and schedules thereto) New Time Warner has filed  
with the Commission under the Securities Act, relating to (a) the shares of     
New Time Warner Common Stock (and any New Time Warner Rights) that will be      
issued to holders of Time Warner Common Stock and to holders of TBS Capital     
Stock in connection with the Transaction, (b) the shares of New Time Warner     
Preferred Stock that will be issued to holders of Time Warner Preferred Stock   
in connection with the Transaction and (c) the shares of New Time Warner        
Common Stock (and any New Time Warner Rights) issuable upon conversion of       
certain of such shares of New Time Warner Preferred Stock and conversion or     
exercise of certain convertible debt securities and options.                    

RESET NOTES--the Redeemable Reset Notes due August 15, 2002 of Time Warner. 

RESET NOTES REFINANCING--the redemption on August 15, 1995 by Time Warner of
all of the outstanding Reset Notes in exchange for new securities.              

RESTRICTION PERIOD--that period of time commencing on the date any Covered  
TW Securities are first issued and continuing until the first time that the     
ownership or deemed ownership by the Liberty Parties of the New Time Warner     
Common Stock and other voting securities of New Time Warner then owned by the   
Liberty Parties (assuming conversion in full of all LMC Reduced Voting Common   
Stock) would, assuming the absence of any restriction on the exercise by the    
Liberty Parties of the rights of a holder of New Time Warner Common Stock       
through a voting trust or other arrangement satisfactory to the FCC, not have   
a Prohibited Effect under any Federal communications law, as such period may    
be earlier terminated pursuant to the LMC Agreement.                            

RIGHT OF FIRST REFUSAL AGREEMENT--the Stockholders' Agreement to be entered 
into upon consummation of the Mergers by certain subsidiaries of LMC, the       
Turner Shareholders and New Time Warner, pursuant to which such subsidiaries,   
on the one hand, and the Turner Shareholders, on the other hand, grant first    
to the other group and then to New Time Warner a right of first refusal with    
respect to dispositions of voting securities of New Time Warner beneficially    
owned by them.                                                                  

RIGHTS--the preferred stock purchase rights issued under the Existing Rights
Agreement.                                                                      

RIGHTS AMENDMENT--certain specified amendments to the Existing Rights       
Agreement contemplated by the LMC Agreement.                                    

RIGHTS CERTIFICATES--separate certificates evidencing the New Time Warner   
Rights.                                                                         

S&P--Standard & Poor's Corporation or any successor to its rating agency    
business.                                                                       

SEAGRAM--The Seagram Company Ltd.                                           

SECOND AMENDED COMPLAINT--the second amended complaint filed by the         
plaintiffs in Lewis, et al. v. Turner Broadcasting Sys., Inc., et al. on        
November 1, 1995.                                                               

xxi 

DEFM14A
217th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 217th
SECTION 262--Section 262 of the DGCL.                                       

SECURITIES ACT--the Securities Act of 1933, as amended.                     

SEPTEMBER 22 ANALYSES--Merrill Lynch's revised presentation to the TBS Board
at the continuation of the September 21, 1995 TBS Board meeting held on         
September 22, 1995.                                                             

SEPTEMBER 1995 REDEMPTION--the redemption by Time Warner in September 1995  
of approximately $1 billion principal amount of TW 8.75% Convertible            
Debentures.                                                                     

SILVER KING--Silver King Communications, Inc.                               

SIX FLAGS--Six Flags Entertainment Corporation.                             

SIX FLAGS TRANSACTION--the transaction pursuant to which (i) Six Flags was  
recapitalized, (ii) TWE sold a 51% interest in Six Flags to an investment       
group led by Boston Ventures and (iii) TWE granted certain licenses to Six      
Flags.                                                                          

SONY--Sony Corporation.                                                     

SPECIAL MEETINGS--the TBS Meeting and Time Warner Meeting.                  

SPECIAL VOTING RIGHTS--the right, so long as at least four million shares of
TBS Class C Preferred Stock are outstanding, of the holders of the TBS Class C  
Preferred Stock to vote as a separate class for the election of seven           
directors and on certain other matters.                                         

SPECIFIED ADJUSTMENT--the adjustment to the aggregate acquisiton value and  
EBITDA with respect to TBS for the Studios, the Real Estate/Sports Segment and  
the WTBS Conversion.                                                            

SPINCO PARTY--after the TCI Spin-off, SSSI and each affiliate of SSSI that  
is controlled by SSSI from time to time and, for so long as SSSI is an          
affiliate of TCI, TCI and each affiliate of TCI that is controlled by TCI from  
time to time.                                                                   

SPORTSOUTH--SportSouth Network, Ltd.                                        

SPORTSOUTH AGREEMENT--the Stock Purchase Agreement dated as of September 22,
1995, between TBS and a subsidiary of TCI, pursuant to which, upon              
consummation of the Mergers, TBS will sell its interest in SportSouth, a        
regional sports cable network, to such TCI subsidiary.                          

SPORTSOUTH REGION--Kentucky, North Carolina, South Carolina, Tennessee,     
Georgia, Alabama and Mississippi.                                               

SSSI--Southern Satellite Systems, Inc.                                      

SSSI OPTION--the option SSSI will grant to New Time Warner pursuant to the  
SSSI Agreement, exercisable for six years, to cause the Distribution Contract   
to become effective.                                                            

SSSI AGREEMENT--an agreement, to be entered into upon consummation of the   
Mergers, among New Time Warner, LMC and SSSI pursuant to which (i) New Time     
Warner will issue to SSSI 4,166,667 shares of LMC Reduced Voting Common Stock   
and SSSI will grant to New Time Warner the SSSI Option and (ii) New Time        
Warner will issue to LMC 833,333 shares of LMC Reduced Voting Common Stock and  
will pay to LMC approximately $67 million (payable, at New Time Warner's        
option, in cash or additional shares of LMC Reduced Voting Common Stock) and    
LMC will agree to the LMC Non-competition Covenant.                             

SSSI AGREEMENT CONSIDERATION--the consideration to be paid by New Time      
Warner pursuant to the SSSI Agreement.                                          

STUDIOS--New Line and Castle Rock.                                          

xxii  

DEFM14A
218th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 218th
SUBJECT SHARES--any or all of its Covered Securities a Subject Stockholder  
may intend to sell.                                                             

SUBJECT STOCKHOLDER--any TCITP Stockholder or Turner Shareholder.           

SUMMIT--Summit Communications Group, Inc.                                   

SUMMIT ACQUISITION--the acquisition by Time Warner of Summit.               

SUNSHINE OPTION--the option granted by TWE to a subsidiary of TCI to        
purchase the interests of TWE and certain affiliates in the Sunshine Network,   
a Florida-based sports cable network, for approximately $14 million.            

SUNSHINE OPTION AGREEMENT--the option agreement, to be entered into upon    
consummation of the Mergers, between a subsidiary of TCI and TWE, pursuant to   
which TWE will grant to such TCI subsidiary the Sunshine Option.                

SUPPORT AGREEMENT--the Shareholders' Agreement dated as of September 22,    
1995, among R. E. Turner, Turner Outdoor and Time Warner, pursuant to which     
the parties have agreed, among other things, to vote all shares of TBS Capital  
Stock that they are entitled to vote at the TBS Meeting in favor of the TBS     
Merger Proposal.                                                                

TAKEOVER PROPOSAL--any proposal for a merger, consolidation or other        
business combination involving TBS or any of its material subsidiaries or any   
proposal or offer to acquire in any manner, directly or indirectly, more than   
15% of any class of voting securities of TBS or any of its material             
subsidiaries, or assets representing a substantial portion of the assets of     
TBS and its subsidiaries, taken as a whole.                                     

TBS--Turner Broadcasting System, Inc.                                       

TBS 1995 FORECAST--the 1995 operating results of TBS forecast by TBS's      
management in August 1995.                                                      

TBS 1996 BUDGET--TBS's management 1996 budget.                              

TBS 1996 FORECAST--the 1996 operating results of TBS forecast by TBS's      
management in June 1996.                                                        

TBS ARTICLES--the Restated Articles of Incorporation of TBS.                

TBS BOARD--the Board of Directors of TBS.                                   

TBS BY-LAWS--the By-Laws of TBS.                                            

TBS CAPITAL STOCK--TBS Class C Preferred Stock and TBS Common Stock.        

TBS CLASS A COMMON STOCK--TBS Class A Common Stock, par value $.0625 per    
share.                                                                          

TBS CLASS B COMMON STOCK--TBS Class B Common Stock, par value $.0625 per    
share.                                                                          

TBS CLASS B PREFERRED STOCK--TBS Class B Cumulative Preferred Stock.        

TBS CLASS C PREFERRED STOCK--TBS Class C Convertible Preferred Stock, par   
value $.125 per share.                                                          

TBS COMMON STOCK--TBS Class A Common Stock and TBS Class B Common Stock.    

TBS CONVERTIBLE SECURITIES--the securities that are convertible into TBS    
Common Stock under the TBS Shareholders' Agreement.                             

TBS FORM 8-KS--TBS's Current Reports on Form 8-K dated January 3, 1996, June
26, 1996 and September 6, 1996.                                                 

TBS FORM 10-K--TBS's Annual Report on Form 10-K for the year ended December 
31, 1995.                                                                       

TBS FORM 10-QS--TBS's Quarterly Reports on Form 10-Q for the quarters ended 
March 31, 1996 and June 30, 1996.                                               

xxiii 

DEFM14A
219th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 219th
TBS INVESTORS' AGREEMENT--the Investors' Agreement entered into by TBS and  
the Cable Operators concurrently with the closing of the Units Offering.        

TBS LYONS--the TBS zero coupon subordinated convertible notes due 2007.     

TBS LYONS INDENTURE--the Indenture dated as of February 13, 1992, pursuant  
to which the TBS LYONs were issued.                                             

TBS MEETING--the Special Meeting of Shareholders of TBS.                    

TBS MERGER--the merger of TBS Merger Corp. into TBS as contemplated by the  
Merger Agreement.                                                               

TBS MERGER APPROVAL--the affirmative vote by holders of TBS Capital Stock of
(a) a majority of the voting power of the outstanding shares of TBS Capital     
Stock, voting together as a single group, (b) a majority of the voting power    
of the outstanding shares of TBS Common Stock, voting together as a single      
group, and (c) a majority of the outstanding shares of TBS Class C Preferred    
Stock, voting as a separate class.                                              

TBS MERGER CORP.--Time Warner Acquisition Corp., a Delaware corporation and 
a wholly owned subsidiary of New Time Warner.                                   

TBS MERGER PROPOSAL--the proposal to be considered at the TBS Meeting to    
approve the Merger Agreement.                                                   

TBS OFFICERS--Terence F. McGuirk, TBS Executive Vice President, W. Thomas   
Johnson, TBS Vice President--News, Scott M. Sassa, TBS Vice President--Turner   
Entertainment Group, Bert Carp, TBS Vice President--Government Affairs,         
William H. Grumbles, TBS Vice President--Worldwide Distribution, Steven J.      
Heyer, TBS Vice President--Advertising Sales and Marketing, Steven W. Korn,     
TBS Vice President, General Counsel and Secretary, and Wayne H. Pace, TBS Vice  
President--Finance and Chief Financial Officer.                                 

TBS RECORD DATE--the record date for the determination of the holders of    
record of TBS Class A Common Stock, TBS Class B Common Stock and TBS Class C    
Preferred Stock entitled to notice of and to vote at the TBS Meeting.           

TBS REPORTS--the TBS Form 10-K, the TBS Form 10-Qs and the TBS Form 8-Ks.   

TBS SHAREHOLDERS' AGREEMENT--the Shareholders' Agreement, entered into among
the Cable Operators, TBS and Mr. Turner concurrently with the closing of the    
Units Offering.                                                                 

TBS VOTING AGREEMENT--the Voting Agreement, entered into among TCI, Time,   
TCI and Continental and certain of their affiliates concurrently with the       
Units Offering.                                                                 

TCI--Tele-Communications, Inc.                                              

TCI ARRANGEMENTS--the agreements, as modified in light of the FTC Consent   
Decree, Time Warner, New Time Warner, TBS and TCI entered into or agreed to     
enter into in connection with the Transaction for the benefit of TCI and its    
affiliates.                                                                     

TCI CONTROL SHAREHOLDERS--Mr. Robert Magness, Dr. John C. Malone and Kearns-
Tribune Corporation.                                                            

TCI GROUP--TCI and certain of its controlled affiliates which are entitled  
to nominate three Class C Directors under the terms of the TBS Voting           
Agreement.                                                                      

TCI SPIN-OFF--the distribution of the stock of SSSI to holders of the       
Liberty Media Group Common Stock issued by TCI.                                 

TCITP--TCI Turner Preferred, Inc.                                           

TCITP STOCKHOLDERS--TCITP and certain of its subsidiaries which will enter  
into the Right of First Refusal Agreement with the Turner Shareholders.         

xxiv  

DEFM14A
220th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 220th
TCI VALUE--the imputed benefit to TCI for each TCI Arrangement.             

TCM--Turner Classic Movies.                                                 

TEC LIBRARY--the Turner Entertainment Co. library.                          

TELECOMMUNICATIONS ACT--the Telecommunications Act of 1996.                 

THE CAPITAL GROUP--The Capital Group Companies, Inc.                        

THIRD AMENDED COMPLAINT--the third amended complaint filed by the plaintiffs
in Lewis, et al. v. Turner Broadcasting Sys., Inc., et al. on February 29,      
1996.                                                                           

TIME--Time Inc.                                                             

TIME GROUP--Time and its controlled affiliates which are entitled to        
nominate two of the five Class C Directors under the Time/TCI Agreement.        

TIME/TCI AGREEMENT--the agreement between Time and TCI with respect to their
rights under the TBS Shareholders' Agreement and certain other matters.         

TIME WARNER--Time Warner Inc.                                               

TIME WARNER BOARD--the Board of Directors of Time Warner.                   

TIME WARNER CAPITAL STOCK--Time Warner Preferred Stock and Time Warner      
Common Stock.                                                                   

TIME WARNER CHARTER--the Restated Certificate of Incorporation of Time      
Warner.                                                                         

TIME WARNER COMMON STOCK--Common Stock, par value $1.00 per share, of Time  
Warner.                                                                         

TIME WARNER FORM 8-KS--Time Warner's Current Reports on Form 8-K dated      
January 4, 1996, March 22, 1996, March 25, 1996, April 2, 1996, April 4, 1996,  
April 11, 1996, May 15, 1996, August 6, 1996, August 14, 1996 and September 6,  
1996.                                                                           

TIME WARNER FORM 10-K--Time Warner's Annual Report on Form 10-K for the year
ended December 31, 1995, as amended by Time Warner's Form 10-K/A, dated June    
27, 1996.                                                                       

TIME WARNER FORM 10-QS--Time Warner's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996 and June 30, 1996.                                

TIME WARNER GENERAL PARTNERS--certain wholly owned subsidiaries of Time     
Warner which are general partners of TWE and which, together with Time Warner,  
collectively own 74.49% of the pro rata priority capital and residual equity    
interests in TWE.                                                               

TIME WARNER MEETING--the Special Meeting of Stockholders of Time Warner.    

TIME WARNER MERGER--the merger of TW Merger Corp. into Time Warner as       
contemplated by the Merger Agreement.                                           

TIME WARNER PREFERRED STOCK--Preferred Stock, par value $1.00 per share, of 
Time Warner.                                                                    

TIME WARNER RECORD DATE--the record date for the determination of the       
holders of record of shares of Time Warner Common Stock and Time Warner Voting  
Preferred Stock entitled to notice of and to vote at the Time Warner Meeting.   

TIME WARNER REPORTS--the Time Warner Form 10-K, the Time Warner Form 10-Qs  
and the Time Warner Form 8-Ks.                                                  

xxv 

DEFM14A
221st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 221st
TIME WARNER SERIES D PREFERRED STOCK--Series D Convertible Preferred Stock, 
par value $1.00 per share, of Time Warner.                                      

TIME WARNER SERIES E PREFERRED STOCK--Series E Convertible Preferred Stock, 
par value $1.00 per share, of Time Warner.                                      

TIME WARNER SERIES F PREFERRED STOCK--Series F Convertible Preferred Stock, 
par value $1.00 per share, of Time Warner.                                      

TIME WARNER SERIES G PREFERRED STOCK--Series G Convertible Preferred Stock, 
par value $1.00 per share, of Time Warner.                                      

TIME WARNER SERIES H PREFERRED STOCK--Series H Convertible Preferred Stock, 
par value $1.00 per share, of Time Warner.                                      

TIME WARNER SERIES I PREFERRED STOCK--Series I Convertible Preferred Stock, 
par value $1.00 per share, of Time Warner.                                      

TIME WARNER SERIES J PREFERRED STOCK--Series J Convertible Preferred Stock, 
par value $1.00 per share, of Time Warner.                                      

TIME WARNER SERIES K PREFERRED STOCK--10 1/4% Series K Exchangeable         
Preferred Stock, par value $1.00 per share, of Time Warner.                     

TIME WARNER SERIES M PREFERRED STOCK--10 1/4% Series M Exchangeable         
Preferred Stock, par value $1.00 per share, of Time Warner.                     

TIME WARNER SERVICE PARTNERSHIPS--TW Service Holding I, L.P. and TW Service 
Holding II, L.P., each of which owns certain assets related to the business of  
TWE.                                                                            

TIME WARNER VOTING PREFERRED STOCK--Time Warner Series D Preferred Stock,   
Time Warner Series E Preferred Stock, Time Warner Series F Preferred Stock,     
Time Warner Series G Preferred Stock, Time Warner Series I Preferred Stock and  
Time Warner Series J Preferred Stock.                                           

TNT--Turner Network Television.                                             

TOSHIBA--Toshiba Corporation.                                               

TRANSACTION--collectively, the transactions contemplated by the Transaction 
Agreements.                                                                     

TRANSACTION AGREEMENTS--the Merger Agreement, the LMC Agreement and the     
Support Agreement, together with the agreements contemplated thereby.           

TSP--Turner Sports Programming, Inc.                                        

TURNER DEMAND REGISTRATION--the right of the Turner Holders, for a three-   
year period, to require New Time Warner, on three separate occasions, to        
register under the Securities Act sales of Registrable Shares.                  

TURNER EMPLOYMENT AGREEMENT--the employment agreement to be entered into    
between New Time Warner and Mr. Turner.                                         

TURNER HOLDERS--Mr. Turner, Turner Outdoor and certain associated holders of
New Time Warner Common Stock together with certain specified entities to whom   
the Registrable Shares are transferred.                                         

TURNER OUTDOOR--Turner Outdoor Inc.                                         

xxvi  

DEFM14A
222nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 222nd
TURNER PARTNERS--Turner Partners, L.P., a limited partnership of which Mr.  
Turner is the sole general partner.                                             

TURNER PICTURES--Turner Pictures Worldwide, Inc.                            

TURNER REGISTRATION RIGHTS AGREEMENT--the agreement to be entered into upon 
consummation of the Mergers between New Time Warner and the Turner              
Shareholders, pursuant to which New Time Warner will grant to the Turner        
Shareholders and certain associated holders of New Time Warner Common Stock     
rights to require the registration under the Securities Act of sales of         
certain New Time Warner Common Stock held by them.                              

TURNER SHAREHOLDER SHARES--the shares of TBS Capital Stock that a Turner    
Shareholder is entitled to vote with respect to the TBS Merger Proposal.        

TURNER SHAREHOLDERS--R.E. Turner and Turner Outdoor.                        

TW 7.75% NOTES--the 7.75% notes of Time Warner due 2006.                    

TW 8.75% CONVERTIBLE DEBENTURES--the 8.75% convertible subordinated         
debentures due 2015 of Time Warner.                                             

TW INDENTURE--the Indenture dated as of January 15, 1993, between Time      
Warner and Chemical Bank, as trustee, pursuant to which the TW LYONs were       
issued.                                                                         

TW LYONS--the zero coupon convertible notes due 2013 of Time Warner.        

TW MERGER APPROVAL--the approval of the TW Merger Proposal by the           
affirmative vote, in person or by proxy, of the holders of a majority in        
voting power of all outstanding shares of Time Warner Common Stock and Time     
Warner Voting Preferred Stock, voting together as a single class.               

TW MERGER CORP.--Time Warner Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of New Time Warner.                                     

TW MERGER PROPOSAL--the proposal to be considered at the Time Warner Meeting
to approve and adopt the Merger Agreement.                                      

TW TRANSACTIONS--the ITOCHU/Toshiba Transaction, the Debt Refinancings, the 
Six Flags Transaction, the Unclustered Cable Transactions, the TWE-A/N          
Transaction and the Cable Acquisitions.                                         

TWE--Time Warner Entertainment Company, L.P.                                

TWE-ADVANCE/NEWHOUSE PARTNERSHIP--Time Warner Entertainment-Advance/Newhouse
Partnership, a New York general partnership.                                    

TWE-A/N TRANSACTION--the formation of the TWE-Advance/Newhouse Partnership, 
in which TWE owns a two-thirds equity interest and is the managing partner and  
Advance/Newhouse owns a one-third equity interest.                              

TWE PARTNERSHIP AGREEMENT--the agreement pursuant to which TWE is organized.

TWE RESIDUAL CAPITAL--the residual equity partnership interests in TWE that,
in the case of certain events such as the liquidation or dissolution of TWE,    
are entitled to any excess of the then fair value of the net assets of TWE      
over the aggregate amount of Cumulative Priority Capital and special tax        
allocations.                                                                    

TWE SENIOR CAPITAL--the senior priority capital interests in TWE that       
provide Time Warner with certain priority claims to the net partnership income  
of TWE and distributions of TWE partnership capital, including certain          
priority distributions of partnership capital in the event of liquidation or    
dissolution of TWE.                                                             

xxvii 

DEFM14A
223rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 223rd
TWE SERIES A CAPITAL--the pro rata priority capital interests in TWE that   
provide Time Warner and U S WEST with certain priority claims to the net        
partnership income of TWE and distributions of TWE partnership capital,         
including certain priority distributions of partnership capital in the event    
of liquidation or dissolution of TWE.                                           

TWE SERIES B CAPITAL--the priority capital interests in TWE that are junior 
to the TWE Series A Capital and provide Time Warner with certain priority       
claims to the net partnership income of TWE and distributions of TWE            
partnership capital, including certain priority distributions of partnership    
capital in the event of liquidation or dissolution of TWE.                      

UCTI--United Cable Turner Investment Inc.                                   

UMG--U S WEST Media Group.                                                  

UNAFFILIATED DIRECTORS--the members of the Time Warner Board who, in the    
Time Warner Board's judgment, have no direct or indirect material economic      
relationship with Time Warner other than as a result of stock ownership or      
customary directors' compensation.                                              

UNCLUSTERED CABLE TRANSACTIONS--the planned sale by TWE of 17 of its        
unclustered cable television systems serving an aggregate of approximately      
180,000 subscribers.                                                            

UNITS OFFERING--the offering by TBS of units, each consisting of one share  
of TBS Class B Preferred Stock and one share of TBS Class C Preferred Stock,    
to the Cable Operators.                                                         

U S WEST--U S WEST, Inc.                                                    

USWMC--U S WEST Multimedia Communications, Inc.                             

VIACOM--Viacom, Inc.                                                        

VIDEO DIVISION--New Time Warner's newly-created Video Division consisting   
principally of the businesses of TBS, Home Box Office and TWE's interest in     
Court TV.                                                                       

VOTING STOCK--the New Time Warner stock entitled to vote generally in the   
election of directors.                                                          

WCCI--Warner Cable Communications, Inc.                                     

WCI--Warner Communications Inc.                                             

WCI ACQUISITION--the acquisition by Time Warner of WCI.                     

WESTINGHOUSE--Westinghouse Electric Corporation.                            

WHV--Warner Home Video.                                                     

WTBS CONVERSION--the conversion of WTBS into a copyright-paid cable         
programming service through the acquisition of national broadcast rights to     
all of its programming, thus enabling WTBS to charge a subscription fee to      
cable operators and to sell local advertising time without any obligation on    
the part of the cable operators to make cable compulsory license payments       
under the Copyright Act.                                                        

xxviii  

DEFM14A
224th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 224th
                                                                 APPENDIX A-1(a)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER

DATED AS OF SEPTEMBER 22, 1995

AMONG 

TIME WARNER INC., 

TW INC.,

TIME WARNER ACQUISITION CORP.,

TW ACQUISITION CORP.

AND 

TURNER BROADCASTING SYSTEM, INC.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

DEFM14A
225th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 225th
                                                                [Download Table]

                                                                          PAGE
                                                                          ----
                              TABLE OF CONTENTS                               

                                                                              
Parties and Recitals....................................................    1 

                                  ARTICLE I                                   

                                 The Mergers                                  

Section 1.01. The Mergers..............................................     1 
Section 1.02. Closing..................................................     2 
Section 1.03. Effective Time...........................................     2 
Section 1.04. Effects of the Mergers...................................     2 
Section 1.05. Charter and By-Laws......................................     2 
Section 1.06. Directors................................................     3 
Section 1.07. Officers.................................................     3 

                                  ARTICLE II                                  

              Effect of the Mergers on the Capital Stock of the               
              Constituent Corporations; Exchange of Certificates              

Section 2.01. Effect on Parent Capital Stock...........................     3 
Section 2.02. Effect on Company Capital Stock..........................     6 
Section 2.03. Exchange of Shares and Certificates......................     8 

                                 ARTICLE III                                  

                        Representations and Warranties                        

Section 3.01. Representations and Warranties of the Company............    11 
Section 3.02. Representations and Warranties of Parent.................    17 

                                  ARTICLE IV                                  

                  Covenants Relating to Conduct of Business                   

Section 4.01. Conduct of Business......................................    22 
Section 4.02. No Solicitation..........................................    24 

                                  ARTICLE V                                   

                            Additional Agreements                             

Section 5.01. Preparation of Form S-4 and the Proxy Statement;                
               Shareholders Meeting and Parent's Stockholders Meeting..    25 
Section 5.02. Letter of the Company's Accountants......................    25 
Section 5.03. Letter of Parent's Accountants...........................    26 
Section 5.04. Access to Information; Confidentiality...................    26 
Section 5.05. Best Efforts; Notification...............................    26 
Section 5.06. Board Authority..........................................    27 
Section 5.07. Public Announcements.....................................    27 
Section 5.08. Benefit Plans............................................    27 
Section 5.09. Indemnification..........................................    28 
Section 5.10. Fees and Expenses........................................    28 
Section 5.11. Affiliates...............................................    28 
Section 5.12. Stock Exchange Listing...................................    29 

DEFM14A
226th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 226th
                                                                [Download Table]

                                                                          PAGE
                                                                          ----
                                                                              
Section 5.13. Execution of the Registration Rights Agreement...........    29 
Section 5.14. Tax Treatment............................................    29 
Section 5.15. Transfer and Real Property Transfer Gains Taxes..........    29 
Section 5.16. Material Transactions by Parent..........................    29 

                                  ARTICLE VI                                  

                             Conditions Precedent                             

Section 6.01. Conditions to Each Party's Obligation To Effect the             
               Mergers.................................................    30 
Section 6.02. Conditions to Obligations of Parent, Holdco, Delaware Sub       
               and Georgia Sub.........................................    31 
Section 6.03. Conditions to Obligation of the Company..................    32 

                                 ARTICLE VII                                  

                      Termination, Amendment and Waiver                       

Section 7.01. Termination..............................................    32 
Section 7.02. Effect of Termination....................................    34 
Section 7.03. Amendment................................................    35 
Section 7.04. Extension; Waiver........................................    35 
Section 7.05. Procedure for Termination, Amendment, Extension or              
               Waiver..................................................    35 

                                 ARTICLE VIII                                 

                              General Provisions                              

Section 8.01. Nonsurvival of Representations and Warranties............    35 
Section 8.02. Notices..................................................    35 
Section 8.03. Definitions..............................................    36 
Section 8.04. Interpretation...........................................    36 
Section 8.05. Counterparts.............................................    36 
Section 8.06. Entire Agreement; No Third-Party Beneficiaries...........    36 
Section 8.07. Governing Law............................................    37 
Section 8.08. Assignment...............................................    37 
Section 8.09. Enforcement..............................................    37 
Section 8.10. Waivers..................................................    37 

                                                                [Download Table]
                                                                             
EXHIBITS                                                                     
   Exhibit A-1             Form of TBS Affiliate Letter                      
   Exhibit A-2             Form of Parent Affiliate Letter                   
   Exhibit B               Form of Registration Rights Agreement             
   Exhibit C-1             Form of Investors' Agreement with Principal       
                           Shareholder and Related Parties                   
   Exhibit C-2             Form of Investors' Agreement with Qualified       
                           Stockholders                                      
   Exhibit D               Form of Certificates and Letters of Representation
                           regarding Tax Matters                             
   [EXHIBITS NOT PROVIDED]                                                   

ii

DEFM14A
227th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 227th
INDEX OF DEFINED TERMS
IN
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER 

                                                                [Download Table]

TERM                                                                    SECTION  
----                                                                    -------- 
                                                                                 
"affiliate"............................................................  8.03(a) 
"Appraisal Shares".....................................................  2.01(d) 
"Approved Matters".....................................................  4.01(a) 
"Benefit Plans"........................................................  3.01(i) 
"Certificates".........................................................  2.03(b) 
"Certificates of Merger"...............................................  1.03    
"Changed Parent Stock".................................................  2.01(c) 
"Class A Common Stock".................................................  2.02(a) 
"Class A Preferred Stock"..............................................  3.01(c) 
"Class B Common Stock".................................................  2.02(a) 
"Class B Preferred Stock"..............................................  3.01(c) 
"Class C Preferred Stock"..............................................  2.02(a) 
"Class C Shareholders".................................................  3.01(c) 
"Class D Preferred Stock"..............................................  3.01(c) 
"Closing"..............................................................  1.02    
"Closing Date".........................................................  1.02    
"Code".................................................................  Recitals
"Common Conversion Number".............................................  2.02(c) 
"Common Stock Equivalents".............................................  5.16    
"Communications Act"...................................................  3.01(d) 
"Company"..............................................................  Recitals
"Company Capital Stock"................................................  2.02(a) 
"Company Common Stock".................................................  2.02(a) 
"Company Disclosure Letter"............................................  3.01(a) 
"Company Material Adverse Effect"......................................  3.01(a) 
"Company Programming Subsidiary".......................................  3.01(a) 
"Company Stock Options"................................................  3.01(c) 
"Company Stock Plans"..................................................  3.01(c) 
"Company Subsidiary"...................................................  3.01(a) 
"Company Warrant"......................................................  2.02(e) 
"Confidentiality Agreement"............................................  5.04    
"Corporation"..........................................................  1.05    
"D&O Insurance"........................................................  5.09    
"Delaware Sub".........................................................  Recitals
"DGCL".................................................................  1.01(a) 
"Dissenting Shares"....................................................  2.02(d) 
"Effective Time of the Mergers"........................................  1.03    
"employee benefit plan"................................................  3.02(m) 
"employee pension benefit plan"........................................  5.08(b) 
"ERISA"................................................................  3.01(j) 
"Exchange Act".........................................................  3.01(d) 
"Exchange Agent".......................................................  2.03(a) 
"Exchange Fund"........................................................  2.03(a) 
"FCC"..................................................................  3.01(d) 
"Filed Parent SEC Documents"...........................................  3.02(g) 
"Filed SEC Documents"..................................................  3.01(g) 
"Form S-4".............................................................  3.01(f) 

iii 

DEFM14A
228th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 228th
                                                                [Download Table]

TERM                                                                   SECTION  
----                                                                  --------- 
                                                                                
"Georgia BCC"........................................................ 1.01(b)   
"Georgia Sub"........................................................ Recitals  
"Governmental Entity"................................................ 3.01(d)   
"Holdco"............................................................. Recitals  
"Holdco Capital Stock"............................................... 2.01(c)   
"Holdco Common Stock"................................................ 2.01(b)   
"Holdco LMC Class Stock"............................................. 2.01(c)   
"Holdco LMCN-V Stock"................................................ 2.01(c)   
"Holdco Series B Preferred Stock".................................... 2.01(c)   
"Holdco Series D Preferred Stock".................................... 2.01(c)   
"Holdco Series E Preferred Stock".................................... 2.01(c)   
"Holdco Series F Preferred Stock".................................... 2.01(c)   
"Holdco Series G Preferred Stock".................................... 2.01(c)   
"Holdco Series H Preferred Stock".................................... 2.01(c)   
"Holdco Series I Preferred Stock".................................... 2.01(c)   
"Holdco Series L Preferred Stock".................................... 2.01(c)   
"HSR Act"............................................................ 3.01(d)   
"incentive stock option"............................................. 2.01(e)   
"Liens".............................................................. 3.01(b)   
"LMC"................................................................ Recitals  
"LMC Agreement"...................................................... Recitals  
"Material Breach".................................................... 7.01(b)(v)
"Material Company Subsidiary"........................................ 3.01(a)   
"Material Parent Subsidiary"......................................... 3.02(a)   
"Material Transaction"............................................... 5.16      
"Maximum Premium".................................................... 5.09      
"Mergers"............................................................ Recitals  
"New Line"........................................................... 3.01(c)   
"New Line Debentures"................................................ 3.01(c)   
"New Line Options"................................................... 3.01(c)   
"New Line Plans"..................................................... 3.01(c)   
"NYSE"............................................................... 5.12      
"Original Agreement"................................................. Recitals  
"Parent"............................................................. Recitals  
"Parent Capital Stock"............................................... 2.01(a)   
"Parent Common Stock"................................................ 2.01(a)   
"Parent Disclosure Letter"........................................... 3.02(c)   
"Parent Material Adverse Effect"..................................... 3.02(a)   
"Parent Options"..................................................... 3.02(c)   
"Parent Preferred Stock"............................................. 3.02(c)   
"Parent SEC Documents"............................................... 3.02(e)   
"Parent Series B Preferred Stock".................................... 2.01(a)   
"Parent Series C Preferred Stock".................................... 2.01(a)   
"Parent Series D Preferred Stock".................................... 2.01(a)   
"Parent Series E Preferred Stock".................................... 2.01(a)   
"Parent Series F Preferred Stock".................................... 2.01(a)   
"Parent Series G Preferred Stock".................................... 2.01(a)   
"Parent Series H Preferred Stock".................................... 2.01(a)   
"Parent Series I Preferred Stock".................................... 2.01(a)   
"Parent Series J Preferred Stock".................................... 2.01(a)   
"Parent Series K Preferred Stock".................................... 2.01(a)   

iv

DEFM14A
229th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 229th
                                                                [Download Table]

TERM                                                                    SECTION  
----                                                                    -------- 
                                                                                 
"Parent Series L Preferred Stock"......................................  2.01(a) 
"Parent Stockholder Approvals".........................................  3.02(i) 
"Parent Stock Plans"...................................................  3.02(c) 
"Parent Subsidiary"....................................................  3.02(a) 
"Parent Warrant".......................................................  2.01(e) 
"Parent's Stockholders Meeting"........................................  5.01(c) 
"person"...............................................................  8.03(b) 
"Principal Shareholder"................................................  Recitals
"Programming Agreement"................................................  3.01(d) 
"Proxy Statement"......................................................  3.01(d) 
"Registration Rights Agreement"........................................  5.13    
"Rights Agreement".....................................................  3.02(c) 
"SEC"..................................................................  3.01(a) 
"SEC Documents"........................................................  3.01(e) 
"Section 262"..........................................................  2.01(d) 
"Securities Act".......................................................  3.01(e) 
"Shareholder Approvals"................................................  3.01(d) 
"Shareholders Meeting".................................................  5.01(b) 
"subsidiary"...........................................................  8.03(c) 
"Support Agreement"....................................................  Recitals
"takeover proposal"....................................................  4.02(a) 
"Taxes"................................................................  3.01(n) 
"Tax Returns"..........................................................  3.01(n) 
"TBS Merger"...........................................................  Recitals
"TCI"..................................................................  3.01(m) 
"TBS Surviving Corporation"............................................  1.01(b) 
"TW Merger"............................................................  Recitals
"TW Surviving Corporation".............................................  1.01(a) 
"TWE"..................................................................  3.02(a) 
"Voting Agreements"....................................................  Recitals

v 

DEFM14A
230th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 230th
                     AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
                 "Agreement") dated as of September 22, 1995, among TIME
                  WARNER INC., a Delaware corporation ("Parent"), TW INC.,
               a Delaware corporation ("Holdco") and a direct wholly
             owned subsidiary of Parent, TIME WARNER ACQUISITION
              CORP., a Delaware corporation ("Delaware Sub") and a
                  direct wholly owned subsidiary of Holdco, TW ACQUISITION
                   CORP., a Georgia corporation ("Georgia Sub") and a direct
       wholly owned subsidiary of Holdco, and TURNER
               BROADCASTING SYSTEM, INC., a Georgia corporation (the
"Company").                           

Whereas Parent, Delaware Sub and the Company have entered into an Agreement 
and Plan of Merger dated as of September 22, 1995 (the "Original Agreement"),   
providing for the merger of the Company with and into Delaware Sub;             

Whereas Section 1.01 of the Original Agreement contemplated that the parties
thereto may amend the Original Agreement to provide for a tax-free              
incorporation transaction under Section 351 of the Internal Revenue Code of     
1986, as amended (the "Code");                                                  

Whereas, Parent, Delaware Sub and the Company wish to amend and restate the 
Original Agreement in its entirety to provide for such a transaction and to     
make certain other amendments to the Original Agreement, and Holdco and         
Georgia Sub wish to become parties thereto;                                     

Whereas, the respective Boards of Directors of Parent, Holdco and Delaware  
Sub have approved the merger (the "TW Merger") of Delaware Sub into Parent,     
upon the terms and subject to the conditions set forth in this Agreement, and   
have approved this Agreement;                                                   

Whereas, the respective Boards of Directors of Holdco, Georgia Sub and the  
Company have approved the merger (the "TBS Merger" and, together, with the TW   
Merger, the "Mergers") of Georgia Sub into the Company, upon the terms and      
subject to the conditions set forth in this Agreement, and have adopted this    
Agreement;                                                                      

Whereas Parent and the Company desire to make certain representations,      
warranties, covenants and agreements in connection with the Mergers and also    
to prescribe various conditions to the Mergers;                                 

Whereas for Federal income tax purposes it is intended that the Mergers     
qualify as exchanges under Section 351 of the Code or, in the alternative, as   
reorganizations within the meaning of Section 368(a) of the Code; and           

Whereas R. E. Turner, III (the "Principal Shareholder"), and certain of his 
associates and affiliates have entered into a Shareholders' Agreement with      
Parent, dated as of September 22, 1995 (the "Support Agreement") and Liberty    
Media Corporation ("LMC") and certain of its subsidiaries and affiliates have   
entered into an LMC Agreement with Parent, dated as of September 22, 1995 (as   
amended, the "LMC Agreement" and, together with the Support Agreement, the      
"Voting Agreements"), in each case providing, among other things, that such     
persons will vote their shares of Company Capital Stock (as defined in Section  
2.02(a)) in favor of the TBS Merger and the approval and adoption of this       
Agreement.                                                                      

Now, Therefore, in consideration of the representations, warranties,        
covenants and agreements contained in this Agreement, the parties agree as      
follows:                                                                        

ARTICLE I 

The Mergers 

Section 1.01. The Mergers. (a) Upon the terms and subject to the conditions 
set forth in this Agreement, and in accordance with the Delaware General        
Corporation Law (the "DGCL"), Delaware Sub shall be merged into Parent at the   
Effective Time of the Mergers (as defined in Section 1.03). Following the TW    

DEFM14A
231st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 231st
Merger, the separate corporate existence of Delaware Sub shall cease and        
Parent shall continue as the surviving corporation (the "TW Surviving           
Corporation") and shall succeed to and assume all the rights, properties,       
liabilities and obligations of Delaware Sub in accordance with the DGCL. At     
the election of Parent, any direct wholly owned corporate subsidiary of Holdco  
may be substituted for Delaware Sub as a constituent corporation in the TW      
Merger (provided that any such substitution is consistent with the treatment    
of the TW Merger as an exchange under Section 351 of the Code). In such event,  
the parties agree to execute an appropriate amendment to this Agreement in      
order to reflect such substitution.                                             

(b) Upon the terms and subject to the conditions set forth in this          
Agreement, and in accordance with the Georgia Business Corporation Code (the    
"Georgia BCC"), Georgia Sub shall be merged into the Company at the Effective   
Time of the Mergers. Following the TBS Merger, the separate corporate           
existence of Georgia Sub shall cease and the Company shall continue as the      
surviving corporation (the "TBS Surviving Corporation") and shall succeed to    
and assume all the rights, properties, liabilities and obligations of Georgia   
Sub in accordance with the Georgia BCC. At the election of Parent, any direct   
wholly owned corporate subsidiary of Holdco may be substituted for Georgia Sub  
as a constituent corporation in the TBS Merger (provided that any such          
substitution is consistent with the treatment of the TBS Merger as an exchange  
under Section 351 of the Code). In such event, the parties agree to execute an  
appropriate amendment to this Agreement in order to reflect such substitution.  

Section 1.02. Closing. The closing of the Mergers (the "Closing") shall take
place at 10:00 a.m. on a date to be specified by the parties (the "Closing      
Date"), which (subject to satisfaction or waiver of the conditions set forth    
in Sections 6.02 and 6.03) shall be no later than the second business day       
after satisfaction of the conditions set forth in Section 6.01 (other than the  
condition set forth in Section 6.01(d)), at the offices of Cravath, Swaine &    
Moore, Worldwide Plaza, 825 Eighth Avenue, New York, N.Y. 10019, unless         
another time, date or place is agreed to in writing by the parties hereto.      

Section 1.03. Effective Time. As soon as practicable following the          
satisfaction or waiver of the conditions set forth in Article VI, the parties   
shall file such certificates of merger, articles of merger or other             
appropriate documents (in any such case, the "Certificates of Merger")          
executed in accordance with the relevant provisions of the DGCL and the         
Georgia BCC and shall make all other filings, recordings or publications        
required by the DGCL and the Georgia BCC in connection with the Mergers. Each   
Merger shall become effective at the time specified in the Certificates of      
Merger, which specified time shall be the same in each Certificate of Merger    
(the time the Mergers become effective being the "Effective Time of the         
Mergers").                                                                      

Section 1.04. Effects of the Mergers. The TW Merger shall have the effects  
set forth in Section 259 of the DGCL. The TBS Merger shall have the effects     
set forth in Section 14-2-1106 of the Georgia BCC.                              

Section 1.05. Charter and By-laws. (a) The Certificate of Incorporation of  
Parent as in effect immediately prior to the Effective Time of the Mergers      
shall be amended at the Effective Time of the Mergers so that Article I         
thereof reads in its entirety as follows: "The name of the corporation          
(hereinafter called the "Corporation") is TIME WARNER COMPANIES INC." and, as   
so amended, such Certificate of Incorporation shall be the Certificate of       
Incorporation of the TW Surviving Corporation until thereafter changed or       
amended as provided therein or by applicable law.                               

(b) The By-Laws of Delaware Sub as in effect at the Effective Time of the   
Mergers shall be the By-Laws of the TW Surviving Corporation until thereafter   
changed or amended as provided therein or by applicable law.                    

(c) The Articles of Incorporation of the Company as in effect immediately   
prior to the Effective Time of the Mergers shall be the Articles of             
Incorporation of the TBS Surviving Corporation until thereafter changed or      
amended as provided therein or by applicable law.                               

(d) The By-laws of the Company as in effect at the Effective Time of the    
Mergers shall be the By-laws of the TBS Surviving Corporation until thereafter  
changed or amended as provided therein or by applicable law.                    

A1(a)-2 

DEFM14A
232nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 232nd
Section 1.06. Directors. The directors of Delaware Sub and Georgia Sub at   
the Effective Time of the Mergers shall be the directors of the TW Surviving    
Corporation and the TBS Surviving Corporation, respectively, until the earlier  
of their resignation or removal or until their respective successors are duly   
elected and qualified, as the case may be. Immediately after the Effective      
Time of the Mergers, Holdco shall take all action necessary to elect, among     
others, the Chief Executive Officer of the Company and four other persons to    
be agreed upon between Parent and the Chief Executive Officer of the Company,   
as directors of the TBS Surviving Corporation.                                  

Section 1.07. Officers. The officers of Parent and the Company at the       
Effective Time of the Mergers shall be the officers of the TW Surviving         
Corporation and the TBS Surviving Corporation, respectively, until the earlier  
of their resignation or removal or until their respective successors are duly   
elected and qualified, as the case may be.                                      

ARTICLE II  

Effects of the Mergers on the Capital Stock of the Constituent Corporations;  
Exchange of Certificates  

Section 2.01. Effect on Parent Capital Stock. As of the Effective Time of   
the Mergers, by virtue of the TW Merger and without any action on the part of   
the holder of any shares of Parent Capital Stock (as defined in Section         
2.01(a)) or any shares of capital stock of Delaware Sub:                        

(a) Capital Stock of Delaware Sub. Each issued and outstanding share of     
Common Stock, par value $1.00 per share, of Delaware Sub shall be converted     
into (i) one one-millionth (1/1,000,000th) of a fully paid and nonassessable    
share of Common Stock, par value $1.00 per share, of the TW Surviving           
Corporation for each share of Common Stock, par value $1.00 per share, of       
Parent ("Parent Common Stock") issued and outstanding immediately prior to the  
Effective Time of the Mergers, (ii) one one-millionth (1/1,000,000th) of a      
fully paid and nonassessable share of Series B 6.40% Preferred Stock, par       
value $1.00 per share, of the TW Surviving Corporation for each share of        
Series B 6.40% Preferred Stock, par value $1.00 per share, of Parent ("Parent   
Series B Preferred Stock") issued and outstanding immediately prior to the      
Effective Time of the Mergers, (iii) one one-millionth (1/1,000,000th) of a     
fully paid and nonassessable share of Series C Convertible Preferred Stock,     
par value $1.00 per share, of the TW Surviving Corporation for each share of    
Series C Convertible Preferred Stock, par value $1.00 per share, of Parent      
("Parent Series C Preferred Stock"), if any, issued and outstanding             
immediately prior to the Effective Time of the Mergers, (iv) one one-millionth  
(1/1,000,000th) of a fully paid and nonassessable share of Series D             
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving     
Corporation for each share of Series D Convertible Preferred Stock, par value   
$1.00 per share, of Parent ("Parent Series D Preferred Stock") issued and       
outstanding immediately prior to the Effective Time of the Mergers, (v) one     
one-millionth (1/1,000,000th) of a fully paid and nonassessable share of        
Series E Convertible Preferred Stock, par value $1.00 per share, of the TW      
Surviving Corporation for each share of Series E Convertible Preferred Stock,   
par value $1.00 per share, of Parent ("Parent Series E Preferred Stock")        
issued and outstanding immediately prior to the Effective Time of the Mergers,  
(vi) one one-millionth (1/1,000,000th) of a fully paid and nonassessable share  
of Series F Convertible Preferred Stock, par value $1.00 per share, of the TW   
Surviving Corporation for each share of Series F Convertible Preferred Stock,   
par value $1.00 per share, of Parent ("Parent Series F Preferred Stock")        
issued and outstanding immediately prior to the Effective Time of the Mergers,  
(vii) one one-millionth (1/1,000,000th) of a fully paid and nonassessable       
share of Series G Convertible Preferred Stock, par value $1.00 per share, of    
the TW Surviving Corporation for each share of Series G Convertible Preferred   
Stock, par value $1.00 per share, of Parent ("Parent Series G Preferred         
Stock") issued and outstanding immediately prior to the Effective Time of the   
Mergers, (viii) one one-millionth (1/1,000,000th) of a fully paid and           
nonassessable share of Series H Convertible Preferred Stock, par value $1.00    
per share, of the TW Surviving Corporation for each share of Series H           
Convertible Preferred Stock, par value $1.00 per share, of Parent ("Parent      
Series H Preferred Stock") issued and outstanding immediately prior to the      
Effective Time of the Mergers, (ix) one one-millionth (1/1,000,000th) of a      
fully paid and nonassessable share of Series I Convertible Preferred Stock,     
par value $1.00 per share, of the TW Surviving Corporation for each share       

A1(a)-3 

DEFM14A
233rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 233rd
of Series I Convertible Preferred Stock, par value $1.00 per share, of Parent   
("Parent Series I Preferred Stock") issued and outstanding immediately prior    
to the Effective Time of the Mergers, (x) one one-millionth (1/1,000,000th) of  
a fully paid and nonassessable share of Series J Convertible Preferred Stock,   
par value $1.00 per share, of the TW Surviving Corporation for each share of    
Series J Convertible Preferred Stock, par value $1.00 per share, of Parent      
("Parent Series J Preferred Stock"), if any, issued and outstanding             
immediately prior to the Effective Time of the Mergers, (xi) one one-millionth  
(1/1,000,000th) of a fully paid and nonassessable share of Series K             
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving     
Corporation for each share of Series K Convertible Preferred Stock, par value   
$1.00 per share, of Parent ("Parent Series K Preferred Stock"), if any, issued  
and outstanding immediately prior to the Effective Time of the Mergers and      
(xii) one one-millionth (1/1,000,000th) of a fully paid and nonassessable       
share of Series L Convertible Preferred Stock, par value $1.00 per share, of    
the TW Surviving Corporation for each share of Series L Convertible Preferred   
Stock, par value $1.00 per share, of Parent ("Parent Series L Preferred Stock"  
and, together with the Parent Common Stock, the Parent Series B Preferred       
Stock, the Parent Series C Preferred Stock, the Parent Series D Preferred       
Stock, the Parent Series E Preferred Stock, the Parent Series F Preferred       
Stock, the Parent Series G Preferred Stock, the Parent Series H Preferred       
Stock, the Parent Series I Preferred Stock, the Parent Series J Preferred       
Stock and the Parent Series K Preferred Stock, the "Parent Capital Stock")      
issued and outstanding immediately prior to the Effective Time of the Mergers.  
For the purposes of this Section 2.01(a), shares of Parent Capital Stock,       
other than Parent Series C Preferred Stock, held by Parent Subsidiaries (as     
defined in Section 3.02(a)) shall be deemed to be not outstanding.              

(b) Cancellation of Treasury Stock. Each share of Parent Capital Stock that 
is owned by Parent shall automatically be canceled and retired and shall cease  
to exist, and no shares of Common Stock, par value $0.01 per share, of Holdco   
(the "Holdco Common Stock") or other consideration shall be delivered in        
exchange therefor.                                                              

(c) Conversion of Parent Capital Stock. Subject to Section 2.01(d), each    
issued share of Parent Capital Stock (other than shares to be canceled in       
accordance with Section 2.01(b) and other than shares subject to Section        
2.01(f)) shall be converted into fully paid and nonassessable shares of the     
capital stock of Holdco ("Holdco Capital Stock") in accordance with the         
following table (it being acknowledged that as of November 30, 1995 (the date   
of execution of this Agreement), (x) no shares of Parent Series E Preferred     
Stock, Parent Series F Preferred Stock, Parent Series J Preferred Stock,        
Parent Series K Preferred Stock or Parent Series L Preferred Stock are          
outstanding and (y) it is anticipated that no shares of Parent Series C         
Preferred Stock, Parent Series J Preferred Stock or Series K Parent Preferred   
Stock will be outstanding immediately prior to the Effective Time of the        
Mergers):                                                                       

                                                                [Download Table]

        EACH SHARE OF THE                    NUMBER AND CLASS OR SERIES        
    SPECIFIED CLASS OR SERIES               OF SHARES OF HOLDCO CAPITAL        
     OF PARENT CAPITAL STOCK                 STOCK INTO WHICH CONVERTED        
    -------------------------               ---------------------------        
                                                                               
Parent Common Stock............... One Share of Holdco Common Stock            
Parent Series B Preferred Stock... One Share of Series B 6.40% Preferred Stock,
                                    par value $0.10 per share, of Holdco       
                                    ("Holdco Series B Preferred Stock")        
Parent Series C Preferred Stock... 2.08264 shares of Holdco Common Stock       
Parent Series D Preferred Stock... One share of Series D Convertible Preferred 
                                    Stock, par value $0.10 per share, of Holdco
                                    ("Holdco Series D Preferred Stock")        
Parent Series E Preferred Stock... One share of Series E Convertible Preferred 
                                    Stock, par value $0.10 per share, of Holdco
                                    ("Holdco Series E Preferred Stock")        

A1(a)-4 

DEFM14A
234th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 234th
                                                                [Download Table]

        EACH SHARE OF THE                    NUMBER AND CLASS OR SERIES        
    SPECIFIED CLASS OR SERIES               OF SHARES OF HOLDCO CAPITAL        
     OF PARENT CAPITAL STOCK                 STOCK INTO WHICH CONVERTED        
    -------------------------               ---------------------------        
                                                                               
Parent Series F Preferred Stock... One share of Series F Convertible Preferred 
                                    Stock, par value $0.10 per share, of Holdco
                                    ("Holdco Series F Preferred Stock")        
Parent Series G Preferred Stock... One share of Series G Convertible Preferred 
                                    Stock, par value $0.10 per share, of Holdco
                                    ("Holdco Series G Preferred Stock")        
Parent Series H Preferred Stock... One share of Series H Convertible Preferred 
                                    Stock, par value $0.10 per share, of Holdco
                                    ("Holdco Series H Preferred Stock")        
Parent Series I Preferred Stock... One share of Series I Convertible Preferred 
                                    Stock, par value $0.10 per share, of Holdco
                                    ("Holdco Series I Preferred Stock")        
Parent Series J Preferred Stock... 1,000 shares of Series LMCN-V Common Stock, 
                                    par value $0.01 per share, of Holdco       
                                    ("Holdco LMCN-V Stock")                    
Parent Series K Preferred Stock... 1,000 shares of Series LMC Common Stock, par
                                    value $0.01 per share, of Holdco ("Holdco  
                                    LMC Class Stock")                          
Parent Series L Preferred Stock... One share of Series L Preferred Stock, par  
                                    value $0.10 per share, of Holdco ("Holdco  
                                    Series L Preferred Stock")                 

As of the Effective Time of the Mergers, all such shares of Parent Capital      
Stock shall no longer be outstanding and shall automatically be canceled and    
retired and shall cease to exist. As of the Effective Time of the Mergers,      
each certificate theretofore representing shares of Parent Capital Stock        
(other than each certificate theretofore representing Parent Series C           
Preferred Stock, Parent Series J Preferred Stock or Parent Series K Preferred   
Stock (the "Changed Parent Stock")), without any action on the part of Holdco,  
Parent or the holder thereof, shall be deemed to represent an equivalent        
number of shares of the class or series of Holdco Capital Stock set forth       
above next to the class or series of Parent Capital Stock formerly represented  
by such certificate and shall cease to represent any rights in any shares of    
Parent Capital Stock. As of the Effective Time of the Mergers, each holder of   
a certificate representing any shares of Changed Parent Stock shall cease to    
have any rights with respect thereto, except the right to receive, upon the     
surrender of any such certificates, certificates representing the number of     
shares of the class or series of Holdco Capital Stock, and in the case of any   
Parent Series C Preferred Stock any cash in lieu of fractional shares of        
Holdco Common Stock, set forth above next to the series of Changed Parent       
Stock formerly represented by such certificate to be issued or paid in          
consideration therefor upon surrender of such certificate in accordance with    
Section 2.03, without interest.                                                 

(d) Appraisal Rights. Notwithstanding anything in this Agreement to the     
contrary, shares ("Appraisal Shares") of Parent Capital Stock (other than       
Parent Common Stock) that are outstanding immediately prior to the Effective    
Time of the Mergers and that are held by any stockholder of Parent who is       
entitled to demand and properly demands appraisal of such Appraisal Shares      
pursuant to, and who complies in all respects with, the provisions of Section   
262 of the DGCL ("Section 262") shall not be converted into Holdco Capital      
Stock as provided in Section 2.01(c), but rather the holders of Appraisal       
Shares shall be entitled to payment of the fair value of such Appraisal Shares  
in accordance with the provisions of Section 262; provided, however, that if    
any such holder shall fail to perfect or otherwise shall waive, withdraw or     
lose the right to appraisal under Section 262 or a court of competent           
jurisdiction shall determine that such holder is not entitled to the relief     
provided by Section 262, then the right of such holder of Appraisal Shares to   
be paid the fair value of such holder's Appraisal Shares shall cease and such   
Appraisal Shares shall be treated as if they had been converted as of the       
Effective Time of the Mergers into shares of Holdco Capital Stock as provided   
in Section 2.01(c).                                                             

A1(a)-5 

DEFM14A
235th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 235th
(e) Exchange Ratio for Parent Options and Parent Warrants. (i) As of the    
Effective Time of the Mergers, each outstanding Parent Option (as defined in    
Section 3.02(c)) and each outstanding warrant (a "Parent Warrant") to purchase  
Parent Common Stock, originally issued in connection with the first issuance    
of Parent Series B Preferred Stock, shall be assumed by Holdco and converted    
into an option or warrant, as the case may be, to purchase shares of Holdco     
Common Stock, as provided below. Following the Effective Time of the Mergers,   
each Parent Option shall continue to have, and shall be subject to, the same    
terms and conditions set forth in the applicable Parent Stock Plan (as defined  
in Section 3.02(c)) pursuant to which such Parent Option was granted, and each  
Parent Warrant shall continue to have, and shall be subject to, the same terms  
and conditions, in each case as in effect immediately prior to the Effective    
Time of the Mergers, except that each such Parent Option or Parent Warrant      
shall be exercisable for the same number of shares of Holdco Common Stock as    
the number of shares of Parent Common Stock for which such Parent Option or     
Parent Warrant was exercisable immediately prior to the Effective Time of the   
Mergers.                                                                        

(ii) As of the Effective Time of the Mergers, Holdco shall enter into an    
assumption agreement with respect to each Parent Option and each Parent         
Warrant, which, in the case of any Parent Option, shall provide for Holdco's    
assumption of the obligations of Parent under the applicable Parent Stock       
Plan. Prior to the Effective Time of the Mergers, Parent shall make such        
amendments, if any, to the Parent Stock Plans as shall be necessary to permit   
such assumption in accordance with this Section 2.01(e).                        

(iii) It is the intention of the parties that, to the extent that any Parent
Option constitutes an "incentive stock option" (within the meaning of Section   
422 of the Code) immediately prior to the Effective Time of the Mergers, such   
Parent Option shall continue to qualify as an incentive stock option to the     
maximum extent permitted by Section 422 of the Code, and that the assumption    
of the Parent Option provided by this Section 2.01(e) shall satisfy the         
conditions of Section 424(a) of the Code.                                       

(f) Treatment of Parent Capital Stock Held by Parent                        
Subsidiaries. Notwithstanding anything in this Agreement to the contrary, each  
share of Parent Capital Stock (other than Parent Series C Preferred Stock)      
held by any Parent Subsidiary shall be converted into (i) in the case of each   
share of Parent Common Stock, one one-thousandth (1/1,000th) of a fully paid    
and nonassessable share of Common Stock of the TW Surviving Corporation, (ii)   
in the case of each share of Parent Series B Preferred Stock, one one-          
thousandth (1/1,000th) of a fully paid and nonassessable share of Series B      
6.40% Preferred Stock of the TW Surviving Corporation, (iii) in the case of     
each share of Parent Series L Preferred Stock, one one-thousandth (1/1,000th)   
of a fully paid and nonassessable share of Series L Convertible Preferred       
Stock of the TW Surviving Corporation, (iv) in the case of each share of        
Parent Series D Preferred Stock, one one-thousandth (1/1,000th) of a fully      
paid and nonassessable share of Series D Convertible Preferred Stock of the TW  
Surviving Corporation, (v) in the case of each share of Parent Series E         
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and             
nonassessable share of Series E Convertible Preferred Stock of the TW           
Surviving Corporation, (vi) in the case of each share of Parent Series F        
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and             
nonassessable share of Series F Convertible Preferred Stock of the TW           
Surviving Corporation, (vii) in the case of each share of Parent Series G       
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and             
nonassessable share of Series G Convertible Preferred Stock of the TW           
Surviving Corporation, (viii) in the case of each share of Parent Series H      
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and             
nonassessable share of Series H Convertible Preferred Stock of the TW           
Surviving Corporation and (ix) in the case of each share of Parent Series I     
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and             
nonassessable share of Series I Convertible Preferred Stock of the TW           
Surviving Corporation.                                                          

Section 2.02. Effect on Company Capital Stock. As of the Effective Time of  
the Mergers, by virtue of the TBS Merger and without any action on the part of  
the holder of any shares of Company Capital Stock or any shares of capital      
stock of Georgia Sub:                                                           

(a) Capital Stock of Georgia Sub. Each issued and outstanding share of      
capital stock of Georgia Sub shall be converted into (i) one one-millionth      
(1/1,000,000th) of a fully paid and nonassessable share of Class A Common       
Stock, par value $.0625 per share, of the TBS Surviving Corporation for each    
share of Class A                                                                

A1(a)-6 

DEFM14A
236th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 236th
Common Stock, par value $.0625 per share, of the Company ("Class A Common       
Stock") issued and outstanding immediately prior to the Effective Time of the   
Mergers, other than shares of Class A Common Stock subject to Section 2.02(f),  
(ii) one one-millionth (1/1,000,000th) of a share of Class B Common Stock, par  
value $.0625 per share, of the TBS Surviving Corporation for each share of      
Class B Common Stock, par value $.0625 per share, of the Company ("Class B      
Common Stock" and, together with the Class A Common Stock, the "Company Common  
Stock") issued and outstanding immediately prior to the Effective Time of the   
Mergers, other than shares of Class B Common Stock subject to Section 2.02(f),  
and (iii) one one-millionth (1/1,000,000th) of a share of Class C Convertible   
Preferred Stock, par value $.125 per share, of the TBS Surviving Corporation    
for each share of Class C Convertible Preferred Stock, par value $.125 per      
share, of the Company ("Class C Preferred Stock" and, together with the         
Company Common Stock, the "Company Capital Stock") issued and outstanding       
immediately prior to the Effective Time of the Mergers, other than Class C      
Preferred Stock subject to Section 2.02(f).                                     

(b) Cancellation of Treasury Stock. Each share of Company Capital Stock that
is owned by the Company shall automatically be canceled and retired and shall   
cease to exist, and no Holdco Common Stock or other consideration shall be      
delivered in exchange therefor.                                                 

(c) Conversion of Company Capital Stock. Subject to Sections 2.02(d),       
2.02(f) and 2.03(e), (i) each issued and outstanding share of Company Common    
Stock (other than shares to be canceled in accordance with Section 2.02(b)),    
shall be converted into the right to receive 0.75 (the "Common Conversion       
Number") of a fully paid and nonassessable share of Holdco Common Stock and     
(ii) each issued and outstanding share of Class C Preferred Stock (other than   
shares to be canceled in accordance with Section 2.02(b)) shall be converted    
into the right to receive 4.80 fully paid and nonassessable shares of Holdco    
Common Stock. As of the Effective Time of the Mergers, all such shares of       
Company Capital Stock shall no longer be outstanding and shall automatically    
be canceled and retired and shall cease to exist, and each holder of a          
certificate representing any such shares of Company Capital Stock shall cease   
to have any rights with respect thereto, except the right to receive, upon the  
surrender of any such certificates, certificates representing the shares of     
Holdco Common Stock and any cash in lieu of fractional shares of Holdco Common  
Stock to be issued or paid in consideration therefor upon surrender of such     
certificate in accordance with Section 2.03, without interest.                  

(d) Dissenting Shares. (i) The Board of Directors of the Company has adopted
a resolution pursuant to Section 1302(c)(2) of the Georgia BCC conferring       
dissenters' rights with respect to the Company Common Stock in connection with  
the TBS Merger. Notwithstanding anything in this Agreement to the contrary,     
shares of Company Capital Stock that are outstanding immediately prior to the   
Effective Time of the Mergers and that are held by any shareholder who has      
delivered to the Company, prior to the Shareholder Approvals (as defined in     
Section 3.01(d)), a written notice of such shareholder's intent to demand       
payment for such holder's shares of Company Capital Stock if the TBS Merger is  
effected, in accordance with Article 13 of the Georgia BCC, and who shall have  
not voted such shares in favor of the approval and adoption of this Agreement   
("Dissenting Shares") shall not be converted into the right to receive Holdco   
Common Stock as provided in Section 2.02(c), but the holders of Dissenting      
Shares shall be entitled to payment of the fair value of such Dissenting        
Shares in accordance with the provisions of such Article 13; provided,          
however, that if any such holder shall fail to perfect or shall otherwise       
waive the right to demand payment under Article 13 of the Georgia BCC or a      
court of competent jurisdiction shall determine that such holder is not         
entitled to the relief provided by such Article 13, then the right of such      
holder of Dissenting Shares to be paid the fair value of such holder's          
Dissenting Shares shall cease and such Dissenting Shares shall be treated as    
if they had been converted as of the Effective Time of the Mergers into the     
right to receive the shares of Holdco Common Stock as provided in Section       
2.02(c) and any cash in lieu of fractional shares of Holdco Common Stock as     
provided in Section 2.03(e), without any interest thereon.                      

(ii) The Company shall give Holdco (A) prompt notice of any notices or other
instruments received by the Company pursuant to Article 13 of the Georgia BCC   
and (B) the opportunity to direct all negotiations and proceedings with         
respect to demands for payment for Dissenting Shares. The Company shall not,    
except with the prior written consent of Holdco, voluntarily offer to make or   
make any payment with respect to any demands for payment for Dissenting Shares  
or offer to settle or settle any such demands.                                  

A1(a)-7 

DEFM14A
237th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 237th
(e) Exchange Ratio for Company Options and Company Warrants. (i) As of the  
Effective Time of the Mergers, each outstanding Company Stock Option (as        
defined in Section 3.01(c)), each outstanding New Line Option (as defined in    
Section 3.01(c)) and each outstanding warrant (a "Company Warrant") to          
purchase Class B Common Stock shall be assumed by Holdco and converted into an  
option or warrant, as the case may be, to purchase shares of Holdco Common      
Stock, as provided below. Following the Effective Time of the Mergers, each     
Company Stock Option shall continue to have, and shall be subject to, the same  
terms and conditions set forth in the applicable Company Stock Plan (as         
defined in Section 3.01(c)) pursuant to which such Company Stock Option was     
granted, as in effect immediately prior to the Effective Time of the Mergers,   
each New Line Option shall continue to have, and shall be subject to, the same  
terms and conditions set forth in the applicable New Line Plan (as defined in   
Section 3.01(c)) pursuant to which such New Line Option was granted, as in      
effect immediately prior to the Effective Time of the Mergers, and each         
Company Warrant shall continue to have, and shall be subject to, the same       
terms and conditions as in effect immediately prior to the Effective Time of    
the Mergers, except that (i) each such Company Stock Option, New Line Option    
and Company Warrant shall be exercisable for that number of shares of Holdco    
Common Stock equal to the product of (x) the number of shares of Class B        
Common Stock for which such Company Stock Option, New Line Option or Company    
Warrant was exercisable immediately prior to the Effective Time of the Mergers  
and (y) the Common Conversion Number, rounded, in the case of any Company       
Warrant or any Company Stock Option or New Line Option other than any           
incentive stock option, up and, in the case of any incentive stock option,      
down to the nearest whole share, if necessary, and (ii) the exercise price per  
share of such Company Stock Option, New Line Option or Company Warrant shall    
be equal to the aggregate exercise price of such Company Stock Option, New      
Line Option or Company Warrant immediately prior to the Effective Time of the   
Mergers divided by the number of shares of Holdco Common Stock for which such   
Company Stock Option, New Line Option or Company Warrant shall be exercisable   
as determined in accordance with the preceding clause (i), rounded up to the    
next highest cent, if necessary.                                                

(ii) As of the Effective Time of the Mergers, Holdco shall enter into an    
assumption agreement with respect to each Company Stock Option, New Line        
Option and Company Warrant, which shall provide for Holdco's assumption of the  
obligations of the Company under the applicable Company Stock Plan, New Line    
Plan or Warrant Agreement. Prior to the Effective Time of the Mergers, the      
Company shall make such amendments, if any, to the Company Stock Plans and the  
New Line Plans and each such Warrant Agreement as shall be necessary to permit  
such assumption in accordance with this Section 2.02(e).                        

(iii) It is the intention of the parties that, to the extent that any       
Company Stock Option or New Line Option constitutes an incentive stock option   
immediately prior to the Effective Time of the Mergers, such Company Stock      
Option or New Line Option shall continue to qualify as an incentive stock       
option to the maximum extent permitted by Section 422 of the Code, and that     
the assumption of the Company Stock Options and New Line Options provided by    
this Section 2.02(e) shall satisfy the conditions of Section 424(a) of the      
Code.                                                                           

(f) Treatment of Company Capital Stock Held By Parent, Parent Subsidiaries  
and Company Subsidiaries. Notwithstanding anything in this Agreement to the     
contrary, each issued and outstanding share of Company Capital Stock held by    
Parent, Holdco or any of their subsidiaries (including any such shares          
acquired by Holdco simultaneously with the Effective Time of the Mergers and    
any such shares held by corporations (other than the Company, but including     
the Company Subsidiaries) that become subsidiaries of Holdco simultaneously     
with the Effective Time of the Mergers but excluding any shares acquired        
pursuant to Section 2.02(a)) shall be converted into (i) in the case of each    
share of Class A Common Stock, one one-thousandth (1/1,000th) of a fully paid   
and nonassessable share of Class A Common Stock of the TBS Surviving            
Corporation, (ii) in the case of each share of Class B Common Stock, one one-   
thousandth (1/1,000th) of a fully paid and nonassessable share of Class B       
Common Stock of the TBS Surviving Corporation and (iii) in the case of each     
share of Class C Preferred Stock, one one-thousandth (1/1,000th) of a fully     
paid and nonassessable share of Class C Preferred Stock of the TBS Surviving    
Corporation.                                                                    

Section 2.03. Exchange of Shares and Certificates. (a) Exchange Agent. As of
the Effective Time of the Mergers, Holdco shall deposit with Chemical Bank or   
such other bank or trust company as may be designated by Holdco (the "Exchange  
Agent"), for the benefit of the holders of shares of Changed Parent Stock and   

A1(a)-8 

DEFM14A
238th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 238th
Company Capital Stock, for exchange in accordance with this Article II,         
through the Exchange Agent, certificates representing the shares of Holdco      
Capital Stock (such shares of Holdco Capital Stock, together with any           
dividends or distributions with respect thereto with a record date after the    
Effective Time of the Mergers, being hereinafter referred to as the "Exchange   
Fund") issuable pursuant to Sections 2.01 and 2.02 in exchange for outstanding  
shares of Changed Parent Stock and Company Capital Stock.                       

(b) Exchange Procedures. As soon as reasonably practicable after the        
Effective Time of the Mergers, the Exchange Agent shall mail to each holder of  
record of a certificate or certificates which immediately prior to the          
Effective Time of the Mergers represented outstanding shares of Changed Parent  
Stock or Company Capital Stock (the "Certificates") whose shares were           
converted into the right to receive shares of Holdco Capital Stock pursuant to  
Section 2.01 or 2.02, (i) a letter of transmittal (which shall specify that     
delivery shall be effected, and risk of loss and title to the Certificates      
shall pass, only upon delivery of the Certificates to the Exchange Agent and    
shall be in such form and have such other provisions as Holdco may reasonably   
specify) and (ii) instructions for use in effecting the surrender of the        
Certificates in exchange for certificates representing shares of Holdco         
Capital Stock. Upon surrender of a Certificate for cancellation to the          
Exchange Agent or to such other agent or agents as may be appointed by Holdco,  
together with such letter of transmittal, duly executed, and such other         
documents as may reasonably be required by the Exchange Agent, the holder of    
such Certificate shall be entitled to receive in exchange therefor a            
certificate representing that number of whole shares of Holdco Capital Stock    
which such holder has the right to receive pursuant to the provisions of this   
Article II, and the Certificate so surrendered shall forthwith be canceled. In  
the event of a transfer of ownership of Changed Parent Stock or Company         
Capital Stock which is not registered in the transfer records of Parent or the  
Company, as applicable, a certificate representing the proper number of shares  
of Holdco Capital Stock may be issued to a person other than the person in      
whose name the Certificate so surrendered is registered, if such Certificate    
shall be properly endorsed or otherwise be in proper form for transfer and the  
person requesting such payment shall pay any transfer or other taxes required   
by reason of the issuance of shares of Holdco Capital Stock to a person other   
than the registered holder of such Certificate or establish to the              
satisfaction of Holdco that such tax has been paid or is not applicable. Until  
surrendered as contemplated by this Section 2.03, each Certificate shall be     
deemed at any time after the Effective Time of the Mergers to represent only    
the right to receive upon such surrender the certificate representing shares    
of Holdco Capital Stock and cash in lieu of any fractional shares of Holdco     
Capital Stock as contemplated by this Section 2.03. No interest shall be paid   
or accrue on any cash payable in lieu of any fractional shares of Holdco        
Capital Stock.                                                                  

(c) Distributions with Respect to Unexchanged Shares. No dividends or other 
distributions with respect to Holdco Capital Stock with a record date after     
the Effective Time of the Mergers shall be paid to the holder of any            
unsurrendered Certificate with respect to the shares of Holdco Capital Stock    
represented thereby, and no cash payment in lieu of fractional shares shall be  
paid to any such holder pursuant to Section 2.03(e), until the surrender of     
such Certificate in accordance with this Article II. Subject to the effect of   
applicable laws, following surrender of any such Certificate, there shall be    
paid to the holder of the certificate representing whole shares of Holdco       
Capital Stock issued in exchange therefor, without interest, (i) at the time    
of such surrender, the amount of any cash payable in lieu of a fractional       
share of Holdco Capital Stock to which such holder is entitled pursuant to      
Section 2.03(e) and the amount of dividends or other distributions with a       
record date after the Effective Time of the Mergers theretofore paid with       
respect to such whole shares of Holdco Capital Stock, and (ii) at the           
appropriate payment date, the amount of dividends or other distributions with   
a record date after the Effective Time of the Mergers but prior to such         
surrender and a payment date subsequent to such surrender payable with respect  
to such whole shares of Holdco Capital Stock.                                   

(d) No Further Ownership Rights in Changed Parent Stock and Company Capital 
Stock. All shares of Holdco Capital Stock issued upon the surrender for         
exchange of Certificates in accordance with the terms of this Article II        
(including any cash paid pursuant to Section 2.03(c) or 2.03(e)) shall be       
deemed to have been issued (and paid) in full satisfaction of all rights        
pertaining to the shares of Changed Parent Stock or Company Capital Stock       
theretofore represented by such Certificates, subject, however, to the          
obligation of the TW Surviving                                                  

A1(a)-9 

DEFM14A
239th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 239th
Corporation or the TBS Surviving Corporation, as applicable, to pay any         
dividends or make any other distributions with a record date prior to the       
Effective Time of the Mergers which may have been declared or made by Parent    
or the Company, as applicable, on such shares of Changed Parent Stock and       
Company Capital Stock in accordance with the terms of this Agreement or prior   
to September 22, 1995, and which remain unpaid at the Effective Time of the     
Mergers, and there shall be no further registration of transfers on the stock   
transfer books of the TW Surviving Corporation or the TBS Surviving             
Corporation, as applicable, of the shares of Changed Parent Stock or Company    
Capital Stock which were outstanding immediately prior to the Effective Time    
of the Mergers. If, after the Effective Time of the Mergers, Certificates are   
presented to the TW Surviving Corporation or the TBS Surviving Corporation or   
the Exchange Agent for any reason, they shall be canceled and exchanged as      
provided in this Article II, except as otherwise provided by law.               

(e) Fractional Shares. (i) No certificates or scrip representing fractional 
shares of Holdco Common Stock shall be issued upon the surrender for exchange   
of Certificates, and such fractional share interests shall not entitle the      
owner thereof to vote or to any other rights of a stockholder of Holdco.        

(ii) Notwithstanding any other provision of this Agreement, each holder of  
shares of Changed Parent Stock or Company Capital Stock converted pursuant to   
the Mergers who would otherwise have been entitled to receive a fraction of a   
share of Holdco Common Stock (after taking into account all Certificates        
delivered by such holder) shall receive, in lieu thereof, cash (without         
interest) in an amount equal to such fractional part of a share of Holdco       
Common Stock multiplied by the closing price of a share of Parent Common Stock  
on the Closing Date as reported on the NYSE-Composite Transactions Tape (as     
reported by The Wall Street Journal or, if not reported thereby, any other      
authoritative source).                                                          

(iii) Certificates shall be issued by the TW Surviving Corporation and the  
TBS Surviving Corporation to evidence any fractional shares of the TW           
Surviving Corporation and the TBS Surviving Corporation, as the case may be,    
issued pursuant to Section 2.01(a), 2.01(f), 2.02(a) or 2.02(f).                

(iv) Certificates shall be issued by Holdco to evidence any fractional      
shares of Holdco LMC Class Stock or Holdco LMCN-V Stock issued pursuant to      
Section 2.01(c).                                                                

(f) Termination of Exchange Fund. Any portion of the Exchange Fund which    
remains undistributed to the holders of the Certificates for six months after   
the Effective Time of the Mergers shall be delivered to Holdco, upon demand,    
and any holders of the Certificates who have not theretofore complied with      
this Article II shall thereafter look only to Holdco for payment of their       
claim for Holdco Capital Stock, any cash in lieu of fractional shares of        
Holdco Common Stock and any dividends or distributions with respect to Holdco   
Capital Stock.                                                                  

(g) No Liability. None of Parent, Holdco, Delaware Sub, Georgia Sub, the    
Company or the Exchange Agent shall be liable to any person in respect of any   
shares of Holdco Capital Stock (or dividends or distributions with respect      
thereto) or cash from the Exchange Fund delivered to a public official          
pursuant to any applicable abandoned property, escheat or similar law. If any   
Certificates shall not have been surrendered prior to seven years after the     
Effective Time of the Mergers (or immediately prior to such earlier date on     
which any shares of Holdco Capital Stock, any cash in lieu of fractional        
shares of Holdco Capital Stock or any dividends or distributions with respect   
to Holdco Capital Stock in respect of such Certificate would otherwise escheat  
to or become the property of any Governmental Entity (as defined in Section     
3.01(d)), any such shares, cash, dividends or distributions in respect of such  
Certificate shall, to the extent permitted by applicable law, become the        
property of the TW Surviving Corporation or the TBS Surviving Corporation, as   
applicable, free and clear of all claims or interest of any person previously   
entitled thereto.                                                               

(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash   
included in the Exchange Fund, as directed by Holdco, on a daily basis. Any     
interest and other income resulting from such investments shall be paid to      
Holdco.                                                                         

A1(a)-10  

DEFM14A
240th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 240th
ARTICLE III 

Representations and Warranties  

Section 3.01. Representations and Warranties of the Company. The Company    
represents and warrants to Parent as follows:                                   

(a) Organization, Standing and Corporate Power. Each of the Company and each
of the Material Company Subsidiaries (as defined below) is a corporation,       
partnership or other legal entity duly organized, validly existing and in good  
standing under the laws of the jurisdiction in which it is organized and has    
the requisite power and authority to carry on its business as now being         
conducted. Each of the Company and its subsidiaries (each a "Company            
Subsidiary") is duly qualified or licensed to do business and in good standing  
in each jurisdiction in which the nature of its business or the ownership or    
leasing of its properties makes such qualification or licensing necessary,      
other than in such jurisdictions where the failure to be so qualified or        
licensed (individually or in the aggregate) would not have a material adverse   
effect on the business, properties, assets, condition (financial or             
otherwise), results of operations or prospects of the Company and the Company   
Subsidiaries, taken as a whole (a "Company Material Adverse Effect"). The       
Company has delivered to Parent complete and correct copies of its Restated     
Articles of Incorporation and By-laws and the certificates of incorporation     
and by-laws or comparable organizational documents of the Material Company      
Subsidiaries, in each case as amended to the date of this Agreement. For        
purposes of this Agreement, a "Material Company Subsidiary" means each Company  
Subsidiary that (i) constitutes a significant subsidiary within the meaning of  
Rule 1-02 of Regulation S-X of the Securities and Exchange Commission (the      
"SEC") or (ii) is party to an agreement pursuant to which such Company          
Subsidiary or another Company Subsidiary distributes programming or licenses    
programming from any person other than a Company Subsidiary and is listed in    
Section 3.01(a) of the letter from the Company, dated September 22, 1995        
addressed to Parent (the "Company Disclosure Letter") (a "Company Programming   
Subsidiary"). The Company is not in violation of any provision of its Restated  
Articles of Incorporation or By-laws and no Material Company Subsidiary is in   
violation of any provision of its certificate of incorporation, by-laws or      
comparable organizational documents, except to the extent that such violations  
would not, individually or in the aggregate, have a Company Material Adverse    
Effect.                                                                         

(b) Subsidiaries. Section 3.01(b) of the Company Disclosure Letter sets     
forth each Material Company Subsidiary and the ownership or interest therein    
of the Company. All the outstanding shares of capital stock of each such        
Material Company Subsidiary have been validly issued and are fully paid and     
nonassessable and, except as set forth in Section 3.01(b) of the Company        
Disclosure Letter, are owned by the Company, by another Company Subsidiary or   
by the Company and another Company Subsidiary, free and clear of all pledges,   
claims, liens, charges, encumbrances and security interests of any kind or      
nature whatsoever (collectively, "Liens"). Except for the capital stock of the  
Company Subsidiaries and except for the ownership interests set forth in        
Section 3.01(b) of the Company Disclosure Letter, the Company does not own,     
directly or indirectly, any capital stock or other ownership interest, with a   
fair market value as of September 22, 1995, greater than $2,000,000, in any     
corporation, partnership, limited liability company, joint venture or other     
entity.                                                                         

(c) Capital Structure. (i) The authorized capital stock of the Company      
consists of 75,000,000 shares of Class A Common Stock, 300,000,000 shares of    
Class B Common Stock, 500,000 shares of Class A Serial Preferred Stock, par     
value $.10 per share (the "Class A Preferred Stock"), 12,600,000 shares of      
Class B Cumulative Preferred Stock, par value $.125 per share (the "Class B     
Preferred Stock"), 12,600,000 shares of Class C Preferred Stock and             
100,000,000 shares of Class D Serial Preferred Stock, par value $.0625 per      
share (the "Class D Preferred Stock"). Each share of Class C Preferred Stock    
is convertible into six shares of Class B Common Stock. At the close of         
business on August 29, 1995, (A)(I) 68,330,388 shares of Class A Common Stock   
were outstanding, all of which were validly issued, fully paid and              
nonassessable, (II) 137,819,078 shares of Class B Common Stock were             
outstanding, all of which were validly issued, fully paid and nonassessable,    
(III) 12,396,976 shares of Class C Preferred Stock were outstanding, all of     
which were validly issued, fully paid and nonassessable, and (iv) no shares of  
Class A Preferred Stock, Class B Preferred Stock or Class D Preferred Stock     
were issued or outstanding; and (B)(I) 81,822,278 shares of Class B Common      
Stock were reserved for issuance                                                

A1(a)-11  

DEFM14A
241st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 241st
upon conversion of the Class C Preferred Stock and the Company's Zero Coupon    
Subordinated Convertible Notes due 2007, (II) 13,904,724 shares of Class B      
Common Stock were reserved for issuance upon the exercise of outstanding stock  
options (the "Company Stock Options") granted pursuant to the Company's 1988    
Stock Option Plan, the Company's 1993 Stock Option and Equity Award Plan and    
the agreement, dated June 1, 1993, among CNN America, Inc., the Company, Larry  
King Enterprises, Inc., and Larry King (the "Company Stock Plans") and (III)    
4,892,214 shares of Class B Common Stock were reserved for issuance upon        
conversion of the 6 1/2% Convertible Subordinated Debentures (the "New Line     
Debentures") of New Line Cinema Corporation ("New Line"), upon the exercise of  
outstanding stock options (the "New Line Options") granted pursuant to the New  
Line 1986 Stock Option Plan, the New Line 1990 Stock Option Plan, the New Line  
1991 Stock Option Plan, the Stock Option Agreements, dated January 17, 1986,    
and February 14, 1990, among New Line, Michael Lynne and Richard L.             
Blumenthal, the Stock Option Agreements, dated February 14, 1990, September     
27, 1990, and January 22, 1993, between New Line and Michael Lynne, and the     
Stock Option Agreement, dated October 6, 1993, between New Line and Mitch       
Goldman (the "New Line Plans") or upon the exercise of outstanding warrants     
issued by New Line pursuant to the Warrant to Purchase Common Stock of New      
Line, dated May 31, 1991, initially issued to NHI Nelson Holdings               
International Ltd. Except as set forth above, at the close of business on       
August 29, 1995, no shares of capital stock or other voting securities of the   
Company were issued, reserved for issuance or outstanding and, since such       
date, no shares of capital stock or other voting securities or options in       
respect thereof have been issued except upon the conversion of the securities   
or the exercise of the Company Stock Options or other options and warrants      
referred to in clauses (B)(I) through (III) above. Except as set forth in this  
Section 3.01(c) or in Section 3.01(c) of the Company Disclosure Letter and      
except for Company Stock Options granted in the ordinary course of business to  
employees of the Company and the Company Subsidiaries who are not senior        
executive officers and covering not in excess of an aggregate of 1,000,000      
shares of Class B Common Stock for all such grants during the period from       
September 22, 1995, through the Effective Time of the Mergers, there were not   
on September 22, 1995, and at the Effective Time of the Mergers there will not  
be, any options, warrants, calls, rights, commitments, agreements,              
arrangements or undertakings of any kind to which the Company or any Company    
Subsidiary is a party or by which any of them is bound relating to the issued   
or unissued capital stock of the Company or any Company Subsidiary, or          
obligating the Company or any Company Subsidiary to issue, transfer, grant or   
sell any shares of capital stock of, or other equity interests in, or           
securities convertible into or exchangeable for any capital stock or other      
equity interests in, the Company or any Company Subsidiary or obligating the    
Company or any Company Subsidiary to issue, grant, extend or enter into any     
such option, warrant, call, right, commitment, agreement, arrangement or        
undertaking. All shares of Class B Common Stock subject to issuance as          
aforesaid, upon issuance on the terms and conditions specified in the           
instruments pursuant to which they are issuable, will be duly authorized,       
validly issued, fully paid and nonassessable. There are not any outstanding     
contractual obligations of the Company or any Company Subsidiary to             
repurchase, redeem or otherwise acquire any shares of capital stock of the      
Company or any Company Subsidiary, or make any material investment (in the      
form of a loan, capital contribution or otherwise) in, any Company Subsidiary   
or any other person.                                                            

(ii) The Company has previously delivered to Parent (A) a true and complete 
list of the holders of record of the Class C Preferred Stock (the "Class C      
Shareholders") and the number of shares of Class C Preferred Stock owned of     
record by each such Class C Shareholder, (B) a true and complete list of the    
number of shares of each class of capital stock of the Company owned of record  
by the Principal Shareholder and each person known by the Company to be an      
affiliate of the Principal Shareholder and (C) true and complete copies of any  
agreement relating to the ownership or voting of the Class C Preferred Stock    
to which the Company is a party.                                                

(d)  Authority; Noncontravention. The Company has the requisite corporate   
power and authority to enter into this Agreement and, subject to approval of    
this Agreement by the holders of (i) a majority of the voting power of the      
outstanding Company Capital Stock, voting as a single class, (ii) a majority    
of the voting power of the outstanding Class A Common Stock and the Class B     
Common Stock, voting as a single class, and (iii) the holders of a majority of  
the outstanding shares of Class C Preferred Stock, voting as a separate class   
(the "Shareholder Approvals"), to consummate the transactions contemplated by   
this Agreement. The execution and delivery of this Agreement by the Company     
and the consummation by the Company of the transactions                         

A1(a)-12  

DEFM14A
242nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 242nd
contemplated by this Agreement have been duly authorized by all necessary       
corporate action on the part of the Company, subject to the Shareholder         
Approvals. This Agreement has been duly executed and delivered by the Company   
and constitutes a valid and binding obligation of the Company, enforceable      
against the Company in accordance with its terms. Except as set forth in        
Section 3.01(d) of the Company Disclosure Letter, the execution and delivery    
of this Agreement by the Company do not, and the consummation of the            
transactions contemplated by this Agreement and compliance with the provisions  
of this Agreement will not, conflict with, or result in any violation of, or    
default (with or without notice or lapse of time, or both) under, or give rise  
to a right of termination, cancellation or acceleration of any obligation or    
to loss of a material benefit under, or result in the creation of any Lien      
upon any of the properties or assets of the Company or any Company Subsidiary   
under, (i) the Restated Articles of Incorporation or By-laws of the Company or  
the comparable organizational documents of any Company Subsidiary, (ii) any     
agreement pursuant to which the Company or any Company Programming Subsidiary   
distributes programming or licenses programming from a person other than a      
Company Subsidiary individually involving annual payments to or by the Company  
and the Company Subsidiaries of $20,000,000 or more (any such agreement, a      
"Programming Agreement"), (iii) any loan or credit agreement, note, bond,       
mortgage, indenture, lease or other agreement (but excluding any Programming    
Agreement), instrument, permit, concession, franchise or license applicable to  
the Company or any Company Subsidiary or their respective properties or assets  
or (iv) subject to the governmental filings and other matters referred to in    
the following sentence, any judgment, order, decree, statute, law, ordinance,   
rule or regulation applicable to the Company or any Company Subsidiary or       
their respective properties or assets, other than, in the case of clauses       
(iii) and (iv), any such conflicts, violations, defaults, rights or Liens that  
individually or in the aggregate would not (x) have a Company Material Adverse  
Effect, (y) prevent the Company from performing its obligations under this      
Agreement in any material respect or (z) prevent or delay in any material       
respect the consummation of any of the transactions contemplated by this        
Agreement. No consent, approval, order or authorization of, or registration,    
declaration or filing with, any Federal, state or local government or any       
court, administrative agency or commission or other governmental authority or   
agency, domestic or foreign, including the European Union (a "Governmental      
Entity"), is required by or with respect to the Company or any of the Company   
Subsidiaries in connection with the execution and delivery of this Agreement    
by the Company or the consummation by the Company of the transactions           
contemplated by this Agreement, except for (i) the filing of a premerger        
notification and report form by the Principal Shareholder as the ultimate       
parent entity of the Company under the Hart-Scott-Rodino Antitrust              
Improvements Act of 1976 (the "HSR Act"), (ii) the filing with the SEC of (A)   
a joint proxy statement relating to the meetings of the Company's shareholders  
and Parent's stockholders to be held in connection with the Mergers and the     
transactions contemplated by this Agreement (as amended or supplemented from    
time to time, the "Proxy Statement"), and (B) such reports under Section 13(a)  
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as     
may be required in connection with this Agreement and the transactions          
contemplated by this Agreement, (iii) the filing of the Certificates of Merger  
with the Delaware Secretary of State and the Georgia Secretary of State and     
appropriate documents with the relevant authorities of other states in which    
the Company is qualified to do business, (iv) such filings with, and orders     
of, the Federal Communications Commission (the "FCC") as may be required under  
the Communications Act of 1934, as amended (the "Communications Act"), and the  
FCC's rules and regulations in connection with this Agreement and the           
transactions contemplated by this Agreement and (v) such other consents,        
approvals, orders, authorizations, registrations, declarations and filings (x)  
as may be required under the laws of any foreign country in which the Company   
or any of the Company Subsidiaries conducts any business or owns any property   
or assets or (y) which, if not obtained or made, would not prevent or delay in  
any material respect the consummation of any of the transactions contemplated   
by this Agreement or otherwise prevent the Company from performing its          
obligations under this Agreement in any material respect or have, individually  
or in the aggregate, a Company Material Adverse Effect.                         

(e) SEC Documents; Undisclosed Liabilities. The Company has filed all       
required reports, schedules, forms, statements and other documents with the     
SEC since December 31, 1992 (the "SEC Documents"; such term, when used with     
respect to such documents filed prior to September 22, 1995, shall mean such    
documents as amended prior to September 22, 1995). As of their respective       
dates, the SEC Documents complied in all material respects with the             
requirements of the Securities Act of 1933 (the "Securities Act"), or the       
Exchange                                                                        

A1(a)-13  

DEFM14A
243rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 243rd
Act, as the case may be, and the rules and regulations of the SEC promulgated   
thereunder applicable to such SEC Documents, and none of the SEC Documents      
contained any untrue statement of a material fact or omitted to state a         
material fact required to be stated therein or necessary in order to make the   
statements therein, in light of the circumstances under which they were made,   
not misleading, except to the extent such statements have been modified or      
superseded by a later Filed SEC Document (as defined in Section 3.01(g)).       
Except to the extent that information contained in any SEC Document has been    
revised or superseded by a later filed SEC Document, neither the Company's      
Annual Report on Form 10-K for the year ended December 31, 1994, nor any SEC    
Document filed after December 31, 1994, contains any untrue statement of a      
material fact or omits to state any material fact required to be stated         
therein or necessary in order to make the statements therein, in light of the   
circumstances under which they were made, not misleading. The consolidated      
financial statements of the Company included in the SEC Documents comply as to  
form in all material respects with applicable accounting requirements and the   
published rules and regulations of the SEC with respect thereto, have been      
prepared in accordance with generally accepted accounting principles (except,   
in the case of unaudited statements, as permitted by Form 10-Q of the SEC)      
applied on a consistent basis during the periods involved (except as may be     
indicated in the notes thereto) and fairly present the consolidated financial   
position of the Company and the consolidated Company Subsidiaries as of the     
dates thereof and the consolidated results of their operations and cash flows   
for the periods then ended (subject, in the case of unaudited statements, to    
normal year-end audit adjustments). Except as set forth in the Filed SEC        
Documents, neither the Company nor any Company Subsidiary has any liabilities   
or obligations of any nature (whether accrued, absolute, contingent or          
otherwise) required by generally accepted accounting principles to be set       
forth on a consolidated balance sheet of the Company and the consolidated       
Company Subsidiaries or in the notes thereto and which, individually or in the  
aggregate, could reasonably be expected to have a Company Material Adverse      
Effect.                                                                         

(f) Information Supplied. None of the information supplied or to be supplied
by the Company for inclusion or incorporation by reference in (i) the           
registration statement on Form S-4 to be filed with the SEC by Holdco in        
connection with the issuance of Holdco Capital Stock in the Mergers (the "Form  
S-4") will, at the time the Form S-4 is filed with the SEC, at any time it is   
amended or supplemented or at the time it becomes effective under the           
Securities Act, contain any untrue statement of a material fact or omit to      
state any material fact required to be stated therein or necessary to make the  
statements therein not misleading, or (ii) the Proxy Statement will, at the     
date the Proxy Statement is first mailed to the Company's shareholders or       
Parent's stockholders or at the time of the Shareholders Meeting (as defined    
in Section 5.01(b)) or the Parent's Stockholders Meeting (as defined in         
Section 5.01(c)), contain any untrue statement of a material fact or omit to    
state any material fact required to be stated therein or necessary in order to  
make the statements therein, in light of the circumstances under which they     
are made, not misleading. The Proxy Statement will comply as to form in all     
material respects with the requirements of the Exchange Act and the rules and   
regulations promulgated thereunder, except that no representation is made by    
the Company with respect to statements made or incorporated by reference        
therein based on information supplied by Parent specifically for inclusion or   
incorporation by reference in the Proxy Statement.                              

(g) Absence of Certain Changes or Events. Except as disclosed in the SEC    
Documents filed and publicly available prior to September 22, 1995 (the "Filed  
SEC Documents"), since the date of the most recent audited financial            
statements included in the Filed SEC Documents, the Company has conducted its   
business only in the ordinary course, and there has not been:                   

(i) any change or effect (or any development that, insofar as can       
reasonably be foreseen, is likely to result in a change or effect) which,   
individually or in the aggregate, has had or is likely to have, a Company   
Material Adverse Effect;                                                    

(ii) except for regular quarterly dividends not in excess of $.0175 per 
share of Class A Common Stock, $.0175 per share of Class B Common Stock and 
$.105 per share of Class C Preferred Stock, with customary record and       
payment dates, any declaration, setting aside or payment of any dividend or 
other distribution (whether in cash, stock or property) with respect to any 
of the Company Capital Stock;                                               

A1(a)-14  

DEFM14A
244th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 244th
(iii) any split, combination or reclassification of any of the Company's
capital stock or any issuance or the authorization of any issuance of any   
other securities in exchange or in substitution for shares of the Company's 
capital stock;                                                              

(iv) except as disclosed in Section 3.01(g) of the Company Disclosure   
Letter, (A) any granting by the Company or any Company Subsidiary to any    
executive officer of the Company or any of the Company Subsidiaries of any  
increase in compensation, except in the ordinary course of business         
consistent with prior practice or as was required under employment          
agreements in effect as of the date of the most recent audited financial    
statements included in the Filed SEC Documents, (B) any granting by the     
Company or any of the Company Subsidiaries to any such executive officer of 
any increase in severance or termination pay, except as was required under  
any employment, severance or termination agreements in effect as of the     
date of the most recent audited financial statements included in the Filed  
SEC Documents, or (C) any entry by the Company or any of the Company        
Subsidiaries into any employment, severance or termination agreement with   
any such executive officer (other than, in the case of clauses (B) and (C), 
for any such item entered into after September 22, 1995, in compliance with 
Section 4.01(a)(ix));                                                       

 (v) any damage, destruction or loss, whether or not covered by insurance,
that has had or is likely to have a Company Material Adverse Effect; or     

(vi) any change in accounting methods, principles or practices by the   
Company or any Material Company Subsidiary materially affecting its assets, 
liabilities or business, except insofar as may have been required by a      
change in generally accepted accounting principles.                         

(h) Litigation. Except as disclosed in the Filed SEC Documents or in Section
3.01(h) of the Company Disclosure Letter, there is no suit, action or           
proceeding (including any proceeding by or before the FCC) pending or, to the   
knowledge of the Company, threatened against or affecting the Company or any    
of the Company Subsidiaries (and the Company is not aware of any basis for any  
such suit, action or proceeding) that, individually or in the aggregate, could  
reasonably be expected to (i) have a Company Material Adverse Effect or (ii)    
prevent the Company from performing its obligations under this Agreement in     
any material respect, and there is not any judgment, decree, injunction, rule   
or order of any Governmental Entity or arbitrator outstanding against the       
Company or any of the Company Subsidiaries having, or which, insofar as         
reasonably can be foreseen, in the future would have, any Company Material      
Adverse Effect. As of September 22, 1995, except as disclosed in the Filed SEC  
Documents or in Section 3.01(h) of the Company Disclosure Letter, there was no  
suit, action or proceeding pending, or, to the knowledge of the Company,        
threatened, against the Company or any of the Company Subsidiaries (and the     
Company is not aware of any basis for any such suit, action or proceeding)      
that, individually or in the aggregate, could reasonably be expected to         
prevent or delay in any material respect the consummation of the Mergers or     
any of the transactions contemplated by this Agreement.                         

(i) Absence of Changes in Benefit Plans. Except as disclosed in the Filed   
SEC Documents or in Section 3.01(i) of the Company Disclosure Letter, since     
the date of the most recent audited financial statements included in the Filed  
SEC Documents, there has not been any adoption or amendment in any material     
respect by the Company or any of the Company Subsidiaries of any collective     
bargaining agreement or any bonus, pension, profit sharing, deferred            
compensation, incentive compensation, stock ownership, stock purchase, stock    
option, phantom stock, retirement, vacation, severance, disability, death       
benefit, hospitalization, medical or other plan, arrangement or understanding   
(whether or not legally binding) providing benefits to any current or former    
employee, officer or director of the Company or any of the Company              
Subsidiaries (collectively, "Benefit Plans").                                   

(j) ERISA Compliance. Except as described in the Filed SEC Documents or in  
Section 3.01(j) of the Company Disclosure Letter or as would not have a         
Company Material Adverse Effect, (i) all employee benefit plans or programs     
maintained for the benefit of the current or former employees or directors of   
the Company or any Company Subsidiary that are sponsored, maintained or         
contributed to by the Company or any Company Subsidiary, or with respect to     
which the Company or any Company Subsidiary has any liability, including any    
such plan that is an "employee benefit plan" as defined in Section 3(3) of the  
Employee Retirement Income                                                      

A1(a)-15  

DEFM14A
245th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 245th
Security Act of 1974 ("ERISA"), are in compliance with all applicable           
requirements of law, including ERISA and the Code, and (ii) neither the         
Company nor any Company Subsidiary has any liabilities or obligations with      
respect to any such employee benefit plans or programs, whether accrued,        
contingent or otherwise, nor to the knowledge of the executive officers of the  
Company are any such liabilities or obligations expected to be incurred.        
Except as set forth in Section 3.01(j) of the Company Disclosure Letter, the    
execution of, and performance of the transactions contemplated in, this         
Agreement will not (either alone or upon the occurrence of any additional or    
subsequent events) constitute an event under any benefit plan, policy,          
arrangement or agreement or any trust or loan that will or may result in any    
payment (whether of severance pay or otherwise), acceleration, forgiveness of   
indebtedness, vesting, distribution, increase in benefits or obligation to      
fund benefits with respect to any employee. The only severance agreements or    
severance policies applicable to the Company or the Company Subsidiaries are    
the agreements and policies specifically referred to in Section 3.01(j) of the  
Company Disclosure Letter.                                                      

(k) Voting Requirements. The Shareholder Approvals are the only votes of the
holders of any class or series of the Company's capital stock necessary to      
approve this Agreement and the transactions contemplated by this Agreement.     

(l) Brokers; Schedule of Fees and Expenses. Except as set forth in Section  
3.01(l) of the Company Disclosure Letter, no broker, investment banker,         
financial advisor or other person is entitled to any broker's, finder's,        
financial advisor's or other similar fee or commission in connection with the   
transactions contemplated by this Agreement based upon arrangements made by or  
on behalf of the Company. The Company will pay the fees and expenses of the     
persons listed in Section 3.01(1) of the Company Disclosure Letter. The fees    
incurred and to be incurred by the Company in connection with this Agreement    
and the transactions contemplated by this Agreement for the persons listed in   
Section 3.01(l) of the Company Disclosure Letter are set forth in Section       
3.01(l) of the Company Disclosure Letter. The Company has furnished to Parent   
true and complete copies of all the agreements referred to in Section 3.01(l)   
of the Company Disclosure Letter and all indemnification and other agreements   
related to the engagement of the persons so listed.                             

(m) Opinions of Financial Advisors. The Company has received the opinions of
CS First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith           
Incorporated to the effect that, as of the respective dates of such opinions    
(i) in the case of the CS First Boston Corporation opinion, the consideration   
to be received by the Company's shareholders in the TBS Merger is fair to the   
Company's shareholders (other than Parent) from a financial point of view, and  
(ii) in the case of the Merrill Lynch, Pierce, Fenner & Smith Incorporated      
opinion, the consideration to be received by shareholders of the Company        
(other than Tele-Communications, Inc. ("TCI"), and its affiliates and Parent)   
is fair to such shareholders from a financial point of view and, in the         
context of the governance arrangements relating to the Company's ability to     
consummate the TBS Merger, the financial terms of the transactions to be        
entered into between the Company, Parent and their respective affiliates, on    
the one hand, and TCI, on the other hand, are fair from a financial point of    
view to the Company and its shareholders (other than TCI and its affiliates     
and Parent), a signed copy of which opinions have been delivered to Parent.     

(n) Taxes. (i) The Company and each Company Subsidiary have timely filed (or
have had timely filed on their behalf) or will file or cause to be timely       
filed, all material Tax Returns required by applicable law to be filed by any   
of them prior to or as of the Effective Time of the Mergers. All such Tax       
Returns are, or will be at the time of filing, true, complete and correct in    
all material respects.                                                          

(ii) The Company and each Company Subsidiary have paid (or have had paid on 
their behalf), or where payment is not yet due, have established (or have had   
established on their behalf and for their sole benefit and recourse), or will   
establish or cause to be established on or before the Effective Time of the     
Mergers, an adequate accrual for the payment of, all material Taxes due with    
respect to any period ending prior to or as of the Effective Time of the        
Mergers.                                                                        

A1(a)-16  

DEFM14A
246th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 246th
(iii) For purposes of this Agreement, the following terms shall have the    
following meanings:                                                             

(A) "Taxes" shall mean all Federal, state, local and foreign taxes, and 
other assessments of a similar nature (whether imposed directly or through  
withholding), including any interest, additions to tax, or penalties        
applicable thereto.                                                         

(B) "Tax Returns" shall mean all Federal, state, local and foreign tax  
returns, declarations, statements, reports, schedules, forms and            
information returns and any amended tax return relating to Taxes.           

(o) Compliance with Laws. Neither the Company nor any of the Company        
Subsidiaries has violated or failed to comply with any statute, law,            
ordinance, regulation, rule, judgment, decree or order of any Governmental      
Entity applicable to its business or operations (including the Communications   
Act and the FCC's rules and regulations), except for violations and failures    
to comply that could not, individually or in the aggregate, reasonably be       
expected to result in a Company Material Adverse Effect.                        

Section 3.02. Representations and Warranties of Parent. Parent represents   
and warrants to the Company as follows:                                         

(a) Organization, Standing and Corporate Power. Each of Parent, Holdco and  
Delaware Sub and each of the Material Parent Subsidiaries (as defined below)    
is a corporation, partnership or other legal entity duly organized, validly     
existing and in good standing under the laws of the jurisdiction in which it    
is organized and has the requisite power and authority to carry on its          
business as now being conducted. Each of Parent and Parent's subsidiaries,      
including Holdco and Delaware Sub (each a "Parent Subsidiary"), is duly         
qualified or licensed to do business and in good standing in each jurisdiction  
in which the nature of its business or the ownership or leasing of its          
properties makes such qualification or licensing necessary, other than in such  
jurisdictions where the failure to be so qualified or licensed (individually    
or in the aggregate) would not have a material adverse effect on the business,  
properties, assets, condition (financial or otherwise), results of operations   
or prospects of Parent and the Parent Subsidiaries, taken as a whole (a         
"Parent Material Adverse Effect"). As of the date of execution of this          
Agreement, Georgia Sub is, and on the Closing Date Georgia Sub will be, a       
corporation duly organized, validly existing and in good standing under the     
laws of the State of Georgia. As of the date of execution of this Agreement,    
Georgia Sub has, and on the Closing Date Georgia Sub will have, the requisite   
power and authority to carry on its business as now conducted. As of the date   
of execution of this Agreement, Georgia Sub is, and on the Closing Date         
Georgia Sub will be, duly qualified or licensed to do business and in good      
standing in each jurisdiction in which the nature of its business or the        
ownership or leasing of its properties makes such qualification or licensing    
necessary, other than in such jurisdictions where the failure to be so          
qualified or licensed (individually or in the aggregate) would not have a       
Parent Material Adverse Effect. Prior to the date of execution of this          
Agreement, Parent has delivered to the Company complete and correct copies of   
its Restated Certificate of Incorporation and By-laws and the certificates of   
incorporation and by-laws or comparable organizational documents of Holdco,     
Delaware Sub, Georgia Sub and the Material Parent Subsidiaries, in each case    
as amended to the date of delivery. None of Parent, Holdco, Delaware Sub and    
Georgia Sub is in violation of any provision of its certificate of              
incorporation or by-laws and no Material Parent Subsidiary is in violation of   
any provision of its certificate of incorporation, by-laws or comparable        
organizational documents, except to the extent that such violations would not,  
individually or in the aggregate, have a Parent Material Adverse Effect. Time   
Warner Entertainment Company, L.P. ("TWE"), and each other Parent Subsidiary    
that constitutes a significant subsidiary of Parent within the meaning of Rule  
1-02 of Regulation S-X of the SEC (determined without regard to paragraph (3)   
of the definition thereof) is referred to herein as a "Material Parent          
Subsidiary".                                                                    

(b) Subsidiaries. Section 3.02(b) of the Parent Disclosure Letter (as       
defined in Section 3.02(c)) sets forth as of September 22, 1995, each Material  
Parent Subsidiary and the ownership or interest therein of Parent. All the      
outstanding shares of capital stock of each such Material Parent Subsidiary     
have been validly issued and are fully paid and nonassessable and, except as    
set forth in Section 3.02(b) of the Parent Disclosure Letter, are owned by      
Parent, by another Parent Subsidiary or by Parent and another Parent            
Subsidiary, free and clear of all Liens. Except for the ownership interests in  
the Parent Subsidiaries and except for the ownership interests set forth in     
Section 3.02(b) of the Parent Disclosure Letter, as of September 22, 1995,      
Parent did not own, directly or indirectly, any capital stock or other          
ownership interest, with a fair market value as of September 22, 1995, greater  
than $5,000,000, in any corporation, partnership, limited liability company,    
joint venture or other entity.                                                  

A1(a)-17  

DEFM14A
247th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 247th
(c) Capital Structure. As of September 22, 1995, the authorized capital     
stock of Parent consisted of 750,000,000 shares of Parent Common Stock and      
250,000,000 shares of preferred stock, par value $1.00 per share ("Parent       
Preferred Stock"). At the close of business on August 31, 1995, (i) (A)         
387,166,475 shares of Parent Common Stock were outstanding, all of which were   
validly issued, fully paid and nonassessable, (B) 43,739,664 shares of Parent   
Common Stock were held by Parent Subsidiaries and (C) 1,988,026 shares of       
Parent Common Stock were held by Parent in treasury, (ii) 464,638 shares of     
Parent Series B Preferred Stock were outstanding, all of which were validly     
issued, fully paid and nonassessable, (iii) 3,264,508 shares of Parent Series   
C Preferred Stock were outstanding, all of which were validly issued, fully     
paid and nonassessable, (iv) 11,000,000 shares of Parent Series D Preferred     
Stock were outstanding, all of which were validly issued, fully paid and        
nonassessable, (v) 82,786,025 shares of Parent Common Stock were reserved for   
issuance pursuant to the Time Warner 1981 Stock Option Plan, the Time Warner    
1986 Stock Option Plan, the 1988 Stock Incentive Plan of Time Warner Inc., the  
Time Warner 1989 Stock Incentive Plan, the Time Warner 1989 WCI Replacement     
Stock Option Plan, the Time Warner 1989 Lorimar Non-Employee Replacement Stock  
Option Plan, the Time Warner 1993 Stock Option Plan, the Time Warner 1994       
Stock Option Plan, the Time Warner Corporate Group Stock Incentive Plan, the    
Time Warner Cable Television Group Stock Incentive Plan, the Time Warner        
Filmed Entertainment Group Stock Incentive Plan, the Time Warner Music Group    
Stock Incentive Plan, the Time Warner Programming Group Stock Incentive Plan,   
the Time Warner Publishing Group Stock Incentive Plan and the Time Warner 1988  
Restricted Stock Plan for Non-Employee Directors (the "Parent Stock Plans" and  
the options granted thereunder being the "Parent Options"), (vi) 4,000,000      
shares of Parent Preferred Stock were reserved for issuance in connection with  
the rights to purchase shares of Parent Common Stock pursuant to the Rights     
Agreement dated as of January 20, 1994 (the "Rights Agreement"), between        
Parent and Chemical Bank, as Rights Agent, and (vii) additional shares of       
capital stock of Parent were reserved for issuance as described in Section      
3.02(c) of the letter from Parent, dated September 22, 1995, addressed to the   
Company (the "Parent Disclosure Letter"). Except as set forth above, at the     
close of business on August 31, 1995, no shares of capital stock or other       
voting securities of Parent were issued, reserved for issuance or outstanding.  
All shares of Holdco Capital Stock which may be issued pursuant to this         
Agreement will be, when issued, duly authorized, validly issued, fully paid     
and nonassessable and not subject to preemptive rights. Except as set forth     
above or in Section 3.02(c) of the Parent Disclosure Letter, as of September    
22, 1995, there were not any options, warrants, calls, rights, commitments,     
agreements, arrangements or undertakings of any kind to which Parent or any     
Parent Subsidiary is a party or by which any of them is bound relating to the   
issued or unissued capital stock of Parent or any Parent Subsidiary, or         
obligating Parent or any Parent Subsidiary to issue, transfer, grant or sell,   
or cause to be issued, transferred, granted or sold, additional shares of       
capital stock or other voting securities of Parent or any Material Parent       
Subsidiary or obligating Parent or any Parent Subsidiary to issue, grant,       
extend or enter into any such option, warrant, call, right, commitment,         
agreement, arrangement or undertaking. Except as set forth in Section 3.02(c)   
of the Parent Disclosure Letter, as of September 22, 1995, there were not any   
outstanding contractual obligations of Parent or any Parent Subsidiary to       
repurchase, redeem or otherwise acquire any shares of capital stock of Parent   
or any Material Parent Subsidiary or make any material investment (in the form  
of a loan, capital contribution or otherwise) in any person (other than a       
wholly owned Parent Subsidiary). The authorized capital stock of Holdco         
consists of 100 shares of common stock, par value $1.00 per share, all of       
which have been validly issued, are fully paid and nonassessable and are owned  
by Parent free and clear of any Lien. The authorized capital stock of Delaware  
Sub consists of 1,000 shares of Common Stock, par value $1.00 per share, all    
of which have been validly issued, are fully paid and nonassessable and on the  
date of execution of this Agreement are, and will on the Closing Date be,       
owned by Holdco free and clear of any Lien. The authorized capital stock of     
Georgia Sub on the date of execution of this Agreement consists, and on the     
Closing Date will consist, of 1,000 shares of Common Stock, par value $1.00     
per share, all of which on the date of execution of this Agreement have been,   
and on the Closing Date will have been, validly issued and on the date of       
execution of this Agreement are, and on the Closing Date will be, fully paid    
and nonassessable and owned by Holdco free and clear of any Lien.               

(d) Authority; Noncontravention. Parent, Holdco, Delaware Sub and Georgia   
Sub have all requisite corporate power and authority to enter into this         
Agreement and, subject to the Parent Stockholder Approvals (as defined in       
Section 3.02(i)), to consummate the transactions contemplated by this           
Agreement. The execution and                                                    

A1(a)-18  

DEFM14A
248th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 248th
delivery of this Agreement by Parent, Holdco, Delaware Sub and Georgia Sub and  
the consummation by Parent, Holdco, Delaware Sub and Georgia Sub of the         
transactions contemplated by this Agreement have been duly authorized by all    
necessary corporate action on the part of Parent, Holdco, Delaware Sub and      
Georgia Sub, subject to the Parent Stockholder Approvals. This Agreement has    
been duly executed and delivered by Parent, Holdco, Delaware Sub and Georgia    
Sub and constitutes a valid and binding obligation of each such party,          
enforceable against each such party in accordance with its terms. Except as     
set forth in Section 3.02(d) of the Parent Disclosure Letter, the execution     
and delivery of this Agreement by Parent, Holdco, Delaware Sub and Georgia Sub  
do not, and the consummation of the transactions contemplated by this           
Agreement and compliance with the provisions of this Agreement will not,        
conflict with, or result in any violation of, or default (with or without       
notice or lapse of time, or both) under, or give rise to a right of             
termination, cancellation or acceleration of any obligation or to loss of a     
material benefit under, or result in the creation of any Lien upon any of the   
properties or assets of Parent, Holdco, Delaware Sub, Georgia Sub or any other  
Parent Subsidiary under, (i) the Restated Certificate of Incorporation or by-   
laws of Parent or the certificate of incorporation or by-laws or comparable     
organizational documents of Holdco, Delaware Sub, Georgia Sub or any other      
Parent Subsidiary, (ii) any loan or credit agreement, note, bond, mortgage,     
indenture, lease or other agreement, instrument, permit, concession, franchise  
or license applicable to Parent, Holdco, Delaware Sub, Georgia Sub or any       
other Parent Subsidiary or their respective properties or assets or (iii)       
subject to the governmental filings and other matters referred to in the        
following sentence, any judgment, order, decree, statute, law, ordinance, rule  
or regulation applicable to Parent, Holdco, Delaware Sub, Georgia Sub or any    
other Parent Subsidiary or their respective properties or assets, other than,   
in the case of clauses (ii) and (iii), any such conflicts, violations,          
defaults, rights or Liens that individually or in the aggregate would not (x)   
have a Parent Material Adverse Effect, (y) prevent Parent, Holdco, Delaware     
Sub or Georgia Sub from performing their respective obligations under this      
Agreement in any material respect or (z) prevent or delay in any material       
respect the consummation of any of the transactions contemplated by this        
Agreement. No consent, approval, order or authorization of, or registration,    
declaration or filing with, any Governmental Entity is required by or with      
respect to Parent, Holdco, Delaware Sub, Georgia Sub or any other Parent        
Subsidiary in connection with the execution and delivery of this Agreement by   
Parent and Sub or the consummation by Parent, Holdco, Delaware Sub or Georgia   
Sub, as the case may be, of any of the transactions contemplated by this        
Agreement, except for (i) the filing of a premerger notification and report     
form by Parent under the HSR Act and possible filings of premerger              
notification and report forms by shareholders of the Company under the HSR Act  
with respect to the acquisition of shares of Holdco Common Stock pursuant to    
the Mergers, (ii) the filing with the SEC of the Proxy Statement and the Form   
S-4 and such reports under Sections 13 and 16(a) of the Exchange Act as may be  
required in connection with this Agreement and the transactions contemplated    
by this Agreement and the receipt of all state securities or "blue sky"         
authorizations necessary to issue Holdco Capital Stock as contemplated by this  
Agreement, (iii) the filing of the Certificates of Merger with the Delaware     
Secretary of State and the Georgia Secretary of State and appropriate           
documents with the relevant authorities of other states in which the Company    
is qualified to do business, (iv) such filings with, and orders of, the FCC     
under the Communications Act and the FCC's rules and regulations as may be      
required in connection with this Agreement and the transactions contemplated    
by this Agreement, (v) such filings with, and orders of, cable franchising      
authorities as may be required in connection with this Agreement and the        
transactions contemplated by this Agreement, (vi) the filing of a Restated      
Certificate of Incorporation for Holdco (as contemplated by Section 4.01(b))    
with the Delaware Secretary of State, (vii) such filings by Holdco as may be    
necessary for Holdco to qualify to do business in appropriate jurisdictions     
and (viii) such other consents, approvals, orders, authorizations,              
registrations, declarations and filings (x) as may be required under the laws   
of any foreign country in which Parent or any of the Parent Subsidiaries        
conducts any business or owns any property or assets or (y) which, if not       
obtained or made, would not prevent or delay in any material respect the        
consummation of any of the transactions contemplated by this Agreement or       
otherwise prevent Parent, Holdco, Delaware Sub or Georgia Sub from performing   
their respective obligations under this Agreement in any material respect or    
have, individually or in the aggregate, a Parent Material Adverse Effect.       

(e) SEC Documents; Undisclosed Liabilities. Parent has filed all required   
reports, schedules, forms, statements and other documents with the SEC since    
December 31, 1992 (the "Parent SEC Documents"; such term, when used with        
respect to such documents filed prior to September 22, 1995, shall mean such    
documents                                                                       

A1(a)-19  

DEFM14A
249th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 249th
as amended prior to September 22, 1995). As of their respective dates, the      
Parent SEC Documents complied in all material respects with the requirements    
of the Securities Act or the Exchange Act, as the case may be, and the rules    
and regulations of the SEC promulgated thereunder applicable to such Parent     
SEC Documents, and none of the Parent SEC Documents contained any untrue        
statement of a material fact or omitted to state a material fact required to    
be stated therein or necessary in order to make the statements therein, in      
light of the circumstances under which they were made, not misleading, except   
to the extent such statements have been modified or superseded by a later       
Filed Parent SEC Document (as defined in Section 3.02(g)). Except to the        
extent that information contained in any Parent SEC Document has been revised   
or superseded by a later filed Parent SEC Document, neither Parent's Annual     
Report on Form 10-K for the year ended December 31, 1994, nor any Parent SEC    
Document filed after December 31, 1994, contains any untrue statement of a      
material fact or omits to state any material fact required to be stated         
therein or necessary in order to make the statements therein, in light of the   
circumstances under which they were made, not misleading. The consolidated      
financial statements of Parent included in the Parent SEC Documents comply as   
to form in all material respects with applicable accounting requirements and    
the published rules and regulations of the SEC with respect thereto, have been  
prepared in accordance with generally accepted accounting principles (except,   
in the case of unaudited statements, as permitted by Form 10-Q of the SEC)      
applied on a consistent basis during the periods involved (except as may be     
indicated in the notes thereto) and fairly present the consolidated financial   
position of Parent and the consolidated Parent Subsidiaries as of the dates     
thereof and the consolidated results of their operations and cash flows for     
the periods then ended (subject, in the case of unaudited statements, to        
normal year-end audit adjustments). Except as set forth in the Filed Parent     
SEC Documents, neither Parent nor any Parent Subsidiary has any liabilities or  
obligations of any nature (whether accrued, absolute, contingent or otherwise)  
required by generally accepted accounting principles to be set forth on a       
consolidated balance sheet of Parent and the consolidated Parent Subsidiaries   
or in the notes thereto and which, individually or in the aggregate, could      
reasonably be expected to have a Parent Material Adverse Effect.                

(f) Information Supplied. None of the information supplied or to be supplied
by Parent, Holdco, Delaware Sub or Georgia Sub for inclusion or incorporation   
by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with   
the SEC, at any time it is amended or supplemented or at the time it becomes    
effective under the Securities Act, contain any untrue statement of a material  
fact or omit to state any material fact required to be stated therein or        
necessary to make the statements therein not misleading, or (ii) the Proxy      
Statement will, at the date the Proxy Statement is first mailed to the          
Company's shareholders or Parent's stockholders or at the time of the           
Shareholders Meeting or the Parent's Stockholders Meeting, contain any untrue   
statement of a material fact or omit to state any material fact required to be  
stated therein or necessary in order to make the statements therein, in light   
of the circumstances under which they are made, not misleading. The Form S-4    
and the Proxy Statement will comply as to form in all material respects with    
the requirements of the Securities Act and the Exchange Act, as applicable,     
and the rules and regulations promulgated thereunder, except that no            
representation or warranty is made by Parent with respect to statements made    
or incorporated by reference therein based on information supplied by the       
Company specifically for inclusion or incorporation by reference in the Form    
S-4 or the Proxy Statement.                                                     

(g) Absence of Certain Changes or Events. Except as disclosed in the Parent 
SEC Documents filed and publicly available prior to September 22, 1995 (the     
"Filed Parent SEC Documents"), or in Section 3.02(g) of the Parent Disclosure   
Letter, since the date of the most recent audited financial statements          
included in the Filed Parent SEC Documents, Parent has conducted its business   
only in the ordinary course, and there has not been:                            

(i) any change or effect (or any development that, insofar as can       
reasonably be foreseen, is likely to result in a change or effect) which,   
individually or in the aggregate, has had or is likely to have, a Parent    
Material Adverse Effect;                                                    

(ii) except for regular quarterly dividends not in excess of $0.09 per  
share of Parent Common Stock and the stated or required amount of dividends 
on any series of Parent Preferred Stock, in each case with customary record 
and payment dates, any declaration, setting aside or payment of any         
dividend or other distribution (whether in cash, stock or property) with    
respect to the Parent Common Stock or any series of Parent Preferred Stock; 

A1(a)-20  

DEFM14A
250th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 250th
(iii) any split, combination or reclassification of the Parent Common   
Stock or any issuance or, except as contemplated by this Agreement, the     
authorization of any issuance of any other securities in exchange or in     
substitution for shares of the Parent Common Stock;                         

(iv) any damage, destruction or loss, whether or not covered by         
insurance, that has had or is likely to have a Parent Material Adverse      
Effect; or                                                                  

(v) any change in accounting methods, principles or practices by Parent 
or any Material Parent Subsidiary materially affecting its assets,          
liabilities or business, except insofar as may have been required by a      
change in generally accepted accounting principles.                         

(h) Litigation. Except as disclosed in the Filed Parent SEC Documents or in 
Section 3.02(h) of the Parent Disclosure Letter, there is no suit, action or    
proceeding (including any proceeding by or before the FCC) pending or, to the   
knowledge of Parent, threatened against or affecting Parent or any of the       
Parent Subsidiaries (and Parent is not aware of any basis for any such suit,    
action or proceeding) that, individually or in the aggregate, could reasonably  
be expected to (i) have a Parent Material Adverse Effect or (ii) prevent        
Parent, Holdco, Delaware Sub or Georgia Sub from performing their respective    
obligations under this Agreement in any material respect, and there is not any  
judgment, decree, injunction, rule or order of any Governmental Entity or       
arbitrator outstanding against Parent or any of the Parent Subsidiaries         
having, or which, insofar as reasonably can be foreseen, in the future would    
have, any Parent Material Adverse Effect. As of September 22, 1995, except as   
disclosed in the Filed Parent SEC Documents or in Section 3.02(h) of the        
Parent Disclosure Letter, there was no suit, action or proceeding pending, or,  
to the knowledge of Parent, threatened, against Parent or any of the Parent     
Subsidiaries (and Parent is not aware of any basis for any such suit, action    
or proceeding) that, individually or in the aggregate, could reasonably be      
expected to prevent or delay in any material respect the consummation of the    
Mergers or any of the transactions contemplated by this Agreement.              

(i) Voting Requirements. The adoption of this Agreement by the holders of a 
majority in voting power of the outstanding Parent Common Stock and the         
outstanding voting Parent Preferred Stock, voting together as a single class    
(the "Parent Stockholder Approvals"), is the only vote of the holders of any    
class or series of Parent's capital stock necessary to approve this Agreement   
and the transactions contemplated by this Agreement.                            

(j) Brokers. No broker, investment banker, financial advisor or other       
person, other than Morgan Stanley & Co. Incorporated and Bear, Stearns & Co.    
Incorporated, the fees and expenses of which will be paid by Parent, is         
entitled to any broker's, finder's, financial advisor's or other similar fee    
or commission in connection with the transactions contemplated by this          
Agreement based upon arrangements made by or on behalf of Parent or any Parent  
Subsidiary.                                                                     

(k) Taxes. (i) Parent and each Parent Subsidiary have timely filed (or have 
had timely filed on their behalf) or will file or cause to be timely filed,     
all material Tax Returns required by applicable law to be filed by any of them  
prior to or as of the Effective Time of the Mergers. All such Tax Returns are,  
or will be at the time of filing, true, complete and correct in all material    
respects.                                                                       

(ii) Parent and each Parent Subsidiary have paid (or have had paid on their 
behalf), or where payment is not yet due, have established (or have had         
established on their behalf and for their sole benefit and recourse), or will   
establish or cause to be established on or before the Effective Time of the     
Mergers, an adequate accrual for the payment of, all material Taxes due with    
respect to any period ending prior to or as of the Effective Time of the        
Mergers.                                                                        

(l) Compliance with Laws. Neither Parent nor any of the Parent Subsidiaries 
has violated or failed to comply with any statute, law, ordinance, regulation,  
rule, judgment, decree or order of any Governmental Entity applicable to its    
business or operations (including the Communications Act and the FCC's rules    
and regulations), except for violations and failures to comply that could not,  
individually or in the aggregate, reasonably be expected to result in a Parent  
Material Adverse Effect.                                                        

A1(a)-21  

DEFM14A
251st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 251st
(m) ERISA Compliance. Except as described in the Parent Filed SEC Documents 
or as would not have a Parent Material Adverse Effect, (i) all employee         
benefit plans or programs maintained for the benefit of the current or former   
employees or directors of Parent or any Parent Subsidiary that are sponsored,   
maintained or contributed to by Parent or any Parent Subsidiary, or with        
respect to which Parent or any Parent Subsidiary has any liability, including   
any such plan that is an "employee benefit plan" as defined in Section 3(3) of  
ERISA, are in compliance with all applicable requirements of law, including     
ERISA and the Code, and (ii) neither Parent nor any Parent Subsidiary has any   
liabilities or obligations with respect to any such employee benefit plans or   
programs, whether accrued, contingent or otherwise, nor to the knowledge of     
the executive officers of Parent are any such liabilities or obligations        
expected to be incurred.                                                        

(n) Operations of Holdco, Delaware Sub and Georgia Sub. Holdco does not, and
will not prior to the Closing, engage in any significant business activities    
or conduct any significant operations other than in connection with the         
transactions contemplated by this Agreement. Each of Delaware Sub and Georgia   
Sub was formed solely for the purpose of engaging in the transactions           
contemplated by this Agreement and has not engaged in any business activities   
or conducted any operations other than in connection with the transactions      
contemplated by this Agreement.                                                 

ARTICLE IV  

Covenants Relating to Conduct of Business 

Section 4.01. Conduct of Business. (a) Conduct of Business by the           
Company. During the period from September 22, 1995, to the Effective Time of    
the Mergers, the Company shall, and shall cause the Company Subsidiaries to,    
carry on their respective businesses in the usual, regular and ordinary course  
in substantially the same manner as heretofore conducted and in compliance in   
all material respects with all applicable laws and regulations (including the   
Communications Act and the FCC's rules and regulations) and, to the extent      
consistent therewith, use commercially reasonable efforts to preserve intact    
their current business organizations, keep available the services of their      
current officers and employees and preserve their relationships with            
customers, suppliers, licensors, licensees, distributors and others having      
business dealings with them. Without limiting the generality of the foregoing,  
during the period from September 22, 1995, to the Effective Time of the         
Mergers, except for Approved Matters (as defined below) the Company shall not,  
and shall not permit any of the Company Subsidiaries to:                        

(i) (x) declare, set aside or pay any dividends on, or make any other   
distributions in respect of, any of its capital stock, other than dividends 
and distributions by a direct or indirect wholly owned Company Subsidiary   
to its parent and regular quarterly cash dividends on the Company Capital   
Stock in an amount per share per quarter for each class of Company Capital  
Stock not in excess of the amount paid for the quarter immediately          
preceding September 22, 1995, (y) split, combine or reclassify any of its   
capital stock or issue or authorize the issuance of any other securities in 
respect of, in lieu of or in substitution for shares of its capital stock,  
or (z) purchase, redeem or otherwise acquire any shares of capital stock of 
the Company or any of the Company Subsidiaries or any other securities      
thereof or any rights, warrants or options to acquire any such shares or    
other securities (other than, in the case of this clause (z), for the       
redemption of New Line Debentures following a call by the Company for       
redemption of all the New Line Debentures);                                 

 (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible    
into, or any rights, warrants or options to acquire, any such shares,       
voting securities or convertible securities (other than (x) the issuance of 
shares of Class B Common Stock upon the exercise of Company Stock Options   
outstanding on September 22, 1995, and in accordance with their then terms, 
(y) the issuance of shares of Class B Common Stock reserved for issuance as 
described in clauses (B)(I) and (B)(III) of Section 3.01(c) and (z) the     
grant of Company Stock Options permitted under Section 3.01(c)(i) and the   
issuance of shares of Class B Common Stock upon the exercise thereof);      

(iii) amend its articles of incorporation, by-laws or other comparable  
organizational documents;                                                   

A1(a)-22  

DEFM14A
252nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 252nd
 (iv) acquire or agree to acquire (x) by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other       
manner, any business or any corporation, partnership, limited liability     
company, joint venture, association or other business organization or       
division thereof or (y) any assets that are material, individually or in    
the aggregate, to the Company and the Company Subsidiaries taken as a       
whole;                                                                      

(v) sell, lease, license, mortgage or otherwise encumber or subject to  
any Lien or otherwise dispose of any of its properties or assets, other     
than encumbrances and Liens that are incurred in the ordinary course of     
business;                                                                   

(vi) (y) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or        
warrants or other rights to acquire any debt securities of the Company or   
any of the Company Subsidiaries, guarantee any debt securities of another   
person, enter into any "keep well" or other agreement to maintain any       
financial statement condition of another person or enter into any           
arrangement having the economic effect of any of the foregoing, except for  
short-term borrowings incurred in the ordinary course of business           
consistent with past practice, or (z) make any loans, advances (other than  
advances to employees in the ordinary course of business consistent with    
prior practice) or capital contributions to, or investments in, any other   
person, other than to the Company or any direct or indirect wholly owned    
Company Subsidiary;                                                         

(vii) make or agree to make any new capital expenditure or expenditures;

(viii) make any material Tax election or settle or compromise any       
material Tax liability or refund;                                           

(ix) except in the ordinary course of business pursuant to employment   
agreements or Benefit Plans existing on September 22, 1995, or as required  
by applicable laws, (A) increase the compensation payable or to become      
payable to its executive officers or employees, (B) grant any severance or  
termination pay to, or enter into any employment or severance agreement     
with, any director, executive officer or employee of the Company or any     
Company Subsidiary or (C) establish, adopt, enter into or amend in any      
material respect or take action to accelerate any rights or benefits under  
any collective bargaining agreement (other than any collective bargaining   
agreement for the film production operations of the Company and the Company 
Subsidiaries) or any stock option, employee benefit plan, agreement or      
policy except as contemplated by this Agreement; provided, however, that    
this clause (ix) shall not prohibit the Company or any Company Subsidiary   
from (1) entering into any employment agreement with any employee (other    
than any executive officer of the Company) (x) whose current employment     
agreement is expiring, (y) contemporaneously with the hiring of such        
employee or (z) contemporaneously with the promotion of such employee, if,  
in each case, such employment agreement does not provide for salary in      
excess of $200,000 in any year, does not have a term in excess of five      
years and is entered into in the ordinary course of business consistent     
with prior practice, in the case of clause (x) above, such new employment   
agreement is substantially similar to the expiring agreement and, in the    
case of clause (y) or (z) above, such employment agreement is substantially 
similar to current employment agreements for employees of the Company and   
the Company Subsidiaries at the applicable level, (2) entering into talent  
agreements in the ordinary course of its film production operations         
consistent with prior practice, or (3) making any severance payment,        
including any payment in settlement of litigation arising out of or         
resulting from the cessation of employment, to any employee or former       
employee (other than any executive officer or former executive officer of   
the Company) in excess of the amounts otherwise permitted under this clause 
(ix) if the excess amount of such payment does not, in any case, exceed     
$50,000;                                                                    

(x) except as contemplated by Section 2.02(e), and without limiting the 
generality of clause (ix) above, make any amendment to any Company Stock    
Plan or New Line Plan as a result of this Agreement or in contemplation of  
the Mergers;                                                                

(xi) terminate or amend on terms less favorable to the Company any      
agreement filed as an exhibit to any SEC Document or any Programming        
Agreement; or                                                               

(xii) authorize any of, or commit or agree to take any of, the foregoing
actions.                                                                    

A1(a)-23  

DEFM14A
253rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 253rd
For purposes of this Agreement, "Approved Matters" means matters that are   
(x) expressly included in a Master Budget contemplated by Section 3 of Article  
XII of the By-Laws of the Company as in effect on September 22, 1995, or as     
approved by Parent after September 22, 1995, and prior to its approval by the   
Board of Directors of the Company or (y) otherwise approved in writing by       
Parent. Each matter subject to Section 3 of Article XII of the By-laws of the   
Company shall first be submitted to Parent for its approval and shall only      
thereafter be submitted to the Board of Directors of the Company to the extent  
Parent shall have approved such matter.                                         

(b) Certificate of Incorporation and By-Laws of Holdco. Simultaneously with 
or prior to the Effective Time of the Mergers, Parent shall cause the           
certificate of incorporation of Holdco to be amended to read in the form of     
the Restated Certificate of Incorporation of Parent, and shall cause the By-    
laws of Holdco to be amended to read in the form of the By-laws of Parent, in   
each case as in effect immediately prior to the Effective Time of the Mergers,  
together with such changes thereto as Parent and the Company may from time to   
time agree; provided, however, that changes reasonably necessary to give        
effect to the creation of the Holdco LMC Class Stock and the Holdco LMCN-V      
Stock in accordance with the LMC Agreement, to increase the authorized Holdco   
Capital Stock and to reduce the par value per share of Holdco Capital Stock     
shall not require the agreement of the Company. During the period from          
September 22, 1995, to the Effective Time of the Mergers, except as             
contemplated by this Agreement, Parent shall not amend its Restated             
Certificate of Incorporation or By-laws in any manner that would be materially  
adverse to the holders of Parent Common Stock.                                  

(c) Other Actions. The Company and Parent shall not, and shall not permit   
any of their respective subsidiaries to, take any action that would, or that    
could reasonably be expected to, result in (i) any of the representations and   
warranties of such party set forth in this Agreement that are qualified as to   
materiality becoming untrue, (ii) any of such representations and warranties    
that are not so qualified becoming untrue in any material respect or (iii) any  
of the conditions to the Mergers set forth in Article VI not being satisfied.   

(d) Advice of Changes. The Company and Parent shall promptly advise the     
other orally and in writing of any change or event having, or which, insofar    
as can reasonably be foreseen, would have, a Company Material Adverse Effect    
or a Parent Material Adverse Effect, as applicable.                             

Section 4.02. No Solicitation. (a) The Company shall not, nor shall it      
permit any of the Company Subsidiaries to, nor shall it authorize or permit     
any officer, director or employee of or any investment banker, attorney or      
other advisor or representative of, the Company or any Company Subsidiary to,   
(i) solicit, initiate or encourage the submission of any takeover proposal (as  
defined below), (ii) enter into any agreement with respect to any takeover      
proposal or (iii) participate in any discussions or negotiations regarding, or  
furnish to any person any information with respect to, or take any other        
action to facilitate any inquiries or the making of any proposal that           
constitutes, or may reasonably be expected to lead to, any takeover proposal;   
provided, however, that nothing contained in this Agreement shall prevent the   
Company or its Board of Directors from (A) furnishing nonpublic information     
to, or entering into discussions or negotiations with, any person in            
connection with an unsolicited bona fide written takeover proposal to the       
Company or its shareholders, if and only to the extent that (1) the Board of    
Directors of the Company determines in good faith based on written advice of    
its outside legal counsel that such action is necessary for the Board of        
Directors of the Company to comply with its fiduciary duties to shareholders    
under applicable law and (2) prior to furnishing such nonpublic information     
to, or entering into discussions or negotiations with, such person, the Board   
of Directors of the Company receives from such person or entity an executed     
confidentiality agreement with terms no less favorable to the Company than      
those contained in the Confidentiality Agreement (as defined in Section 5.04),  
or (B) complying with Rule 14e-2 promulgated under the Exchange Act with        
regard to a takeover proposal. Without limiting the foregoing, it is            
understood that any violation of the restrictions set forth in the preceding    
sentence by any executive officer of the Company or any of the Company          
Subsidiaries or any investment banker, attorney or other advisor or             
representative of the Company or any of the Company Subsidiaries, whether or    
not such person is purporting to act on behalf of the Company or any of the     
Company Subsidiaries or otherwise, shall be deemed to be a breach of this       
Section 4.02(a) by the Company. For purposes of this Agreement, "takeover       
proposal" means any proposal for a merger, consolidation or other business      
combination involving the Company or any of the Material Company                

A1(a)-24  

DEFM14A
254th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 254th
Subsidiaries or any proposal or offer to acquire in any manner, directly or     
indirectly, more than 15% of any class of voting securities of the Company or   
any of the Material Company Subsidiaries, or assets representing a substantial  
portion of the assets of the Company and the Company Subsidiaries, taken as a   
whole, other than the transactions contemplated by this Agreement. The Company  
shall immediately cease and cause to be terminated any existing activities,     
discussions or negotiations by the Company or any of its officers, investment   
bankers, attorneys or other advisors or representatives with any parties        
conducted heretofore with respect to any of the foregoing.                      

(b) Subject to Section 7.01(e), neither the Board of Directors of the       
Company nor any committee thereof shall (i) withdraw or modify, or propose to   
withdraw or modify, in a manner adverse to Parent, the adoption, approval or    
recommendation by such Board of Directors or any such committee of this         
Agreement or the TBS Merger or (ii) approve or recommend, or propose to         
approve or recommend, any takeover proposal.                                    

(c) The Company promptly shall advise Parent orally and in writing of any   
takeover proposal or any inquiry with respect to or which could lead to any     
takeover proposal and the identity of the person making any such takeover       
proposal or inquiry. The Company shall keep Parent promptly and fully informed  
in all material respects of the status and details of any such takeover         
proposal or inquiry.                                                            

ARTICLE V 

Additional Agreements 

Section 5.01. Preparation of Form S-4 and the Proxy Statement; Shareholders 
Meeting and Parent's Stockholders Meeting. (a) As soon as practicable           
following September 22, 1995, the Company and Parent shall prepare and file     
with the SEC the Proxy Statement and Parent and Holdco shall prepare and file   
with the SEC the Form S-4, in which the Proxy Statement shall be included as a  
prospectus. Each of the Company, Parent and Holdco shall use its best efforts   
to have the Form S-4 declared effective under the Securities Act as promptly    
as practicable after such filing. Each of the Company and Parent shall use its  
best efforts to cause the Proxy Statement to be mailed to the Company's         
shareholders or Parent's stockholders, respectively, as promptly as             
practicable after the Form S-4 is declared effective under the Securities Act.  
Holdco shall take any action (other than qualifying to do business in any       
jurisdiction in which Parent is not now so qualified) required to be taken      
under any applicable state securities or "blue sky" laws in connection with     
the issuance of Holdco Capital Stock pursuant to the Mergers, and the Company   
shall furnish all information concerning the Company and the holders of the     
Company Capital Stock and rights to acquire Company Capital Stock pursuant to   
the Company Stock Plans or the New Line Plans as may be reasonably requested    
in connection with any such action.                                             

(b) The Company shall, as soon as practicable, duly call, give notice of,   
convene and hold a meeting of its shareholders (the "Shareholders Meeting")     
for the purpose of obtaining the Shareholder Approvals. Subject to Section      
7.01(e), the Company shall, through its Board of Directors, recommend to its    
shareholders approval of this Agreement and the transactions contemplated by    
this Agreement. Without limiting the generality of the foregoing, the Company   
agrees that its obligations pursuant to the first sentence of this Section      
5.01(b) shall not be altered by the commencement, public proposal, public       
disclosure or communication to the Company of any takeover proposal. Parent     
shall vote or cause to be voted all the shares of Company Capital Stock owned   
of record by Parent or any Parent Subsidiary in favor of the Shareholder        
Approvals.                                                                      

(c) Parent shall, as soon as practicable, duly call, give notice of, convene
and hold a meeting of its stockholders (the "Parent's Stockholders Meeting")    
for the purpose of obtaining the Parent Stockholder Approvals. Subject to any   
contrary fiduciary obligations, Parent shall, through its Board of Directors,   
recommend to its stockholders approval of the matters submitted to them for     
such purpose.                                                                   

Section 5.02. Letter of the Company's Accountants. The Company shall use its
best efforts to cause to be delivered to Parent and Holdco a letter of Price    
Waterhouse LLP, the Company's independent public                                

A1(a)-25  

DEFM14A
255th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 255th
accountants, dated a date within two business days before the date on which     
the Form S-4 shall become effective and addressed to Parent and Holdco, in      
form and substance reasonably satisfactory to Parent and customary in scope     
and substance for letters delivered by independent public accountants in        
connection with registration statements similar to the Form S-4.                

Section 5.03. Letter of Parent's Accountants. Parent shall use its best     
efforts to cause to be delivered to the Company a letter of Ernst & Young LLP,  
Parent's independent public accountants, and, with respect to persons or        
assets acquired by Parent, one or more other independent public accountants,    
dated a date within two business days before the date on which the Form S-4     
shall become effective and addressed to the Company, in form and substance      
reasonably satisfactory to the Company and customary in scope and substance     
for letters delivered by independent public accountants in connection with      
registration statements similar to the Form S-4.                                

Section 5.04. Access to Information; Confidentiality. Each of the Company   
and Parent shall, and shall cause each of its respective subsidiaries to,       
afford to the other party and to the officers, employees, accountants,          
counsel, financial advisors and other representatives of such other party,      
reasonable access during normal business hours during the period prior to the   
Effective Time of the Mergers to all their respective properties, books,        
contracts, commitments, personnel and records and, during such period, each of  
the Company and Parent shall, and shall cause each of its respective            
subsidiaries to, furnish promptly to the other party (a) a copy of each         
report, schedule, registration statement and other document filed by it during  
such period pursuant to the requirements of Federal or state securities laws    
and (b) all other information concerning its business, properties and           
personnel as such other party may reasonably request. Except as required by     
law, each of the Company and Parent shall hold, and shall cause its respective  
officers, employees, accountants, counsel, financial advisors and other         
representatives and affiliates to hold, any nonpublic information in            
confidence to the extent required by, and in accordance with, the provisions    
of the letter dated August 26, 1995, between the Company and Parent (the        
"Confidentiality Agreement").                                                   

Section 5.05. Best Efforts; Notification. (a) Upon the terms and subject to 
the conditions set forth in this Agreement and, in the case of Parent, in the   
LMC Agreement, each of the parties agrees to use its best efforts to take, or   
cause to be taken, all actions, and to do, or cause to be done, and to assist   
and cooperate with the other parties in doing, all things necessary, proper or  
advisable to consummate and make effective, in the most expeditious manner      
practicable, the Mergers and the other transactions contemplated by this        
Agreement and the Voting Agreements, including (i) the obtaining of all         
necessary actions or nonactions, waivers, consents and approvals from           
Governmental Entities and the making of all necessary registrations and         
filings (including filings with Governmental Entities, if any) and the taking   
of all reasonable steps as may be necessary to obtain an approval or waiver     
from, or to avoid an action or proceeding by, any Governmental Entity, (ii)     
the obtaining of all necessary consents, approvals or waivers from third        
parties, (iii) the defending of any lawsuits or other legal proceedings,        
whether judicial or administrative, challenging this Agreement or the Voting    
Agreements or the consummation of the transactions contemplated by this         
Agreement or the Voting Agreements, including seeking to have any stay or       
temporary restraining order entered by any court or other Governmental Entity   
vacated or reversed, and (iv) the execution and delivery of any additional      
instruments necessary to consummate the transactions contemplated by, and to    
fully carry out the purposes of, this Agreement; provided, however, that a      
party shall not be obligated to take any action pursuant to the foregoing if    
the taking of such action or the obtaining of any waiver, consent, approval or  
exemption is reasonably likely (x) to be materially burdensome to such party    
and its subsidiaries taken as a whole or to impact in a materially adverse      
manner the economic or business benefits of the transactions contemplated by    
this Agreement, the Voting Agreements and the Investors' Agreements referred    
to in Section 6.02(f) so as to render inadvisable the consummation of the       
Mergers or (y) to result in the imposition of a condition or restriction of     
the type referred to in clause (ii), (iii) or (iv) of Section 6.02(e). In       
connection with and without limiting the foregoing, the Company and its Board   
of Directors shall (i) take all reasonable action necessary so that no state    
takeover statute or similar statute or regulation is or becomes applicable to   
the TBS Merger, this Agreement or any of the other transactions contemplated    
by this Agreement or the Voting Agreements and (ii) if any state takeover       
statute or similar statute or regulation becomes applicable                     

A1(a)-26  

DEFM14A
256th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 256th
to the TBS Merger, this Agreement or any other transaction contemplated by      
this Agreement or any Voting Agreement, take all action necessary so that the   
TBS Merger and the other transactions contemplated by this Agreement and the    
Voting Agreements may be consummated as promptly as practicable on the terms    
contemplated by this Agreement and the Voting Agreements and otherwise to       
minimize the effect of such statute or regulation on the TBS Merger and the     
other transactions contemplated by this Agreement and the Voting Agreements.    

(b) The Company shall give prompt notice to Parent, and Parent shall give   
prompt notice to the Company, of (i) any representation or warranty made by it  
contained in this Agreement that is qualified as to materiality becoming        
untrue or inaccurate in any respect or any such representation or warranty      
that is not so qualified becoming untrue or inaccurate in any material respect  
or (ii) the failure by it to comply with or satisfy in any material respect     
any covenant, condition or agreement to be complied with or satisfied by it     
under this Agreement; provided, however, that no such notification shall        
affect the representations, warranties, covenants or agreements of the parties  
or the conditions to the obligations of the parties under this Agreement.       

Section 5.06. Board Authority. The Company represents and warrants to Parent
that (a) on or prior to September 22, 1995, the Board of Directors of the       
Company has adopted resolutions providing that (i) any action to be             
subsequently taken by the Board of Directors of the Company to implement the    
transactions contemplated by this Agreement (excluding any amendment to this    
Agreement or to the other agreements entered into in connection with the        
Mergers to which the Company is a party) shall be authorized if approved by a   
majority vote of the directors of the Company (other than any directors that    
are interested directors under Section 3 of Article XII of the Company's By-    
laws) present and voting at a meeting at which a quorum is present, without     
regard to class, and (ii) any action to be subsequently taken by the Company    
to implement the transactions contemplated by this Agreement (excluding any     
amendment to this Agreement or to the other agreements entered into in          
connection with the Mergers to which the Company is a party) that otherwise     
requires the approval of the Board of Directors of the Company shall be         
authorized if approved by a majority vote of the directors of the Company       
(other than any directors that are interested directors under Section 3 of      
Article XII of the Company's By-laws) present and voting at a meeting at which  
a quorum is present, without regard to class, and (b) such resolutions were     
validly adopted, are in full force and effect, do not conflict with any         
provision of the Company's Articles of Incorporation or By-laws or any          
contract, agreement or other instrument to which the Company is a party and     
are effective in accordance with their terms. The Board of Directors of the     
Company shall not amend, rescind or repeal any of such resolutions. The         
Company shall not enter into any contract, agreement or other instrument, or    
adopt any resolution, that, directly or indirectly, would (A) result in any     
action to be taken by the Board of Directors of the Company to implement the    
transactions contemplated by this Agreement (excluding any amendment to this    
Agreement or to the other agreements entered into in connection with the        
Mergers to which the Company is a party) requiring any approval other than the  
approval by the majority vote of all the directors of the Company (other than   
any directors that are interested directors under Section 3 of Article XII of   
the Company's By-laws) present and voting at a meeting at which a quorum is     
present, without regard to class, or (B) result in any action to be taken by    
the Company to implement the transactions contemplated by this Agreement        
requiring the approval (if not required as of September 22, 1995) of the        
directors of the Company or any group or committee thereof. The Company         
represents and warrants to Parent that neither the Company nor its Board of     
Directors was subject to any such contract, agreement or other instrument as    
of September 22, 1995.                                                          

Section 5.07. Public Announcements. Parent, Holdco, Delaware Sub and Georgia
Sub, on the one hand, and the Company, on the other hand, shall consult with    
each other before issuing, and provide each other the opportunity to review     
and comment upon, any press release or other public statements with respect to  
the transactions contemplated by this Agreement, including the Mergers, and     
shall not issue any such press release or make any such public statement prior  
to such consultation, except as may be required by applicable law, court        
process or by obligations pursuant to any listing agreement with any national   
securities exchange.                                                            

Section 5.08. Benefit Plans. (a) Maintenance of Benefits. For a period of   
two years after the Effective Time of the Mergers, Holdco shall (i) either (A)  
maintain or cause the TBS Surviving Corporation (or in the case of a transfer   
of all or substantially all the assets and business of the TBS Surviving        
Corporation, its                                                                

A1(a)-27  

DEFM14A
257th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 257th
successors or assigns) to maintain the Benefit Plans (other than medical        
plans) at the benefit levels in effect on September 22, 1995 or (B) provide or  
cause the TBS Surviving Corporation (or, in such case, its successors or        
assigns) to provide benefits to employees of the Company and the Company        
Subsidiaries that are not materially less favorable in the aggregate to such    
employees than those in effect on September 22, 1995 and (ii) provide or cause  
to be provided medical benefits to employees of the Company and the Company     
Subsidiaries that are substantially equivalent to those provided to similarly   
situated employees of the TW Surviving Corporation.                             

(b) Service. With respect to any "employee benefit plan", as defined in     
Section 3(3) of ERISA, maintained by Parent, Holdco or any other Parent         
Subsidiary (including any severance plan), for purposes of determining          
eligibility to participate, vesting, entitlement to benefits, benefit accrual   
(but in the case of any "employee pension benefit plan", as defined in Section  
3(2) of ERISA, solely to the extent necessary to comply with Section 5.08(a))   
and in all other respects where length of service is relevant, service with     
the Company or any Company Subsidiary shall be treated as service with Parent,  
Holdco or the other Parent Subsidiaries; provided, however, that such service   
need not be recognized to the extent that such recognition would result in any  
duplication of benefits.                                                        

(c) Third Party Beneficiaries. This Section 5.08 is intended to be for the  
benefit of and shall be enforceable by each person who is an employee of the    
Company or any Company Subsidiary as of the Effective Time of the Mergers (but  
only with respect to those provisions applicable to such employee), and his     
heirs and personal representatives and, to the extent set forth above, shall    
be binding on all successors and assigns of Parent, Holdco, the other Parent    
Subsidiaries, the Company and the Company Subsidiaries. To the extent that any  
provision of this Section 5.08 shall be reflected in a plan or arrangement      
subject to ERISA, the exclusive remedy of any employee referred to in the       
preceding sentence with respect to such provisions or request for a related     
benefit provided by such plan or arrangement shall be the claims procedure      
under such plan or arrangement.                                                 

Section 5.09. Indemnification. Parent, Holdco and Georgia Sub agree that all
rights to indemnification for acts or omissions occurring prior to the          
Effective Time of the Mergers existing as of September 22, 1995, in favor of    
the current or former directors or officers of the Company as provided in its   
Restated Articles of Incorporation or By-laws shall survive the TBS Merger and  
shall continue in full force and effect in accordance with their terms from     
the Effective Time of the Mergers until the expiration of the applicable        
statute of limitations with respect to any claims against the current or        
former directors or officers of the Company arising out of such acts or         
omissions. Holdco shall cause to be maintained for a period of not less than    
six years from the Effective Time of the Mergers the Company's directors' and   
officers' insurance and indemnification policy in effect as of September 22,    
1995, to the extent that it provides coverage for events occurring prior to     
the Effective Time of the Mergers (the "D&O Insurance") for all persons who     
are directors and officers of the Company who are covered persons under the     
Company's D&O insurance policies in effect on September 22, 1995, so long as    
the annual premium therefor would not be in excess of 150% of the last annual   
premium paid prior to September 22, 1995 (the "Maximum Premium"). If the        
existing D&O Insurance expires, is terminated or canceled during such six-year  
period, Holdco shall use all reasonable efforts to cause to be obtained as      
much D&O Insurance as can be obtained for the remainder of such period for an   
annualized premium not in excess of the Maximum Premium, on terms and           
conditions no less advantageous to the covered persons than the existing D&O    
Insurance. The Company represents to Parent that the Maximum Premium is         
$947,602.                                                                       

Section 5.10. Fees and Expenses. Except as provided in Sections 5.15,       
7.02(a), 7.02(b) and 7.02(c), all fees and expenses incurred in connection      
with the Mergers, this Agreement and the transactions contemplated by this      
Agreement shall be paid by the party incurring such fees or expenses, whether   
or not the Mergers are consummated, except that expenses incurred in            
connection with printing and mailing the Proxy Statement and the Form S-4       
shall be shared equally by Parent and the Company.                              

Section 5.11. Affiliates. Prior to the Closing Date, the Company shall      
deliver to each of Parent and Holdco a letter identifying all persons who are,  
at the time this Agreement is submitted for approval to the shareholders of     
the Company, "affiliates" of the Company for purposes of Rule 145 under the     
Securities Act.                                                                 

A1(a)-28  

DEFM14A
258th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 258th
The Company shall use its best efforts to cause each such person, and Parent    
shall use its best efforts to cause each of its "affiliates", to deliver to     
Holdco on or prior to the Closing Date a written agreement substantially in     
the form attached as Exhibit A.                                                 

Section 5.12. Stock Exchange Listing. Parent shall use its best efforts to  
cause the shares of Holdco Common Stock to be issued in the Mergers and         
pursuant to the Company Stock Options, the New Line Options, the notes          
referred to in Section 3.01(c)(i)(B)(I) and the other securities referred to    
in Section 3.01(c)(i)(B)(III) to be approved for listing on the New York Stock  
Exchange, Inc. (the "NYSE"), subject to official notice of issuance, prior to   
the Closing Date.                                                               

Section 5.13. Execution of the Registration Rights Agreement. Holdco shall  
execute and deliver to the other parties thereto the Registration Rights        
Agreement in the form of Exhibit B (the "Registration Rights Agreement") at or  
prior to the Closing.                                                           

Section 5.14. Tax Treatment. Each of Parent, Holdco and the Company shall   
use its reasonable best efforts to cause the Mergers to qualify as exchanges    
governed by Section 351 of the Code and to obtain the opinions of counsel       
referred to in Sections 6.02(d) and 6.03(d).                                    

Section 5.15. Transfer and Real Property Transfer Gains Taxes. Holdco shall 
be responsible for any liabilities, without deduction or withholding from any   
amount payable to the holders of Parent Capital Stock or Company Capital        
Stock, arising under any New York State Real Estate Transfer Tax, New York      
State Tax on Gains Derived from certain Real Property Transfers, New York City  
Real Property Transfer Tax, New York State Stock Transfer Tax and any similar   
taxes imposed by any other city or State of the United States (and any          
penalties and interest with respect to such Taxes), to the extent any such      
Taxes become payable in connection with the transactions contemplated by this   
Agreement, on behalf of the holders of Parent Capital Stock or Company Capital  
Stock. The Company and Holdco shall cooperate in complying with the             
requirements of such Taxes. Holders of Parent Capital Stock or Company Capital  
Stock shall be bound by the values and allocations established by Holdco and    
the Company on any Tax Returns relating to any such Taxes.                      

Section 5.16. Material Transactions by Parent. Parent shall promptly notify 
the Company if, after September 22, 1995, and prior to the Effective Time of    
the Mergers, Parent or any Parent Subsidiary enters into a definitive           
agreement providing for the implementation of a Material Transaction (as        
defined below). In such event, the Board of Directors of the Company may        
request the Company's financial advisor, CS First Boston Corporation, to        
deliver a written opinion, substantially in the same form as the opinion        
referred to in Section 3.01(m), that, after giving effect to the Material       
Transaction, the consideration to be received by the Company's shareholders in  
the TBS Merger is fair to the Company's shareholders (other than Parent) from   
a financial point of view. The Company and Parent shall cooperate in            
furnishing such information to CS First Boston Corporation as shall be          
reasonably required in order for such opinion to be delivered as promptly as    
practicable, and the Company shall use all commercially reasonable efforts to   
cause such opinion or the written advice referred to in the following sentence  
to be delivered within 15 days following request therefor from the Company. In  
the event that CS First Boston Corporation advises the Company and Parent in    
writing that it is unable to deliver such opinion, the Company shall be         
entitled to terminate this Agreement pursuant to Section 7.01(f), if such       
termination is approved by the Board of Directors of the Company. For purposes  
of this Agreement, "Material Transaction" means (i) the issuance by Parent of   
more than 90,000,000 "common stock equivalents" (one common stock equivalent    
being equal to one share of Parent Common Stock, including any share of Parent  
Common Stock issuable by Parent upon conversion, exercise or exchange of any    
other capital stock, warrant or other security or right of Parent, any Parent   
Subsidiary or any other controlled affiliate of Parent) in any single           
transaction or in any series of individual transactions (excluding (A) any      
transaction involving an exchange by Parent on a one-for-one basis of newly     
issued shares of Parent Series L Preferred Stock for outstanding shares of      
Parent Series C Preferred Stock and (B) any transaction contemplated by the     
elective merger letter agreement dated as of September 22, 1995, between        
Parent and LMC, if, in the case of this clause (B), such transaction is not     
reasonably likely to (1) cause the satisfaction of any condition set forth in   
Article VI to be delayed in any material respect or (2) make the satisfaction   
of any such condition materially more difficult or costly or otherwise more     
disadvantageous to the Company, Parent or Holdco in any material respect),      
each of which involves the issuance of more than 20,000,000 common stock        
equivalents, whether or not such individual                                     

A1(a)-29  

DEFM14A
259th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 259th
transactions are related to each other, or (ii) the sale or other disposition   
in any transaction or series of transactions, whether or not related to each    
other, by Parent or any Parent Subsidiary of any business or assets with an     
aggregate fair market value in excess of $3,500,000,000, excluding from such    
amount (x) sales of inventory in the ordinary course of business consistent     
with prior practice and (y) the sale or disposition, in a single transaction    
or series of related transactions, of assets with an aggregate fair market      
value of $500,000,000 or less. The fair market value of any cable television    
systems disposed of by Parent or any Parent Subsidiary in exchange for cable    
television systems owned by third parties shall be included in such amount      
only to the extent, if any, in excess of the fair market value of the cable     
televisions systems acquired in such exchange by Parent or any Parent           
Subsidiary.                                                                     

ARTICLE VI  

Conditions Precedent  

Section 6.01. Conditions to Each Party's Obligation To Effect the           
Mergers. The respective obligation of each party to effect the Mergers is       
subject to the satisfaction or waiver on or prior to the Closing Date of the    
following conditions:                                                           

(a) Shareholder Approvals and Parent Stockholder Approvals. The Company     
shall have obtained the Shareholder Approvals and Parent shall have obtained    
the Parent Stockholder Approvals.                                               

(b) NYSE Listing. The shares of Holdco Common Stock issuable pursuant to    
this Agreement shall have been approved for listing on the NYSE, subject to     
official notice of issuance.                                                    

(c) Antitrust. The waiting periods (and any extensions thereof) applicable  
to the transactions contemplated by this Agreement under the HSR Act shall      
have been terminated or shall have expired. Any consents, approvals and         
filings under any foreign antitrust law the absence of which would prohibit     
the consummation of the Mergers shall have been obtained or made.               

(d) No Injunctions or Restraints. No temporary restraining order,           
preliminary or permanent injunction or other order issued by any court of       
competent jurisdiction or other legal restraint or prohibition preventing the   
consummation of either Merger or preventing LMC or any of its subsidiaries      
from voting, as contemplated by the LMC Agreement, shares of Company Capital    
Stock that LMC or any such subsidiary is otherwise entitled to vote, shall be   
in effect; provided, however, that, subject to the proviso in Section 5.05(a),  
each of the parties shall have used its best efforts to prevent the entry of    
any such injunction or other order and to appeal as promptly as possible any    
such injunction or other order that may be entered.                             

(e) Form S-4. The Form S-4 shall have become effective under the Securities 
Act and shall not be the subject of any stop order or proceedings seeking a     
stop order, and Holdco shall have received all state securities or "blue sky"   
authorizations necessary to issue the Holdco Capital Stock issuable pursuant    
to this Agreement.                                                              

(f) FCC Approvals. All orders and approvals of the FCC required in          
connection with the consummation of the transactions contemplated by this       
Agreement shall have been obtained without the imposition of any conditions or  
restrictions of the type referred to in Section 6.02(e)(ii), (iii) or (iv)      
that are not acceptable to Parent in its sole discretion.                       

(g) Certain Proceedings. Each action or proceeding relating to the issue of 
whether the transactions contemplated by this Agreement violate, or require     
the consent of any person under, the TWE Partnership Agreement shall either     
(i) have been dismissed with prejudice or (ii) be subject to a final judgment   
that remains unstayed for a period of 60 days; provided, however, that this     
condition shall cease to be effective on December 23, 1996.                     

(h) Voting Trust Approval. Either (A) Parent and the Company shall be       
satisfied that, and the FCC shall have confirmed that, the Voting Trust (as     
defined in the LMC Agreement) will be effective to prevent the beneficiaries    
thereunder from having an attributable interest, within the meaning of the      
FCC's rules and                                                                 

A1(a)-30  

DEFM14A
260th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 260th
regulations, in the assets and businesses of Holdco by reason of the Holdco     
Capital Stock subject thereto or (B) the parties to the LMC Agreement (other    
than Parent and Time TBS Holdings, Inc.) shall have acknowledged that the       
procedures set forth in Section 4.1 of the LMC Agreement relating to exchange   
for nonvoting Holdco securities are applicable.                                 

Section 6.02. Conditions to Obligations of Parent, Holdco, Delaware Sub and 
Georgia Sub. The obligations of Parent, Holdco, Delaware Sub and Georgia Sub    
to effect the Mergers are further subject to the satisfaction or waiver by      
Parent on or prior to the Closing Date of the following conditions:             

(a) Representations and Warranties. The representations and warranties of   
the Company set forth in this Agreement that are qualified as to materiality    
shall be true and correct, and the representations and warranties of the        
Company set forth in this Agreement that are not so qualified shall be true     
and correct in all material respects, in each case as of the date of this       
Agreement, and as of the Closing Date as though made on and as of the Closing   
Date, except to the extent any such representation or warranty expressly        
relates to an earlier date (in which case as of such date), and Parent shall    
have received a certificate signed on behalf of the Company by the Chief        
Executive Officer (or the Executive Vice President) and the Chief Financial     
Officer of the Company to such effect.                                          

(b) Performance of Obligations of the Company. The Company shall have       
performed in all material respects all obligations required to be performed by  
it under this Agreement at or prior to the Closing Date, and Parent shall have  
received a certificate signed on behalf of the Company by the Chief Executive   
Officer (or the Executive Vice President) and the Chief Financial Officer of    
the Company to such effect.                                                     

(c) Letters from Company Affiliates. Holdco shall have received from each   
person named in the letter referred to in Section 5.11 an executed copy of an   
agreement substantially in the form of Exhibit A.                               

(d) Tax Opinion. Parent and Holdco shall have received an opinion dated the 
Closing Date from Cravath, Swaine & Moore, based upon certificates and          
letters, which letters and certificates are substantially in the form set       
forth in Exhibit D and dated the Closing Date, to the effect that the TW        
Merger will qualify as an exchange governed by the provisions of Section 351    
of the Code.                                                                    

(e) No Litigation. There shall not be pending any suit, action or proceeding
by any Governmental Entity (i) challenging the acquisition by Parent or Holdco  
of any shares of capital stock of the Company or the TBS Surviving              
Corporation, seeking to restrain or prohibit the consummation of the Mergers    
or any of the other transactions contemplated by this Agreement or the LMC      
Agreement or seeking to obtain from the Company, Parent, Holdco or any of       
their respective subsidiaries any damages that are material in relation to the  
Company and its subsidiaries taken as a whole, (ii) seeking to prohibit or      
limit the ownership or operation by the Company, Parent, Holdco, any Material   
Company Subsidiary or any Material Parent Subsidiary of any material portion    
of the business or assets of the Company, Parent, Holdco, any Material Company  
Subsidiary or any Material Parent Subsidiary or to compel the Company, Parent,  
Holdco, or any of their respective subsidiaries to dispose of or hold separate  
any material portion of the business or assets of the Company, Parent, Holdco,  
any Material Company Subsidiary or any Material Parent Subsidiary as a result   
of the Mergers or any of the other transactions contemplated by this            
Agreement, (iii) seeking to impose limitations on the ability of Holdco to      
acquire or hold, or exercise full rights of ownership of, any shares of         
capital stock of the TW Surviving Corporation or the TBS Surviving              
Corporation, including, without limitation, the right to vote such capital      
stock on all matters properly presented to the stockholders of the TW           
Surviving Corporation or the TBS Surviving Corporation, (iv) seeking to         
prohibit Parent or Holdco from effectively controlling in any material respect  
the business or operations of the Company or any Material Company Subsidiary    
or (v) which otherwise is reasonably likely to have a Company Material Adverse  
Effect or a Parent Material Adverse Effect.                                     

(f) Investors' Agreements. Each of the other parties thereto shall have     
executed and delivered to Holdco an Investors' Agreement in the form of         
Exhibit C-1 or C-2, as applicable.                                              

A1(a)-31  

DEFM14A
261st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 261st
(g) Cable Franchise Authorities. All necessary orders and permits approving 
the transactions contemplated by this Agreement from all applicable cable       
franchising authorities having jurisdiction over all or any portion of any      
material cable system operated by Parent or any Parent Subsidiary shall have    
been received.                                                                  

(h) Dissenters' Rights. The Company shall not have received pursuant to     
Section 1321(a)(1) of the Georgia BCC written notices of intent to demand       
payment in connection with the TBS Merger with respect to shares of Company     
Capital Stock representing more than 28,000,000 Company Common Stock            
equivalents (calculated on the basis that each share of Company Common Stock    
represents one Company Common Stock equivalent and each share of Class C        
Preferred Stock represents six Company Common Stock equivalents).               

Section 6.03. Conditions to Obligation of the Company. The obligation of the
Company to effect the TBS Merger is further subject to the satisfaction or      
waiver by the Company on or prior to the Closing Date of the following          
conditions:                                                                     

(a) Representations and Warranties. The representations and warranties of   
Parent set forth in this Agreement that are qualified as to materiality shall   
be true and correct, and the representations and warranties of Parent set       
forth in this Agreement that are not so qualified shall be true and correct in  
all material respects, in each case as of the date of this Agreement and as of  
the Closing Date as though made on and as of the Closing Date, except to the    
extent any such representation or warranty expressly relates to another date    
(in which case as of such date), and the Company shall have received a          
certificate signed on behalf of Parent by the chief executive officer (or any   
executive vice president) and the chief financial officer of Parent to such     
effect.                                                                         

(b) Performance of Obligations. Parent, Holdco, Delaware Sub and Georgia Sub
shall have performed in all material respects all obligations required to be    
performed by them under this Agreement at or prior to the Closing Date, and     
the Company shall have received a certificate signed on behalf of Parent by     
the chief executive officer (or any executive vice president) and the chief     
financial officer of Parent to such effect.                                     

(c) No Litigation. There shall not be pending any suit, action or proceeding
by any Governmental Entity (i) seeking to obtain from the Company, Parent,      
Holdco or any of their respective subsidiaries any damages that are material    
in relation to Holdco and its subsidiaries taken as a whole (determined after   
giving effect to the Mergers), (ii) seeking to prohibit or limit the ownership  
or operation by Parent, Holdco or any of their respective subsidiaries of any   
material portion of the business or assets of Holdco and its subsidiaries       
taken as a whole (determined after giving effect to the Mergers), or to compel  
Parent, Holdco or any of their respective subsidiaries to dispose of or hold    
separate any material portion of the business or assets of Holdco and its       
subsidiaries, taken as a whole (determined after giving effect to the           
Mergers), as a result of the Mergers or any of the other transactions           
contemplated by this Agreement, or (iii) which otherwise is reasonably likely   
to have a material adverse effect on Holdco and its subsidiaries, taken as a    
whole (determined after giving effect to the Mergers).                          

(d) Tax Opinion. The Company shall have received an opinion dated the       
Closing Date from Skadden, Arps, Slate, Meagher & Flom, based upon              
certificates and letters, which letters and certificates are substantially in   
the form set forth in Exhibit D and dated the Closing Date, to the effect that  
the TBS Merger will qualify as an exchange governed by the provisions of        
Section 351 of the Code.                                                        

ARTICLE VII 

Termination, Amendment and Waiver 

Section 7.01. Termination. This Agreement may be terminated at any time     
prior to the Effective Time of the Mergers, whether before or after the         
Shareholder Approvals or the Parent Stockholder Approvals:                      

(a) by mutual written consent of Parent and the Company;                    

A1(a)-32  

DEFM14A
262nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 262nd
(b) by either Parent or the Company:                                        

(i) if, at a duly held shareholders meeting of the Company or any       
adjournment thereof at which the Shareholder Approvals are voted upon, the  
Shareholder Approvals shall not have been obtained;                         

 (ii) if, at a duly held stockholders meeting of Parent or any adjournment
thereof at which the Parent Stockholder Approvals are voted upon, the       
Parent Stockholder Approvals shall not have been obtained;                  

(iii) if the Mergers shall not have been consummated on or before       
September 30, 1996, unless the failure to consummate the Mergers is the     
result of a wilful and material breach of this Agreement by the party       
seeking to terminate this Agreement; provided, however, that if all the     
conditions set forth in Sections 6.01 (other than 6.01(g)), 6.02 and 6.03   
have been satisfied at such date, either Parent or the Company may, by      
notice to the other prior to such date, extend such date to the latest date 
so extended by either party but in no event later than December 31, 1996;   

(iv) if any court of competent jurisdiction or other Governmental Entity
shall have issued an order, decree or ruling or taken any other action      
permanently enjoining, restraining or otherwise prohibiting the Mergers and 
such order, decree, ruling or other action shall have become final and non- 
appealable;                                                                 

(v) in the event of a breach by the other party of any representation,  
warranty, covenant or other agreement contained in this Agreement which (A) 
would give rise to the failure of a condition set forth in Section 6.02(a)  
or 6.02(b) or Section 6.03(a) or 6.03(b), as applicable, and (B) cannot be  
or has not been cured within 30 days after the giving of written notice to  
the breaching party of such breach (a "Material Breach") (provided that the 
terminating party is not then in breach of any representation, warranty,    
covenant or other agreement that would give rise to a failure of a          
condition as described in clause (A) above); or                             

(vi) if the FCC shall have issued an order or ruling or taken other     
action denying approval of the transactions contemplated by this Agreement, 
and such order, ruling or other action shall have become final and non-     
appealable;                                                                 

(c) by either Parent or the Company in the event that (i) all the conditions
to the obligation of such party to effect the Mergers set forth in Section      
6.01 shall have been satisfied and (ii) any condition to the obligation of      
such party to effect the Mergers set forth in Section 6.02 (in the case of      
Parent) or Section 6.03 (in the case of the Company) is not capable of being    
satisfied prior to the end of the period referred to in Section 7.01(b)(iii);   

(d) by Parent, if any order or approval of the FCC contemplated by Section  
6.01(f) when obtained shall have included any conditions or restrictions of     
the type referred to in Section 6.02(e)(ii), (iii) or (iv) that are not         
acceptable to Parent in its sole discretion and such order or approval shall    
have become final and non-appealable;                                           

(e) by the Company, subject to Section 7.05(b), if the Board of Directors of
the Company shall concurrently approve, and the Company shall concurrently      
enter into, a definitive agreement providing for the implementation of the      
transactions contemplated by a takeover proposal; provided, however, that (i)   
the Company is not then in breach of Section 4.02 or in breach of any other     
representation, warranty, covenant or agreement that would give rise to a       
failure of a condition set forth in Section 6.02(a) or 6.02(b), (ii) the Board  
of Directors of the Company shall have complied with Section 7.05(b) in         
connection with such takeover proposal and (iii) no termination pursuant to     
this Section 7.01(e) shall be effective unless the Company shall                
simultaneously make the payment required by Section 7.02(a);                    

(f) by the Company, as contemplated by Section 5.16;                        

(g) by the Company within 30 days of (i) Parent entering into any agreement 
providing for any merger or consolidation of Parent with or into any other      
person in which the shares of capital stock of Parent are to be exchanged for   
or converted into the right to receive anything other than Parent Common        
Stock, (ii) any person becoming an Acquiring Person (as defined in the Rights   
Agreement, as in effect on September 22, 1995), other than with the prior       
approval of the Board of Directors of Parent, or (iii) any person becoming an   
Acquiring Person (as defined in the Rights Agreement, as in effect on           
September 22, 1995, but determined, for purposes of                             

A1(a)-33  

DEFM14A
263rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 263rd
this clause (iii), as if the reference therein to "15%" were to "30%"), in the  
case of clauses (ii) and (iii) above, (x) including any person excluded from    
the definition of "Acquiring Person" in the Rights Agreement by virtue of the   
acquisition of shares pursuant to a Qualifying Offer (as defined in the Rights  
Agreement, as in effect on September 22, 1995) and (y) regardless of whether    
the Rights Agreement is then in effect (and excluding, in all cases, this       
Agreement); or                                                                  

(h) by Parent to the extent required by Section 2.3 of the LMC Agreement.   

Section 7.02. Effect of Termination. (a) In the event that any person shall 
make a takeover proposal and thereafter (i) this Agreement is terminated (A)    
pursuant to Section 7.01(b)(i), (B) pursuant to Section 7.01(b)(iii) (if at     
the time of termination (x) the Company is in breach of any representation,     
warranty, covenant or other agreement that would give rise to a failure of a    
condition set forth in Section 6.02(a) or 6.02(b) and (y) such breach cannot    
be or has not been cured within 30 days after the Company becomes aware of      
such breach or such shorter period as may elapse between the date the Company   
becomes aware of such breach and the time of termination), (C) by the Company   
pursuant to Section 7.01(b)(iv) (if at the time of termination (x) the Company  
is in breach of any representation, warranty, covenant or other agreement that  
would give rise to a failure of a condition set forth in Section 6.02(a) or     
6.02(b) and (y) such breach cannot be or has not been cured within 30 days      
after the Company becomes aware of such breach), (D) by Parent pursuant to      
Section 7.01(b)(v), (E) pursuant to Section 7.01(b)(vi) (if at the time of      
termination (x) the Company is in breach of any representation, warranty,       
covenant or other agreement that would give rise to a failure of a condition    
set forth in Section 6.02(a) or 6.02(b) and (y) such breach cannot be or has    
not been cured within 30 days after the Company becomes aware of such breach),  
(F) by the Company pursuant to Section 7.01(c) or (G) pursuant to Section       
7.01(e), and (ii) a definitive agreement with respect to a takeover proposal    
is executed, or a takeover proposal is consummated, at or within eighteen       
months after such termination, then the Company shall pay to Parent a fee of    
$175,000,000 (reduced by any amount actually paid by the Company pursuant to    
Section 7.02(b) in connection with such termination), which amount shall be     
payable by wire transfer of same day funds on the date such agreement is        
executed, or such takeover proposal is consummated, as applicable. The Company  
acknowledges that the agreements contained in this Section 7.02(a) are an       
integral part of the transactions contemplated by this Agreement, and that,     
without these agreements, Parent would not enter into this Agreement;           
accordingly, if the Company fails to promptly pay the amount due pursuant to    
this Section 7.02(a), and, in order to obtain such payment, Parent commences a  
suit which results in a judgment against the Company for the fee set forth in   
this Section 7.02(a), the Company shall also pay to Parent its costs and        
expenses (including reasonable attorneys' fees) in connection with such suit.   

(b) In the event of termination of this Agreement by either Parent or the   
Company pursuant to Section 7.01(b)(i) or by Parent pursuant to Section         
7.01(b)(v), then the Company shall reimburse Parent for all its reasonable      
out-of-pocket expenses actually incurred in connection with this Agreement and  
the transactions contemplated hereby, up to a maximum amount of $15,000,000,    
which amount shall be payable by wire transfer of same day funds within three   
business days of written demand, accompanied by a reasonably detailed           
statement of such expenses and appropriate supporting documentation, therefor.  

(c) In the event of termination of this Agreement by either Parent or the   
Company pursuant to Section 7.01(b)(ii) or by the Company pursuant to Section   
7.01(b)(v), then Parent shall reimburse the Company for all its reasonable      
out-of-pocket expenses actually incurred in connection with this Agreement and  
the transactions contemplated hereby, up to a maximum amount of $15,000,000,    
which amount shall be payable by wire transfer of same day funds within three   
business days of written demand, accompanied by a reasonably detailed           
statement of such expenses and appropriate supporting documentation, therefor.  

(d) In the event of termination of this Agreement by either the Company or  
Parent as provided in Section 7.01, this Agreement shall forthwith become void  
and have no effect, without any liability or obligation on the part of Parent,  
Holdco, Delaware Sub, Georgia Sub or the Company, other than the provisions of  
Sections 3.01(l) and 3.02(j), the second sentence of Section 5.04, Section      
5.10, this Section 7.02 and Article VIII and except to the extent that such     
termination results from the wilful and material breach by a party of any of    
its representations, warranties, covenants or other agreements set forth in     
this Agreement.                                                                 

A1(a)-34  

DEFM14A
264th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 264th
Section 7.03. Amendment. This Agreement may be amended by the parties at any
time before or after the Shareholder Approvals or the Parent Stockholder        
Approvals; provided, however, that (i) after the Shareholder Approvals, there   
shall be made no amendment that pursuant to the Georgia BCC requires further    
approval by the shareholders of the Company without the further approval of     
such shareholders and (ii) after the Parent Stockholder Approvals, there shall  
be made no amendment that pursuant to the DGCL requires further approval by     
the stockholders of Parent without the further approval of such stockholders.   
This Agreement may not be amended except by an instrument in writing signed on  
behalf of each of the parties.                                                  

Section 7.04. Extension; Waiver. At any time prior to the Effective Time of 
the Mergers, the parties may (a) extend the time for the performance of any of  
the obligations or other acts of the other parties, (b) waive any inaccuracies  
in the representations and warranties contained in this Agreement or in any     
document delivered pursuant to this Agreement or (c) subject to the proviso of  
Section 7.03, waive compliance with any of the agreements or conditions         
contained in this Agreement. Any agreement on the part of a party to any such   
extension or waiver shall be valid only if set forth in an instrument in        
writing signed on behalf of such party. The failure of any party to this        
Agreement to assert any of its rights under this Agreement or otherwise shall   
not constitute a waiver of such rights.                                         

Section 7.05. Procedure for Termination, Amendment, Extension or Waiver. (a)
A termination of this Agreement pursuant to Section 7.01, an amendment of this  
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to        
Section 7.04 shall, in order to be effective, require, in the case of Parent,   
Holdco, Delaware Sub, Georgia Sub or the Company, action by its Board of        
Directors or, in the case of an extension or waiver pursuant to Section 7.04,   
the duly authorized designee of its Board of Directors.                         

(b) The Company shall provide to Parent written notice prior to any         
termination of this Agreement pursuant to Section 7.01(e) advising Parent (i)   
that the Board of Directors of the Company in the exercise of its good faith    
judgment as to its fiduciary duties to the shareholders of the Company under    
applicable law, after receipt of written advice of outside legal counsel, has   
determined (on the basis of such takeover proposal and the terms of this        
Agreement, as then in effect) that such termination is required in connection   
with a takeover proposal that is more favorable to the shareholders of the      
Company than the transactions contemplated by this Agreement (taking into       
account all terms of such takeover proposal and this Agreement, including all   
conditions) and (ii) as to the material terms of any such takeover proposal.    
At any time after two business days following receipt of such notice, the       
Company may terminate this Agreement as provided in Section 7.01(e) only if     
the Board of Directors of the Company determines that such proposal is more     
favorable to the shareholders of the Company than the transactions              
contemplated by this Agreement (taking into account all terms of such takeover  
proposal and this Agreement, including all conditions, and which determination  
shall be made in light of any revised proposal made by Parent prior to the      
expiration of such two business day period) and concurrently enters into a      
definitive agreement providing for the implementation of the transactions       
contemplated by such takeover proposal.                                         

ARTICLE VIII  

General Provisions  

Section 8.01. Nonsurvival of Representations and Warranties. None of the    
representations and warranties in this Agreement or in any instrument           
delivered pursuant to this Agreement shall survive the Effective Time of the    
Mergers. This Section 8.01 shall not limit any covenant or agreement of the     
parties which by its terms contemplates performance after the Effective Time    
of the Mergers.                                                                 

Section 8.02. Notices. All notices, requests, claims, demands and other     
communications under this Agreement shall be in writing and shall be deemed     
given if delivered personally or sent by overnight courier (providing proof of  
delivery) to the parties at the following addresses (or at such other address   
for a party as shall be specified by like notice):                              

A1(a)-35  

DEFM14A
265th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 265th
(a) if to Parent, Holdco, Delaware Sub or Georgia Sub, to                   

Time Warner Inc.                                                  
75 Rockefeller Plaza                                              
New York, NY 10019                                                

Attention: General Counsel                                        

with a copy to:                                                   

Cravath, Swaine & Moore                                           
Worldwide Plaza                                                   
825 Eighth Avenue                                                 
New York, NY 10019                                                

Attention: Peter S. Wilson, Esq.                                  

(b) if to the Company, to                                                   

Turner Broadcasting System, Inc.                                  
One CNN Center                                                    
Atlanta, GA 30303                                                 

Attention: General Counsel                                        

with a copy to:                                                   

Skadden, Arps, Slate, Meagher & Flom                              
300 South Grand Avenue                                            
Suite 3400                                                        
Los Angeles, CA 90071                                             

Attention: Thomas C. Janson, Jr., Esq.                            

Section 8.03. Definitions. For purposes of this Agreement:                  

(a) an "affiliate" of any person means another person that directly or      
indirectly, through one or more intermediaries, controls, is controlled by, or  
is under common control with, such first person;                                

(b) "person" means an individual, corporation, partnership, limited         
liability company, joint venture, association, trust, unincorporated            
organization or other entity; and                                               

(c) a "subsidiary" of any person means another person, an amount of the     
voting securities or other voting ownership or voting partnership interests of  
which is sufficient to elect at least a majority of its Board of Directors or   
other governing body (or, if there are no such voting interests, 50% or more    
of the equity interests of which) is owned directly or indirectly by such       
first person.                                                                   

Section 8.04. Interpretation. When a reference is made in this Agreement to 
a Section or Exhibit such reference shall be to a Section of, or an Exhibit     
to, this Agreement unless otherwise indicated. The table of contents and        
headings contained in this Agreement are for reference purposes only and shall  
not affect in any way the meaning or interpretation of this Agreement.          
Whenever the words "include", "includes" or "including" are used in this        
Agreement, they shall be deemed to be followed by the words "without            
limitation".                                                                    

Section 8.05. Counterparts. This Agreement may be executed in two or more   
counterparts, all of which shall be considered one and the same agreement and   
shall become effective when two or more counterparts have been signed by each   
of the parties and delivered to the other parties.                              

Section 8.06. Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents referred to herein) (a) constitutes the entire         
agreement, and supersedes all prior agreements and understandings, both         
written and oral, among the parties with respect to the subject matter of this  
Agreement and (b) except for the provisions of Article II, Section 5.08 and     
Section 5.09, are not intended to confer upon any person other than the         
parties any rights or remedies.                                                 

A1(a)-36  

DEFM14A
266th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 266th
Section 8.07. Governing Law. This Agreement shall be governed by, and       
construed in accordance with, the laws of the State of Delaware, regardless of  
the laws that might otherwise govern under applicable principles of conflicts   
of laws thereof (except to the extent that the provisions of the Georgia BCC    
shall be mandatorily applicable to the TBS Merger or this Agreement).           

Section 8.08. Assignment. Neither this Agreement nor any of the rights,     
interests or obligations under this Agreement shall be assigned, in whole or    
in part, by operation of law or otherwise by any of the parties without the     
prior written consent of the other parties, except that either Delaware Sub or  
Georgia Sub may assign, in its sole discretion, any of or all its rights,       
interests and obligations under this Agreement to Holdco or to any direct       
wholly owned subsidiary of Holdco, but no such assignment shall relieve         
Delaware Sub or Georgia Sub, as the case may be, of any of its obligations      
under this Agreement. Subject to the preceding sentence, this Agreement will    
be binding upon, inure to the benefit of, and be enforceable by, the parties    
and their respective successors and assigns.                                    

Section 8.09. Enforcement. The parties agree that irreparable damage would  
occur in the event that any of the provisions of this Agreement were not        
performed in accordance with their specific terms or were otherwise breached.   
It is accordingly agreed that the parties shall be entitled to seek an          
injunction or injunctions to prevent breaches of this Agreement and to enforce  
specifically the terms and provisions of this Agreement in any court of the     
United States located in the State of Delaware or in Delaware state court,      
this being in addition to any other remedy to which they are entitled at law    
or in equity. In addition, each of the parties hereto (a) consents to submit    
itself to the personal jurisdiction of any Federal court located in the State   
of Delaware or any Delaware state court in the event any dispute arises out of  
this Agreement or any of the transactions contemplated by this Agreement, (b)   
agrees that it will not attempt to deny or defeat such personal jurisdiction    
by motion or other request for leave from any such court and (c) agrees that    
it will not initiate any action relating to this Agreement or any of the        
transactions contemplated by this Agreement in any court other than a Federal   
court sitting in the State of Delaware or a Delaware state court. Each of       
Georgia Sub and the Company hereby appoints the Prentice-Hall Corporation       
System, Inc., 32 Loockerman Square, Suite L-100, Dover, Delaware 19901, as its  
agent for service of process in Delaware.                                       

Section 8.10. Waivers. Except as provided in this Agreement or any waiver   
pursuant to Section 7.04, no action taken pursuant to this Agreement,           
including any investigation by or on behalf of any party, shall be deemed to    
constitute a waiver by the party taking such action of compliance with any      
representations, warranties, covenants or agreements contained in this          
Agreement. The waiver by any party hereto of a breach of any provision          
hereunder shall not operate or be construed as a waiver of any prior or         
subsequent breach of the same or any other provision hereunder.                 

A1(a)-37  

DEFM14A
267th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 267th
In Witness Whereof, Parent, Holdco, Delaware Sub, Georgia Sub and the       
Company have caused this Agreement to be signed by their respective officers    
thereunto duly authorized, all as of the date first written above.              

                     Time Warner Inc.,

                             By      /s/ Peter R. Haje
                                            ----------------------------------
                           Name: Peter R. Haje
                                       Title: Executive Vice President

            TW Inc.,

                                   By      /s/ Thomas W. McEnerney
                                            ----------------------------------
                                   Name: Thomas W. McEnerney
                               Title: Vice President

                                  Time Warner Acquisition Corp.,

                                   By      /s/ Thomas W. McEnerney
                                            ----------------------------------
                                   Name: Thomas W. McEnerney
                               Title: Vice President

                         TW Acquisition Corp.,

                                   By      /s/ Thomas W. McEnerney
                                            ----------------------------------
                                   Name: Thomas W. McEnerney
                               Title: Vice President

                                    Turner Broadcasting System, Inc.

                            By      /s/ R. E. Turner
                                            ----------------------------------
                            Name: R. E. Turner
                          Title: President

A1(a)-38  

DEFM14A
268th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 268th
                                                               APPENDIX A-1(b)

                   AMENDMENT NO. 1 (this "Amendment") dated as of August
                 8, 1996, to the AMENDED AND RESTATED AGREEMENT AND PLAN
               OF MERGER (the "Agreement") dated as of September 22,
              1995, among TIME WARNER INC., a Delaware corporation
                ("Parent"), TW INC., a Delaware corporation ("Holdco")
              and a direct wholly owned subsidiary of Parent, TIME
          WARNER ACQUISITION CORP., a Delaware corporation
                  ("Delaware Sub") and a direct wholly owned subsidiary of
             Holdco, TW ACQUISITION CORP., a Georgia corporation
                 ("Georgia Sub") and a direct wholly owned subsidiary of
                 Holdco, and TURNER BROADCASTING SYSTEM, INC., a Georgia
corporation (the "Company").          

Whereas Parent, Holdco, Delaware Sub, Georgia Sub and the Company have      
agreed to amend the Agreement; and                                              

Whereas the respective Boards of Directors of Parent, Holdco, Delaware Sub, 
Georgia Sub and the Company have approved and adopted this Amendment.           

NOW, THEREFORE, the parties agree as follows:                               

Section 1. Amendment of Agreement. (a) Section 2.01 of the Agreement is     
hereby amended and restated in its entirety to read as follows:                 

"Section 2.01. Effect on Parent Capital Stock. As of the Effective Time of  
the Mergers, by virtue of the TW Merger and without any action on the part of   
the holder of any shares of Parent Capital Stock (as defined in Section         
2.01(a)) or any shares of capital stock of Delaware Sub:                        

(a) Capital Stock of Delaware Sub. Each issued and outstanding share of     
Common Stock, par value $1.00 per share, of Delaware Sub shall be converted     
into (i) one one-millionth (1/1,000,000th) of a fully paid and nonassessable    
share of Common Stock, par value $1.00 per share, of the TW Surviving           
Corporation for each share of Common Stock, par value $1.00 per share, of       
Parent ("Parent Common Stock") issued and outstanding immediately prior to the  
Effective Time of the Mergers, (ii) one one-millionth (1/1,000,000th) of a      
fully paid and nonassessable share of Series C Convertible Preferred Stock,     
par value $1.00 per share, of the TW Surviving Corporation for each share of    
Series C Convertible Preferred Stock, par value $1.00 per share, of Parent      
("Parent Series C Preferred Stock"), if any, issued and outstanding             
immediately prior to the Effective Time of the Mergers, (iii) one one-          
millionth (1/1,000,000th) of a fully paid and nonassessable share of Series D   
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving     
Corporation for each share of Series D Convertible Preferred Stock, par value   
$1.00 per share, of Parent ("Parent Series D Preferred Stock"), if any, issued  
and outstanding immediately prior to the Effective Time of the Mergers, (iv)    
one one-millionth (1/1,000,000th) of a fully paid and nonassessable share of    
Series E Convertible Preferred Stock, par value $1.00 per share, of the TW      
Surviving Corporation for each share of Series E Convertible Preferred Stock,   
par value $1.00 per share, of Parent ("Parent Series E Preferred Stock"), if    
any, issued and outstanding immediately prior to the Effective Time of the      
Mergers, (v) one one-millionth (1/1,000,000th) of a fully paid and              
nonassessable share of Series F Convertible Preferred Stock, par value $1.00    
per share, of the TW Surviving Corporation for each share of Series F           
Convertible Preferred Stock, par value $1.00 per share, of Parent ("Parent      
Series F Preferred Stock"), if any, issued and outstanding immediately prior    
to the Effective Time of the Mergers, (vi) one one-millionth (1/1,000,000th)    
of a fully paid and nonassessable share of Series G Convertible Preferred       
Stock, par value $1.00 per share, of the TW Surviving Corporation for each      
share of Series G Convertible Preferred Stock, par value $1.00 per share, of    
Parent ("Parent Series G Preferred Stock"), if any, issued and outstanding      
immediately prior to the Effective Time of the Mergers, (vii) one one-          
millionth (1/1,000,000th) of a fully paid and nonassessable share of Series H   
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving     
Corporation for each share of Series H Convertible Preferred Stock, par value   
$1.00 per share, of Parent ("Parent Series H Preferred Stock"), if any, issued  
and outstanding immediately prior to the Effective Time of the Mergers, (viii)  
one one-millionth (1/1,000,000th) of a fully paid and nonassessable share of    
Series I                                                                        

A1(b)-1 

DEFM14A
269th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 269th
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving     
Corporation for each share of Series I Convertible Preferred Stock, par value   
$1.00 per share, of Parent ("Parent Series I Preferred Stock"), if any, issued  
and outstanding immediately prior to the Effective Time of the Mergers, (ix)    
one one-millionth                                                               
(1/1,000,000th) of a fully paid and nonassessable share of Series J             
Convertible Preferred Stock, par value $1.00 per share, of the TW Surviving     
Corporation for each share of Series J Convertible Preferred Stock, par value   
$1.00 per share, of Parent ("Parent Series J Preferred Stock"), if any, issued  
and outstanding immediately prior to the Effective Time of the Mergers, (x)     
one one-millionth (1/1,000,000th) of a fully paid and nonassessable share of    
10 1/4% Series K Exchangeable Preferred Stock, par value $1.00 per share, of    
the TW Surviving Corporation for each share of 10 1/4% Series K Exchangeable    
Preferred Stock, par value $1.00 per share, of Parent ("Parent Series K         
Preferred Stock"), if any, issued and outstanding immediately prior to the      
Effective Time of the Mergers, (xi) one one-millionth (1/1,000,000th) of a      
fully paid and nonassessable share of 10 1/4% Series L Exchangeable Preferred   
Stock, par value $1.00 per share, of the TW Surviving Corporation for each      
share of 10 1/4% Series L Exchangeable Preferred Stock, par value $1.00 per     
share, of Parent ("Parent Series L Preferred Stock"), if any, issued and        
outstanding immediately prior to the Effective Time of the Mergers and (xii)    
one one-millionth (1/1,000,000th) of a fully paid and nonassessable share of    
10 1/4% Series M Exchangeable Preferred Stock, par value $1.00 per share, of    
the TW Surviving Corporation for each share of 10 1/4% Series M Exchangeable    
Preferred Stock, par value $1.00 per share, of Parent ("Parent Series M         
Preferred Stock" and, together with the Parent Common Stock, the Parent Series  
C Preferred Stock, the Parent Series D Preferred Stock, the Parent Series E     
Preferred Stock, the Parent Series F Preferred Stock, the Parent Series G       
Preferred Stock, the Parent Series H Preferred Stock, the Parent Series I       
Preferred Stock, the Parent Series J Preferred Stock, the Parent Series K       
Preferred Stock and the Parent Series L Preferred Stock, the "Parent Capital    
Stock"), if any, issued and outstanding immediately prior to the Effective      
Time of the Mergers. For the purposes of this Section 2.01(a), shares of        
Parent Capital Stock, other than Parent Series C Preferred Stock, held by       
Parent Subsidiaries (as defined in Section 3.02(a)) shall be deemed to be not   
outstanding.                                                                    

(b) Cancellation of Treasury Stock. Each share of Parent Capital Stock that 
is owned by Parent shall automatically be canceled and retired and shall cease  
to exist, and no shares of Common Stock, par value $.01 per share, of Holdco    
(the "Holdco Common Stock") or other consideration shall be delivered in        
exchange therefor.                                                              

(c) Conversion of Parent Capital Stock. Subject to Sections 2.01(d) and     
2.03(e), each issued share of Parent Capital Stock (other than shares to be     
canceled in accordance with Section 2.01(b) and other than shares subject to    
Section 2.01(f)) shall be converted into fully paid and nonassessable shares    
of the capital stock of Holdco ("Holdco Capital Stock") in accordance with the  
following table (it being acknowledged that as of August 8, 1996 (the date of   
the last amendment of this Section 2.01), (x) no shares of Parent Series J      
Preferred Stock, Parent Series L Preferred Stock and Parent Series M Preferred  
Stock are outstanding and (y) it is anticipated that no shares of Parent        
Series C Preferred Stock, Parent Series L Preferred Stock and either Parent     
Series K Preferred Stock or Parent Series M Preferred Stock will be             
outstanding immediately prior to the Effective Time of the Mergers):            

                                                                [Download Table]

         EACH SHARE OF THE                    NUMBER AND CLASS OR SERIES       
     SPECIFIED CLASS OR SERIES               OF SHARES OF HOLDCO CAPITAL       
      OF PARENT CAPITAL STOCK                 STOCK INTO WHICH CONVERTED       
     -------------------------               ---------------------------       
                                                                               
Parent Common Stock................ One Share of Holdco Common Stock           
Parent Series C Preferred Stock.... 2.08264 shares of Holdco Common Stock      
Parent Series D Preferred Stock.... One share of Series D Convertible Preferred
                                     Stock, par value $.10 per share, of Holdco
                                     ("Holdco Series D Preferred Stock")       
Parent Series E Preferred Stock.... One share of Series E Convertible Preferred
                                     Stock, par value $.10 per share, of Holdco
                                     ("Holdco Series E Preferred Stock")       
Parent Series F Preferred Stock.... One share of Series F Convertible Preferred
                                     Stock, par value $.10 per share, of Holdco
                                     ("Holdco Series F Preferred Stock")       

A1(b)-2 

DEFM14A
270th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 270th
                                                                [Download Table]

       EACH SHARE OF THE                  NUMBER AND CLASS OR SERIES         
   SPECIFIED CLASS OR SERIES             OF SHARES OF HOLDCO CAPITAL         
    OF PARENT CAPITAL STOCK               STOCK INTO WHICH CONVERTED         
   -------------------------             ---------------------------         
                                                                             
Parent Series G Preferred       One share of Series G Convertible Preferred  
Stock..........................  Stock, par value $.10 per share, of Holdco  
                                 ("Holdco Series G Preferred Stock")         
Parent Series H Preferred       One share of Series H Convertible Preferred  
Stock..........................  Stock, par value $.10 per share, of Holdco  
                                 ("Holdco Series H Preferred Stock")         
Parent Series I Preferred       One share of Series I Convertible Preferred  
Stock..........................  Stock, par value $.10 per share, of Holdco  
                                 ("Holdco Series I Preferred Stock")         
Parent Series J Preferred       One share of Series J Convertible Preferred  
Stock..........................  Stock, par value $.10 per share, of Holdco  
                                 ("Holdco Series J Preferred Stock")         
Parent Series K Preferred       One share of 10% Series M Exchangeable       
Stock..........................  Preferred Stock, par value $  .10 per share,
                                 of Holdco ("Holdco Series M Preferred       
                                 Stock")                                     
Parent Series L Preferred       One share of 10% Series L Exchangeable       
Stock..........................  Preferred Stock, par value $  .10 per share,
                                 of Holdco ("Holdco Series L Preferred       
                                 Stock")                                     
Parent Series M Preferred       One share of Holdco Series M Preferred Stock 
Stock..........................                                              

As of the Effective Time of the Mergers, all such shares of Parent Capital  
Stock shall no longer be outstanding and shall automatically be canceled and    
retired and shall cease to exist. Subject to Sections 2.01(d) and 2.03(e), as   
of the Effective Time of the Mergers (i) each certificate theretofore           
representing shares of Parent Capital Stock (other than each certificate        
theretofore representing Parent Series C Preferred Stock or Parent Series K     
Preferred Stock (the "Changed Parent Stock")), without any action on the part   
of Holdco, Parent or the holder thereof, shall be deemed to represent an        
equivalent number of shares of the class or series of Holdco Capital Stock set  
forth above next to the class or series of Parent Capital Stock formerly        
represented by such certificate and shall cease to represent any rights in any  
shares of Parent Capital Stock, and (ii) each holder of a certificate           
representing any shares of Changed Parent Stock shall cease to have any rights  
with respect thereto, except the right to receive, upon the surrender of any    
such certificates, certificates representing the number of shares of the class  
or series of Holdco Capital Stock, and any cash in lieu of fractional shares    
of such class or series of Holdco Capital Stock, set forth above next to the    
series of Changed Parent Stock formerly represented by such certificate to be   
issued or paid in consideration therefor upon surrender of such certificate in  
accordance with Section 2.03, without interest.                                 

(d) Appraisal Rights. Notwithstanding anything in this Agreement to the     
contrary, shares ("Appraisal Shares") of Parent Capital Stock (other than       
Parent Common Stock) that are outstanding immediately prior to the Effective    
Time of the Mergers and that are held by any stockholder of Parent who is       
entitled to demand and properly demands appraisal of such Appraisal Shares      
pursuant to, and who complies in all respects with, the provisions of Section   
262 of the DGCL ("Section 262") shall not be converted into Holdco Capital      
Stock as provided in Section 2.01(c), but rather the holders of Appraisal       
Shares shall be entitled to payment of the fair value of such Appraisal Shares  
in accordance with the provisions of Section 262; provided, however, that if    
any such holder shall fail to perfect or otherwise shall waive, withdraw or     
lose the right to appraisal under Section 262 or a court of competent           
jurisdiction shall determine that such holder is not entitled to the relief     
provided by Section 262, then the right of such holder of Appraisal Shares to   
be paid the fair value of such holder's Appraisal Shares shall cease and such   
Appraisal Shares shall be treated as if they had been converted as of the       
Effective Time of the Mergers into shares of Holdco Capital Stock as provided   
in Section 2.01(c).                                                             

A1(b)-3 

DEFM14A
271st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 271st
(e) Exchange Ratio for Parent Options and Parent Warrants. (i) As of the    
Effective Time of the Mergers, each outstanding Parent Option (as defined in    
Section 3.02(c)) and each outstanding warrant (a "Parent Warrant") to purchase  
Parent Common Stock, originally issued in connection with the first issuance    
of Parent                                                                       
Series B Preferred Stock, shall be assumed by Holdco and converted into an      
option or warrant, as the case may be, to purchase shares of Holdco Common      
Stock, as provided below. Following the Effective Time of the Mergers, each     
Parent Option shall continue to have, and shall be subject to, the same terms   
and conditions set forth in the applicable Parent Stock Plan (as defined in     
Section 3.02(c)) pursuant to which such Parent Option was granted, and each     
Parent Warrant shall continue to have, and shall be subject to, the same terms  
and conditions, in each case as in effect immediately prior to the Effective    
Time of the Mergers, except that each such Parent Option or Parent Warrant      
shall be exercisable for the same number of shares of Holdco Common Stock as    
the number of shares of Parent Common Stock for which such Parent Option or     
Parent Warrant was exercisable immediately prior to the Effective Time of the   
Mergers.                                                                        

(ii) As of the Effective Time of the Mergers, Holdco shall enter into an    
assumption agreement with respect to each Parent Option and each Parent         
Warrant, which, in the case of any Parent Option, shall provide for Holdco's    
assumption of the obligations of Parent under the applicable Parent Stock       
Plan. Prior to the Effective Time of the Mergers, Parent shall make such        
amendments, if any, to the Parent Stock Plans as shall be necessary to permit   
such assumption in accordance with this Section 2.01(e).                        

(iii) It is the intention of the parties that, to the extent that any Parent
Option constitutes an "incentive stock option" (within the meaning of Section   
422 of the Code) immediately prior to the Effective Time of the Mergers, such   
Parent Option shall continue to qualify as an incentive stock option to the     
maximum extent permitted by Section 422 of the Code, and that the assumption    
of the Parent Option provided by this Section 2.01(e) shall satisfy the         
conditions of Section 424(a) of the Code.                                       

(f) Treatment of Parent Capital Stock Held by Parent Subsidiaries.          
Notwithstanding anything in this Agreement to the contrary, each share of       
Parent Capital Stock (other than any Parent Series C Preferred Stock) held by   
any Parent Subsidiary shall be converted into (i) in the case of each share of  
Parent Common Stock, one one-thousandth (1/1,000th) of a fully paid and         
nonassessable share of Common Stock of the TW Surviving Corporation, (ii) in    
the case of each share of Parent Series D Preferred Stock, one one-thousandth   
(1/1,000th) of a fully paid and nonassessable share of Series D Convertible     
Preferred Stock of the TW Surviving Corporation, (iii) in the case of each      
share of Parent Series E Preferred Stock, one one-thousandth (1/1,000th) of a   
fully paid and nonassessable share of Series E Convertible Preferred Stock of   
the TW Surviving Corporation, (iv) in the case of each share of Parent Series   
F Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and           
nonassessable share of Series F Convertible Preferred Stock of the TW           
Surviving Corporation, (v) in the case of each share of Parent Series G         
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and             
nonassessable share of Series G Convertible Preferred Stock of the TW           
Surviving Corporation, (vi) in the case of each share of Parent Series H        
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and             
nonassessable share of Series H Convertible Preferred Stock of the TW           
Surviving Corporation, (vii) in the case of each share of Parent Series I       
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and             
nonassessable share of Series I Convertible Preferred Stock of the TW           
Surviving Corporation, (viii) in the case of each share of Parent Series J      
Preferred Stock, one one-thousandth (1/1000th) of a fully paid and              
nonassessable share of Series J Convertible Preferred Stock of the TW           
Surviving Corporation, (ix) in the case of each share of Parent Series K        
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and             
nonassessable share of 10 1/4% Series K Exchangeable Preferred Stock of the TW  
Surviving Corporation, (x) in the case of each share of Parent Series L         
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and             
nonassessable share of 10 1/4% Series L Exchangeable Preferred Stock of the TW  
Surviving Corporation and (xi) in the case of each share of Parent Series M     
Preferred Stock, one one-thousandth (1/1,000th) of a fully paid and             
nonassessable share of 10 1/4% Series M Exchangeable Preferred Stock of the TW  
Surviving Corporation."                                                         

(b) Section 2.03(e)(iv) of the Agreement is hereby deleted.                 

(c) The definition of "Material Transaction" in the fifth sentence of       
Section 5.16 of the Agreement is hereby amended and restated in its entirety    
as follows:                                                                     

A1(b)-4 

DEFM14A
272nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 272nd
"For purposes of this Agreement, "Material Transaction" means (i) the       
issuance by Parent of more than 90,000,000 "common stock equivalents" (one      
common stock equivalent being equal to one share of Parent Common Stock,        
including any share of Parent Common Stock issuable by Parent upon conversion,  
exercise or exchange of any other capital stock, warrant or other security or   
right of Parent, any Parent Subsidiary or any other controlled affiliate of     
Parent) in any single transaction or in any series of individual transactions   
(excluding any transaction involving an exchange by Parent on a one-for-one     
basis of newly issued shares of Parent Series J Preferred Stock for             
outstanding shares of Parent Series C Preferred Stock) each of which involves   
the issuance of more than 20,000,000 common stock equivalents, whether or not   
such individual transactions are related to each other, or (ii) the sale or     
other disposition in any transaction or series of transactions, whether or not  
related to each other, by Parent or any Parent Subsidiary of any business or    
assets with an aggregate fair market value in excess of $3,500,000,000,         
excluding from such amount (x) sales of inventory in the ordinary course of     
business consistent with prior practice and (y) the sale or disposition, in a   
single transaction or series of related transactions, of assets with an         
aggregate fair market value of $500,000,000 or less."                           

(c) Section 6.01(c) of the Agreement is hereby amended and restated in  
its entirety to read as follows:                                            

"(c) Antitrust. The waiting periods (and any extensions thereof) applicable 
to the transactions contemplated by this Agreement under the HSR Act shall      
have been terminated or shall have expired. The Federal Trade Commission (the   
"FTC") shall have initially accepted the FTC Agreement Containing Consent       
Order relating to the Mergers and ancillary matters. Any consents, approvals    
and filings under any foreign antitrust law the absence of which would          
prohibit the consummation of the Mergers shall have been obtained or made."     

(d) Section 6.01(h) of the Agreement is hereby deleted.                 

(e) Section 7.01(b)(iii) of the Agreement is hereby amended and restated
in its entirety, as follows:                                                

" (iii) if the Mergers shall not have been consummated on or before 
December 31, 1996, unless the failure to consummate the Mergers is the  
result of a wilful and material breach of this Agreement by the party   
seeking to terminate this Agreement;".                                  

Section 2. Miscellaneous. (a) Except as expressly set forth in Section 1,   
all the provisions of the Agreement are hereby ratified and confirmed by all    
the parties and shall remain in full force and effect. All references in the    
Agreement to "this Agreement" shall be read as references to the Agreement, as  
amended by this Amendment.                                                      

(b) Each party consents to the execution and delivery by Parent and the     
Company of the Agreement Containing Consent Order referred to in Section        
6.01(c) of the Agreement, as amended by this Amendment.                         

(c) This Amendment may be executed in two or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when  
two or more counterparts have been signed by each of the parties and delivered  
to the other parties.                                                           

(d) This Amendment shall be governed by, and construed in accordance with,  
the laws of the State of Delaware, regardless of the laws that might otherwise  
govern under applicable principles of conflicts of laws thereof.                

A1(b)-5 

DEFM14A
273rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 273rd
IN WITNESS WHEREOF, Parent, Holdco, Delaware Sub, Georgia Sub and the       
Company have caused this Amendment to be signed by their respective officers    
thereunto duly authorized, all as of the date first written above.              

                     Time Warner Inc.,

                            By     /s/ Peter R. Haje
                                            ------------------------------------
                           Name: Peter R. Haje
                                       Title: Executive Vice President

            TW Inc.,

                                  By     /s/ Thomas W. McEnerney
                                            ------------------------------------
                                 Name: Thomas W. McEnerney
                             Title: Vice President

                                 Time Warner Acquisition Inc.,

                                  By     /s/ Thomas W. McEnerney
                                            ------------------------------------
                                 Name: Thomas W. McEnerney
                             Title: Vice President

                         TW Acquisition Corp.,

                                  By     /s/ Thomas W. McEnerney
                                            ------------------------------------
                                 Name: Thomas W. McEnerney
                             Title: Vice President

                                     Turner Broadcasting System, Inc.,

                             By     /s/ Steven W. Korn
                                            ------------------------------------
                            Name: Steven W. Korn
                              Title: General Counsel

A1(b)-6 

DEFM14A
274th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 274th
                                                                    APPENDIX A-2
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECOND AMENDED AND RESTATED 
LMC AGREEMENT 

AMONG 

TIME WARNER INC., 

TW INC.,

LIBERTY MEDIA CORPORATION,

AND CERTAIN SUBSIDIARIES OF 
LIBERTY MEDIA CORPORATION 

DATED AS OF SEPTEMBER 22, 1995

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

DEFM14A
275th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 275th
TABLE OF CONTENTS 

                                                                [Download Table]

                                                                         PAGE
                                                                         ----
                                  ARTICLE I                                  

                                 Definitions                                 

                                                                             
SECTION 1.1  Definitions...............................................    2 
SECTION 1.2  Terms Generally...........................................    8 

                                  ARTICLE II                                 

                     Covenants With Respect to the Merger                    

SECTION 2.1  Agreement to Vote; Related Matters........................    8 
SECTION 2.2  Reasonable Efforts........................................    9 
SECTION 2.3  Agreement to Abandon......................................   10 
SECTION 2.4  Closing Deliveries........................................   11 
SECTION 2.5  Dissenters' Rights........................................   11 
SECTION 2.6  Abandoned and Terminated Agreements.......................   11 

                                 ARTICLE III                                 

                        Representations and Warranties                       

             Representations and Warranties of LMC Parent and the            
SECTION 3.1  Shareholders..............................................   11 
SECTION 3.2  Representations and Warranties of Old TW..................   13 
SECTION 3.3  Representations and Warranties of Holdco..................   14 

                                  ARTICLE IV                                 

                        Certain Post-Closing Covenants                       

SECTION 4.1  Share Exchange............................................   16 
SECTION 4.2  No Redemption.............................................   16 
SECTION 4.3  Certain Post-Closing Compensation Obligations.............   17 
SECTION 4.4  Certain Post-Closing Covenants............................   19 

                                  ARTICLE V                                  

                                MISCELLANEOUS                                

SECTION 5.1  Expenses..................................................   20 
SECTION 5.2  Specific Performance......................................   20 
SECTION 5.3  Amendments; Termination...................................   20 
SECTION 5.4  Successors and Assigns....................................   21 
SECTION 5.5  Entire Agreement..........................................   21 
SECTION 5.6  Notices...................................................   21 
SECTION 5.7  Governing Law.............................................   22 
SECTION 5.8  Counterparts; Effectiveness...............................   22 
SECTION 5.9  Descriptive Headings......................................   22 
SECTION 5.10 Severability..............................................   22 
SECTION 5.11 Attorney's Fees...........................................   22 
SECTION 5.12 Obligations of Old TW and Holdco Joint and Several........   22 

i 

DEFM14A
276th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 276th
EXHIBITS AND SCHEDULES ATTACHED HERETO

                                                                [Download Table]

Exhibit A    Terms of LMCN-V Common Stock             
                                                      
Exhibit B    Form of First Refusal Agreement          
Exhibit C    Terms of Voting Holdco LMC Common Stock  
Exhibit D    Form of SSSI Agreement                   
Exhibit E    Form of LMC Registration Rights Agreement
Exhibit F    Form of Rights Amendment                 
Exhibit G    SportSouth Agreement                     
Exhibit H    Form of Sunshine Agreement               
Exhibit I    Contribution and Exchange Agreement      
Schedule I   Schedule of Shareholder Shares           
Schedule 3.1 Litigation                               

ii

DEFM14A
277th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 277th
                SECOND AMENDED AND RESTATED LMC AGREEMENT, dated as of
                  September 22, 1995 (this "Agreement"), among TIME WARNER
           INC., a Delaware corporation, TW INC., a Delaware
              corporation ("Holdco"), LIBERTY MEDIA CORPORATION, a
         Delaware corporation ("LMC Parent"), TCI TURNER
                PREFERRED, INC., a Colorado corporation ("TCITP"), and
               certain, other subsidiaries of LMC Parent listed with
                   TCITP under "Subsidiaries of LMC Parent" on the signature
                 pages hereto (TCITP and such subsidiaries collectively,
the "Shareholders").                  

Recitals  

A. This Agreement amends and restates in its entirety the Amended and       
Restated LMC Agreement, dated as of September 22, 1995 (the "Amended LMC        
Agreement"), among the parties hereto, which in turn amended and restated the   
LMC Agreement dated as of September 22, 1995 (the "Original LMC Agreement"),    
among Old TW, LMC Parent, LMC Sub and the other Shareholders.                   

B. The Original LMC Agreement was entered into concurrently with, and in    
contemplation of, the Agreement and Plan of Merger dated as of September 22,    
1995 (the "Original Merger Agreement"), among Old TW, Time Warner Acquisition   
Corp., a Delaware corporation and wholly owned subsidiary of Old TW ("Delaware  
Sub"), and Turner Broadcasting System, Inc., a Georgia corporation (the         
"Company"), providing for the merger of the Company with and into Delaware      
Sub.                                                                            

C. The Amended LMC Agreement was entered into concurrently with, and in     
contemplation of, (1) the Original Merger Agreement being amended and restated  
(as so amended and restated, and as amended by Amendment No. 1 thereto dated    
as of August 8, 1996, the "Amended and Restated Merger Agreement") to provide   
for, among other things, a tax-free incorporation transaction under Section     
351 of the Internal Revenue Code of 1986, as amended, as contemplated by        
Section 1.01 of the Original Merger Agreement, and (2) both Holdco and TW       
Acquisition Corp., a Georgia corporation and direct wholly owned subsidiary of  
Holdco ("Georgia Sub"), becoming parties to the Amended and Restated Merger     
Agreement. Holdco is currently a direct wholly owned subsidiary of Old TW, and  
Delaware Sub is a direct wholly owned subsidiary of Holdco. The Amended and     
Restated Merger Agreement provides for the merger of Delaware Sub into Old TW   
(the "TW Merger") and the simultaneous merger of Georgia Sub into the Company   
(the "TBS Merger" and, collectively with the TW Merger, the "Mergers"), in a    
transaction in which the outstanding capital stock of Old TW and the Company,   
respectively, will be converted into capital stock of Holdco, and each of Old   
TW and the Company will become a wholly owned subsidiary of Holdco.             

D. The TBS Merger is subject to certain conditions, including the approval  
of the TBS Merger and the approval and adoption of the Amended and Restated     
Merger Agreement: by the holders of a majority of the outstanding shares of     
Class C Convertible Preferred Stock, par value $.125 per share, of the Company  
(the "Class C Preferred Stock"), voting as a separate class; by the holders of  
a majority of the voting power of the outstanding shares of Class A Common      
Stock, par value $.0625 per share, of the Company (the "Class A Common          
Stock"), and Class B Common Stock, par value $.0625 per share, of the Company   
(the "Class B Common Stock"; together with the Class A Common Stock, the        
"Common Stock"), voting as a single class; and by the holders of a majority of  
the voting power of the outstanding shares of Common Stock and Class C          
Preferred Stock, voting as a single class.                                      

E. Each Shareholder is the record and beneficial owner of the number of     
shares of Class A Common Stock, Class B Common Stock and Class C Preferred      
Stock, set forth opposite such Shareholder's name on Schedule I hereto (such    
shares of Class A Common Stock, Class B Common Stock and Class C Preferred      
Stock, together with any shares of capital stock of the Company acquired by     
such Shareholder after September 22, 1995 and prior to the Effective Time of    
the Mergers, being collectively referred to herein as the "Shareholder          
Shares").                                                                       

DEFM14A
278th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 278th
F. The TBS Merger is also subject to the condition that the waiting period  
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended      
(the "HSR Act") shall have expired. In connection therewith, Old TW, Tele-      
Communications, Inc., a Delaware corporation ("TCI"), LMC Parent and the        
Company have entered into an Agreement Containing Consent Order (the "ACCO")    
dated as of August , 1996, and an Interim Agreement in the form attached as     
Appendix I to the ACCO, with the Federal Trade Commission (the "FTC"), which    
contemplates the issuance of an Order (the ACCO, together with such Order and   
the Interim Agreement, in each case as the same may be amended or modified      
from time to time hereafter, the "FTC Consent Decree").                         

G. Old TW, Holdco, LMC Parent and the Shareholders desire to amend and      
restate in its entirety the Amended LMC Agreement and the Original LMC          
Agreement as amended thereby, as provided herein.                               

Now, Therefore, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,    
the parties do hereby agree as follows:                                         

ARTICLE I 

Definitions 

Section 1.1 Definitions. Capitalized terms used but not defined herein and  
the term "subsidiary" shall have the meanings assigned to such terms in the     
Amended and Restated Merger Agreement. In this Agreement:                       

"Action" shall mean any of (i) the direct or indirect acquisition (through  
purchase, exchange, merger or consolidation, exercise of rights or otherwise)   
by TW Parent or any Controlled Affiliate of TW Parent of any assets,            
securities or business; (ii) any merger or consolidation of TW Parent with or   
into any other person; (iii) the commencement by TW Parent or any of its        
Controlled Affiliates of any new business; (iv) any investment by TW Parent or  
any Controlled Affiliate of TW Parent in any other person; and (v) the sale or  
issuance by TW Parent or any Controlled Affiliate of TW Parent of TW            
Securities to any person or the repurchase, redemption or other acquisition by  
TW Parent or any Controlled Affiliate of TW Parent of any TW Securities;        
excluding, in all of the cases, any of the foregoing actions that TW Parent or  
any Controlled Affiliate of TW Parent is required to take pursuant to, or that  
is expressly contemplated by, this Agreement, the Amended and Restated Merger   
Agreement, (prior to the execution and delivery of the Amended and Restated     
Merger Agreement) the Original Merger Agreement, any Additional Agreement or    
any other agreement expressly contemplated by this Agreement, the Amended and   
Restated Merger Agreement or any Additional Agreement.                          

"Additional Agreements" shall mean the Registration Rights Agreement, the   
First Refusal Agreement, the SSSI Agreement, the Distribution Contract, the     
Rights Amendment (if entered into), the SportSouth Agreement, the Sunshine      
Agreement, the Contribution and Exchange Agreement and the Program and          
Digitization Agreement.                                                         

"Adjustment Amount", with respect to the disposition of any TW Securities as
to which TW Parent is obligated to pay an Adjustment Amount to a Liberty Party  
or a SpinCo Party, means an amount equal to the Nominal Tax Amount divided by   
the Gross-up Factor. For purposes of this definition, the "Nominal Tax Amount"  
means an amount equal to the product of (i) the gain or income recognized for   
Federal income tax purposes from the disposition of such TW Securities and      
(ii) the Blended Rate, and the "Gross-up Factor" is equal to 1 minus the        
Blended Rate.                                                                   

"Affiliate", when used with respect to a specified person, means any other  
person which directly or indirectly Controls, is under common Control with or   
is Controlled by such first person. The term "affiliated" (whether or not       
capitalized) shall have a correlative meaning. For purposes of this Agreement:  
(i) no Liberty Party or SpinCo Party shall be deemed to be an Affiliate of TW   
Parent or any of its subsidiaries and neither TW Parent nor any of its          
Affiliates shall be deemed to be an Affiliate of any Liberty Party or SpinCo    
Party; prior to the effective time of the TBS Merger, neither TW Parent nor     
any of its Affiliates nor TCI, LMC Parent or any of their respective            
Affiliates shall be deemed to be an Affiliate of the Company or any of its      
subsidiaries; and after the effective time of the Distribution, in determining  
whether any person is an Affiliate of SpinCo, the SpinCo Convertible Preferred  
Stock shall be assumed to have been converted by the holders thereof into       
SpinCo Series A Common Stock and SpinCo Series B Common Stock, as applicable.   

A2-2  

DEFM14A
279th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 279th
"Blended Rate", as to any Liberty Party or SpinCo Party, as applicable, for 
any relevant taxable year, means the tax rate that is the highest combined      
corporate Federal, state and local marginal capital gain rate (determined by    
taking into account any deduction for net capital gain) applicable to gain or   
income upon dispositions of TW Securities beneficially owned by such Liberty    
Party or SpinCo Party during such taxable year as contemplated by Section 4.3   
and Section 4.4(a), provided, however, that if the tax liability of the         
Liberty Party (or of the consolidated group of which such Liberty Party is a    
member for tax purposes) or of the SpinCo Party (or of the consolidated group   
of which such SpinCo Party is a member for tax purposes) with respect to such   
income or gain for such taxable year is not determined under Section 1201 of    
the Internal Revenue Code of 1986, as amended (or any successor Section), such  
tax rate shall be the highest combined regular corporate Federal, state and     
local ordinary income tax rate applicable to such Liberty Party (or such        
consolidated group) or such SpinCo Party (or such consolidated group), as       
applicable, for such taxable year. Such tax rate shall be determined taking     
into account such Liberty Party's (or its consolidated group's) or such SpinCo  
Party's (or its consolidated group's) relevant state and local apportionment    
factors with respect to such gain or income, the deductibility of state and     
local taxes for Federal income tax purposes (and the deductibility of taxes     
imposed by any taxing jurisdiction for purposes of computing the tax liability  
to any other taxing jurisdiction), the dividends received deduction (where      
such gain or income is eligible for such deduction) and any other relevant      
considerations.                                                                 

"Change in Control Event" shall mean any of the following events: (i) any   
person becoming an Acquiring Person (as defined in the Rights Agreement as in   
effect on September 22, 1995, as if amended in accordance with the Rights       
Amendment), including any person that would otherwise be excluded from the      
definition of Acquiring Person in the Rights Agreement by virtue of the         
acquisition of shares pursuant to a Qualifying Offer (as defined in the Rights  
Agreement as in effect on September 22, 1995, as if amended in accordance with  
the Rights Amendment) and regardless of whether the Rights Agreement continues  
to be in effect or is so amended, or (ii) TW Parent's entering into any         
agreement (other than the Original Merger Agreement, the Amended and Restated   
Merger Agreement or any amendment thereto) providing for any merger or          
consolidation of TW Parent into any other person, a binding share exchange, or  
a merger of TW Parent with any other person in which the shares of capital      
stock of TW Parent are exchanged for or converted into the right to receive     
anything other than common stock, par value $1.00 per share, of TW Parent, or   
(iii) prior to the Closing, Holdco ceasing to be a wholly owned subsidiary of   
Old TW or entering into any agreement (other than the Amended and Restated      
Merger Agreement or any amendment thereto) that would result in Holdco ceasing  
to be a wholly owned subsidiary of Old TW.                                      

"Communications Laws" shall mean the Communications Act of 1934 (as amended 
and supplemented from time to time and any successor statute or statutes        
regulating tele-communications companies) and the rules and regulations (and    
interpretations thereof and determinations with respect thereto) promulgated,   
issued or adopted from time to time by the FCC. All references herein to the    
Communications Laws shall include as of any relevant date in question the       
Communications Laws as then in effect (including any Communications Law or      
part thereof the effectiveness of which is then stayed) and as then formally    
proposed by the FCC by publication in the Federal Register or promulgated with  
a delayed effective date.                                                       

"Company Letter" shall mean those certain letters dated September 22, 1995, 
December 1, 1995, and August 8, 1996, from the Company to Old TW and LMC        
Parent.                                                                         

"Contract" shall mean any agreement, contract, commitment, indenture, lease,
license, instrument, note, bond, security, undertaking, promise, covenant, or   
legally binding arrangement or understanding.                                   

"Contribution and Exchange Agreement" shall mean the Contribution and       
Exchange Agreement, dated as of September 22, 1995, to be entered into by       
Holdco, Old TW, TCITP and LBI, concurrently with the execution and delivery of  
this Agreement, and the Exhibit and Schedules thereto, a copy of which is       
annexed hereto as Exhibit I.                                                    

"Control", as to any person, shall mean the possession, directly or         
indirectly, of the power to direct or cause the direction of the management     
and policies of such person (whether through ownership of securities,           

A2-3  

DEFM14A
280th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 280th
partnership interests or other ownership interests, by contract, by             
participation or involvement in the board of directors, management committee    
or other management structure of such person, or otherwise). The terms          
"Controlled", "Controlling" and similar variations shall have correlative       
meanings.                                                                       

"Controlled Affiliate" of any specified person shall mean an Affiliate of   
such specified person that is Controlled by such specified person and is not    
Controlled by another person (other than another Controlled Affiliate of the    
specified person), except that as used in the definition of "Action" in this    
Section 1.1, the term "Controlled Affiliate" shall include an Affiliate of the  
specified person that is also Controlled by another person if the specified     
person has the power (by contract, ownership of voting securities or            
otherwise) to cause such Affiliate to refrain from taking the Action in         
question.                                                                       

"Covered TW Securities" shall mean:                                         

(i) (A) the shares of TW Parent Common Stock beneficially owned by LMC  
Parent immediately following the consummation of the TBS Merger as a result 
of the conversion in the TBS Merger of the shares of Company Capital Stock  
beneficially owned by LMC Parent on September 22, 1995;                     

(B) the shares of TW Parent Common Stock received by TCITP and LBI      
pursuant to the Contribution and Exchange Agreement in connection with      
their contribution to Holdco of the issued and outstanding shares of        
capital stock of UCTI, assuming that the shares of Company Capital Stock    
owned by UCTI did not include any shares of Company Capital Stock not       
beneficially owned by LMC Parent on September 22, 1995; and                 

(ii) all shares of Holdco LMC Common Stock issued pursuant to the SSSI  
Agreement; and                                                              

(iii) all shares of Holdco LMC Common Stock for which the shares of TW  
Parent Common Stock referred to in clause (i) above may be exchanged        
pursuant to Section 4.1;                                                    

in each case as such shares may have been changed after issuance thereof. The   
number of Covered TW Securities shall be appropriately adjusted from time to    
time to take into account the occurrence of any stock dividends, splits,        
reverse splits, combinations and the like.                                      

"Distribution" means the proposed distribution by TCI to the holders of     
shares of Tele-Communications, Inc. Series A Liberty Media Group Common Stock,  
and to the holders of shares of Tele-Communications, Inc. Series B Liberty      
Media Group Common Stock, of all of the issued and outstanding shares of        
common stock of SpinCo.                                                         

"Distribution Contract" shall mean the Distribution Contract, substantially 
in the form of Exhibit 1 to the SSSI Agreement, to be entered into by Holdco,   
SpinCo and Satellite, at or prior to the Closing (but will not become           
effective until the "Closing" under the SSSI Agreement).                        

"Exchange Act" means the Securities Exchange Act of 1934, and the rules and 
regulations thereunder.                                                         

"FCC" shall mean the Federal Communications Commission and any successor    
agency or other agency charged with the administration of any Communications    
Law.                                                                            

"First Refusal Agreement" shall mean the Stockholders Agreement             
substantially in the form of Exhibit B, to be entered into by Holdco, the       
Shareholders (other than UCTI), LBI and certain other shareholders of the       
Company at or prior to the Closing.                                             

"Holdco LMC Common Stock" shall mean the LMCN-V Common Stock and the Voting 
Holdco LMC Common Stock, collectively.                                          

"Holdco Rights Plan" shall have the meaning given to such term in Section   
2.3(c).                                                                         

"Horizontal Rule" shall mean the rule promulgated by the FCC that is set    
forth at 47 C.F.R. 76.503 on September 22, 1995.                                

A2-4  

DEFM14A
281st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 281st
"Judgment" shall mean any order, judgment, writ, decree, injunction, award  
or other determination, decision or ruling of any court, any other              
Governmental Entity or any arbitrator.                                          

"LBI" shall mean Liberty Broadcasting, Inc., an Oregon corporation.         

"Liberty Party" shall mean LMC Parent and each Affiliate of LMC Parent that 
is controlled by LMC Parent from time to time and, for so long as LMC Parent    
is an Affiliate of TCI, shall also mean TCI and each Affiliate of TCI that is   
controlled by TCI.                                                              

"Lien" shall mean any pledge, claim, lien, charge, encumbrance or security  
interest of any kind or nature whatsoever.                                      

"LMCN-V Common Stock" shall mean the Series LMCN-V Common Stock of Holdco,  
having the terms set forth in Exhibit A.                                        

"Old TW" shall mean the Delaware corporation known as "Time Warner Inc." on 
September 22, 1995, and, in the event of any merger, consolidation or binding   
share exchange after such date (other than pursuant to the Amended and          
Restated Merger Agreement or any amendment thereto), any successor              
corporation.                                                                    

"Option Consideration" shall mean the shares of Holdco LMC Common Stock to  
be issued and delivered, and, if so elected by Holdco as provided in the SSSI   
Agreement, the cash to be paid by TW Parent pursuant to the SSSI Agreement in   
respect of the non-competition agreement and contract option contained therein  
(specifically excluding any amounts to be paid under the Distribution           
Contract).                                                                      

"person" shall have the meaning ascribed to such term in the Amended and    
Restated Merger Agreement and shall include any Governmental Entity.            

"Program and Digitization Agreement" shall mean the letter agreement, dated 
August   , 1996, between Satellite and the Company with respect to, among       
other things, the carriage by Satellite of certain programming services of the  
Company and Satellite's non-exclusive right to digitize, compress and reuplink  
certain programming services of the Company.                                    

"Prohibited Effect" shall mean the effect or consequence (in each case      
either immediately or following any notice, demand, hearing, proceeding,        
determination or other action by any Governmental Entity) (a)(i) of making the  
continued ownership by the Liberty Parties or any of them of any TW Securities  
then owned by the Liberty Parties or any of them illegal under any Specified    
Law or (ii) of making the continued ownership by the SpinCo Parties or any of   
them of any TW Securities then owned by the SpinCo Parties or any of them       
illegal under any Specified Law or (b) of imposing or resulting in the          
imposition under any Specified Law on the Liberty Parties or any of them or     
the SpinCo Parties or any of them of damages or penalties by reason of or as a  
result of the ownership by any of the Liberty Parties or SpinCo Parties of TW   
Securities or (c) of requiring the divestiture of, or resulting in the          
requirement to divest, any TW Securities by any Liberty Party or SpinCo Party   
under any Specified Law, or (d) of requiring, or resulting in the requirement,  
under any Specified Law that any Liberty Party or SpinCo Party discontinue any  
business or divest of any business or assets or that any license that such      
Liberty Party or SpinCo Party holds or is required to hold under the            
Communications Laws be modified in any significant respect or not be renewed    
as a result of such continued ownership.                                        

"Registration Rights Agreement" shall mean the LMC Registration Rights      
Agreement substantially in the form of Exhibit E, to be entered into by         
Holdco, LMC Parent, the Shareholders (other than UCTI), LBI and SpinCo at or    
prior to the Closing.                                                           

"Requirement of Law", when used with respect to any person, shall mean any  
law, statute, code, rule, regulation or Judgment, and any interpretation of or  
determination with respect to any of the foregoing, of any court or other       
Governmental Entity applicable to or binding upon such person, or to which      
such person, any of its assets or any business conducted by it is subject,      
whether now existing or at any time hereafter enacted, promulgated, issued,     
entered or otherwise becoming effective.                                        

A2-5  

DEFM14A
282nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 282nd
"Restriction Period" shall mean the period of time commencing on the date   
any Covered TW Securities are first issued and (i) if the Distribution does     
not occur, continuing until the first time that the ownership or deemed         
ownership by the Liberty Parties of the TW Parent Common Stock, Voting Holdco   
LMC Common Stock and other voting securities of TW Parent then owned by the     
Liberty Parties (assuming conversion in full of all LMCN-V Common Stock and     
the absence of any restriction on the exercise of the rights of a holder of     
voting securities of TW Parent) would not either (x) have a Prohibited Effect   
under any Communications Law (determined on the assumption that the Horizontal  
Rule, unless previously declared invalid by a final unappealable Judgment, is   
in full force and effect) or (y) violate the FTC Consent Decree; and (ii) if    
the Distribution occurs, continuing until the first time that both the          
ownership by the SpinCo Parties of the TW Parent Common Stock, Voting Holdco    
LMC Common Stock and other voting securities of TW Parent then owned by the     
SpinCo Parties (assuming conversion in full of all LMCN-V Common Stock and the  
absence of any restriction on the exercise of the rights of a holder of voting  
securities of TW Parent), and any deemed ownership of such TW Parent            
securities (assuming such conversion and absence of restrictions) by the        
Liberty Parties pursuant to any relevant attribution rules of the               
Communications Laws (assuming for this purpose the conversion of the SpinCo     
Convertible Preferred Stock into SpinCo Series A Common Stock and SpinCo        
Series B Common Stock, as applicable, by the holders thereof), would not        
either (x) have a Prohibited Effect under any Communications Law (determined    
on the assumption that the Horizontal Rule, unless previously declared invalid  
by a final unappealable Judgment, is in full force and effect) or (y) violate   
the FTC Consent Decree. Notwithstanding the foregoing, (a) if any LMCN-V        
Common Stock is converted into TW Parent Common Stock or into Voting Holdco     
LMC Common Stock by any Liberty Party (other than in connection with the        
transfer thereof, whether voluntary or involuntary, to a person that is not a   
Liberty Party or SpinCo Party), then the Restriction Period shall be deemed to  
terminate upon such conversion with respect to the Liberty Parties and (b) if   
any LMCN-V Common Stock is converted into TW Parent Common Stock or into        
Voting Holdco LMC Common Stock by any SpinCo Party (other than in connection    
with the transfer thereof, whether voluntary or involuntary, to a person that   
is not a Liberty Party or SpinCo Party), then the Restriction Period shall be   
deemed to terminate upon such conversion with respect to the SpinCo Parties.    

"Rights Amendment" shall mean those amendments described on Exhibit F to the
terms of the Rights Agreement.                                                  

"Satellite" shall mean Satellite Services, Inc., a Delaware corporation.    

"Specified Law", when used with respect to the Liberty Parties or SpinCo    
Parties, shall mean (i) the Communications Laws, (ii) any United States         
federal law or statute and any law or statute of any state of the United        
States or of the District of Columbia, (iii) the rules and regulations (and     
interpretations thereof or determinations with respect thereto) of any agency   
charged with the administration of any Specified Law within the meaning of      
clause (ii), applicable to or binding upon a Liberty Party or SpinCo Party or   
to which a Liberty Party or SpinCo Party, any of its assets or any business     
conducted by it is subject and (iv) the FTC Consent Decree. Following the       
Distribution, "Specified Law" shall specifically exclude the Investment         
Company Act of 1940, as amended, and the rules and regulations thereunder. All  
references herein to Specified Law shall include as of any relevant date in     
question each Specified Law as then in effect (including any Specified Law or   
part thereof the effectiveness of which is then stayed) and as then formally    
proposed by the relevant Governmental Entity or promulgated with a delayed      
effective date.                                                                 

"SpinCo" shall mean Southern Satellite Systems, Inc., a Georgia corporation,
and any successor thereto by operation of law.                                  

"SpinCo Party" shall mean, after the effective time of the Distribution,    
SpinCo and each Affiliate of SpinCo that is Controlled by SpinCo from time to   
time and, for so long as SpinCo is an Affiliate of TCI, shall also mean TCI     
and each Affiliate of TCI that is Controlled by TCI.                            

"SpinCo Convertible Preferred Stock" shall mean the classes or series of    
preferred stock of SpinCo to be issued immediately following the Distribution   
to John C. Malone, Bob Magness and Kearns-Tribune Corporation                   

A2-6  

DEFM14A
283rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 283rd
in exchange for their shares of SpinCo Series A Common Stock and in exchange    
for their shares of SpinCo Series B Common Stock, as contemplated by the FTC    
Consent Decree. One class or series of the SpinCo Convertible Preferred Stock   
will be convertible into SpinCo Series A Common Stock, and the other series     
will be convertible into SpinCo Series B Common Stock, subject to the           
restrictions of the FTC Consent Decree.                                         

"SpinCo Series A Common Stock" shall mean that series of SpinCo's common    
stock to be known as Series A Common Stock, [$.01] par value per share. The     
Series A Common Stock will have one vote per share.                             

"SpinCo Series B Common Stock" shall mean that series of SpinCo's common    
stock to be known as Series B Common Stock, [$.01] par value per share. The     
Series B Common Stock will have ten votes per share.                            

"SportSouth Agreement" shall mean the Stock Purchase Agreement, dated as of 
September 22, 1995, between the Company and LMC Southeast Sports, Inc., and     
the Exhibits and Schedules thereto, a copy of which is annexed hereto as        
Exhibit G.                                                                      

"SSSI Agreement" shall mean the SSSI Agreement substantially in the form of 
Exhibit D, to be entered into by Holdco, LMC Parent, SpinCo and Satellite at    
or prior to the Closing.                                                        

"Sunshine Agreement" shall mean an agreement substantially in the form of   
Exhibit H to be entered into by Time Warner Entertainment Company, L.P. and     
Liberty Sports, Inc. at or prior to the Closing.                                

A "Takeover Proposal" shall be pending if any bona fide tender or exchange  
offer for the TW Parent Common Stock shall have been commenced or publicly      
announced and not terminated or withdrawn if consummation of such offer in      
accordance with its terms would result in a Change in Control Event. A tender   
offer will not be deemed to be bona fide that is not fully financed unless it   
is made or guaranteed by a person whose senior debt securities have investment  
grade ratings in one of the four highest investment grade categories.           

"Transactions" shall mean the Mergers, the other transactions contemplated  
by the Amended and Restated Merger Agreement and the transactions contemplated  
by this Agreement and the Additional Agreements.                                

"Turner Letter" shall mean those certain letters dated September 22, 1995,  
December 1, 1995, and August    , 1996, from R.E. Turner, III to Old TW and     
LMC Parent.                                                                     

"TW Parent" shall mean (i) Old TW, with respect to all times prior to the   
Closing, and (ii) Holdco, with respect to all times from and after the          
Closing.                                                                        

"TW Parent Common Stock" shall mean (i) prior to the Closing, the common    
stock, par value $1.00 per share, of Old TW, as it exists on September 22,      
1995, and (ii) on and after the Closing, the Common Stock, par value $.01 per   
share, of Holdco as it then exists, and shall include, in all cases, where      
appropriate, in the case of any reclassification, recapitalization or other     
change in the TW Parent Common Stock, or in the case of a consolidation or      
merger of TW Parent with or into another person affecting the TW Parent Common  
Stock (other than the TW Merger), such capital stock or other securities to     
which a holder of TW Parent Common Stock shall be entitled upon the occurrence  
of such event.                                                                  

"TW Securities" shall mean any and all shares of capital stock and any and  
all other equity securities of TW Parent of any class, series, issue or other   
type, whether now authorized or existing or hereafter authorized or designated  
or otherwise created, including the TW Parent Common Stock, the Voting Holdco   
LMC Common Stock and the LMCN-V Common Stock.                                   

"UCTI" shall mean United Cable Turner Investment, Inc., a Colorado          
corporation.                                                                    

"Voting Holdco LMC Common Stock" shall mean the Series LMC Common Stock of  
Holdco, having the terms set forth in Exhibit C.                                

A2-7  

DEFM14A
284th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 284th
Section 1.2 Terms Generally. The definitions of terms contained in this     
Agreement shall apply equally to both 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 words "herein", "hereof" and "hereunder" and words    
of similar import refer to this Agreement in its entirety and not to any part   
hereof unless the context shall otherwise require. All references herein to     
Articles, Sections, Exhibits and Schedules shall be deemed references to        
Articles and Sections of, and Exhibits and Schedules to, this Agreement unless  
the context shall otherwise require. Any reference in this Agreement to a       
"day" or number of "days" (without the explicit qualification of "business")    
shall be interpreted as a reference to a calendar day or number of calendar     
days. If any action or notice is to be taken or given on or by a particular     
calendar day, and such calendar day is not a business day, then such action or  
notice shall be deferred until, or may be taken or given on, the next business  
day.                                                                            

ARTICLE II  

Covenants With Respect To The Merger  

Section 2.1 Agreement to Vote; Related Matters.                             

(a) Subject to the terms and conditions of this Agreement, each of the      
Shareholders agrees that such Shareholder shall attend, and LMC Parent shall    
cause the Shareholders to attend, the Shareholders Meeting and each             
adjournment thereof (provided in each case that the same is held prior to the   
Termination Date), in person or by proxy, and shall vote all the Shareholder    
Shares (and each class thereof) of such Shareholder that such Shareholder is    
entitled to vote, in favor of the approval of the TBS Merger and each of the    
other transactions contemplated by the Amended and Restated Merger Agreement    
and in favor of the approval of the Amended and Restated Merger Agreement (as   
the same may be amended from time to time to the extent consistent with clause  
(i) of the following sentence). The foregoing agreement of LMC Parent and each  
Shareholder is subject to the satisfaction of the following conditions as of    
the time of the Shareholders Meeting or any adjournment thereof at which the    
Shareholder Approvals are sought: (i) the Amended and Restated Merger           
Agreement shall be in full force and effect in the form originally executed,    
as amended through August 8, 1996, and shall not have been thereafter amended   
in any respect, nor shall any right of the Company or obligation of Old TW      
thereunder (including any condition to the obligation of the Company to         
consummate the TBS Merger and the other transactions contemplated by the        
Amended and Restated Merger Agreement) have been waived, other than any         
amendments and waivers that do not change the consideration to be received in   
exchange for Company Capital Stock in the TBS Merger or the exchange ratio      
therefor (except to increase the number of shares of TW Parent Common Stock to  
be issued in exchange for each share of Company Capital Stock or to provide     
additional consideration to all stockholders of the Company that does not       
affect the tax-free nature of the transaction) and that, when taken together    
with all other amendments and waivers, do not have a material adverse effect    
on the value of the consideration to be received in exchange for Company        
Capital Stock in the TBS Merger; (ii) R.E. Turner, III, as a shareholder of     
the Company, shall have voted or shall simultaneously be voting all his shares  
of Company Capital Stock in favor of the approval of the TBS Merger; (iii) if   
the Parent Stockholder Approvals shall have been voted upon, the Parent         
Stockholder Approvals shall have been obtained; (iv) no Judgment shall have     
been entered and be continuing that restrains or enjoins (preliminarily,        
temporarily or permanently) LMC Parent or any Shareholder from voting the       
Shareholder Shares; and (v) no Change of Control Event shall have occurred.     

(b) While this Agreement is in effect, each Shareholder agrees that it shall
not, and LMC Parent agrees to cause each Shareholder not to, (i) grant or       
permit any of its subsidiaries to grant any proxy or other right with respect   
to the voting of the Shareholder Shares of such Shareholder or (ii) transfer    
or permit any of its subsidiaries to transfer (including by operation of law    
in a merger) any of such shares to any person (other than TW Parent) unless     
such transferee agrees to be bound with respect to such transferred shares by   
this Section 2.1 to the same extent as the transferor was so bound with         
respect to such transferred shares and such transfer is made in compliance      
with all applicable requirements of the Stock Agreements (as defined in         
Section 3.1(a)).                                                                

A2-8  

DEFM14A
285th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 285th
(c) To the extent that such consent or waiver is required by the terms of   
any agreement (any "Relevant Agreement") to which the Company, Old TW, Time     
TBS Holdings, Inc. ("Time-TBS"), TCI, TCI Communications, Inc. ("TCIC") and/or  
any of the Shareholders is a party which relates to the ownership, voting or    
disposition of any shares of the capital stock of the Company of any class or   
series (including the Stock Agreements), each of Old TW, Time-TBS, TCI, TCIC    
and each Shareholder hereby consents to the execution, delivery and             
performance of the Support Agreement, this Agreement, the Additional            
Agreements, the Original Merger Agreement and the Amended and Restated Merger   
Agreement by all parties (and intended parties) to each such agreement and      
waives any inconsistent provision of any Relevant Agreement and any rights or   
remedies which such party might otherwise have under any Relevant Agreement or  
by virtue thereof by reason of such execution, delivery or performance. Each    
of Old TW, Time-TBS, TCI, TCIC, LMC Parent and each Shareholder confirms and    
agrees that the execution, delivery and performance of this Agreement, the      
Original Merger Agreement, the Amended and Restated Merger Agreement, the       
Additional Agreements and the Support Agreement by all parties (and intended    
parties) thereto do not and will not conflict with any provision of the         
Amended and Restated Articles of Incorporation of the Company and do not and    
will not result in the loss of any right, power, privilege, remedy or benefit   
which any holder of Class C Preferred Stock otherwise has or might have or in   
the reduction, qualification or other modification of any such right, power,    
privilege, remedy or benefit; none of them shall make, join in, endorse or      
recognize any claim to the contrary, and each of them shall vigorously oppose   
any such claim made by any other person. Each Shareholder and LMC Parent        
consents to (i) the execution and delivery by Old TW, Holdco, Delaware Sub,     
Georgia Sub and the Company of Amendment No. 1 to the Amended and Restated      
Merger Agreement and (ii) the execution and delivery by Old TW and the Company  
of the FTC Consent Decree. Old TW and Holdco each consent to the execution and  
delivery by LMC Parent and TCI of the FTC Consent Decree.                       

(d) Nothing contained in this Agreement shall create any obligation on the  
part of LMC Parent, any Shareholder or any of LMC Parent's Affiliates or        
restrict LMC Parent, any Shareholder or any of LMC Parent's Affiliates in the   
exercise and enjoyment of full rights of ownership of shares of capital stock   
of the Company, except as expressly provided in this Section 2.1. Without       
limiting the generality of the immediately preceding sentence, if the grant or  
effectiveness of any consent or approval of any Governmental Entity required    
in connection with the consummation of the Transactions shall be conditioned    
upon the surrender or modification in any significant respect of any license,   
franchise or permit held by TCI or any of its Affiliates, the divestiture or    
rearrangement of the composition of any assets of TCI or any of its             
Affiliates, the holding of any assets of any such person in a trust or          
otherwise separate and apart from such person's other assets, limitations on    
any such person's freedom of action with respect to future acquisitions of      
assets or with respect to any existing or future business or activities or its  
enjoyment of the full rights of ownership, possession and use of any asset now  
owned or hereafter acquired by such person (including any requirement not to    
receive shares of TW Parent Common Stock or Voting Holdco LMC Common Stock      
pursuant to the Amended and Restated Merger Agreement, the SSSI Agreement, the  
First Refusal Agreement or otherwise), any agreement to divest of any such      
shares, any requirement not to receive, or to agree to divest, shares of        
Voting Holdco LMC Common Stock or LMCN-V Common Stock to be received pursuant   
to Section 4.1, any change in such person's ownership or in any rights of or    
arrangements among its equity holders or any other restrictions, limitations,   
requirements or conditions which are or might be burdensome or adverse to any   
such person (other than, in any case, as provided in the FTC Consent Decree     
and other than the required exchange of TW Parent Common Stock for Holdco LMC   
Common Stock, as contemplated by Section 4.1, or compliance with this           
Agreement and the Additional Agreements), then nothing in this Agreement        
(including Section 2.2) shall be construed as imposing any obligation or duty   
on the part of TCI or any of its Affiliates to agree to, approve or otherwise   
be bound by or satisfy any such condition. Nothing contained in this Agreement  
shall require LMC Parent, any Shareholder or any of LMC Parent's other          
Affiliates to terminate or modify the terms of any pledge of any shares of      
capital stock of the Company held by LMC Parent, such Shareholder or Affiliate  
existing as of the date of execution hereof (including, without limitation,     
either of the Pledge Agreements, as such term is defined in the letter dated    
June 28, 1996, from LMC Parent to Old TW and Holdco).                           

Section 2.2 Reasonable Efforts. Prior to the Termination Date, TCI and LMC  
Parent shall, and LMC Parent shall cause each Shareholder to, and Old TW and    
Holdco shall, use reasonable efforts (a) to take, or cause                      

A2-9  

DEFM14A
286th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 286th
to be taken, all actions, and to do, or cause to be done, and to assist and     
cooperate with each other in good faith in doing, all things necessary to       
obtain, in the most expeditious manner practicable, all actions or nonactions,  
waivers, consents and approvals from Governmental Entities and the making of    
all necessary registrations and filings with Governmental Entities, in each     
case as may be necessary for the consummation of the Transactions or to avoid   
any action or proceeding by any Governmental Entity; and (b) to defend any      
lawsuits or other legal proceedings, whether judicial or administrative,        
challenging the Amended and Restated Merger Agreement, this Agreement, any of   
the Additional Agreements or the consummation of the Transactions, including    
seeking to have any stay or temporary restraining order entered by any court    
or other Governmental Entity vacated or reversed; provided, however, that       
nothing in this Section 2.2 shall require any such person (i) to agree to,      
approve or otherwise be bound by or satisfy any condition of any kind referred  
to in Section 2.1(d), (ii) to agree to enter into or be bound by any            
settlement or judgment (other than the FTC Consent Decree), (iii) to agree to   
any change to the terms of this Agreement or any of the Additional Agreements   
or (iv) to seek or agree to any changes to the terms of the FTC Consent         
Decree.                                                                         

Section 2.3 Agreement to Abandon. Old TW and Holdco shall, upon the written 
request of LMC Parent, terminate the Amended and Restated Merger Agreement and  
abandon the TBS Merger if:                                                      

(a) on the date fixed for the Closing (i) this Agreement, any Additional    
Agreement or the Amended and Restated Merger Agreement or consummation of the   
Mergers or any other Transaction shall be illegal, (ii). the consummation of    
the Mergers or any other Transaction would result in the imposition on the      
Liberty Parties (or, after the Distribution, the SpinCo Parties) of damages or  
penalties (other than any such damages or penalties arising out of a breach of  
this Agreement, any Additional Agreement or the FTC Consent Decree by LMC       
Parent or any of its Affiliates or for which TW Parent and/or Holdco has        
agreed to indemnify LMC Parent and its Affiliates), (iii) the FTC has failed    
to accept or denied acceptance of the FTC Consent Decree for public comment or  
(iv) there shall be pending any suit, action or proceeding by any Governmental  
Entity in which the relief sought would have any of the effects described in    
clauses (i) and (ii) above or in Section 2.1(d) (including any proceeding with  
respect to an alleged violation of the FTC Consent Decree other than any        
proceeding by or before the FTC as contemplated by the FTC Consent Decree); or  

(b) on the date fixed for the Closing, any consent or approval of any       
Governmental Entity required in connection with the consummation of the         
Transactions shall be subject to any condition of any kind referred to in       
Section 2.1(d) and LMC Parent, any Shareholder or any other Affiliate of LMC    
Parent has (without the consent of TCI or LMC Parent) become bound to comply    
with such condition; or                                                         

(c) at or prior to the Closing, Holdco shall have adopted any shareholder   
rights plan or other form of poison pill (any such plan (regardless of when     
adopted by Holdco), the "Holdco Rights Plan"), other than a shareholder rights  
plan identical in all material respects to the Rights Agreement, as amended in  
accordance with the Rights Amendment (the "Amended TW Plan"); or                

(d) on or prior to the date fixed for the Closing, a Change in Control Event
shall have occurred or on the Closing Date a Takeover Proposal shall be         
pending; or                                                                     

(e) on the date fixed for the Closing, the condition set forth in Section   
6.03(a) of the Amended and Restated Merger Agreement to the Company's           
obligations has not been satisfied (determined without regard to the Company's  
willingness to waive the failure of such condition); or                         

(f) any Action shall have been taken by Old TW or any of its Controlled     
Affiliates after September 22, 1995 and prior to the Closing which if taken     
after the Effective Time of the Mergers would result in a Prohibited Effect;    
or                                                                              

(g) as of the date fixed for the Closing, (i) the representations and       
warranties of Old TW and Holdco made herein and to be made in each Additional   
Agreement to which Old TW or Holdco is intended to be a party shall not be      
true and correct in all material respects as of such date with the same force   
and effect as if then made, or                                                  

A2-10 

DEFM14A
287th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 287th
(ii) any signatory hereto (other than TCI, LMC Parent and the Shareholders)     
shall be in breach or default in any material respect of any of its             
obligations hereunder, or (iii) any party (other than TCI, LMC Parent or any    
of their respective Affiliates) to any of the Additional Agreements then in     
effect shall be in breach or default in any material respect of any of its      
obligations thereunder or any intended party (other than TCI, LMC Parent or     
any of their respective Affiliates) to any of the Additional Agreements (other  
than the Distribution Contract) shall have failed to execute and deliver to     
the other parties thereto any such Additional Agreement or any of the other     
closing deliveries contemplated by the Company Letter or Turner Letter shall    
not have been made; or                                                          

(h) as of the date fixed for the Closing, any required approval by the      
stockholders of Old TW of the issuance and payment of the Option Consideration  
or of this Agreement, any of the Additional Agreements or the Transactions has  
not been obtained.                                                              

Section 2.4 Closing Deliveries. At the Closing, Old TW, Holdco, LMC Parent  
and the Shareholders shall (and shall cause their respective Affiliates which   
are named as parties in the Additional Agreements to) execute and deliver to    
the other parties thereto each Additional Agreement to which he or it is        
intended to be a party or, in the case of the Contribution and Exchange         
Agreement and any other Additional Agreement entered into prior to the          
Closing, deliver an officer's certificate signed by its president or a senior   
vice president confirming that such Additional Agreement is effective in        
accordance with its terms and such party is in compliance with its obligations  
thereunder in all material respects. LMC Parent and TW Parent shall each        
deliver to the other at the Closing, an officer's certificate signed by its     
president or a senior vice president to the effect that the representations     
and warranties set forth in Section 3.1 and Sections 3.2 and 3.3,               
respectively, are true in all material respects on and as of the Closing Date   
with the same force and effect as if then made and that such party is in        
compliance in all material respects with the FTC Consent Decree.                

Section 2.5 Dissenters' Rights. None of the Shareholders shall, nor shall   
LMC Parent permit any Shareholder to, give notice pursuant to Section 1321 of   
the Georgia BCC of such Shareholder's intent to demand payment for any shares   
of Company Capital Stock, or take any other action to exercise dissenters'      
rights under Article 13 of the Georgia BCC, if the TBS Merger is effectuated.   

Section 2.6 Abandoned and Terminated Agreements. The parties hereto         
acknowledge that upon the initial acceptance by the FTC of the FTC Consent      
Decree for public comment, the Voting Trust Agreement in the form of Exhibit J  
to the Original LMC Agreement, as amended by the Amended LMC Agreement, and     
the SSSI Agreement (including the related Cable Carriage Agreement) in the      
form of Exhibit D to the Original LMC Agreement, as amended by the Amended LMC  
Agreement, will not be entered into and have been abandoned. The TW/LMC Letter  
Agreement (as defined in the Amended LMC Agreement) is hereby terminated and    
the "Elective Merger" contemplated thereby abandoned. Upon the initial          
acceptance by the FTC Consent Decree for public comment, the Program Service    
Agreement, dated September 15, 1995, a copy of which was attached as Exhibit E  
to the Original LMC Agreement, will automatically be terminated by the parties  
thereto.                                                                        

ARTICLE III 

Representations And Warranties  

Section 3.1 Representations and Warranties of LMC Parent and the            
Shareholders. Each Shareholder represents and warrants to Old TW, as to         
itself, and LMC Parent represents and warrants to Old TW as to itself and as    
to each Shareholder, that (assuming that the consents, waivers and agreements   
given and made by Old TW and Time-TBS pursuant to Section 2.1(c) and by the     
Company in the Company Letter and by R.E. Turner, III in the Turner Letter are  
valid and effective for the intended purposes):                                 

(a) Each Shareholder is as of September 22, 1995 the record and beneficial  
owner of the Shareholder Shares set forth opposite the name of such             
Shareholder on Schedule I hereto. Such Shareholder has the right to vote such   
Shareholder Shares in the manner provided in Section 2.1(a), and such           
Shareholder Shares constitute all of                                            

A2-11 

DEFM14A
288th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 288th
the shares of capital stock of the Company owned of record or beneficially by   
such Shareholder. The Shareholder Shares constitute all shares of capital       
stock of the Company beneficially owned by TCI, other than the Excluded Shares  
(as defined in Section 4.1). None of the Shareholder Shares owned by any        
Shareholder is subject to any proxy, voting trust or other agreement,           
arrangement or restriction with respect to the voting of such Shareholder       
Shares which is inconsistent with the agreement of such Shareholder pursuant    
to Section 2.1 hereof, other than the Stock Agreements. The "Stock Agreements"  
means (i) the Investors Agreement dated as of June 3, 1987, among the Company   
and the original holders of the Class C Preferred Stock; (ii) the               
Shareholders' Agreement dated as of June 3, 1987, as amended by the First       
Amendment dated as of April 15, 1988, among the Company, R.E. Turner, III, and  
the original holders of the Class C Preferred Stock; (iii) the Voting           
Agreement dated as of June 3, 1987, among certain holders of Class C Preferred  
Stock; and (iv) the Agreement dated as of June 3, 1987 among Old TW, certain    
of the Shareholders and certain other holders of Class C Preferred Stock        
affiliated with Old TW and/or LMC Parent. To the knowledge of TCI and LMC       
Parent, none of TCI, LMC Parent or any of their respective Affiliates are       
party to any agreement with the Company, any of the Company's Affiliates, Old   
TW or any of Old TW's Affiliates that would require the consent, waiver or      
approval of or by TCI, LMC Parent or any of their respective Affiliates of the  
Mergers or for the consummation of any of the Transactions, or the execution,   
delivery or performance of the Amended and Restated Merger Agreement, this      
Agreement or the Additional Agreements, other than the Stock Agreements.        

(b) LMC Parent and the Shareholders each have the requisite corporate power 
and authority to enter into this Agreement, the FTC Consent Decree and each of  
the Additional Agreements to which it is contemplated to be a party and to      
consummate the transactions contemplated hereby and thereby. The execution and  
delivery of this Agreement, the FTC Consent Decree and each of such Additional  
Agreements by LMC Parent and the Shareholders and the consummation by them of   
the Transactions have been duly authorized by all necessary corporate action.   
This Agreement and the FTC Consent Decree have been, and when delivered at or   
prior to the Closing each of such Additional Agreements will have been, duly    
executed and delivered by LMC Parent, the Shareholders and the applicable       
Affiliates of LMC Parent named as parties thereto (each, an "Applicable LMC     
Affiliate") and constitutes, or in the case of such Additional Agreements will  
as of the Closing constitute, a valid and binding obligation of each such       
party, enforceable against each such party in accordance with its terms         
(except insofar as enforceability may be limited by applicable bankruptcy,      
insolvency, reorganization, moratorium or similar laws affecting creditors'     
rights generally, or by principles governing the availability of equitable      
remedies). The execution and delivery of this Agreement, the FTC Consent        
Decree and each of the Additional Agreements to which it is contemplated to be  
a party by LMC Parent and each Applicable LMC Affiliate do not, and the         
performance by them of their respective obligations hereunder and thereunder    
and the consummation of the Transactions will not, conflict with, or result in  
any violation of or default (with or without notice or lapse of time, or both)  
under, or give rise to a right of termination, cancellation or acceleration of  
any obligation or to the loss of a material benefit under, or result in the     
creation of any Lien upon any of the properties or assets of LMC Parent or any  
Applicable LMC Affiliate under, (i) the Certificate of Incorporation or By-     
laws of LMC Parent or the comparable organizational documents of any            
Applicable LMC Affiliate, (ii) any Contract to which LMC Parent or any          
Applicable LMC Affiliate is a party or by which any of them or their            
respective properties or assets are bound, or (iii) subject to the              
governmental filings and other matters referred to in Sections 3.01(d) and      
3.02(d) of the Amended and Restated Merger Agreement and in the following       
sentence, any Requirement of Law applicable to LMC Parent or any Applicable     
LMC Affiliate or their respective properties or assets, other than the          
Horizontal Rule as to which no representation is being made, and other than,    
in the case of clauses (ii) and (iii), any such conflicts, violations,          
defaults, rights or Liens that individually or in the aggregate would not (x)   
prevent LMC Parent or any Applicable LMC Affiliate from performing its          
obligations under this Agreement or any applicable Additional Agreement in any  
material respect or (y) prevent or delay in any material respect the            
consummation of any of the Transactions. No consent, approval, order or         
authorization of, or registration, declaration or filing with, any              
Governmental Entity is required by or with respect to LMC Parent or any         
Applicable LMC Affiliate in connection with the execution and delivery of this  
Agreement or any applicable Additional Agreement by them or the consummation    
by them of the Transactions, except for (i) filings under the HSR Act and the   
initial acceptance of the FTC Consent Decree, (ii) such filings with, and       
orders of, the FCC as may be required under the Communications Laws in          
connection with the Transactions and                                            

A2-12 

DEFM14A
289th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 289th
(iii) such other consents, approvals, orders, authorizations, registrations,    
declarations and filings which, if not obtained or made, would not prevent or   
delay in any material respect the consummation of any of the Transactions or    
prevent LMC Parent or any Applicable LMC Affiliate from performing its          
obligations under this Agreement or any applicable Additional Agreement in any  
material respect.                                                               

(c) Except as disclosed on Schedule 3.1, as of September 22, 1995, there is 
no suit, action or proceeding (including any proceeding by or before the FCC)   
pending or, to the knowledge of LMC Parent and TCI, threatened against or       
affecting LMC Parent or any of its Affiliates (and LMC Parent and TCI are not   
aware of any basis for any such suit, action or proceeding) that, individually  
or in the aggregate, could reasonably be expected to (i) prevent LMC Parent or  
any Applicable LMC Affiliate from performing its obligations under this         
Agreement or any applicable Additional Agreement in any material respect or     
(ii) prevent or delay in any material respect the consummation of the Mergers   
or any of the other Transactions. As of September 22, 1995, and other than the  
Horizontal Rule, neither LMC Parent nor any Applicable LMC Affiliate is aware   
of any current or formally proposed Communications Law that would prevent any   
Shareholder from receiving, or would require any Shareholder to divest all or   
any part of, the TW Parent Common Stock issuable to such Shareholder in         
connection with the Mergers (assuming no exchange of such TW Parent Common      
Stock pursuant to Section 4.1).                                                 

(d) No broker, investment banker, financial advisor or other person is      
entitled to any broker's, finder's, financial advisor's or other similar fee    
or commission in connection with the Transactions based upon arrangements made  
by or on behalf of LMC Parent or any Shareholder.                               

Section 3.2 Representations and Warranties of Old TW. Old TW represents and 
warrants to LMC Parent and each Shareholder that (assuming that the consents,   
waivers and agreements given and made by TCI, LMC Parent and the Shareholders   
pursuant to Section 2.1(c) and by the Company in the Company Letter and by      
R.E. Turner, III in the Turner Letter are valid and effective for the intended  
purposes):                                                                      

(a) Old TW has delivered to LMC Parent complete and correct copies of its   
Restated Certificate of Incorporation, By-laws and the Rights Agreement and of  
the certificates of incorporation and by-laws or comparable organizational      
documents of the Material Parent Subsidiaries, in each case as amended to       
September 22, 1995. As of September 22, 1995, no amendments to the Rights       
Agreement have been authorized, approved or adopted and there is no             
commitment, arrangement or understanding by Old TW to effect any amendment      
other than the Rights Amendment.                                                

(b) Old TW has all requisite corporate power and authority to enter into    
this Agreement, the FTC Consent Decree and each of the Additional Agreements    
to which it is contemplated to be a party and to consummate the transactions    
contemplated hereby and thereby. The execution and delivery of this Agreement,  
the FTC Consent Decree and each such Additional Agreement by Old TW and the     
consummation by it of the Transactions have been duly authorized by all         
necessary corporate action subject to the Parent Stockholder Approvals. This    
Agreement and the FTC Consent Decree have been, and when delivered at or prior  
to the Closing each of such Additional Agreements will have been, duly          
executed and delivered by Old TW and the applicable Affiliates of Old TW named  
as parties thereto (if any) (each, an "Applicable TW Affiliate", which term     
shall also include Holdco, Delaware Sub and Georgia Sub) and constitutes, or    
in the case of such Additional Agreements will as of the Closing constitute, a  
valid and binding obligation of each such party, enforceable against each such  
party in accordance with its terms (except as enforceability may be limited by  
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws   
affecting creditors' rights generally, or by principles governing the           
availability of equitable remedies). Except as otherwise set forth in the       
Amended and Restated Merger Agreement or in the Parent Disclosure Letter, the   
execution and delivery of this Agreement, the FTC Consent Decree and each of    
the Additional Agreements to which it is contemplated to be a party by Old TW   
and each Applicable TW Affiliate and the consummation by them of the            
transactions contemplated hereby and thereby and compliance with the            
provisions hereof and thereof will not, conflict with, or result in any         
violation of or default (with or without notice or lapse of time, or both)      
under, or give rise to a right of termination, cancellation or acceleration of  
any obligation or to the loss of a material benefit under, or result in the     
creation of any Lien                                                            

A2-13 

DEFM14A
290th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 290th
upon any of the properties or assets of Old TW or any Parent Subsidiary under,  
(i) the Restated Certificate of Incorporation or By-laws of Old TW or the       
comparable organizational documents of any Parent Subsidiary, (ii) any          
Contract to which Old TW or any Parent Subsidiary is a party or by which any    
of them or their respective properties or assets are bound, or (iii) subject    
to the governmental filings and other matters referred to in Sections 3.01(d)   
and 3.02(d) of the Amended and Restated Merger Agreement and in the following   
sentence, any Requirement of Law applicable to Old TW or any Parent Subsidiary  
or their respective properties or assets, other than the Horizontal Rule as to  
which no representation is being made, and other than, in the case of clauses   
(ii) and (iii), any such conflicts, violations, defaults, rights or Liens that  
individually or in the aggregate would not (x) have a Parent Material Adverse   
Effect, (y) prevent Old TW or any Applicable TW Affiliate from performing its   
obligations under this Agreement or any applicable Additional Agreement in any  
material respect or (z) prevent or delay in any material respect the            
consummation of any of the Transactions. Except as otherwise set forth in the   
Amended and Restated Merger Agreement or in the Parent Disclosure Letter, no    
consent, approval, order or authorization of, or registration, declaration or   
filing with, any Governmental Entity is required by or with respect to Old TW   
or any Applicable TW Affiliate in connection with the execution and delivery    
of this Agreement or any applicable Additional Agreement by Old TW or any       
Applicable TW Affiliate or the consummation by Old TW or any Applicable TW      
Affiliate, as the case may be, of any of the Transactions, except for (i)       
filings under the HSR Act and the initial acceptance of the FTC Consent         
Decree, (ii) such filings with, and orders of, the FCC as may be required       
under the Communications Laws in connection with the Transactions, (iii)        
approvals of cable franchising authorities and (iv) such other consents,        
approvals, orders, authorizations, registrations, declarations and filings      
which, if not obtained or made, would not prevent or delay in any material      
respect the consummation of any of the Transactions or otherwise prevent Old    
TW or any Applicable TW Affiliate from performing its obligations under this    
Agreement or any applicable Additional Agreement in any material respect or     
have, individually or in the aggregate, a Parent Material Adverse Effect. To    
the knowledge of Old TW, none of Old TW or any of its Affiliates are party to   
any agreement with the Company, any of the Company's Affiliates, TCI or any of  
TCI's Affiliates that would require the consent, waiver or approval of or by    
Old TW or any of its Affiliates of the Mergers or for the consummation of any   
of the Transactions, or the execution, delivery or performance of the Amended   
and Restated Merger Agreement, this Agreement or the Additional Agreements,     
other than the Stock Agreements.                                                

(c) Except as disclosed in the Parent Disclosure Letter, as of September 22,
1995, there is no suit, action or proceeding (including any proceeding by or    
before the FCC) pending or, to the knowledge of Old TW, threatened against or   
affecting Old TW or any of its Affiliates (and Old TW is not aware of any       
basis for any such suit, action or proceeding) that, individually or in the     
aggregate, could reasonably be expected to (i) prevent Old TW or any            
Applicable TW Affiliate from performing its obligations under this Agreement    
or any applicable Additional Agreement in any material respect, or (ii)         
prevent or delay in any material respect the consummation of the Mergers or     
any of the other Transactions.                                                  

(d) As of September 22, 1995, and other than the Horizontal Rule, Old TW is 
not aware of any current or formally proposed Communications Law that would     
prevent any Shareholder from receiving, or would require any Shareholder to     
divest all or any part of, the TW Parent Common Stock issuable to such          
Shareholder in connection with the Mergers (assuming no exchange of such TW     
Parent Common Stock pursuant to Section 4.1).                                   

(e) No broker, investment banker, financial advisor or other person, other  
than Morgan Stanley & Co., Incorporated and Bear, Stearns & Co. Inc., the fees  
and expenses of which will be paid by Old TW, is entitled to any broker's,      
finder's, financial advisor's or other similar fee or commission in connection  
with the Transactions based upon arrangements made by or on behalf of Old TW    
or Holdco.                                                                      

Section 3.3 Representations and Warranties of Holdco. Holdco represents and 
warrants to LMC Parent and each Shareholder that:                               

(a) Holdco has delivered to LMC Parent complete and correct copies of its   
Certificate of Incorporation and By-laws and the Holdco Rights Plan, if any,    
in each case as amended to the date of execution of this Agreement,             

A2-14 

DEFM14A
291st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 291st
including, without limitation, all certificates of designation. As of the date  
of execution hereof, no amendments to any of the foregoing have been            
authorized, approved or adopted and there is no commitment, arrangement or      
understanding by Holdco (other than pursuant to the Amended and Restated        
Merger Agreement and this Agreement) to effect any such amendment. All shares   
of Holdco LMC Common Stock which may be issued pursuant to Section 4.1 or 4.2   
or pursuant to the SSSI Agreement will be, when issued, duly authorized,        
validly issued, fully paid and nonassessable and not subject to preemptive      
rights.                                                                         

(b) Holdco has all requisite corporate power and authority to enter into    
this Agreement and each of the Additional Agreements to which it is             
contemplated to be a party and to consummate the transactions contemplated      
hereby and thereby. The execution and delivery of this Agreement and each such  
Additional Agreement by Holdco and the consummation by it of the Transactions   
have been duly authorized by all necessary corporate action. This Agreement     
has been, and when delivered at or prior to the Closing each of such            
Additional Agreements will have been, duly executed and delivered by Holdco     
and constitutes, or in the case of such Additional Agreements will as of the    
Closing constitute, a valid and binding obligation of Holdco, enforceable       
against Holdco in accordance with its terms (except as enforceability may be    
limited by applicable bankruptcy, insolvency, reorganization, moratorium or     
similar laws affecting creditors' rights generally, or by principles governing  
the availability of equitable remedies). Except as otherwise set forth in the   
Merger Agreement or in the Parent Disclosure Letter, the execution and          
delivery of this Agreement and each of the Additional Agreements to which it    
is contemplated to be a party by Holdco and the consummation by it of the       
transactions contemplated hereby and thereby and compliance with the            
provisions hereof and thereof will not, conflict with, or result in any         
violation of or default (with or without notice or lapse of time, or both)      
under, or give rise to a right of termination, cancellation or acceleration of  
any obligation or to the loss of a material benefit under, or result in the     
creation of any Lien upon any of the properties or assets of Holdco or any      
subsidiary of Holdco under, (i) the Certificate of Incorporation or By-laws of  
Holdco or the comparable organizational documents of any subsidiary of Holdco,  
(ii) any Contract to which Holdco or any subsidiary of Holdco is a party or by  
which any of them or their respective properties or assets are bound, other     
than the Stock Agreements as to which no representation is being made or (iii)  
subject to the governmental filings and other matters referred to in Sections   
3.01(d) and 3.02(d) of the Merger Agreement and in the following sentence, any  
Requirement of Law applicable to Holdco or any subsidiary of Holdco or their    
respective properties or assets, other than the Horizontal Rule as to which no  
representation is being made, and other than, in the case of clauses (ii) and   
(iii), any such conflicts, violations, defaults, rights or Liens that           
individually or in the aggregate would not (x) have a Parent Material Adverse   
Effect, (y) prevent Holdco or any subsidiary of Holdco from performing its      
obligations under this Agreement or any applicable Additional Agreement in any  
material respect or (z) prevent or delay in any material respect the            
consummation of any of the Transactions. Except as otherwise set forth in the   
Merger Agreement or in the Parent Disclosure Letter, no consent, approval,      
order or authorization of, or registration, declaration or filing with, any     
Governmental Entity is required by or with respect to Holdco or any subsidiary  
of Holdco in connection with the execution and delivery of this Agreement or    
any applicable Additional Agreement by Holdco or the consummation by Holdco or  
any subsidiary of Holdco, as the case may be, of any of the Transactions,       
except for (i) filings under the HSR Act and the initial acceptance of the FTC  
Consent Decree, (ii) such filings with, and orders of, the FCC as may be        
required under the Communications Laws in connection with the Transactions,     
(iii) approvals of cable franchising authorities and (iv) such other consents,  
approvals, orders, authorizations, registrations, declarations and filings      
which, if not obtained or made, would not prevent or delay in any material      
respect the consummation of any of the Transactions or otherwise prevent        
Holdco or any subsidiary of Holdco from performing its obligations under this   
Agreement or any applicable Additional Agreement in any material respect or     
have, individually or in the aggregate, a Parent Material Adverse Effect. To    
the knowledge of Holdco, none of Holdco or any of its Affiliates are party to   
any agreement with the Company, any of the Company's Affiliates, TCI or any of  
TCI's Affiliates that would require the consent, waiver or approval of or by    
Holdco or any of its Affiliates of the Mergers or for the consummation of any   
of the Transactions, or the execution, delivery or performance of the Merger    
Agreement, this Agreement or the Additional Agreements, other than the Stock    
Agreements.                                                                     

(c) Except as disclosed in the Parent Disclosure Letter, as of September 22,
1995, there is no suit, action or proceeding (including any proceeding by or    
before the FCC) pending or, to the knowledge of Holdco, threatened              

A2-15 

DEFM14A
292nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 292nd
against or affecting Holdco or any its Affiliates (and Holdco is not aware of   
any basis for any such suit, action or proceeding) that, individually or in     
the aggregate, could reasonably be expected to (i) prevent Holdco from          
performing its obligations under this Agreement or any applicable Additional    
Agreement in any material respect, or (ii) prevent or delay in any material     
respect the consummation of the Mergers or any of the other Transactions.       

(d) As of September 22, 1995, and other than the Horizontal Rule, Holdco is 
not aware of any current or formally proposed Communications Law that would     
prevent any Shareholder from receiving, or would require any Shareholder to     
divest all or any part of, the TW Parent Common Stock issuable to such          
Shareholder in connection with the Mergers (assuming no exchange of such TW     
Parent Common Stock pursuant to Section 4.1).                                   

(e) No broker, investment banker, financial advisor or other person, other  
than Morgan Stanley & Co., Incorporated and Bear, Stearns & Co. Inc., the fees  
and expenses of which will be paid by Old TW, is entitled to any broker's,      
finder's, financial advisor's or other similar fee or commission in connection  
with the Transactions based upon arrangements made by or on behalf of Old TW    
or Holdco.                                                                      

ARTICLE IV  

Certain Post-Closing Covenants  

Section 4.1 Share Exchange. Immediately following the Effective Time of the 
Mergers, each Shareholder shall cause all of its Covered TW Securities that     
consist of shares of TW Parent Common Stock to be delivered to TW Parent for    
exchange into, and TW Parent shall issue in exchange therefor, shares of LMCN-  
V Common Stock. The rate of exchange pursuant to the foregoing provisions of    
this Section 4.1 shall be one share of TW Parent Common Stock for each whole    
share of LMCN-V Common Stock. An exchange for LMCN-V Common Stock shall be      
effected through a direction from each Shareholder to the Exchange Agent (or,   
in the case of an exchange in connection with the Contribution and Exchange     
Agreement, such other agent of Holdco exercising a similar function) to         
register all of the shares of TW Parent Common Stock issuable to such           
Shareholder in the Mergers (or the transactions relating to the Contribution    
and Exchange Agreement, as applicable) in the name of, and to deliver the       
appropriate certificates to, TW Parent and, upon receipt by TW Parent of such   
certificates, the issuance and delivery by TW Parent to each Shareholder of     
the appropriate number of shares of LMCN-V Common Stock. All shares of Holdco   
LMC Common Stock delivered to the Liberty Parties or the SpinCo Parties from    
time to time in accordance with this Agreement shall be duly authorized,        
validly issued, fully paid and nonassessable and free of preemptive rights.     
For so long as the Liberty Parties or SpinCo Parties hold any LMCN-V Common     
Stock, all of the TW Parent Common Stock and Voting Holdco LMC Common Stock     
from time to time owned beneficially or of record (a) by LMC Parent or any of   
its Controlled Affiliates, (b) by any SpinCo Party or (c) for so long as TCI    
is a Liberty Party, by TCI or any of its Controlled Affiliates (other than any  
of the shares (the "Excluded Shares") described in the letter from Baker &      
Botts, L.L.P., counsel to TCI, to Peter Haje, Esq., General Counsel of Old TW   
dated September 22, 1995, unless and until TCI acquires sole voting and         
dispositive control of such shares) shall be delivered to TW Parent for         
exchange for LMCN-V Common Stock; provided, however, that the obligations in    
this sentence shall terminate with respect to (x) LMC Parent and its            
Controlled Affiliates, and TCI and its Controlled Affiliates, upon the          
termination of the Restriction Period with respect to the Liberty Parties and   
(y) the SpinCo Parties, upon the termination of the Restriction Period with     
respect to the SpinCo Parties. TW Parent shall issue, in exchange for the TW    
Parent Common Stock delivered to it pursuant to the immediately preceding       
sentence, a number of shares of LMCN-V Common Stock equal to (i) the number of  
shares of TW Parent Common Stock so delivered divided by (ii) the Formula       
Number then in effect pursuant to the terms of the LMCN-V Common Stock, and,    
in exchange for each share of Voting Holdco LMC Common Stock delivered to it    
at any time pursuant to the two immediately preceding sentences, one share of   
LMCN-V Common Stock.                                                            

Section 4.2 No Redemption. The Voting Holdco LMC Common Stock and the LMCN-V
Common Stock shall not be redeemable at the option of TW Parent, including      
pursuant to any provision equivalent to                                         

A2-16 

DEFM14A
293rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 293rd
Section 5 of Article IV of Old TW's Restated Certificate of Incorporation, as   
amended, as in effect on September 22, 1995 contained in Holdco's Certificate   
of Incorporation ("TW Article IV"). TW Parent further agrees that it shall not  
exercise any right pursuant to TW Article IV to require the redemption from     
any Liberty Party or SpinCo Party of any of its shares of TW Parent Common      
Stock unless it has first given at least 10 business days' prior written        
notice of such redemption to each Liberty Party or SpinCo Party, as applicable  
(which notice shall state that TW Parent intends to effect the redemption of    
shares of TW Parent Common Stock held by such Liberty Party or SpinCo Party,    
the number of shares to be redeemed and the proposed redemption date (in        
addition to any other information required by TW Article IV)), and each         
Liberty Party or SpinCo Party, as applicable, shall have the right at any time  
prior to the redemption date to exchange the shares to be redeemed for a        
number of shares of Voting Holdco LMC Common Stock that are convertible into    
the same number of shares of TW Parent Common Stock so called for redemption.   

Section 4.3 Certain Post-Closing Compensation Obligations.                  

(a) If, after the Effective Time of the Mergers,                            

(i) any Action shall be taken by TW Parent or any of its Controlled     
Affiliates (including, after the effective time of the TBS Merger, the      
Company and its Controlled Affiliates) which has a Prohibited Effect under  
any Specified Law then in effect (including any Specified Law the           
effectiveness of which has been stayed if such stay is subsequently lifted) 
or then formally proposed or promulgated with a delayed effective date if   
such Specified Law becomes effective thereafter, and                        

(ii) such Prohibited Effect did not exist prior to the taking of such   
Action and did not result from any breach of this Agreement or the FTC      
Consent Decree by LMC Parent or any Applicable LMC Affiliate or by any      
SpinCo Party; and                                                           

(iii) if such Prohibited Effect relates to a Liberty Party, such Action 
shall have been taken prior to the termination of the Restriction Period    
with respect to the Liberty Parties; and if such Prohibited Effect relates  
to a SpinCo Party, such action shall have been taken prior to the           
termination of Restriction Period with respect to the SpinCo Parties;       

then, in any such case, the provisions of this Section 4.3 shall apply.         

(b) As promptly as practicable after obtaining actual knowledge that TW     
Parent intends to take an Action and that such Action will likely result in a   
Prohibited Effect, LMC Parent, if the Prohibited Effect is with respect to a    
Liberty Party, or SpinCo, if the Prohibited Effect is with respect to a SpinCo  
Party, shall notify TW Parent thereof. If such notice is received by TW Parent  
prior to the taking of the referenced Action, then either TW Parent and its     
Controlled Affiliates shall not take such Action or if the Action is taken and  
a Prohibited Effect described in Section 4.3(a) occurs, TW Parent shall be      
obligated to pay compensation pursuant to this Section 4.3.                     

(c) As promptly as practicable after obtaining actual knowledge that a      
Prohibited Effect has occurred or will likely occur (other than a Prohibited    
Effect with respect to which notice has been given under Section 4.3(b)), LMC   
Parent, if the Prohibited Effect is with respect to a Liberty Party, or         
SpinCo, if the Prohibited Effect is with respect to a SpinCo Party (the         
applicable of the foregoing being the "Notice Party"), shall notify TW Parent   
thereof. Following the giving of such notice, the Notice Party shall at TW      
Parent's request consult with TW Parent as to such Prohibited Effect and its    
causes and discuss in good faith the actions that either party might take to    
avoid or cure such Prohibited Effect. If the Notice Party and TW Parent agree   
that certain actions can be taken by TW Parent and its Controlled Affiliates    
to cure or avoid the Prohibited Effect, then TW Parent and its Controlled       
Affiliates shall either take such actions or become obligated to compensate     
the Liberty Parties (if prior to the Distribution or the Distribution does not  
occur) or the SpinCo Parties (if the Distribution occurs) (the Liberty Parties  
or the SpinCo Parties, as applicable, being the "Affected Parties") pursuant    
to this Section 4.3 if a Prohibited Effect described in Section 4.3(a) occurs;  
provided, however, that if the Notice Party and TW Parent also agree that       
certain actions could be taken by the Notice Party and its Controlled           
Affiliates (or by the Affected Party, if different from the Notice Party, and   
its Controlled Affiliates) to eliminate the Prohibited Effect which             

A2-17 

DEFM14A
294th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 294th
would be substantially less burdensome to the Notice Party and its Controlled   
Affiliates (and to the Affected Party, if different from the Notice Party, and  
its Controlled Affiliates) than the actions that TW Parent and its Controlled   
Affiliates would be required to take in order to cure the Prohibited Effect     
would be to TW Parent and its Controlled Affiliates and the costs to effect     
such actions would be substantially less than the cost to compensate the        
Affected Parties pursuant to this Section 4.3, then subject to the following    
sentence, the Liberty Parties or SpinCo Parties, as the case may be, shall, at  
TW Parent's expense, use reasonable efforts to take such actions.               
Notwithstanding the foregoing, unless such Liberty Party or SpinCo Party        
otherwise agrees, no Liberty Party or SpinCo Party shall be required to         
dispose of any of its TW Securities, to dispose of any assets or discontinue    
any business or investments that LMC Parent or SpinCo, as applicable,           
determines in good faith are material to the Liberty Parties or SpinCo Parties  
or their respective strategic objectives, or to agree to any restrictions or    
limitations that LMC Parent or SpinCo, as applicable, deems significant on the  
future operation of its business.                                               

(d) If the Prohibited Effect cannot be cured or avoided, or for any reason  
(including the failure of the parties to agree upon any course of action or     
alternative courses of action that would cure or avoid the Prohibited Effect    
or the relative burdens thereof) has not been cured or avoided (x) within 60    
days after notice has been given to TW Parent pursuant to this Section 4.3      
(unless prior to the expiration of such 60-day period, TW Parent or the         
applicable of the Liberty Parties or SpinCo Parties, as agreed by TW Parent     
and LMC Parent or SpinCo, as applicable, have commenced an agreed upon course   
of action to cure such Prohibited Effect and such cure is effected within an    
agreed period of time thereafter), or (y) if earlier, by such date as any       
Liberty Party or SpinCo Party would be required by any Governmental Entity or   
pursuant to any Judgment against it or its properties to divest of any TW       
Securities or suffer any consequences of the kind enumerated in clauses (b)     
through (d) of the definition of Prohibited Effect, then in any such event TW   
Parent shall be obligated to compensate the Affected Parties pursuant to this   
Section 4.3.                                                                    

(e) If TW Parent becomes obligated to compensate the Affected Parties       
pursuant to this Section 4.3, then TW Parent shall be required to (i)           
compensate any Affected Party that disposes of Covered TW Securities to the     
extent required by or to the extent necessary to avoid the applicable           
Prohibited Effect and (ii) if the aggregate number of Covered TW Securities     
disposed of by the Affected Parties pursuant to clause (i) above equals or      
exceeds (on an as converted basis, if applicable) 5% of the sum of the number   
of Covered TW Securities of all Shareholders immediately after the Effective    
Time of the Mergers, plus the number of Covered TW Securities included in the   
Option Consideration (as such numbers shall be appropriately adjusted from      
time to time to take into account the occurrence of any stock dividends,        
splits, reverse splits, combinations and the like), then, at the option of LMC  
Parent (if the Affected Party is a Liberty Party) or SpinCo (if the Affected    
Party is a SpinCo Party) (exercised by notice in writing to TW Parent within    
60 days of the first disposition pursuant to clause (i) above), compensate all  
Affected Parties for the disposition of all the Covered TW Securities if all    
TW Securities of all Affected Parties are disposed of within 12 months of such  
notice (provided that claims for compensation may be made pursuant to the       
following sentences as dispositions are made during such 12 month period and    
payment of such claims shall not be delayed or deferred for such 12 month       
period, but rather shall be paid as provided below, and provided, further,      
that if all TW Securities of the Affected Parties are not disposed of within    
such 12-month period, the Affected Parties shall reimburse TW Parent for the    
amount of compensation paid pursuant to this clause (ii) that is in excess of   
the amount that was required to be paid pursuant to clause (i) of this          
sentence). If TW Parent becomes obligated to compensate any Affected Party      
pursuant to this Section 4.3, then such Affected Party, if it desires to        
assert a claim for compensation hereunder, shall provide to TW Parent a         
statement, certified by independent public accountants of national standing,    
setting forth the estimated Blended Rate for the taxable year in which the      
particular disposition occurred and the estimated Adjustment Amount owed to     
such Affected Party with respect to those of its TW Securities so disposed of.  
Within 30 days after delivery of such statement, TW Parent shall pay to such    
Affected Party the estimated Adjustment Amount by wire transfer of immediately  
available funds to such account and in accordance with such instructions as     
such Affected Party shall have previously advised TW Parent in writing. Within  
30 days after the end of the taxable year in which the particular disposition   
of TW Securities by such Affected Party occurred, such Affected Party shall     
provide to TW Parent a statement, certified by independent public accountants   
of national standing, setting                                                   

A2-18 

DEFM14A
295th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 295th
forth the actual Blended Rate for such taxable year and the actual Adjustment   
Amount owed to such Affected Party with respect to such disposition. Within     
five days after delivery of such statement, (i) TW Parent shall pay to such     
Affected Party an amount equal to the amount by which the Adjustment Amount     
exceeds the estimated Adjustment Amount, or (ii) such Affected Party shall pay  
to TW Parent an amount equal to the amount by which the estimated Adjustment    
Amount exceeds the Adjustment Amount. Any such payment shall be made by wire    
transfer of immediately available funds to such account and in accordance with  
such instructions as such payee shall have previously advised such payor in     
writing.                                                                        

(f) LMC Parent shall upon request from time to time advise TW Parent of the 
identity of each Liberty Party and, following the Distribution, SpinCo shall    
upon request from time to time advise TW Parent of the identity of each SpinCo  
Party.                                                                          

Section 4.4 Certain Post-Closing Covenants.                                 

(a) If a Holdco Rights Plan is in effect immediately following the Effective
Time of the Mergers or no Holdco Rights Plan is then in effect, but a Holdco    
Rights Plan is thereafter adopted, then, in either such case, such Holdco       
Rights Plan (the "Initial Rights Plan") shall, in all material respects, be     
the same as the Amended TW Plan. If Holdco amends the Initial Rights Plan or    
adopts a new Holdco Rights Plan after adoption of the Initial Rights Plan       
(such amended or new plan, the "Subsequent Rights Plan") and the "Beneficial    
Ownership" by any Liberty Party or SpinCo Party, alone or together with all of  
its "Affiliates" and "Associates", of TW Securities would, by reason of and     
immediately upon such amendment or adoption, have effects ("Rights Plan         
Effects") under such Subsequent Rights Plan analogous to the effects under the  
Rights Agreement of a person becoming an "Acquiring Person" (as defined         
therein) or of the rights issued pursuant to the Rights Agreement becoming      
transferable separately from the TW Parent Common Stock, but such "Beneficial   
Ownership" would not have had such effects under the Amended TW Plan, then      
Holdco shall be required to (i) compensate, as provided below, any such         
Liberty Party or SpinCo Party, together with its "Affiliates" and               
"Associates", that disposes of TW Securities (the "Selling Parties") to the     
extent necessary to avoid the Rights Plan Effects and (ii) if the aggregate     
number of TW Securities disposed of by the Selling Parties pursuant to clause   
(i) above equals or exceeds (on an as converted basis, if applicable) 5% of     
the sum of the number of Covered TW Securities of all Shareholders immediately  
after the Effective Time of the Mergers, plus the number of Covered TW          
Securities included in the Option Consideration (as such numbers shall be       
appropriately adjusted from time to time to take into account the occurrence    
of any stock dividends, splits, reverse splits, combinations and the like),     
then, at the option of LMC Parent, on behalf of the Liberty Parties, and at     
the option of SpinCo, on behalf of the SpinCo Parties (exercised by notice in   
writing to Holdco within 60 days of the first disposition pursuant to clause    
(i) above), compensate, as provided below (x) all Selling Parties that are      
Liberty Parties for the disposition of all TW Securities owned by the Liberty   
Parties of the type considered by the Subsequent Rights Plan in determining     
the "Beneficial Ownership" that would trigger Rights Plan Effects (the          
"Relevant TW Securities") and (y) all Selling Parties that are SpinCo Parties   
for the disposition of all Relevant TW Securities owned by the SpinCo Parties,  
as applicable, provided, in each case, that all Relevant TW Securities of the   
Liberty Parties or the SpinCo Parties, as applicable, are disposed of within    
12 months of such notice (provided that claims for compensation may be made     
pursuant to the following sentences as dispositions are made during such 12     
month period and payment of such claims shall not be delayed or deferred for    
such 12 month period, but rather shall be paid as provided below, and           
provided, further, that if all Relevant TW Securities of the Selling Parties    
are not disposed of within such 12-month period, the Selling Parties shall      
reimburse TW Parent for the amount of compensation paid pursuant to this        
clause (ii) that is in excess of the amount that was required to be paid        
pursuant to clause (i) of this sentence). The obligation of Holdco to           
compensate any Selling Party pursuant to this Section 4.4(a) shall be subject   
to the condition that, as of the date of the adoption of the Subsequent Rights  
Plan, (i) such Selling Party and its "Affiliates" and "Associates" shall have   
made all filings on Schedule 13D with respect to their beneficial ownership of  
Relevant TW Securities due on or prior to such date in compliance with          
Regulation 13D-G under the Exchange Act, and (ii) LMC Parent or Spinco, as      
applicable, shall be in compliance with its obligations under Section 4.4(b),   
except to the extent any failure to make any such filings, and/or any failure   
to be in compliance with such obligations, shall not have prejudiced Holdco.    
If TW Parent becomes obligated to                                               

A2-19 

DEFM14A
296th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 296th
compensate any Selling Party pursuant to this Section 4.4(a), then such         
Selling Party, if it desires to assert a claim for compensation hereunder,      
shall provide to TW Parent a statement, certified by independent public         
accountants of national standing, setting forth the estimated Blended Rate for  
the taxable year in which the particular disposition occurred and the           
estimated Adjustment Amount owed to such Selling Party with respect to those    
of its Relevant TW Securities so disposed of. Within 30 days after delivery of  
such statement, TW Parent shall pay to such Selling Party the estimated         
Adjustment Amount by wire transfer of immediately available funds to such       
account and in accordance with such instructions as such Selling Party shall    
have previously advised TW Parent in writing. Within 30 days after the end of   
the taxable year in which the particular disposition of Relevant TW Securities  
by such Selling Party occurred, such Selling Party shall provide to TW Parent   
a statement, certified by independent public accountants of national standing,  
setting forth the actual Blended Rate for such taxable year and the actual      
Adjustment Amount owed to such Selling Party with respect to such disposition.  
Within five days after delivery of such statement, (i) TW Parent shall pay to   
such Selling Party an amount equal to the amount by which the Adjustment        
Amount exceeds the estimated Adjustment Amount, or (ii) such Selling Party      
shall pay to TW Parent an amount equal to the amount by which the estimated     
Adjustment Amount exceeds the Adjustment Amount. Any such payment shall be      
made by wire transfer of immediately available funds to such account and in     
accordance with such instructions as such payee shall have previously advised   
such payor in writing.                                                          

(b) Prior to the Closing, LMC Parent shall, and following the Closing, if   
Holdco adopts a Holdco Rights Plan having the terms contemplated by the first   
sentence of Section 4.4(a), LMC Parent and SpinCo (following the Distribution)  
shall, promptly notify TW Parent in writing of (i) any acquisition of           
"Beneficial Ownership" of "Common Shares" by any of its "Affiliates" or         
"Associates", and (ii) any "Person" who has "Beneficial Ownership" of any       
"Common Shares" becoming its "Affiliate" or "Associate", in each case promptly  
following LMC Parent's or SpinCo's (as applicable) obtaining actual knowledge   
of such occurrence.                                                             

(c) Except as otherwise expressly indicated, terms used in Section 4.4(a)   
and Section 4.4(b) in quotation marks have the meanings given such terms (i)    
prior to the Closing, in the Amended TW Plan, and (ii) from and after the       
Closing, the Holdco Rights Plan, if any, except that the Liberty Parties or,    
following the Distribution, the SpinCo Parties shall be deemed to               
"Beneficially Own" any TW Securities the subject of an "Offer Notice" (under    
Section 3 of the First Refusal Agreement) from any Turner Stockholder (as       
defined in the First Refusal Agreement), any "Fast-Track Offer Notice" (under   
Section 3.3 of the First Refusal Agreement) from any Turner Stockholder or any  
"Tender Notice" (under Section 3.4 of the First Refusal Agreement) from any     
Turner Stockholder, in each case until the earlier of the purchase of such TW   
Securities pursuant to the First Refusal Agreement and the first date upon      
which such Turner Stockholder is free to sell such TW Securities.               

ARTICLE V 

Miscellaneous 

Section 5.1 Expenses. All costs and expenses incurred in connection with    
this Agreement shall be paid by the party incurring such cost or expense.       

Section 5.2 Specific Performance. Each of LMC Parent and the Shareholders,  
on the one hand, and Old TW and Holdco, on the other hand, agrees that the      
other parties would be irreparably damaged if for any reason such party fails   
to perform any of such party's obligations under this Agreement, and that the   
other parties would not have an adequate remedy at law for money damages in     
such event. Accordingly, any of the other parties shall be entitled to seek     
specific performance and injunctive and other equitable relief to enforce the   
performance of this Agreement by such party. This provision is without          
prejudice to any other rights the parties may have against each other for any   
failure to perform their respective obligations under this Agreement.           

Section 5.3 Amendments; Termination.  This Agreement may not be modified,   
amended, altered or supplemented, except upon the execution and delivery of a   
written agreement executed by the parties hereto.                               

A2-20 

DEFM14A
297th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 297th
The representations, warranties, covenants and agreements set forth herein      
shall terminate, except with respect to liability for prior breaches thereof,   
upon the first to occur of (x) December 31, 1996, if the Effective Time of the  
Mergers has not occurred on or prior to such date and (y) the termination of    
the Amended and Restated Merger Agreement in accordance with its terms or the   
abandonment thereof by TW Parent if required pursuant to Section 2.3 (the       
"Termination Date"). The representations, warranties, covenants and agreements  
set forth herein (other than in Article II) shall survive the Effective Time    
of the Mergers.                                                                 

Section 5.4 Successors and Assigns. The provisions of this Agreement shall  
be binding upon and inure to the benefit of the parties hereto and their        
respective successors and permitted assigns; provided, however, that a party    
may not assign, delegate or otherwise transfer any of such party's rights or    
obligations under this Agreement without the consent of the other parties       
hereto and any purported assignment, delegation or transfer without such        
consent shall be null and void. Each Liberty Party and SpinCo Party from time   
to time, provided that it is a Liberty Party or SpinCo Party as of the          
relevant time, shall be an intended third party beneficiary of the covenants    
of TW Parent contained in Article IV.                                           

Section 5.5 Entire Agreement. This Agreement (including the Exhibits and    
Schedules attached hereto), together with the Stock Agreements, constitute the  
entire agreement among the parties with respect to the subject matter hereof    
and supersede all other prior agreements and understandings, both written and   
oral, among the parties with respect to the subject matter hereof.              

Section 5.6 Notices. All notices, requests, claims, demands and other       
communications hereunder shall be in writing and shall be deemed given (i) on   
the first business day following the date received, if delivered personally or  
by telecopy (with telephonic confirmation of receipt by the addressee), (ii)    
on the business day following timely deposit with an overnight courier          
service, if sent by overnight courier specifying next day delivery and (iii)    
on the first business day that is at least five days following deposit in the   
mails, if sent by first class mail, to the parties at the following addresses   
(or at such other address for a party as shall be specified by like notice):    

If to TW Parent, to it at:                                                  

75 Rockefeller Plaza                                                    
New York, New York 10019                                                
Facsimile: (212) 956-7281                                               
Attention: General Counsel                                              

with a copy (which shall not constitute notice) to:                         

Cravath, Swaine & Moore                                                 
Worldwide Plaza                                                         
825 Eighth Avenue                                                       
New York, NY 10019                                                      
Facsimile: (212) 474-3700                                               
Attention: Richard Hall, Esq.                                           

If to LMC Parent or any Shareholder, to it at:                              

8101 East Prentice Avenue                                               
Suite 500                                                               
Englewood, Colorado 80111                                               
Facsimile: (303) 721-5415                                               
Attention: President                                                    

A2-21 

DEFM14A
298th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 298th
with a copy (which shall not constitute notice) to each of:                 

Stephen M. Brett, Esq.                                                  
General Counsel                                                         
Tele-Communications, Inc.                                               
Terrace Tower II                                                        
5619 DTC Parkway                                                        
Englewood, Colorado 80111-3000                                          
Facsimile: (303) 488-3245                                               

Baker & Botts, L.L.P.                                                   
599 Lexington Avenue                                                    
New York, New York 10022                                                
Facsimile: (212) 705-5125                                               
Attention: Elizabeth M. Markowski, Esq.                                 

Section 5.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware.                  

Section 5.8 Counterparts; Effectiveness. This Agreement may be executed in  
two or more counterparts, all of which shall be considered one and the same     
agreement, and shall become effective when two or more counterparts have been   
signed by each of the parties and delivered to the other parties.               

Section 5.9 Descriptive Headings. The descriptive headings used herein are  
inserted for convenience of reference only and are not intended to be part of   
or to affect the meaning or interpretation of this Agreement.                   

Section 5.10 Severability. Whenever possible, each provision or portion of  
any provision of this Agreement will be interpreted in such manner as to be     
effective and valid under applicable law but if any provision or portion of     
any provision of this Agreement is held to be invalid, illegal or               
unenforceable in any respect under any applicable law or rule in any            
jurisdiction, such invalidity, illegality or unenforceability will not affect   
any other provision or portion of any provision in such jurisdiction, and this  
Agreement will be reformed, construed and enforced in such jurisdiction as if   
such invalid, illegal or unenforceable provision or portion of any provision    
had never been contained herein. The parties shall endeavor in good-faith       
negotiations to replace any invalid, illegal or unenforceable provision with a  
valid provision the effects of which come as close as possible to those of      
such invalid, illegal or unenforceable provisions.                              

Section 5.11 Attorney's Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party       
shall be entitled to reasonable attorney's fees, costs and necessary            
disbursements, in addition to any other relief to which such party may be       
entitled.                                                                       

Section 5.12 Obligations of Old TW and Holdco Joint and Several. Each of Old
TW and Holdco (collectively, the "TW Parties") covenants and agrees with LMC    
Parent and each Shareholder that such TW Party is and shall be jointly and      
severally liable, as a primary obligor and not merely a surety, for the full    
and timely payment and performance of all obligations of each other TW Party    
to be paid and/or performed under this Agreement.                               

A2-22 

DEFM14A
299th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 299th
In Witness Whereof, the parties hereto have caused this Amended and Restated
LMC Agreement to be duly executed and delivered as of the day and year first    
above written.                                                                  

                    Time Warner Inc.

                             By:     /s/ Peter R. Haje
                                         -----------------------------
                             Name: Peter R. Haje
                                         Title: Executive Vice President

           TW Inc.

                                   By:     /s/ Thomas W. McEnerney
                                         -----------------------------
                                   Name: Thomas W. McEnerney
                               Title: Vice President

                             Liberty Media Corporation

                                 By:     /s/ Robert R. Bennett
                                         -----------------------------
                                 Name: Robert R. Bennett
                                         Title: Executive Vice President

                               Subsidiaries of LMC Parent:

                              TCI Turner Preferred, Inc.

                                 By:     /s/ Robert R. Bennett
                                         -----------------------------
                                 Name: Robert R. Bennett
                                         Title: Executive Vice President

                               Communication Capital Corp.

                                 By:     /s/ Robert R. Bennett
                                         -----------------------------
                                 Name: Robert R. Bennett
With respect to Sections 2.1(c), 2.2, 3.1(c) and 4.1 only:                      
                                         Title: Executive Vice President

Tele-Communications, Inc.                                                       

By:  /s/ Stephen M. Brett                                                       
---------------------------------                                       
Name: Stephen M. Brett                                                    
Title: Executive Vice President                                           

With respect to Section 2.1(c) only:                                            

TCI Communications, Inc.                                                        

By: /s/ Stephen M. Brett                  United Cable Turner Investment Inc.   
---------------------------------                                         
Name: Stephen M. Brett                                                    

Title: Executive Vice President                                           

                              By:  /s/ Robert R. Bennett
                                         -----------------------------
Time TBS Holdings, Inc.                      Name: Robert R. Bennett            

                                         Title: Executive Vice President

By: /s/ Thomas W. McEnerney                                                     
---------------------------------                                       
Name: Thomas W. McEnerney                                                 
Title: Vice President                                                     

A2-23 

DEFM14A
300th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 300th
                                                                  APPENDIX A-3

                 SHAREHOLDERS' AGREEMENT dated as of September 22, 1995,
        among Time Warner Inc., a Delaware corporation
           ("Parent"), R. E. Turner, III, an individual (the
              "Principal Shareholder"), and certain associates and
               affiliates of the Principal Shareholder listed on the
                 signature pages hereto (collectively with the Principal
Shareholder, the "Shareholders").     

Parent, Time Warner Acquisition Corp. ("Sub"), a Delaware corporation and a 
wholly owned subsidiary of Parent, and Turner Broadcasting System, Inc. (the    
"Company"), a Georgia corporation, are entering into an Agreement and Plan of   
Merger dated as of the date hereof (as amended from time to time pursuant to    
Section 1.01 thereof, the "Merger Agreement"). The Merger (as defined in the    
Merger Agreement) is subject to certain conditions, including the approval of   
the Merger and the approval and adoption of the Merger Agreement: by the        
holders of a majority of the outstanding shares of Class C Convertible          
Preferred Stock, par value $.125 per share, of the Company (the "Class C        
Preferred Stock"), voting as a separate class; by the holders of a majority of  
the voting power of the outstanding shares of Class A Common Stock, par value   
$.0625 per share, of the Company (the "Class A Common Stock"), and Class B      
Common Stock, par value $.0625 per share, of the Company (the "Class B Common   
Stock"; together with the Class A Common Stock, the "Common Stock"), voting as  
a single class; and by the holders of a majority of the voting power of the     
outstanding shares of Common Stock and Class C Preferred Stock, voting as a     
single class.                                                                   

Each Shareholder is the record and beneficial owner of the shares of Class A
Common Stock and Class B Common Stock (such shares of Class A Common Stock and  
Class B Common Stock, together with any shares of capital stock of the Company  
acquired by such Shareholder after the date hereof and during the term of this  
Agreement, being collectively referred to herein as the "Shareholder Shares"    
of such Shareholder) set forth opposite such Shareholder's name on Schedule I   
hereto.                                                                         

As a condition to the willingness of Parent to enter into the Merger        
Agreement, and as an inducement to it to do so, each Shareholder has agreed     
for the benefit of Parent as set forth in this Agreement.                       

Now, Therefore, in consideration of the representations, warranties,        
covenants and agreements contained in this Agreement, the parties hereby agree  
as follows:                                                                     

ARTICLE I 

Definitions 

Section 1.01. Definitions. Capitalized terms used but not defined herein,   
and the terms "affiliate", "person" and "subsidiary", shall have the meanings   
assigned to such terms in the Merger Agreement.                                 

ARTICLE II  

Covenants of the Shareholders 

Section 2.01. Agreement to Vote. At any meeting of the shareholders of the  
Company held prior to the Termination Date (as defined in Section 5.04),        
however called, and at every adjournment thereof prior to the Termination       
Date, or in connection with any written consent of the shareholders of the      
Company given prior to the Termination Date, each Shareholder shall, and the    
Principal Shareholder shall cause any Shareholder that is his controlled        
affiliate to, vote the Shareholder Shares (and each class thereof) of such      
Shareholder that such Shareholder is entitled to vote, (a) in favor of the      
approval of the Merger and each of the other transactions contemplated by the   
Merger Agreement and in favor of the approval and adoption of the Merger        
Agreement, and any actions required in furtherance hereof and thereof; (b)      
against any action or agreement that would,                                     

A3-1  

DEFM14A
301st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 301st
directly or indirectly, result in a breach in any material respect of any       
covenant, representation or warranty or any other obligation or agreement of    
the Company under the Merger Agreement; and (c) against any takeover proposal   
(as defined in the Merger Agreement) or any other action or agreement that,     
directly or indirectly, is inconsistent with or that is reasonably likely,      
directly or indirectly, to impede, interfere with, delay, postpone or attempt   
to discourage the Merger or any other transaction contemplated by the Merger    
Agreement. None of the Shareholders shall, nor shall the Principal Shareholder  
permit any Shareholder that is a controlled affiliate of the Principal          
Shareholder to, enter into any agreement or understanding with any person       
prior to the Termination Date, directly or indirectly, to vote, grant any       
proxy or give instructions with respect to the voting of the Shareholder        
Shares of such Shareholder in any manner inconsistent with the preceding        
sentence.                                                                       

Section 2.02. Proxies and Voting Agreements. (a) Each Shareholder hereby    
revokes any and all previous proxies granted with respect to matters set forth  
in Section 2.01 for the Shareholder Shares of such Shareholder.                 

(b) Prior to the Termination Date, none of the Shareholders shall, nor shall
the Principal Shareholder permit any Shareholder that is a controlled           
affiliate of the Principal Shareholder to, directly or indirectly, except as    
contemplated hereby, grant any proxies or powers of attorney with respect to    
matters set forth in Section 2.01, deposit any of the Shareholder Shares owned  
by such Shareholder into a voting trust or enter into a voting agreement with   
respect to any of the Shareholder Shares, in each case with respect to such     
matters.                                                                        

Section 2.03. Transfer of Shareholder Shares by any Shareholder. Prior to   
the Termination Date, none of the Shareholders shall, nor shall the Principal   
Shareholder permit any Shareholder that is a controlled affiliate of the        
Principal Shareholder to, (a) place any Encumbrance (as defined in the          
Shareholders' Agreement (as defined in Section 3.01)) on any Shareholder        
Shares of such Shareholder, other than pursuant to this Agreement, or (b) make  
any Disposition (as defined in the Shareholders' Agreement) of any Shareholder  
Shares owned by such Shareholder, other than a disposition by operation of law  
in connection with the Merger, if, in the case of this clause (b), the effect   
thereof would be to create a Prohibited Effect (as defined in the               
Shareholders' Agreement), determined as if The Turner Foundation, Inc., and     
the Robert E. Turner Charitable Remainder Unitrust No. 2 (collectively, the     
"Specified Holders") did not own any shares of Company Capital Stock.           

Section 2.04. Dissenters' Rights. None of the Shareholders shall, nor shall 
the Principal Shareholder permit any Shareholder that is a controlled           
affiliate of the Principal Shareholder to, give notice pursuant to Section      
1321 of the Georgia BCC of such Shareholder's intent to demand payment for any  
shares of Company Capital Stock, or take any other action to exercise           
dissenters' rights under Article 13 of the Georgia BCC, if the Merger is        
effectuated.                                                                    

ARTICLE III 

Representations, Warranties and Additional Covenants of the Shareholders  

Each Shareholder represents, warrants and covenants to Parent, as to himself
or itself and, in the case of the Principal Shareholder, as to each other       
Shareholder, that:                                                              

Section 3.01. Ownership. Such Shareholder is as of the date hereof the      
beneficial and record owner of the Shareholder Shares set forth opposite the    
name of such Shareholder on Schedule I hereto, such Shareholder has the sole    
right to vote such Shareholder Shares and there are no restrictions on rights   
of disposition or other Liens pertaining to such Shareholder Shares other than  
the Shareholders' Agreement dated as of June 3, 1987, as amended by the First   
Amendment dated as of April 15, 1988, among the Company, the Principal          
Shareholder and the original holders of the Series C Preferred Stock (the       
"Shareholders' Agreement"). None of the Shareholder Shares of such Shareholder  
is subject to any voting trust or other agreement, arrangement or restriction   
with respect to the voting of such Shareholder Shares, other than the           
Shareholders' Agreement.                                                        

A3-2  

DEFM14A
302nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 302nd
Section 3.02. Authority and Non-Contravention. The Principal Shareholder has
the right, power and authority, and each other Shareholder has the corporate    
power and authority (in the case of a Shareholder that is a corporation), and   
in each case such Shareholder has been duly authorized by all necessary action  
(including consultation, approval or other action by or with any other          
person), to execute, deliver and perform this Agreement and consummate the      
transactions contemplated hereby. Such actions by such Shareholder (a) require  
no action by or in respect of, or filing with, any Governmental Entity with     
respect to such Shareholder, other than any required filings under Section 13   
of the Exchange Act, and (b) do not and will not contravene or constitute a     
default under, or give rise to a right of termination, cancellation or          
acceleration of any right or obligation of such Shareholder or to a loss of     
any benefit of such Shareholder under, any provision of applicable law or       
regulation or any agreement (including the Shareholders' Agreement), judgment,  
injunction, order, decree or other instrument binding on such Shareholder or    
result in the imposition of any Lien on any asset of such Shareholder or any    
of its affiliates (other than as provided in this Agreement with respect to     
Shareholder Shares).                                                            

Section 3.03. Binding Effect. This Agreement has been duly executed and     
delivered by such Shareholder and is the valid and binding agreement of such    
Shareholder, enforceable against such Shareholder in accordance with its        
terms, except as enforcement may be limited by bankruptcy, insolvency,          
moratorium or other similar laws relating to creditors' rights generally and    
by equitable principles to which the remedies of specific performance and       
injunctive and similar forms of relief are subject.                             

Section 3.04. Total Shares. The Shareholder Shares listed in Schedule I     
hereto opposite the name of such Shareholder and, in the case of the Principal  
Shareholder, opposite the name of the other Shareholders listed therein, are    
the only shares of capital stock of the Company owned beneficially or of        
record as of the date hereof by such Shareholder, and such Shareholder does     
not have any option to purchase or right to subscribe for or otherwise acquire  
any securities of the Company and has no other interest in or voting rights     
with respect to any other securities of the Company.                            

Section 3.05. Finder's Fees. No investment banker, broker or finder is      
entitled to a commission or fee from the Company, Parent or Sub in respect of   
this Agreement based upon any arrangement or agreement made by or on behalf of  
such Shareholder, except as otherwise provided in the Merger Agreement or the   
Company Disclosure Letter.                                                      

Section 3.06. Reasonable Efforts. (a) Prior to the Termination Date, the    
Principal Shareholder shall use reasonable efforts to take, or cause to be      
taken, all actions, and to do, or cause to be done, and to assist and           
cooperate with Parent in doing, all things necessary, proper or advisable to    
consummate and make effective, in the most expeditious manner practicable, the  
Merger and the other transactions contemplated by the Merger Agreement and      
this Agreement, including (i) the obtaining of all necessary actions or         
nonactions, waivers, consents and approvals from Governmental Entities and the  
making of all necessary registrations and filings (including any necessary      
filings under the HSR Act relating to the acquisition of the Company or         
relating to the acquisition of Parent Common Stock in the Merger and all other  
necessary filings with Governmental Entities, if any) and the taking of all     
reasonable steps as may be necessary to obtain an approval or waiver from, or   
to avoid an action or proceeding by, any Governmental Entity, (ii) the          
obtaining of all necessary consents, approvals or waivers from third parties,   
(iii) the defending of any lawsuits or other legal proceedings, whether         
judicial or administrative, challenging the Merger Agreement or this Agreement  
or the consummation of any of the transactions contemplated by the Merger       
Agreement and this Agreement, including seeking to have any stay or temporary   
restraining order entered by any court or other Governmental Entity vacated or  
reversed, and (iv) the execution and delivery of any additional instruments     
necessary to consummate the transactions contemplated by, and to fully carry    
out the purposes of, the Merger Agreement and this Agreement.                   

(b) On or prior to the Closing Date, each Shareholder shall execute and     
deliver to Parent the Investors' Agreement in the form attached as Exhibit C-1  
to the Merger Agreement.                                                        

Section 3.07. Certain Payments. (a) If the Merger Agreement is terminated   
pursuant to Section 7.01(e) of the Merger Agreement, each Shareholder shall     
pay to Parent an amount equal to all profit (determined in                      

A3-3  

DEFM14A
303rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 303rd
accordance with Section 3.07(b)) of such Shareholder from the consummation of   
any takeover proposal (i) that is consummated within 18 months of such          
termination or (ii) with respect to which a definitive agreement is executed    
within 18 months of such termination. Such payment shall be made by each        
Shareholder (A) within three business days of the receipt of any cash           
consideration under such takeover proposal, in an amount equal to the lesser    
of the profit of such Shareholder and the aggregate consideration under such    
takeover proposal paid to such Shareholder in cash; (B) within three business   
days after receipt by such Shareholder of cash proceeds from the sale of any    
non-cash consideration in the form of securities received on consummation of    
such takeover proposal, but in any event within 30 days of such consummation,   
the lesser of the remaining profit of such Shareholder and such cash proceeds;  
provided, however, that if such securities have not been sold by such           
Shareholder at the end of such 30-day period, such Shareholder shall transfer   
to Parent (x) an amount of such securities with a fair market value on the      
date of transfer equal to the remaining profit of such Shareholder (or if the   
fair market value of all such unsold securities is less than such remaining     
profit, all such unsold securities) or (y) at the option of such Shareholder,   
cash in an amount equal to such remaining profit; and (C) within three          
business days after receipt by such Shareholder of cash proceeds from the sale  
of any other non-cash consideration received on consummation of such takeover   
proposal, but in any event within six months of such consummation, cash in an   
amount equal to the remaining profit of such Shareholder. Each Shareholder      
shall use all reasonable efforts to sell, within 30 days of such consummation,  
a portion of such other non-cash consideration sufficient to provide cash with  
which to pay over any profit of such Shareholder that remains unpaid following  
the application of amounts under clauses (A) and (B) above.                     

(b) The profit of any Shareholder, for the purposes of Section 3.07(a), from
any takeover proposal shall equal (i) the aggregate consideration received by   
such Shareholder pursuant to such takeover proposal, valuing any non-cash       
consideration (including any residual interest in the Company) at its fair      
market value on the date of such consummation, plus (ii) the fair market        
value, on the date of disposition, of all Shareholder Shares of such            
Shareholder disposed of after the termination of the Merger Agreement and       
prior to the date of such consummation less (iii) the aggregate consideration   
that would have been issuable or payable to such Shareholder in the Merger,     
valuing each share of Parent Common Stock at the average of the closing price   
per share of Parent Common Stock, as reported on the NYSE Composite Tape, for   
the five trading days ending on the trading day prior to the first public       
announcement by the Company of its intention to terminate the Merger Agreement  
to pursue a takeover proposal, if the Merger had been consummated on the date   
of such public announcement. For the purpose of determining the "profit" of     
the Principal Shareholder, there shall be included an amount equal to the       
profit that would have been realized by the Specified Holders had they both     
been Shareholders and been subject to this Section 3.07.                        

(c) Any payment of profit under this Section 3.07 shall (i) if paid in cash,
be paid by wire transfer of same day funds to an account designated by Parent   
and (ii) if paid through the transfer of securities, be paid through the        
delivery of such securities, suitably endorsed for transfer, to Parent at its   
address set forth in Section 5.08.                                              

ARTICLE IV  

Representations, Warranties and Covenants of Parent 

Parent represents, warrants and covenants to each Shareholder that:         

Section 4.01. Corporate Power and Authority. Parent has all requisite       
corporate power and authority to enter into this Agreement and to perform its   
obligations hereunder. The execution, delivery and performance by Parent of     
this Agreement and the consummation by Parent of the transactions contemplated  
hereby have been duly authorized by all necessary corporate action on the part  
of Parent.                                                                      

Section 4.02. Binding Effect. This Agreement has been duly executed and     
delivered by Parent and is a valid and binding agreement of Parent,             
enforceable against Parent in accordance with its terms, except as enforcement  
may be limited by bankruptcy, insolvency, moratorium or other similar laws      
relating to creditors'                                                          

A3-4  

DEFM14A
304th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 304th
rights generally and by equitable principles to which the remedies of specific  
performance and injunctive and similar forms of relief are subject.             

Section 4.03. Investors' Agreement. On or prior to the Closing Date, Parent 
shall execute and deliver to each Shareholder the Investors' Agreement in the   
form attached as Exhibit C-1 to the Merger Agreement.                           

ARTICLE V 

Miscellaneous 

Section 5.01. Expenses. All costs and expenses incurred in connection with  
this Agreement shall be paid by the party incurring such cost or expense.       

Section 5.02. Further Assurances. From time to time, at the request of      
Parent, in the case of a Shareholder, or at the request of a Shareholder, in    
the case of Parent, and without further consideration, each party shall         
execute and deliver or cause to be executed and delivered such additional       
documents and instruments and take all such further action as may be necessary  
or desirable to consummate the transactions contemplated by this Agreement.     

Section 5.03. Specific Performance. Each Shareholder agrees that Parent     
would be irreparably damaged if for any reason such Shareholder fails to        
perform any of such Shareholder's obligations under this Agreement, and that    
Parent would not have an adequate remedy at law for money damages in such       
event. Accordingly, Parent shall be entitled to seek specific performance and   
injunctive and other equitable relief to enforce the performance of this        
Agreement by such Shareholder. This provision is without prejudice to any       
other rights that Parent may have against such Shareholder for any failure to   
perform its obligations under this Agreement.                                   

Section 5.04. Amendments; Termination. This Agreement may not be modified,  
amended, altered or supplemented, except upon the execution and delivery of a   
written agreement executed by the parties hereto. The representations,          
warranties, covenants and agreements set forth in Article II and Sections 3.01  
and 3.06 and Article IV shall terminate, except with respect to liability for   
prior breaches thereof, upon the termination of the Merger Agreement in         
accordance with its terms or, if earlier, the Effective Time of the Merger      
(the "Termination Date").                                                       

Section 5.05. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their        
respective estates, heirs, successors and permitted assigns; provided,          
however, that a party may not assign, delegate or otherwise transfer any of     
such party's rights or obligations under this Agreement without the consent of  
the other parties hereto and any purported assignment, delegation or transfer   
without such consent shall be null and void.                                    

Section 5.06. Certain Events. Each Shareholder agrees that this Agreement   
and the obligations hereunder shall attach to the Shareholder Shares            
beneficially owned by such Shareholder and shall be binding upon any person to  
which legal or beneficial ownership of such shares shall pass, whether by       
operation of law or otherwise.                                                  

Section 5.07. Entire Agreement. This Agreement constitutes the entire       
agreement among the parties with respect to the subject matter hereof and       
supersedes all other prior agreements and understandings, both written and      
oral, among the parties with respect to the subject matter hereof.              

Section 5.08. Notices. All notices, requests, claims, demands and other     
communications hereunder shall be in writing and shall be deemed given (i) on   
the first business day following the date received, if delivered personally or  
by telecopy (with telephonic confirmation of receipt by the addressee), (ii)    
on the business day following timely deposit with an overnight courier          
service, if sent by overnight courier specifying next day delivery and (iii)    
on the first business day that is at least five days following deposit in the   
mails, if sent by first                                                         

A3-5  

DEFM14A
305th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 305th
class mail, to the parties at the following addresses (or at such other         
address for a party as shall be specified by like notice):                      

If to Parent, to:                                                           

Time Warner Inc.                                                        
75 Rockefeller Plaza                                                    
New York, New York 10019                                                
Facsimile: (212) 956-7281                                               

Attention: General Counsel                                              

with a copy (which shall not constitute notice) to:                         

Cravath, Swaine & Moore                                                 
Worldwide Plaza                                                         
825 Eighth Avenue                                                       
New York, NY 10019                                                      
Facsimile: (212) 474-3700                                               

Attention: Peter S. Wilson, Esq.                                        

If to any Shareholder, to:                                                  

R.E. Turner, III                                                        
c/o Turner Broadcasting System, Inc.                                    
One CNN Center                                                          
Box 105366                                                              
Atlanta, GA 30348-5366                                                  
Facsimile: (404) 827-3000                                               

For Courier delivery:                                                   
100 International Boulevard                                             
Atlanta, GA 30303                                                       

Attention: General Counsel                                              

with a copy (which shall not constitute notice) to:                         

Skadden, Arps, Slate, Meagher & Flom                                    
300 South Grand Avenue                                                  
Suite 3400                                                              
Los Angeles, CA 90071                                                   
Facsimile: (213) 687-5600                                               

Attention: Thomas C. Janson, Jr., Esq.                                  

Section 5.09. Governing Law. This Agreement shall be governed by and        
construed in accordance with the internal laws of the State of Delaware.        

Section 5.10. Counterparts; Effectiveness. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same     
agreement, and, as to any Shareholder, shall become effective when two or more  
counterparts have been signed by each of such Shareholder and Parent and        
delivered to the other.                                                         

Section 5.11. Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of   
or to affect the meaning or interpretation of this Agreement.                   

A3-6  

DEFM14A
306th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 306th
Section 5.12. Severability. Whenever possible, each provision or portion of 
any provision of this Agreement will be interpreted in such manner as to be     
effective and valid but if any provision or portion of any provision of this    
Agreement is held to be invalid, illegal or unenforceable in any respect, such  
invalidity, illegality or unenforceability will not affect any other provision  
or portion of any provision, and this Agreement will be reformed, construed     
and enforced as if such invalid, illegal or unenforceable provision or portion  
of any provision had never been contained herein. The parties shall endeavor    
in good faith negotiations to replace any invalid, illegal or unenforceable     
provision with a valid provision the effects of which come as close as          
possible to those of such invalid, illegal or unenforceable provision.          

Section 5.13. Attorneys' Fees. If any action at law or in equity is         
necessary to enforce or interpret the terms of this Agreement, the prevailing   
party shall be entitled to reasonable attorneys' fees, costs and necessary      
disbursements, in addition to any other relief to which such party may be       
entitled.                                                                       

In Witness Whereof, Parent and the Shareholders have caused this Agreement  
to be duly executed as of the day and year first above written.                 

                     Time Warner Inc.,

                                 By        /s/ Gerald M. Levin
                                            ----------------------------------
                             Name: Gerald M. Levin
                               Title: Chairman and CEO

                                        /s/ R. E. Turner
                                         -------------------------------------
                                        R. E. Turner

                         Turner Outdoor, Inc.,

                              By        /s/ R. E. Turner
                                          ----------------------------------
                          Name: R. E. Turner
                                          Title: Chairman, President and CEO

A3-7  

DEFM14A
307th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 307th
                                                                  APPENDIX B-1

RESTATED CERTIFICATE OF INCORPORATION 

OF  

TW INC. 

TW Inc., a corporation organized and existing under the laws of the State of
Delaware, Does Hereby Certify as Follows:                                       

1. The name of the corporation is TW Inc. and the name under which the  
corporation was originally incorporated is TPS Acquisition Inc. The         
original Certificate of Incorporation was filed with the Secretary of State 
of the State of Delaware on June 12, 1989.                                  

2. This Restated Certificate of Incorporation, having been duly adopted 
in accordance with Sections 228, 242 and 245 of the General Corporation Law 
of the State of Delaware and by the written consent of the sole stockholder 
of TW Inc., restates and integrates and further amends the provisions of    
the Certificate of Incorporation as amended or supplemented heretofore. As  
so restated and integrated and further amended, the Restated Certificate of 
Incorporation (hereinafter, this "Certificate of Incorporation") reads as   
follows:                                                                    

ARTICLE I 

The name of the corporation (hereinafter called the "Corporation") is TW    
INC.                                                                            

ARTICLE II  

The address of the Corporation's registered office in the State of Delaware 
is 32 Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19901. The   
name of the Corporation's registered agent at such address is The Prentice-     
Hall Corporation System, Inc.                                                   

ARTICLE III 

The purpose of the Corporation is to engage in any lawful act or activity   
for which corporations may be organized under the General Corporation Law of    
the State of Delaware.                                                          

ARTICLE IV  

Section 1. The total number of shares of all classes of stock which the     
Corporation shall have authority to issue is 2.510 billion shares, consisting   
of (1) 250 million shares of Preferred Stock, par value $0.10 per share         
("Common Stock"), (2) 2.0 billion shares of Common Stock, par value $0.01 per   
share ("Common Stock"), and (3) 60 million shares of Series Common Stock, par   
value $0.01 per share ("Series Common Stock"). The number of authorized shares  
of any of the Preferred Stock, the Common Stock or the Series Common Stock may  
be increased or decreased (but not below the number of shares thereof then      
outstanding) by the affirmative vote of the holders of a majority in voting     
power of the stock of the Corporation entitled to vote thereon irrespective of  
the provisions of Section 242(b)(2) of the General Corporation Law of the       
State of Delaware (or any successor provision thereto), and no vote of the      
holders of any of the Preferred Stock, the Common Stock or the Series Common    
Stock voting separately as a class shall be required therefor.                  

Section 2. The Board of Directors is hereby expressly authorized, by        
resolution or resolutions, to provide, out of the unissued shares of Preferred  
Stock, for series of Preferred Stock and, with respect to each such series, to  
fix the number of shares constituting such series and the designation of such   
series, the voting powers (if any) of the shares of such series, and the        
preferences and relative, participating, optional or other special rights, if   
any, and any qualifications, limitations or restrictions thereof, of the        
shares of such series. The powers, preferences and relative, participating,     
optional and other special rights of each series of Preferred Stock, and the    
qualifications, limitations or restrictions thereof, if any, may differ from    
those of any and all other series at any time outstanding.                      

DEFM14A
308th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 308th
Section 3. The Board of Directors is hereby expressly authorized, by        
resolution or resolutions, to provide, out of the unissued shares of Series     
Common Stock, for series of Series Common Stock and, with respect to each such  
series, to fix the number of shares constituting such series and the            
designation of such series, the voting powers (if any) of the shares of such    
series, and the preferences and relative, participating, optional or other      
special rights, if any, and any qualifications, limitations or restrictions     
thereof, of the shares of such series. The powers, preferences and relative,    
participating, optional and other special rights of each series of Series       
Common Stock, and the qualifications, limitations or restrictions thereof, if   
any, may differ from those of any and all other series at any time              
outstanding.                                                                    

Section 4. (a) Each holder of Common Stock, as such, shall be entitled to   
one vote for each share of Common Stock held of record by such holder on all    
matters on which stockholders generally are entitled to vote; provided,         
however, that, except as otherwise required by law, holders of Common Stock,    
as such, shall not be entitled to vote on any amendment to this Certificate of  
Incorporation (including any Certificate of Designation relating to any series  
of Preferred Stock or Series Common Stock) that relates solely to the terms of  
one or more outstanding series of Preferred Stock or Series Common Stock if     
the holders of such affected series are entitled, either separately or          
together with the holders of one or more other such series, to vote thereon     
pursuant to this Certificate of Incorporation (including any Certificate of     
Designation relating to any series of Preferred Stock or Series Common Stock)   
or pursuant to the General Corporation Law of the State of Delaware.            

(b) Except as otherwise required by law, holders of a series of Preferred   
Stock or Series Common Stock, as such, shall be entitled only to such voting    
rights, if any, as shall expressly be granted thereto by this Certificate of    
Incorporation (including any Certificate of Designation relating to such        
series).                                                                        

(c) Subject to applicable law and the rights, if any, of the holders of any 
outstanding series of Preferred Stock or Series Common Stock or any class or    
series of stock having a preference over or the right to participate with the   
Common Stock with respect to the payment of dividends, dividends may be         
declared and paid on the Common Stock at such times and in such amounts as the  
Board of Directors in its discretion shall determine.                           

(d) Upon the dissolution, liquidation or winding up of the Corporation,     
subject to the rights, if any, of the holders of any outstanding series of      
Preferred Stock or Series Common Stock or any class or series of stock having   
a preference over or the right to participate with the Common Stock with        
respect to the distribution of assets of the Corporation upon such              
dissolution, liquidation or winding up of the Corporation, the holders of the   
Common Stock, as such, shall be entitled to receive the assets of the           
Corporation available for distribution to its stockholders ratably in           
proportion to the number of shares held by them.                                

Section 5. Notwithstanding any other provision of this Certificate of       
Incorporation to the contrary, but subject to the provisions of any resolution  
or resolutions of the Board of Directors adopted pursuant to this Article IV    
creating (i) any series of Preferred Stock, (ii) any series of any other class  
or series of stock having a preference over the Common Stock as to dividends    
or upon liquidation or (iii) any series of Series Common Stock, outstanding     
shares of Common Stock, Series Common Stock, Preferred Stock or any other       
class or series of stock of the Corporation shall always be subject to          
redemption by the Corporation, by action of the Board of Directors, if in the   
judgment of the Board of Directors such action should be taken, pursuant to     
Section 151(b) of the General Corporation Law of the State of Delaware (or by   
any other applicable provision of law), to the extent necessary to prevent the  
loss or secure the reinstatement of any license or franchise from any           
governmental agency held by the Corporation or any Subsidiary to conduct any    
portion of the business of the Corporation or such Subsidiary, which license    
or franchise is conditioned upon some or all of the holders of the              
Corporation's stock of any class or series possessing prescribed                
qualifications. The terms and conditions of such redemption shall be as         
follows:                                                                        

(a) the redemption price of the shares to be redeemed pursuant to this      
Section 5 shall be equal to the Fair Market Value of such shares;               

(b) the redemption price of such shares may be paid in cash, Redemption     
Securities or any combination thereof;                                          

B1-2  

DEFM14A
309th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 309th
(c) if less than all the shares held by Disqualified Holders are to be      
redeemed, the shares to be redeemed shall be selected in such manner as shall   
be determined by the Board of Directors, which may include selection first of   
the most recently purchased shares thereof, selection by lot or selection in    
any other manner determined by the Board of Directors;                          

(d) at least 30 days' written notice of the Redemption Date shall be given  
to the record holders of the shares selected to be redeemed (unless waived in   
writing by such holder), provided that the Redemption Date may be the date on   
which written notice shall be given to record holders if the cash or            
Redemption Securities necessary to effect the redemption shall have been        
deposited in trust for the benefit of such record holders and subject to        
immediate withdrawal by them upon surrender of the stock certificates for       
their shares to be redeemed;                                                    

(e) from and after the Redemption Date, any and all rights of whatever      
nature, which may be held by the owners of shares selected for redemption       
(including without limitation any rights to vote or participate in dividends    
declared on stock of the same class or series as such shares), shall cease and  
terminate and they shall thenceforth be entitled only to receive the cash or    
Redemption Securities payable upon redemption; and                              

(f) such other terms and conditions as the Board shall determine.           

For purposes of this Section 5:                                                 

 (i) "Disqualified Holder" shall mean any holder of shares of stock of the
Corporation of any class or series whose holding of such stock may result   
in the loss of any license or franchise from any governmental agency held   
by the Corporation or any Subsidiary to conduct any portion of the business 
of the Corporation or any Subsidiary.                                       

(ii) "Fair Market Value" of a share of the Corporation's stock of any   
class or series shall mean the average (unweighted) Closing Price for such  
a share for each of the 45 most recent days on which shares of stock of     
such class or series shall have been traded preceding the day on which      
notice of redemption shall be given pursuant to paragraph (d) of this       
Section 5; provided, however, that if shares of stock of such class or      
series are not traded on any securities exchange or in the over-the-counter 
market, "Fair Market Value" shall be determined by the Board of Directors   
in good faith; and provided further, however, that "Fair Market Value" as   
to any stockholder who purchased his stock within 120 days of a Redemption  
Date need not (unless otherwise determined by the Board of Directors)       
exceed the purchase price paid by him. "Closing Price" on any day means the 
reported last sales price regular way or, in case no such sale takes place, 
the average of the reported closing bid and asked prices regular way on the 
New York Stock Exchange Composite Tape, or, if stock of the class or series 
in question is not quoted on such Composite Tape, on the New York Stock     
Exchange, or, if such stock is not listed on such exchange, on the          
principal United States registered securities exchange on which such stock  
is listed, or, if such stock is not listed on any such exchange, the        
highest closing sales price or bid quotation for such stock on the NASDAQ   
Stock Market or any system then in use, or if no such prices or quotations  
are available, the fair market value on the day in question as determined   
by the Board of Directors in good faith.                                    

(iii) "Redemption Date" shall mean the date fixed by the Board of       
Directors for the redemption of any shares of stock of the Corporation      
pursuant to this Section 5.                                                 

(iv) "Redemption Securities" shall mean any debt or equity securities of
the Corporation, any Subsidiary or any other corporation, or any            
combination thereof, having such terms and conditions as shall be approved  
by the Board of Directors and which, together with any cash to be paid as   
part of the redemption price, in the opinion of any nationally recognized   
investment banking firm selected by the Board of Directors (which may be a  
firm which provides other investment banking, brokerage or other services   
to the Corporation), has a value, at the time notice of redemption is given 
pursuant to paragraph (d) of this Section 5, at least equal to the Fair     
Market Value of the shares to be redeemed pursuant to this Section 5        
(assuming, in the case of Redemption Securities to be publicly traded, such 
Redemption Securities were fully distributed and subject only to normal     
trading activity).                                                          

B1-3  

DEFM14A
310th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 310th
(v) "Subsidiary" shall mean any corporation more than 50% of whose      
outstanding stock having ordinary voting power in the election of directors 
is owned by the Corporation, by a Subsidiary or by the Corporation and one  
or more Subsidiaries.                                                       

ARTICLE V 

Subject to Section 253 of the General Corporation Law of the State of       
Delaware, the vote of stockholders of the Corporation required to approve       
Business Combinations (as hereinafter defined) shall be as set forth in this    
Article V.                                                                      

Section 1. In addition to any affirmative vote required by law or by this   
Certificate of Incorporation or any resolution or resolutions of the Board of   
Directors adopted pursuant to Article IV of this Certificate of Incorporation,  
and except as otherwise expressly provided in Section 3 of this Article V:      

(a) any merger or consolidation of the Corporation with (i) any Interested  
Stockholder or (ii) any other corporation (whether or not itself an Interested  
Stockholder) which is, or after such merger or consolidation would be, an       
Affiliate or Associate of an Interested Stockholder; or                         

(b) any sale, lease, exchange, mortgage, pledge, transfer or other          
disposition (in one transaction or a series of transactions) to or with any     
Interested Stockholder or any Affiliate or Associate of any Interested          
Stockholder of (i) all or substantially all the assets of the Corporation or    
(ii) assets of the Corporation or any of its Subsidiaries representing in the   
aggregate more than 75% of the total value of the assets of the Corporation     
and its consolidated Subsidiaries as reflected on the most recent consolidated  
balance sheet of the Corporation and its consolidated Subsidiaries prepared in  
accordance with generally accepted accounting principles then in effect; or     

(c) (i) any sale, lease, exchange, mortgage, pledge, transfer or other      
disposition (in one transaction or a series of transactions) to or with any     
Interested Stockholder or any Affiliate or Associate of any Interested          
Stockholder of any assets of the Corporation or of any Subsidiary having an     
aggregate Fair Market Value of $100,000,000 or more, but less than the amount   
referred to in clause (ii) of paragraph (b) of this Section 1, or (ii) any      
merger or consolidation of any Subsidiary of the Corporation having assets      
with an aggregate Fair Market Value of $100,000,000 or more in a transaction    
not covered by paragraph (b) of this Section 1 with (x) any Interested          
Stockholder or (y) any other corporation (whether or not itself an Interested   
Stockholder) which is, or after such merger or consolidation would be, an       
Affiliate or Associate of an Interested Stockholder; or                         

(d) the issuance or transfer by the Corporation or any Subsidiary (in one   
transaction or a series of transactions) to any Interested Stockholder or any   
Affiliate or Associate of any Interested Stockholder of any securities of the   
Corporation or any Subsidiary in exchange for cash, securities or other         
property (or a combination thereof) having an aggregate Fair Market Value of    
$100,000,000 or more, other than the issuance of securities upon the            
conversion of convertible securities of the Corporation or any Subsidiary       
which were not acquired by such Interested Stockholder (or such Affiliate or    
Associate) from the Corporation or a Subsidiary; or                             

(e) the adoption of any plan or proposal for the liquidation or dissolution 
of the Corporation proposed by or on behalf of any Interested Stockholder or    
any Affiliate or Associate of any Interested Stockholder; or                    

(f) any reclassification of securities (including any reverse stock split)  
or recapitalization of the Corporation, or any merger or consolidation of the   
Corporation with any of its Subsidiaries, or any other transaction (whether or  
not with or into or otherwise involving any Interested Stockholder), which in   
any such case has the effect, directly or indirectly, of increasing the         
proportionate share of the outstanding shares of any class or series of stock   
or securities convertible into stock of the Corporation or any Subsidiary       
which is directly or indirectly beneficially owned by any Interested            
Stockholder or any Affiliate or Associate of any Interested Stockholder;        

shall not be consummated without (i) (x) the affirmative vote of the holders    
of at least 80% of the combined voting power of the shares of stock of all      
classes and series of the Corporation entitled to vote generally in the         

B1-4  

DEFM14A
311th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 311th
election of directors ("Voting Stock") outstanding at the time of approval and  
(y) the affirmative vote of a majority of the combined voting power of the      
shares of Voting Stock held by Disinterested Stockholders outstanding at the    
time of approval, in each case voting together as a single class, or (ii) the   
affirmative vote of the holders of all the shares of stock of all classes and   
series of the Corporation outstanding at the time of approval. Such             
affirmative vote shall be required notwithstanding the fact that no vote may    
be required, or that a lesser percentage may be specified, by law or by this    
Certificate of Incorporation or any resolution or resolutions of the Board of   
Directors adopted pursuant to Article IV of this Certificate of Incorporation   
or in any agreement with any national securities exchange or otherwise.         

Section 2. The term "Business Combination" as used in this Article V shall  
mean any transaction which is referred to in any one or more of paragraphs (a)  
through (f) of Section 1 of this Article V.                                     

Section 3. The provisions of Section 1 of this Article V shall not be       
applicable to any particular Business Combination, and such Business            
Combination shall require only such affirmative vote as is required by law and  
any other provision of this Certificate of Incorporation and any resolution or  
resolutions of the Board of Directors adopted pursuant to Article IV of this    
Certificate of Incorporation, if all the conditions specified in any of the     
following paragraphs (a), (b), (c) or (d) are met:                              

(a) (i) such Business Combination shall have been approved by a majority
of the Disinterested Directors and (ii) the Interested Stockholder involved 
in such Business Combination (x) acquired such status as an Interested      
Stockholder in a manner substantially consistent with an agreement or       
memorandum of understanding approved by the Board of Directors prior to the 
time such Interested Stockholder became an Interested Stockholder and (y)   
has complied with all requirements imposed by such agreement or memorandum  
of understanding; or                                                        

 (b) in the case of any Business Combination described in paragraph (a) or
(f) of Section 1 of this Article V, (i) such Business Combination shall     
have been approved by a majority of the Disinterested Directors, (ii) such  
Business Combination shall not have resulted, directly or indirectly, in an 
increase of more than 10% in the total amount of shares of any class or     
series of stock or securities convertible into stock of the Corporation or  
any Subsidiary which was directly or indirectly beneficially owned by an    
Interested Stockholder and all Affiliates and Associates of such Interested 
Stockholder at the time of the approval of such Business Combination by a   
majority of the Disinterested Directors, and (iii) such Business            
Combination shall not have been consummated within a period of two years    
after the consummation of any other Business Combination described in       
paragraph (a), (b), (c), (d), (e) or (f) of Section 1 of this Article V     
(whether or not such other Business Combination shall have been approved by 
a majority of the Disinterested Directors) which had the effect, directly   
or indirectly, of increasing the proportionate share of the outstanding     
shares of any class or series of stock or securities convertible into stock 
of the Corporation or any Subsidiary which was directly or indirectly       
beneficially owned by such Interested Stockholder or any Affiliate or       
Associate of such Interested Stockholder; or                                

 (c) in the case of any Business Combination described in paragraph (c) or
(d) of Section 1 of this Article V, such Business Combination shall have    
been approved by a majority of the Disinterested Directors; or              

(d) all of the six conditions specified in the following clauses (i)    
through (vi) shall have been met:                                           

(i) The transaction constituting the Business Combination shall provide 
for a consideration to be received by holders of Common Stock in exchange   
for all their shares of Common Stock, and the aggregate amount of the cash  
and the Fair Market Value as of the date of the consummation of the         
Business Combination of any consideration other than cash to be received    
per share by holders of Common Stock in such Business Combination shall be  
at least equal to the highest of the following:                             

(A) (if applicable) the highest per share price (including any      
brokerage commissions, transfer taxes and soliciting dealers' fee) paid 
in order to acquire any shares of Common Stock beneficially owned by    
the Interested Stockholder which were acquired (i) within the two-year  
period immediately                                                      

B1-5  

DEFM14A
312th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 312th
prior to the Announcement Date or (ii) in the transaction in which it   
became an Interested Stockholder, whichever is higher; and              

(B) the Fair Market Value per share of Common Stock on the          
Announcement Date or on the Determination Date, whichever is higher;    
and                                                                     

(ii) if the transaction constituting the Business Combination shall     
provide for a consideration to be received by holders of any class or       
series of outstanding Voting Stock other than Common Stock, the aggregate   
amount of the cash and the Fair Market Value as of the date of the          
consummation of the Business Combination of any consideration other than    
cash to be received per share by holders of shares of such Voting Stock     
shall be at least equal to the highest of the following (it being intended  
that the requirements of this clause (d) (ii) shall be required to be met   
with respect to every class and series of such outstanding Voting Stock,    
whether or not the Interested Stockholder beneficially owns any shares of a 
particular class or series of Voting Stock):                                

(A) (if applicable) the highest per share price (including any      
brokerage commissions, transfer taxes and soliciting dealers' fees)     
paid in order to acquire any shares of such class or series of Voting   
Stock beneficially owned by the Interested Stockholder which were       
acquired (i) within the two-year period immediately prior to the        
Announcement Date or (ii) in the transaction in which it became an      
Interested Stockholder, whichever is higher;                            

(B) (if applicable) the highest preferential amount per share to    
which the holders of shares of such class or series of Voting Stock are 
entitled in the event of any voluntary or involuntary liquidation,      
dissolution or winding up of the Corporation; and                       

 (C) the Fair Market Value per share of such class or series of Voting
Stock on the Announcement Date or on the Determination Date, whichever  
is higher; and                                                          

(iii) the consideration to be received by holders of a particular class 
or series of outstanding Voting Stock (including Common Stock) shall be in  
cash or in the same form as was previously paid in order to acquire shares  
of such class or series of Voting Stock which are beneficially owned by the 
Interested Stockholder and, if the Interested Stockholder beneficially owns 
shares of any class or series of Voting Stock which were acquired with      
varying forms of consideration, the form of consideration to be received by 
holders of such class or series of Voting Stock shall be either cash or the 
form used to acquire the largest number of shares of such class or series   
of Voting Stock beneficially owned by it; and                               

(iv) after such Interested Stockholder has become an Interested         
Stockholder and prior to the consummation of such Business Combination:     

(A) except as approved by a majority of the Disinterested Directors,
there shall have been no failure to declare and pay at the regular      
dates therefor the full amount of any dividends (whether or not         
cumulative) payable on the Preferred Stock or any class or series of    
stock having a preference over the Common Stock as to dividends or upon 
liquidation;                                                            

(B) there shall have been (x) no reduction in the annual rate of    
dividends paid on the Common Stock (except as necessary to reflect any  
subdivision of the Common Stock), except as approved by a majority of   
the Disinterested Directors, and (y) an increase in such annual rate of 
dividends (as necessary to prevent any such reduction) in the event of  
any reclassification (including any reverse stock split),               
recapitalization, reorganization or any similar transaction which has   
the effect of reducing the number of outstanding shares of the Common   
Stock, unless the failure so to increase such annual rate is approved   
by a majority of the Disinterested Directors; and                       

(C) such Interested Stockholder shall not have become the beneficial
owner of any additional shares of Voting Stock except as part of the    
transaction in which it became an Interested Stockholder; and           

(v) after such Interested Stockholder has become an Interested          
Stockholder, such Interested Stockholder shall not have received the        
benefit, directly or indirectly (except proportionately as a                

B1-6  

DEFM14A
313th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 313th
stockholder), of any loans, advances, guarantees, pledges or other          
financial assistance provided by the Corporation, whether in anticipation   
of or in connection with such Business Combination or otherwise; and        

(vi) a proxy or information statement describing the proposed Business  
Combination and complying with the requirements of the Securities Exchange  
Act of 1934 and the rules and regulations thereunder (or any subsequent     
provisions replacing such Act, rules or regulations) shall be mailed to     
public stockholders of the Corporation at least 30 days prior to the        
consummation of such Business Combination (whether or not such proxy or     
information statement is required to be mailed pursuant to such Act or      
subsequent provisions).                                                     

Section 4. For the purposes of this Article V:                              

(a) A "person" shall mean any individual, firm, corporation, partnership,   
trust or other entity.                                                          

(b) "Interested Stockholder" shall mean any person (other than the          
Corporation or any Subsidiary) who or which:                                    

(1) is the beneficial owner, directly or indirectly, of 20% or more of  
the combined voting power of the then outstanding shares of Voting Stock;   
or                                                                          

(2) is an Affiliate of the Corporation and at any time within the two-  
year period immediately prior to the date in question was the beneficial    
owner, directly or indirectly, of 20% or more of the combined voting power  
of the then outstanding shares of Voting Stock; or                          

(3) is an assignee of or has otherwise succeeded to the beneficial      
ownership of any shares of Voting Stock which were at any time within the   
two-year period immediately prior to the date in question beneficially      
owned by any Interested Stockholder, if such assignment or succession shall 
have occurred in the course of a transaction or series of transactions not  
involving a public offering within the meaning of the Securities Act of     
1933.                                                                       

(c) "Disinterested Stockholder" shall mean a stockholder of the Corporation 
who is not an Interested Stockholder or an Affiliate or an Associate of an      
Interested Stockholder.                                                         

(d) A person shall be a "beneficial owner" of any Voting Stock:             

 (1) which such person or any of its Affiliates or Associates beneficially
owns, directly or indirectly; or                                            

(2) which such person or any of its Affiliates or Associates has (a) the
right to acquire (whether such right is exercisable immediately or only     
after the passage of time), pursuant to any agreement, arrangement or       
understanding or upon the exercise of conversion rights, exchange rights,   
warrants or options, or otherwise (excluding pursuant to any rights         
associated generally with the Common Stock), or (b) the right to vote or to 
direct the vote pursuant to any agreement, arrangement or understanding; or 

(3) which are beneficially owned, directly or indirectly, by any other  
person with which such person or any of its Affiliates or Associates has    
any agreement, arrangement or understanding for the purpose of acquiring,   
holding, voting or disposing of any shares of Voting Stock.                 

(e) For the purposes of determining whether a person is an Interested       
Stockholder pursuant to paragraph (b) of this Section 4, the number of shares   
of Voting Stock deemed to be outstanding shall include shares deemed owned by   
such person through application of paragraph (d) of this Section 4 but shall    
not include any other shares of Voting Stock which may be issuable to other     
persons pursuant to any agreement, arrangement or understanding, or upon        
exercise of conversion rights, exchange rights, warrants or options, or         
otherwise.                                                                      

(f) "Affiliate" and "Associate" shall have the respective meanings ascribed 
to such terms in Rule 12b-2 of the General Rules and Regulations under the      
Securities Exchange Act of 1934, as in effect on January 1, 1983.               

(g) "Subsidiary" shall have the meaning set forth in Section 5 of Article IV
of this Certificate of Incorporation; provided, however, that for the purposes  
of the definition of Interested Stockholder set forth in                        

B1-7  

DEFM14A
314th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 314th
paragraph (b) of this Section 4, the term "Subsidiary" shall mean only a        
corporation of which a majority of each class of equity security is owned by    
the Corporation, by a Subsidiary or by the Corporation and one or more          
Subsidiaries.                                                                   

(h) "Disinterested Director" means any member of the Board of Directors of  
the Corporation who is unaffiliated with, and not a nominee of, the Interested  
Stockholder and was a member of the Board of Directors prior to the time that   
the Interested Stockholder became an Interested Stockholder, and any successor  
of a Disinterested Director who is unaffiliated with, and not a nominee of,     
the Interested Stockholder and who is recommended to succeed a Disinterested    
Director by a majority of Disinterested Directors then on the Board of          
Directors.                                                                      

(i) "Fair Market Value" means: (1) in the case of stock, the highest closing
sale price during the 30-day period immediately preceding the date in question  
of a share of such stock on the New York Stock Exchange Composite Tape, or, if  
such stock is not quoted on the Composite Tape, on the New York Stock           
Exchange, or, if such stock is not listed on such Exchange, on the principal    
United States securities exchange registered under the Securities Exchange Act  
of 1934 on which such stock is listed, or, if such stock is not listed on any   
such exchange, the highest closing sales price or bid quotation with respect    
to a share of such stock during the 30-day period preceding the date in         
question on the NASDAQ Stock Market or any system then in use, or, if no such   
quotations are available, the fair market value on the date in question of a    
share of such stock as determined by a majority of the Disinterested Directors  
in good faith; and (2) in the case of stock of any class or series which is     
not traded on any securities exchange or in the over-the-counter market or in   
the case of property other than cash or stock, the fair market value of such    
stock or property, as the case may be, on the date in question as determined    
by a majority of the Disinterested Directors in good faith.                     

(j) "Announcement Date" means the date of first public announcement of the  
proposed Business Combination.                                                  

(k) "Determination Date" means the date on which the Interested Stockholder 
became an Interested Stockholder.                                               

Section 5. A majority of the Disinterested Directors of the Corporation     
shall have the power and duty to determine, on the basis of information known   
to them after reasonable inquiry, all facts necessary to determine compliance   
with this Article V, including, without limitation, (a) whether a person is an  
Interested Stockholder, (b) the number of shares of Voting Stock beneficially   
owned by any person, (c) whether a person is an Affiliate or Associate of       
another person, (d) whether the requirements of Section 3 of this Article V     
have been met with respect to any Business Combination and (e) whether the      
assets which are the subject of any Business Combination have, or the           
consideration to be received for the issuance or transfer of securities by the  
Corporation or any Subsidiary in any Business Combination has, (i) an           
aggregate Fair Market Value of $100,000,000 or more or (ii) represent in the    
aggregate more than 75% of the total value of the assets of the Corporation     
and its consolidated Subsidiaries prepared in accordance with generally         
accepted accounting principles then in effect; and the good faith               
determination of a majority of the Disinterested Directors on such matters      
shall be conclusive and binding for all purposes of this Article V.             

Section 6. Nothing contained in this Article V shall be construed to relieve
an Interested Stockholder from any fiduciary obligation imposed by law.         

ARTICLE VI  

Section 1. Except as otherwise fixed by or pursuant to the provisions of    
Article IV of this Certificate of Incorporation relating to the rights of the   
holders of any series of Preferred Stock or Series Common Stock or any class    
or series of stock having a preference over the Common Stock as to dividends    
or upon liquidation, the                                                        

B1-8  

DEFM14A
315th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 315th
number of the directors of the Corporation shall be fixed from time to time by  
or pursuant to the By-laws of the Corporation. The directors, other than those  
who may be elected by the holders of any series of Preferred Stock or Series    
Common Stock or any class or series of stock having a preference over the       
Common Stock as to dividends or upon liquidation pursuant to the terms of this  
Certificate of Incorporation or any resolution or resolutions providing for     
the issue of such class or series of stock adopted by the Board of Directors,   
shall be classified, with respect to the time for which they severally hold     
office, into three classes, as nearly equal in number as possible, one class    
to be originally elected for a term expiring at the annual meeting of           
stockholders to be held in 1997, another class to be originally elected for a   
term expiring at the annual meeting of stockholders to be held in 1998, and     
another class to be originally elected for a term expiring at the annual        
meeting of stockholders to be held in 1999, with each class to hold office      
until its successors are elected and qualified. At each annual meeting of the   
stockholders of the Corporation, the date of which shall be fixed by or         
pursuant to the By-laws of the Corporation, the successors of the class of      
directors whose term expires at that meeting shall be elected to hold office    
for a term expiring at the third succeeding annual meeting of stockholders.     
The election of directors need not be by written ballot. No decrease in the     
number of directors constituting the Board of Directors shall shorten the term  
of any incumbent director.                                                      

Section 2. Advance notice of nominations for the election of directors shall
be given in the manner and to the extent provided in the By-laws of the         
Corporation.                                                                    

Section 3.  Except as otherwise provided for or fixed by or pursuant to the 
provisions of Article IV of this Certificate of Incorporation relating to the   
rights of the holders of any series of Preferred Stock or Series Common Stock   
or any class or series of stock having a preference over the Common Stock as    
to dividends or upon liquidation, newly created directorships resulting from    
any increase in the number of directors may be filled by the Board of           
Directors, or as otherwise provided in the By-laws, and any vacancies on the    
Board of Directors resulting from death, resignation, removal or other cause    
shall only be filled by the affirmative vote of a majority of the remaining     
directors then in office, even though less than a quorum of the Board of        
Directors, or by a sole remaining director, or as otherwise provided in the     
By-laws. Any director elected in accordance with the preceding sentence of      
this Section 3 shall hold office for the remainder of the full term of the      
class of directors in which the new directorship was created or the vacancy     
occurred and until such director's successor shall have been elected and        
qualified.                                                                      

Section 4. Subject to the rights of the holders of any series of Preferred  
Stock or Series Common Stock or any class or series of stock having a           
preference over the Common Stock as to dividends or upon liquidation, any       
director may be removed from office only for cause and only by the affirmative  
vote of the holders of a majority of the combined voting power of the then      
outstanding shares of Voting Stock, voting together as a single class. For      
purposes of this Section 4, "cause" shall mean the wilful and continuous        
failure of a director to substantially perform such director's duties to the    
Corporation (other than any such failure resulting from incapacity due to       
physical or mental illness) or the wilful engaging by a director in gross       
misconduct materially and demonstrably injurious to the Corporation.            

ARTICLE VII 

Subject to the rights of the holders of any series of Preferred Stock or    
Series Common Stock or any class or series of stock having a preference over    
the Common Stock as to dividends or upon liquidation, any action required or    
permitted to be taken by the stockholders of the Corporation must be effected   
at a duly called annual or special meeting of stockholders of the Corporation   
and may not be effected by any consent in writing by such stockholders. Except  
as otherwise required by law and subject to the rights of the holders of any    
series of Preferred Stock or Series Common Stock or any class or series of      
stock having a preference over the Common Stock as to dividends or upon         
liquidation, special meetings of stockholders of the Corporation may be called  
only by the Board of Directors pursuant to a resolution approved by a majority  
of the entire Board of Directors or as otherwise provided in the By-laws of     
the Corporation.                                                                

B1-9  

DEFM14A
316th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 316th
ARTICLE VIII  

In furtherance and not in limitation of the powers conferred upon it by law,
the Board of Directors is expressly authorized to adopt, repeal, alter or       
amend the By-laws of the Corporation by the vote of a majority of the entire    
Board of Directors. In addition to any requirements of law and any other        
provision of this Certificate of Incorporation or any resolution or             
resolutions of the Board of Directors adopted pursuant to Article IV of this    
Certificate of Incorporation (and notwithstanding the fact that a lesser        
percentage may be specified by law, this Certificate of Incorporation or any    
such resolution or resolutions), the affirmative vote of the holders of 80% or  
more of the combined voting power of the then outstanding shares of Voting      
Stock, voting together as a single class, shall be required for stockholders    
to adopt, amend, alter or repeal any provision of the By-laws.                  

ARTICLE IX  

In addition to any requirements of law and any other provisions of this     
Certificate of Incorporation or any resolution or resolutions of the Board of   
Directors adopted pursuant to Article IV of this Certificate of Incorporation   
(and notwithstanding the fact that a lesser percentage may be specified by      
law, this Certificate of Incorporation or any such resolution or resolutions),  
the affirmative vote of the holders of 80% or more of the combined voting       
power of the then outstanding shares of Voting Stock, voting together as a      
single class, shall be required to amend, alter or repeal, or adopt any         
provision inconsistent with, this Article IX or Articles V, VI, VII or VIII,    
or Section 5 of Article IV, of this Certificate of Incorporation; provided,     
however, that the affirmative vote of a majority of the combined voting power   
of the then outstanding shares of Voting Stock held by the Disinterested        
Stockholders (as defined in Section 4 of Article V of this Certificate of       
Incorporation), voting together as a single class, shall also be required to    
amend, alter or repeal, or adopt any provision inconsistent with, Article V of  
this Certificate of Incorporation or the requirements of this proviso. Subject  
to the foregoing provisions of this Article IX, the Corporation reserves the    
right to amend, alter or repeal any provision contained in this Certificate of  
Incorporation, in the manner now or hereafter prescribed by statute, and all    
rights conferred upon stockholders herein are subject to this reservation.      

ARTICLE X 

Section 1. To the fullest extent that the General Corporation Law of the    
State of Delaware or any other law of the State of Delaware as it exists or as  
it may hereafter be amended permits the limitation or elimination of the        
liability of directors, no director of the Corporation shall be liable to the   
Corporation or its stockholders for monetary damages for breach of fiduciary    
duty as a director. No amendment to or repeal of this Article X shall apply to  
or have any effect on the liability or alleged liability of any director of     
the Corporation for or with respect to any acts or omissions of such director   
occurring prior to such amendment or repeal.                                    

Section 2. In addition to any requirements of law and any other provisions  
of this Certificate of Incorporation or any resolution or resolutions of the    
Board of Directors adopted pursuant to Article IV of this Certificate of        
Incorporation (and notwithstanding the fact that a lesser percentage may be     
specified by law, this Certificate of Incorporation or any such resolution or   
resolutions), the affirmative vote of the holders of 80% or more of the         
combined voting power of the then outstanding shares of Voting Stock, voting    
together as a single class, shall be required to amend, alter or repeal, or     
adopt any provision inconsistent with, this Article X.                          

B1-10 

DEFM14A
317th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 317th
In Witness Whereof, I, Gerald M. Levin, Chairman of the Board of Directors, 
President and Chief Executive Officer of TW Inc., have executed this Restated   
Certificate of Incorporation as of the  th day of     , 1996, and Do Hereby     
Certify under the penalties of perjury that the facts stated in this Restated   
Certificate of Incorporation are true.                                          

                                         _____________________________________
                                         Gerald M. Levin
                                         Chairman of the Board of Directors,
                                         President and Chief Executive
                                         Officer

Attest                                                                          

_____________________________________                                           
Secretary                                           

B1-11 

DEFM14A
318th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 318th
                                                                    APPENDIX C-1
MORGAN STANLEY                                                                  

                                              MORGAN STANLEY & CO.
                                      INCORPORATED
                                       1585 BROADWAY
                                                  NEW YORK, NEW YORK 10036
                                        (212) 761-4000

                                        August 8, 1996

Board of Directors                                                              
Time Warner Inc.                                                                
75 Rockefeller Plaza                                                            
New York, New York 10019                                                        

Dear Sirs and Mesdames:                                                         

We understand that Time Warner Inc. ("Time Warner"), TW Inc., a wholly owned    
subsidiary of Time Warner ("New Time Warner"), Time Warner Acquisition Corp.,   
a wholly owned subsidiary of New Time Warner ("Delaware Subsidiary"), TW Acqui- 
sition Corp., a wholly owned subsidiary of New Time Warner ("Georgia Subsidi-   
ary"), and Turner Broadcasting System, Inc. ("Turner") propose to enter into an 
Amendment No.1, dated as of August 8, 1996 ("Amendment No. 1"), to the Amended  
and Restated Agreement and Plan of Merger, dated as of September 22, 1995 (the  
"Amended and Restated Merger Agreement" and, as amended by Amendment No. 1, the 
"Merger Agreement"), pursuant to which (i) Delaware Subsidiary will be merged   
into Time Warner (the "TW Merger"), with Time Warner as the surviving           
corporation in the TW Merger, and (ii) Georgia Subsidiary will be merged into   
Turner (the "Turner Merger", and together with the TW Merger, the "Mergers"),   
with Turner as the surviving corporation in the Turner Merger. As a result of   
the Mergers, Time Warner and Turner will each become wholly owned subsidiaries  
of New Time Warner.                                                             

The Merger Agreement provides, among other things, that at the effective time   
of the Mergers, (i) each issued and outstanding share of common stock, par value
$.01 per share, of Time Warner ("Time Warner Common Stock") will be converted   
into one share of common stock, par value $1.00 per share, of New Time Warner   
("New Time Warner Common Stock"); (ii) each issued and outstanding share of the 
several series of preferred stock of Time Warner (the "Time Warner Preferred    
Stock"), other than shares of Time Warner Preferred Stock with respect to which 
appraisal rights are properly exercised, will be converted into one share of a  
substantially identical series of preferred stock of New Time Warner; (iii) each
issued and outstanding share of Class A Common Stock, par value $0.0625 per     
share, and Class B Common Stock, par value $0.0625 per share, of Turner         
(collectively, the "Company Common Stock") (other than each such share owned by 
Turner, Time Warner and their subsidiaries and shares with respect to which     
appraisal rights are properly exercised) shall be converted into 0.75 of a share
of New Time Warner Common Stock; and (iv) each issued and outstanding share of  
Class C Convertible Preferred Stock, par value $0.125 per share ("Class C       
Preferred Stock"), of Turner (other than each such share                        

DEFM14A
319th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 319th
                                              MORGAN STANLEY

Time Warner, Inc.                                                               
August 8, 1996                                                                  
Page 2                                                                          

owned by Turner, Time Warner and their subsidiaries and shares with respect to  
which appraisal rights are properly exercised) shall be converted into 4.8      
shares of New Time Warner Common Stock (the ratios of conversion of the Company 
Common Stock and the Series C Preferred Stock into New Time Warner Common Stock 
are referred to together as the "Exchange Ratio").  The terms and conditions of 
the Mergers are more fully set forth in the Merger Agreement.                   

We also understand Time Warner and New Time Warner propose to enter into a      
Second Amended and Restated LMC Agreement with Liberty Media Corporation ("LMC")
and certain subsidiaries of LMC, dated as of September 22, 1995 (as so amended  
and restated, the "LMC Agreement"), pursuant to which, at the effective time of 
the Mergers, New Time Warner and LMC will enter into an agreement in the form of
Exhibit D to the LMC Agreement (the "SSSI Agreement") providing for (i) the     
grant to New Time Warner of an option (the "Option") to cause the effectiveness 
of the Distribution Contract between New Time Warner and Southern Satellite     
Systems, Inc. ("SSSI"), in the form of Exhibit 1 to the SSSI Agreement (the     
"Distribution Contract") and (ii) certain non-competition agreements of LMC on  
behalf of itself and its affiliates (the "Non-Competition Arrangements"). The   
SSSI Agreement provides, among other things, that (A) as consideration for the  
granting of the Option, New Time Warner shall issue and deliver to SSSI         
4,166,667 fully paid and nonassessable shares of the Series LMCN-V Common Stock 
of New Time Warner with terms as provided in Exhibit A to the LMC Agreement (the
"LMCN-V Common Stock") and (B) as consideration for the entering into of the    
Non-Competition Arrangements, New Time Warner shall issue and deliver to LMC (or
its designee) (x) 833,333 fully paid and nonassessable shares of LMCN-V Common  
Stock and (y) $66,666,700 payable, at the option of New Time Warner, in cash or 
a number of fully paid and nonassessable shares of LMCN-V Common Stock          
determined pursuant to a formula set forth in the SSSI Agreement (collectively, 
the "SSSI Agreement Consideration").                                            

In connection with the Merger Agreement, you have asked for an opinion          
concerning the fairness from a financial point of view to New Time Warner and   
its subsidiary, Time Warner, of the Exchange Ratio and the SSSI Agreement       
Consideration, taken together.                                                  

In connection with our opinion set forth herein, we have, among other things:   

(i)  reviewed the publicly available consolidated financial statements of Time  
    Warner for certain recent fiscal years and interim periods for the current
 fiscal year, and certain other relevant financial and operating data of
    Time Warner from certain published sources, as well as certain information
 made available to us by Time Warner, including information derived from
 discussions with Time Warner senior management; conducted due diligence
     discussions with Time Warner senior management to update and supplement our
knowledge of Time Warner; and reviewed agreements identified          

DEFM14A
320th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 320th
                                                    MORGAN STANLEY

Time Warner Inc.                                                                
August 8, 1996                                                                  
Page 3                                                                          

     to us as being entered into contemporaneously with the Merger Agreement
    and discussed with Time Warner senior management their views regarding
future business, financial and operating benefits arising from the
   Mergers and such agreements including such benefits from the possible
exercise of the Option;                                           

(ii)   reviewed the publicly available consolidated financial statements of     
Turner for certain recent fiscal years and interim periods for the
     current fiscal year, and certain other relevant financial and operating
       data of Turner from certain published sources, as well as certain limited
       information made available to us by Turner, including information derived
from discussions with Turner senior management; and conducted due 
diligence discussions with senior management of Turner;           

(iii)  analyzed the estimated pro forma financial impact of the Mergers,        
   including the impact on Time Warner's consolidated capitalization and
financial ratios;                                                 

(iv)   reviewed the respective historical market prices and trading values of   
Time Warner Common Stock and Company Common Stock;                

(v)    analyzed published information regarding certain relevant companies and  
      their equity securities and compared the financial performance of Turner
    and the prices and trading activity of Company Common Stock with those
other companies and their equity securities;                      

(vi)   reviewed the financial terms, to the extent publicly available, of       
certain comparable acquisition transactions;                      

(vii)  reviewed certain financial projections prepared by the management of Time
Warner and certain limited financial information prepared by the  
management of Turner;                                             

(viii) participated in certain discussions among representatives of Turner and  
Time Warner and their financial and legal advisors;               

(ix)   reviewed the executed Amended and Restated Merger Agreement and drafts of
       each of Amendment No. 1 and the SSSI Agreement in the forms identified by
Time Warner as those to be entered into by the parties; and       

(x)    performed such other analyses and examinations as we have deemed         
appropriate.                                                      

In connection with our review, we have not assumed any responsibility for       
independent verification of any of the foregoing information and have relied on 
its being complete and accurate in all material respects.  With respect to the  
financial projections supplied to us by                                         

DEFM14A
321st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 321st
                                          MORGAN STANLEY

Time Warner Inc.                                                                
August 8, 1996                                                                  
Page 4                                                                          

Time Warner, we have assumed that they have been reasonably prepared on bases   
reflecting the best currently available estimates and good faith judgments of   
Time Warner senior management of the future competitive, operating and          
regulatory environments and related financial performance of Time Warner.  We   
were advised by senior management of Turner that they do not normally prepare   
detailed financial projections or detailed long-range financial forecasts, and  
no such detailed financial projections or detailed long-range financial         
forecasts of Turner were furnished to us.  However, we were provided with       
limited financial forecasts and financial targets prepared by Turner management 
and were orally provided with the views of Turner management as to expected     
results of operations of Turner over certain limited periods, all of which we   
also assumed were reasonably prepared on bases reflecting the best currently    
available estimates and good faith judgments of Turner senior management of the 
future competitive, operating and regulatory environments and related financial 
performance of Turner.  Furthermore, we have not assumed responsibility for     
conducting a physical inspection of the properties or facilities of Time Warner 
or Turner or for making or obtaining any independent valuation or appraisal of  
the assets or liabilities of Time Warner or Turner, nor have we been furnished  
with any such valuations or appraisals.  We note that the Mergers are intended  
to qualify as reorganizations within the meaning of section 368(a) of the       
Internal Revenue Code of 1986, as amended (the "Code") and/or as exchanges under
section 351 of the Code.  We have assumed with your consent that (i) the Mergers
will so qualify, (ii) the transactions described in the Merger Agreement will be
consummated on the terms set forth therein, (iii) the executed versions of      
Amendment No. 1 and the SSSI Agreement will not differ in any material respect  
from the last drafts we have reviewed and (iv) if the Option is exercised, the  
exercise thereof will be consummated on the terms set forth therein.  We express
no opinion with respect to the effect, if any, upon New Time Warner, Time       
Warner or Turner of the potential exercise of appraisal rights by holders of    
Time Warner Preferred Stock under Section 262 of the General Corporation Law of 
the State of Delaware or by holders of Company Common Stock or Class C Preferred
Stock under Article 13 of the Georgia Business Corporation Code, as provided in 
the Merger Agreement. Our opinion is necessarily based on economic, market and  
other conditions and circumstances as they exist and can be evaluated on, and   
the information made available to us as of, the date hereof.                    

We have acted as financial advisor to the Board of Directors of Time Warner in  
connection with the transaction described in this letter and we will receive a  
fee for our services.  Morgan Stanley & Co. Incorporated and its affiliates in  
the past have provided financial advisory and financing services to Time Warner 
and have received fees for rendering these services.                            

It is understood that this letter is for the information of the Board of        
Directors of Time Warner and, except for inclusion of this letter in its        
entirety in a proxy statement-prospectus of Time Warner relating to the issuance
of New Time Warner Common Stock in the                                          

DEFM14A
322nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 322nd
                                                                  MORGAN STANLEY

Time Warner Inc.                                                                
August 8, 1996                                                                  
Page 5                                                                          

Mergers, may not be used or quoted for any other purpose without our prior      
written consent. In addition, we express no opinion or recommendation to any    
shareholder as to how such shareholder should vote at the shareholders' meetings
to be held in connection with the Mergers.                                      

Based upon and subject to the foregoing, we are of the opinion that, as of the  
date hereof, the Exchange Ratio and the SSSI Agreement Consideration, taken     
together, are fair from a financial point of view to New Time Warner and its    
subsidiary, Time Warner.                                                        

       Very truly yours,

                       MORGAN STANLEY & CO. INCORPORATED

DEFM14A
323rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 323rd
                                                                    APPENDIX C-2

[LETTERHEAD OF CS FIRST BOSTON CORPORATION APPEARS HERE]  

August 8, 1996                                                                  

Board of Directors                                                              
Turner Broadcasting System, Inc.                                                
One CNN Center                                                                  
Box 105366                                                                      
Atlanta, Georgia 30348-5366                                                     

Members of the Board:                                                           

You have asked us to advise you with respect to the fairness to the shareholders
of Turner Broadcasting System, Inc. ("TBS"), other than Time Warner Inc. and its
affiliates ("Time Warner"), from a financial point of view of the consideration 
to be received by such shareholders pursuant to the terms of the Amended and    
Restated Agreement and Plan of Merger dated as of September 22, 1995, as amended
by Amendment No. 1 dated as of August 8, 1996 (the "Merger Agreement"), among   
TBS, Time Warner, TW Inc., a wholly owned subsidiary of Time Warner ("New Time  
Warner"), Time Warner Acquisition Corp., a wholly owned subsidiary of New Time  
Warner ("TW Merger Corp."), and TW Acquisition Corp., a wholly owned subsidiary 
of New Time Warner ("TBS Merger Corp."). The Merger Agreement provides for,     
among other things, the merger of TBS Merger Corp. into TBS (the "TBS Merger")  
and the merger of TW Merger Corp. into Time Warner (the "Time Warner Merger"    
and, together with the TBS Merger, the "Mergers"). As a result of the Mergers,  
TBS and Time Warner will each become a wholly owned subsidiary of New Time      
Warner. As a result of the TBS Merger, (i) each outstanding share of Class A    
Common Stock, par value $0.0625 per share, and Class B Common Stock, par value  
$0.0625 per share, of TBS will be converted into the right to receive 0.75 of a 
share of the common stock, par value $.01 per share, of New Time Warner (the    
"New Time Warner Common Stock") and (ii) each outstanding share of Class C      
Convertible Preferred Stock, par value $0.125 per share, of TBS (which is       
currently convertible into six shares of Class B Common Stock at the option of  
the holder) will be converted into the right to receive 4.80 shares of New Time 
Warner Common Stock. As a result of the Time Warner Merger, (a) each outstanding
share of Common Stock, par value $1.00 per share, of Time Warner will be        
converted into one share of New Warner Common Stock and (b) each outstanding    
share of each series of Preferred Stock, par value $1.00 per share, of Time     
Warner will be converted into one share of a substantially identical series of  
preferred stock of New Time Warner.                                             

In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to TBS and Time Warner. We also have reviewed
certain other information, including financial forecasts, provided to us by TBS 
and Time Warner, and have met with the respective managements of TBS and Time   
Warner for due diligence discussions concerning the businesses and prospects of 
TBS and Time Warner. In arriving at our opinion, we also have reviewed the      
Merger Agreement as originally executed on September 22, 1995 and amended on    
November 21, 1995 and drafts of Amendment No. 1 to the Merger Agreement and     
certain related documents, including certain agreements involving               
Tele-Communications, Inc. and certain of its affiliates. We have assumed for    
purposes of our opinion that the final terms of documents reviewed by us in     
draft form will not vary materially from the drafts reviewed by us and that the 
terms of any additional                                                         

DEFM14A
324th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 324th
Board of Directors                                                              
Turner Broadcasting System, Inc.                                                
August 8, 1996                                                                  
Page 2                                                                          

documents that may be agreed to other than those reviewed by us will not        
materially affect our analyses.                                                 

We have also considered certain financial and stock market data of TBS and Time 
Warner, and we have compared that data with similar data for other publicly held
companies in businesses similar to those of TBS and Time Warner, and we have    
considered, to the extent publicly available, the financial terms of certain    
other business combinations and other transactions which have recently been     
effected. We also considered such other information, financial studies, analyses
and investigations and financial, economic, regulatory and market criteria which
we deemed relevant.                                                             

In connection with our review, we have not assumed any responsibility for       
independent verification of any of the foregoing information and have relied on 
its being complete and accurate in all material respects. With respect to the   
financial forecasts, we have assumed that such forecasts have been reasonably   
prepared on bases reflecting the best currently available estimates and         
judgments of the respective managements of TBS and Time Warner as to the future 
financial performance of TBS and Time Warner. In addition, we have not made an  
independent evaluation or appraisal of the assets or liabilities (contingent or 
otherwise) of TBS or Time Warner, nor have we been furnished with such          
evaluations or appraisals. Our opinion is necessarily based upon information    
available to us and financial, economic, market, regulatory and other conditions
as they exist and can be evaluated on the date hereof. We are not expressing any
opinion as to what the value of New Time Warner Common Stock actually will be   
when issued pursuant to the Mergers or the prices at which such New Time Warner 
Common Stock will trade subsequent to the consummation of the Mergers. We were  
not requested to, and did not, solicit third party indications of interest in   
acquiring all or any part of TBS.                                               

We have acted as financial advisor to TBS in connection with the TBS Merger and 
will receive a fee for our services in connection with the delivery of this     
opinion. In the ordinary course of our business, CS First Boston and its        
affiliates may actively trade the debt and equity securities of both TBS and    
Time Warner for their own account and for the accounts of customers and,        
accordingly, may at any time hold a long or short position in such securities.  
CS First Boston has previously provided investment banking and financial        
advisory services to TBS, Time Warner and certain shareholders of TBS and Time  
Warner in connection with a number of transactions, including debt and equity   
financings and merger and acquisition activities.                               

It is understood that this letter is for the information of the Board of        
Directors of TBS in connection with its evaluation of the TBS Merger, does not  
constitute a recommendation to any shareholder as to how such shareholder should
vote on the proposed Mergers, and is not to be quoted or referred to, in whole  
or in part, in any registration statement, prospectus or proxy statement, or in 
any other document used in connection with the offering or sale of securities,  
nor shall this letter be used for any other purposes, without CS First Boston's 
prior written consent.                                                          

DEFM14A
325th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 325th
Board of Directors                                                              
Turner Broadcasting System, Inc.                                                
August 8, 1996                                                                  
Page 3                                                                          

Based upon and subject to the foregoing, it is our opinion that, as of the date 
hereof, the consideration to be received by the shareholders of TBS in the TBS  
Merger is fair to such shareholders (other than Time Warner and its affiliates) 
from a financial point of view.                                                 

Very truly yours,                                                               

CS FIRST BOSTON CORPORATION                                                     

DEFM14A
326th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 326th
                                            APPENDIX C-3

[LETTERHEAD OF MERRILL LYNCH APPEARS HERE]  

                                              August 8, 1996

Board of Directors of                                                           
Turner Broadcasting System, Inc.                                                
One CNN Center                                                                  
Atlanta, GA  30303                                                              

Gentlemen and Madame:                                                           

  Turner Broadcasting System, Inc. (the "Company"), Time Warner Inc.
("Acquiror" or "Time Warner"), TW Inc., a wholly owned subsidiary of Time Warner
("New Time Warner"), TW Acquisition Corp., a wholly owned subsidiary of New Time
Warner, and Time Warner Acquisition Corp., a wholly owned subsidiary of New     
Time Warner, have entered into an Amended and Restated Agreement and Plan of    
Merger, dated as of September 22, 1995, as amended by Amendment No. 1 dated as  
of August 8, 1996 (as so amended, the "Merger Agreement") providing for (i) the 
merger of TW Acquisition Corp. into the Company and (ii) the merger of Time     
Warner Acquisition Corp. into Time Warner (the mergers collectively referred to 
as the "Merger"), with the result that the Company and Time Warner will each    
become a wholly owned subsidiary of New Time Warner.  In connection with the    
Merger (i) each share of Class A Common Stock and each share of Class B Common  
Stock of the Company will be converted into .75 shares of Common Stock of New   
Time Warner and (ii) each share of Class C Convertible Preferred Stock ("Class C
Preferred Stock") of the Company will be converted into 4.8 shares of Common    
Stock of New Time Warner.  In order to obtain the support of                    
Tele-Communications, Inc. and its affiliates ("TCI") to the Merger, the Company 
and the Acquiror and their respective affiliates entered into certain           
arrangements with TCI (the "Prior TCI Arrangements").  In accordance with the   
terms of the Agreement Containing Consent Order, draft dated August 7, 1996     
among the Company, Time Warner, TCI, Liberty Media Corporation and the Federal  
Trade Commission (the "Consent Order"), we have been advised by the Company that
certain of the Prior TCI Arrangements require modification and that, in         
connection with the Merger, the Company and the Acquiror and their respective   
affiliates propose to enter into the agreements set forth on Schedule A with TCI
(together with the Stock Purchase Agreement dated as of September 22, 1995      
between the Company and LMC Southeast Sports, Inc. and the Option Agreement,    
dated as of September 22, 1995 between Time Warner and Liberty Media            
Corporation, the "Agreements").  The Agreements provide for, among other things,
certain arrangements between the Company, the Acquiror and their respective     
affiliates, on the one hand, and TCI, on the other hand (the "TCI               
Arrangements").  For purposes of our opinion, we have included the consideration
that TCI is to receive in the Merger for its shares of Class C Preferred Stock  
as part of the TCI Arrangements.                                                

      You have asked us whether, in our opinion, (i) the consideration to be
received by shareholders of the Company (other than TCI and the Acquiror)       
pursuant to the Merger is fair to such holders from a financial point of view   
and (ii) in the context of the governance arrangements relating to the Company's
ability to consummate the Merger, the financial terms of the TCI Arrangements   
are fair from a financial point of view to the Company and its shareholders     
(other than TCI and the Acquiror).                                              

DEFM14A
327th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 327th
[LOGO OF MERRILL LYNCH APPEARS HERE]                                            

In arriving at the opinion set forth below, we have:                

(1)    Reviewed the Company's Annual Reports, Forms 10-K and related
            financial information for the five fiscal years ended December 31,
     1995 and the Company's Forms 10-Q and the related unaudited
         financial information for the quarterly periods ended March 31,
1996 and June 30, 1996;                               

 (2)    Reviewed the Acquiror's Annual Reports, Forms 10-K and related
            financial information for the five fiscal years ended December 31,
     1995 and the Acquiror's Form 10-Q and the related unaudited
        financial information for the quarterly period ended March 31,
1996;                                                 

(3)    Reviewed certain information, including financial forecasts, 
             relating to the business, earnings, cash flow, assets and prospects
             of the Company and SportSouth Network, Ltd.("SportSouth") furnished
to us by the Company;                                 

(4)    Reviewed certain information, including financial forecasts, 
             relating to the business, earnings, cash flow, assets and prospects
     of the Sunshine Network ("Sunshine") furnished to us by the
Acquiror;                                             

  (5)    Reviewed certain publicly available information relating to the
    business, earnings, cash flow, assets and prospects of the
Acquiror;                                             

(6)    Conducted due diligence discussions with members of senior   
          management of the Company concerning its business and prospects,
    conducted due diligence discussions with members of senior
           management of the Acquiror concerning its business and prospects,
        and conducted due diligence discussions with members of senior
            management of the Company, the Acquiror and TCI concerning the TCI
Arrangements;                                         

     (7)    Reviewed the historical market prices and trading activity for the
        shares of publicly traded capital stock of the Company and the
            shares of Common Stock of the Acquiror and compared them with that
    of certain publicly traded companies which we deemed to be
           reasonably similar to the Company and the Acquiror, respectively;

     (8)    Compared the results of operations of the Company and the Acquiror
         with that of certain companies which we deemed to be reasonably
similar to the Company and the Acquiror, respectively;

(9)    Compared the proposed financial terms of the transactions    
          contemplated by the Merger Agreement with the financial terms of
      certain other mergers and acquisitions which we deemed to be
relevant;                                             

     (10)   Compared the proposed financial terms of the proposed transactions
       involving SportSouth and Sunshine with the financial terms of
    certain other transactions which we deemed to be relevant;

      (11)   Reviewed the financial terms of a limited number of transactions in
       which controlling shareholders or persons having the right to
          consent to, or effective veto power over, a transaction received
different consideration than other shareholders;      

      (12)   Reviewed the financial terms of a limited number of transactions in
          which an issuer of securities sold a non-controlling interest in
the issuer to a strategic acquiror;                   

     (13)   Reviewed the TCI Arrangements and the Agreements, and with respect
          thereto (a) prepared analyses based upon assumptions provided by
        the Company and the Acquiror and (b) analyzed from a financial
             point of view the impact of the TCI Arrangements on the Company and
        the Acquiror and discussed our analyses with members of senior
         management of the Company who advised us that our analyses were
reasonable;                                           

DEFM14A
328th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 328th
[LOGO OF MERRILL LYNCH APPEARS HERE]                                            

(14) Reviewed the Merger Agreement and a draft proxy statement relating to
the Merger (the "Proxy Statement");                             

(15) Reviewed the Consent Order; and                                      

(16) Reviewed such other financial studies and analyses and performed such
   other investigations and took into account such other matters as we
deemed necessary.                                               

  In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company and   
the Acquiror, and we have not independently verified such information or        
undertaken an independent appraisal of the assets or liabilities of the Company 
or the Acquiror. With respect to the financial forecasts furnished by the       
Company, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the Company's management as  
to the expected future financial performance of the Company or SportSouth, as   
the case may be. With respect to the financial forecasts furnished by the       
Acquiror relating to Sunshine, we have assumed that they have been reasonably   
prepared and reflect the best currently available estimates and judgment of the 
Acquiror's management as to the expected future financial performance of        
Sunshine for the period covered by the forecasts. We have also assumed, based on
advice of the Company, that the Merger cannot be consummated without the support
of TCI and that TCI would not support the Merger unless the TCI Arrangements are
entered into and effected. We have further assumed (i) that all current and     
future payments to be made by New Time Warner or its affiliates to TCI under the
Agreements set forth on Schedule B hereto will be tax-deductible to New Time    
Warner and (ii) that neither New Time Warner nor any of its affiliates will be  
required to make any payment to TCI under any tax indemnities or similar        
provisions contained in the Agreements. Additionally, we have assumed, based on 
the advice of the Company, that the rebates to TCI, under a new program service 
agreement, commence and terminate at specified dates in the case of a particular
program service and that the terms of the pay-per-view output arrangement among 
New Line, certain other subsidiaries of the Company and certain affiliates of   
TCI are customary for an arrangement of that type and reflect market terms and  
conditions. We are not expressing any opinion as to what the value of Common    
Stock of New Time Warner actually will be when issued to the shareholders of the
Company pursuant to the Merger or the prices at which such Common Stock will    
trade subsequent to the Merger. You have also advised us that the Merger        
Agreement, the Agreements and the TCI Arrangements are the only agreements and  
arrangements between the Company, the Acquiror and their respective affiliates, 
on the one hand, and TCI, on the other hand, in connection with the Merger      
Agreement and the Merger. We have assumed for purposes of our opinion that the  
final terms of Amendment No. 1 and the Agreements set forth on Schedule A will  
not vary from the drafts reviewed by us, and that the terms of any additional   
documents that may be agreed to other than those reviewed by us will not affect 
our analyses.                                                                   

In connection with the preparation of this opinion, we have not been      
authorized by the Company or the Board of Directors to solicit, nor have we     
solicited, third party indications of interest for the acquisition of all or any
part of the Company.                                                            

DEFM14A
329th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 329th
[MERRILL LYNCH LOGO APPEARS HERE]                                               

We have in the past provided (and may in the future provide) financial
advisory and/or financing services to the Company, the Acquiror and TCI and have
received fees for the rendering of such services. Specifically, since January 1,
1989, we have received fees of approximately $18 million, $122 million and $50  
million from the Company, the Acquiror and TCI, respectively. In addition, we   
provided financial advisory services to TCI in connection with its August 1996  
acquisition of Viacom Inc.'s cable systems business and we have been retained by
TCI to provide it with financial advisory services in connection with its       
spin-off of TCI Satellite Entertainment, Inc., in each case for which we expect 
to receive customary compensation. Moreover, an affiliate of ours is currently  
providing commercial lending services to Mr. Turner for which it receives       
customary compensation.                                                         

  It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its evaluation of the Merger, does  
not constitute a recommendation to any shareholder as to how such shareholder   
should vote on the proposed Merger, and is not to be quoted or referred to, in  
whole or in part, in any registration statement, prospectus or proxy statement, 
or in any other document used in connection with the offering or sale of        
securities, nor shall this letter be used for any other purposes, without the   
prior written consent of Merrill Lynch.                                         

    On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, (i) the consideration to be received by shareholders of  
the Company (other than TCI and the Acquiror) pursuant to the Merger is fair to 
such holders from a financial point of view and (ii) in the context of the      
governance arrangements relating to the Company's ability to consummate the     
Merger, the financial terms of the TCI Arrangements are fair from a financial   
point of view to the Company and its shareholders (other than TCI and the       
Acquiror).                                                                      

                       Very truly yours,

                                     MERRILL LYNCH, PIERCE, FENNER &
                        SMITH INCORPORATED

DEFM14A
330th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 330th
[MERRILL LYNCH LOGO APPEARS HERE]                                               

Schedule A  
----------  

SSSI Agreement, dated as of August ___, 1996 among TW Inc., Liberty Media       
Corporation and Southern Satellite Systems, Inc. (Draft Dated August 5, 1996)   

Distribution Contract, dated as of August ___, 1996 between TW Inc. and Southern
Satellite Systems, Inc. (Draft Dated August 5, 1996)                            

Second Amended and Restated LMC Agreement, dated as of September 22, 1995 among 
Time Warner Inc., Liberty Media Corporation and certain subsidiaries of Liberty 
Media Corporation.  (Draft Dated August 6, 1996)                                

Rebate Arrangement with TCI as described to us by TBS senior management on      
August 8, 1996                                                                  

Pay-Per-View Output Arrangement with TCI as described to us by TBS and New Line 
senior management on August 8, 1996                                             

DEFM14A
331st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 331st
[MERRILL LYNCH LOGO APPEARS HERE]                                               

Schedule B  
----------  

SSSI Agreement, dated as of August __, 1996 among TW Inc., Liberty Media        
Corporation and Southern Satellite Systems, Inc. (Draft Dated August 5, 1996)   

Distribution Contract, dated as of August __, 1996 between TW Inc. and Southern 
Satellite Systems, Inc. (Draft Dated August 5, 1996)                            

DEFM14A
332nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 332nd
                                                                  APPENDIX D-1

GENERAL CORPORATION LAW OF THE STATE OF DELAWARE  

(S)262 APPRAISAL RIGHTS.                                                        

(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this        
section with respect to such shares, who continuously holds such shares         
through the effective date of the merger or consolidation, who has otherwise    
complied with subsection (d) of this section and who has neither voted in       
favor of the merger or consolidation nor consented thereto in writing pursuant  
to (S)228 of this title shall be entitled to an appraisal by the Court of       
Chancery of the fair value of his shares of stock under the circumstances       
described in subsections (b) and (c) of this section. As used in this section,  
the word "stockholder" means a holder of record of stock in a stock             
corporation and also a member of record of a nonstock corporation; the words    
"stock" and "share" mean and include what is ordinarily meant by those words    
and also membership or membership interest of a member of nonstock              
corporation; and the words "depository receipt" mean a receipt or other         
instrument issued by a depository representing an interest in one or more       
shares, or fractions thereof, solely of stock of a corporation, which stock is  
deposited with the depository.                                                  

(b) Appraisal rights shall be available for the shares of any class or      
series of stock of a constituent corporation in a merger or consolidation to    
be effected pursuant to (S)251 (other than a merger effected pursuant to        
subsection (g) of (S)251), 252, 254, 257, 258, 263 or 264 of this title:        

(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,   
or depository receipts in respect thereof, at the record date fixed to      
determine the stockholders entitled to receive notice of and to vote at the 
meeting of stockholders to act upon the agreement of merger or              
consolidation, were either (i) listed on a national securities exchange or  
designated as a national market system security on an interdealer quotation 
system by the National Association of Securities Dealers, Inc. or (ii) held 
of record by more than 2,000 holders; and further provided that no          
appraisal rights shall be available for any shares of stock of the          
constituent corporation surviving a merger if the merger did not require    
for its approval the vote of the holders of the surviving corporation as    
provided in subsection (f) of (S)251 of this title.                         

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights  
under this section shall be available for the shares of any class or series 
of stock of a constituent corporation if the holders thereof are required   
by the terms of an agreement of merger or consolidation pursuant to         
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such 
stock anything except:                                                      

a. Shares of stock of the corporation surviving or resulting from   
such merger or consolidation, or depository receipts in respect         
thereof;                                                                

b. Shares of stock of any other corporation, or depository receipts 
in respect thereof, which shares of stock or depository receipts at the 
effective date of the merger or consolidation will be either listed on  
a national securities exchange or designated as a national market       
system security on an interdealer quotation system by the National      
Association of Securities Dealers, Inc. or held of record by more than  
2,000 holders;                                                          

c. Cash in lieu of fractional shares or fractional depository       
receipts described in the foregoing subparagraphs a. and b. of this     
paragraph; or                                                           

d. Any combination of the shares of stock, depository receipts and  
cash in lieu of fractional shares or fractional depository receipts     
described in the foregoing subparagraphs a., b. and c. of this          
paragraph.                                                              

(3) In the event all of the stock of a subsidiary Delaware corporation  
party to a merger effected under (S)253 of this title is not owned by the   
parent corporation immediately prior to the merger, appraisal rights shall  
be available for the shares of the subsidiary Delaware corporation.         

(c) Any corporation may provide in its certificate of incorporation that    
appraisal rights under this section shall be available for the shares of any    
class or series of its stock as a result of an amendment to its certificate of  

DEFM14A
333rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 333rd
incorporation, any merger or consolidation in which the corporation is a        
constituent corporation or the sale of all or substantially all of the assets   
of the corporation. If the certificate of incorporation contains such a         
provision, the procedures of this section, including those set forth in         
subsections (d) and (e) of this section, shall apply as nearly as is            
practicable.                                                                    

(d) Appraisal rights shall be perfected as follows:                         

(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of 
stockholders, the corporation, not less than 20 days prior to the meeting,  
shall notify each of its stockholders who was such on the record date for   
such meeting with respect to shares for which appraisal rights are          
available pursuant to subsections (b) or (c) hereof that appraisal rights   
are available for any or all of the shares of the constituent corporations, 
and shall include in such notice a copy of this section. Each stockholder   
electing to demand the appraisal of his shares shall deliver to the         
corporation, before the taking of the vote on the merger or consolidation,  
a written demand for appraisal of his shares. Such demand will be           
sufficient if it reasonably informs the corporation of the identity of the  
stockholder and that the stockholder intends thereby to demand the          
appraisal of his shares. A proxy or vote against the merger or              
consolidation shall not constitute such a demand. A stockholder electing to 
take such action must do so by a separate written demand as herein          
provided. Within 10 days after the effective date of such merger or         
consolidation, the surviving or resulting corporation shall notify each     
stockholder of each constituent corporation who has complied with this      
subsection and has not voted in favor of or consented to the merger or      
consolidation of the date that the merger or consolidation has become       
effective; or                                                               

(2) If the merger or consolidation was approved pursuant to Section 228 
or Section 253 of this title, each constituent corporation, either before   
the effective date of the merger or consolidation or within ten days        
thereafter, shall notify each of the holders of any class or series of      
stock of such constituent corporation that are entitled to appraisal rights 
of the approval of the merger or consolidation and that appraisal rights    
are available for any or all shares of such class or series of stock of     
such constituent corporation, and shall include in such notice a copy of    
this section; provided that, if the notice is given on or after the         
effective date of the merger or consolidation such notice shall be given by 
the surviving or resulting corporation to all such holders of any class or  
series of stock of a constituent corporation that are entitled to appraisal 
rights. Any stockholder entitled to appraisal rights may, within twenty     
days after the date of mailing of such notice, demand in writing from the   
surviving or resulting corporation the appraisal of such holder's shares.   
Such demand will be sufficient if it reasonably informs the corporation of  
the identity of the stockholder and that the stockholder intends thereby to 
demand the appraisal of such holder's shares. If such notice did not notify 
stockholders of the effective date of the merger or consolidation, either   
(i) each such constituent corporation shall send a second notice before the 
effective date of the merger or consolidation notifying each of the holders 
of any class or series of stock of such constituent corporation that are    
entitled to appraisal rights of the effective date of the merger or         
consolidation or (ii) the surviving or resulting corporation shall send a   
second notice to all such holders on or within 10 days after such effective 
date; provided, however, that if such second notice is sent more than 20    
days following the sending of the first notice, such second notice need     
only to be sent to each stockholder who is entitled to appraisal rights and 
who has demanded appraisal of such holder's shares in accordance with this  
subsection. An affidavit of the secretary or assistant secretary or of the  
transfer agent of the corporation that is required to give either notice    
that such notice has been given shall, in the absence of fraud, be prima    
facie evidence of the facts stated therein. For purposes of determining the 
stockholders entitled to recieve such notice, each constituent corporation  
may fix, in advance, a record date that shall be not more than 10 days      
prior to the date the notice is given; provided that, if the notice is      
given on or after the effective date of the merger or consolidation, the    
record date shall be effective date. If no record date is fixed and the     
notice is given prior to the effective date, the record date shall be the   
close of business on the next day preceding the day on which the notice is  
given.                                                                      

(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied      
with subsections (a) and (d) hereof and who is otherwise                        

D1-2  

DEFM14A
334th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 334th
entitled to appraisal rights, may file a petition in the Court of Chancery      
demanding a determination of the value of the stock of all such stockholders.   
Notwithstanding the foregoing, at any time within 60 days after the effective   
date of the merger or consolidation, any stockholder shall have the right to    
withdraw his demand for appraisal and to accept the terms offered upon the      
merger or consolidation. Within 120 days after the effective date of the        
merger or consolidation, any stockholder who has complied with the              
requirements of subsections (a) and (d) hereof, upon written request, shall be  
entitled to receive from the corporation surviving the merger or resulting      
from the consolidation a statement setting forth the aggregate number of        
shares not voted in favor of the merger or consolidation and with respect to    
which demands for appraisal have been received and the aggregate number of      
holders of such shares. Such written statement shall be mailed to the           
stockholder within 10 days after his written request for such statement is      
received by the surviving or resulting corporation or within 10 days after      
expiration of the period for delivery of demands for appraisal under            
subsection (d) hereof, whichever is later.                                      

(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall  
within 20 days after such service file in the office of the Register in         
Chancery in which the petition was filed a duly verified list containing the    
names and addresses of all stockholders who have demanded payment for their     
shares and with whom agreements as to the value of their shares have not been   
reached by the surviving or resulting corporation. If the petition shall be     
filed by the surviving or resulting corporation, the petition shall be          
accompanied by such a duly verified list. The Register in Chancery, if so       
ordered by the Court, shall give notice of the time and place fixed for the     
hearing of such petition by registered or certified mail to the surviving or    
resulting corporation and to the stockholders shown on the list at the          
addresses therein stated. Such notice shall also be given by 1 or more          
publications at least 1 week before the day of the hearing, in a newspaper of   
general circulation published in the City of Wilmington, Delaware or such       
publication as the Court deems advisable. The forms of the notices by mail and  
by publication shall be approved by the Court, and the costs thereof shall be   
borne by the surviving or resulting corporation.                                

(g) At the hearing on such petition, the Court shall determine the          
stockholders who have complied with this section and who have become entitled   
to appraisal rights. The Court may require the stockholders who have demanded   
an appraisal for their shares and who hold stock represented by certificates    
to submit their certificates of stock to the Register in Chancery for notation  
thereon of the pendency of the appraisal proceedings; and if any stockholder    
fails to comply with such direction, the Court may dismiss the proceedings as   
to such stockholder.                                                            

(h) After determining the stockholders entitled to an appraisal, the Court  
shall appraise the shares, determining their fair value exclusive of any        
element of value arising from the accomplishment or expectation of the merger   
or consolidation, together with a fair rate of interest, if any, to be paid     
upon the amount determined to be the fair value. In determining such fair       
value, the Court shall take into account all relevant factors. In determining   
the fair rate of interest, the Court may consider all relevant factors,         
including the rate of interest which the surviving or resulting corporation     
would have had to pay to borrow money during the pendency of the proceeding.    
Upon application by the surviving or resulting corporation or by any            
stockholder entitled to participate in the appraisal proceeding, the Court      
may, in its discretion, permit discovery or other pretrial proceedings and may  
proceed to trial upon the appraisal prior to the final determination of the     
stockholder entitled to an appraisal. Any stockholder whose name appears on     
the list filed by the surviving or resulting corporation pursuant to            
subsection (f) of this section and who has submitted his certificates of stock  
to the Register in Chancery, if such is required, may participate fully in all  
proceedings until it is finally determined that he is not entitled to           
appraisal rights under this section.                                            

(i) The Court shall direct the payment of the fair value of the shares,     
together with interest, if any, by the surviving or resulting corporation to    
the stockholders entitled thereto. Interest may be simple or compound, as the   
Court may direct. Payment shall be so made to each such stockholder, in the     
case of holders of uncertificated stock forthwith, and the case of holders of   
shares represented by certificates upon the surrender to the corporation of     
the certificates representing such stock. The Court's decree may be enforced    
as other decrees in the Court of Chancery may be enforced, whether such         
surviving or resulting corporation be a corporation of this State or of any     
state.                                                                          

D1-3  

DEFM14A
335th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 335th
(j) The costs of the proceeding may be determined by the Court and taxed    
upon the parties as the Court deems equitable in the circumstances. Upon        
application of a stockholder, the Court may order all or a portion of the       
expenses incurred by any stockholder in connection with the appraisal           
proceeding, including, without limitation, reasonable attorney's fees and the   
fees and expenses of experts, to be charged pro rata against the value of all   
the shares entitled to an appraisal.                                            

(k) From and after the effective date of the merger or consolidation, no    
stockholder who has demanded his appraisal rights as provided in subsection     
(d) of this section shall be entitled to vote such stock for any purpose or to  
receive payment of dividends or other distributions on the stock (except        
dividends or other distributions payable to stockholders of record at a date    
which is prior to the effective date of the merger or consolidation);           
provided, however, that if no petition for an appraisal shall be filed within   
the time provided in subsection (e) of this section, or if such stockholder     
shall deliver to the surviving or resulting corporation a written withdrawal    
of his demand for an appraisal and an acceptance of the merger or               
consolidation, either within 60 days after the effective date of the merger or  
consolidation as provided in subsection (e) of this section or thereafter with  
the written approval of the corporation, then the right of such stockholder to  
an appraisal shall cease. Notwithstanding the foregoing, no appraisal           
proceeding in the Court of Chancery shall be dismissed as to any stockholder    
without the approval of the Court, and such approval may be conditioned upon    
such terms as the Court deems just.                                             

(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to   
the merger or consolidation shall have the status of authorized and unissued    
shares of the surviving or resulting corporation.                               

D1-4  

DEFM14A
336th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 336th
                                                                  APPENDIX D-2

BUSINESS CORPORATIONS CODE OF THE STATE OF GEORGIA  

ARTICLE 13  

DISSENTERS' RIGHTS  

PART 1  

RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES  

14-2-1301. DEFINITIONS.                                                         

As used in this article, the term:                                          

(1) "Beneficial shareholder" means the person who is a beneficial owner 
of shares held in a voting trust or by a nominee as the record shareholder. 

(2) "Corporate action" means the transaction or other action by the     
corporation that creates dissenters' rights under Code Section 14-2-1302.   

(3) "Corporation" means the issuer of shares held by a dissenter before 
the corporate action, or the surviving or acquiring corporation by merger   
or share exchange of that issuer.                                           

(4) "Dissenter" means a shareholder who is entitled to dissent from     
corporate action under Code Section 14-2-1302 and who exercises that right  
when and in the manner required by Code Sections 14-2-1320 through 14-2-    
1327.                                                                       

(5) "Fair value," with respect to a dissenter's shares, means the value 
of the shares immediately before the effectuation of the corporate action   
to which the dissenter objects, excluding any appreciation or depreciation  
in anticipation of the corporate action.                                    

(6) "Interest" means interest from the effective date of the corporate  
action until the date of payment, at a rate that is fair and equitable      
under all the circumstances.                                                

(7) "Record shareholder" means the person in whose name shares are      
registered in the records of a corporation or the beneficial owner of       
shares to the extent of the rights granted by a nominee certificate on file 
with a corporation.                                                         

(8) "Shareholder" means the record shareholder or the beneficial        
shareholder.                                                                

14-2-1302. RIGHT TO DISSENT.                                                    

(a) A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the      
following corporate actions:                                                    

 (1) Consummation of a plan of merger to which the corporation is a party:

(A) If approval of the shareholders of the corporation is required  
for the merger by Code Section 14-2-1103 or the articles of             
incorporation and the shareholder is entitled to vote on the merger; or 

 (B) If the corporation is a subsidiary that is merged with its parent
under Code Section 14-2-1104;                                           

(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the            
shareholder is entitled to vote on the plan;                                

 (3) Consummation of a sale or exchange of all or substantially all of the
property of the corporation if a shareholder vote is required on the sale   
or exchange pursuant to Code Section 14-2-1202, but not including a sale    
pursuant to court order or a sale for cash pursuant to a plan by which all  
or substantially all of the net proceeds of the sale will be distributed to 
the shareholders within one year after the date of sale;                    

DEFM14A
337th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 337th
(4) An amendment of the articles of incorporation that materially and   
adversely affects rights in respect of a dissenter's shares because it:     

(A) Alters or abolishes a preferential right of the shares;         

(B) Creates, alters, or abolishes a right in respect of redemption, 
including a provision respecting a sinking fund for the redemption or   
repurchase, of the shares;                                              

(C) Alters or abolishes a preemptive right of the holder of the     
shares to acquire shares or other securities;                           

 (D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through       
issuance of shares or other securities with similar voting rights;      

(E) Reduces the number of shares owned by the shareholder to a      
fraction of a share if the fractional share so created is to be         
acquired for cash under Code Section 14-2-604; or                       

 (F) Cancels, redeems, or repurchases all or part of the shares of the
class; or                                                               

(5) Any corporate action taken pursuant to a shareholder vote to the    
extent that Article 9 of this chapter, the articles of incorporation,       
bylaws, or a resolution of the board of directors provides that voting or   
nonvoting shareholders are entitled to dissent and obtain payment for their 
shares.                                                                     

(b) A shareholder entitled to dissent and obtain payment for his shares     
under this article may not challenge the corporate action creating his          
entitlement unless the corporate action fails to comply with procedural         
requirements of this chapter or the articles of incorporation or bylaws of the  
corporation or the vote required to obtain approval of the corporate action     
was obtained by fraudulent and deceptive means, regardless of whether the       
shareholder has exercised dissenter's rights.                                   

(c) Notwithstanding any other provision of this article, there shall be no  
right of dissent in favor of the holder of shares of any class or series        
which, at the record date fixed to determine the shareholders entitled to       
receive notice of and to vote at a meeting at which a plan of merger or share   
exchange or a sale or exchange of property or an amendment of the articles of   
incorporation is to be acted on, were either listed on a national securities    
exchange or held of record by more than 2,000 shareholders, unless:             

(1) In the case of a plan of merger or share exchange, the holders of   
shares of the class or series are required under the plan of merger or      
share exchange to accept for their shares anything except shares of the     
surviving corporation or another publicly held corporation which at the     
effective date of the merger or share exchange are either listed on a       
national securities exchange or held of record by more than 2,000           
shareholders, except for scrip or cash payments in lieu of fractional       
shares; or                                                                  

(2) The articles of incorporation or a resolution of the board of       
directors approving the transaction provides otherwise.                     

14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.                           

A record shareholder may assert dissenters' rights as to fewer than all the 
shares registered in his name only if he dissents with respect to all shares    
beneficially owned by any one beneficial shareholder and notifies the           
corporation in writing of the name and address of each person on whose behalf   
he asserts dissenters' rights. The rights of a partial dissenter under this     
Code section are determined as if the shares as to which he dissents and his    
other shares were registered in the names of different shareholders.            

D2-2  

DEFM14A
338th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 338th
PART 2  

PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS  

14-2-1320. NOTICE OF DISSENTERS' RIGHTS.                                        

(a) If proposed corporate action creating dissenters' rights under Code     
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the        
meeting notice must state that shareholders are or may be entitled to assert    
dissenters' rights under this article and be accompanied by a copy of this      
article.                                                                        

(b) If corporate action creating dissenters' rights under Code Section 14-2-
1302 is taken without a vote of shareholders, the corporation shall notify in   
writing all shareholders entitled to assert dissenters' rights that the action  
was taken and send them the dissenters' notice described in Code Section 14-2-  
1322 no later than ten days after the corporate action was taken.               

14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.                                  

(a) If proposed corporate action creating dissenters' rights under Code     
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record   
shareholder who wishes to assert dissenters' rights:                            

(1) Must deliver to the corporation before the vote is taken written    
notice of his intent to demand payment for his shares if the proposed       
action is effectuated; and                                                  

(2) Must not vote his shares in favor of the proposed action.           

(b) A record shareholder who does not satisfy the requirements of subsection
(a) of this Code section is not entitled to payment for his shares under this   
article.                                                                        

14-2-1322. DISSENTERS' NOTICE.                                                  

(a) If proposed corporate action creating dissenters' rights under Code     
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation     
shall deliver a written dissenters' notice to all shareholders who satisfied    
the requirements of Code Section 14-2-1321.                                     

(b) The dissenters' notice must be sent no later than ten days after the    
corporate action was taken and must:                                            

(1) State where the payment demand must be sent and where and when      
certificates for certificated shares must be deposited;                     

(2) Inform holders of uncertificated shares to what extent transfer of  
the shares will be restricted after the payment demand is received;         

(3) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date    
the notice required in subsection (a) of this Code section is delivered;    
and                                                                         

(4) Be accompanied by a copy of this article.                           

14-2-1323. DUTY TO DEMAND PAYMENT.                                              

(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his certificates in accordance with   
the terms of the notice.                                                        

(b) A record shareholder who demands payment and deposits his shares under  
subsection (a) of this Code section retains all other rights of a shareholder   
until these rights are canceled or modified by the taking of the proposed       
corporate action.                                                               

(c) A record shareholder who does not demand payment or deposit his share   
certificates where required, each by the date set in the dissenters' notice,    
is not entitled to payment for his shares under this article.                   

D2-3  

DEFM14A
339th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 339th
14-2-1324. SHARE RESTRICTIONS.                                                  

(a) The corporation may restrict the transfer of uncertificated shares from 
the date the demand for their payment is received until the proposed corporate  
action is taken or the restrictions released under Code Section 14-2-1326.      

(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are         
canceled or modified by the taking of the proposed corporate action.            

14-2-1325. OFFER OF PAYMENT.                                                    

(a) Except as provided in Code Section 14-2-1327, within ten days of the    
later of the date the proposed corporate action is taken or receipt of a        
payment demand, the corporation shall by notice to each dissenter who complied  
with Code Section 14-2-1323 offer to pay to such dissenter the amount the       
corporation estimates to be the fair value of his or her shares, plus accrued   
interest.                                                                       

(b) The offer of payment must be accompanied by:                            

 (1) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for 
that year, a statement of changes in shareholders' equity for that year,    
and the latest available interim financial statements, if any;              

(2) A statement of the corporation's estimate of the fair value of the  
shares;                                                                     

(3) An explanation of how the interest was calculated;                  

(4) A statement of the dissenter's right to demand payment under Code   
Section 14-2-1327; and                                                      

(5) A copy of this article.                                             

(c) If the shareholder accepts the corporation's offer by written notice to 
the corporation within 30 days after the corporation's offer or is deemed to    
have accepted such offer by failure to respond within said 30 days, payment     
for his or her shares shall be made within 60 days after the making of the      
offer or the taking of the proposed corporate action, whichever is later.       

14-2-1326. FAILURE TO TAKE ACTION.                                              

(a) If the corporation does not take the proposed action within 60 days     
after the date set for demanding payment and depositing share certificates,     
the corporation shall return the deposited certificates and release the         
transfer restrictions imposed on uncertificated shares.                         

(b) If, after returning deposited certificates and releasing transfer       
restrictions the corporation takes the proposed action, it must send a new      
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand   
procedure.                                                                      

14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.         

(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of  
his estimate of the fair value of his shares and interest due, if:              

 (1) The dissenter believes that the amount offered under Code Section 14-
2-1325 is less than the fair value of his shares or that the interest due   
is incorrectly calculated; or                                               

(2) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions      
imposed on uncertificated shares within 60 days after the date set for      
demanding payment.                                                          

(b) A dissenter waives his or her right to demand payment under this Code   
section and is deemed to have accepted the corporation's offer unless he or     
she notifies the corporation of his or her demand in writing under              

D2-4  

DEFM14A
340th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 340th
subsection (a) of this Code section within 30 days after the corporation        
offered payment for his or her shares, as provided in Code Section 14-2-1325.   

(c) If the corporation does not offer payment within the time set forth in  
subsection (a) of Code Section 14-2-1325:                                       

(1) The shareholder may demand the information required under subsection
(b) of Code Section 14-2-1325, and the corporation shall provide the        
information to the shareholder within ten days after receipt of a written   
demand for the information; and                                             

 (2) The shareholder may at any time, subject to the limitations period of
Code Section 14-2-1332, notify the corporation of his own estimate of the   
fair value of his shares and the amount of interest due and demand payment  
of his estimate of the fair value of his shares and interest due.           

PART 3  

JUDICIAL APPRAISAL OF SHARES  

14-2-1330. COURT ACTION.                                                        

(a) If a demand for payment under Code Section 14-2-1327 remains unsettled, 
the corporation shall commence a proceeding within 60 days after receiving the  
payment demand and petition the court to determine the fair value of the        
shares and accrued interest. If the corporation does not commence the           
proceeding within the 60 day period, it shall pay each dissenter whose demand   
remains unsettled the amount demanded.                                          

(b) The corporation shall commence the proceeding, which shall be a nonjury 
equitable valuation proceeding, in the superior court of the county where a     
corporation's registered office is located. If the surviving corporation is a   
foreign corporation without a registered office in this state, it shall         
commence the proceeding in the county in this state where the registered        
office of the domestic corporation merged with or whose shares were acquired    
by the foreign corporation was located.                                         

(c) The corporation shall make all dissenters, whether or not residents of  
this state, whose demands remain unsettled parties to the proceeding, which     
shall have the effect of an action quasi in rem against their shares. The       
corporation shall serve a copy of the petition in the proceeding upon each      
dissenting shareholder who is a resident of this state in the manner provided   
by law for the service of a summons and complaint, and upon each nonresident    
dissenting shareholder either by registered or certified mail or by             
publication, or in any other manner permitted by law.                           

(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this Code section is plenary and exclusive. The court may     
appoint one or more persons as appraisers to receive evidence and recommend     
decision on the question of fair value. The appraisers have the powers          
described in the order appointing them or in any amendment to it. Except as     
otherwise provided in this chapter, Chapter 11 of Title 9, known as the         
"Georgia Civil Practice Act," applies to any proceeding with respect to         
dissenters' rights under this chapter.                                          

(e) Each dissenter made a party to the proceeding is entitled to judgment   
for the amount which the court finds to be the fair value of his shares, plus   
interest to the date of judgment.                                               

14-2-1331. COURT COSTS AND COUNSEL FEES.                                        

(a) The court in an appraisal proceeding commenced under Code Section 14-2- 
1330 shall determine all costs of the proceeding, including the reasonable      
compensation and expenses of appraisers appointed by the court, but not         
including fees and expenses of attorneys and experts for the respective         
parties. The court shall assess the costs against the corporation, except that  
the court may assess the costs against all or some of the dissenters, in        
amounts the court finds equitable, to the extent the court finds the            
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding    
payment under Code Section 14-2-1327.                                           

D2-5  

DEFM14A
341st Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 341st
(b) The court may also assess the fees and expenses of attorneys and experts
for the respective parties, in amounts the court finds equitable:               

(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the           
requirements of Code Sections 14-2-1320 through 14-2-1327; or               

(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses 
are assessed acted arbitrarily, vexatiously, or not in good faith with      
respect to the rights provided by this article.                             

(c) If the court finds that the services of attorneys for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the     
fees for those services should not be assessed against the corporation, the     
court may award to these attorneys reasonable fees to be paid out of the        
amounts awarded the dissenters who were benefited.                              

14-2-1332. LIMITATION OF ACTIONS.                                               

No action by any dissenter to enforce dissenters' rights shall be brought   
more than three years after the corporate action was taken, regardless of       
whether notice of the corporate action and of the right to dissent was given    
by the corporation in compliance with the provisions of Code Section 14-2-1320  
and Code Section 14-2-1322.                                                     

D2-6  

DEFM14A
342nd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 342nd
--------------------------------------------------------------------------------

TURNER BROADCASTING SYSTEM, INC.

CLASS A COMMON STOCK PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS 
FOR SPECIAL MEETING OF SHAREHOLDERS, OCTOBER 10, 1996 

The undersigned hereby appoints R. E. TURNER, STEVEN W. KORN, and WAYNE H.  
PACE, and each of them, proxies with full power of substitution, to represent   
and to vote as set forth herein all the shares of Class A Common Stock of       
Turner Broadcasting System, Inc. ("TBS") held of record by the undersigned at   
the close of business on August 26, 1996, at the Special Meeting of             
Shareholders to be held at the Time & Life Building, 1271 Avenue of the         
Americas, New York, New York 10020, commencing at 2:00 p.m., local time, on     
Thursday, October 10, 1996, and any adjournment or postponement thereof.        

1. Proposal to approve an Amended and Restated Agreement and Plan of Merger     
 dated as of September 22, 1995, as amended, among Time Warner Inc., TBS, TW
Inc., Time Warner Acquisition Corp. and TW Acquisition Corp.              

[_] FOR  [_] AGAINST  [_] ABSTAIN 

--------------------------------------------------------------------------------

                                                                               2

DEFM14A
343rd Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 343rd
--------------------------------------------------------------------------------

2. In their discretion, the proxies are authorized to vote as described in the  
Joint Proxy Statement/Prospectus and upon such other business as may      
  properly come before the meeting or any adjournment or postponement thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE   
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED      
"FOR" ITEM 1.                                                                   

PLEASE SIGN EXACTLY AS NAME APPEARS    PLEASE COMPLETE, SIGN, DATE AND RETURN   
ON STOCK CERTIFICATE                   THIS PROXY CARD PROMPTLY USING THE       
                ENCLOSED ENVELOPE.

                                    If stock is held in the name of two or
                                     more persons, all must sign. When sign-
                                    ing as attorney, executor, administra-
                                    tor, trustee, or guardian, please give
                                   full title as such. If a corporation,
                                   please sign in full corporate name by
                                    President or other authorized officer.
                                    If a partnership, please sign in part-
                                nership name by authorized person.

    Dated:
                                             ---------------------------------

                                      ----------------------------------------
       Signature

                                      ----------------------------------------
                       Signature If Held Jointly

--------------------------------------------------------------------------------

DEFM14A
344th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 344th
--------------------------------------------------------------------------------

TURNER BROADCASTING SYSTEM, INC.

CLASS B COMMON STOCK PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS 
FOR SPECIAL MEETING OF SHAREHOLDERS, OCTOBER 10, 1996 

The undersigned hereby appoints R. E. TURNER, STEVEN W. KORN, and WAYNE H.  
PACE, and each of them, proxies with full power of substitution, to represent   
and to vote as set forth herein all the shares of Class B Common Stock of       
Turner Broadcasting System, Inc. ("TBS") held of record by the undersigned at   
the close of business on August 26, 1996, at the Special Meeting of             
Shareholders to be held at the Time & Life Building, 1271 Avenue of the         
Americas, New York, New York 10020, commencing at 2:00 p.m., local time, on     
Thursday, October 10, 1996, and any adjournment or postponement thereof.        

1. Proposal to approve an Amended and Restated Agreement and Plan of Merger     
 dated as of September 22, 1995, as amended, among Time Warner Inc., TBS, TW
Inc., Time Warner Acquisition Corp. and TW Acquisition Corp.              

[_] FOR  [_] AGAINST  [_] ABSTAIN 

--------------------------------------------------------------------------------

                                                                               3

DEFM14A
345th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 345th
--------------------------------------------------------------------------------
2. In their discretion, the proxies are authorized to vote as described in the  
Joint Proxy Statement/Prospectus and upon such other business as may      
  properly come before the meeting or any adjournment or postponement thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE   
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED      
"FOR" ITEM 1.                                                                   

PLEASE SIGN EXACTLY AS NAME APPEARS                                             
ON STOCK CERTIFICATE                                                            

                                    PLEASE COMPLETE, SIGN, DATE AND RETURN
                                THIS PROXY CARD PROMPTLY USING THE
                ENCLOSED ENVELOPE.

                                    If stock is held in the name of two or
                                     more persons, all must sign. When sign-
                                    ing as attorney, executor, administra-
                                    tor, trustee, or guardian, please give
                                   full title as such. If a corporation,
                                   please sign in full corporate name by
                                    President or other authorized officer.
                                    If a partnership, please sign in part-
                                nership name by authorized person.

                                      Dated: _________________________________

                                      ________________________________________
       Signature

                                      ________________________________________
                       Signature If Held Jointly

--------------------------------------------------------------------------------

DEFM14A
346th Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 346th
--------------------------------------------------------------------------------

TURNER BROADCASTING SYSTEM, INC.

CLASS C CONVERTIBLE PREFERRED STOCK PROXY 
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS 
FOR SPECIAL MEETING OF SHAREHOLDERS, OCTOBER 10, 1996 

The undersigned hereby appoints R. E. TURNER, STEVEN W. KORN, and WAYNE H.  
PACE, and each of them, proxies with full power of substitution, to represent   
and to vote as set forth herein all the shares of Class C Convertible Preferred 
Stock of Turner Broadcasting System, Inc. ("TBS") held of record by the         
undersigned at the close of business on August 26, 1996, at the Special Meeting 
of Shareholders to be held at the Time & Life Building, 1271 Avenue of the      
Americas, New York, New York 10020, commencing at 2:00 p.m., local time, on     
Thursday, October 10, 1996, and any adjournment or postponement thereof.        

1. Proposal to approve an Amended and Restated Agreement and Plan of Merger     
 dated as of September 22, 1995, as amended, among Time Warner Inc., TBS, TW
Inc., Time Warner Acquisition Corp. and TW Acquisition Corp.              

[_] FOR  [_] AGAINST  [_] ABSTAIN 

--------------------------------------------------------------------------------

                                                                               4

DEFM14A
Last Page of 347
TOC
1st
Previous
Next
↓Bottom
Just 347th
--------------------------------------------------------------------------------
2. In their discretion, the proxies are authorized to vote as described in the  
Joint Proxy Statement/Prospectus and upon such other business as may      
  properly come before the meeting or any adjournment or postponement thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE   
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED      
"FOR" ITEM 1.                                                                   

PLEASE SIGN EXACTLY AS NAME APPEARS                                             
ON STOCK CERTIFICATE                                                            

                                    PLEASE COMPLETE, SIGN, DATE AND RETURN
                                THIS PROXY CARD PROMPTLY USING THE
                ENCLOSED ENVELOPE.

                                    If stock is held in the name of two or
                                     more persons, all must sign. When sign-
                                    ing as attorney, executor, administra-
                                    tor, trustee, or guardian, please give
                                   full title as such. If a corporation,
                                   please sign in full corporate name by
                                    President or other authorized officer.
                                    If a partnership, please sign in part-
                                nership name by authorized person.

                                      Dated: _________________________________

                                      ________________________________________
       Signature

                                      ________________________________________
                       Signature If Held Jointly
--------------------------------------------------------------------------------