AOL TIME WARNER INC

AOL Time Warner’s Cable segment generally capitalizes expenditures for tangible fixed assets having a useful life of greater than one year. Capitalized costs typically include direct material, direct labor, overhead and interest. Sales and marketing costs, as well as the costs of repairing or maintaining existing fixed assets, are expensed as incurred. Types of capitalized expenditures at the Cable segment include plant upgrades, drops (i.e., customer installations), converters (i.e., equipment that converts transmitted signals to analog and/or a digital TV signal; a.k.a. analog and digital boxes) and cable modems used in the delivery of high-speed data services. With respect to customer premise equipment, including converters and cable modems, the Cable segment capitalizes direct installation charges only upon the initial deployment of such assets. All costs incurred in subsequent disconnects and reconnects are expensed as incurred. Depreciation on these assets is provided generally using the straight-line

AOL TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION — (Continued)

method over their estimated useful life. For converters and modems, such life is 3-5 years and for plant upgrades, such useful life is up to 16 years.

Included in the AOL segment’s product development costs are costs incurred for the production of technologically feasible computer software that generates additional functionality to its existing software products. Capitalized costs typically include direct labor and related overhead for software produced by AOL as well as the cost of software purchased from third parties. Costs incurred on a product prior to the determination that the product is technologically feasible, as well as maintenance costs of established products, are expensed as incurred. All costs incurred in the software development process, which are experimental in nature, are classified as research and development and are expensed as incurred until technological feasibility has been established. Once technological feasibility has been established, such costs are capitalized until the software has completed testing and is mass-marketed. Amortization is provided on a product-by-product basis using the greater of the straight-line method or the current year revenue as a percentage of total revenue estimates for the related software product, not to exceed five years, commencing the month after the date of the product release. The total net book value related to capitalized software costs was approximately $305 million as of June 30, 2003.

Backlog represents the amount of future revenue not yet recorded from cash contracts for the licensing of theatrical and television product for pay cable, basic cable, network and syndicated television exhibition. Backlog for all of AOL Time Warner’s Filmed Entertainment companies was approximately $3.4 billion at June 30, 2003 and approximately $3.3 billion at December 31, 2002, including amounts relating to the licensing of film product to AOL Time Warner’s Networks segment of approximately $700 million at June 30, 2003 and $850 million at December 31, 2002.

The Company has an interest in and manages two cable joint ventures, Kansas City Cable Partners, L.P. (serving approximately 300,000 basic subscribers as of June 30, 2003) and Texas Cable Partners, L.P. (serving approximately 1.2 million basic subscribers as of June 30, 2003), both of which are 50%-owned by TWE and 50%-owned by Comcast. Under the terms of the two joint venture agreements, either partner may after August 31, 2003 with respect to Kansas City Cable Partners, L.P. and after December 31, 2003 with respect to Texas Cable Partners, L.P., initiate buy-sell procedures based on the market value of the joint venture interests. The Company does not have current plans to initiate the buy-sell procedure in either joint venture. If a buy-sell procedure were initiated by Comcast with respect to either joint venture, TWE would have a choice either to buy Comcast’s interests in the joint venture or to sell its interests in the joint venture to Comcast. However, in such an event, the Company would be under no obligation to purchase Comcast’s interests. Additionally, in 2005, under the terms of both joint venture agreements, either partner may trigger the dissolution of the joint ventures resulting in the distribution of the net assets of the joint ventures to the partners. Any actions to be taken by the Company under the buy-sell or dissolution procedures will be evaluated in the context of the Company’s strategy for its Cable operations and its overall capital structure and debt reduction initiatives.

If the events discussed in these risk factors occur, the Company’s business, financial condition, results of operations or cash flows could be materially adversely affected. In such case, the market price of the Company’s common stock could decline.

The Company’s America Online business may be adversely affected by competitive market conditions and may not be able to execute its business strategy. In December 2002, the Company’s America Online business

AOL TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION — (Continued)

announced its strategy to revitalize the business and respond to the changing competitive environment. The strategic plan focuses on improving the products and services it offers consumers, and includes the following primary components:

•

continuing to focus on the profitability of those members who use narrowband Internet access;

•

managing the migration of members to broadband and multiband by improving the broadband and multiband product;

•

focusing on the member experience with new features, content, community and customer service;

•

growing non-subscription revenues by stabilizing and expanding its advertising business, developing premium services such as online games and voice services, and identifying and developing commerce marketplaces such as online liquidations of goods;

•

taking steps to continue to reduce losses at the international businesses and working to bring them to profitability; and

•

continuing cost management.

America Online has begun implementation of the strategy but remains relatively early in that process. Each of these initiatives requires sustained management focus, organization and coordination over time, as well as success in building relationships with third parties and success in anticipating and keeping up with technological developments and consumer preferences. The results of the strategy and implementation will not be known until some time in the future. If America Online is unable to implement the strategy successfully or properly react to changes in market conditions, AOL Time Warner’s financial condition, results of operations and cash flows could be adversely affected. Successful implementation of the strategy may require material increases in costs and expenses, and some of the new strategy components, if successful, may result in lower profit margins (for example, broadband members generally generate lower profit margins than narrowband members).

Each year a significant portion of AOL subscribers cancel or are terminated. In the past, AOL has been able to attract sufficient new members to more than offset cancellations and terminations. More recently, America Online has not registered new subscribers in numbers sufficient to replace those subscribers who cancel or are terminated and may experience increased volatility in its subscriber base as well as further declines in the number of subscribers. America Online recently has experienced declines in the number of U.S. subscribers, to approximately 25.3 million at June 30, 2003 and 26.5 million at December 31, 2002, and anticipates that it will experience further declines due to the maturing narrowband services subscriber universe, subscribers adopting broadband service, a reduction in direct marketing response rates, an increase in subscriber terminations and cancellations, and the Company’s previously stated increased focus on improving the profitability of its narrowband membership base. In addition, due to the large overall size of the subscriber base becomes larger, the difficulty in maintaining and growing the subscriber base increases because the number of new subscribers required to offset those subscribers who terminate or are cancelled also becomes larger. America Online faces increased competition from other providers of Internet services, including both online services such as Microsoft MSN and AT&T Worldnet and providers of broadband access such as cable and telephone companies who have greater access to and control of the methods used to provide Internet services to users.

Maintaining and growing the subscriber base has become more challenging as the popularity of broadband Internet access has increased. As more people switch to broadband, especially as offered by other providers, America Online will need to develop a compelling broadband product to attract members who are willing to pay additional amounts for the content and functionality provided by America Online. Since many of the premium services will be provided via broadband, a successful premium services strategy may be linked to success with its broadband strategies. It is also unclear how successful America Online will be in promoting and selling its new premium services to members generally. In addition, other Internet service providers may have more resources to devote to development and marketing of their services, or may be able to offer low-priced alternatives to the AOL service. To be successful in its broadband strategy, America Online will need to maintain and further its existing arrangements with certain cable and telephone companies, as well as develop successful business relationships with additional large broadband access providers. Further, changes in the current regulatory environment may adversely impact America Online’s ability to provide broadband services at competitive prices.

AOL TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION — (Continued)

Ongoing investigations by the Securities and Exchange Commission and the Department of Justice and pending shareholder litigation could affect AOL Time Warner’s operations. The SEC and the DOJ are investigating the Company’s financial reporting and disclosure practices. As of August 11, 2003, there were approximately forty putative class action and shareholder derivative lawsuits alleging violations of federal and state securities laws as well as purported breaches of fiduciary duties pending against AOL Time Warner, certain of its current and former executives, past and present members of its Board of Directors and, in certain instances, America Online. There is also a consolidated action making allegations of ERISA violations. The complaints purport to be made on behalf of certain of the Company’s shareholders and allege, among other things, that AOL Time Warner made material misrepresentations and/or omissions of material facts in violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. There are also actions filed by individual shareholders pending in federal and state courts. The Company is unable to predict the outcome of the SEC and DOJ investigations and the pending shareholder litigation. The Company is incurring expenses as a result of the SEC and DOJ investigations and the shareholder litigation pending against the Company, and any costs associated with judgments in or settlements of these matters could adversely affect its financial condition and results of operations. See “Overview – Business Developments – Update on SEC and DOJ Investigations.”

Technological developments may adversely affect the Company’s competitive position and limit its ability to protect its valuable intellectual property rights. AOL Time Warner’s businesses operate in the highly competitive, consumer-driven and rapidly changing media and entertainment industries. These businesses, as well as the industries generally, are to a large extent dependent on technological developments, including access to and selection and viability of new technologies, and are subject to potential pressure from competitors as a result of their technological developments. For example:

•

The Company’s cable business may be adversely affected by more aggressive than expected competition from alternate technologies such as satellite and DSL; by the failure to choose technologies appropriately; by the failure of new equipment, such as digital set-top boxes or digital video recorders, or services, such as digital cable, high-speed data services and video-on-demand, to appeal to enough consumers or to be available at prices consumers are willing to pay, to function as expected and to be delivered in a timely fashion;

•

The Company’s America Online business may be adversely affected by competitors’ abilities to more quickly develop new technologies, including more compelling features/functionalities and premium services for Internet users; and by the uncertainty of the costs for obtaining rights under patents that may cover technologies and methods used to deliver new services;

•

The Company’s filmed entertainment and television network businesses may be adversely affected by the fragmentation of consumer leisure and entertainment time caused by a greater number of choices resulting from technological developments, the impact of personal video recorder or other technologies that have “ad-stripping” functions, and technological developments that facilitate the piracy of its copyrighted works; and

•

The Company’s music business may be adversely affected by technological developments, such as Internet peer-to-peer file sharing and CD-R activity, that facilitate the piracy of music; by its inability to enforce the Company’s intellectual property rights in digital environments; and by its failure to develop a successful business model applicable to a digital online environment.

AOL TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION — (Continued)

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, Operating Income before Depreciation and Amortization and cash flow. Words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s present expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise.

AOL Time Warner operates in highly competitive, consumer-driven and rapidly changing media, entertainment and Internet businesses. These businesses are affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, the continued ability to protect intellectual property rights. AOL Time Warner’s actual results could differ materially from management’s expectations because of changes in such factors. Other factors and risks could adversely affect the operations, business or financial results of AOL Time Warner or its business segments in the future and could also cause actual results to differ materially from those contained in the forward-looking statements, including those identified in AOL Time Warner’s other filings with the SEC and the following:

•

the ability to successfully implement a new strategy;

•

the ability to develop new products and services to remain competitive;

•

the ability to develop, adopt or have access to new technologies;

•

the ability to successfully implement its broadband and multiband strategy;

•

the ability to have access to distribution channels controlled by third parties;

•

the ability to manage its subscriber base profitably;

•

the ability to provide adequate server, network and system capacity;

•

the risk of unanticipated increased costs for network services, including increased costs and business disruption resulting from the financial difficulties being experienced by a number of AOL’s network service providers, such as WorldCom;

•

increased competition from providers of Internet services, including providers of broadband access;

•

the ability to attract more traditional advertisers to the online advertising medium;

•

the ability to maintain or renew existing advertising or marketing commitments, including the ability to renew or replace large multi-period advertising arrangements with similar commitments or with shorter term advertising sales;

•

the risk that online advertising industry will not improve at all or at a rate comparable to improvements in the general advertising industry;

•

the ability to maintain or enter into new electronic commerce, marketing or content arrangements;

•

the risks from changes in U.S. and international regulatory environments affecting interactive services; and

•

the ability to reduce losses at its international businesses and bring them to profitability.

AOL TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION — (Continued)

•

more aggressive than expected competition from new technologies and other distributors of video programming and high-speed data services such as satellite, terrestrial wireless and DSL;

•

greater than expected increases in programming or other costs, including costs of its new products and services, or difficulty in passing such costs to subscribers;

•

increases in government regulation of video programming rates or other terms of service, such as “digital must-carry,” “forced access” or common carrier requirements;

•

government regulation of other services, such as high-speed data and voice services;

•

the failure of new equipment, such as digital set-top boxes or digital video recorders, or services, such as digital cable, high-speed data services or video-on-demand, to appeal to enough consumers or to be available at prices consumers are willing to pay, to function as expected and to be delivered in a timely fashion;

•

fluctuations in spending levels by advertisers and consumers;

•

changes in technology and failure to anticipate technological developments or to choose technologies appropriately; and

•

unanticipated funding obligations relating to the cable joint ventures.

•

the ability to continue to attract and select desirable talent and scripts at manageable costs;

•

general increases in production costs;

•

fragmentation of consumer leisure and entertainment time and its possible negative effects on the broadcast and cable networks, which are significant customers of these businesses;

•

continued popularity of merchandising;

•

the uncertain impact of technological developments that may facilitate piracy of its copyrighted works;

•

the ability to develop and apply adequate protections for filmed entertainment content in a digital delivery environment;

•

the ability to develop a successful business model for delivery of feature films in a digital online environment;

•

risks associated with foreign currency exchange rates;

•

with respect to feature films, the increasing marketing costs associated with theatrical film releases in a highly competitive marketplace;

•

with respect to television programming, a decrease in demand for television programming provided by non-affiliated producers; and

•

with respect to home video, the ability to maintain relationships with significant customers in the rental and sell-through markets.

•

greater than expected news gathering, programming or production costs;

•

public or cable operator resistance to price increases and the negative impact on premium programmers of increases in basic cable rates;

•

increased regulation of distribution agreements;

•

the sensitivity of network advertising to economic cyclicality and to new media technologies;

•

the negative impact of consolidation among cable and satellite distributors;

•

piracy of content by means of interception of cable and satellite transmissions or Internet peer-to-peer file sharing;

AOL TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION — (Continued)

•

the impact of personal video recorder “ad-stripping” functions on advertising sales and network branding;

•

the development of new technologies that alter the role of programming networks and services; and

•

greater than expected fragmentation of consumer viewership due to an increased number of programming services or the increased popularity of alternatives to television.

•

the ability to continue to attract and select desirable talent at manageable costs; the popular demand for particular artists and albums; the timely completion of albums by major artists;

•

the ability to continue to enforce its intellectual property rights in digital environments; piracy of music by means of Internet peer-to-peer file sharing and organized and home CD-R activity;

•

the ability to develop a successful business model applicable to a digital online environment;

•

the ability to maintain retail product pricing in a competitive environment;

•

the potential loss of catalog if it is determined that recording artists have a right to recapture sound recordings under the United States Copyright Act;

•

the potential repeal of Subsection (b) of California Labor Code Section 2855, a Section which prescribes a maximum length for personal service contracts;

•

the risk that there will be other federal and state statutes enacted which are similar to California Labor Code Section 2855, a Section which prescribes a maximum length for personal service contracts;

•

risks from disruptions in the retail environment from bankruptcies, store closings and liquidity problems of record retailers;

•

risks associated with foreign currency exchange rates; and

•

the overall strength of global music sales.

•

declines in spending levels by advertisers and consumers;

•

the ability in a challenging environment to continue to develop new sources of circulation;

•

unanticipated increases in paper, postal and distribution costs;

•

increased costs and business disruption resulting from instability in the newsstand distribution channel; and

•

the introduction and increased popularity over the long term of alternative technologies for the provision of news and information.

For AOL Time Warner generally, the overall financial strategy, including growth in operations, maintaining financial ratios and a strong balance sheet, could be adversely affected by decreased liquidity in the capital markets, including any reduction in the ability to access either the capital markets for debt securities or bank financings, failure to meet earnings expectations, significant acquisitions or other transactions, economic slowdowns, the impact of hostilities in Iraq, increased expenses as a result of the SEC and DOJ investigations and the shareholder litigation pending against AOL Time Warner, as well as the risk of costs associated with judgments in or settlements of such matters, and changes in the Company’s plans, strategies and intentions. In addition, lower than expected valuations associated with the cash flows and revenues at its segments may result in its inability to realize the value of recorded intangibles and goodwill at those segments.

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the

AOL TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION — (Continued)

end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely making known to them material information relating to the Company and the Company’s consolidated subsidiaries required to be disclosed in the Company’s reports filed or submitted under the Exchange Act. The Company has investments in certain unconsolidated entities. As the Company does not control or manage these entities, its disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those it maintains with respect to its consolidated subsidiaries. There have not been changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2003 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.


	June 30,			December 31,
	2003			2002

ASSETS	(millions, except per share amounts)

Current assets
Cash and equivalents	$	2,074		$	1,730
Receivables, less allowances of $2.283 and $2.379 billion		4,578			5,667
Inventories		1,964			1,896
Prepaid expenses and other current assets		1,996			1,862

Total current assets		10,612			11,155

Noncurrent inventories and film costs		3,173			3,351
Investments, including available-for-sale securities		4,083			5,138
Property, plant and equipment		12,114			12,150
Intangible assets subject to amortization		7,123			7,061
Intangible assets not subject to amortization		40,146			37,145
Goodwill		39,101			36,986
Other assets		2,304			2,464

Total assets	$	118,656		$	115,450

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	1,902		$	2,459
Participations payable		1,777			1,689
Royalties and programming costs payable		1,560			1,495
Deferred revenue		1,196			1,209
Debt due within one year		419			155
Other current liabilities		5,838			6,388

Total current liabilities		12,692			13,395

Long-term debt		25,898			27,354
Deferred income taxes		12,868			10,823
Deferred revenue		988			990
Other liabilities		4,888			5,023
Minority interests		5,323			5,048

Shareholders’ equity
Convertible Preferred Stock, $0.10 par value, 1 share authorized, issued, and outstanding, $0.10 liquidation preference		1,500			—
Series LMCN-V Common Stock, $0.01 par value, 171.2 million shares outstanding in each period		2			2
AOL Time Warner Common Stock, $0.01 par value, 4.338 and 4.305 billion shares outstanding		43			43
Paid-in capital		155,388			155,134
Accumulated other comprehensive loss, net		(460	)		(428	)
Retained earnings (loss)		(100,474	)		(101,934	)

Total shareholders’ equity		55,999			52,817

Total liabilities and shareholders’ equity	$	118,656		$	115,450


		Three Months Ended June 30,						Six Months Ended June 30,

		2003			2002			2003			2002

		(millions, except per share amounts)
Revenues:
	Subscriptions	$	5,118		$	4,747		$	10,053		$	9,214
	Advertising		1,678			1,679			3,016			3,087
	Content		3,556			3,194			6,809			6,125
	Other		466			583			938			1,184

Total revenues^(a)			10,818			10,203			20,816			19,610
Costs of revenues^(a)			(6,265	)		(5,965	)		(12,269	)		(11,628	)
Selling, general and administrative^(a)			(2,811	)		(2,543	)		(5,435	)		(4,959	)
Merger and restructuring costs			(12	)		—			(36	)		(107	)
Amortization of intangible assets			(211	)		(175	)		(406	)		(339	)
Impairment of goodwill and intangible assets			(277	)		—			(277	)
Gain on disposal of assets			43			—			43			—

Operating Income			1,285			1,520			2,436			2,577
Interest expense, net^(a)			(473	)		(441	)		(941	)		(817	)
Other income (expense), net^(a)			1,103			(331	)		1,169			(986	)
Minority interest expense			(60	)		(53	)		(116	)		(84	)

Income (loss) before income taxes, discontinued operations and cumulative effect of accounting change			1,855			695			2,548			690
Income tax provision			(791	)		(301	)		(1,088	)		(304	)

Income (loss) before discontinued operations and cumulative effect of accounting change			1,064			394			1,460			386
Discontinued operations, net of tax			—			2			—			1

Income (loss) before cumulative effect of accounting change			1,064			396			1,460			387
Cumulative effect of accounting change			—			—			—			(54,235	)

Net income (loss)		$	1,064		$	396		$	1,460		$	(53,848	)

Basic income (loss) per common share before discontinued operations and cumulative effect of accounting change		$	0.24		$	0.09		$	0.33		$	0.09
Discontinued operations			—			—			—			—
Cumulative effect of accounting change			—			—			—			(12.21	)

Basic net income (loss) per common share		$	0.24		$	0.09		$	0.33		$	(12.12	)

Average basic common shares			4,500.5			4,454.1			4,491.8			4,441.7

Diluted income (loss) per common share before discontinued operations and cumulative effect of accounting change		$	0.23		$	0.09		$	0.32		$	0.09
Discontinued operations			—			—			—			—
Cumulative effect of accounting change			—			—			—			(12.21	)

Diluted net income (loss) per common share		$	0.23		$	0.09		$	0.32		$	(12.12	)

Average diluted common shares			4,648.9			4,528.2			4,586.8			4,531.2

AOL TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30,
(Unaudited)


		2003			2002

		(millions)
OPERATIONS
Net income (loss)		$	1,460		$	(53,848	)
Adjustments for noncash and nonoperating items:
	Cumulative effect of accounting change		—			54,235
	Depreciation and amortization		1,714			1,429
	Amortization of film costs		1,346			1,067
	Impairment of goodwill and other intangible assets		277			—
	Loss on writedown of investments		186			952
	Gain on sale of investments		(694	)		(94	)
	Equity in losses of investee companies after distributions		69			141
Changes in operating assets and liabilities, net of acquisitions			(563	)		(276	)
Adjustments relating to discontinued operations			—			322

Cash provided by operations			3,795			3,928

INVESTING ACTIVITIES
Investments in available-for-sale securities			(2	)		(4	)
Other investments and acquisitions, net of cash acquired			(386	)		(5,828	)
Capital expenditures and product development costs from continuing operations			(1,263	)		(1,354	)
Capital expenditures from discontinued operations			—			(169	)
Investment proceeds from available-for-sale securities			911			70
Other investment proceeds			1,377			151

Cash provided (used) by investing activities			637			(7,134	)

FINANCING ACTIVITIES
Borrowings			1,843			13,406
Debt repayments			(5,216	)		(8,980	)
Redemption of redeemable preferred securities of subsidiary			(813	)		(255	)
Proceeds from exercise of stock option and dividend reimbursement plans			191			215
Current period repurchases of common stock			—			(102	)
Dividends paid and partnership distributions for discontinued operations, net			—			(47	)
Principal payments on capital leases			(67	)		(17	)
Other			(26	)		6

Cash (used) provided by financing activities			(4,088	)		4,226

INCREASE IN CASH AND EQUIVALENTS			344			1,020
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD			1,730			719

CASH AND EQUIVALENTS AT END OF PERIOD		$	2,074		$	1,739

AOL TIME WARNER INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
Six Months Ended June 30,
(Unaudited)


	2003			2002

	(millions)
BALANCE AT BEGINNING OF PERIOD	$	52,817		$	152,027
Net income (loss)		1,460			(53,848	)
Other comprehensive loss^(a)		(32	)		(388	)

Comprehensive income (loss)		1,428			(54,236	)

Convertible preferred stock issued in connection with the TWE restructuring		1,500			—
Repurchases of AOL Time Warner common stock		—			(102	)
Dilution of interest in Time Warner Entertainment Company, L.P. (net of $276 million income tax impact)		—			(414	)
Other, principally shares issued pursuant to stock option and benefit plans, including $36 million and $121 million, net of tax benefit, respectively		254			395

BALANCE AT END OF PERIOD	$	55,999		$	97,670

(a)

2003 includes a $10 million pretax reduction (income tax impact of $4 million) related to the write-down of certain investments, accounted for under FAS 115, from a decline in market value determined to be other-than-temporary. 2002 includes a $141 million pretax reduction (income tax impact of $56 million), related to the write-down of certain investments, accounted for under FAS 115, from a decline in market value determined to be other-than-temporary.

AOL Time Warner Inc. (“AOL Time Warner” or the “Company”) is the world’s leading media and entertainment company, whose businesses include interactive services, cable systems, filmed entertainment, television networks, music and publishing. AOL Time Warner classifies its business interests into six fundamental areas: AOL, consisting principally of interactive services; Cable, consisting principally of interests in cable systems; Filmed Entertainment, consisting principally of interests in filmed entertainment and television production; Networks, consisting principally of interests in cable television and broadcast network programming; Music, consisting principally of interests in recorded music, music publishing and CD and DVD manufacturing and Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing.

Each of the business interests within AOL Time Warner – AOL, Cable, Filmed Entertainment, Networks, Music and Publishing – is important to management’s objective of increasing shareholder value through the creation, extension and distribution of recognizable brands and copyrights throughout the world. Such brands and copyrights include (1) the leading worldwide Internet service AOL, leading Web properties, such as Mapquest, instant messaging services, such as ICQ and AOL Instant Messenger, and AOL music properties, such as the AOL Music Channel, (2) Time Warner Cable, currently the second largest operator of cable television systems in the U.S., (3) the unique and extensive film, television and animation libraries owned or managed by Warner Bros. and New Line Cinema, and trademarks such as the Looney Tunes characters, Batman and The Flintstones, (4) leading television networks, such as The WB Network, HBO, Cinemax, CNN, TNT, TBS Superstation and Cartoon Network, (5) copyrighted music from many of the world’s leading recording artists that is produced and distributed by a family of established record labels such as Warner Bros. Records, Atlantic Records, Elektra Entertainment and Warner Music International and (6) magazine franchises, such as Time, People and Sports Illustrated.

In July 2003, the Company announced a definitive agreement to sell Warner Music Group’s DVD and CD manufacturing, printing, packaging, physical distribution and merchandising businesses for $1.05 billion in cash to Cinram International Inc. (“Cinram”). This agreement includes the following businesses: WEA Manufacturing Inc., Warner Music Manufacturing Europe GmbH, Ivy Hill Corporation, Giant Merchandising and the physical distribution operations of Warner-Elektra-Atlantic Corporation (“WEA Corp.”). The sales and marketing operations of WEA Corp. will remain as part of Warner Music Group (“WMG”).

In addition, the Company will enter into long-term agreements effective at the closing under which Cinram will provide manufacturing, printing, packaging and physical distribution for the Company’s DVDs and CDs in North America and Europe. Had the sale and other agreements described above occurred at the beginning of 2003, Operating Income before Depreciation and Amortization for the Company for the six months ended June 30, 2003, would have been reduced by approximately $130 million. Similarly, depreciation and amortization would have been reduced by approximately $30 million resulting in a reduction in Operating Income of approximately $100 million. This transaction is expected to close by the end of 2003, but is subject to the applicable regulatory reviews in the United States and other countries and other customary closing conditions. The music manufacturing business has been classified as held for sale and accordingly, we have stopped depreciating and amortizing the manufacturing assets effective July 2003.

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The carrying amount of major classes of assets and liabilities are approximately as follows:

The SEC and the DOJ continue to conduct investigations into accounting and disclosure practices of the Company. Those investigations are focused on transactions principally involving the Company’s America Online unit that were entered into after July 1, 1999, including advertising arrangements and the methods used by the America Online unit to report its subscriber numbers.

In the 2002 Form 10-K, the Company disclosed that the staff of the SEC had recently informed the Company that, based on information provided to the SEC by the Company, it was the preliminary view of the SEC staff that the Company’s accounting for two related transactions between America Online and Bertelsmann, A.G. should be adjusted. For a description of those transactions, see Management’s Discussion and Analysis of Results of Operations and Financial Condition and Note 17 to the financial statements in the Company’s 2002 Form 10-K and Note 10 to the Notes to Financial Statements in Part I of this report. At that time, the Company further disclosed that it had provided the SEC a written explanation of the basis for the Company’s accounting for these transactions and the reasons why both the Company and its auditors continued to believe that these transactions had been accounted for correctly.

The staff of the SEC has continued to review the Company’s accounting for these transactions, including the Company’s written and oral submissions to the SEC. Recently, the Office of the Chief Accountant of the SEC informed the Company that it has concluded that the accounting for these transactions is incorrect. Specifically, in the view of the Office of the Chief Accountant, the Company should have allocated some portion of the $400 million paid by Bertelsmann, A.G. to America Online for advertising, which was run by the Company and recognized as revenue, as consideration for the Company’s decision to relinquish its option to pay Bertelsmann in stock for its interests in AOL Europe, and therefore should have been reflected as a reduction in the purchase price for Bertelsmann’s interest in AOL Europe, rather than as advertising revenue. In addition, the Division of Enforcement of the SEC continues to investigate the facts and circumstances of the negotiation and performance of these agreements with Bertelsmann, including the value of the advertising provided thereunder.

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Based upon its knowledge and understanding of the facts of these transactions, the Company and its auditors continue to believe its accounting for these transactions is appropriate. It is possible, however, that the Company may learn information as a result of its ongoing review, discussions with the SEC, and/or the SEC’s ongoing investigation that would lead the Company to reconsider its views of the accounting for these transactions. It is also possible that restatement of the Company’s financial statements with respect to these transactions may be necessary. In light of the conclusion of the Office of the Chief Accountant of the SEC that the accounting for the Bertelsmann transactions is incorrect, it is likely that the SEC would not declare effective any registration statement of the Company or its affiliates, such as the potential initial public offering of Time Warner Cable Inc., until this matter is resolved.

The SEC staff also continues to investigate a range of other transactions principally involving the Company’s America Online unit, including advertising arrangements and the methods used by the America Online unit to report its subscriber numbers. The Company intends to continue its efforts to cooperate with both the SEC and the Department of Justice investigations to resolve these matters. The Company may not currently have access to all relevant information that may come to light in these investigations, including but not limited to information in the possession of third parties who entered into agreements with America Online during the relevant time period. It is not yet possible to predict the outcome of these investigations, but it is possible that further restatement of the Company’s financial statements may be necessary. It is also possible that, so long as there are unresolved issues associated with the Company’s financial statements, the effectiveness of any registration statement of the Company or its affiliates may be delayed.

On January 22, 2002, Netscape Communications Corporation (“Netscape”) sued Microsoft Corporation (“Microsoft”) in the U. S. District Court for the District of Columbia for antitrust violations under Sections 1 and 2 of the Sherman Act, as well as for other common law violations.

On May 29, 2003, Microsoft and AOL Time Warner announced an agreement to settle the pending litigation between Microsoft and Netscape and to collaborate on long-term digital media initiatives that will accelerate the adoption of digital content (the “Microsoft Settlement”). As part of the settlement, Microsoft agreed to pay $750 million to AOL Time Warner and AOL Time Warner agreed to release Microsoft from the Netscape action and related antitrust claims. In addition, Microsoft agreed to a variety of steps designed to ensure that Microsoft and AOL products work better with each other, including giving AOL the same access to early builds of the Microsoft Windows operating system as Microsoft affords to other third parties as well as providing AOL with seven years of dedicated support by Microsoft engineers who have access to Windows source code, to help AOL with compatibility and other engineering efforts. The digital media initiative also established a long-term, nonexclusive license agreement allowing AOL Time Warner the right but not obligation to use Microsoft’s entire Windows Media 9 Series digital media platform, as well as successor Microsoft digital rights management software. Microsoft also agreed to provide AOL with a new distribution channel for its software to certain PC users worldwide. Finally, as part of this settlement, Microsoft agreed to release AOL Time Warner from the obligation to reimburse Microsoft’s attorneys fees in connection with an arbitration ruling under a 1996 distribution agreement.

In determining the gain recognized in connection with the Microsoft Settlement, the Company evaluated the fair value of all elements received in addition to the cash payment of $750 million. The Company has preliminarily estimated the value of the noncash elements received in connection with the Microsoft Settlement aggregated approximately $10 million. Accordingly, the total gain recognized by AOL Time Warner as a result of the Microsoft Settlement is approximately $760 million, which is included in “Other income (expense), net,” in the Company’s consolidated statement of operations for the three and six months ended June 30, 2003 (Note 10).

During 2002, TWE and the Advance/Newhouse Partnership (“Advance/Newhouse”) restructured the TWE-Advance/Newhouse Partnership (“TWE-A/N”) resulting in Advance/Newhouse assuming responsibility for the day-to-day operations of and an economic interest in certain TWE-A/N cable systems. As a result, AOL Time Warner deconsolidated the financial position and operating results of these systems, and has reflected the 2002 operating results as discontinued operations. Revenues and net income from the discontinued operations totaled $363 million and $2 million for the three months ended June 30, 2002 and $715 million and $1 million for the six months ended June 30, 2002, respectively.

The accompanying consolidated financial statements are unaudited but, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position and the results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States applicable to interim periods. The accompanying

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consolidated financial statements should be read in conjunction with the audited consolidated financial statements of AOL Time Warner, included in its Annual Report on Form 10-K for the year ended December 31, 2002 (the “2002 Form 10-K”).

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure” (“FAS 148”). FAS 148 provides alternative methods of transition for a voluntary change to the recognition of the cost of the options in the statement of operations. FAS 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, FAS 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of FAS 148 were effective for fiscal years ended after December 15, 2002. The interim disclosure requirements of FAS 148 are effective for interim periods beginning after December 15, 2002. The adoption of the provisions of FAS 148 did not have an impact on the Company’s consolidated financial statements; however, the Company has modified its disclosures as provided for in the new standard.

The Company follows the provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”). The provisions of FAS 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), but disclose the pro forma effects on net income (loss) had the fair value of the options been expensed. AOL Time Warner has elected to continue to apply APB 25 in accounting for its stock option incentive plans.

In accordance with APB 25 and related interpretations, compensation expense for stock options is recognized in income based on the excess, if any, of the quoted market price of the stock at the grant date of the award or other measurement date over the amount an employee must pay to acquire the stock. Generally, the exercise price for stock options granted to employees equals or exceeds the fair market value of AOL Time Warner common stock at the date of grant, thereby resulting in no recognition of compensation expense by AOL Time Warner. For awards that generate compensation expense as defined under APB 25, the Company calculates the amount of compensation expense and recognizes the expense over the vesting period of the award.

Had compensation cost for AOL Time Warner’s stock option plans been determined based on the fair value method set forth in FAS 123, AOL Time Warner’s net income (loss) and basic and diluted net income (loss) per common share would have been changed to the pro forma amounts indicated below:


		Three Months Ended June 30,						Six Months Ended June 30,

		2003			2002			2003			2002

		(millions, except per share amounts)
Net income (loss), as reported		$	1,064		$	396		$	1,460		$	(53,848	)
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects			(155	)		(281	)		(338	)		(585	)

Pro forma net income (loss)		$	909		$	115		$	1,122		$	(54,433	)

Basic net income (loss) per share:
	As reported	$	0.24		$	0.09		$	0.33		$	(12.12	)

	Pro forma	$	0.20		$	0.03		$	0.25		$	(12.25	)

Diluted net income (loss) per share:
	As reported	$	0.23		$	0.09		$	0.32		$	(12.12	)

	Pro forma	$	0.20		$	0.03		$	0.24		$	(12.25	)

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In January 2002, the Company adopted the provisions of FASB Statement of Financial Accounting Standards (“Statement”) No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”). FAS 142 suspended amortization of goodwill including the goodwill included in the carrying value of investments accounted for using the equity method of accounting, and certain other intangible assets deemed to have an indefinite useful life. The new rules also require that goodwill and certain intangible assets be assessed for impairment using fair value measurement techniques. During the first quarter of 2002, the Company completed its initial impairment review and recorded a $54.199 billion non-cash pretax charge for the impairment of goodwill, which excludes a $36 million goodwill impairment charge associated with equity method investees. Substantially all of the impaired goodwill was generated in the merger of America Online, Inc. (“America Online”) and Time Warner Inc. (“Time Warner”). The charge reflected overall market declines since the merger was announced in January 2000, was non-operational in nature and is reflected as a cumulative effect of an accounting change in the accompanying consolidated financial statements.

In June 2003, the Company recorded impairment losses of $277 million to reduce the carrying value of goodwill and certain intangible assets at the Turner winter sports teams (the Atlanta Thrashers, an NHL team, and Atlanta Hawks, an NBA team), and certain intangible assets of the AOL Time Warner Book Group, which were recorded at the time of the America Online-Time Warner merger. The impairment charges were taken in the second quarter due to additional fair value information obtained through the Company’s negotiations with third parties related to the possible sale of the businesses.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which requires variable interest entities (commonly referred to as SPEs) to be consolidated by the primary beneficiary of the entity if certain criteria are met. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 become effective for the Company during the third quarter of 2003. For variable interest entities acquired prior to February 1, 2003, any difference between the net amount added to the balance sheet and the amount of any previously recognized interest in the variable interest entity will be recognized as a cumulative effect of an accounting change. The Company has identified variable interest entities created prior to February 1, 2003, which the Company will consolidate upon the effectiveness of FIN 46 in July 2003. This will result in the recognition of additional long-term debt and minority interest of approximately $800 million. The gain or loss, which is not expected to be material, will be recognized as a cumulative effect of accounting change in the third quarter of 2003.

In July 2002, the FASB issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“FAS 146”). FAS 146 nullifies the accounting for restructuring costs provided in EITF Issue No. 94-3 “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” FAS 146 requires that a liability associated with an exit or disposal activity be recognized and measured at fair value only when incurred. In addition, one-time termination benefits should be recognized over the period employees will render service, if the service period required is beyond a minimum retention period. FAS 146 is effective for exit or disposal activities initiated after December 31, 2002. The application of the provisions of FAS 146 did not have a material impact on the Company’s consolidated financial statements during the first six months of 2003.

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In November 2002, the EITF reached a consensus on EITF No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). EITF 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company believes that its current accounting is consistent with the provisions of EITF 00-21 and therefore does not expect that the application of the provisions of EITF 00-21 will have a material impact on the Company’s consolidated financial statements.

In November 2002, the EITF reached a consensus on EITF No. 02-16, “Accounting for Consideration Received from a Vendor by a Customer” (“EITF 02-16”). EITF 02-16 provides guidance as to how customers should account for cash consideration received from a vendor. EITF 02-16 presumes that cash received from a vendor represents a reduction of the prices of the vendor’s products or services, unless the cash received represents a payment for assets or services provided to the vendor or a reimbursement of costs incurred by the customer to sell the vendor’s products. The provisions of EITF 02-16 will apply to all agreements entered into or modified after December 31, 2002. The provisions of EITF 02-16 did not have a material impact on the Company’s consolidated financial statements during the first six months of 2003.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The initial recognition and initial measurement provisions of FIN 45 did not have a material impact on the Company’s consolidated financial statements. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002; therefore, the Company has modified its disclosures as required.

In April 2003, the FASB issued FASB Statement No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“FAS 149”). FAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133 (“FAS 133”), “Accounting for Derivative Instruments and Hedging Activities”.

This statement is effective for contracts entered into or modified after June 30, 2003. Management does not believe that adoption of this statement will have a material impact on the Company’s consolidated financial statements.

Certain Financial Instruments with Characteristics of Both Liabilities and Equity

In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“FAS 150”). FAS 150 requires that an issuer classify certain financial instruments as a liability (or an asset in some circumstances) because that financial instrument embodies an

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obligation of the issuer. The remaining provisions of FAS 150 revise the definition of a liability to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer. FAS 150 will be effective for AOL Time Warner in the third quarter of 2003. The adoption of the provisions of FAS 150 will require the Company to reclassify $1.5 billion of mandatorily convertible preferred stock issued to Comcast from shareholders’ equity to liabilities.

Certain reclassifications have been made to the prior year’s financial information to conform to the June 30, 2003 presentation.

In accordance with accounting principles generally accepted in the United States, AOL Time Warner generally treats merger costs relating to business combinations accounted for using the purchase method of accounting as additional purchase price paid. However, certain merger costs do not meet the criteria for capitalization and are expensed as incurred. Certain merger costs were expensed as incurred as they either related to the operations of the acquirer, including the AOL operations with respect to the merger of America Online and Time Warner, or otherwise did not qualify as a liability or cost assumed in a purchase business combination, including the merger of America Online and Time Warner. Merger costs both capitalized and expensed are discussed in more detail in the following paragraphs.

In connection with the merger of America Online and Time Warner, the Company reviewed its operations and implemented several plans to restructure the operations of both companies (“restructuring plans”). As part of the restructuring plans, the Company accrued a restructuring liability of approximately $1.340 billion during 2001. The restructuring accruals relate to costs to exit and consolidate certain activities of Time Warner, as well as costs to terminate employees across various Time Warner business units. Such amounts were recognized as liabilities assumed in the purchase business combination and included in the allocation of the cost to acquire Time Warner. Accordingly, such amounts resulted in additional goodwill being recorded in connection with the Merger.

Of the total restructuring accrual, approximately $880 million related to work force reductions and represented employee termination benefits and relocation costs. Employee termination costs occurred across most Time Warner business units and ranged from senior executives to line personnel. The total number of employees initially identified to be involuntarily terminated or relocated approximated 8,200, which was reduced to approximately 6,400 by December 31, 2002 as the remaining terminations were no longer expected to occur. Because certain employees can defer receipt of termination benefits, cash payments may continue after the employee was terminated (generally for periods up to 24 months). Employee termination payments of approximately $300 million were made in 2001, $244 million were paid in 2002 ($64 million of which was paid in the second quarter of 2002), an additional $19 million was paid in the second quarter of 2003 and $57 million was paid in the first six months of 2003. As of June 30, 2003, out of the remaining liability of $125 million, $53 million was classified as a current liability with the remainder classified as a long-term liability in the accompanying consolidated balance sheet.

The restructuring accrual also included approximately $460 million associated with exiting certain activities, primarily related to lease and contract termination costs. Specifically, the Company consolidated certain operations and has exited other under-performing operations, including the Studio Stores operations of the Filmed Entertainment segment and the World Championship Wrestling operations of the Networks segment. The

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restructuring accrual associated with other exit activities specifically includes incremental costs and contractual termination obligations for items such as lease termination payments and other facility exit costs incurred as a direct result of these plans, which will not have future benefits. Payments related to exit activities were $165 million in 2001, $122 million in 2002 ($30 million of which was paid in the second quarter of 2002), an additional $3 million was paid in the second quarter of 2003 and $21 million was paid in the first six months of 2003. As of June 30, 2003, out of the remaining liability of $108 million, $30 million was classified as a current liability with the remainder classified as a long-term liability in the accompanying consolidated balance sheet.

Selected information relating to the restructuring costs included in the allocation of the cost to acquire Time Warner are as follows (in millions):

During 2001, the Company’s restructuring plans also included $250 million of merger-related costs that were expensed in accordance with accounting principles generally accepted in the United States. Of the $250 million, $153 million related to employee termination benefits, primarily at the AOL segment, and $97 million related to other exit costs. The other exit costs relate to contractual terminations for various leases and contractual commitments relating to terminated projects, including the termination of the iPlanet alliance with Sun Microsystems Inc. The number of employees expected to be terminated at the AOL segment was 2,430. As of December 31, 2002, substantially all of the terminations had occurred. The severed employees spanned all major departments and divisions in the AOL segment, including Technology, Digital City, MapQuest, AOL Brand, Member Services, Interactive Marketing, CompuServe, Business Affairs, AIM/ICQ, Wireless Strategy, Spinner, Acquisition Marketing, iPlanet, Technology & Systems Development, AOL Products, Interactive Properties and Netscape. These Merger-related costs were expensed as they either related to the AOL operations or otherwise did not qualify as a liability or cost assumed in the purchase of Time Warner. Payments related to these charges were $145 million in 2001, $79 million in 2002 ($16 million of which was paid in the second quarter), and an additional $1 million was paid in the second quarter of 2003 and $5 million was paid in the first six months of 2003. As of June 30, 2003, approximately $9 million of the $250 million had not been paid and is primarily classified as a current liability in the accompanying consolidated balance sheet.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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Selected information relating to the merger costs expensed as incurred are as follows (in millions):

In addition to the costs of restructuring associated with merger activities, the Company has also recognized restructuring costs that are unrelated to business combinations and are expensed as incurred.

For the six months ended June 30, 2003, the Company incurred restructuring costs related to various employee and contractual terminations of $36 million, ($12 million of which was incurred in the second quarter of 2003) including $4 million at the AOL segment, $8 million at the Networks segment, $18 million at the Publishing segment and $6 million at the Music segment. Employee termination costs occurred across each of the segments mentioned above and ranged from senior executives to line personnel. The number of employees expected to be terminated is approximately 842. As of June 30, 2003, approximately 590 of the terminations had occurred with the remainder expected to occur later this year. Of the $36 million, $5 million has been paid against this accrual as of June 30, 2003.

During the year ended December 31, 2002, the Company incurred and accrued other restructuring costs of $335 million (none of which was expensed in the second quarter of 2002) related to various contractual terminations and obligations, including certain contractual employee termination benefits. Of the $335 million of restructuring costs, $266 million related to the AOL segment, $46 million related to the Corporate segment, $15 million related to the Cable segment, and $8 million related to Music. The Music segment recorded approximately $20 million of restructuring costs, which were partially offset by the reversal of a previously recorded accrual of $12 million as a result of it no longer being probable that the related contractual employee termination benefits would be paid by the Company. Payments related to these charges were $84 million in 2002 and $149 million in 2003 ($48 million of which was paid in the second quarter).

Included in the 2002 restructuring charge was $131 million (none of which was expensed in the second quarter of 2002) related to lease obligations of the AOL segment for network modems that will no longer be used because network providers are upgrading their networks to newer technology. Specifically, under certain existing agreements with network providers, AOL is leasing the modems used in providing network services. During 2002, a plan was established under which network providers would upgrade and replace the AOL supplied modems. Accordingly, the Company accrued the remaining lease obligations, less estimated recoveries, for the period that these modems would no longer be in use.

In addition, included in the 2002 restructuring charge was approximately $100 million (none of which was expensed in the second quarter) related to work force reductions and represented employee termination benefits. Employee termination costs occurred across the AOL, Cable, Music and Corporate segments and range from senior

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executives to line personnel. The number of employees expected to be terminated was approximately 1,000. As of December 31, 2002, substantially all the terminations had occurred. The remaining $104 million (none of which was incurred in the second quarter) primarily related to incremental costs and contractual termination obligations for items such as lease termination payments and other facility exit costs. The remaining $114 million accrual is primarily classified as a current liability in the accompanying consolidated balance sheet (in millions).

During the six months ended June 30, 2003, the Company recognized gains from certain investments of approximately $651 million, including a $513 million gain on the sale of the Company’s interest in Comedy Central, a $50 million gain from the sale of the Company’s interest in Hughes Electronics Corp. (“Hughes”) and a $49 million gain from the sale of the Company’s equity interest in certain international theater chains. During the six months ended June 30, 2002, the Company recognized gains from certain investments of approximately $94 million, including a $59 million gain on the sale of a portion of the Company’s interest in Columbia House and a $31 million gain on the redemption of a portion of the Company’s interest in TiVo Inc. These gains are included in “other income (expense), net” in the accompanying consolidated statement of operations.

In connection with the sale of the Company’s investment in Columbia House in 2002, Warner Music Group and Warner Home Video entered into music and video licensing arrangements with Columbia House. The Company believes that the terms of the licensing arrangements are at market rates and accordingly, none of the proceeds were allocated to the arrangements.

The Company has experienced declines in the value of certain publicly traded and privately held investments, restricted securities and investments accounted for using the equity method of accounting. As a result, the Company has recorded non-cash pretax charges to reduce the carrying value of certain investments that experienced other-than-temporary declines in value and to reflect market fluctuations in equity derivative instruments.

For the three and six months ended June 30, 2003, the Company recognized non-cash charges of $151 million and $174 million, respectively, which are comprised of $160 million and $187 million, respectively, to reduce the carrying value of certain investments that experienced other-than-temporary declines in market value, offset in part by $9 and $13 million, respectively, of gains to reflect market fluctuations in equity derivative instruments. Included in the 2003 charge were a writedown of $77 million of the Company’s 40.3% interest in AOL Japan and $71 million writedown of the Company’s 49.8% interest in NTV-Germany. For the three and six months ended June 30, 2002, the Company recognized non-cash charges of $364 million, including $1 million in losses relating to equity derivative instruments, and $945 million, including $8 million of gains relating to equity derivative instruments. Included in the noncash pretax charge for the three and six months ended June 30, 2002 are charges of approximately $201 million and $772 million, respectively, relating to other-than-temporary declines in value to reduce the carrying value of AOL Time Warner’s investment in Time Warner Telecom Inc., a 44% owned equity investment, which was written up in connection with the merger of America Online and Time Warner and approximately $101 million in the second quarter relating to an investment in Gateway Inc. for declines deemed to be other than temporary. These write downs are included in “other income (expense), net” in the accompanying consolidated statement of operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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As of June 30, 2003, AOL Time Warner has total investments, excluding equity-method investments, with a carrying value of $1.378 billion for which their estimated fair value exceeded the carrying value by approximately $227 million.

Prior to the restructuring discussed below, a majority of AOL Time Warner’s interests in the Filmed Entertainment and Cable segments, and a portion of its interests in the Networks segment, were held through Time Warner Entertainment Company, L.P. (“TWE”). AOL Time Warner owned general and limited partnership interests in TWE consisting of 72.36% of the pro rata priority capital and residual equity capital, and 100% of the junior priority capital. The remaining 27.64% limited partnership interests in TWE were held by subsidiaries of Comcast Corporation (“Comcast”).

On March 31, 2003, AOL Time Warner and Comcast completed the restructuring of TWE (the “TWE Restructuring”). As a result of the TWE Restructuring, AOL Time Warner acquired complete ownership of TWE’s content businesses, including Warner Bros., Home Box Office, and TWE’s interests in The WB Network, Comedy Central (which was subsequently sold) and the Courtroom Television Network (“Court TV”). Additionally, all of AOL Time Warner’s interests in cable, including those that were wholly-owned and those that were held through TWE are now controlled by a new subsidiary of AOL Time Warner called TWC Inc. As part of the restructuring, AOL Time Warner received a 79% economic interest in TWC Inc.’s cable systems. TWE is now a subsidiary of TWC Inc.

In exchange for its previous stake in TWE, Comcast: (i) received AOL Time Warner preferred stock, which will be converted into $1.5 billion of AOL Time Warner common stock; (ii) received a 21.0% economic interest in TWC Inc.’s cable systems; and (iii) was relieved of $2.1 billion of pre-existing debt at one of its subsidiaries, which was incurred by TWC Inc. as part of the TWE Restructuring.

Comcast’s 21.0% economic interest in TWC Inc.’s cable business, is held through a 17.9% direct ownership interest in TWC Inc. (representing a 10.7% voting interest) and a limited partnership interest in TWE representing a 4.7% residual equity interest. AOL Time Warner’s 79% economic interest in TWC Inc.’s cable business is held through an 82.1% ownership interest in TWC Inc. (representing an 89.3% voting interest) and a partnership interest in TWE representing a 1% residual equity interest. AOL Time Warner also holds a $2.4 billion mandatorily redeemable preferred equity interest in TWE. The additional ownership interests acquired by AOL Time Warner in the TWE Restructuring have been accounted for as a step acquisition and are reflected in the accompanying balance sheet as of June 30, 2003. The purchase price allocation is preliminary, as the Company is in the process of completing a valuation study to identify and value the net assets acquired.

The total purchase consideration for the aforementioned step acquisition is approximately $4.6 billion. This consideration consists of the above noted debt assumed and the issuance of mandatorily convertible preferred stock as well as an interest in certain cable systems that were previously wholly-owned by AOL Time Warner with an approximate value of $1.0 billion.

As of June 30, 2003 the purchase consideration has been preliminarily allocated to the tangible and intangible assets as follows (millions):

As of March 31, 2003, the Company allocated approximately $1.4 billion to goodwill. In the second quarter of 2003 the Company re-allocated $313 million of goodwill to investments, $420 million of goodwill to intangible assets subject to amortization and $20 million to fixed assets. The remaining goodwill balance of $683 million is recorded in the Networks, Filmed Entertainment and Cable segments in the amount of $385 million, $295 million and $3 million, respectively. Of the $420 million in intangible assets subject to amortization, $5 million has been amortized in the second quarter of 2003. Such intangible assets are amortized over a period of approximately 20 years.

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

As previously stated the purchase allocations noted above are preliminary and additional work needs to be completed to finalize the allocation. Accordingly, there may be changes to the allocations noted above.

As part of the closing of the TWE Restructuring, AOL Time Warner, together with certain of its consolidated subsidiaries, amended its aggregate $10 billion unsecured long-term revolving bank credit agreements (the “Credit Agreements”). Except as modified below, the Credit Agreements now consist of a $6 billion five-year revolving credit facility, a $2.5 billion 364-day revolving credit facility, and a $1.5 billion 364-day revolving credit facility. The borrowers under the $6 billion and $2.5 billion facilities (the “AOLTW Facilities”) are AOL Time Warner and AOL Time Warner Finance Ireland. The obligations of each of AOL Time Warner and AOL Time Warner Finance Ireland are directly or indirectly guaranteed by America Online, Time Warner, Turner Broadcasting System, Inc. (“TBS”) and Time Warner Companies, Inc. (“TW Companies”). The obligations of AOL Time Warner Finance Ireland are guaranteed by AOL Time Warner. The borrower under the $1.5 billion facility is TWE (and TWC Inc. following any initial public offering of its stock or registered public debt) (the “TWE Facility”). On July 7, 2003 AOL Time Warner renewed its $2.5 billion 364-day revolving credit facility and reduced its size to $2.0 billion. Borrowings under this facility may be extended for a period up to one year beyond the initial maturity of July 6, 2004. The maturity of the TWE Facility is January 7, 2004 with an optional extension period of one year beyond such maturity date.

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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Borrowings bear interest at rates generally based on the credit rating of the respective borrowers, which rate is currently equal to LIBOR plus 0.525% in the case of the $2.0 billion and $1.5 billion 364-day facilities, and 0.500% in the case of the $6.0 billion five-year facility. In addition, the Company is required to pay a facility fee of 0.10% per annum on the aggregate commitments under its 364-day facility and 0.125% per annum on the aggregate commitments under the 5-year facility, and an additional usage fee of .0625% if the aggregate outstanding loans under the Credit Agreements exceed 33% of the aggregate committed amounts thereunder and 0.125% if such outstanding amounts exceed 66%. TWE is required to pay a facility fee of 0.10% per annum on the aggregate commitments under the TWE Facility and an additional usage fee of .0625% on outstanding principal amounts, which fee increases to 0.125% if the outstanding amounts exceed 66% of the total committed amounts under the TWE Facility. The AOLTW Facilities and the TWE Facility provide same-day funding and multi-currency capability. The AOLTW Facilities contain a maximum leverage ratio covenant (net of cash balances in excess of $200 million) of 4.5 times consolidated EBITDA, as defined in the agreements, for AOL Time Warner, and an interest coverage covenant of 2.0 times consolidated cash interest expense for AOL Time Warner, and the TWE Facility contains a maximum leverage ratio covenant (net of cash balances in excess of $25 million) of 5.0 times consolidated EBITDA, as defined in the agreement, for TWE, and an interest coverage covenant of 2.0 times consolidated cash interest expense for TWE. The Credit Agreements do not contain any credit ratings-based defaults or covenants, nor any ongoing covenant or representations specifically relating to a material adverse change in the Company’s or TWE’s financial condition or results of operations. Borrowings may be used for general corporate purposes and unused credit is available to support commercial paper borrowings.

As previously noted, there was $2.1 billion of pre-existing debt of a Comcast subsidiary which was assumed by TWC Inc. at the time of the TWE Restructuring. The form of this debt is a one-year term loan with an optional extension for an additional year. The loan is guaranteed by TWE and is prepayable. The term loan contains a maximum leverage ratio covenant (including amounts owing to preferred equity interests and net of cash balances in excess of $25 million) of 3.5 times EBITDA, as defined in the agreement, for TWC Inc., and an interest coverage covenant of 2.0 times consolidated cash interest expense for TWC Inc. A total of $400 million of quarterly amortization commences on December 31, 2003 prior to final repayment of the remaining $1.7 billion on March 31, 2005, assuming the optional extension is exercised. Borrowings bear interest at specific rates, based on the credit rating for TWC Inc. or TWE, which is currently equal to LIBOR plus 0.875%.

As of March 31, 2003, AOL Europe had 725,000 shares of redeemable preferred securities outstanding with a liquidation preference of $725 million. Dividends accreted at an annual rate of 6% and the total accumulated dividends as of March 31, 2003 were approximately $88 million. These securities and accrued dividends are classified as minority interest in the accompanying consolidated balance sheet. In April 2003, the preferred shares and accrued dividends were repurchased for approximately $813 million in cash.

The Company has outstanding one share of its Series A Mandatorily Convertible Preferred Stock, par value $.10 per share (the “Series A Preferred Stock”), held by a trust for the benefit of Comcast Corporation. The Series A Preferred Stock is not entitled to receive a dividend, has a liquidation preference of $0.10 per share, and, after payment of the liquidation preference, would participate on a pro rata basis with the common stock in the event of a liquidation of the Company. The holder of the Series A Preferred Stock is entitled to vote on all matters submitted to shareholders of the Company, and votes with the holders of common stock as a class, with the Series A Preferred Stock having a number of votes equal to 134,245,006 shares of common stock. Upon conversion, the Series A Preferred Stock will be converted into shares of the Company’s common stock having a value equal to $1.5 billion based on the value of the Company’s common stock at the time of conversion, up to a maximum of 225,056,264 shares. The Series A Preferred Stock will be converted upon the earliest to occur of the date a registration statement providing for the resale of the shares of common stock received on conversion is declared effective, the occurrence of specified events such as a merger of the Company or the second anniversary of the closing of the TWE Restructuring, i.e., on March 31, 2005.

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Upon adoption of FAS 150, in the third quarter of 2003, the Company will reclassify the $1.5 billion of mandatorily convertible preferred stock from shareholders’ equity to liabilities (Note 1).

AOL Time Warner classifies its business interests into six fundamental areas: AOL, consisting principally of interactive services; Cable, consisting principally of interests in cable systems; Filmed Entertainment, consisting principally of interests in filmed entertainment and television production; Networks, consisting principally of interests in cable television and broadcast network programming; Music, consisting principally of interests in recorded music, music publishing and CD and DVD manufacturing; and Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing.

Information as to the operations of AOL Time Warner in each of its business segments is set forth below based on the nature of the products and services offered. AOL Time Warner evaluates performance based on several factors, of which the primary financial measure is Operating Income (Loss) before noncash depreciation of tangible assets, and amortization of intangible assets (“Operating Income before Depreciation and Amortization”). Additionally, the Company has provided a summary of Operating Income (Loss) by segment.

The accounting policies of the business segments are the same as those described in the summary of significant accounting policies under Note 1 in the Company’s 2002 Form 10-K. Intersegment sales are accounted for at fair value as if the sales were to third parties.

In the normal course of business, the AOL Time Warner segments enter into transactions with one another. The most common types of intersegment transactions include:

•

The Filmed Entertainment segment generating content revenue by licensing television and theatrical programming to the Networks segment;

•

The Networks segment generating subscription revenues by selling cable network programming to the Cable segment;

•

The AOL, Cable, Networks and Publishing segments generating advertising revenue by cross-promoting the products and services of all AOL Time Warner segments;

•

The Music segment generating Other revenue by manufacturing DVDs for the Filmed Entertainment segment; and

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

•

The AOL segment generating Other revenue by providing the Cable segment’s customers access to the AOL Transit Data Network (ATDN) for high-speed access to the Internet.

These intersegment transactions are recorded by each segment at fair value as if the transactions were with third parties and, therefore, impact segment performance. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues (and corresponding expenses recognized by the segment that is counterparty to the transaction) are eliminated in consolidation and, therefore, do not themselves impact consolidated results. Revenues recognized by AOL Time Warner’s segments on intersegment transactions are as follows:

Included in the total intersegment revenues above are advertising revenues, as follows:

During the second quarter of 2003, there was a change in the application of the AOL segment’s policy for intercompany advertising barter transactions, which reduced both the amount of intercompany advertising revenues and advertising expenses recognized by the AOL segment during the quarter by approximately $30 million. This change, however, had no impact on the AOL segment’s Operating Income or its Operating Income before Depreciation and Amortization. In addition, because intercompany transactions are eliminated on a consolidated basis, this change in policy did not impact the Company’s consolidated results of operations.

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,

		2003		2002		2003		2002

		(millions)				(millions)
Depreciation of Property, Plant and Equipment
AOL		$	177	$	159	$	348	$	287
Cable			349		295		679		569
Filmed Entertainment			23		19		43		38
Networks			47		42		92		81
Music			38		28		76		56
Publishing			25		23		52		46
Corporate			10		6		18		13

	Total depreciation	$	669	$	572	$	1,308	$	1,090


		Three Months Ended June 30,				Six Months Ended June 30,

		2003		2002		2003		2002

		(millions)				(millions)
Amortization of Intangible Assets
AOL		$	44	$	41	$	83	$	82
Cable			2		2		4		2
Filmed Entertainment			54		47		102		95
Networks			9		8		12		11
Music			61		45		124		88
Publishing			41		32		81		61
Corporate			—		—		—		—

	Total amortization	$	211	$	175	$	406	$	339

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

As of August 11, 2003, 30 shareholder class action lawsuits have been filed naming as defendants the Company, certain current and former executives of the Company and, in several instances, America Online, Inc. (“America Online”). These lawsuits were filed in U.S. District Courts for the Southern District of New York, the Eastern District of Virginia and the Eastern District of Texas. The complaints purport to be made on behalf of certain shareholders of the Company and allege that the Company made material misrepresentations and/or omissions of material fact in violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. Plaintiffs claim that the Company failed to disclose America Online’s declining advertising revenues and that the Company and America Online inappropriately inflated advertising revenues in a series of transactions. Certain of the lawsuits also allege that certain of the individual defendants and other insiders at the Company improperly sold their personal holdings of AOL Time Warner stock, that the Company failed to disclose that the Merger was not generating the synergies anticipated at the time of the announcement of the Merger and, further, that the Company inappropriately delayed writing down more than $50 billion of goodwill. The lawsuits seek an unspecified amount in compensatory damages. All of these lawsuits have been centralized in the U.S. District Court for the Southern District of New York for coordinated or consolidated pretrial proceedings (along with the federal derivative lawsuits and certain lawsuits brought under the Employee Retirement Income Security Act (“ERISA”) described below) under the caption In re AOL Time Warner Inc. Securities and “ERISA” Litigation. The Minnesota State Board of Investment has been designated lead plaintiff for the consolidated securities actions and filed a consolidated amended complaint on April 15, 2003, adding additional defendants including additional officers and directors of the Company, Morgan Stanley & Co., Salomon Smith Barney Inc., Citigroup Inc., Banc of America Securities LLC and JP Morgan Chase & Co. Plaintiffs also added additional allegations, including that the Company made material misrepresentations in its Registration Statements and Joint Proxy Statement-Prospectus related to the Merger and in its Registration Statements pursuant to which debt securities were issued in April 2001 and April 2002, allegedly in violation of Section 11 and Section 12 of the Securities Act of 1933. On July 14, 2003, the Company filed a motion to dismiss the consolidated amended complaint. The Company intends to defend against these lawsuits vigorously. The Company is unable to predict the outcome of these suits or reasonably estimate a range of possible loss.

As of August 11, 2003, eight shareholder derivative lawsuits are pending. Three were filed in New York State Supreme Court for the County of New York, one in the U.S. District Court for the Southern District of New York and four in the Court of Chancery of the State of Delaware for New Castle County. These suits name certain current and former directors and officers of the Company as defendants, as well as the Company as a nominal defendant. The complaints allege that defendants breached their fiduciary duties by causing the Company to issue corporate statements that did not accurately represent that America Online had declining advertising revenues, that the Merger was not generating the synergies anticipated at the time of the announcement of the Merger, and that the Company inappropriately delayed writing down more than $50 billion of goodwill, thereby exposing the Company to potential liability for alleged violations of federal securities laws. The lawsuits further allege that certain of the defendants improperly sold their personal holdings of AOL Time Warner securities. The lawsuits request that (i) all proceeds from defendants’ sales of AOL Time Warner common stock, (ii) all expenses incurred by the Company as a result of the defense of the shareholder class actions discussed above and (iii) any improper salaries or payments, be returned to the Company. The four lawsuits filed in the Court of Chancery for the State of Delaware for New Castle County have been consolidated under the caption, In re AOL Time Warner Inc. Derivative Litigation. A consolidated complaint was filed on March 7, 2003 in that action, and on June 9, 2003, the Company filed a notice of motion to dismiss the consolidated complaint. On December 9, 2002, the Company moved to dismiss the three lawsuits filed in New York State Supreme Court for the County of New York on forum non conveniens grounds. On May 2, 2003, the motion to dismiss was granted, and on June 6, 2003, plaintiffs filed a notice of appeal of that dismissal order. The lawsuit filed in the U.S. District Court for the Southern District of New York has been centralized for coordinated or consolidated pre-trial proceedings with the securities actions described above and the ERISA lawsuits described below under the caption In re AOL Time Warner Inc. Securities and “ERISA” Litigation. The parties to the federal action have agreed that all proceedings in that matter should be stayed pending resolution of any motion to dismiss in the consolidated securities action described above. The Company intends to defend against these lawsuits vigorously. The Company is unable to predict the outcome of these suits or reasonably estimate a range of possible loss.

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

As of August 11, 2003, three putative class action lawsuits have been filed alleging violations of ERISA in the U.S. District Court for the Southern District of New York on behalf of current and former participants in the AOL Time Warner Savings Plan, the AOL Time Warner Thrift Plan and/or the Time Warner Cable Savings Plan (the “Plans”). Collectively, these lawsuits name as defendants the Company, certain current and former directors and officers of the Company and members of the Administrative Committees of the Plans. The lawsuits allege that the Company and other defendants breached certain fiduciary duties to plan participants by, inter alia, continuing to offer AOL Time Warner stock as an investment under the Plans, and by failing to disclose, among other things, that the Company was experiencing declining advertising revenues and that the Company was inappropriately inflating advertising revenues through various transactions. The complaints seek unspecified damages and unspecified equitable relief. The ERISA actions have been consolidated as part of the In re AOL Time Warner Inc. Securities and “ERISA” Litigation described above. On July 3, 2003, plaintiffs filed a consolidated amended complaint naming additional defendants, including America Online, Inc., certain current and former officers, directors and employees of the Company and Fidelity Management Trust Company. The Company intends to defend against these lawsuits vigorously. The Company is unable to predict the outcome of these cases or reasonably estimate a range of possible loss.

On November 11, 2002, Staro Asset Management, LLC filed a putative class action complaint in the U.S. District Court for the Southern District of New York on behalf of all purchasers between October 11, 2001 and July 18, 2002, of Reliant 2.0% Zero-Premium Exchangeable Subordinated Notes due 2029, for alleged violations of the federal securities laws. Plaintiff is a purchaser of subordinated notes, the price of which was purportedly tied to the market value of AOL Time Warner stock. Plaintiff alleges that the Company made misstatements and/or omissions of material fact that artificially inflated the value of AOL Time Warner stock and directly affected the price of the notes. Plaintiff seeks compensatory damages and/or rescission. The Company has not yet responded to this complaint. The Company intends to defend against this lawsuit vigorously. Due to the preliminary status of this matter, the Company is unable to predict the outcome of this suit or reasonably estimate a range of possible loss.

On April 14, 2003, two shareholders of the Company filed a lawsuit in the California Superior Court, County of Los Angeles, titled Regents of the University of California et al. v. Parsons et al., naming as defendants the Company, certain current and former officers, directors and employees of the Company, Ernst & Young LLP, Citigroup Inc., Salomon Smith Barney Inc. and Morgan Stanley & Co. Plaintiffs allege that the Company made material misrepresentations in its registration statements related to the Merger and stock option plans in violation of Sections 11 and 12 of the Securities Act of 1933. The complaint also alleges common law fraud and breach of fiduciary duties under California state law. Plaintiffs seek disgorgement of any insider trading proceeds and restitution for their stock losses. The Company intends to defend against this lawsuit vigorously. Due to the preliminary nature of this matter, the Company is unable to predict the outcome of the suit or reasonably estimate a range of possible loss.

On May 23, 2003, Treasurer of New Jersey v. AOL Time Warner Inc. et al., was filed in the Superior Court of New Jersey, Mercer County, naming the Company, current and former officers, directors and employees of the Company, Ernst & Young, Citigroup, Salomon Smith Barney, Morgan Stanley, JP Morgan Chase and Banc of America Securities as defendants. The complaint is brought by the Treasurer of New Jersey and purports to be made on behalf of the State of New Jersey, Department of Treasury, Division of Investments (the “Division”) and certain funds administered by the Division. The plaintiff alleges that certain of the funds purchased shares of America Online and AOL Time Warner between January 10, 2000, and July 24, 2002, that all of the funds exchanged shares of Time Warner common stock pursuant to the Merger Registration Statement of May 19, 2000 and that one of the funds acquired $60 million of the Company’s debt securities pursuant to a Debt Registration Statement of April 11, 2001. Plaintiffs allege the Company made material misrepresentations in its registration statements in violation of Sections 11 and 12 of the Securities Act of 1933. The plaintiff also alleges violations of New Jersey state law for fraud and negligent misrepresentation. The plaintiffs seek an unspecified amount of damages. The Company intends to defend against this lawsuit vigorously. The Company is unable to predict the outcome of this suit or reasonably estimate a range of possible loss.

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

On July 1, 2003, Stichting Pensioenfonds ABP v. AOL Time Warner Inc. et al. was filed in U.S. District Court for the Southern District of New York against the Company, current and former officers, directors and employees of the Company and Ernst & Young. Plaintiff alleges that the Company made material misrepresentations and/or omissions of material fact in violation of Section 10(b) of the Exchange Act and Rule 10(b)-5 promulgated thereunder, Section 11, Section 12, Section 14(a) and Rule 14(a)-9 promulgated thereunder, Section 18 and Section 20(a) of the Exchange Act. The complaint also alleges common law fraud and negligent misrepresentation. The plaintiff seeks an unspecified amount of compensatory and punitive damages. The Company believes this lawsuit will be consolidated for coordinated pretrial proceedings under the caption In re AOL Time Warner Inc. Securities and “ERISA” Litigation. The Company intends to defend against this lawsuit vigorously. The Company is unable to predict the outcome of this suit or reasonably estimate a range of possible loss.

On July 18, 2003, California Public Employees’ Retirement System v. AOL Time Warner Inc. et al. was filed in the California Superior Court, County of Sacramento, naming as defendants the Company, current and former officers, directors and employees of the Company, Ernst & Young and Citigroup, Salomon Smith Barney, Morgan Stanley, Banc of America Securities and J.P. Morgan Chase. Plaintiff alleges the Company made material misrepresentations in its registration statements in violation of Sections 11 and 12 of the Securities Act of 1933. The plaintiff also alleges violations of the California Corporations Code and state law claims for fraud. The plaintiff seeks disgorgement of any insider trading proceeds, restitution and unspecified compensatory damages. The Company intends to defend against this lawsuit vigorously. The Company is unable to predict the outcome or reasonably estimate a range of possible loss.

On July 18, 2003, California State Teachers’ Retirement System v. AOL Time Warner Inc. et al. was filed in California Superior Court, County of San Francisco, naming as defendants the Company, current and former officers, directors and employees of the Company, Citigroup Global Markets (f/k/a Salomon Smith Barney), Citigroup Inc., Morgan Stanley & Co., Goldman Sachs & Co., Merrill Lynch, Credit Suisse First Boston and Ernst & Young. Plaintiff alleges the Company made material misrepresentations in registration statements for securities acquired by plaintiff in violation of Section 11 of the Securities Act of 1933. The plaintiff also alleges violations of the California Corporations Code and state law claims for fraud and breach of fiduciary duty. The plaintiff seeks unspecified compensatory and punitive damages. The Company intends to defend against this lawsuit vigorously. The Company is unable to predict the outcome or reasonably estimate a range of possible loss.

On July 18, 2003, Ohio Public Employees Retirement System et al v. Parsons et al. was filed in Ohio, Court of Common Pleas, Franklin County naming as defendants the Company, certain current and former officers, directors and employees of the Company, Citigroup Inc., Salomon Smith Barney Inc., Morgan Stanley & Co. and Ernst & Young LLP. Plaintiffs allege the Company made material misrepresentations in its registration statements in violation of Sections 11 and 12 of the Securities Act of 1933. Plaintiffs also allege violations of Ohio law, breach of fiduciary duty and common law fraud. The plaintiffs seek disgorgement of any insider trading proceeds, restitution and unspecified compensatory damages. The Company intends to defend against this lawsuit vigorously. The Company is unable to predict the outcome or reasonably estimate a range of possible loss.

On July 18, 2003, West Virginia Investment Management Board v. Parsons et al. was filed in West Virginia, Circuit Court, Kanawha County naming as defendant the Company, certain current and former officers, directors and employees of the Company, Citigroup Inc., Salomon Smith Barney Inc., Morgan Stanley & Co., and Ernst & Young LLP. Plaintiff alleges the Company made material misrepresentations in its registration statements in violation of Sections 11 and 12 of the Securities Act of 1933. Plaintiff also alleges violations of West Virginia law, breach of fiduciary duty and common law fraud. The plaintiff seeks disgorgement of any insider trading proceeds, restitution and unspecified compensatory damages. The Company intends to defend against this lawsuit vigorously. The Company is unable to predict the outcome or reasonably estimate a range of possible loss.

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

On July 18, 2003, the Commonwealth of Pennsylvania and certain of its retirement systems and boards filed a request for a writ of summons in the Court of Common Pleas of Philadelphia County notifying defendants of commencement a suit. The named defendants include the Company, certain current and former officers, directors and employees of the Company, America Online, Inc., Time Warner Inc., Citigroup Inc., Salomon Smith Barney Inc., Morgan Stanley & Co., Ernst & Young LLP, Banc of America Securities LLC and J.P. Morgan Chase & Co. No complaint has yet been filed. The Company intends to defend against this lawsuit vigorously. The Company is unable to predict the outcome or reasonably estimate a range of possible loss.

On November 15, 2002, the California State Teachers’ Retirement System filed an amended consolidated complaint in the U.S. District Court for the Central District of California on behalf of a putative class of purchasers of stock in Homestore.com, Inc. (“Homestore”). The plaintiffs alleged that Homestore engaged in a scheme to defraud its shareholders in violation of Section 10(b) of the Exchange Act. The Company and two former employees of its AOL division were named as defendants in the amended consolidated complaint because of their alleged participation in the scheme through certain advertising transactions entered into with Homestore. Motions to dismiss filed by the Company and the two former employees were granted on March 7, 2003 and the case was dismissed with prejudice. On April 14, 2003, plaintiffs filed a motion for an order certifying the dismissal of the case for interlocutory appeal. On July 14, 2003, the district court denied plaintiffs’ motion. The Company intends to defend against this lawsuit vigorously. The Company is unable to predict the outcome or reasonably estimate a range of possible loss.

As part of the Company’s ongoing discussions with the SEC, in the first quarter of 2003 the staff of the SEC informed the Company that, based on information provided to the SEC by the Company, it was the preliminary view of the SEC staff that the Company’s accounting for two related transactions between America Online and Bertelsmann, A.G. should be adjusted. Pursuant to a March 2000 agreement between the parties, Bertelsmann had the right at two separate times to put a portion of its interest in AOL Europe to the Company (80% in January 2002 and the remaining 20% in July 2002) at a price established by the March 2000 agreement. The Company also had the right to exercise a call of Bertelsmann’s interests in AOL Europe at a higher price. Pursuant to the March 2000 agreement, once Bertelsmann exercised its put rights, the Company had the option, at its discretion up to the day before the closing date, to pay the previously established put price to Bertelsmann either in cash or in Company stock or a combination thereof. In the event the Company elected to use stock, the Company was required to deliver stock in value equal to the amount of the put price determined based on the average of the closing price for the 30 trading days ending 13 trading days before the closing of the put transaction.

Prior to the end of March 2001, the Company and Bertelsmann began negotiations regarding Bertelsmann’s desire to be paid for some or all of its interests in AOL Europe in cash, rather than in Company stock. During the negotiations throughout 2001, the Company sought to persuade Bertelsmann that a contractual amendment guaranteeing Bertelsmann cash for its interest in AOL Europe had significant value to Bertelsmann (in an estimated range of approximately $400-800 million), and that in exchange for agreeing to such an amendment, the Company wanted Bertelsmann to extend and/or expand its relationship with the Company as a significant purchaser of advertising. Because, for business reasons, the Company intended to settle in cash, the Company viewed it as essentially costless to forego the option to settle with Bertelsmann in stock. By agreeing to settle in cash, the Company also made it more likely that Bertelsmann would exercise its put rights, which were $1.5 billion less expensive than the Company’s call option.

In separate agreements executed in March and December of 2001, the Company agreed to settle the put transactions under the March 2000 agreement in cash rather than in stock, without any change to the put price previously established in the March 2000 agreement. Contemporaneously with the agreements to pay in cash, Bertelsmann agreed to purchase additional advertising from the Company of $125 million and $275 million, respectively. The amount of advertising purchased by Bertelsmann pursuant to these two transactions was recognized by the Company as these advertisements were run (almost entirely at the America Online unit) during the period from the first quarter of 2001 through the second quarter of 2003. Advertising revenues recognized by the Company totaled $16.3 million, $65.5 million, $39.8 million and $0.5 million, respectively, for the four quarters ending December 31, 2001, and $80.3 million, $84.4 million, $51.6 million and $58.0 million, respectively, for the four quarters ending December 31, 2002. In addition, $2.0 million and $0.1 million was recognized in the first and second quarter of 2003, respectively. (The remaining approximately $1.5 million is expected to be recognized by the Company during the remainder of 2003.) These two Bertelsmann transactions are collectively the largest multi-element advertising transactions entered into by America Online during the period under review.

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Although the advertisements purchased by Bertelsmann in these transactions were in fact run, in the first quarter of 2003 the SEC staff expressed to the Company its preliminary view that at least some portion of the revenue recognized by the Company for that advertising should have been treated as a reduction in the purchase price paid to Bertelsmann rather than as advertising revenue. The Company subsequently provided the SEC a written explanation of the basis for the Company’s accounting for these transactions and the reasons why, to date, both the Company and its auditors continue to believe that these transactions have been accounted for correctly.

The SEC staff also continues to investigate a range of other transactions principally involving the America Online unit, including advertising arrangements and the methods used by the America Online unit to report its subscriber numbers. The Company intends to continue its efforts to cooperate with both the SEC and the DOJ investigations to resolve these matters. The Company may not currently have access to all relevant information that may come to light in these investigations, including but not limited to information in the possession of third parties who entered into agreements with America Online during the relevant time period. It is not yet possible to predict the outcome of these investigations, but it is possible that further restatement of the Company’s financial statements may be necessary. It is also possible that, so long as there are other unresolved issues associated with the Company’s financial statements, the effectiveness of any registration statement of the Company or its affiliates may be delayed.

On January 22, 2002, Netscape Communications Corporation (“Netscape”), a wholly-owned subsidiary of America Online, sued Microsoft Corporation (“Microsoft”) in the U. S. District Court for the District of Columbia for antitrust violations under Sections 1 and 2 of the Sherman Act, as well as for other common law violations. Among other things, the complaint alleged that Microsoft’s actions to maintain its monopoly in the market for Intel-compatible PC operating systems worldwide injured Netscape, consumers and competition in violation of Section 2 of the Sherman Act and continued to do so. The complaint also alleged that Microsoft’s actions constituted illegal

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

monopolization and attempted monopolization of a worldwide market for Web browsers and that Microsoft had engaged in illegal practices by tying its Web browser, Internet Explorer, to Microsoft’s operating system in various ways. The complaint sought damages for the injuries inflicted upon Netscape, including treble damages and attorneys’ fees, as well as injunctive relief to remedy the anti-competitive behavior alleged. On June 17, 2002, the Judicial Panel on Multi-District Litigation transferred the case to the District Court for the District of Maryland for all pretrial proceedings. On April 4, 2003, the U. S. District Court for the District of Maryland issued an order giving preclusive effect to substantially all findings of the U.S. District Court for the District of Columbia in United States v. Microsoft Corporation. The parties entered into a settlement agreement effective May 29, 2003, and the court signed Netscape’s stipulation for dismissal on May 30, 2003. As part of the settlement, Microsoft paid the Company $750 million. In addition, Microsoft agreed to a variety of steps designed to ensure that Microsoft and AOL products work better with each other, including giving AOL the same access to early builds of the Microsoft Windows operating system as Microsoft affords to other third parties as well as providing AOL with seven years of dedicated support by Microsoft engineers who have access to Windows source code, to help AOL with compatibility and other engineering efforts. In addition, the Company and Microsoft entered into a digital media agreement pursuant to which the Company will have access to Microsoft’s digital rights management software and the parties have agreed to work together on a series of initiatives to support the deployment of digital media to consumers in a manner that protects the interests of content businesses. Microsoft has also provided AOL a royalty-free seven-year license to use Microsoft’s Internet Explorer technologies with the AOL client and to provide a new distribution channel for the AOL software to certain PC users by distributing the AOL software disks worldwide to certain smaller PC manufacturers.

On May 24, 1999, two former AOL Community Leader volunteers filed Hallissey et al. v. America Online, Inc. in the U.S. District Court for the Southern District of New York. This lawsuit was brought as a collective action under the Fair Labor Standards Act (“FLSA”) and as a class action under New York state law against America Online and AOL Community, Inc. The plaintiffs allege that, in serving as Community Leader volunteers, they were acting as employees rather than volunteers for purposes of the FLSA and New York state law and are entitled to minimum wages. On December 8, 2000, defendants filed a motion to dismiss on the ground that the plaintiffs were volunteers and not employees covered by the FLSA. The motion to dismiss is pending. A related case was filed by several of the Hallissey plaintiffs in the U.S. District Court for the Southern District of New York alleging violations of the retaliation provisions of the FLSA. This case has been stayed pending the outcome of the Hallissey motion to dismiss. Three related class actions have been filed in state courts in New Jersey, California and Ohio, alleging violations of the FLSA and/or the respective state laws. These cases were removed to federal court. The New Jersey and Ohio cases have been transferred to the U.S. District Court for the Southern District of New York for consolidated pretrial proceedings with Hallissey. The California action was remanded to California state court, but on June 6, 2003 was removed again to federal court. Plaintiffs have filed for remand to California state court. On June 16, 2003, defendants filed a notice requesting that the California case be transferred to the U.S. District Court for the Southern District of New York for consolidated pretrial proceedings with Hallissey.

On January 17, 2002, Community Leader volunteers filed a class action lawsuit in the U.S. District Court for the Southern District of New York against AOL Time Warner, America Online and AOL Community, Inc. under ERISA. Plaintiffs allege that they are entitled to pension and/or welfare benefits and/or other employee benefits subject to ERISA. In March 2003, plaintiffs filed and served a second amended complaint, adding as defendants the AOL Time Warner Administrative Committee and the AOL Administrative Committee. On May 19, 2003, AOL Time Warner, America Online and America Online Community, Inc. filed a motion to dismiss and the AOL Time Warner Administrative Committee and the AOL Administrative Committee filed a motion for judgment on the pleadings. Both of these motions are now pending. The Company is unable to predict the outcome of these cases or reasonably estimate a range of possible loss, but intends to defend against these lawsuits vigorously.

On June 16, 1998, plaintiffs in Andrew Parker and Eric DeBrauwere, et al. v. Time Warner Entertainment Company, L.P. and Time Warner Cable filed a purported nationwide class action in U.S. District Court for the Eastern District of New York claiming that TWE sold its subscribers’ personally identifiable information and failed to inform subscribers of their privacy rights in violation of the Cable Communications Policy Act of 1984 and common law. The plaintiffs are seeking damages and declaratory and injunctive relief. On August 6, 1998, TWE filed a motion to dismiss, which was denied on September 7, 1999. On December 8, 1999, TWE filed a motion to deny class certification, which was granted on January 9, 2001 with respect to monetary damages, but denied with respect to injunctive relief. On June 2, 2003, the U.S. Court of Appeals for the Second Circuit vacated the District Court’s decision denying class certification as a matter of law and remanded the case for further proceedings on class certification and other matters. Although the Company is vigorously defending this matter, management is unable to predict the outcome of the case or reasonably estimate a range of possible loss.

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

On April 8, 2002, three former employees of certain subsidiaries of the Company filed Henry Spann et al. v. AOL Time Warner Inc. et al., a purported class action, in the U.S. District Court for the Central District of California. Plaintiffs have named as defendants the Company, TWE, WEA Corp., WEA Manufacturing Inc., Warner Bros. Records, Atlantic Recording Corporation, various pension plans sponsored by the companies and the administrative committees of those plans. Plaintiffs allege that defendants miscalculated the proper amount of pension benefits owed to them and other class members as required under the plans in violation of ERISA. The lawsuit has been transferred to the U.S. District Court for the Southern District of New York. Due to the preliminary status of this matter, the Company is unable to predict the outcome of this suit or reasonably estimate a range of possible loss.

The costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in those matters (including those matters described above), and developments or assertions by or against the Company relating to intellectual property rights and intellectual property licenses, could have a material adverse effect on the Company’s business, financial condition and operating results.

Additional financial information with respect to cash (payments) and receipts are as follows:

Noncash financing activities in 2003 included the incurrence by TWC Inc. of $2.1 billion in debt in connection with the TWE Restructuring (Note 4).

AOL TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

America Online, Inc. (“America Online”), Time Warner Inc. (“Time Warner”), Time Warner Companies, Inc. (“TW Companies”) and Turner Broadcasting System, Inc. (“TBS” and, together with America Online, Time Warner and TW Companies, the “Guarantor Subsidiaries”) are wholly owned subsidiaries of AOL Time Warner Inc. (“AOL Time Warner”). AOL Time Warner, America Online, Time Warner, TW Companies and TBS have fully and unconditionally, jointly and severally, and directly or indirectly, guaranteed all of the outstanding publicly traded indebtedness of each other. Set forth below are condensed consolidating financial statements of AOL Time Warner, including each of the Guarantor Subsidiaries, presented for the information of each company’s public debtholders. The following condensed consolidating financial statements present the results of operations, financial position and cash flows of (i) America Online, Time Warner, TW Companies and TBS (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the direct and indirect non-guarantor subsidiaries of AOL Time Warner and (iii) the eliminations necessary to arrive at the information for AOL Time Warner on a consolidated basis. These condensed consolidating financial statements should be read in conjunction with the accompanying consolidated financial statements of AOL Time Warner.


	AOL															Non-						AOL Time
	Time			America			Time			TW						Guarantor						Warner
	Warner			Online			Warner			Companies			TBS			Subsidiaries			Eliminations			Consolidated

	(millions)
Revenues	$	—		$	1,595		$	—		$	—		$	246		$	8,993		$	(16	)	$	10,818
Cost of revenues		—			(908	)		—			—			(135	)		(5,238	)		16			(6,265	)
Selling, general and administrative		(13	)		(486	)		(12	)		(5	)		(42	)		(2,253	)		—			(2,811	)
Merger and restructuring costs		—			1			—			—			—			(13	)		—			(12	)
Amortization of goodwill and other intangible assets		—			(6	)		—			—			—			(205	)		—			(211	)
Impairment of goodwill and intangible assets		—			—			—			—			—			(277	)		—			(277	)
Gain on disposal of asset		—			—			—			—			—			43			—			43

Operating income (loss)		(13	)		196			(12	)		(5	)		69			1,050			—			1,285
Equity in pretax income of consolidated subsidiaries		2,036			(30	)		1,239			1,357			1			—			(4,603	)		—
Interest expense, net		(173	)		(23	)		(22	)		(106	)		(34	)		(115	)		—			(473	)
Other income (expense), net		5			694			(3	)		—			54			450			(97	)		1,103
Minority interest income (expense)		—			—			—			—			—			(62	)		2			(60	)

Income (loss) before income taxes		1,855			837			1,202			1,246			90			1,323			(4,698	)		1,855
Income tax benefit (provision)		(791	)		(352	)		(513	)		(527	)		(40	)		(560	)		1,992			(791	)

Net income (loss)	$	1,064		$	485		$	689		$	719		$	50		$	763		$	(2,706	)	$	1,064

AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)
(Unaudited)


	AOL															Non-						AOL Time
	Time			America			Time			TW						Guarantor						Warner
	Warner			Online			Warner			Companies			TBS			Subsidiaries			Eliminations			Consolidated

	(millions)
Revenues	$	—		$	1,784		$	—		$	—		$	233		$	8,214		$	(28	)	$	10,203
Cost of revenues		—			(1,031	)		—			—			(130	)		(4,832	)		28			(5,965	)
Selling, general and administrative		(10	)		(468	)		(8	)		(4	)		(23	)		(2,030	)		—			(2,543	)
Merger and restructuring costs		—			2			—			—			—			(2	)		—			—
Amortization of intangible assets		—			(3	)		—			—			—			(172	)		—			(175	)

Operating Income (Loss)		(10	)		284			(8	)		(4	)		80			1,178			—			1,520
Equity in pretax income of consolidated subsidiaries		831			(49	)		767			735			136			—			(2,420	)		—
Interest income (expense), net		(150	)		2			(22	)		(97	)		(30	)		(144	)		—			(441	)
Other income (expense), net		24			(114	)		(3	)		(30	)		(2	)		(157	)		(49	)		(331	)
Minority interest expense		—			—			—			—			—			(53	)		—			(53	)

Income (loss) before income taxes and discontinued operations		695			123			734			604			184			824			(2,469	)		695
Income tax benefit (provision)		(301	)		(96	)		(269	)		(221	)		(70	)		(304	)		960			(301	)

Income (loss) before discontinued operations		394			27			465			383			114			520			(1,509	)		394
Discontinued operations, net of tax		2			—			2			2			—			2			(6	)		2

Net income (loss)	$	396		$	27		$	467		$	385		$	114		$	522		$	(1,515	)	$	396

AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)
(Unaudited)


	AOL															Non-						AOL Time
	Time			America			Time			TW						Guarantor						Warner
	Warner			Online			Warner			Companies			TBS			Subsidiaries			Eliminations			Consolidated

	(millions)
Revenues	$	—		$	3,262		$	—		$	—		$	448		$	17,143		$	(37	)	$	20,816
Cost of revenues		—			(1,816	)		—			—			(246	)		(10,244	)		37			(12,269	)
Selling, general and administrative		(23	)		(1,000	)		(23	)		(10	)		(77	)		(4,302	)		—			(5,435	)
Merger and restructuring costs		—			(3	)		—			—			(8	)		(25	)		—			(36	)
Amortization of intangible assets		—			(12	)		—			—			—			(394	)		—			(406	)
Impairment of goodwill and intangible assets		—			—			—			—			—			(277	)		—			(277	)
Gain on disposal of assets		—			—			—			—			—			43			—			43

Operating Income (Loss)		(23	)		431			(23	)		(10	)		117			1,944			—			2,436
Equity in pretax income of consolidated subsidiaries		2,907			(108	)		1,972			2,026			169			—			(6,966	)		—
Interest expense, net		(348	)		(42	)		(44	)		(200	)		(66	)		(241	)		—			(941	)
Other income (expense), net		12			739			(5	)		—			70			499			(146	)		1,169
Minority interest income (expense)		—			—			—			—			—			(118	)		2			(116	)

Income (loss) before income taxes		2,548			1,020			1,900			1,816			290			2,084			(7,110	)		2,548
Income tax benefit (provision)		(1,088	)		(424	)		(813	)		(775	)		(121	)		(885	)		3,018			(1,088	)

Net income (loss)	$	1,460		$	596		$	1,087		$	1,041		$	169		$	1,199		$	(4,092	)	$	1,460

AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)
(Unaudited)


	AOL															Non-						AOL Time
	Time			America			Time			TW						Guarantor						Warner
	Warner			Online			Warner			Companies			TBS			Subsidiaries			Eliminations			Consolidated

	(millions)
Revenues	$	—		$	3,603		$	—		$	—		$	431		$	15,647		$	(71	)	$	19,610
Cost of revenues		—			(2,031	)		—			—			(230	)		(9,438	)		71			(11,628	)
Selling, general and administrative		(17	)		(943	)		(17	)		(8	)		(71	)		(3,903	)		—			(4,959	)
Merger and restructuring costs		(28	)		(72	)		—			—			—			(7	)		—			(107	)
Amortization of intangible assets		—			(7	)		—			—			—			(332	)		—			(339	)

Operating Income (Loss)		(45	)		550			(17	)		(8	)		130			1,967			—			2,577
Equity in pretax income of consolidated subsidiaries		962			(176	)		824			833			280			—			(2,723	)		—
Interest income (expense), net		(242	)		11			(53	)		(198	)		(59	)		(276	)		—			(817	)
Other income (expense), net		15			(146	)		(5	)		(108	)		(2	)		(671	)		(69	)		(986	)
Minority interest expense		—			—			—			—			—			(84	)		—			(84	)

Income (loss) before income taxes, discontinued operations and cumulative effect of accounting change		690			239			749			519			349			936			(2,792	)		690
Income tax benefit (provision)		(304	)		(140	)		(283	)		(195	)		(135	)		(357	)		1,110			(304	)

Income before discontinued operations and cumulative effects of accounting change		386			99			466			324			214			579			(1,682	)		386
Discontinued operations, net of tax		1			—			1			1			—			1			(3	)		1

Income (loss) before cumulative effect of accounting change		387			99			467			325			214			580			(1,685	)		387
Cumulative effect of accounting change		(54,235	)		—			(54,235	)		(42,902	)		(11,333	)		(52,048	)		160,518			(54,235	)

Net income (loss)	$	(53,848	)	$	99		$	(53,768	)	$	(42,577	)	$	(11,119	)	$	(51,468	)	$	158,833		$	(53,848	)

AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)
(Unaudited)


	AOL													Non-						AOL Time
	Time			America			Time		TW					Guarantor						Warner
	Warner			Online			Warner		Companies		TBS			Subsidiaries			Eliminations			Consolidated

	(millions)
ASSETS
Current assets
Cash and equivalents	$	736		$	25		$	—	$	64	$	33		$	1,216		$	—		$	2,074
Receivables, net		16			270			8		24		135			4,125			—			4,578
Inventories		—			—			—		—		191			1,773			—			1,964
Prepaid expenses and other current assets		15			169			—		—		5			1,807			—			1,996

Total current assets		767			464			8		88		364			8,921			—			10,612
Noncurrent inventories and film costs		—			—			—		—		591			2,582			—			3,173
Investments in amounts due to and from consolidated subsidiaries		74,667			2,289			88,341		75,699		17,774			—			(258,770	)		—
Investments, including available-for-sale securities		49			1,003			245		—		141			3,671			(1,026	)		4,083
Property, plant and equipment		69			1,132			10		—		65			10,838			—			12,114
Intangible assets subject to amortization		—			—			—		—		—			7,123			—			7,123
Intangible assets not subject to amortization		—			131			—		—		641			39,374			—			40,146
Goodwill		1,876			1,475			—		—		2,805			32,945			—			39,101
Other assets		1,032			437			12		—		93			1,641			(911	)		2,304

Total assets	$	78,460		$	6,931		$	88,616	$	75,787	$	22,474		$	107,095		$	(260,707	)	$	118,656

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	9		$	39		$	1	$	—	$	12		$	1,841		$	—		$	1,902
Participations payable		—			—			—		—		—			1,777			—			1,777
Royalties and programming costs payable		—			—			—		—		—			1,560			—			1,560
Deferred revenue		—			478			—		—		—			718			—			1,196
Debt due within one year		—			—			—		—		250			169			—			419
Other current liabilities		415			1,535			19		188		238			3,454			(11	)		5,838

Total current liabilities		424			2,052			20		188		500			9,519			(11	)		12,692
Long-term debt		11,294			1,657			1,474		5,574		533			6,276			(910	)		25,898
Debt due to affiliates		(910	)		—			—		—		1,647			910			(1,647	)		—
Deferred income taxes		12,868			(4,104	)		16,972		15,267		1,785			17,052			(46,972	)		12,868
Deferred revenue		—			47			—		—		—			941			—			988
Other liabilities		123			43			541		—		525			3,656			—			4,888
Minority interests		(1,338	)		—			—		—		—			6,664			(3	)		5,323
Shareholders’ equity
Due (to) from AOL Time Warner and subsidiaries		—			4,877			6,219		2,446		(2,649	)		(17,175	)		6,282			—
Other shareholders’ equity		55,999			2,359			63,390		52,312		20,133			79,252			(217,446	)		55,999

Total shareholders’ equity		55,999			7,236			69,609		54,758		17,484			62,077			(211,164	)		55,999

Total liabilities and shareholders’ equity	$	78,460		$	6,931		$	88,616	$	75,787	$	22,474		$	107,095		$	(260,707	)	$	118,656

AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)
(Unaudited)


	AOL													Non-						AOL Time
	Time			America			Time		TW					Guarantor						Warner
	Warner			Online			Warner		Companies		TBS			Subsidiaries			Eliminations			Consolidated

	(millions)
ASSETS
Current assets
Cash and equivalents	$	349		$	(12	)	$	—	$	2,192	$	29		$	1,255		$	(2,083	)	$	1,730
Receivables, net		12			308			8		24		139			5,176			—			5,667
Inventories		—			—			—		—		228			1,668			—			1,896
Prepaid expenses and other current assets		23			174			—		—		6			1,659			—			1,862

Total current assets		384			470			8		2,216		402			9,758			(2,083	)		11,155
Noncurrent inventories and film costs		—			—			—		—		456			2,895			—			3,351
Investments in amounts due to and from consolidated subsidiaries		73,202			1,691			87,562		71,692		17,808			—			(251,955	)		—
Investments, including available-for-sale securities		86			1,718			235		7		92			3,956			(956	)		5,138
Property, plant and equipment		62			1,175			12		—		71			10,830			—			12,150
Intangible assets subject to amortization		—			—			—		—		—			7,061			—			7,061
Intangible assets not subject to amortization		—			—			—		—		641			36,504			—			37,145
Goodwill		1,867			1,625			—		—		2,805			30,689			—			36,986
Other assets		1,021			441			12		48		91			1,738			(887	)		2,464

Total assets	$	76,622		$	7,120		$	87,829	$	73,963	$	22,366		$	103,431		$	(255,881	)	$	115,450

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	7		$	51		$	7	$	—	$	19		$	2,375		$	—		$	2,459
Participations payable		—			—			—		—		—			1,689			—			1,689
Royalties and programming costs payable		—			—			—		—		—			1,495			—			1,495
Deferred revenue		—			549			—		—		1			659			—			1,209
Debt due within one year		—			—			—		—		—			155			—			155
Other current liabilities		382			1,271			24		188		212			4,350			(39	)		6,388

Total current liabilities		389			1,871			31		188		232			10,723			(39	)		13,395
Long-term debt		13,353			1,649			1,472		6,008		786			7,057			(2,971	)		27,354
Debt due (from) to affiliates		(887	)		—			—		—		1,647			887			(1,647	)		—
Deferred income taxes		10,823			(4,728	)		15,551		13,990		1,641			15,631			(42,085	)		10,823
Deferred revenue		—			41			—		—		—			949			—			990
Other liabilities		127			19			664		—		379			3,834			—			5,023
Minority interests		—			—			—		—		—			5,048			—			5,048
Shareholders’ equity
Due (to) from AOL Time Warner and subsidiaries		—			7,226			8,743		3,916		(2,216	)		(14,921	)		(2,748	)		—
Other shareholders’ equity		52,817			1,042			61,368		49,861		19,897			74,223			(206,391	)		52,817

Total shareholders’ equity		52,817			8,268			70,111		53,777		17,681			59,302			(209,139	)		52,817

Total liabilities and shareholders’ equity	$	76,622		$	7,120		$	87,829	$	73,963	$	22,366		$	103,431		$	(255,881	)	$	115,450

AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)
(Unaudited)


		AOL															Non-						AOL Time
		Time			America			Time			TW						Guarantor						Warner
		Warner			Online			Warner			Companies			TBS			Subsidiaries			Eliminations			Consolidated

		(millions)
OPERATIONS
Net income (loss)		$	1,460		$	596		$	1,087		$	1,041		$	169		$	1,199		$	(4,092	)		1,460
Adjustments for noncash and nonoperating items:
	Depreciation and amortization		12			314			—			—			12			1,376			—			1,714
	Amortization of film costs		—			—			—			—			—			1,346			—			1,346
	Impairment of goodwill and other intangible assets		—			—			—			—			—			277			—			277
	Loss on writedown of investments		2			86			—			—			—			98			—			186
	Gain on sale of investments		—			(70	)		—			—			—			(624	)		—			(694	)
	Excess (deficiency) of distributions over equity in pretax income of consolidated subsidiaries		(2,907	)		108			(1,972	)		(2,026	)		(170	)		—			6,967			—
Changes in due to/due from parent			—			(182	)		—			—			—			705			(523	)		—
Change in investment segment			3,830			—			1,193			1,330			591			—			(6,944	)		—
Equity in losses of other investee companies after distributions			—			46			—			—			—			23			—			69
Changes in operating assets and liabilities, net of acquisitions			769			671			2,222			(530	)		(161	)		1,449			(4,983	)		(563	)

Cash provided (used) by operations			3,166			1,569			2,530			(185	)		441			5,849			(9,575	)		3,795
INVESTING ACTIVITIES
Investment in available-for-sale securities			—			(2	)		—			—			—			—			—			(2	)
Other investments and acquisitions, net of cash acquired			—			(6	)		—			—			4			(384	)		—			(386	)
Change in investment segment			(24	)		—			(7	)		(104	)		—			—			135			—
Capital expenditures and product development costs from continuing operations			—			(190	)		—			—			(9	)		(1,064	)		—			(1,263	)
Changes in due to/due from parent			—			—			—			—			—			104			(104	)		—
Investment proceeds from available-for-sale securities			—			891			—			—			—			20			—			911
Other investment proceeds			—			3			—			—			1			1,373			—			1,377

Cash provided (used) by investing activities			(24	)		696			(7	)		(104	)		(4	)		49			31			637
FINANCING ACTIVITIES
Borrowings			1,166			—			—			—			—			677			—			1,843
Debt repayments			(3,273	)		—			—			(370	)		—			(3,657	)		2,084			(5,216	)
Change in due to/from parent			—			(2,162	)		(2,523	)		(1,469	)		(433	)		(2,956	)		9,543			—
Redemption of redeemable preferred securities of subsidiaries			(813	)		—			—			—			—			—			—			(813	)
Proceeds from exercise of stock option and dividend reimbursement plans			191			—			—			—			—			—			—			191
Principal payments on capital lease			—			(66	)		—			—			—			(1	)		—			(67	)
Other			(26	)		—			—			—			—			—			—			(26	)

Cash provided (used) by financing activities			(2,755	)		(2,228	)		(2,523	)		(1,839	)		(433	)		(5,937	)		11,627			(4,088	)
INCREASE (DECREASE) IN CASH AND EQUIVALENTS			387			37			—			(2,128	)		4			(39	)		2,083			344

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD			349			(12	)		—			2,192			29			1,255			(2,083	)		1,730

CASH AND EQUIVALENTS AT END OF PERIOD		$	736		$	25		$	—		$	64		$	33		$	1,216		$	—		$	2,074

AOL TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS — (Continued)
(Unaudited)


		AOL															Non-						AOL Time
		Time			America			Time			TW						Guarantor						Warner
		Warner			Online			Warner			Companies			TBS			Subsidiaries			Eliminations			Consolidated

		(millions)
OPERATIONS
Net income (loss)		$	(53,848	)	$	99		$	(53,768	)	$	(42,577	)	$	(11,119	)	$	(51,468	)	$	158,833		$	(53,848	)
Adjustments for noncash and nonoperating items:
	Cumulative effect of accounting change		54,235			—			54,235			42,902			11,333			52,048			(160,518	)		54,235
	Depreciation and amortization		7			266			1			—			12			1,143			—			1,429
	Amortization of film costs		—			—			—			—			—			1,067			—			1,067
	Loss on writedown of investments		—			145			—			103			—			704			—			952
	Gain on sale of investments		—			(35	)		—			—			—			(59	)		—			(94	)
	Excess (deficiency) of distributions over equity in pretax income of consolidated subsidiaries		(540	)		152			(495	)		(608	)		(173	)		—			1,664			—
	Change in investment in segment		2,459			—			3,132			2,529			308			—			(8,428	)		—
	AOL Europe capitalization		—			(5,710	)		—			—			—			5,710			—			—
	Equity in losses of investee companies after distributions		—			58			—			5			—			78			—			141
Changes in operating assets and liabilities, net of acquisitions			(704	)		359			(326	)		(715	)		(125	)		(940	)		2,175			(276	)
Adjustments relating to discontinued operations			—			—			—			—			—			322			—			322

Cash provided (used) by operations			1,609			(4,666	)		2,779			1,639			236			8,605			(6,274	)		3,928

INVESTING ACTIVITIES
Investments in available-for-sale securities			—			—			—			—			—			(4	)		—			(4	)
Other investments and acquisitions, net of cash acquired			—			(75	)		—			—			—			(5,753	)		—			(5,828	)
Change in investment in segment			(6,381	)		—			(4	)		53			—			—			6,332			—
Capital expenditures and product development costs from continuing operations			—			(217	)		—			—			(20	)		(1,117	)		—			(1,354	)
Capital expenditures from discontinued operations			—			—			—			—			—			(169	)		—			(169	)
Change in due to/from parent			—			—			—			—			—			(3	)		3			—
Investment proceeds from available-for-sale securities			—			70			—			—			—			—			—			70
Other investment proceeds			—			5			—			—			—			146			—			151

Cash provided (used) by investing activities			(6,381	)		(217	)		(4	)		53			(20	)		(6,900	)		6,335			(7,134	)

FINANCING ACTIVITIES
Borrowings			8,676			20			3,100			—			—			2,296			(686	)		13,406
Debt repayments			(2,959	)		—			(3,700	)		—			—			(3,501	)		1,180			(8,980	)
Change in due to/from parent			—			4,854			(2,178	)		(2,229	)		(286	)		(103	)		(58	)		—
Redemption of redeemable preferred securities of subsidiary			—			—			—			—			—			(255	)		—			(255	)
Proceeds from exercise of stock option and dividend reimbursement plans			215			—			—			—			—			—			—			215
Current period repurchases of common stock			(102	)		—			—			—			—			—			—			(102	)
Dividends paid and partnership distributions from discontinued operations, net			—			—			—			—			—			(47	)		—			(47	)
Principal payments on capital leases			—			(17	)		—			—			—			—			—			(17	)
Change in investment in segment			—			—			3			—			—			—			(3	)		—
Other			6			—			—			—			—			—			—			6

Cash provided (used) by financing activities			5,836			4,857			(2,775	)		(2,229	)		(286	)		(1,610	)		433			4,226

INCREASE (DECREASE) IN CASH AND EQUIVALENTS			1,064			(26	)		—			(537	)		(70	)		95			494			1,020

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD			(10	)		41			—			1,837			86			499			(1,734	)		719

CASH AND EQUIVALENTS AT END OF PERIOD		$	1,054		$	15		$	—		$	1,300		$	16		$	594		$	(1,240	)	$	1,739

Reference is made to the shareholder class action lawsuits described on pages 40-41 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (the “2002 Form 10-K”) and page 60 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (the “First Quarter 2003 10-Q”). On July 14, 2003, the Company filed a motion to dismiss the consolidated amended complaint.

Reference is made to the shareholder derivative lawsuits described on page 41 of the 2002 Form 10-K and page 60 of the First Quarter 2003 10-Q. On June 6, 2003, plaintiffs filed a notice of appeal of the dismissal on forum non conveniens grounds of the three lawsuits filed in New York State Supreme Court for the County of New York. On June 9, 2003, the Company filed a notice of motion to dismiss the consolidated complaint in the derivative lawsuits pending in the Court of Chancery for the State of Delaware.

Reference is made to the ERISA lawsuits described on page 41 of the 2002 Form 10-K. On July 3, 2003, plaintiffs filed a consolidated amended complaint naming additional defendants including America Online, Inc., certain current and former officers, directors and employees of the Company and Fidelity Management Trust Company.

On May 23, 2003, Treasurer of New Jersey v. AOL Time Warner Inc. et al. was filed in the Superior Court of New Jersey, Mercer County naming the Company, current and former officers, directors and employees of the Company, Ernst & Young, Citigroup, Salomon Smith Barney, Morgan Stanley, JP Morgan Chase and Banc of America Securities as defendants. The complaint is brought by the Treasurer of New Jersey and purports to be made on behalf of the State of New Jersey, Department of Treasury, Division of Investments (the “Division”) and certain funds administered by the Division. The plaintiff alleges that certain of the funds purchased shares of America Online and AOL Time Warner between January 10, 2000, and July 24, 2002, that all of the funds exchanged shares of Time Warner common stock pursuant to the Merger Registration Statement of May 19, 2000 and that one of the funds acquired $60 million of the Company’s debt securities pursuant to a Debt Registration Statement of April 11, 2001. Plaintiffs allege the Company made material misrepresentations in its registration statements in violation of Sections 11 and 12 of the Securities Act of 1933. The plaintiff also alleges violations of New Jersey state law for fraud and negligent misrepresentation. The plaintiffs seek an unspecified amount of damages. The Company intends to defend against this lawsuit vigorously. The Company is unable to predict the outcome of this suit or reasonably estimate a range of possible loss.

On July 1, 2003, Stichting Pensioenfonds ABP v. AOL Time Warner Inc. et al. was filed in U.S. District Court for the Southern District of New York against the Company, current and former officers, directors and employees of the Company and Ernst & Young. Plaintiff alleges that the Company made material misrepresentations and/or omissions of material fact in violation of Section 10(b) of the Exchange Act and Rule 10(b)-5 promulgated thereunder, Section 11, Section 12, Section 14(a) and Rule 14(a)-9 promulgated thereunder, and Section 18 and Section 20(a) of the Exchange Act. The complaint also alleges common law fraud and negligent misrepresentation. The plaintiff seeks an unspecified amount of compensatory and punitive damages. The Company believes this lawsuit will be consolidated for coordinated pretrial proceedings under the caption In re AOL Time Warner Inc. Securities and “ERISA” Litigation. The Company intends to defend against this lawsuit vigorously. The Company is unable to predict the outcome of this suit or reasonably estimate a range of possible loss.

Reference is made to the lawsuit filed by the California State Teachers’ Retirement System described on page 42 of the 2002 Form 10-K and page 60 of the First Quarter 2003 10-Q. On July 14, 2003 the district court denied plaintiffs’ motion for an order certifying the dismissal of the case for interlocutory appeal.

Reference is made to Netscape Communications Corporation v. Microsoft Corporation described on page 44 of the 2002 Form 10-K. The parties entered into a settlement agreement effective May 29, 2003, and the court signed Netscape’s stipulation for dismissal on May 30, 2003. As part of the settlement, Microsoft paid the Company $750 million. In addition, Microsoft agreed to a variety of steps designed to ensure that Microsoft and AOL products work better with each other, including giving AOL the same access to early builds of the Microsoft Windows operating system as Microsoft affords to other third parties as well as providing AOL with seven years of dedicated support by Microsoft engineers who have access to Windows source code, to help AOL with compatibility and other engineering efforts. In addition, the Company and Microsoft entered into a digital media agreement pursuant to which the Company will have access to Microsoft’s digital rights management software and the parties have agreed to work together on a series of initiatives to support the deployment of digital media to consumers in a manner that protects the interests of content businesses. Microsoft has also provided AOL a royalty-free seven-year license to use Microsoft’s Internet Explorer technologies with the AOL client and to provide a new distribution channel for the AOL software to certain PC users by distributing the AOL software disks worldwide to certain smaller PC manufacturers. See Note 1 to Notes to Financial Statements for additional information.

Reference is made to the ERISA lawsuit filed by the Community Leader volunteers described on page 44 of the 2002 Form 10-K and page 62 of the First Quarter 2003 10-Q. On May 19, 2003, AOL Time Warner, America Online and America Online Community, Inc., filed a motion to dismiss and the AOL Time Warner Administrative Committee and the AOL Administrative Committee filed a motion for judgment on the pleadings. Both of these motions are now pending.

Reference is made to the Hallissey-related California class action described on page 44 of the 2002 Form 10-K. On June 6, 2003, the California action was removed again to federal court. Plaintiffs have filed for remand to California state court. On June 16, 2003, the defendants filed a notice requesting that the California case be transferred to the U.S. District Court for the Southern District of New York for consolidated pretrial proceedings with Hallissey.

(a)(b)(c) The Annual Meeting of Stockholders of the Company was held on May 16, 2003 (the “2003 Annual Meeting”). The following matters were voted upon at the 2003 Annual Meeting:

(i)

The following individuals were elected directors of the Company for terms expiring in 2004:

(iii)

Approval of Amended and Restated AOL Time Warner Inc. Annual Bonus Plan for Executive Officers:

(iv)

Ratification and approval of the appointment of Ernst & Young LLP as independent auditors of the Company for 2003:

The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as a part of this report and such Exhibit Index is incorporated herein by reference.


Item #		Description	Date

(i)	2	Reporting the closing of TWE Restructuring and related transactions.	March 28, 2003

(ii)	5, 9, 12	Reporting the agreement to sell the Company’s interest in the Comedy Central cable network to Viacom Inc. (Item 5) and furnishing the Company’s results for the quarter ended March 31, 2003 (Items 9 and 12) (the information furnished under Items 9 and 12 is not incorporated by reference into existing or future registration statements).	April 22, 2003

(iii)	5, 9, 12	Reporting the agreement to sell Warner Music Group’s DVD and CD manufacturing, printing, packaging, physical distribution and merchandising businesses to Cinram International Inc. (Item 5) and furnishing the Company’s results for the quarter ended June 30, 2003 (Items 9 and 12) (the information furnished under Items 9 and 12 is not incorporated by reference into existing or future registration statements).	July 18, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Exhibit No.		Description of Exhibit

3.		By-laws of the registrant as of May 16, 2003.

10.1		AOL Time Warner Inc. 2003 Stock Incentive Plan (incorporated herein by reference to Annex A to the registrant’s proxy statement filed on March 28, 2003).

10.2		AOL Time Warner Inc. Non-Employee Directors’ Deferred Compensation Plan.

10.3		$2 Billion 364-Day Revolving Credit Agreement, dated as of July 7, 2003, among the registrant and AOL Time Warner Finance Ireland, as Borrowers, the Lenders party thereto from time to time, JPMorgan Chase Bank, as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, and ABN AMRO Bank N.V. and BNP PARIBAS, as Co-Documentation Agents, with associated Guarantees.

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.

32.		Certification of Principal Executive Officer and Principal Financial Officer of AOL Time Warner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.

EX-3 3 g83815exv3.txt EX-3 BY-LAWS OF THE REGISTRANT AS OF MAY 16, 2003 EXHIBIT 3 FILED COPY AOL TIME WARNER INC. BY-LAWS ARTICLE I Offices SECTION 1. Registered Office. The registered office of AOL TIME WARNER INC. (hereinafter called the "Corporation") in the State of Delaware shall be at 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801, and the registered agent shall be The Corporation Trust Company, or such other office or agent as the Board of Directors of the Corporation (the "Board") shall from time to time select. SECTION 2. Other Offices. The Corporation may also have an office or offices, and keep the books and records of the Corporation, except as may otherwise be required by law, at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or the business of the Corporation may require. ARTICLE II Meetings of Stockholders SECTION 1. Place of Meeting. All meetings of the stockholders of the Corporation (the "stockholders") shall be at a place to be determined by the Board of Directors. SECTION 2. Annual Meetings. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on such date and at such hour as shall from time to time be fixed by the Board. Any previously scheduled annual meeting of the 1 stockholders may be postponed by action of the Board taken prior to the time previously scheduled for such annual meeting of the stockholders. SECTION 3. Special Meetings. Except as otherwise required by law or the Restated Certificate of Incorporation of the Corporation (the "Certificate") 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 dissolution, liquidation or winding up, special meetings of the stockholders for any purpose or purposes may be called by the Chief Executive Officer or a majority of the entire Board. Only such business as is specified in the notice of any special meeting of the stockholders shall come before such meeting. SECTION 4. Notice of Meetings. Except as otherwise provided by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than 10 days nor more than 60 days before the date of the meeting to each stockholder of record entitled to notice of the meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Each such notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Notice of any meeting of the stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy without protesting, prior to or at the commencement of the meeting, the lack of proper notice to such stockholder, or who shall waive notice thereof as provided in Article X of these By-laws. Notice of adjournment of a meeting of the stockholders need not be given if the time and place to which it is adjourned are announced at such meeting, unless the adjournment is for more than 30 days or, after adjournment, a new record date is fixed for the adjourned meeting. SECTION 5. Quorum. Except as otherwise provided by law or by the Certificate, the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote generally, present in person or by proxy, shall constitute a quorum at any meeting of the stockholders; provided, however, that in the case of any vote to be taken by classes or series, the holders of a majority of the votes entitled to be cast by the stockholders of a particular class or series, present in person or by proxy, shall constitute a quorum of such class or series. SECTION 6. Adjournments. The chairman of the meeting or the holders of a majority of the votes entitled to be cast by the stockholders who are present in person or by proxy may adjourn the meeting from time to time whether or not a quorum is present. In the event that a quorum does not exist with respect to any vote to be taken by a particular class or series, the chairman of the meeting or the holders of a majority of the votes entitled to be cast by the stockholders of such class or series who are present in person or by proxy may adjourn the meeting with respect to the vote(s) to be taken by such class or series. At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called. 2 SECTION 7. Order of Business. At each meeting of the stockholders, the Chairman of the Board or, in the absence of the Chairman of the Board, the Chief Executive Officer, (if the position is held by an individual other than the Chairman of the Board), or in the absence of the Chairman of the Board and the Chief Executive Officer, such person as shall be selected by the Board shall act as chairman of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof and the opening and closing of the voting polls. At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the annual meeting (i) by or at the direction of the chairman of the meeting or (ii) by any stockholder who is a holder of record at the time of the giving of the notice provided for in this Section 7, who is entitled to vote at the meeting and who complies with the procedures set forth in this Section 7. For business properly to be brought before an annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation (the "Secretary"). To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the first anniversary of the date of the immediately preceding annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days earlier or more than 60 days later than such anniversary date, notice by the stockholder to be timely must be so delivered or received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th 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; provided, further, that for the purpose of calculating the timeliness of stockholder notices for the 2001 annual meeting of stockholders, the date of the immediately preceding annual meeting shall be deemed to be May 18, 2000. To be in proper written form, a stockholder's notice to the Secretary shall set forth in writing as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business; (iii) the class or series and number of shares of the Corporation which are beneficially owned by the stockholder; (iv) any material interest of the stockholder in such business; and (v) if the stockholder intends to solicit proxies in support of such stockholder's proposal, a representation to that effect. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of his or her intention to present a proposal at an annual meeting and such stockholder's proposal 3 has been included in a proxy statement that has been prepared by management of the Corporation to solicit proxies for such annual meeting; provided, however, that if such stockholder does not appear or send a qualified representative to present such proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 7. The chairman of an annual meeting may refuse to permit any business to be brought before an annual meeting which fails to comply with the foregoing procedures or, in the case of a stockholder proposal, if the stockholder solicits proxies in support of such stockholder's proposal without having made the representation required by clause (v) of the third preceding sentence. SECTION 8. List of Stockholders. It shall be the duty of the Secretary or other officer who has charge of the stock ledger to prepare and make, at least 10 days before each meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in such stockholder's name. Such list shall be produced and kept available at the times and places required by law. SECTION 9. Voting. Except as otherwise provided by law or by the Certificate, each stockholder of record of any series of Preferred Stock or Series Common Stock shall be entitled at each meeting of the stockholders to such number of votes, if any, for each share of such stock as may be fixed in the Certificate or in the resolution or resolutions adopted by the Board providing for the issuance of such stock, and each stockholder of record of Common Stock shall be entitled at each meeting of the stockholders to one vote for each share of such stock, in each case, registered in such stockholder's name on the books of the Corporation: (1) on the date fixed pursuant to Section 6 of Article VII of these By-laws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting; or (2) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice of such meeting is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. Each stockholder entitled to vote at any meeting of the stockholders may authorize not in excess of three persons to act for such stockholder by proxy. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated for holding such meeting, but in any event not later than the time designated in the order of business for so delivering such proxies. No such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. 4 At each meeting of the stockholders, all corporate actions to be taken by vote of the stockholders (except as otherwise required by law and except as otherwise provided in the Certificate or these By-laws) shall be authorized by a majority of the votes cast by the stockholders entitled to vote thereon who are present in person or represented by proxy, and where a separate vote by class or series is required, a majority of the votes cast by the stockholders of such class or series who are present in person or represented by proxy shall be the act of such class or series. Unless required by law or determined by the chairman of the meeting to be advisable, the vote on any matter, including the election of directors, need not be by written ballot. SECTION 10. Inspectors. The chairman of the meeting shall appoint two or more inspectors to act at any meeting of the stockholders. Such inspectors shall perform such duties as shall be required by law or specified by the chairman of the meeting. Inspectors need not be stockholders. No director or nominee for the office of director shall be appointed such inspector. SECTION 11. Public Announcements. For the purpose of Section 7 of this Article II and Section 3 of Article III, "public announcement" shall mean disclosure (i) in a press release reported by the Dow Jones News Service, Reuters Information Service or any similar or successor news wire service or (ii) in a communication distributed generally to stockholders and in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934 or any successor provisions thereto. ARTICLE III Board of Directors SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate directed or required to be exercised or done by the stockholders. SECTION 2. Number, Qualification and Election. Except as otherwise fixed by or pursuant to the provisions of Article IV of the Certificate 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 preference over the Common Stock as to dividends or upon dissolution, liquidation or winding up, subject to Section 15 of this Article III, the number of directors constituting the Whole Board shall be determined from time to time by the Board. The term "Whole Board" shall mean the total number of authorized directors, whether or not there exist any vacancies or unfilled previously authorized directorships. 5 The directors, other than those who may be elected by the holders of shares of any series of Preferred Stock or Series Common Stock or any class or series of stock having a preference over the Common Stock of the Corporation as to dividends or upon dissolution, liquidation or winding up pursuant to the terms of Article IV of the Certificate or any resolution or resolutions providing for the issuance of such stock adopted by the Board, shall be elected by the stockholders entitled to vote thereon at each annual meeting of the stockholders, and shall hold office until the next annual meeting of the stockholders and until each of their successors shall have been duly elected and qualified. Each director shall be at least 21 years of age. Directors need not be stockholders of the Corporation. In any election of 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. A majority of the members of the Board shall be persons determined by the Board to be eligible to be classified as independent directors. In its determination of a director's eligibility to be classified as an independent director pursuant to this Section 2, the Board shall consider, among such other factors as it may in any case deem relevant, that the director: (i) has not been employed by the Corporation as an executive officer within the past three years; (ii) is not a paid adviser or consultant to the Corporation and derives no financial benefit from any entity as a result of advice or consultancy provided to the Corporation by such entity; (iii) is not an executive officer, director or significant stockholder of a significant customer or supplier of the Corporation; (iv) has no personal services contract with the Corporation; (v) is not an executive officer or director of a tax-exempt entity receiving a significant part of its annual contributions from the Corporation; (vi) is not a member of the immediate family of any director who is not considered an independent director; and (vii) is free of any other relationship that would interfere with the exercise of independent judgment by such director. SECTION 3. Notification of Nominations. 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 dissolution, liquidation or winding up, nominations for the election of directors may be made by the Board or by any stockholder who is a stockholder of record at the time of giving of the notice of nomination provided for in this Section 3 and who is entitled to vote for the election of directors. Any stockholder of record entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if timely written notice of such stockholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation (i) with respect to an election to be held at an annual meeting of the stockholders, not less than 90 days nor more than 120 days prior to the first anniversary of the date of the immediately preceding annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days earlier 6 or more than 60 days later than such anniversary date, notice by the stockholder to be timely must be so delivered or received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th 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; provided, further, that for the purpose of calculating the timeliness of stockholder notices for the 2001 annual meeting of stockholders, the date of the immediately preceding annual meeting shall be deemed to be May 18, 2000 and (ii) with respect to an election to be held at a special meeting of the stockholders for the election of directors, not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees to be elected at such meeting. Each such notice shall set forth: (a) the name and address, as they appear on the Corporation's books, of the stockholder who intends to make the nomination and the name and address of the person or persons to be nominated; (b) the class or series and numbers of shares of the Corporation which are beneficially owned by the stockholder; (c) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote in the election of directors and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (d) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (e) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board; (f) the executed written consent of each nominee to serve as a director of the Corporation if so elected; and (g) if the stockholder intends to solicit proxies in support of such stockholder's nominee(s), a representation to that effect. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure or if the stockholder solicits proxies in favor of such stockholder's nominee(s) without having made the representations required by the immediately preceding sentence. Only such persons who are nominated in accordance with the procedures set forth in this Section 3 shall be eligible to serve as directors of the Corporation. Notwithstanding anything in the immediately preceding paragraph of this Section 3 to the contrary, in the event that the number of directors to be elected to the Board at an annual meeting of the stockholders is increased and there is no public announcement naming all of the nominees for directors or specifying the size of the increased Board made by the Corporation at least 90 days prior to the first anniversary of the date of the immediately preceding annual meeting, a stockholder's notice required by this Section 3 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to or mailed to and received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. 7 SECTION 4. Quorum and Manner of Acting. Except as otherwise provided by law, the Certificate or these By-laws, a majority of the Whole Board shall constitute a quorum for the transaction of business at any meeting of the Board, and, except as so provided, the vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. The chairman of the meeting or a majority of the directors present may adjourn the meeting to another time and place whether or not a quorum is present. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 5. Place of Meeting. Subject to Sections 6 and 7 of this Article III, the Board may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time determine or as shall be specified or fixed in the respective notices or waivers of notice thereof. SECTION 6. Regular Meetings. No fewer than six regular meetings per year of the Board shall be held at such times as the Board shall from time to time by resolution determine, such meetings to be held seriatim (sequentially) in New York City and Northern Virginia, or at such other locations as the Board may determine. If any day fixed for a regular meeting shall be a legal holiday under the laws of the place where the meeting is to be held, the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. SECTION 7. Special Meetings. Special meetings of the Board shall be held whenever called by the Chairman of the Board, the Chief Executive Officer or by a majority of the non-employee directors, and shall be held at such place, on such date and at such time as he or they, as applicable, shall fix. SECTION 8. Notice of Meetings. Notice of regular meetings of the Board or of any adjourned meeting thereof need not be given. Notice of each special meeting of the Board shall be given by overnight delivery service or mailed to each director, in either case addressed to such director at such director's residence or usual place of business, at least two days before the day on which the meeting is to be held or shall be sent to such director at such place by telecopy or by electronic transmission or shall be given personally or by telephone, not later than the day before the meeting is to be held, but notice need not be given to any director who shall, either before or after the meeting, submit a waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to such director. Unless otherwise required by these By-laws, every such notice shall state the time and place but need not state the purpose of the meeting. SECTION 9. Rules and Regulations. The Board may adopt such rules and regulations not inconsistent with the provisions of law, the Certificate or these By-laws for the conduct of its meetings and management of the affairs of the Corporation as the Board may deem proper. 8 SECTION 10. Participation in Meeting by Means of Communications Equipment. Any one or more members of the Board or any committee thereof may participate in any meeting of the Board or of any such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other or as otherwise permitted by law, and such participation in a meeting shall constitute presence in person at such meeting. SECTION 11. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board or any committee thereof may be taken without a meeting if all of the members of the Board or of any such committee consent thereto in writing or as otherwise permitted by law and, if required by law, the writing or writings are filed with the minutes or proceedings of the Board or of such committee. SECTION 12. Resignations. Any director of the Corporation may at any time resign by giving written notice to the Board, the Chairman of the Board, the Chief Executive Officer or the Secretary. Such resignation shall take effect at the time specified therein or, if the time be not specified therein, upon receipt thereof; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 13. Vacancies. 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 of the Corporation as to dividends or upon dissolution, liquidation or winding up, any vacancies on the Board resulting from death, resignation, removal or other cause shall only be filled by the Board, and not by the stockholders, by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board, or by a sole remaining director, and newly created directorships resulting from any increase in the number of directors, which increase shall be subject to Section 15 of this Article III, shall only be filled by the Board, or if not so filled, by the stockholders at the next annual meeting thereof or at a special meeting called for that purpose in accordance with Section 3 of Article II of these By-laws. Any director elected in accordance with the preceding sentence of this Section 13 shall hold office until the next annual meeting of the stockholders and until such director's successor shall have been elected and qualified. SECTION 14. Compensation. Each director, in consideration of such person serving as a director, shall be entitled to receive from the Corporation such amount per annum and such fees (payable in cash or stock-based compensation) for attendance at meetings of the Board or of committees of the Board, or both, as the Board shall from time to time determine. In addition, each director shall be entitled to receive from the Corporation reimbursement for the reasonable expenses incurred by such person in connection with the performance of such person's duties as a director. Nothing contained in this Section 14 shall preclude any director from serving the Corporation or any of its subsidiaries in any other capacity and receiving compensation therefor. 9 SECTION 15. Certain Modifications. Notwithstanding anything to the contrary contained in these By-laws, the following actions taken either directly or indirectly by the Board shall require the affirmative vote of not less than 75% of the Whole Board: (i) any change in the size of the Board; and (ii) any proposal to amend these By-laws to be submitted to the stockholders of the Corporation by the Board. ARTICLE IV Committees of the Board of Directors SECTION 1. Establishment of Committees of the Board of Directors; Election of Members of Committees of the Board of Directors; Functions of Committees of the Board of Directors. (a) The Corporation shall have such committees of the Board as the Board shall determine from time to time in accordance with this Section 1 of Article IV, including the following committees of the Board with the following powers and authority: the nominating and governance committee, the audit and finance committee, the compensation and human development committee, and the strategy committee. (b) The nominating and governance committee shall have the following powers and authority: (i) evaluating and recommending director candidates to the Board, (ii) assessing Board performance not less frequently than every three years, (iii) recommending director compensation and benefits policies for the Board, (iv) evaluating and recommending to the Board candidates for Chief Executive Officer, (v) reviewing individual director performance as issues arise, (vi) reviewing and recommending to the Board changes to the size and composition of the Board, (vii) periodically reviewing the Corporation's corporate governance profile (viii) overseeing and monitoring the Corporation's development and articulation of its core values, its public reputation, and its involvement in the communities in which it does business and (ix) performing such other functions as the Board shall determine in accordance with this Section 1 of Article IV. None of the members of the nominating and governance committee shall be an officer or full-time employee of the Corporation or of any subsidiary or affiliate of the Corporation. (c) The audit and finance committee shall have the following powers and authority: (i) approving the appointment or removal of independent public accountants to audit the books of account, accounting procedures and financial statements of the Corporation and to perform such other duties from time to time as the audit and finance committee may prescribe, (ii) receiving the reports and comments of the Corporation's internal auditors and of the independent public accountants selected by the committee and taking such action with respect thereto as it deems appropriate, (iii) requesting the Corporation's consolidated subsidiaries and affiliated companies to employ independent public accountants to audit their respective books of account, accounting procedures and financial statements, (iv) requesting the independent public accountants to furnish to the 10 compensation committee the certifications required under any present or future stock option, incentive compensation or employee benefit plan of the Corporation, (v) reviewing the adequacy of the Corporation's internal financial controls, (vi) reviewing the accounting principles employed in the Corporation's financial reporting, (vii) reviewing and making recommendations to the Board concerning the financial structure and financial condition of the Corporation and its subsidiaries, including annual budgets, long-term financial plans, corporate borrowings, investments, capital expenditures, long-term commitments and the issuance of stock, (viii) approving such matters that are consistent with the general financial policies and direction from time to time determined by the Board and (ix) performing such other functions as the Board shall determine in accordance with this Section 1 of Article IV. The audit and finance committee shall also have the powers and authority set forth in any audit and finance committee charter adopted by the Board in accordance with this Section 1 of Article IV as may from time to time be required by any rule or regulation to which the Corporation is subject. None of the members of the audit and finance committee shall be an officer or full-time employee of the Corporation or of any subsidiary or affiliate of the Corporation. (d) The compensation and human development committee shall have the following powers and authority: (i) determining and fixing the compensation for all senior officers of the Corporation and its subsidiaries and divisions that the compensation and human development committee shall from time to time consider appropriate, as well as all employees of the Corporation compensated at a rate in excess of such amount per annum as may be fixed or determined from time to time by the Board, (ii) performing the duties of the committees of the Board provided for in any present or future stock option, restricted stock, incentive compensation or employee benefit plan of the Corporation and administering the stock option, restricted stock and stock incentive plans of the Corporation, (iii) delegating, to the extent permitted by law and to the extent it deems appropriate, any of its powers in connection with the administration of the stock option, stock incentive, restricted stock plans and other employee benefit plans of the Corporation, (iv) reviewing the operations of and policies pertaining to any present or future stock option, incentive compensation or employee benefit plan of the Corporation that the compensation and human development committee shall from time to time consider appropriate, (v) overseeing and monitoring the Corporation's human resources initiatives, including but not limited to efforts related to workforce diversity, and (vi) performing such other functions as the Board shall determine in accordance with this Section 1 of Article IV. None of the members of the compensation committee shall be an officer or full-time employee of the Corporation or of any subsidiary or affiliate of the Corporation. (e) The strategy committee shall have the following powers and authority: (i) reviewing and making recommendations to the Board concerning the Corporation's strategic plan; (ii) monitoring the Corporation's progress in implementing its strategic plan; (iii) reviewing and making recommendations to the Board concerning the Corporation's annual budget in light of the strategic plan; (iv) receiving reports from management regarding developments and opportunities affecting the Corporation's strategy; (v) reviewing and making recommendations to the Board concerning significant 11 transactions in terms of their effect on the Corporation's strategy; and (vi) performing such other functions as the Board shall determine in accordance with this Section 1 of Article IV. (f) Any modification to the powers and authority of any committee of the Board shall require the affirmative vote of not less than 75% of the Whole Board. (g) In addition, the Board may, with the affirmative vote of not less than 75% of the Whole Board and in accordance with and subject to the General Corporation Law of the State of Delaware (the "DGCL"), from time to time establish additional committees of the Board to exercise such powers and authorities of the Board, and to perform such other functions, as the Board may from time to time determine. (h) The Board may remove a director from a committee, change the size of any committee or terminate any committee or change the chairmanship of a committee only with the affirmative vote of not less than 75% of the Whole Board. (i) The Board may designate one or more directors as new members of any committee to fill any vacancy on a committee and to fill a vacant chairmanship of a committee occurring as a result of a member or chairman leaving the committee, whether through death, resignation, removal or otherwise; provided that any such designation or any designation by the Board of a director as an alternate member of any committee in accordance with Section 141(c)(2) of the DGCL may only be made with the affirmative vote of not less than 75% of the Whole Board. SECTION 2. Procedure; Meetings; Quorum. Regular meetings of committees of the Board, of which no notice shall be necessary, may be held at such times and places as shall be fixed by resolution adopted by a majority of the total number of authorized committee members, whether or not there exist any vacancies or unfilled previously authorized committee seats. Special meetings of any committee of the Board shall be called at the request of any member thereof. Notice of each special meeting of any committee of the Board shall be sent by overnight delivery service, or mailed to each member thereof, in either case addressed to such member at such member's residence or usual place of business, at least two days before the day on which the meeting is to be held or shall be sent to such member at such place by telecopy or by electronic transmission or be given personally or by telephone, not later than the day before the meeting is to be held, but notice need not be given to any member who shall, either before or after the meeting, submit a waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of such notice to such member. Unless otherwise required by these By-laws, every such notice shall state the time and place but need not state the purpose of such meeting. Any special meeting of any committee of the Board shall be a legal meeting without any notice thereof having been given, if all the members thereof shall be present thereat and no member shall protest the lack of notice to such member. Notice of any adjourned meeting of any committee of the Board need not be given. Any committee of the Board may adopt such rules and regulations not inconsistent with the provisions of law, the Certificate or these 12 By-laws for the conduct of its meetings as such committee of the Board may deem proper. A majority of the authorized members of any committee of the Board shall constitute a quorum for the transaction of business at any meeting, and the vote of a majority of the members thereof present at any meeting at which a quorum is present shall be the act of such committee. Each committee of the Board shall keep written minutes of its proceedings and shall report on such proceedings to the Board. ARTICLE V Officers SECTION 1. Number; Term of Office. The officers of the Corporation shall be elected by the Board and may consist of: a Chairman of the Board, a Chief Executive Officer, a Chief Operating Officer, a Chief Financial Officer and one or more Vice Chairmen and Vice Presidents (including, without limitation, Assistant, Executive, Senior and Group Vice Presidents) and a Treasurer, Secretary and Controller and such other officers and agents with such titles and such duties as the Board may from time to time determine, each to have such authority, functions or duties as in these By-laws provided or as the Board may from time to time determine, and each to hold office for such term as may be prescribed by the Board and until such person's successor shall have been chosen and shall qualify, or until such person's death or resignation, or until such person's removal in the manner hereinafter provided. The Chairman of the Board, the Chief Executive Officer and the Vice Chairmen shall be elected from among the directors. One person may hold the offices and perform the duties of any two or more of said officers; provided, however, that no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law, the Certificate or these By-laws to be executed, acknowledged or verified by two or more officers. The Board may require any officer or agent to give security for the faithful performance of such person's duties. SECTION 2. Removal. Subject to Section 14 of this Article V, any officer may be removed, either with or without cause, by the Board at any meeting thereof called for the purpose or by any superior officer upon whom such power may be conferred by the Board. SECTION 3. Resignation. Any officer may resign at any time by giving notice to the Board, the Chief Executive Officer or the Secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later date specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4. Chairman of the Board. The Chairman of the Board may be an officer of the Corporation, subject to the control of the Board, and shall report directly to the Board. 13 SECTION 5. Chief Executive Officer. The Chief Executive Officer shall have general supervision and direction of the business and affairs of the Corporation, subject to the control of the Board, and shall report directly to the Board. SECTION 6. Chief Operating Officer. The Chief Operating Officer shall perform such senior duties in connection with the operations of the Corporation as the Board or the Chief Executive Officer shall from time to time determine, and shall report directly to the Chief Executive Officer. The Chief Operating Officer shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as may be agreed with the Chief Executive Officer or as the Board may from time to time determine. SECTION 7. Vice Chairmen. Any Vice Chairman shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as he may agree with the Chief Executive Officer or as the Board may from time to time determine. SECTION 8. Chief Financial Officer. The Chief Financial Officer shall perform all the powers and duties of the office of the chief financial officer and in general have overall supervision of the financial operations of the Corporation. The Chief Financial Officer shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as he may agree with the Chief Executive Officer or as the Board may from time to time determine. The Chief Financial Officer shall report directly to the Chief Executive Officer. SECTION 9. Vice Presidents. Any Vice President shall have such powers and duties as shall be prescribed by his superior officer or the Board. A Vice President shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as he may agree with the Chief Executive Officer or as the Board may from time to time determine. A Vice President need not be an officer of the Corporation and shall not be deemed an officer of the Corporation unless elected by the Board. SECTION 10. Treasurer. The Treasurer, if one shall have been elected, shall supervise and be responsible for all the funds and securities of the Corporation; the deposit of all moneys and other valuables to the credit of the Corporation in depositories of the Corporation; borrowings and compliance with the provisions of all indentures, agreements and instruments governing such borrowings to which the Corporation is a party; the disbursement of funds of the Corporation and the investment of its funds; and in general shall perform all of the duties incident to the office of the Treasurer. The Treasurer shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as he may agree with the Chief Executive Officer or as the Board may from time to time determine. SECTION 11. Controller. The Controller shall be the chief accounting officer of the Corporation. The Controller shall, when requested, counsel with and advise 14 the other officers of the Corporation and shall perform such other duties as he may agree with the Chief Executive Officer, the Chief Financial Officer or as the Board may from time to time determine. SECTION 12. Secretary. It shall be the duty of the Secretary to act as secretary at all meetings of the Board, of the committees of the Board and of the stockholders and to record the proceedings of such meetings in a book or books to be kept for that purpose; the Secretary shall see that all notices required to be given by the Corporation are duly given and served; the Secretary shall be custodian of the seal of the Corporation and shall affix the seal or cause it to be affixed to all certificates of stock of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these By-laws; the Secretary shall have charge of the books, records and papers of the Corporation and shall see that the reports, statements and other documents required by law to be kept and filed are properly kept and filed; and in general shall perform all of the duties incident to the office of Secretary. The Secretary shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as he may agree with the Chief Executive Officer or as the Board may from time to time determine. SECTION 13. Assistant Treasurers, Assistant Controllers and Assistant Secretaries. Any Assistant Treasurers, Assistant Controllers and Assistant Secretaries shall perform such duties as shall be assigned to them by the Board or by the Treasurer, Controller or Secretary, respectively,or by the Chief Executive Officer. An Assistant Treasurer , Assistant Controller or Assistant Secretary need not be an officer of the Corporation and shall not be deemed an officer of the Corporation unless elected by the Board. SECTION 14. Additional Matters. The Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer of the Corporation shall have the authority to designate employees of the Corporation to have the title of Vice President, Assistant Vice President, Assistant Treasurer, Assistant Controller or Assistant Secretary. Any employee so designated shall have the powers and duties determined by the officer making such designation. The persons upon whom such titles are conferred shall not be deemed officers of the Corporation unless elected by the Board. ARTICLE VI Indemnification SECTION 1. Right to Indemnification. The Corporation, to the fullest extent permitted or required by the DGCL or other applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment and unless applicable 15 law otherwise requires, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), shall indemnify and hold harmless any person who is or was a director or officer of the Corporation and who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, any action, suit or proceedings by or in the right of the Corporation to procure a judgment in its favor) (a "Proceeding") by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) (a "Covered Entity") against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding; provided, however, that the foregoing shall not apply to a director or officer of the Corporation with respect to a Proceeding that was commenced by such director or officer unless the proceeding was commenced after a Change in Control (as hereinafter defined in Section 4(e) of this Article VI). Any director or officer of the Corporation entitled to indemnification as provided in this Section 1 is hereinafter called an "Indemnitee". Any right of an Indemnitee to indemnification shall be a contract right and shall include the right to receive, prior to the conclusion of any Proceeding, payment of any expenses incurred by the Indemnitee in connection with such Proceeding, consistent with the provisions of the DGCL or other applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment and unless applicable law otherwise requires, only to the extent that such amendment permits the Corporation to provide broader rights to payment of expenses than such law permitted the Corporation to provide prior to such amendment), and the other provisions of this Article VI. SECTION 2. Insurance, Contracts and Funding. The Corporation may purchase and maintain insurance to protect itself and any director, officer, employee or agent of the Corporation or of any Covered Entity against any expenses, judgments, fines and amounts paid in settlement as specified in Section 1 of this Article VI or incurred by any such director, officer, employee or agent in connection with any Proceeding referred to in Section 1 of this Article VI, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL. The Corporation may enter into contracts with any director, officer, employee or agent of the Corporation or of any Covered Entity in furtherance of the provisions of this Article VI and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided or authorized in this Article VI. SECTION 3. Indemnification Not Exclusive Right. The right of indemnification provided in this Article VI shall not be exclusive of any other rights to which an Indemnitee may otherwise be entitled, and the provisions of this Article VI shall inure to the benefit of the heirs and legal representatives of any Indemnitee under 16 this Article VI and shall be applicable to Proceedings commenced or continuing after the adoption of this Article VI, whether arising from acts or omissions occurring before or after such adoption. SECTION 4. Advancement of Expenses; Procedures; Presumptions and Effect of Certain Proceedings; Remedies. In furtherance, but not in limitation of the foregoing provisions, the following procedures, presumptions and remedies shall apply with respect to advancement of expenses and the right to indemnification under this Article VI: (a) Advancement of Expenses. All reasonable expenses (including attorneys' fees) incurred by or on behalf of the Indemnitee in connection with any Proceeding shall be advanced to the Indemnitee by the Corporation within 20 days after the receipt by the Corporation of a statement or statements from the Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the expenses incurred by the Indemnitee and, if required by law at the time of such advance, shall include or be accompanied by an undertaking by or on behalf of the Indemnitee to repay the amounts advanced if ultimately it should be determined that the Indemnitee is not entitled to be indemnified against such expenses pursuant to this Article VI. (b) Procedure for Determination of Entitlement to Indemnification. (i) To obtain indemnification under this Article VI, an Indemnitee shall submit to the Secretary a written request, including such documentation and information as is reasonably available to the Indemnitee and reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification (the "Supporting Documentation"). The determination of the Indemnitee's entitlement to indemnification shall be made not later than 60 days after receipt by the Corporation of the written request for indemnification together with the Supporting Documentation. The Secretary shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that the Indemnitee has requested indemnification. (ii) The Indemnitee's entitlement to indemnification under this Article VI shall be determined in one of the following ways: (A) by a majority vote of the Disinterested Directors (as hereinafter defined in Section 4(e) of this Article VI), whether or not they constitute a quorum of the Board, or by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors; (B) by a written opinion of Independent Counsel (as hereinafter defined in Section 4(e) of this Article VI) if (x) a Change in Control shall have occurred and the Indemnitee so requests or (y) there are no Disinterested Directors or a majority of such Disinterested Directors so directs; (C) by the stockholders of the Corporation; or (D) as provided in Section 4(c) of this Article VI. 17 (iii) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 4(b)(ii) of this Article VI, a majority of the Disinterested Directors shall select the Independent Counsel, but only an Independent Counsel to which the Indemnitee does not reasonably object; provided, however, that if a Change in Control shall have occurred, the Indemnitee shall select such Independent Counsel, but only an Independent Counsel to which a majority of the Disinterested Directors does not reasonably object. (c) Presumptions and Effect of Certain Proceedings. Except as otherwise expressly provided in this Article VI, if a Change in Control shall have occurred, the Indemnitee shall be presumed to be entitled to indemnification under this Article VI (with respect to actions or omissions occurring prior to such Change in Control) upon submission of a request for indemnification together with the Supporting Documentation in accordance with Section 4(b)(i) of this Article VI, and thereafter the Corporation shall have the burden of proof to overcome that presumption in reaching a contrary determination. In any event, if the person or persons empowered under Section 4(b) of this Article VI to determine entitlement to indemnification shall not have been appointed or shall not have made a determination within 60 days after receipt by the Corporation of the request therefor, together with the Supporting Documentation, the Indemnitee shall be deemed to be, and shall be, entitled to indemnification unless (A) the Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (B) such indemnification is prohibited by law. The termination of any Proceeding described in Section 1 of this Article VI, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, adversely affect the right of the Indemnitee to indemnification or create a presumption that the Indemnitee did not act in good faith and in a manner which the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal proceeding, that the Indemnitee had reasonable cause to believe that such conduct was unlawful. (d) Remedies of Indemnitee. (i) In the event that a determination is made pursuant to Section 4(b) of this Article VI that the Indemnitee is not entitled to indemnification under this Article VI, (A) the Indemnitee shall be entitled to seek an adjudication of entitlement to such indemnification either, at the Indemnitee's sole option, in (x) an appropriate court of the State of Delaware or any other court of competent jurisdiction or (y) an arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association; (B) any such judicial proceeding or arbitration shall be de novo and the Indemnitee shall not be prejudiced by reason of such adverse determination; and (C) if a Change in Control shall have occurred, in any such judicial proceeding or arbitration, the Corporation shall have the burden of proving that the Indemnitee is not entitled to 18 indemnification under this Article VI (with respect to actions or omissions occurring prior to such Change in Control). (ii) If a determination shall have been made or deemed to have been made, pursuant to Section 4(b) or (c) of this Article VI, that the Indemnitee is entitled to indemnification, the Corporation shall be obligated to pay the amounts constituting such indemnification within five days after such determination has been made or deemed to have been made and shall be conclusively bound by such determination unless (A) the Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (B) such indemnification is prohibited by law. In the event that (X) advancement of expenses is not timely made pursuant to Section 4(a) of this Article VI or (Y) payment of indemnification is not made within five days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Section 4(b) or (c) of this Article VI, the Indemnitee shall be entitled to seek judicial enforcement of the Corporation's obligation to pay to the Indemnitee such advancement of expenses or indemnification. Notwithstanding the foregoing, the Corporation may bring an action, in an appropriate court in the State of Delaware or any other court of competent jurisdiction, contesting the right of the Indemnitee to receive indemnification hereunder due to the occurrence of an event described in sub-clause (A) or (B) of this clause (ii) (a "Disqualifying Event"); provided, however, that in any such action the Corporation shall have the burden of proving the occurrence of such Disqualifying Event. (iii) The Corporation shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 4(d) that the procedures and presumptions of this Article VI are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Corporation is bound by all the provisions of this Article VI. (iv) In the event that the Indemnitee, pursuant to this Section 4(d), seeks a judicial adjudication of or an award in arbitration to enforce rights under, or to recover damages for breach of, this Article VI, the Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any expenses actually and reasonably incurred by the Indemnitee if the Indemnitee prevails in such judicial adjudication or arbitration. If it shall be determined in such judicial adjudication or arbitration that the Indemnitee is entitled to receive part but not all of the indemnification or advancement of 19 expenses sought, the expenses incurred by the Indemnitee in connection with such judicial adjudication or arbitration shall be prorated accordingly. (e) Definitions. For purposes of this Article VI: (i) "Authorized Officer" means any one of the Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, any Vice President or the Secretary of the Corporation. (ii) "Change in Control" means the occurrence of any of the following: (w) any merger or consolidation of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Corporation's Common Stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporation's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, (x) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Corporation, or the liquidation or dissolution of the Corporation or (y) individuals who would constitute a majority of the members of the Board elected at any meeting of stockholders or by written consent (without regard to any members of the Board elected pursuant to the terms of any series of Preferred Stock) shall be elected to the Board and the election or the nomination for election by the stockholders of such directors was not approved by a vote of at least two-thirds of the directors in office immediately prior to such election. (iii) "Disinterested Director" means a director of the Corporation who is not or was not a party to the Proceeding in respect of which indemnification is sought by the Indemnitee. (iv) "Independent Counsel" means a law firm or a member of a law firm that neither presently is, nor in the past five years has been, retained to represent: (x) the Corporation or the Indemnitee in any matter material to either such party or (y) any other party to the Proceeding giving rise to a claim for indemnification under this Article VI. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing under the law of the State of Delaware, would have a conflict of interest in representing either the Corporation or the Indemnitee in an action to determine the Indemnitee's rights under this Article VI. 20 SECTION 5. Severability. If any provision or provisions of this Article VI shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article VI (including, without limitation, all portions of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article VI (including, without limitation, all portions of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or enforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. SECTION 6. Indemnification of Employees Serving as Directors. The Corporation, to the fullest extent of the provisions of this Article VI with respect to the indemnification of directors and officers of the Corporation, shall indemnify any person who is or was an employee of the Corporation and who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed Proceeding by reason of the fact that such employee is or was serving (a) as a director of a corporation in which the Corporation had at the time of such service, directly or indirectly, a 50% or greater equity interest (a "Subsidiary Director") or (b) at the written request of an Authorized Officer, as a director of another corporation in which the Corporation had at the time of such service, directly or indirectly, a less than 50% equity interest (or no equity interest at all) or in a capacity equivalent to that of a director for any partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) in which the Corporation has an interest (a "Requested Employee"), against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such Subsidiary Director or Requested Employee in connection with such Proceeding. The Corporation may also advance expenses incurred by any such Subsidiary Director or Requested Employee in connection with any such Proceeding, consistent with the provisions of this Article VI with respect to the advancement of expenses of directors and officers of the Corporation. SECTION 7. Indemnification of Employees and Agents. Notwithstanding any other provision or provisions of this Article VI, the Corporation, to the fullest extent of the provisions of this Article VI with respect to the indemnification of directors and officers of the Corporation, may indemnify any person other than a director or officer of the Corporation, a Subsidiary Director or a Requested Employee, who is or was an employee or agent of the Corporation and who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed Proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or of a Covered Entity against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding. The Corporation may also advance expenses incurred by such employee or agent in connection with any such Proceeding, consistent with the 21 provisions of this Article VI with respect to the advancement of expenses of directors and officers of the Corporation. ARTICLE VII Capital Stock SECTION 1. Certificates for Shares. The shares of stock of the Corporation shall be represented by certificates, or shall be uncertificated shares that may be evidenced by a book-entry system maintained by the registrar of such stock, or a combination of both. To the extent that shares are represented by certificates, such certificates whenever authorized by the Board, shall be in such form as shall be approved by the Board. The certificates representing shares of stock of each class shall be signed by, or in the name of, the Corporation by the Chairman of the Board and the Chief Executive Officer, or by any Vice President, and by the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer of the Corporation, and sealed with the seal of the Corporation, which may be a facsimile thereof. Any or all such signatures may be facsimiles if countersigned by a transfer agent or registrar. Although any officer, transfer agent or registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, it may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue. The stock ledger and blank share certificates shall be kept by the Secretary or by a transfer agent or by a registrar or by any other officer or agent designated by the Board. SECTION 2. Transfer of Shares. Transfers of shares of stock of each class of the Corporation shall be made only on the books of the Corporation upon authorization by the registered holder thereof, or by such holder's attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary or a transfer agent for such stock, if any, and if such shares are represented by a certificate, upon surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power (or by proper evidence of succession, assignment or authority to transfer) and the payment of any taxes thereon; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. The person in whose name shares are registered on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation; provided, however, that whenever any transfer of shares shall be made for collateral security and not absolutely, and written notice thereof shall be given to the Secretary or to such transfer agent, such fact shall be stated in the entry of the transfer. No transfer of shares shall be valid as against the Corporation, its stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred. 22 SECTION 3. Registered Stockholders and Addresses of Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. Each stockholder shall designate to the Secretary or transfer agent of the Corporation an address at which notices of meetings and all other corporate notices may be given to such person, and, if any stockholder shall fail to designate such address, corporate notices may be given to such person by mail directed to such person at such person's post office address, if any, as the same appears on the stock record books of the Corporation or at such person's last known post office address. SECTION 4. Lost, Destroyed and Mutilated Certificates. The holder of any certificate representing any shares of stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of such certificate; the Corporation may issue to such holder a new certificate or certificates for shares, upon the surrender of the mutilated certificate or, in the case of loss, theft or destruction of the certificate, upon satisfactory proof of such loss, theft or destruction; the Board, or a committee designated thereby, or the transfer agents and registrars for the stock, may, in their discretion, require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to give the Corporation a bond in such sum and with such surety or sureties as they may direct to indemnify the Corporation and said transfer agents and registrars against any claim that may be made on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 5. Regulations. The Board may make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificated or uncertificated shares of stock of each class and series of the Corporation and may make such rules and take such action as it may deem expedient concerning the issue of certificates in lieu of certificates claimed to have been lost, destroyed, stolen or mutilated. SECTION 6. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 days nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the 23 meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. SECTION 7. Transfer Agents and Registrars. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. ARTICLE VIII Seal The Board shall approve a suitable corporate seal, which shall be in the form of a circle and shall bear the full name of the Corporation and shall be in the charge of the Secretary. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE IX Fiscal Year The fiscal year of the Corporation shall end on the 31st day of December in each year. ARTICLE X Waiver of Notice Whenever any notice whatsoever is required to be given by these By-laws, by the Certificate or by law, the person entitled thereto may, either before or after the meeting or other matter in respect of which such notice is to be given, waive such notice in writing or as otherwise permitted by law, which shall be filed with or entered upon the records of the meeting or the records kept with respect to such other matter, as the case may be, and in such event such notice need not be given to such person and such waiver shall be deemed equivalent to such notice. ARTICLE XI Amendments These By-laws may be altered, amended or repealed, in whole or in part, or new By-laws may be adopted by the stockholders or by the Board at any meeting thereof; provided, however, that notice of such alteration, amendment, repeal or adoption 24 of new By-laws is contained in the notice of such meeting of the stockholders or in the notice of such meeting of the Board and, in the latter case, such notice is given not less than twenty-four hours prior to the meeting. Unless a higher percentage is required by the Certificate, all such amendments must be approved by either the holders of 80% or more of the combined voting power of the outstanding shares of all classes and series of capital stock of the Corporation entitled generally to vote in the election of directors of the Corporation, voting as a single class, or by a majority of the Board; provided, however, that, notwithstanding the foregoing, until December 31, 2003, the Board may not alter, amend or repeal, or adopt new By-laws in conflict with, or recommend approval by the stockholders of any alteration, amendment or repeal, or adoption of new By-laws in conflict with, in either case, (i) any provision of these By-laws which requires a 75% vote of the Whole Board for action to be taken thereunder or (ii) this Article XI, without the affirmative vote of not less than 75% of the Whole Board. ARTICLE XII Miscellaneous SECTION 1. Execution of Documents. The Board or any committee thereof shall designate the officers, employees and agents of the Corporation who shall have power to execute and deliver deeds, contracts, mortgages, bonds, debentures, notes, checks, drafts and other orders for the payment of money and other documents for and in the name of the Corporation and may authorize (including authority to redelegate) by written instrument to other officers, employees or agents of the Corporation. Such delegation may be by resolution or otherwise and the authority granted shall be general or confined to specific matters, all as the Board or any such committee may determine. In the absence of such designation referred to in the first sentence of this Section, the officers of the Corporation shall have such power so referred to, to the extent incident to the normal performance of their duties. SECTION 2. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation or otherwise as the Board or any committee thereof or any officer of the Corporation to whom power in respect of financial operations shall have been delegated by the Board or any such committee or in these By-laws shall select. SECTION 3. Checks. All checks, drafts and other orders for the payment of money out of the funds of the Corporation, and all notes or other evidences of indebtedness of the Corporation, shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board or of any committee thereof or by any officer of the Corporation to whom power in respect of financial operations shall have been delegated by the Board or any such committee thereof or as set forth in these By-laws. 25 SECTION 4. Proxies in Respect of Stock or Other Securities of Other Corporations. The Board or any committee thereof shall designate the officers of the Corporation who shall have authority from time to time to appoint an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation or other entity, and to vote or consent in respect of such stock or securities; such designated officers may instruct the person or persons so appointed as to the manner of exercising such powers and rights; and such designated officers may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, powers of attorney or other instruments as they may deem necessary or proper in order that the Corporation may exercise its said powers and rights. SECTION 5. Subject to Law and Certificate of Incorporation. All powers, duties and responsibilities provided for in these By-laws, whether or not explicitly so qualified, are qualified by the provisions of the Certificate and applicable laws. 26 EX-10.2 4 g83815exv10w2.txt EX-10.2 NON-EMPLOYEE DIRECTORS' DEFERRED COMP PLAN EXHIBIT 10.2 AOL TIME WARNER INC. NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION PLAN 1. PURPOSE OF THE PLAN The purpose of the Plan is to enhance the Company's ability to attract and retain talented individuals to serve as members of the Board. 2. DEFINITIONS The following capitalized terms used in the Plan have the respective meanings set forth in this Section: (a) "ACT" means The Securities Exchange Act of 1934, as amended, or any successor thereto. (b) "AFFILIATE" means any entity that is consolidated with the Company for financial reporting purposes or any other entity designated by the Board in which the Company or an Affiliate has a direct or indirect equity interest of at least twenty percent (20%), measured by reference to vote or value. (c) "ANNUAL DEFERRAL AMOUNT" means the portion of a Participant's Cash Compensation that is to be deferred. (d) "BOARD" means the Board of Directors of the Company. (e) "CASH COMPENSATION" means cash compensation earned by a Participant as a director of the Company (including, but not limited to, annual retainer, board meeting fees, committee meeting fees and committee chairman fees). (f) "CODE" means The Internal Revenue Code of 1986, as amended, or any successor thereto. (g) "COMPANY" means AOL Time Warner Inc., a Delaware corporation. (h) "DEFERRAL ELECTION FORM" means an election form approved by the Board. (i) "DEFERRED CASH" means a bookkeeping entry credited in accordance with an election made by a Participant pursuant to Section 5. (j) "DEFERRED SHARE UNIT" means a bookkeeping entry, equivalent in value to one Share, credited in accordance with an election made by a Participant pursuant to Section 5. 2 (k) "DEFERRED ACCOUNT" means a bookkeeping account maintained by the Company pursuant to which the Company records amounts deferred by a Participant as Deferred Cash and/or Deferred Share Units. (l) "EFFECTIVE DATE" means the date the Board approves the Plan. (m) "ELIGIBLE DIRECTOR" means any director of the Company who is not an employee of the Company or any Affiliate during any years of service covered by the election made on a Deferral Election Form. (n) "FAIR MARKET VALUE" means, on a given date, (i) if there should be a public market for the Shares on such date, the average of the high and low prices of the Shares on the New York Stock Exchange, or, if the Shares are not listed or admitted on any national securities exchange, the average of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System (or such market in which such prices are regularly quoted)(the "NASDAQ"), or, if no sale of Shares shall have been reported on the New York Stock Exchange or quoted on the NASDAQ on such date, then the immediately preceding date on which sales of the Shares have been so reported or quoted shall be used, and (ii) if there should not be a public market for the Shares on such date, the Fair Market Value shall be the value established by the Board in good faith. (o) "PARTICIPANT" means any Eligible Director who elects to participate in the Plan. (p) "PLAN" means the AOL Time Warner Inc. Non-Employee Directors' Deferred Compensation Plan. (q) "PRIME RATE" means, with respect to each annual period ending on any April 30, the prime rate of interest per annum reported by the Wall Street Journal on the May 1 with which such annual period commenced (or if such May 1 is not a business day, the immediately preceding business day). (r) "SHARES" means shares of common stock of the Company, $.01 par value per share. 3. ADMINISTRATION The Plan shall be administered by the Board, which may delegate its duties and powers in whole or in part as it deems appropriate. The Board is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Board may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Board deems necessary or desirable. Any decision of the Board in the interpretation and administration of the Plan, as described herein, shall lie within its 3 sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors). 4. ELIGIBILITY All Eligible Directors shall be eligible to participate in the Plan. 5. VOLUNTARY DEFERRAL OF CASH COMPENSATION An Eligible Director may voluntarily elect to defer his or her Cash Compensation in the following manner: (a) Method of Election. In order to make a voluntary election pursuant to the Plan, the Eligible Director must complete a Deferral Election Form, not later than the commencement date of the Participant's term for which the Cash Compensation to be deferred will be earned (with respect to newly elected Eligible Directors, no later than 30 days after the date on which such Eligible Director commences service as a director of the Company). Notwithstanding the foregoing, no later than 30 days following the Effective Date, each Eligible Director may make a voluntary election to defer Cash Compensation pursuant to the Plan. The Deferral Election Form shall designate (i) the Annual Deferral Amount, (ii) the portion of the Annual Deferral Amount that is to be deferred into (A) Deferred Share Units and/or (B) Deferred Cash and (iii) the timing of payments. Such an election shall only be effective with respect to the Cash Compensation earned after the date of the election. Such election shall remain effective for all future terms of service as an Eligible Director unless the Participant revokes the election or makes a new election with respect to a subsequent term. (b) Deferred Share Units. If a Participant elects to defer his or her Annual Deferral Amount into Deferred Share Units, such Participant will have Deferred Share Units credited (as of each date on which his or her Cash Compensation would otherwise have been paid) to the Participant's Deferred Account. The number of Deferred Share Units (including fractional Deferred Share Units) to be credited shall be determined by dividing (i) the amount of Cash Compensation to be deferred into Deferred Share Units by (ii) the Fair Market Value of one Share on the date credited. Deferred Share Units outstanding as of the record date of a dividend on the Shares shall be credited with dividend equivalents when such dividend is paid on the Shares, and such dividend equivalents shall be converted into additional Deferred Share Units based on the Fair Market Value of a Share on the date such dividend is paid. (c) Deferred Cash. If a Participant makes a voluntary election to defer his or her Annual Deferral Amount into Deferred Cash, such Participant will have Deferred Cash credited (as of each date on which his or her Cash Compensation would otherwise have been paid) to the Participant's Deferred Account. The amount of Deferred Cash to be credited shall 4 equal the amount of Cash Compensation to be deferred into Deferred Cash. A Participant's Deferred Account shall be credited with additional Deferred Cash on April 30 of each calendar year equal to the amount of notional interest earned on the Deferred Cash in the Participant's Deferred Account. For this purpose, such notional interest shall be earned at the Prime Rate plus two percent (2%). 6. TIMING AND FORM OF PAYMENT Payments in settlement of Deferred Accounts shall be made in cash as soon as practicable after the date or dates, and in such number of installments, as may be directed by the Participant in the Participant's Deferral Election Form. If a Participant has elected to receive installment payments, the amount of the distribution payable is based upon the value of a Deferred Account on the installment payment date. 7. NONTRANSFERABILITY OF DEFERRED ACCOUNTS Deferred Accounts shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. During the lifetime of a Participant, Deferred Accounts shall be payable only to such Participant. Deferred Accounts payable after the death of a Participant shall be paid to the beneficiary designated by the Participant on the Deferral Election Form; provided, that if no such beneficiary is designated the Deferred Accounts may be paid to the legatees, personal representatives or distributees of the Participant. 8. UNFUNDED PLAN The Plan is intended to constitute an unfunded obligation of the Company, and Participants shall rely solely on the unsecured promise of the Company for payment hereunder. Nothing contained in the Plan shall give a Participant any rights that are greater than those of a general unsecured creditor of the Company. The Company may authorize the creation of a trust or other arrangements to meet the Company's obligations under the Plan, which trusts or other arrangements shall be consistent with the unfunded status of the Plan. 9. ADJUSTMENTS UPON CERTAIN EVENTS In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or transaction or exchange of Shares or other corporate exchange, or any distribution to shareholders of Shares other than regular cash dividends or any transaction similar to the foregoing, the Board in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable, to any Deferred Share Units. 10. SUCCESSORS AND ASSIGNS The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors. 5 11. AMENDMENTS OR TERMINATION The Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would reduce the value of any Participant's Deferred Account without such Participant's consent. 12. CHOICE OF LAW The Plan shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws and any and all disputes between a Participant and the Company or any Affiliate relating to the Plan shall be brought only in a state or federal court of competent jurisdiction sitting in Manhattan, New York. 13. EFFECTIVENESS OF THE PLAN The Plan shall be effective as of the Effective Date. EX-10.3 5 g83815exv10w3.txt EX-10.3 364-DAY REVOLVING CREDIT AGREEMENT EXHIBIT 10.3 EXECUTION COPY ================================================================================ CREDIT AGREEMENT Dated as of July 7, 2003 Among AOL TIME WARNER INC., AOL TIME WARNER FINANCE IRELAND, as Borrowers, The Lenders Party Hereto, JPMORGAN CHASE BANK, as Administrative Agent, BANK OF AMERICA, N.A. AND CITIBANK, N.A., as Co-Syndication Agents, and ABN AMRO BANK N.V. AND BNP PARIBAS, as Co-Documentation Agents $2,000,000,000 364-DAY REVOLVING CREDIT FACILITY ================================================================================ J.P. MORGAN SECURITIES INC. AND BANC OF AMERICA SECURITIES LLC, as Joint-Lead Arrangers and Joint Bookrunners TABLE OF CONTENTS

i ARTICLE IV Conditions....................................................................... 37 SECTION 4.01. Effective Date........................................................... 37 SECTION 4.02. Each Credit Event........................................................ 38 ARTICLE V Affirmative Covenants............................................................. 38 SECTION 5.01. Financial Statements and Other Information............................... 39 SECTION 5.02. Notices of Material Events............................................... 40 SECTION 5.03. Existence; Conduct of Business........................................... 41 SECTION 5.04. Payment of Obligations................................................... 41 SECTION 5.05. Maintenance of Properties; Insurance..................................... 41 SECTION 5.06. Books and Records; Inspection Rights..................................... 41 SECTION 5.07. Compliance with Laws..................................................... 42 SECTION 5.08. Use of Proceeds.......................................................... 42 SECTION 5.09. Fiscal Periods; Accounting............................................... 42 ARTICLE VI Negative Covenants............................................................... 42 SECTION 6.01. Financial Covenants...................................................... 42 SECTION 6.02. Indebtedness............................................................. 42 SECTION 6.03. Liens ................................................................... 43 SECTION 6.04. Mergers, Etc............................................................. 44 SECTION 6.05. Investments.............................................................. 44 SECTION 6.06. Restricted Payments...................................................... 45 SECTION 6.07. Transactions with Affiliates............................................. 45 SECTION 6.08. Unrestricted Subsidiaries................................................ 45 ARTICLE VII Events of Default............................................................... 45 ARTICLE VIII The Agents..................................................................... 48 ARTICLE IX Miscellaneous.................................................................... 50 SECTION 9.01. Notices.................................................................. 50 SECTION 9.02. Waivers; Amendments...................................................... 51 SECTION 9.03. Expenses; Indemnity; Damage Waiver....................................... 51 SECTION 9.04. Successors and Assigns................................................... 52 SECTION 9.05. Survival................................................................. 55 SECTION 9.06. Counterparts; Integration; Effectiveness................................. 55 SECTION 9.07. Severability............................................................. 55 SECTION 9.08. Right of Setoff.......................................................... 55 SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process............... 56 SECTION 9.10. WAIVER OF JURY TRIAL..................................................... 56 SECTION 9.11. Headings................................................................. 57 SECTION 9.12. Confidentiality.......................................................... 57 SECTION 9.13. Acknowledgements......................................................... 57 SECTION 9.14. Judgment Currency........................................................ 58 SECTION 9.15. Loans to Borrowers Separate Credit Facility.............................. 58

ii SCHEDULES: Schedule 1.01 - Mandatory Cost Rate Schedule 2.01 - Commitments Schedule 2.03(A) - Borrowing Notice/Interest Election Notice/Prepayment Notice Schedule 2.03(B) - Authorized Account Numbers & Locations Schedule 6.08 - Unrestricted Subsidiaries Schedule 8 - List of Proper Persons EXHIBITS: Exhibit A - Form of Assignment and Acceptance Exhibit B - Form of Guarantee iii 364-DAY CREDIT AGREEMENT (as further amended, supplemented or otherwise modified from time to time, this "Agreement") dated as of July 7, 2003, among AOL TIME WARNER INC., a Delaware corporation ("AOLTW"), and AOL TIME WARNER FINANCE IRELAND, a corporation of the Republic of Ireland ("AOLTWFI"), the several banks and other financial institutions from time to time parties to this Agreement (the "Lenders"), BANK OF AMERICA, N.A. and CITIBANK, N.A., as co-syndication agents (in such capacity, the "Co-Syndication Agents"), ABN AMRO BANK N.V. and BNP PARIBAS, as co-documentation agents (in such capacity, the "Co-Documentation Agents") and JPMORGAN CHASE BANK, as administrative agent (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, AOLTW and AOLTWFI have requested the Lenders to make loans to them in an aggregate amount of up to $2,000,000,000 as more particularly described herein; WHEREAS, the Lenders are willing to make such loans on the terms and conditions contained herein; NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR" when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Adjusted Financial Statements" means, for any period, (a) the balance sheet of AOLTW and its Restricted Subsidiaries (treating Unrestricted Subsidiaries as equity investments of AOLTW to the extent that such Unrestricted Subsidiaries would not otherwise be treated as equity investments of AOLTW in accordance with GAAP) as of the end of such period and (b) the related statements of operations and stockholders equity for such period and, if such period is not a fiscal year, for the then elapsed portion of the fiscal year (treating Unrestricted Subsidiaries as equity investments of AOLTW to the extent that such Unrestricted Subsidiaries would not otherwise be treated as equity investments of AOLTW in accordance with GAAP). "Adjusted LIBO Rate" means, with respect to any Eurocurrency Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next Basis Point) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means JPMorgan Chase Bank, together with its affiliates, as an arranger of the Commitments and as administrative agent for the Lenders hereunder, together with any of its successors pursuant to Article VIII. 2 "Administrative Questionnaire" means, with respect to each Lender, an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified; provided, that two or more Persons shall not be deemed Affiliates because an individual is a director and/or officer of each such Person. "Agents" means the Co-Syndication Agents, the Co-Documentation Agents and the Administrative Agent. "Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "America Online" means America Online, Inc., a Delaware corporation. "AOLTW" has the meaning assigned to such term in the preamble hereto. "AOLTWFI" has the meaning assigned to such term in the preamble hereto. "Applicable Percentage" means, with respect to any Lender, the percentage of the sum total of the Commitments which is represented by such Lender's Commitment. If all the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. "Applicable Rate" means, for any day, with respect to the Facility Fee payable hereunder the applicable rate per annum set forth below expressed in Basis Points under the caption "Facility Fee Rate" based upon the senior unsecured long-term debt credit rating assigned by Moody's and S&P, respectively, applicable on such date to AOLTW, and with respect to any Loan (other than an ABR Loan), the applicable rate per annum set forth below expressed in Basis Points under the caption "Loan (other than ABR Loans) Spread" based upon the senior unsecured long-term debt credit rating (or an equivalent thereof) (in each case, a "Rating") assigned by Moody's and S&P, respectively, applicable on such date to AOLTW:
====================================================================== LOAN (OTHER RATINGS THAN ABR LOANS) FACILITY FEE S&P / MOODY'S SPREAD RATE - ---------------------------------------------------------------------- Category A 37.0 8.0 A / A2 - ---------------------------------------------------------------------- Category B A- / A3 41.0 9.0 - ---------------------------------------------------------------------- Category C BBB+ / Baa1 52.5 10.0 - ----------------------------------------------------------------------
3 Category D 62.5 12.5 BBB / Baa2 - ---------------------------------------------------------------------- Category E BBB- / Baa3 70.0 17.5 - ---------------------------------------------------------------------- Category F 100.0 25.0 Lower than BBB- /Baa3 ======================================================================

For purposes of determining the Applicable Rate, (a) if either Moody's or S&P shall not have in effect a relevant Rating (other than by reason of the circumstances referred to in clause (c) of this definition), then the Rating assigned by the other rating agency shall be used; (b) if the relevant Ratings assigned by Moody's and S&P shall fall within different Categories, the Applicable Rate shall be based on the higher of the two Ratings unless one of the two Ratings is two or more Categories lower than the other, in which case the Applicable Rate shall be determined by reference to the Category next below that of the higher of the two ratings; (c) if either rating agency shall cease to assign a relevant Rating solely because AOLTW elects not to participate or otherwise cooperate in the ratings process of such rating agency, the Applicable Rate shall not be less than that in effect immediately before such rating agency's Rating for AOLTW became unavailable; and (d) if the relevant Ratings assigned by Moody's or S&P shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, AOLTW and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency, and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating most recently in effect prior to such change or cessation; provided that, if AOLTW elects to extend the Maturity Date of the Revolving Loans outstanding on the Commitment Termination Date pursuant to Section 2.09(f), each of the applicable rates per annum set forth above in Basis Points under the caption "Loan (other than ABR Loans) Spreads" shall be increased by 25 Basis Points for the period that such Revolving Loans remain outstanding subsequent to the Initial Maturity Date. "Arrangers" means J.P. Morgan Securities Inc. and Banc of America Securities LLC. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in substantially the form of Exhibit A. "Availability Period" means the period from and including the Effective Date to but excluding the Commitment Termination Date. "Basis Point" means 1/100th of 1%. 4 "Base Rate" means (a) with respect to Dollar denominated Loans, the Alternative Base Rate, (b) with respect to Pound Sterling denominated Loans, the Pound Sterling Overnight Rate, and (c) with respect to Euro denominated Loans, the Euro Overnight Rate. "Board" means the Board of Governors of the Federal Reserve System of the United States. "Borrower" means each of AOLTW and AOLTWFI. "Borrowing" means Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurocurrency Loans, as to which a single Interest Period is in effect. "Borrowing Request" means a request by a Borrower for a Borrowing in accordance with Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, (a) when used in connection with a Eurocurrency Loan or a Base Rate Loan (other than an ABR Loan), the term "Business Day" shall also exclude any day on which banks are not open for dealings in deposits in the applicable currency in the London interbank market and (b) when used in connection with any Loan denominated in Euro, the term "Business Day" shall also exclude any day on which the TARGET payment system is not open for the settlement of payment in Euro. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Capital Stock" means, with respect to any Person, any and all shares, partnership interests or other equivalents (however designated and whether voting or non-voting) of such Person's equity, whether outstanding on the date hereof or hereafter issued, and any and all equivalent ownership interests in a Person (other than a corporation) and any and all rights, warrants or options to purchase or acquire or exchangeable for or convertible into such shares, partnership interests or other equivalents. "Cash Equivalents" means (a) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) that (i) have maturities of not more than six months from the date of acquisition thereof or (ii) are subject to a repurchase agreement with an institution described in clause (b)(i) or (ii) below exercisable within six months from the date of acquisition thereof, (b) U.S. Dollar-denominated and Eurocurrency time deposits, certificates of deposit and bankers' acceptances of (i) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (ii) any bank whose short-term commercial paper rating from S&P is at least A-2 or the equivalent thereof, from Moody's is at least P-2 or the equivalent thereof or from Fitch is at least F-2 or the equivalent thereof (any such bank, an "Approved Lender"), in each case with maturities of not more than 5 six months from the date of acquisition thereof, (c) commercial paper and variable and fixed rate notes issued by any Lender or Approved Lender or by the parent company of any Lender or Approved Lender and commercial paper and variable rate notes issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's or at least F-2 or the equivalent thereof by Fitch, and in each case maturing within six months after the date of acquisition thereof, (d) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (e) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition, (f) tax-exempt commercial paper of U.S. municipal, state or local governments rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's or at least F-2 or the equivalent thereof by Fitch and maturing within six months after the date of acquisition thereof, (g) shares of money market mutual or similar funds sponsored by any registered broker dealer or mutual fund distributor, (h) repurchase obligations entered into with any bank meeting the qualifications of clause (b) above or any registered broker dealer whose short-term commercial paper rating from S&P is at least A-2 or the equivalent thereof or from Moody's is at least P-2 or the equivalent thereof or from Fitch is at least F-2 or the equivalent thereof, having a term of not more than 30 days, with respect to securities issued or fully guaranteed or insured by the United States government or residential whole loan mortgages, and (i) demand deposit accounts maintained in the ordinary course of business. "Change in Control" means either (a) a Person or "group" (within the meaning of Section 13(d) and 14(d) of the Exchange Act) acquiring or having beneficial ownership (it being understood that a tender of shares or other equity interests shall not be deemed acquired or giving beneficial ownership until such shares or other equity interests shall have been accepted for payment) of securities (or options to purchase securities) having a majority or more of the ordinary voting power of AOLTW (including options to acquire such voting power) or (b) persons who are directors of AOLTW as of the date hereof or persons designated or approved by such directors ceasing to constitute a majority of the board of directors of AOLTW. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.14(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive of any Governmental Authority made or issued after the date of this Agreement. "Co-Documentation Agents" has the meaning set forth in the preamble hereto. "Co-Syndication Agents" has the meaning set forth in the preamble hereto. "Code" means the Internal Revenue Code of 1986, as amended from time to time. 6 "Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans, expressed as an amount representing the maximum aggregate permitted amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 or Section 2.18 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. "Commitment Termination Date" means the earlier of (a) the Business Day immediately preceding the first anniversary of the Effective Date and (b) the date on which the Commitments shall terminate in their entirety in accordance with the provisions of this Agreement. "Commitment Utilization Percentage" means on any day the percentage equivalent to a fraction (a) the numerator of which is the sum of the aggregate outstanding Revolving Credit Exposure of the Lenders under the Facilities (as modified or replaced from time to time) then in effect in the aggregate, and (b) the denominator of which is the sum of the aggregate amount of the Commitments of the Lenders then in effect under the Facilities (as modified or replaced from time to time) then in effect in the aggregate; provided that on any day subsequent to (i) the Initial Maturity Date if AOLTW has delivered a Term Out Notice pursuant to Section 2.09(f), the aggregate amount of the Commitments of the Lenders under this Agreement for purposes of this definition shall be the aggregate amount of the outstanding Revolving Credit Exposure of the Lenders and (ii) the Initial Maturity Date (under and as defined in the TWC 364-Day Credit Agreement) if a Term Out Notice has been delivered pursuant to Section 2.09(f) of the TWC 364-Day Credit Agreement, the aggregate amount of the Commitments of the Lenders thereunder for purposes of this definition shall be the aggregate amount of the outstanding Revolving Credit Exposure of the Lenders thereunder. "Companies" means each of the Credit Parties and their respective Restricted Subsidiaries, collectively; and "Company" means any of them. "Conduit Lender" means any special purpose corporation organized and administered by any Lender for the purpose of making Loans otherwise required to be made by such Lender and designated by such Lender in a written instrument, subject to the consent of AOLTW (which consent shall not be unreasonably withheld); provided, that the designation by any Lender of a Conduit Lender shall not relieve the designating Lender of any of its obligations to fund a Loan under this Agreement if, for any reason, its Conduit Lender fails to fund any such Loan, and the designating Lender (and not the Conduit Lender) shall have the sole right and responsibility to deliver all consents and waivers required or requested under this Agreement with respect to its Conduit Lender, and provided, further, that no Conduit Lender shall (a) be entitled to receive any greater amount pursuant to Section 2.14, 2.15, 2.16 or 9.03 than the designating Lender would have been entitled to receive in respect of the Loans made by such Conduit Lender or (b) be deemed to have any Commitment. The making of a Loan by a Conduit Lender hereunder shall utilize the Commitment of a designating Lender to the same extent, and as if, such Loan were made by such designating Lender. "Consolidated EBITDA" means, for any period, Consolidated Net Income of AOLTW and its Restricted Subsidiaries for such period plus, without duplication and to the 7 extent reflected as a charge in the statement of such Consolidated Net Income of AOLTW and its Restricted Subsidiaries for such period, the sum of (a) income tax expense, (b) interest expense, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Loans), (c) depreciation and amortization expense (excluding amortization of film inventory that does not constitute amortization of purchase price amortization), (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs (excluding amortization of film inventory that does not constitute amortization of purchase price amortization), (e) any extraordinary, unusual or non-recurring non-cash expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, non-cash losses on sales of assets outside of the ordinary course of business), and (f) minority interest expense in respect of preferred stock of Subsidiaries of AOLTW, and minus, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income and (b) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business), all as determined on a consolidated basis. "Consolidated Interest Coverage Ratio" means, for any period, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for such period. "Consolidated Interest Expense" means, for any period, total cash interest expense (including that attributable to Capital Lease Obligations) of AOLTW and its Restricted Subsidiaries for such period with respect to all outstanding Indebtedness of AOLTW and its Restricted Subsidiaries (other than the amount amortized during such period in respect of all fees paid in connection with the incurrence of such Indebtedness), such expense to be determined on a consolidated basis in accordance with GAAP). "Consolidated Leverage Ratio" means, as at the last day of any period, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for such period. "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of any Person and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded, without duplication (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of such Person or is merged into or consolidated with such Person or any of its Subsidiaries or that such other Person's assets are acquired by such Person or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than (i) in the case of AOLTW, a Restricted Subsidiary and (ii) in the case of any other Person, a Subsidiary of such Person) in which such Person or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by such Person (or (i) in the case of AOLTW, its Restricted Subsidiary and (ii) in the case of any other Person, its Subsidiary) in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of such Person to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of its charter or any agreement or instrument (other than any Credit Document), judgment, decree, order, statute, rule, governmental regulation or other requirement of law applicable to such Subsidiary; provided that the income of any Subsidiary of such Person shall not be excluded by reason of this clause (c) so long as such Subsidiary guarantees the Obligations of such Person. 8 "Consolidated Total Assets" means, at any date, all amounts that would, in conformity with GAAP, be included on a consolidated balance sheet of AOLTW and its Subsidiaries under total assets at such date; provided that such amounts shall be calculated in accordance with Section 1.04. "Consolidated Total Debt" means, at any date, the aggregate principal amount of Indebtedness of AOLTW and its Restricted Subsidiaries minus (a) the aggregate principal amount of any such Indebtedness that is payable either by its terms or at the election of the obligor in equity securities of AOLTW or the proceeds of options in respect of such equity securities, (b) the aggregate amount of any Stock Option Loans, (c) the aggregate principal amount of Film Financings and (d) the aggregate amount of cash and Cash Equivalents held by AOLTW or any of its Restricted Subsidiaries in excess of $200,000,000, all determined on a consolidated basis in accordance with GAAP. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Copyright Liens" means any Liens granted by any Borrower or any of its Subsidiaries on copyrights relating to movies or other programming, which movies or other programming are subject to one or more contracts entitling such Borrower or such Subsidiary to future payments in respect of such movies or other programming and which contractual rights to future payments are to be transferred by such Borrower or Subsidiary to a special purpose Subsidiary of such Borrower or Subsidiary organized for the purpose of monetizing such rights to future payments, provided that such Liens (a) are granted directly or indirectly for the benefit of the special purpose Subsidiary and/or the Persons who purchase such contractual rights to future payments from such special purpose Subsidiary and (b) extend only to the copyrights for the movies or other programming subject to such contracts for the purpose of permitting the completion, distribution and exhibition of such movies or other programming. "Credit Documents" means this Agreement, the Guarantee and each Note. "Credit Parties" means the Borrowers and the Guarantors; and "Credit Party" means any of them. "Currency" means Dollars or any Optional Currency. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Defaulting Lender" means any Lender which fails to make any Loan required to be made by it in accordance with the terms and conditions of this Agreement. "Dollar Equivalent" means, on any date of determination, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to an amount denominated in any Optional Currency, the equivalent in Dollars of such amount determined by the Administrative Agent in accordance with normal banking industry practice using the Exchange Rate on the date of determination of such equivalent. In making any determination of the Dollar 9 Equivalent (for purposes of calculating the amount of Loans to be borrowed from the respective Lenders on any date or for any other purpose), the Administrative Agent shall use the relevant Exchange Rate in effect on the date on which the applicable Borrower delivers a Borrowing Request (which, in accordance with Section 2.03, may be telephonic) for Loans or on such other date upon which a Dollar Equivalent is required to be determined pursuant to the provisions of this Agreement. As appropriate, amounts specified herein as amounts in Dollars shall be or include any relevant Dollar Equivalent amount. "Dollars" or "$" refers to lawful money of the United States. "Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02). "EMU" means the Economic and Monetary Union as contemplated in the Treaty. "EMU Legislation" means the legislative measures of the European Council (including without limitation the European Council regulations) for the introduction of, changeover to or operation of the Euro in one or more member states. "Environmental Law" means all applicable and binding laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, or agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any Borrower or any of its Subsidiaries directly or indirectly resulting from or based upon (a) a violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) the exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means, with respect to any Borrower, any trade or business (whether or not incorporated) that, together with such Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event," as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or in Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by any Credit Party or any of its ERISA Affiliates of any unfunded liability under Title IV of ERISA with respect to the termination of any Plan; (e) the 10 receipt by any Credit Party or any ERISA Affiliate from the PBGC or a Plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by any Credit Party or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; (g) the receipt by any Credit Party or any ERISA Affiliate of any notice concerning the imposition on such entity of Withdrawal Liability or a determination that a Multiemployer Plan with respect to which such entity is obligated to contribute or is otherwise liable is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; or (h) the occurrence, with respect to a Plan or a Multiemployer Plan, of a nonexempt "prohibited transaction" (within the meaning of Section 4975 of the Code or Section 406 of ERISA) which could reasonably be expected to result in liability to a Credit Party. "Euro" and "(euro)" means the single currency of Participating Member States introduced in accordance with the provision of Article 123 of the Treaty and, in respect of all payments to be made under this Agreement in Euro, means immediately available, freely transferable funds in such currency. "Eurocurrency," when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Euro Overnight Rate" means, for any day, the sum of (a) the average of the rates per annum quoted at approximately 11:00 a.m., London time, to leading banks in the European interbank market by the Reference Banks for the offering of overnight deposits in Euro plus (b) the Applicable Rate. The Administrative Agent shall determine the Euro Overnight Rate by obtaining quotes from the Reference Banks, and if any such Reference Bank fails to timely provide such quote for any day, then the Euro Overnight Rate for such day shall be determined by the average based on the quotes from the Reference Banks that provided quotes on that day. "Event of Default" has the meaning assigned to such term in Article VII. "Exchange Act" means the Securities and Exchange Act of 1934, as amended. "Exchange Rate" means, with respect to any Optional Currency on a particular date, the rate at which such Optional Currency may be exchanged into Dollars, as set forth at 11:00 a.m. London time on such date on the applicable Reuters Screen page with respect to such Optional Currency. In the event that such rate does not appear on the applicable Reuters currency page, the Exchange Rate with respect to such Optional Currency shall be determined by reference to such other publicly available service for displaying exchange rates as may be agreed upon by the Administrative Agent and AOLTW or, in the absence of such agreement, such Exchange Rate shall instead be the spot rate of exchange of the Administrative Agent in the London interbank or other market where its foreign currency exchange operations in respect of such Optional Currency are then being conducted, at or about 11:00 a.m., London time, at such date for the purchase of Dollars with such Optional Currency, for delivery two Business Days later; provided, however, that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent may use any reasonable method it deems appropriate to determine such rate, and such determination shall be conclusive absent manifest error. 11 "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Credit Party hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction described in clause (a) above, (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by AOLTW under Section 2.18(b)), any withholding tax (i) that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement or designates a new lending office or (ii) is attributable to such Foreign Lender's failure or inability to comply with Section 2.16(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of such designation of a new lending office or assignment, to receive additional amounts from such Credit Party with respect to such withholding tax pursuant to Section 2.16(a) and (d) in the case of a Lender that is a U.S. Person, any withholding tax that is attributable to the Lender's failure to comply with Section 2.16(f). "Existing Credit Agreement" means the Amended and Restated 364-Day Credit Agreement, dated as of July 8, 2002 and amended and restated as of March 31, 2003, among AOLTW, AOLTWFI, the Lenders referred to therein, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, ABN AMRO Bank N.V. and BNP Paribas, as Co-Documentation Agents, and JPMorgan Chase Bank, as Administrative Agent. "Extended Maturity Date" means the date that is the first anniversary of the Initial Maturity Date. "Facilities" means the credit facilities extended pursuant to this Agreement, the Five-Year Credit Agreement and the TWC 364-Day Credit Agreement. "Facility Fee" has the meaning assigned to such term in Section 2.11(a). "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next Basis Point) of the rates on overnight Federal funds transactions with members of the United States Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next Basis Point) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Film Financing" means, without duplication, monetary obligations arising out of transactions in which so-called tax-based financing groups or other third-party investors provide financing for the acquisition, production or distribution of motion pictures, television programs, sound recordings or books or rights with respect thereto in exchange, in part, for certain tax or other benefits which are derived from such motion pictures, television programs, sound recordings, books or rights; provided that no such monetary obligations shall have, directly or indirectly, recourse (including by way of setoff) to any Borrower or any Restricted Subsidiary or any of its assets other than to the profits or distribution rights related to such motion pictures, television programs, sound recordings, books or rights and other than to a Subsidiary of Warner 12 Communications Inc. or TBS substantially all of the assets of which consist of the motion pictures, television programs, sound recordings, books or rights which are the subject of such transaction and related cash and Cash Equivalents. "Financial Officer" means, with respect to any Person, the chief financial officer, principal accounting officer, treasurer or controller of such Person. "Fitch" means Fitch, Inc. "Five-Year Credit Agreement" means the Five-Year Credit Agreement, dated as of July 8, 2002, among AOLTW, AOLTWFI, TWE, Time Warner Entertainment Advance/Newhouse Partnership, the lenders referred to therein, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, ABN AMRO Bank N.V. and BNP Paribas, as Co-Documentation Agents, and JPMorgan Chase Bank, as Administrative Agent, as amended by the First Amendment, dated as of March 31, 2003, and as further amended, supplemented or otherwise modified from time to time. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the applicable Borrower is located. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "Franchise" means, with respect to any Person, a franchise, license, authorization or right to construct, own, operate, manage, promote, extend or otherwise utilize any cable television distribution system operated or to be operated by such Person or any of its Subsidiaries granted by any Governmental Authority, but shall not include any such franchise, license, authorization or right that is incidentally required for the purpose of installing, constructing or extending a cable television system. "GAAP" means generally accepted accounting principles in the United States. "Governmental Authority" means the government of the United States, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" means a guarantee by the Guarantors described in clauses (a) and (b) of the definition thereof, substantially in the form of Exhibit B. "Guarantee Obligations" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or (d) as an account party in respect of 13 any letter of credit or letter of guaranty issued to support such Indebtedness; provided, that the term Guarantee Obligations shall not include endorsements for collection or deposit in the ordinary course of business. "Guarantors" means (a) with respect to the Obligations of AOLTW, (i) directly, America Online and Time Warner, (ii) indirectly, TBS and TWCI who shall guarantee the guarantee obligations of Time Warner and (iii) any other Person that becomes and remains a party to the Guarantee after the Effective Date, and (b) with respect to the Obligations of AOLTWFI, AOLTW and the Guarantors listed in clause (a) above. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person (but not including operating leases), (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business and payment obligations of such Person pursuant to agreements entered into in the ordinary course of business, which payment obligations are contingent on another Person's satisfactory provision of services or products), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien (other than a Copyright Lien or Liens on interests or Investments in Unrestricted Subsidiaries) on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed (but only to the extent of the lesser of the fair market value of the property subject to such Lien and the amount of such Indebtedness), (g) all Guarantee Obligations of such Person with respect to Indebtedness of others (except to the extent that such Guarantee Obligation guarantees Indebtedness of a Restricted Subsidiary), (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit (but only to the extent of all drafts drawn thereunder) and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. Notwithstanding the foregoing, Indebtedness shall not include (i) any obligation of such Person to guarantee performance of, or enter into indemnification agreements with respect to, obligations, entered into in the ordinary course of business, under any and all Franchises, leases, performance bonds, franchise bonds and obligations to reimburse drawings under letters of credit issued in lieu of performance or franchise bonds, (ii) completion bonds or guarantees or indemnities of a similar nature issued in the ordinary course of business in connection with the production of motion pictures and video and television programming or (iii) obligations to make Tax Distributions. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other contractual relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. 14 "Indemnified Taxes" means Taxes other than Excluded Taxes. "Initial Maturity Date" means the Business Day immediately preceding the first anniversary of the Effective Date. "Interest Election Request" means a request by a Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.07. "Interest Payment Date" means (a) with respect to any Base Rate Loan, the last day of each March, June, September and December and (b) with respect to any Eurocurrency Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing, with an Interest Period of more than three months' duration, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period. "Interest Period" means with respect to any Eurocurrency Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is (a) one, two, three or six months (or, with the consent of each Lender, a shorter period) thereafter, as the applicable Borrower may elect or (b) one month thereafter, if the applicable Borrower has made no election, provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to such a Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Investment" by any Person means any direct or indirect (a) loan, advance or other extension of credit or contribution to any other Person (by means of transfer of cash or other property to others, payments for property or services for the account or use of others, mergers or otherwise), (b) purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities (including any option, warrant or other right to acquire any of the foregoing) or evidences of Indebtedness issued by any other Person (whether by merger, consolidation, amalgamation or otherwise and whether or not purchased directly from the issuer of such securities or evidences of Indebtedness), (c) purchase or acquisition (in one transaction or a series of transactions) of any assets of any other Person constituting a business unit and (d) all other items that would be classified as investments on a balance sheet of such Person prepared in accordance with GAAP. Investments shall exclude extension of trade credit and advances to customers and suppliers to the extent made in the ordinary course of business and in accordance with customary industry practice. "Lender Affiliate" means, (a) with respect to any Lender, (i) an Affiliate of such Lender or (ii) any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender and (b) with respect to any Lender that is a fund which invests in bank 15 loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Lenders" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "LIBO Rate" means, (a) with respect to any Eurocurrency Borrowing denominated in Pounds or Dollars for any Interest Period, the rate appearing on Page 3740 or Page 3750, as the case may be, of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to Pound or Dollar deposits (as applicable) in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period (or, in the case of Pounds, on the first day of such Interest Period), as the rate for Pound or Dollar deposits, as applicable, with a maturity comparable to such Interest Period and (b) with respect to any Eurocurrency Borrowing denominated in Euro for any Interest Period, the rate appearing on Page 248 of the Telerate Service (it being understood that this rate is the Euro interbank offered rate (known as the "EURIBOR Rate") sponsored by the Banking Federation of the European Union (known as the "FBE") and the Financial Markets Association (known as the "ACI")) at approximately 10:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for deposits in Euro with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurocurrency Borrowing for such Interest Period shall be the rate per annum (rounded upwards, if necessary, to the next Basis Point) equal to the arithmetic average of the rates at which deposits in Dollars or the applicable Optional Currency approximately equal in principal amount to the Dollar Equivalent of $5,000,000 and for a maturity comparable to such Interest Period are offered with respect to any Eurocurrency Borrowing to the principal London offices of the Reference Banks (or, if any Reference Bank does not at the time maintain a London office, the principal London office of any Affiliate of such Reference Bank) in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period (or, in the case of Pounds, on the first day of such Interest Period) and; provided, however, that, if only two Reference Banks notify the Administrative Agent of the rates offered to such Reference Banks (or any Affiliates of such Reference Banks) as aforesaid, the LIBO Rate with respect to such Eurocurrency Borrowing shall be equal to the arithmetic average of the rates so offered to such Reference Banks (or any such Affiliates). "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in (including sales of accounts), on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing, but excluding any operating leases) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. 16 "Loans" means the loans made by the Lenders to any Borrower pursuant to this Agreement. "Local Time" means, for payments and disbursements (a) in respect of Dollars, New York time and (b) in respect of Euros or Pounds, London time. "Mandatory Cost" means, with respect to any Lender, the cost imputed to such Lender of compliance with the requirements of the Bank of England or the Financial Services Authority during the relevant Interest Period, determined in accordance with Schedule 1.01. "Material Adverse Effect" means a material adverse effect on (a) the financial condition, business, results of operations, properties or liabilities of any Borrower and its Restricted Subsidiaries taken as a whole, (b) the ability of any Credit Party to perform any of its material obligations to the Lenders under any Credit Document to which it is or will be a party or (c) the rights of or benefits available to the Lenders under any Credit Document. "Material Indebtedness" means Indebtedness (other than the Loans), of any one or more of the Borrowers and the Restricted Subsidiaries thereof in an aggregate principal amount exceeding $200,000,000. "Material Subsidiary" of any Person means, at any date, each Subsidiary of such Person which, either alone or together with the Subsidiaries of such Subsidiary, meets any of the following conditions: (a) as of the last day of such Person's most recently ended fiscal quarter for which financial statements have been filed with the SEC the investments of such Person and its Subsidiaries in, or their proportionate share (based on their equity interests) of the book value of the total assets (after intercompany eliminations) of, the Subsidiary in question exceeds 10% of the book value of the total assets of such Person and its consolidated Subsidiaries; (b) for the period of four consecutive fiscal quarters ended on the last day of such Person's most recently ended fiscal quarter for which financial statements have been filed with the SEC, the equity of such Person and its Subsidiaries in the revenues from continuing operations of the Subsidiary in question exceeds 10% of the revenues from continuing operations of such Person and its consolidated Subsidiaries; or (c) for the period of four consecutive fiscal quarters ended on the last day of such Person's most recently ended fiscal quarter for which financial statements have been filed with the SEC, the equity of such Person and its Subsidiaries in the Consolidated EBITDA of the Subsidiary in question exceeds 10% of the Consolidated EBITDA of such Person. "Maturity Date" means the Initial Maturity Date, provided that if AOLTW has delivered a Term Out Notice to the Administrative Agent in accordance with Section 2.09(f) the Maturity Date in respect of the Revolving Loans (as well as all related interest and fees) subject to such Term Out Notice shall be the Extended Maturity Date. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. 17 "National Currency Unit" means the unit of currency (other than the Euro) of a Participating Member State. "Note" means any promissory note evidencing Loans issued pursuant to Section 2.09(e). "Obligations" has the meaning assigned to such term in the Guarantee. "Officer's Certificate" means, with respect to any Person, a certificate executed by the Chief Financial Officer, the Treasurer or the Controller of such Person or such other officer of such Person reasonably acceptable to the Administrative Agent and designated as such in writing to the Administrative Agent by such Person. "Optional Currency" means, at any time, Pounds and Euros, so long as such currency is freely traded and convertible into Dollars in the United States market and a Dollar Equivalent thereof can be calculated. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "Participating Member State" means a member of the European Communities that adopts or has adopted the Euro as its currency in accordance with EMU Legislation. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity thereto. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which any Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pounds" or "L" or "Pound Sterling" refer to lawful money of the United Kingdom. "Pound Sterling Overnight Rate" means, for any day, a rate per annum equal to the rate on overnight Pound Sterling deposits in the London interbank market as such rates are quoted on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to Pound Sterling deposits in the London interbank market), plus the Mandatory Cost, plus the Applicable Rate. 18 "Prime Rate" means the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Rating" has the meaning assigned to such term in the definition of "Applicable Rate". "Reference Banks" means JPMorgan Chase Bank, Bank of America, N.A. and Citibank, N.A. and their respective Affiliates. "Register" has the meaning set forth in Section 9.04(c). "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Commitments representing more than 50% of the sum total of the Commitments at such time, or after the Commitment Termination Date, Lenders having Revolving Credit Exposures representing more than 50% of the sum of the total Revolving Credit Exposures at such time. "Responsible Officer" means, as to any Person, any of the Chief Executive Officer, Chief Legal Officer, Chief Financial Officer, Treasurer or Controller (or any equivalent of the foregoing officers) of such Person. "Restricted Companies" means the Companies other than any Unrestricted Subsidiaries. "Restricted Payment" means, as to any Person, any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock or other equity interests of such Person, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock or other equity interests of such Person or any option, warrant or other right to acquire any such shares of capital stock or other equity interests of such Person. "Restricted Subsidiaries" of any Borrower means, as of any date, all Subsidiaries of such Borrower that have not been designated as Unrestricted Subsidiaries by such Borrower pursuant to Section 6.08 or have been so designated as Unrestricted Subsidiaries by such Borrower but prior to such date have been (or have been deemed to be) re-designated by such Borrower as Restricted Subsidiaries pursuant to Section 6.08. "Revolving Borrowing" means a Borrowing of Revolving Loans. "Revolving Credit Exposure" means, with respect to any Lender at any time, the outstanding principal amount of such Lender's Revolving Loans at such time. "Revolving Loan" means a Loan made pursuant to Section 2.03, including any such Loan outstanding after the Initial Maturity Date pursuant to Section 2.09(f). 19 "S&P" means Standard & Poor's Rating Services. "SEC" means the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentage shall include those imposed pursuant to such Regulation D. Eurocurrency Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Stock Option Loans" means (a) borrowings under that certain Credit Agreement dated as of March 13, 1998, as amended, among Time Warner, The Chase Manhattan Bank, as administrative agent thereunder, and the lenders party thereto; provided the lenders thereunder shall not have the benefit of any Lien other than on the Capital Stock of AOLTW and proceeds therefrom or (b) borrowings under substantially similar facilities. "Subsequent Participant" means any member state that adopts the Euro as its lawful currency after the date hereof. "Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held. Unless otherwise qualified, all references to a "Subsidiary" or "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of AOLTW. "Tax Distribution" means, with respect to any period, distributions made to any Person by a Subsidiary of such Person on or with respect to income and other taxes, which distributions are not in excess of the tax liabilities that, (i) in the case of a Subsidiary that is a corporation, would have been payable by such Subsidiary on a standalone basis, and (ii) in the case of a Subsidiary that is a partnership, would have been distributed by such Subsidiary to its owners with respect to taxes, and in each case which are calculated in accordance with, and made no earlier than 10 days prior to the date required by, the terms of the applicable organizational document which requires such distribution. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "TBS" means Turner Broadcasting System, Inc., a Georgia corporation. 20 "Term Out Notice" has the meaning assigned to such term in Section 2.09(f). "Time Warner" means Time Warner Inc., a Delaware corporation. "Time Warner Cable" means Time Warner Cable Inc., a Delaware corporation. "Transactions" means (a) the execution, delivery and performance by (i) each of the Borrowers of this Agreement and (ii) each of the Guarantors of the Guarantee, and (b) the borrowing of Loans. "Treaty" means the Treaty establishing the European Economic Community, being the Treaty of Rome of March 25, 1957, as amended by the Single European Act 1987, the Maastricht Treaty (which was signed at Maastricht on February 7, 1992 and came into force on November 1, 1993), the Amsterdam Treaty (which was signed at Amsterdam on October 2, 1997 and came into force on May 1, 1999) and the Nice Treaty (which was signed on February 26, 2001), each as amended from time to time and as referred to in legislative measures of the European Union for the introduction of, changeover to or operating of the Euro in one or more member states. "TWCI" means Time Warner Companies, Inc., a Delaware corporation. "TWC 364-Day Credit Agreement" means the Amended and Restated 364-Day Credit Agreement, dated as of July 8, 2002 and amended and restated as of March 31, 2003, among TWE, Time Warner Cable, the lenders referred to therein, Bank of America, N.A. and Citibank, N.A., as Co-Syndication Agents, ABN AMRO Bank N.V. and BNP Paribas, as Co-Documentation Agents, and JPMorgan Chase Bank, as Administrative Agent, as amended by the First Amendment, dated as of March 31, 2003, and as further amended, supplemented or otherwise modified from time to time. "TWE" means Time Warner Entertainment Company, L.P., a Delaware limited partnership. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate, the Pound Sterling Overnight Rate or the Euro Overnight Rate. "United States" means the United States of America. "U.S. Person" means a person who is a citizen or resident of the United States and any corporation or other entity created or organized in or under the laws of the United States. "Unrestricted Subsidiary" of any Borrower means, as of any time, all Subsidiaries of such Borrower that have been designated as Unrestricted Subsidiaries by such Borrower pursuant to Section 6.08. "Utilization Fee" has the meaning assigned to such term in Section 2.11(b). 21 "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Type (e.g., a "Eurocurrency Loan"). Borrowings also may be classified and referred to by Type (e.g., a "Eurocurrency Borrowing"). SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words, "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein," "hereof" and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall, except where the context dictates otherwise, be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if AOLTW notifies the Administrative Agent that AOLTW requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies AOLTW that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II THE CREDITS SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to each Borrower in Dollars or any Optional Currency from time to time during the Availability Period so long as, after giving effect thereto, (a) such Lender's Revolving Credit Exposure will not exceed such Lender's Commitment, and (b) the sum of the total Revolving Credit Exposures will not exceed the sum total of the Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, each Borrower may borrow, prepay and reborrow Revolving Loans. The 22 Revolving Loans made in Dollars may from time to time be Eurocurrency Loans or Alternate Base Rate Loans; the Revolving Loans made in Pounds may from time to time be Eurocurrency Loans or Pound Sterling Overnight Rate Loans; and the Revolving Loans made in Euros may from time to time be Eurocurrency Loans or Euro Overnight Rate Loans, in each case as determined by the applicable Borrower and notified to the Administrative Agent in accordance with Sections 2.03 and 2.07. SECTION 2.02. Loans and Borrowings. (a) Each Borrowing of Revolving Loans shall consist of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.13, each Revolving Borrowing shall be comprised entirely of Base Rate Loans or Eurocurrency Loans as the applicable Borrower may request in accordance herewith. Each Lender at its option may make any Eurocurrency Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall (i) subject to following clause (ii), not affect the obligation of the Borrower thereof to repay such Loan in accordance with the terms of this Agreement and (ii) not create any additional liability of the Borrowers in respect of Sections 2.14 or 2.16. (c) At the commencement of each Interest Period for any Eurocurrency Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of 1,000,000 units of the relevant Currency and not less than an amount which is the Dollar Equivalent to $20,000,000. At the time that any Base Rate Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of 1,000,000 units and not less than an amount which is the Dollar Equivalent to $20,000,000; provided that any Base Rate Borrowing may be in an aggregate amount that is equal to the entire unused balance of the sum total of the Commitments. Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of 20 Eurocurrency Revolving Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, no Borrower shall be entitled to request or elect any Interest Period in respect of any Borrowing that would end after the Maturity Date. SECTION 2.03. Requests for Revolving Borrowings. To request a Revolving Borrowing, a Borrower shall notify the Administrative Agent of such request by telephone in accordance with Schedule 2.03(A); provided that no more than the Dollar Equivalent of $1,200,000,000 of Revolving Loans denominated in Euros shall be outstanding at any time as to which the Administrative Agent was notified the same day as the Revolving Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by such Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: 23 (a) the aggregate amount and Currency of the requested Borrowing, and, in the case of an Optional Currency Borrowing, the Dollar Equivalent of the requested Borrowing, as calculated using the Exchange Rate on the date of the request; (b) the date of such Borrowing, which shall be a Business Day; (c) whether such Borrowing is to be an ABR Borrowing, a Pound Sterling Overnight Rate Borrowing, a Euro Overnight Rate Borrowing or a Eurocurrency Borrowing; (d) in the case of a Eurocurrency Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (e) the location and number of the applicable Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.06. Notwithstanding anything to the contrary above in this Section 2.03, no such notice shall alter the information set forth on Schedule 2.03(B) unless such notice shall be written. If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be deemed a Base Rate Borrowing. If no Interest Period is specified with respect to any requested Eurocurrency Borrowing, then the applicable Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. [Intentionally left blank] SECTION 2.05. [Intentionally left blank] SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, Local Time for the applicable Currency, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the applicable Borrower by promptly crediting the amounts so received, in like funds, to an account of the applicable Borrower specified on Schedule 2.03(B) or designated by the applicable Borrower in the applicable Borrowing Request. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the Administrative Agent shall have the right to demand payment from the applicable Lender and/or the applicable Borrower and they each severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the applicable Borrower to but excluding the date of payment to the 24 Administrative Agent, at (i) in the case of such Lender, (A) in the case of Borrowings denominated in Dollars, the Alternative Base Rate, and (B) in the case of Borrowings denominated in any Optional Currency, the interest rate reasonably determined by the Administrative Agent as the rate applicable to overnight settlements between banks for the amount advanced by the Administrative Agent on behalf of such Lender or (ii) in the case of the applicable Borrower, the interest rate that would otherwise apply to such Borrowing. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing and such payment shall absolve any obligation of the applicable Borrower in respect of any demand made under this Section in respect of such Loan. SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurocurrency Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type (but of the same currency) or to continue such Borrowing and, in the case of a Eurocurrency Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the applicable Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if such Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election (as more specifically set forth in Schedule 2.03(A)). Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the applicable Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be a Base Rate Borrowing or a Eurocurrency Borrowing; (iv) if the resulting Borrowing is a Eurocurrency Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". 25 If any such Interest Election Request requests a Eurocurrency Borrowing but does not specify an Interest Period, then the applicable Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the applicable Borrower fails to deliver a timely Interest Election Request with respect to a Eurocurrency Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period, such Borrowing shall be continued as a Eurocurrency Borrowing, as the case may be, having a one month Interest Period. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the applicable Borrower, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurocurrency Borrowing and (ii) unless repaid, each Eurocurrency Borrowing shall be converted to a Base Rate Borrowing at the end of the Interest Period applicable thereto. SECTION 2.08. Termination and Reduction of Commitments. The Commitments shall terminate on the Commitment Termination Date. (a) AOLTW may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $20,000,000 and (ii) AOLTW shall not terminate or reduce the Commitments if, after giving effect thereto and to any concurrent prepayment of the Loans in accordance with Section 2.10, the sum of the Revolving Credit Exposures would exceed the total Commitments. (b) AOLTW shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (a) of this Section at least one Business Day prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by AOLTW pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by AOLTW may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by AOLTW (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) Each Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan made to such Borrower on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of each Borrower to such Lender resulting from each Loan 26 made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount and Currency of each Loan made hereunder and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the applicable Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a Note. In such event, each Borrower shall execute and deliver to such Lender a Note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent and reasonably acceptable to the applicable Borrowers. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more Notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). (f) AOLTW may elect to extend the Maturity Date of all or any portion of Revolving Loans outstanding on the Initial Maturity Date to the date that is the first anniversary of the Initial Maturity Date by giving written notice (the "Term Out Notice") of such election to the Administration Agent at least five days prior to the Initial Maturity Date. SECTION 2.10. Prepayment of Loans. (a) Each Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section. (b) The Borrower that desires to make a prepayment shall notify the Administrative Agent by telephone (confirmed by facsimile) of any prepayment hereunder in accordance with Schedule 2.03(A). Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.08, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.08. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Revolving Borrowing hereunder shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.12. 27 SECTION 2.11. Fees. (a) The Borrowers agree, jointly and severally, to pay to the Administrative Agent for the account of each Lender a facility fee (a "Facility Fee") which shall accrue at the Applicable Rate on the average daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the Effective Date to but excluding the date on which such Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such Facility Fee shall continue to accrue on the average daily amount of such Lender's Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued Facility Fees shall be payable in arrears on the last day of March, June, September and December of each year and on the Maturity Date (or such earlier date after the Commitment Termination Date on which the Loans are repaid in full), commencing on the first such date to occur after the date hereof. All Facility Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Borrowers agree, jointly and severally, to pay to the Administrative Agent, for the account of each Lender, during the period from and including the Effective Date to but excluding the date on which the Commitments terminate and the Revolving Credit Exposures of all the Lenders are paid or extinguished in full, a utilization fee (a "Utilization Fee") which shall accrue, with respect to any day, (a) that the Commitment Utilization Percentage is greater than 33% but less than or equal to 66%, at the rate of 0.0625% per annum on such Lender's Revolving Credit Exposure, and (b) that the Commitment Utilization Percentage is greater than 66%, at the rate of 0.125% per annum on such Lender's Revolving Credit Exposure. Accrued Utilization Fees shall be payable in arrears on the last day of March, June, September and December of each year, on the Maturity Date and on any date thereafter on which the Revolving Credit Exposures of all the Lenders are paid or extinguished in full, commencing on the first such date to occur after the date hereof. All Utilization Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) [Intentionally left blank] (d) The Borrowers agree, jointly and severally, to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between AOLTW and the Administrative Agent. (e) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of Facility Fees and Utilization Fees, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances absent manifest error in the calculation and/or payment thereof. SECTION 2.12. Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate. (b) The Loans comprising each Eurocurrency Borrowing shall bear interest at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate. 28 (c) The Loans comprising each Pound Sterling Overnight Rate Borrowing shall bear interest at a rate per annum equal to the Pound Sterling Overnight Rate. (d) The Loans comprising each Euro Overnight Rate Borrowing shall bear interest at a rate per annum equal to the Euro Overnight Rate. (e) [Intentionally left blank] (f) [Intentionally left blank] (g) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by any Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided above or (ii) in the case of any other amount, 2% plus the rate applicable to Loans in the Base Rate of the relevant Currency as provided above. (h) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to paragraph (g) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, (iii) in the event of any conversion of any Eurocurrency Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion and (iv) all accrued interest shall be payable upon the Maturity Date (or, if the Commitments are terminated in their entirety in accordance with the provisions of this Agreement prior to the Initial Maturity Date, on the Commitment Termination Date). (i) All interest hereunder shall be computed on the basis of a year of 360 days, except that (i) interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and (ii) with respect to Loans denominated in Pounds, the interest rate thereon shall be computed on the basis of a 365-day year, and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Base Rate, Adjusted LIBO Rate and LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.13. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurocurrency Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining for such Interest Period the Adjusted LIBO Rate for the relevant Currency; or (b) the Administrative Agent is advised by the Required Lenders that for such Interest Period the Adjusted LIBO Rate for the relevant Currency will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; 29 then the Administrative Agent shall give notice thereof to the applicable Borrowers and the Lenders by telephone or facsimile as promptly as practicable thereafter and, until the Administrative Agent notifies the applicable Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurocurrency Borrowing shall be ineffective and any such Borrowing referred to in such Interest Election Request shall, unless repaid by the applicable Borrower, be converted to (as of the last day of the then current Interest Period), or maintained as, a Base Rate Borrowing, as the case may be (to the extent, in the Administrative Agent's reasonable determination, it is practicable to do so), and (ii) if any Borrowing Request requests a Eurocurrency Revolving Borrowing, such Borrowing shall, unless otherwise rescinded by the applicable Borrower, be made as a Base Rate Loan in the applicable Currency (to the extent, in the Administrative Agent's reasonable determination, it is practicable to do so), and if the circumstances giving rise to such notice affect fewer than all Types of Borrowings, then the other Types of Borrowings shall be permitted. SECTION 2.14. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurocurrency Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the applicable Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs actually incurred or reduction actually suffered. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of the Commitment or the Loans made by such Lender, to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the applicable Borrowers will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction actually suffered in respect of the Commitment or Loans made by such Lender hereunder. (c) A certificate of a Lender setting forth in reasonable detail the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the applicable Borrowers and shall be conclusive absent manifest error. The applicable Borrowers shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. 30 (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the applicable Borrowers shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions unless a Lender gives notice to the applicable Borrowers that they are obligated to pay an amount under this Section within six months after the later of (i) the date the Lender incurs such increased costs, reduction in amounts received or receivable or reduction in return on capital or (ii) the date such Lender has actual knowledge of its incurrence of such increased cost, reduction in amounts received or receivable or reduction in return on capital; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof. Notwithstanding any other provision of this Section 2.14, no Lender shall demand compensation for any increased costs or reduction referred to above if it shall not be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements, if any (it being understood that this sentence shall not in any way limit the discretion of any Lender to waive the right to demand such compensation in any given case). SECTION 2.15. Break Funding Payments. In the event of (a) the payment of any principal of any Eurocurrency Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice is permitted to be revocable under Section 2.10(b) and is revoked in accordance herewith), or (d) the assignment of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto as a result of a request by a Borrower pursuant to Section 2.18, then, in any such event, the applicable Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurocurrency Loan, the loss to any Lender attributable to any such event shall be deemed to include an amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that such Lender would pay for a deposit in the applicable Currency equal to the principal amount of such Loan for the period from the date of such payment, conversion, failure or assignment to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, convert or continue, the duration of the Interest Period that would have resulted from such borrowing, conversion or continuation) if the interest rate payable on such deposit were equal to the Adjusted LIBO Rate, as applicable, for such Interest Period, over (ii) the amount of interest that such Lender would earn on such principal amount for such period if such Lender were to invest such principal amount for such period at the interest rate that would be bid by such Lender (or an affiliate of such Lender) for deposits in the applicable Currency from other banks in the Eurocurrency market at the commencement of such period. A certificate of any Lender setting forth in reasonable detail any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the applicable Borrower and shall be conclusive absent manifest error. The applicable Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.16. Taxes. (a) Any and all payments by or on account of any obligation of each Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if such Borrower shall be required to 31 deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) Each Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable by such Borrower under this Section unless such amounts have been included in any amount paid pursuant to the proviso to Section 2.16(a)) paid by the Administrative Agent, or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to such Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (c) If a Lender or the Administrative Agent receives a refund in respect of any Indemnified Taxes or Other Taxes as to which it has been indemnified by a Borrower or with respect to which a Borrower has paid additional amounts pursuant to this Section 2.16, it shall within 30 days from the date of such receipt pay over such refund to such Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by such Borrower under this Section 2.16 with respect to the Indemnified Taxes or Other Taxes giving rise to such refund, as determined by such Lender in its reasonable discretion), net of all out-of-pocket expenses of such Lender or the Administrative Agent and without interest (other than interest paid by the relevant taxation authority with respect to such refund); provided that such Borrower, upon the request of such Lender or the Administrative Agent, agrees to repay the amount paid over to such Borrower (plus penalties, interest or other charges) to such Lender or the Administrative Agent in the event such Lender or the Administrative Agent is required to repay such refund to such taxation authority. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by any Borrower to a Governmental Authority, such Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which any Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to such Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by such Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. 32 (f) Any Lender that is a U.S. Person shall deliver to AOLTW (with a copy to the Administrative Agent) a statement signed by an authorized signatory of the Lender that it is a U.S. Person and, if necessary to avoid United States backup withholding, a duly completed and signed Internal Revenue Service Form W-9 (or successor form) establishing that such Lender is organized under the laws of the United States and is not subject to United States backup withholding. (g) Nothing in this Section shall be construed to require any Lender to disclose any confidential information regarding its tax returns or affairs. SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Setoffs. (a) Each Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or of amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) prior to 1:00 p.m., Local Time, on the date when due, in immediately available funds, without setoff or counterclaim. Any amounts received after such time on any date shall, unless the Administrative Agent is able to distribute such amounts to the applicable Lenders on such date, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent (i) in New York, for payments in Dollars and (ii) in London, for payments in Euros or Pounds, in each case, at the offices for the Administrative Agent set forth in Section 9.01, except that payments pursuant to Sections 2.14, 2.15, 2.16 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient in like funds promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder, whether such payments are made in respect of principal, interest or fees, shall be made in the Currency in which the applicable payment obligation is due; provided, that payments in respect of Facility Fees pursuant to Section 2.11 and any other payments (not in respect of principal, interest or fees) or reimbursements shall be payable in Dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due from any Borrower hereunder, such funds shall be applied (i) first, to pay interest and fees then due from such Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, to pay principal, then due from such Borrower hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and accrued interest thereon owing by any Borrower than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans of other Lenders owing from such Borrower to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be 33 rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by such Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans other than to any Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from a Borrower prior to the date on which any payment is due from such Borrower to the Administrative Agent for the account of the Lenders hereunder that such Borrower will not make such payment, the Administrative Agent may assume that such Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders, the amount due. In such event, if such Borrower has not in fact made such payment, then each of the Lenders, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, (i) if the relevant amount is denominated in Pounds Sterling, at the Pound Sterling Overnight Rate (ii) if the relevant amount is denominated in Dollars, at the Federal Funds Effective Rate and (iii) if the relevant amount is denominated in any other Currency, at the interest rate reasonably determined by the Administrative Agent as the rate applicable for overnight settlements between banks for the amount paid by the Administrative Agent on behalf of such Borrower. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.06(b) or 2.17(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender from or on behalf of any Credit Party or otherwise in respect of the Obligations to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.18. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.14, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be materially disadvantageous to such Lender. Such Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.14, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, or if any Lender becomes a Defaulting Lender hereunder, then AOLTW may, at its sole expense and effort, upon notice to such Lender and the 34 Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) AOLTW shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.16, such assignment will be made to a Lender reasonably expected to result in a reduction in the compensation or payments to be paid by the Borrowers pursuant to such sections. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling AOLTW to require such assignment and delegation cease to apply. SECTION 2.19. Prepayments Required Due to Currency Fluctuation. (a) Not later than 1:00 p.m., New York City time, on the last Business Day of each fiscal quarter of AOLTW or at such other time as is reasonably determined by the Administrative Agent (the "Calculation Time"), the Administrative Agent shall determine the Dollar Equivalent of the total Revolving Credit Exposures outstanding as of such date. (b) If at the Calculation Time, the Dollar Equivalent of the total Revolving Credit Exposures exceeds the total Commitments then in effect by 5% or more, then within five Business Days of notice to the Borrowers thereof, the applicable Borrowers shall prepay Revolving Loans in an aggregate principal amount at least equal to such excess. Nothing set forth in this Section 2.19(b) shall be construed to require the Administrative Agent to calculate compliance under this Section 2.19(b) other than at the times set forth in Section 2.19(a). SECTION 2.20. Adoption of the Euro. Each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be appropriate to reflect the adoption of the Euro in any Participating Member State and any relevant market conventions or practices relating to the Euro. Each obligation under this Agreement of a party to this Agreement which has been denominated in the National Currency Unit of a Subsequent Participant shall be redenominated into the Euro in accordance with EMU Legislation immediately upon such Subsequent Participant becoming a Participating Member State (but otherwise in accordance with EMU Legislation). If, in relation to the currency of any Subsequent Participant, the basis of accrual of interest or fees expressed in this Agreement with respect to such currency shall be inconsistent with any convention or practice in the interbank market for the basis of accrual of interest or fees in respect of the Euro, such convention or practice shall replace such expressed basis effective as of and from the date on which such Subsequent Participant becomes a Participating Member State; provided, that if any Loan in the currency of such Subsequent Participant which is subject to an Interest Period is outstanding immediately prior to such date, such replacement shall take effect, with respect to such Loan, at the end of the then current Interest Period. 35 ARTICLE III REPRESENTATIONS AND WARRANTIES Each Borrower represents and warrants (as to itself and its Restricted Subsidiaries) to the Lenders that: SECTION 3.01. Organization; Powers. Each Credit Party and each of its Restricted Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions are within the Credit Parties' corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action of such Credit Parties. Each Credit Document (other than each Note) has been, and each Note when delivered hereunder will have been, duly executed and delivered by the Credit Parties party thereto. Each Credit Document (other than each Note) constitutes, and each Note when delivered hereunder will be, a legal, valid and binding obligation of each such Credit Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate (i) any applicable law or regulation or (ii) the charter, by-laws, partnership agreements or other organizational documents of such Borrower or any of its Restricted Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon such Borrower or any of its Restricted Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by such Borrower or any of its Restricted Subsidiaries and (d) will not result in the creation or imposition of any Lien on any asset of such Borrower or any of its Restricted Subsidiaries; except, in each case (other than clause (b)(ii) with respect to any Credit Party), such as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The consolidated balance sheet and statements of income, stockholders equity and cash flows (including the notes thereto) of AOLTW as of and for the fiscal year ended December 31, 2002, reported on by Ernst & Young LLP, independent accountants, copies of which have heretofore been furnished to each Lender, when combined with all public filings with the SEC by AOLTW since December 31, 2002, present fairly, in all material respects, the financial position and results of operations and cash flows of AOLTW and its consolidated Subsidiaries, as of such date and for such period, in accordance with GAAP. 36 (b) The unaudited consolidated balance sheets and statements of income, stockholders equity and cash flows of AOLTW and its consolidated Subsidiaries as of and for the fiscal quarter ended March 31, 2003, copies of which have heretofore been furnished to each Lender, present fairly, in all material respects, the financial position and results of operations and cash flows of AOLTW and its consolidated Subsidiaries, as of such date and for such period, in accordance with GAAP. (c) Since December 31, 2002, there has been no material adverse change in the business, assets, operations or financial condition of AOLTW and its consolidated Subsidiaries, taken as a whole (excluding the write-down of goodwill pursuant to the application of Financial Accounting Standard Board Statement No. 142). SECTION 3.05. Properties. (a) Such Borrower and each of its Restricted Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property, except for defects in title or interests that could not reasonably be expected to result in a Material Adverse Effect. (b) Such Borrower and each of its Restricted Subsidiaries owns, or is licensed to use, all trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by such Borrower or any of its Restricted Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.06. Litigation and Environmental Matters. (a) There are no actions, suits, investigations or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrowers, threatened against or affecting any Borrower or any of its Restricted Subsidiaries (i) which could reasonably be expected to be adversely determined and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve this Agreement or the Transactions. (b) Except with respect to any matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, (x) neither such Borrower nor any of its Restricted Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability or (iii) has received notice of any claim with respect to any Environmental Liability and (y) no Borrower has knowledge of any basis for any Environmental Liability on the part of any of its Restricted Subsidiaries. SECTION 3.07. Compliance with Laws and Agreements. Such Borrower and each of its Restricted Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Event of Default has occurred and is continuing. SECTION 3.08. Government Regulation. Neither such Borrower nor any of its Restricted Subsidiaries is (a) an "investment company" as defined in, or subject to regulation 37 under, the Investment Company Act of 1940, (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935, or (c) is subject to any other statute or regulation which regulates the incurrence of indebtedness for borrowed money, other than, in the case of this clause (c), Federal and state securities laws and as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. SECTION 3.09. Taxes. Such Borrower and each of its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it or as part of the consolidated group of which it is a member, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which such Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. SECTION 3.11. Disclosure. As of the date hereof and the Effective Date, all information heretofore or contemporaneously furnished by or on behalf of such Borrower or any of its Restricted Subsidiaries (including all information contained in the Credit Documents, the Confidential Memorandum dated June 2003 and the annexes, schedules and other attachments thereto but not including any projected financial statements), when taken together with the reports and other filings with the SEC made under the Exchange Act by any Credit Party since December 31, 2002, is, and all other such information hereafter furnished, including all information contained in any of the Credit Documents, including any annexes or schedules thereto, by or on behalf of such Borrower or any of its Restricted Subsidiaries to or on behalf of any Lender is and will be (as of their respective dates and the Effective Date), true and accurate in all material respects and not incomplete by omitting to state a material fact to make such information not misleading at such time. There is no fact of which such Borrower or any Guarantor is aware which has not been disclosed to the Lenders in writing pursuant to the terms of this Agreement prior to the date hereof and which, singly or in the aggregate with all such other facts of which any Borrower or any Guarantor is aware, could reasonably be expected to result in a Material Adverse Effect. All statements of fact and representation concerning the present business, operations and assets of such Borrower or any of its Subsidiaries, the Credit Documents and the transactions referred to therein are true and correct in all material respects. ARTICLE IV CONDITIONS SECTION 4.01. Effective Date. The effectiveness of this Agreement and the obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02): (a) Credit Documents. The Administrative Agent (or its counsel) shall have received (i) this Agreement executed and delivered by each party hereto and (ii) the Guarantee, executed and delivered by the parties thereto. 38 (b) Opinion of Counsel. The Administrative Agent shall have received the favorable written opinions (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of (i) Cravath, Swaine & Moore, counsel for the Credit Parties, (ii) in-house counsel to the Credit Parties, and (iii) Arthur Cox, counsel to AOLTWFI, in each case in form and substance reasonably satisfactory to the Administrative Agent. The Credit Parties hereby request each such counsel to deliver such opinions. (c) Closing Certificate. The Administrative Agent shall have received a certificate from each Borrower, in form and substance reasonably satisfactory to the Administrative Agent, dated the Effective Date and signed by the president, a vice president, a financial officer or an equivalent officer of such Borrower confirmation of compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02. (d) Termination of Existing Credit Agreement. All Indebtedness outstanding under the Existing Credit Agreement shall have been repaid or concurrently repaid with proceeds of Loans on the Effective Date, together with all interest thereon and other amounts owing in respect thereof, all commitments thereunder shall have been cancelled and the Existing Credit Agreement shall have been terminated. (e) Fees. The Borrowers shall have paid all fees required to be paid on or before the Effective Date by the Borrowers in connection with the revolving credit facilities provided for in this Agreement. (f) Authorizations, etc. The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Credit Parties, the authorization of the Transactions and any other legal matters relating to the Credit Parties, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing, is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Credit Parties set forth in the Credit Documents (other than those set forth in Sections 3.04(c), 3.06 and 3.10 on any date other than the Effective Date) shall be true and correct in all material respects on and as of the date of such Borrowing. (b) At the time of and immediately after giving effect to such Borrowing no Default or Event of Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the Credit Parties on the date thereof as to the applicable matters specified in paragraphs (a) and (b) of this Section. ARTICLE V AFFIRMATIVE COVENANTS Until all the Commitments have expired or been terminated and the principal of and interest on each Loan, all fees payable hereunder and all other Obligations shall have been 39 paid in full (but with respect to such other Obligations only to the extent that actual amounts hereunder are owing at the time the Loans, together with interest and fees, have been paid in full), each Borrower (for itself and its Restricted Subsidiaries) covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements and Other Information. AOLTW will furnish to the Administrative Agent at its New York office (who will distribute copies to each Lender): (a) within 105 days after the end of each fiscal year of AOLTW, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year and its unaudited Adjusted Financial Statements for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, and, (i) in the case of the audited financial statements, reported on by Ernst & Young LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of AOLTW and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied and (ii) in the case of the Adjusted Financial Statements, certified by one of AOLTW's Financial Officers as presenting fairly in all material respects the financial condition and results of operations of AOLTW and its consolidated Restricted Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; provided that, so long as no Event of Default has occurred and is continuing, AOLTW shall not be required to furnish Adjusted Financial Statements for any fiscal year if all Unrestricted Subsidiaries of AOLTW (other than any such Unrestricted Subsidiaries that are already treated as equity investments on AOLTW's financial statements) on a combined basis would not have constituted a Material Subsidiary of AOLTW for such fiscal year; (b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of AOLTW, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows and its Adjusted Financial Statements as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of AOLTW's Financial Officers as presenting fairly in all material respects the financial condition and results of operations of AOLTW and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; provided that, so long as no Event of Default has occurred and is continuing, AOLTW shall not be required to furnish Adjusted Financial Statements for any fiscal quarter if all Unrestricted Subsidiaries of AOLTW (other than any such Unrestricted Subsidiaries that are already treated as equity investments on AOLTW's financial statements) on a combined basis would not have constituted a Material Subsidiary of AOLTW for such fiscal quarter; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of AOLTW (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any 40 action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 6.01, 6.02(a) and 6.03(a) and (k) and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 which has not been previously disclosed by AOLTW pursuant to this Section 5.01(c)(iii) and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by any Company with the SEC or with any national securities exchange, or distributed by any Company to its security holders generally, as the case may be (other than registration statements on Form S-8, filings under Sections 16(a) or 13(d) of the Exchange Act and routine filings related to employee benefit plans); and (e) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of AOLTW or any of its Subsidiaries, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request (it being understood that AOLTW and such Subsidiaries shall not be required to provide any information or documents which are subject to confidentiality provisions the nature of which prohibit such disclosure). Information required to be delivered pursuant to paragraphs (a), (b) and (d) shall be deemed to have been delivered on the date on which AOLTW provides notice to the Administrative Agent, or as the case may be the Administrative Agent gives notice to the Lenders, that such information has been posted on AOLTW's website on the internet at the website address listed on the signature pages of such notice, at www.sec.gov or at another website identified in such notice and accessible by the Lenders without charge; provided that AOLTW shall deliver paper copies of the reports and financial statements referred to in paragraphs (a), (b) and (d) of this Section 5.01 to the Administrative Agent or any Lender who requests AOLTW to deliver such paper copies until written notice to cease delivering paper copies is given by the Administrative Agent or such Lender. SECTION 5.02. Notices of Material Events. Such Borrower will furnish to the Administrative Agent (who will distribute copies to the Lenders) prompt written notice of the following, upon any such event becoming known to any Responsible Officer of such Borrower: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting any Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability to AOLTW and its Subsidiaries in an aggregate amount exceeding $200,000,000; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. 41 Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of such Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.03. Existence; Conduct of Business. Such Borrower will, and will cause each of its Restricted Subsidiaries which are Material Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.04. SECTION 5.04. Payment of Obligations. Such Borrower will, and will cause each of its Restricted Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could reasonably be expected to result in a Material Adverse Effect, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) such Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.05. Maintenance of Properties; Insurance. Such Borrower will, and will cause each of its Restricted Subsidiaries to, (a) keep and maintain all property material to the conduct of its business (taken as a whole) in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations (it being understood that, to the extent consistent with prudent business practice, a program of self-insurance for first or other loss layers may be utilized). SECTION 5.06. Books and Records; Inspection Rights. Such Borrower will, and will cause each of its Restricted Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Such Borrower will, and will cause each of its Restricted Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine its books and records, and to discuss its affairs, finances and condition with its officers and, so long as a representative of such Borrower is present, or such Borrower has consented to the absence of such a representative, independent accountants (in each case subject to such Borrower's or its Restricted Subsidiaries' obligations under applicable confidentiality provisions), all at such reasonable times and as often as reasonably requested. 42 SECTION 5.07. Compliance with Laws. Such Borrower will, and will cause each of its Restricted Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.08. Use of Proceeds. The proceeds of the Loans will be used only for general corporate or partnership (as applicable) purposes, including the repayment of indebtedness of existing and future Subsidiaries of any of the Borrowers and for commercial paper backup. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X. SECTION 5.09. Fiscal Periods; Accounting. Such Borrower will keep the same financial reporting periods as are in effect on the date hereof. ARTICLE VI NEGATIVE COVENANTS Until all the Commitments have expired or terminated and the principal of and interest on each Loan, all fees payable hereunder and all other Obligations have been paid in full (but with respect to such other Obligations only to the extent that actual amounts hereunder are owing at the time the Loans, together with interest and fees, have been paid in full), each Borrower covenants and agrees (for itself and its Restricted Subsidiaries) with the Lenders that: SECTION 6.01. Financial Covenants. (a) The Consolidated Leverage Ratio as of the last day of any period of four consecutive fiscal quarters of AOLTW (commencing with the first fiscal quarter ending after the Effective Date) will not exceed 4.50 to 1.00. (b) The Consolidated Interest Coverage Ratio for any period of four consecutive fiscal quarters of AOLTW (commencing with the first fiscal quarter ending after the Effective Date) will not be less than 2.00 to 1.00. SECTION 6.02. Indebtedness. AOLTW will not permit any of its Restricted Subsidiaries (other than a Credit Party, Time Warner Cable or the consolidated Subsidiaries of Time Warner Cable) to, create, incur, assume or permit to exist any Indebtedness, except: (a) with respect to all such Restricted Subsidiaries, Indebtedness of up to an aggregate principal amount of $1,500,000,000 at any time outstanding; (b) Indebtedness of any such Restricted Subsidiary to a Borrower or any Subsidiary; (c) Guarantee Obligations of any such Restricted Subsidiary with respect to Indebtedness of a Borrower or any wholly owned Restricted Subsidiary; 43 (d) Indebtedness of any such Restricted Subsidiary incurred to finance the acquisition, construction or improvement of any property, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such property or secured by a Lien on any such property prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided that the aggregate principal amount of Indebtedness permitted by this clause (d) with respect to any such property shall not exceed 110% of the purchase price for, or the cost of construction or improvement of, such property; (e) Indebtedness of any Person that becomes a Restricted Subsidiary after the date hereof; provided that (x) such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (y) such Indebtedness does not, directly or indirectly, have recourse (including by way of setoff) to AOLTW or any of its Restricted Subsidiaries or any asset thereof other than to the Person so acquired and its Subsidiaries and the assets of the Person so acquired and its Subsidiaries; and (f) Film Financings. SECTION 6.03. Liens. Such Borrower will not, and will not permit any of its Restricted Subsidiaries, to create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, except: (a) any Lien on any property or asset of AOLTW or any Subsidiary existing on the date hereof; provided, that such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewal and replacements thereof that do not increase the outstanding principal amount thereof and such Liens do not secure an aggregate principal amount of Indebtedness in excess of $200,000,000 or apply to property or assets of AOLTW and its Restricted Subsidiaries in excess of $200,000,000; (b) any Lien existing on any property or asset prior to the acquisition thereof by any Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of any Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (c) Liens on property acquired, constructed or improved by any Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness permitted by clause (d) of Section 6.02, (ii) the Indebtedness secured thereby does not exceed 110% of the cost of acquiring, constructing or improving such property and (iii) such security interests shall not apply to any other property or assets of the any Borrower or any of its Subsidiaries; 44 (d) Liens to secure Film Financings; provided that such Liens shall extend only to the property or assets acquired with such Film Financing; (e) Liens on Capital Stock of AOLTW and proceeds therefrom supporting Stock Option Loans to the extent contemplated by the definition thereof; (f) any Copyright Liens securing obligations specified in the definition thereof; (g) Liens securing Indebtedness of any Borrower or any Restricted Subsidiary and owing to such Borrower or to a Restricted Subsidiary of such Borrower; (h) Liens on interests in or investments in any Unrestricted Subsidiary or in any other Person that is not a Subsidiary of AOLTW securing Indebtedness of such Unrestricted Subsidiary or such other Person; (i) Liens for taxes, assessments or governmental charges or levies not yet due and payable or which are being contested in good faith by appropriate proceedings; (j) Liens incidental to the ordinary conduct of such Borrower's business or the ownership of its assets which were not incurred in connection with the borrowing of money, such as carrier's, warehousemen's, materialmen's, landlord's and mechanic's liens, and which do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the ordinary course of its business; and (k) other Liens in respect of property or assets of AOLTW or any Restricted Subsidiary so long as at the time of the securing of any obligations related thereto, the aggregate principal amount of all such secured obligations does not exceed 5% of the Consolidated Total Assets of AOLTW at such time (it being understood that any Lien permitted under any other clause in this Section 6.03 shall not be included in the computation described in this paragraph). SECTION 6.04. Mergers, Etc. Such Borrower will not, and will not permit any of its Restricted Subsidiaries to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or a substantial portion of such Borrower's consolidated assets, or all or a substantial portion of the stock of all of its Restricted Subsidiaries, taken as a whole (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, unless (a) at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing and (b) after giving effect to any such transaction, the business, taken as a whole, of such Borrower and its Restricted Subsidiaries shall not have been altered in a fundamental and substantial manner from that conducted by them, taken as a whole, immediately prior to the Effective Date, provided that (i) a Borrower shall not merge into or consolidate with such other Person, unless such Borrower shall survive such consolidation or merger, and (ii) a Borrower shall not liquidate or dissolve or permit any Guarantor to liquidate or dissolve except into such Borrower or another Guarantor. SECTION 6.05. Investments. Such Borrower will not, and will not cause or permit any of its Restricted Subsidiaries to, make any Investment (other than any Investment in the ordinary course of the operation of its business) if, before or after giving effect to the 45 commitment thereto on a pro forma basis, an Event of Default shall have occurred and be continuing. SECTION 6.06. Restricted Payments. Such Borrower will not declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except such Borrower may (a) declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock and (b) make Restricted Payments so long as after giving effect to the making of such Restricted Payment, no Event of Default shall have occurred and be continuing on a pro forma basis. SECTION 6.07. Transactions with Affiliates. Such Borrower will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into any material transaction with any of its Affiliates, except (a) transactions entered into prior to the date hereof or contemplated by any agreement entered into prior to the date hereof, (b) in the ordinary course of business or at prices and on terms and conditions not less favorable to such Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (c) transactions between or among such Borrower and its Restricted Subsidiaries or between or among Restricted Subsidiaries, (d) any arrangements with officers, directors, representatives or other employees of such Borrower and its Subsidiaries relating specifically to employment as such and (e) transactions that are otherwise permitted by this Agreement. SECTION 6.08. Unrestricted Subsidiaries. (a) Schedule 6.08 sets forth those Subsidiaries that have been designated as Unrestricted Subsidiaries as of the date hereof, which Subsidiaries do not include any Guarantor or a Borrower. A Borrower may designate any other of its Subsidiaries (other than a Borrower or a Guarantor) as Unrestricted Subsidiaries from time to time in compliance with the provisions of this Section 6.08. Such Borrower will not designate any of its Subsidiaries as an Unrestricted Subsidiary unless at the time such Subsidiary is designated as an Unrestricted Subsidiary, before and after giving effect to such designation on a pro forma basis, no Event of Default shall have occurred and be continuing, as certified in an Officers' Certificate delivered to the Administrative Agent at the time of such designation. Such Officers' Certificate also shall state the specific purpose for which such designation is being made. All Subsidiaries of Unrestricted Subsidiaries shall be Unrestricted Subsidiaries. (b) A Borrower may designate or re-designate any Unrestricted Subsidiary as a Restricted Subsidiary from time to time in compliance with the provisions of this Section 6.08. Such Borrower will not designate or re-designate any Unrestricted Subsidiary as a Restricted Subsidiary, unless at the time such Unrestricted Subsidiary is so designated or re-designated as a Restricted Subsidiary, after giving effect to such designation or re-designation on a pro forma basis, no Event of Default shall have occurred and be continuing, as certified in an Officer's Certificate delivered to the Administrative Agent at the time of such designation or re-designation. ARTICLE VII EVENTS OF DEFAULT If any of the following events ("Events of Default") shall occur: 46 (a) any Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) any Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five days; (c) any representation or warranty made or deemed made by or on behalf of any Credit Party in any Credit Document or any amendment or modification thereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Credit Document or any amendment or modification thereof, shall prove to have been incorrect in any material respect when made or deemed made; (d) any Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02 or 5.03 (with respect to such Borrower's existence) or in Article VI; (e) any Credit Party shall fail to observe or perform any covenant, condition or agreement contained in the Credit Documents (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent (given at the request of any Lender) to any Borrower; (f) any Borrower or any Restricted Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable after giving effect to any applicable grace periods; (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (after giving effect to any applicable grace periods) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Borrower or any Material Subsidiary of any Borrower or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Borrower or any Material Subsidiary of any Borrower or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; 47 (i) any Borrower or any Material Subsidiary of any Borrower shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Borrower or any Material Subsidiary of any Borrower or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) any Borrower or any Material Subsidiary of any Borrower shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $200,000,000 shall be rendered against any Borrower, any Material Subsidiary of any Borrower or any combination thereof or any action shall be legally taken by a judgment creditor (whose liquidated judgment, along with those of any other judgment creditor's, exceeds $200,000,000) to attach or levy upon any assets of any Borrower or any Material Subsidiary of any Borrower to enforce any such judgment, and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed, vacated or bonded pending appeal; (l) an ERISA Event shall have occurred that, when taken together with all other ERISA Events (with respect to which a Borrower has a liability which has not yet been satisfied) that have occurred, could reasonably be expected to result in a Material Adverse Effect; (m) except as otherwise permitted by this Agreement, the Guarantee shall cease, for any reason, to be in full force and effect or any Credit Party shall so assert; or (n) a Change in Control shall occur; then, and in every such event (other than an event with respect to a Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to AOLTW, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of any Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower; and in case of any event with respect to any Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of any 48 Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower. ARTICLE VIII THE AGENTS Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. Each bank serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with any Company or Affiliate thereof as if it were not an Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders (or, if so specified by this Agreement, all the Lenders), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Company that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or, if so specified by this Agreement, all the Lenders) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by any Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Credit Document, (ii) the contents of any certificate, report or other document delivered under any Credit Document or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Credit Document, (iv) the validity, enforceability, effectiveness or genuineness of any Credit Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by a proper Person. An initial list of the proper Persons with respect to the Borrowers appears on Schedule 8. Schedule 8 shall not be altered except in writing by a Person appearing thereon (or by a successor to such Person occupying the equivalent office). The Administrative Agent also 49 may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon so long as such statement, in the case of a Borrowing Request, complies with the requirements of Section 2.03 in all material respects (it being understood that oral notices of borrowing will be confirmed in writing by such Borrower in accordance with Section 2.03). The Administrative Agent may consult with legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrowers. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrowers, to appoint a successor which, so long as no Event of Default is continuing, shall be reasonably acceptable to the Borrowers. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrowers and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. The Lenders agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by the Borrowers and without limiting the obligation of the Borrowers to do so), ratably according to their Commitments in effect (or at any time after the Commitments have terminated, their Revolving Credit Exposure) on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with their Commitments (or, if the Commitments have terminated earlier, their Revolving Credit Exposures) immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of, 50 the Commitments, this Agreement, any of the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder. Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. The Co-Syndication Agents and Co-Documentation Agents shall not have any duties or responsibilities hereunder in their capacity as such. ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows: (a) if to AOLTW, to it at 75 Rockefeller Plaza, New York, New York 10019, Attention of Chief Financial Officer (Facsimile No. (212) 405-5213), with copies to its General Counsel (Facsimile No. (212) 258-3172), and its Treasurer (Facsimile No. (212) 258-3020); (b) if to AOLTWFI, to it at 1 North Wall Quay, Dublin 1 Ireland, Attention of --------------------------------------------- with a copy to AOLTW as specified above; (c) if to the Administrative Agent, to JPMorgan Chase Bank, Agent Bank Services Group, One Chase Manhattan Plaza, New York, New York 10081, Attention of ---------------------------------------- with a copy to (i) JPMorgan Chase Bank, 270 Park Avenue, New York, New York 10017, Attention of --------------------------------------------- and (ii) in the case of a Eurocurrency Borrowing, JPMorgan Chase Bank, London Branch, 125 London Wall, London, EC2Y 5AJ, Attention of ------ ---------------------------------------------; and (d) if to any other Lender, to it at its address (or facsimile number) set forth in its Administrative Questionnaire. 51 Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrowers and the Required Lenders or by the Borrowers and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.17(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) release any Guarantor under the Guarantee without the written consent of each Lender, or (vi) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) AOLTW shall, or shall cause the other Borrower to, pay (i) all reasonable out-of-pocket expenses incurred by the Arrangers, the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Credit Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Agents or the Lenders, including the reasonable fees, charges and disbursements of any counsel for the Agents or the Lenders in connection with the enforcement or protection of its rights in connection with any Credit Document, including its rights under this 52 Section, or in connection with the Loans made hereunder, including in connection with any workout, restructuring or negotiations in respect thereof, it being understood that the Agents and the Lenders shall use, and AOLTW shall only be required to pay such fees, charges and disbursements of, a single counsel, unless (and to the extent) conflicts of interests require the use of more than one counsel. (b) AOLTW shall, or shall cause the other Borrower to, indemnify each Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Credit Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of, or the proposed use of, the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by any Company, or any Environmental Liability related in any way to any Company, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses resulted from the gross negligence or willful misconduct of such Indemnitee. (c) To the extent that any of the Borrowers fail to pay any amount required to be paid by them to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (d) To the extent permitted by applicable law, no Borrower shall assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly after written demand therefor. SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Credit Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender except in accordance with Section 6.04 (and any attempted assignment or transfer by such Credit Party without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the 53 Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender other than a Conduit Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or a Lender Affiliate, each of AOLTW and the Administrative Agent must give its prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining balance of the assigning Lender's Commitment, each assignment shall not be less than an aggregate principal amount of $15,000,000, (iii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining balance of the assigning Lender's Commitment, the remaining amount of the Commitment of the assigning Lender after giving effect to such assignment shall not be less than $15,000,000 unless, in the case of clauses (ii) or (iii), each of AOLTW and the Administrative Agent otherwise consents, (iv) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (v) except in the case of an assignment to an Affiliate of the assigning Lender on or about the Effective Date, the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 (which fee shall be sufficient to record an assignment under all Facilities), and (vi) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided further that any consent of AOLTW otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Upon acceptance and recording pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall (i) continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 9.03) and (ii) continue to be subject to the confidentiality provisions hereof. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. Notwithstanding the foregoing, any Conduit Lender may assign at any time to its designating Lender hereunder without the consent of any Borrower or the Administrative Agent any or all of the Loans it may have funded hereunder and pursuant to its designation agreement and without regard to the limitations set forth in the first sentence of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrowers, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrowers, the Administrative Agent and the Lenders may 54 treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender other than a Conduit Lender may, without the consent of any Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this Section, each Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (f) A Participant shall not be entitled to receive any greater payment under Section 2.14 or 2.16 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrowers' prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 unless the Borrowers are notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 2.16(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any such pledge or assignment to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto. (h) Each Borrower, upon receipt of written notice from the relevant Lender, agrees to issue Notes to any Lender requiring Notes to facilitate transactions of the type described in paragraph (g) above. 55 (i) Each Borrower, each Lender and the Administrative Agent hereby confirms that it will not institute against a Conduit Lender or join any other Person in instituting against a Conduit Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Conduit Lender; provided, however, that each Lender designating any Conduit Lender hereby agrees to indemnify, save and hold harmless each other party hereto for any loss, cost, damage or expense arising out of its inability to institute such a proceeding against such Conduit Lender during such period of forbearance. SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Credit Parties herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Lenders constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such 56 Lender to or for the credit or the account of any of the Credit Parties (other than indebtedness related to commercial advertising and marketing arrangements entered into in the ordinary course of business) against any of and all the obligations of any of the Credit Parties now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) Each Credit Party hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to the Credit Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding shall be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (c) Each Credit Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 57 SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 9.12. Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, provided that in connection with any such requirement by a subpoena or similar legal process, AOLTW is given prior notice to the extent such prior notice is permissible under the circumstances and an opportunity to object to such disclosure, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an express agreement for the benefit of the Borrowers containing provisions substantially the same as those of this Section, to any (i) assignee (or Conduit Lender) of or Participant in, or any prospective assignee (or Conduit Lender) of or Participant in, any of its rights or obligations under this Agreement or (ii) hedging agreement counterparty (or such contractual counterparty's professional advisor), (g) with the consent of AOLTW or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrowers. For the purposes of this Section, "Information" means all information received from one or more of the Borrowers, whether oral or written, relating to the Borrowers or their business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by one or more of the Borrowers; provided that, in the case of information received from one or more of the Borrowers after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information, including in accordance with Regulation FD as promulgated by the SEC. SECTION 9.13. Acknowledgements. Each Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Credit Documents; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to any Borrower arising out of or in connection with this Agreement or any of the other Credit Documents, and the relationship between Administrative Agent and Lenders, on one hand, and the Borrowers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Credit Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrowers and the Lenders. 58 SECTION 9.14. Judgment Currency. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or under any other Credit Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of each of the applicable Borrowers in respect of any such sum due from it to either the Administrative Agent or any Lender hereunder or under any other Credit Document shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the "Agreement Currency"), be discharged only to the extent that on the Business Day following receipt by the Administrative Agent or such Lender of any sum adjudged to be so due in the Judgment Currency, the Administrative Agent or such Lender may in accordance with normal banking procedures in the relevant jurisdiction purchase the Agreement Currency with the Judgment Currency; if the amount of the Agreement Currency so purchased is less than the sum originally adjudged to be due to the Administrative Agent or such Lender in the Agreement Currency (as converted on the date of final judgment), the Borrowers agree, jointly and severally, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or such Lender against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally adjudged to be due to the Administrative Agent or such Lender in such currency, the Administrative Agent or such Lender agrees to return the amount of any excess to the Borrowers (or to any other Person who may be entitled thereto under applicable law). The obligations of the Borrowers contained in this Section 9.14 shall survive the termination of this Agreement and the payment of all other amounts owing hereunder. SECTION 9.15. Loans to Borrowers Separate Credit Facility. Notwithstanding anything to the contrary, the parties hereto acknowledge and agree that (a) the Commitments being provided hereunder are set forth in a single agreement for convenience only, and the Loans to each of the Borrowers are to be considered by the parties hereto as being made under a separate credit facility for each Borrower and (b) the obligations of the Borrowers under this Agreement are several and not joint except as otherwise explicitly provided in this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AOL TIME WARNER INC. By __________________________________ Name: Title: AOL TIME WARNER FINANCE IRELAND By __________________________________ Name: Title: AOL Time Warner Inc. and AOL Time Warner Finance Ireland Credit Agreement Signature Page JPMORGAN CHASE BANK, as Administrative Agent By __________________________________ Name: Title: AOL Time Warner Inc. and AOL Time Warner Finance Ireland Credit Agreement Signature Page __________________________________, (NAME OF LENDER) By __________________________________ Name: Title: AOL Time Warner Inc. and AOL Time Warner Finance Ireland Credit Agreement Signature Page SCHEDULE 1.01 CALCULATION OF MANDATORY COST The mandatory cost rate referred to in the definition of "Pound Sterling Overnight Rate" in Section 1.01 of the Credit Agreement will be the rate determined by the Administrative Agent (rounded upward, if necessary, to four decimal places) in accordance with the following formula (expressed as a percentage per annum): CL + S(L - Z) + 0.01F --------------------- 100 - (C + S) Where on the day of application of the formula: C The amount required to be held as a non-interest bearing cash ratio deposit with the Bank of England expressed as a percentage of each of the Reference Bank's Eligible Liabilities (above any stated minimum). F The amount of Pound Sterling per (pound)1,000,000 of the fee base of each Reference Bank payable to the Financial Services Authority per annum (disregarding any minimum fee payable under the Fees Regulations). L The rate of interest per annum at which Pound Sterling deposits of an amount comparable to the Borrowing or other amount are offered by each Reference Bank to leading banks in the London interbank market at or about 11:00 a.m. on the date of calculation for a period comparable to the period for which the Mandatory Cost is to be calculated; or The Pound Sterling Overnight Rate for the relevant day as calculated without taking into account the Mandatory Cost is the rate of interest (less margin and the Mandatory Cost) payable on that day on the related Borrowing pursuant to clause Section 2.12 of this Agreement. S The amount required to be placed as Special Deposits with the Bank of England, expressed as a percentage of each of the Reference Bank's Eligible Liabilities (above any stated minimum). Z The lower of L and the rate of interest per annum paid by the Bank of England on Special Deposits at or about 11:00 a.m. on the date of calculation. For the purposes of calculating the Mandatory Cost: (i) C, L, S and Z are included in the formula as numbers and not as percentages, e.g. if C = 0.15 percent and L = 7 percent, CL is calculated at 0.15 x 7; (ii) the formula is applied on the first day of each period for which it falls to be calculated (and the result shall apply for the duration of such period); (iii) each amount is rounded up to the nearest four decimal places; and (iv) if the formula produces a negative percentage, the percentage shall be taken as zero. If alternative or additional financial requirements are imposed by the Bank of England, the Financial Services Authority or any other fiscal, monetary or governmental authority or agency (including the European Central Bank) which in the Administrative Agent's reasonable opinion make the above formula (or any element thereof, or any defined term used therein) no longer appropriate, the Administrative Agent (following consultation with the Borrowers and the Required Lenders) shall be entitled by notice to the Borrowers to stipulate such other formula as shall be suitable to apply in substitution for the above formulae. Any such variation shall, in the absence of manifest error, be conclusive and binding on all parties and shall apply from the date specified in such notice. For the purposes of this Schedule: "Bank of England Act" means the Bank of England Act 1998; "Eligible Liabilities" has the meaning given to that term in the Cash Ratio Deposits (Eligible Liabilities) Order 1998 or the applicable substitute order made under the Bank of England Act as in force on the date of application of the formula; "Fee Base" has the meaning given to that term in the Fees Regulations; "Fees Regulations" means the Banking Supervision (Fees) Regulations 2001 or the applicable substitute regulations made under the Bank of England Act as are in force on the date of application of the formula; and "Special Deposits" has the meaning given to that term by the Bank of England on the date of application of the formula. Any reference to a provision of any statute, directive, order or regulation herein is a reference to that provision as amended or re-enacted from time to time. SCHEDULE 2.01 Address of Notices; Commitments
- -------------------------------------------------------------------------------- Lender Name and Address Commitment - -------------------------------------------------------------------------------- JPMorgan Chase Bank $127,000,000.00 270 Park Avenue, 36th Floor New York, NY 10017 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Bank of America, N.A. $127,000,000.00 335 Madison Avenue, 5th Floor New York, NY 10017 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- ABN AMRO Bank N.V. $117,000,000.00 55 East 52nd Street, 7th Floor New York, NY 10055 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- BNP Paribas $117,000,000.00 787 Seventh Avenue New York, NY 10019 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Citibank, N.A. $117,000,000.00 388 Greenwich Street, 21st Floor New York, NY 10013 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- William Street Commitment Corporation $ 90,000,000.00 85 Broad Street, 6th Floor New York, NY 10004 Attn: Telephone: - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Facsimile: 212-357-4597 - -------------------------------------------------------------------------------- BankOne, N.A. $85,000,000.00 1 BankOne Plaza Chicago, IL 60670 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Barclays Bank PLC $85,000,000.00 200 Park Avenue New York, NY 10166 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Deutsche Bank AG, New York Branch $85,000,000.00 31 West 52nd Street New York, NY 10019 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Royal Bank of Scotland plc $85,000,000.00 101 Park Avenue, 10th Floor New York, NY 10178 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- The Bank of Nova Scotia $85,000,000.00 One Liberty Plaza, 26th Floor New York, NY 10006 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- WestLB AG, New York Branch $80,000,000.00 1211 Avenue of the Americas New York, NY 10036 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Dresdner Bank AG, New York and $65,000,000.00 Grand Cayman Branches 75 Wall Street New York, NY 10005 - --------------------------------------------------------------------------------

- -------------------------------------------------------------------------------- Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- HSBC Bank USA $65,000,000.00 452 Fifth Avenue, 5th Floor New York, NY 10005 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Mizuho Corporate Bank, LTD. $65,000,000.00 1251 Avenue of the Americas New York, NY 10020 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Morgan Stanley Bank $65,000,000.00 1221 Avenue of the Americas, 35th Floor New York, NY 10020 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Bank of Tokyo-Mitsubishi Ltd., NY Branch $65,000,000.00 1251 Avenue of the Americas, 12th Floor New York, NY 10020 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Wachovia Bank N.A. $65,000,000.00 301 S. College Street, NC0760 Charlotte, NC 28288 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Bear Stearns Corporate Lending Inc. $50,000,000.00 383 Madison Avenue, 8th Floor New York, NY 10179 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Commerzbank AG, New York and $50,000,000.00 Grand Cayman Branches - --------------------------------------------------------------------------------

- -------------------------------------------------------------------------------- 2 World Financial Center New York, NY 10281 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Lehman Commercial Paper Inc. $50,000,000.00 c/o Simpson Thacher & Bartlett 425 Lexington Avenue, Room 2533 New York, NY 10017 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Merrill Lynch Bank USA $50,000,000.00 15 West South Temple, Suite 300 Salt Lake City, UT 84101 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Societe Generale $50,000,000.00 1221 Avenue of the Americas New York, NY 10020 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Sumitomo Mitsui Banking Corporation $40,000,000.00 277 Park Avenue New York, NY 10172 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Fleet National Bank $20,000,000.00 100 Federal Street Boston, MA 02110 Attn: Telephone: Facsimile: - --------------------------------------------------------------------------------

- -------------------------------------------------------------------------------- Lloyds TSB Bank, plc $20,000,000.00 575 Fifth Avenue, 17th Floor New York, NY 10017 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- National Australia Bank Limited, $20,000,000.00 A.C.N 200 Park Avenue, 34th Floor New York, NY 10166 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Bank of New York $20,000,000.00 One Wall Street, 16th Floor New York, NY 10286 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- Norddeutsche Landesbank Girozentrale $20,000,000.00 New York Branch and/or Cayman Island Branch 1114 Avenue of the Americas, 37th Floor New York, NY 10036 Attn: Telephone: Facsimile: - -------------------------------------------------------------------------------- UFJ Bank Limited $20,000,000.00 55 East 52nd Street, 26th Floor New York, NY 10055 Attn: Telephone: Facsimile: - --------------------------------------------------------------------------------

SCHEDULE 2.03(A)
- ---------------------------------------------------------------------------------------------- LOAN TYPE: A BORROWING NOTICE (PURSUANT AND PREPAYMENT NOTICE SUBJECT TO SECTION 2.03 OR SECTION (PURSUANT TO SECTION 2.10) 2.04, AS APPLICABLE) OR AN INTEREST MUST BE GIVEN NOT LATER THAN: ELECTION (PURSUANT TO SECTION 2.07) MUST BE GIVEN NOT LATER THAN: - ------------------------------------------------------------------------------------------------- REVOLVING LOANS - ------------------------------------------------------------------------------------------------- Any Eurocurrency 11:00 am New York City time three (3) 12:00 pm New York City time Borrowing Business Days before the date of the three (3) Business Days proposed Borrowing. before the date of prepayment. - ------------------------------------------------------------------------------------------------- Alternative Base Rate 10:00 am New York City time on the day 12:00 pm New York City time Borrowing of the proposed Borrowing. one (1) Business Day before the date of prepayment. - ------------------------------------------------------------------------------------------------- Pound Sterling 10:00 am London time one (1) Business 12:00 pm London time one (1) Overnight Rate Day before the date of the proposed Business Day before the date Borrowing Borrowing. of prepayment. - ------------------------------------------------------------------------------------------------- Euro Overnight Rate 10:00 am London time on the day of the 12:00 pm London time one (1) Borrowing proposed Borrowing (subject to the Business Day before the date limitation in Section 2.03). of prepayment. - -------------------------------------------------------------------------------------------------
SCHEDULE 2.03(B) AUTHORIZED ACCOUNT NUMBERS & LOCATIONS AOL TIME WARNER INC. - -------------------------------------------------------------------------------- Currency: Dollar Bank: JP Morgan Chase Address: 1 Chase Manhattan Plaza New York, NY 10005 ABA: 021000021 Account Name: AOL Time Warner Inc. Account Number: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Currency: Euro Bank: Barclays Bank Address: Hanover Square London Sort Code: 20-30-19 SWIFT: BARCGB22 Account Name: AOL Time Warner Inc. Account Number: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Currency: Pounds Bank: Barclays Bank Address: Hanover Square London Sort Code: 20-36-47 SWIFT: BARCGB22 Account Name: AOL Time Warner Inc. Account Number: - -------------------------------------------------------------------------------- AOL TIME WARNER FINANCE IRELAND - -------------------------------------------------------------------------------- Currency: Dollar Bank: Citibank N.A. New York SWIFT: CITIUS33 Account Name: Citibank N.A. Dublin (CITIIE2X) Account Number: For further credit to AOL Time Warner Finance Ireland account number - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Currency: Euro Bank: Citibank N.A., Dublin SWIFT: CITIIEZX Account Name: AOL Time Warner Finance Ireland Account Number: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Currency: Pounds Bank: Citibank N.A. London Sort Code: 18-50-08 SWIFT: CITGB2L Account Name: Citibank N.A. Dublin (CITIIE2X) Account Number: For further credit to AOL Time Warner Finance Ireland account number - -------------------------------------------------------------------------------- SCHEDULE 6.08 UNRESTRICTED SUBSIDIARIES 1. AOL Canada, Inc. 2. AP Financing, Inc. 3. Astronaut Financing, Inc. 4. Atlanta Hawks, L. P. 5. Blade Financing, Inc. 6. Blast Financing, Inc. 7. Corruptor Financing, Inc. 8. DRC Financing, Inc. 9. Frequency Financing, Inc. 10. Invisible Financing, Inc. 11. LIS Financing, Inc. 12. LN Financing, Inc. 13. LOR Financing, Inc. 14. LS Financing, Inc. 15. Magnolia Avenue Financing, Inc. 16. NL Receivables LLC 17. Pleasantville Financing, Inc. 18. POG Financing, Inc. 19. Rush Hour Financing, Inc. 20. TAC Financing, Inc. 21. TBS Funding Corp. 22. Time Receivables Company LLC 23. TWE-NL Receivables LLC 24. TWE Receivable Trust I 25. TW Receivables, Inc. 26. Turner Arena Operations, Inc. 27. WAG Financing, Inc. 28. TWEAN Subsidiary, LLC SCHEDULE 8 LIST OF PROPER PERSONS
Name Title ---- ----- Wayne H. Pace Exec. Vice President and CFO Raymond G. Murphy Vice President and Treasurer Edward B. Ruggiero Vice President - Corporate Finance Matt Siegel Asst. Treasurer Eric Schott* Asst. Treasurer
- ------------------- * The Administrative Agent may act upon Mr. Schott's verbal instructions which will be followed by written confirmation from one of the other above named officers. EXHIBIT A FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the 364-Day Credit Agreement, dated as of July 7, 2003 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among AOL Time Warner Inc., AOL Time Warner Finance Ireland, the Lenders party thereto, Bank of America, N.A. and Citibank, N.A., as co-syndication agents, ABN AMRO Bank N.V. and BNP Paribas, as co-documentation agents, and JPMorgan Chase Bank, as administrative agent (in such capacity, the "Administrative Agent"). Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. The Assignor identified on Schedule 1 hereto (the "Assignor") and the Assignee identified on Schedule 1 hereto (the "Assignee") agree as follows: 1. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below), the interest described in Schedule 1 hereto (the "Assigned Interest") in and to the Assignor's rights and obligations under the Credit Agreement with respect to the amount set forth on Schedule 1 hereto for the Commitments and Revolving Credit Exposure of the Assignor on the Effective Date of this Assignment and Acceptance. 2. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Credit Document or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim and (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any of the Borrowers, any of their Affiliates or any other obligor or the performance or observance by any of the Borrowers, any of their Affiliates or any other obligor of any of their respective obligations under the Credit Agreement or any other Credit Documents or any other instrument or document furnished pursuant hereto or thereto. 3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements delivered pursuant to Section 3.04 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor, the Administrative Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and other Credit Documents or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes the Administrative Agent to take such action as agent on its 2 behalf and to exercise such powers and discretion under the Credit Agreement and other Credit Documents or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender. 4. The effective date of this Assignment and Acceptance shall be the Effective Date of Assignment described in Schedule 1 hereto (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance by it and recording by the Administrative Agent pursuant to the Credit Agreement, effective as of the Effective Date (which shall not, unless otherwise agreed to by the Administrative Agent, be earlier than five Business Days after the date of such acceptance and recording by the Administrative Agent). 5. Upon such acceptance and recording, from and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to the Effective Date and to the Assignee for amounts which have accrued subsequent to the Effective Date. 6. From and after the Effective Date, (a) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and under the other Credit Documents and shall be bound by the provisions thereof and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 7. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto. Schedule 1 to Assignment and Acceptance with respect to the 364-Day Credit Agreement, dated as of July __, 2003, among AOL Time Warner Inc., AOL Time Warner Finance Ireland, the Lenders party thereto, Bank of America, N.A., and Citibank, N.A., as co-syndication agents, ABN AMRO Bank N.V. and BNP Paribas, as co-documentation agents, and JPMorgan Chase Bank, as administrative agent (in such capacity, the "Administrative Agent") Name of Assignor: _______________________ Name of Assignee: _______________________ Effective Date of Assignment: _________________ Amount of Commitments and Revolving Credit Exposure Assigned $__________ [Name of Assignee] [Name of Assignor] By:______________________________ By:______________________________ Title: Title: Accepted for Recordation in the Register: Required Consents (if any): JPMORGAN CHASE BANK, as [AOL TIME WARNER INC. Administrative Agent By:______________________________ By:______________________________ Title: Title:] 2 [___________________________, as Swingline Lender By:______________________________ Title:] [___________________________, as Issuing Bank By:______________________________ Title:] EXHIBIT B FORM OF GUARANTEE GUARANTEE, dated as of July 7, 2003, made by AOL TIME WARNER INC., a Delaware corporation ("AOLTW"), AMERICA ONLINE, INC., a Delaware corporation ("AOL"), TIME WARNER INC., a Delaware Corporation ("Time Warner"), TURNER BROADCASTING SYSTEM, INC., a Georgia corporation ("TBS"), and TIME WARNER COMPANIES, INC., a Delaware corporation ("TWCI") (each, a "Guarantor", and collectively, the "Guarantors"), in favor of JPMORGAN CHASE BANK, as administrative agent (in such capacity, the "Administrative Agent") for the lenders (the "Lenders") parties to the 364-Day Credit Agreement, dated as of July __, 2003 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among AOLTW, AOL TIME WARNER FINANCE IRELAND ("AOLTWFI"), the Lenders, BANK OF AMERICA, N.A. and CITIBANK, N.A., as co-syndication agents (in such capacity, the "Co-Syndication Agents"), ABN AMRO BANK N.V. and BNP PARIBAS, as co-documentation agents (in such capacity, the "Co-Documentation Agents") and the Administrative Agent. W I T N E S S E T H: WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans to the Borrowers upon the terms and subject to the conditions set forth therein; WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective Loans to the Borrowers under the Credit Agreement that the Guarantors shall have executed and delivered this Guarantee to the Administrative Agent for the ratable benefit of the Lenders; and WHEREAS, each Guarantor is an affiliate of one or more of the Borrowers under the Credit Agreement, and it is to the advantage of each Guarantor that the Lenders make the Loans to the Borrowers under the Credit Agreement. NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective loans to the Borrowers under the Credit Agreement, each Guarantor hereby agrees with the Administrative Agent, for the ratable benefit of the Lenders, as follows: 1. Defined Terms. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. (b) As used herein, "Designated Borrowers" means AOLTW and AOLTWFI. (c) As used herein, "Obligations" means the collective reference to the unpaid principal of and interest on the Loans and all other obligations and liabilities of each Designated Borrower 2 to the Administrative Agent and the Lenders (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to either one or both of the Designated Borrowers whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement or any other Credit Document, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by either one or both of the Designated Borrowers pursuant to the terms of the Credit Agreement or any other Credit Document). (d) [Intentionally left blank]. (e) As used herein, "Time Warner Obligations" has the meaning assigned to such term in Section 2(c) of this Guarantee. (f) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and section and paragraph references are to this Guarantee unless otherwise specified. (g) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. Guarantees. (a) Each of AOL and Time Warner hereby, jointly and everally, unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Designated Borrowers when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations. (b) AOLTW hereby, jointly and severally, unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by AOLTWFI when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations of AOLTWFI. (c) Each of TBS and TWCI hereby, jointly and severally, unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by Time Warner when due (whether at the stated maturity, by acceleration or otherwise) of its obligations and liabilities under this Guarantee (the "Time Warner Obligations") including under Section 2(a) hereof. 3 (d) This Guarantee shall remain in full force and effect until the Obligations are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto either one or both of the Designated Borrowers may be free from any Obligations. (e) Each Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to the Administrative Agent or any Lender on account of its liability hereunder, it will notify the Administrative Agent and such Lender in writing that such payment is made under this Guarantee for such purpose. (f) Anything herein or in any other Credit Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Credit Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 3 hereof). (g) No payment or payments made by either of the Designated Borrowers, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from either of the Designated Borrowers, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any setoff or appropriation or payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder who shall, notwithstanding any such payment or payments (other than payments made by such Guarantor in respect of the Obligations or payments received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations and, in the case of TBS and TWCI, the Time Warner Obligations, up to the maximum liability of such Guarantor hereunder until the Obligations are paid in full and the Commitments are terminated. 3. Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder who has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 5 hereof. The provisions of this Section shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the Lenders, and each Guarantor shall remain liable to the Administrative Agent and the Lenders for the full amount guaranteed by such Guarantor hereunder. 4. Right of Setoff. (a) Each of AOL and Time Warner hereby authorizes each Lender at any time and from time to time when any amounts owed by either one or both of the Designated Borrowers under the Credit Agreement are due and payable and have not been paid (taking into account any applicable grace periods), to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final), at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of either AOL or Time Warner (other than indebtedness related to commercial advertising and marketing arrangements entered into in the ordinary course of business) against any of and all of the obligations of AOL or Time Warner, as applicable, to such Lender hereunder now or hereafter existing under the Credit Agreement or any other Credit Document whether or not such 4 Lender has made any demand for payment. Each Lender shall notify AOL and/or Time Warner, as the case may be, promptly of any such setoff and the application made by such Lender of the proceeds thereof; provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this paragraph are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. (b) AOLTW hereby authorizes each Lender at any time and from time to time when any amounts owed by AOLTWFI under the Credit Agreement are due and payable and have not been paid (taking into account any applicable grace periods), to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final), at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of AOLTW (other than indebtedness related to commercial advertising and marketing arrangements entered into in the ordinary course of business) against any of and all of the obligations of AOLTW to such Lender hereunder now or hereafter existing under the Credit Agreement or any other Credit Document whether or not such Lender has made any demand for payment. Each Lender shall notify AOLTW promptly of any such setoff and the application made by such Lender of the proceeds thereof; provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this paragraph are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. (c) Each of TBS and TWCI hereby authorizes each Lender at any time and from time to time when any amounts owed by Time Warner under this Guarantee are due and payable and have not been paid (taking into account any applicable grace periods), to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final), at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of either TBS or TWCI (other than indebtedness related to commercial advertising and marketing arrangements entered into in the ordinary course of business) against any of and all of the obligations of TBS or TWCI, as applicable, to such Lender hereunder now or hereafter existing under the Credit Agreement or any other Credit Document whether or not such Lender has made any demand for payment. Each Lender shall notify TBS and/or TWCI, as the case may be, promptly of any such setoff and the application made by such Lender of the proceeds thereof; provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this paragraph are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. 5. No Subrogation. Notwithstanding any payment or payments made by any Guarantor hereunder, or any setoff or application of funds of any Guarantor by any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against either one or both of the Designated Borrowers or against any collateral security or guarantee or right of offset held by the Administrative Agent or any Lender for the payment of the Obligations or the Time Warner Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from either one or both of the Designated Borrowers in respect of payments made by such Guarantor hereunder, until all amounts owing to the Administrative Agent and the Lenders by the Borrowers on account of the Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to any Guarantor on 5 account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. 6. Amendments, etc. with Respect to the Obligations; Waiver of Rights. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor, and without notice to or further assent by any Guarantor, (a) any demand for payment of any of the Obligations and any of the Time Warner Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such Lender, and any of the Obligations and any of the Time Warner Obligations continued, (b) the Obligations and/or the Time Warner Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, (c) the Credit Agreement and any other Credit Document may be amended, modified, supplemented or terminated, in whole or in part, and (d) any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any Lender for the payment of the Obligations and/or the Time Warner Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Guarantee or any property subject thereto. 7. Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and/or any of the Time Warner Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon this Guarantee or acceptance of this Guarantee; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Guarantee; and all dealings between either one or both of the Designated Borrowers or any of the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guarantee. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon either one or both of the Designated Borrowers or any Guarantor with respect to the Obligations or the Time Warner Obligations. This Guarantee shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity, regularity or enforceability of the Credit Agreement or any other Credit Document, any of the Obligations or the Time Warner Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender, (b) any defense, setoff or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by either one or both of the Designated Borrowers or any other Person against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of either one or both of the Designated Borrowers or any Guarantor) which constitutes, or might be construed to constitute, 6 an equitable or legal discharge of either one or both of the Designated Borrowers from the Obligations or of Time Warner from the Time Warner Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any other instance. When making a demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Administrative Agent and any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against either Designated Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or the Time Warner Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from either Designated Borrower, any such other Guarantor or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of either Designated Borrower, any such other Guarantor or any such other Person or of any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any Lender against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 8. Reinstatement. This Guarantee shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations or any of the Time Warner Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of either one or both of the Designated Borrowers or Time Warner or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, either one or both of the Designated Borrowers or Time Warner or any substantial part of either Designated Borrower's or Time Warner's property, or otherwise, all as though such payments had not been made. 9. Payments. Each Guarantor hereby agrees that payments hereunder will be paid to the Administrative Agent without setoff or counterclaim in the applicable Currency at the office of the Administrative Agent located at One Chase Manhattan Plaza, New York, New York 10081 or to such other office as designated by the Administrative Agent. 10. Representations and Warranties. To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrowers thereunder, each Guarantor hereby represents and warrants to the Administrative Agent and each Lender that the representations and warranties set forth in Article III of the Credit Agreement (other than those set forth in Sections 3.04(c), 3.06 and 3.10 on any date other than the Effective Date) as they relate to such Guarantor or to the Credit Documents to which such Guarantor is a party, each of which is hereby incorporated herein by reference, are true and correct, and the Administrative Agent and each Lender shall be entitled to rely on each of them as if they were fully set forth herein (it being understood that any representation or warranty set forth in Article III of the Credit Agreement that is qualified by a reference to a certain Borrower thereunder and its Subsidiaries taken as a whole shall not be deemed to apply to the Guarantor individually). 7 The Guarantors agree that the foregoing representation and warranty shall be deemed to have been made by each Guarantor and shall be true and correct in all material respects on the date of each borrowing by a Borrower under the Credit Agreement on and as of such date of borrowing as though made hereunder on and as of such date. 11. Authority of Administrative Agent. Each Guarantor acknowledges that the rights and responsibilities of the Administrative Agent under this Guarantee with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guarantee shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and any or all of the Guarantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and no Guarantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. 12. Notices. All notices, requests and demands to or upon the Administrative Agent, any Lender or any Guarantor shall be effected in the manner provided in Section 9.01 of the Credit Agreement; any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 1 hereto. 13. Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 14. Integration. This Guarantee and the other Credit Documents represent the agreement of each Guarantor with respect to the subject matter hereof and there are no promises or representations by the Guarantor, the Administrative Agent or any Lender relative to the subject matter hereof not reflected herein or in the other Credit Documents. 15. Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the applicable Guarantor and the Administrative Agent, provided that any right, power or privilege of the Administrative Agent or the Lenders arising under this Guarantee may be waived by the Administrative Agent and the Lenders in a letter or agreement executed by the Administrative Agent; provided, further, that no such amendment or waiver shall release any material Guarantor from its obligations hereunder without the written consent of each Lender. 16. No Waiver; Cumulative Remedies. Neither the Administrative Agent nor any Lender shall by any act (except by a written instrument pursuant to paragraph 15 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall 8 preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 17. Section Headings. The section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 18. Successors and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Administrative Agent and the Lenders and their successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Administrative Agent. 19. Enforcement Expenses. Each Guarantor agrees, jointly and severally, to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in collecting against such Guarantor under this Guarantee or otherwise enforcing or protecting any rights under this Guarantee and the other Credit Documents to which such Guarantor is a party, including, without limitation, the fees and disbursements of counsel to each Lender and of counsel to the Administrative Agent. 20. Counterparts. This Guarantee may be executed by one or more of the Guarantors on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 21. Acknowledgements. Each Guarantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Guarantee; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any other Credit Document, and the relationship between any or all of the Guarantors, on the one hand, and the Administrative Agent and Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Credit Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Guarantors and the Lenders. 22. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 9 23. Jurisdiction; Consent to Service of Process. (a) Each Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Guarantee, or for recognition or enforcement of any judgment, and each Guarantor hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding shall be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Each Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Guarantee in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each Guarantor irrevocably consents to service of process in the manner provided for notices in paragraph 12 of this Guarantee. Nothing in this Guarantee will affect the right of any party to this Guarantee to serve process in any other manner permitted by law. 24. WAIVER OF JURY TRIAL. EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 10 IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly executed and delivered by its duly authorized officer as of the day and year first above written. AOL TIME WARNER INC. By: __________________________________ Name: Title: AMERICA ONLINE, INC. By: __________________________________ Name: Title: TIME WARNER INC. By: __________________________________ Name: Title: TURNER BROADCASTING SYSTEM, INC. By: __________________________________ Name: Title: TIME WARNER COMPANIES, INC. By: __________________________________ Name: Title: Schedule I to Guarantee Address for Notices AOL TIME WARNER 75 Rockefeller Plaza New York, NY 10019 Attention: Chief Financial Officer Facsimile No. 212-405-5213 Attention: General Counsel Facsimile No. 212-258-3020 AMERICA ONLINE, INC. 2200 AOL Way Dulles, VA 20166 Attention: Chief Financial Officer Facsimile No. 703-265-6481 Attention: General Counsel Facsimile No. 703-265-3992 TIME WARNER INC. 75 Rockefeller Plaza New York, NY 10019 Attention: Treasurer Facsimile No. 212-258-3020 Attention: General Counsel Facsimile No. 212-258-3172 TURNER BROADCASTING SYSTEM, INC. 1 CNN Center Atlanta, GA 30348 Attention: Chief Financial Officer Facsimile No. 404-827-4069 Attention: General Counsel Facsimile No. 404-827-2381 TIME WARNER COMPANIES, INC. 75 Rockefeller Plaza New York, NY 10019 Attention: Treasurer Facsimile No. 212-258-3020 Attention: General Counsel Facsimile No. 212-258-3172 GUARANTEE GUARANTEE, dated as of July 7, 2003, made by AOL TIME WARNER INC., a Delaware corporation ("AOLTW"), AMERICA ONLINE, INC., a Delaware corporation ("AOL"), TIME WARNER INC., a Delaware Corporation ("Time Warner"), TURNER BROADCASTING SYSTEM, INC., a Georgia corporation ("TBS"), and TIME WARNER COMPANIES, INC., a Delaware corporation ("TWCI") (each, a "Guarantor", and collectively, the "Guarantors"), in favor of JPMORGAN CHASE BANK, as administrative agent (in such capacity, the "Administrative Agent") for the lenders (the "Lenders") parties to the 364-Day Credit Agreement, dated as of July __, 2003 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among AOLTW, AOL TIME WARNER FINANCE IRELAND ("AOLTWFI"), the Lenders, BANK OF AMERICA, N.A. and CITIBANK, N.A., as co-syndication agents (in such capacity, the "Co-Syndication Agents"), ABN AMRO BANK N.V. and BNP PARIBAS, as co-documentation agents (in such capacity, the "Co-Documentation Agents") and the Administrative Agent. W I T N E S S E T H: WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans to the Borrowers upon the terms and subject to the conditions set forth therein; WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective Loans to the Borrowers under the Credit Agreement that the Guarantors shall have executed and delivered this Guarantee to the Administrative Agent for the ratable benefit of the Lenders; and WHEREAS, each Guarantor is an affiliate of one or more of the Borrowers under the Credit Agreement, and it is to the advantage of each Guarantor that the Lenders make the Loans to the Borrowers under the Credit Agreement. NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective loans to the Borrowers under the Credit Agreement, each Guarantor hereby agrees with the Administrative Agent, for the ratable benefit of the Lenders, as follows: 1. Defined Terms. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. (b) As used herein, "Designated Borrowers" means AOLTW and AOLTWFI. (c) As used herein, "Obligations" means the collective reference to the unpaid principal of and interest on the Loans and all other obligations and liabilities of each Designated Borrower to the Administrative Agent and the Lenders (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and 2 interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to either one or both of the Designated Borrowers whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement or any other Credit Document, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by either one or both of the Designated Borrowers pursuant to the terms of the Credit Agreement or any other Credit Document). (d) [Intentionally left blank]. (e) As used herein, "Time Warner Obligations" has the meaning assigned to such term in Section 2(c) of this Guarantee. (f) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and section and paragraph references are to this Guarantee unless otherwise specified. (g) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. Guarantees. (a) Each of AOL and Time Warner hereby, jointly and severally, unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Designated Borrowers when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations. (b) AOLTW hereby, jointly and severally, unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by AOLTWFI when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations of AOLTWFI. (c) Each of TBS and TWCI hereby, jointly and severally, unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by Time Warner when due (whether at the stated maturity, by acceleration or otherwise) of its obligations and liabilities under this Guarantee (the "Time Warner Obligations") including under Section 2(a) hereof. (d) This Guarantee shall remain in full force and effect until the Obligations are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto either one or both of the Designated Borrowers may be free from any Obligations. 3 (e) Each Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to the Administrative Agent or any Lender on account of its liability hereunder, it will notify the Administrative Agent and such Lender in writing that such payment is made under this Guarantee for such purpose. (f) Anything herein or in any other Credit Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Credit Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 3 hereof). (g) No payment or payments made by either of the Designated Borrowers, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from either of the Designated Borrowers, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any setoff or appropriation or payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder who shall, notwithstanding any such payment or payments (other than payments made by such Guarantor in respect of the Obligations or payments received or collected from such Guarantor in respect of the Obligations), remain liable for the Obligations and, in the case of TBS and TWCI, the Time Warner Obligations, up to the maximum liability of such Guarantor hereunder until the Obligations are paid in full and the Commitments are terminated. 3. Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder who has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 5 hereof. The provisions of this Section shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the Lenders, and each Guarantor shall remain liable to the Administrative Agent and the Lenders for the full amount guaranteed by such Guarantor hereunder. 4. Right of Setoff. (a) Each of AOL and Time Warner hereby authorizes each Lender at any time and from time to time when any amounts owed by either one or both of the Designated Borrowers under the Credit Agreement are due and payable and have not been paid (taking into account any applicable grace periods), to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final), at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of either AOL or Time Warner (other than indebtedness related to commercial advertising and marketing arrangements entered into in the ordinary course of business) against any of and all of the obligations of AOL or Time Warner, as applicable, to such Lender hereunder now or hereafter existing under the Credit Agreement or any other Credit Document whether or not such Lender has made any demand for payment. Each Lender shall notify AOL and/or Time Warner, as the case may be, promptly of any such setoff and the application made by such Lender of the proceeds thereof; provided that the failure to give such notice shall not affect the validity of such 4 setoff and application. The rights of each Lender under this paragraph are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. (b) AOLTW hereby authorizes each Lender at any time and from time to time when any amounts owed by AOLTWFI under the Credit Agreement are due and payable and have not been paid (taking into account any applicable grace periods), to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final), at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of AOLTW (other than indebtedness related to commercial advertising and marketing arrangements entered into in the ordinary course of business) against any of and all of the obligations of AOLTW to such Lender hereunder now or hereafter existing under the Credit Agreement or any other Credit Document whether or not such Lender has made any demand for payment. Each Lender shall notify AOLTW promptly of any such setoff and the application made by such Lender of the proceeds thereof; provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this paragraph are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. (c) Each of TBS and TWCI hereby authorizes each Lender at any time and from time to time when any amounts owed by Time Warner under this Guarantee are due and payable and have not been paid (taking into account any applicable grace periods), to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final), at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of either TBS or TWCI (other than indebtedness related to commercial advertising and marketing arrangements entered into in the ordinary course of business) against any of and all of the obligations of TBS or TWCI, as applicable, to such Lender hereunder now or hereafter existing under the Credit Agreement or any other Credit Document whether or not such Lender has made any demand for payment. Each Lender shall notify TBS and/or TWCI, as the case may be, promptly of any such setoff and the application made by such Lender of the proceeds thereof; provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this paragraph are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. 5. No Subrogation. Notwithstanding any payment or payments made by any Guarantor hereunder, or any setoff or application of funds of any Guarantor by any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against either one or both of the Designated Borrowers or against any collateral security or guarantee or right of offset held by the Administrative Agent or any Lender for the payment of the Obligations or the Time Warner Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from either one or both of the Designated Borrowers in respect of payments made by such Guarantor hereunder, until all amounts owing to the Administrative Agent and the Lenders by the Borrowers on account of the Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon 5 receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. 6. Amendments, etc. with Respect to the Obligations; Waiver of Rights. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor, and without notice to or further assent by any Guarantor, (a) any demand for payment of any of the Obligations and any of the Time Warner Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such Lender, and any of the Obligations and any of the Time Warner Obligations continued, (b) the Obligations and/or the Time Warner Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, (c) the Credit Agreement and any other Credit Document may be amended, modified, supplemented or terminated, in whole or in part, and (d) any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any Lender for the payment of the Obligations and/or the Time Warner Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Guarantee or any property subject thereto. 7. Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and/or any of the Time Warner Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon this Guarantee or acceptance of this Guarantee; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Guarantee; and all dealings between either one or both of the Designated Borrowers or any of the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guarantee. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon either one or both of the Designated Borrowers or any Guarantor with respect to the Obligations or the Time Warner Obligations. This Guarantee shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity, regularity or enforceability of the Credit Agreement or any other Credit Document, any of the Obligations or the Time Warner Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender, (b) any defense, setoff or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by either one or both of the Designated Borrowers or any other Person against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of either one or both of the Designated Borrowers or any Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of either one or both of the Designated Borrowers from the Obligations or of Time Warner from the Time Warner Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any other instance. When making a demand hereunder or 6 otherwise pursuing its rights and remedies hereunder against any Guarantor, the Administrative Agent and any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against either Designated Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Obligations or the Time Warner Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from either Designated Borrower, any such other Guarantor or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of either Designated Borrower, any such other Guarantor or any such other Person or of any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any Lender against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 8. Reinstatement. This Guarantee shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations or any of the Time Warner Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of either one or both of the Designated Borrowers or Time Warner or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, either one or both of the Designated Borrowers or Time Warner or any substantial part of either Designated Borrower's or Time Warner's property, or otherwise, all as though such payments had not been made. 9. Payments. Each Guarantor hereby agrees that payments hereunder will be paid to the Administrative Agent without setoff or counterclaim in the applicable Currency at the office of the Administrative Agent located at One Chase Manhattan Plaza, New York, New York 10081 or to such other office as designated by the Administrative Agent. 10. Representations and Warranties. To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrowers thereunder, each Guarantor hereby represents and warrants to the Administrative Agent and each Lender that the representations and warranties set forth in Article III of the Credit Agreement (other than those set forth in Sections 3.04(c), 3.06 and 3.10 on any date other than the Effective Date) as they relate to such Guarantor or to the Credit Documents to which such Guarantor is a party, each of which is hereby incorporated herein by reference, are true and correct, and the Administrative Agent and each Lender shall be entitled to rely on each of them as if they were fully set forth herein (it being understood that any representation or warranty set forth in Article III of the Credit Agreement that is qualified by a reference to a certain Borrower thereunder and its Subsidiaries taken as a whole shall not be deemed to apply to the Guarantor individually). The Guarantors agree that the foregoing representation and warranty shall be deemed to have been made by each Guarantor and shall be true and correct in all material respects on the date of each borrowing by a Borrower under the Credit Agreement on and as of such date of borrowing as though made hereunder on and as of such date. 7 11. Authority of Administrative Agent. Each Guarantor acknowledges that the rights and responsibilities of the Administrative Agent under this Guarantee with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guarantee shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and any or all of the Guarantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and no Guarantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. 12. Notices. All notices, requests and demands to or upon the Administrative Agent, any Lender or any Guarantor shall be effected in the manner provided in Section 9.01 of the Credit Agreement; any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 1 hereto. 13. Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 14. Integration. This Guarantee and the other Credit Documents represent the agreement of each Guarantor with respect to the subject matter hereof and there are no promises or representations by the Guarantor, the Administrative Agent or any Lender relative to the subject matter hereof not reflected herein or in the other Credit Documents. 15. Amendments in Writing. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the applicable Guarantor and the Administrative Agent, provided that any right, power or privilege of the Administrative Agent or the Lenders arising under this Guarantee may be waived by the Administrative Agent and the Lenders in a letter or agreement executed by the Administrative Agent; provided, further, that no such amendment or waiver shall release any material Guarantor from its obligations hereunder without the written consent of each Lender. 16. No Waiver; Cumulative Remedies. Neither the Administrative Agent nor any Lender shall by any act (except by a written instrument pursuant to paragraph 15 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Lender would otherwise have on any future occasion. The rights 8 and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 17. Section Headings. The section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 18. Successors and Assigns. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Administrative Agent and the Lenders and their successors and assigns; provided that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Guarantee without the prior written consent of the Administrative Agent. 19. Enforcement Expenses. Each Guarantor agrees, jointly and severally, to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in collecting against such Guarantor under this Guarantee or otherwise enforcing or protecting any rights under this Guarantee and the other Credit Documents to which such Guarantor is a party, including, without limitation, the fees and disbursements of counsel to each Lender and of counsel to the Administrative Agent. 20. Counterparts. This Guarantee may be executed by one or more of the Guarantors on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 21. Acknowledgements. Each Guarantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Guarantee; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Guarantee or any other Credit Document, and the relationship between any or all of the Guarantors, on the one hand, and the Administrative Agent and Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Credit Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Guarantors and the Lenders. 22. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 23. Jurisdiction; Consent to Service of Process. (a) Each Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States 9 District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Guarantee, or for recognition or enforcement of any judgment, and each Guarantor hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding shall be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Each Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Guarantee in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each Guarantor irrevocably consents to service of process in the manner provided for notices in paragraph 12 of this Guarantee. Nothing in this Guarantee will affect the right of any party to this Guarantee to serve process in any other manner permitted by law. 24. WAIVER OF JURY TRIAL. EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 10 IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly executed and delivered by its duly authorized officer as of the day and year first above written. AOL TIME WARNER INC. By: __________________________________ Name: Title: AMERICA ONLINE, INC. By: __________________________________ Name: Title: TIME WARNER INC. By: __________________________________ Name: Title: TURNER BROADCASTING SYSTEM, INC. By: __________________________________ Name: Title: TIME WARNER COMPANIES, INC. By: __________________________________ Name: Title: Schedule I to Guarantee Address for Notices AOL TIME WARNER 75 Rockefeller Plaza New York, NY 10019 Attention: Chief Financial Officer Facsimile No. 212-405-5213 Attention: General Counsel Facsimile No. 212-258-3020 AMERICA ONLINE, INC. 2200 AOL Way Dulles, VA 20166 Attention: Chief Financial Officer Facsimile No. 703-265-6481 Attention: General Counsel Facsimile No. 703-265-3992 TIME WARNER INC. 75 Rockefeller Plaza New York, NY 10019 Attention: Treasurer Facsimile No. 212-258-3020 Attention: General Counsel Facsimile No. 212-258-3172 TURNER BROADCASTING SYSTEM, INC. 1 CNN Center Atlanta, GA 30348 Attention: Chief Financial Officer Facsimile No. 404-827-4069 Attention: General Counsel Facsimile No. 404-827-2381 TIME WARNER COMPANIES, INC. 75 Rockefeller Plaza New York, NY 10019 Attention: Treasurer Facsimile No. 212-258-3020 Attention: General Counsel Facsimile No. 212-258-3172 EX-31.1 6 g83815exv31w1.txt EX-31.1 302 CERTIFICATION OF CEO EXHIBIT 31.1 CERTIFICATIONS I, Richard D. Parsons, certify that: 1. I have reviewed this quarterly report on Form 10-Q of AOL Time Warner Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and (c) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 By: /s/ Richard D. Parsons ----------------------- Name: Richard D. Parsons Title: Chief Executive Officer AOL Time Warner Inc. EX-31.2 7 g83815exv31w2.txt EX-31.2 302 CERTIFICATION OF CFO EXHIBIT 31.2 CERTIFICATIONS I, Wayne H. Pace, certify that: 1. I have reviewed this quarterly report on Form 10-Q of AOL Time Warner Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and (c) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 By: /s/ Wayne H. Pace ----------------------- Name: Wayne H. Pace Title: Chief Financial Officer AOL Time Warner Inc. EX-32 8 g83815exv32.txt EX-32 906 CERTIFICATION OF CEO AND CFO EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q (the "Form 10-Q") of AOL Time Warner Inc., a Delaware corporation (the "Company"), for the quarter ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his respective knowledge: 1. the Report fully complies, in all material respects, with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 13, 2003 /s/ Richard D. Parsons --------------------------------------- Richard D. Parsons Chief Executive Officer AOL Time Warner Inc. Dated: August 13, 2003 /s/ Wayne H. Pace --------------------------------------- Wayne H. Pace Chief Financial Officer AOL Time Warner Inc. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certificate accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and will not be deemed "filed" by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. This certificate will not be deemed to be incorporated by reference into any filing, except to the extent that the Company specifically incorporates it by reference. -----END PRIVACY-ENHANCED MESSAGE-----


Delaware		13-4099534
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)


	Shares Outstanding
Description of Class	as of July 31, 2003

Common Stock — $.01 par value		4,341,600,188
Series LMCN-V Common Stock — $.01 par value		171,185,826


		Page

PART I. FINANCIAL INFORMATION
	Management’s discussion and analysis of results of operations and financial condition		3
	Item 4. Controls and Procedures		33
	Consolidated balance sheet at June 30, 2003 and December 31, 2002		35
	Consolidated statement of operations for the three and six months ended June 30, 2003 and 2002		36
	Consolidated statement of cash flows for the six months ended June 30, 2003 and 2002		37
	Consolidated statement of shareholders’ equity		38
	Notes to consolidated financial statements		39
	Supplementary information		64

PART II. OTHER INFORMATION
Item 1. Legal Proceedings			72
Item 4. Submission of Matters to a Vote of Security Holders			76
Item 6. Exhibits and Reports on Form 8-K			77


	Three Months Ended						Six Months Ended

	6/30/03			6/30/02			6/30/03			6/30/02

	(millions)						(millions)
Merger and restructuring costs	$	(12	)	$	—		$	(36	)	$	(107	)
Impairment of intangible assets		(277	)		—			(277	)		—
Gain on disposal of assets		43			—			43			—

Impact on Operating Income		(246	)		—			(270	)		(107	)

Microsoft Settlement		760			—			760			—
Investment gains		542			90			651			90
Impairment of investments		(151	)		(364	)		(174	)		(945	)

Impact on other income (expense), net		1,151			(274	)		1,237			(855	)

Pretax impact		905			(274	)		967			(962	)
Income tax impact		(381	)		110			(406	)		385

After-tax impact	$	524		$	(164	)	$	561		$	(577	)


		Three Months Ended									Six Months Ended

		6/30/03			6/30/02			% Change			6/30/03			6/30/02			% Change

					(millions)									(millions)
Revenues:
	Subscription	$	1,805		$	1,591			13	%	$	3,545		$	3,121			14	%
	Advertising		118			171			(31	)%		220			324			(32	)%

Total revenues		$	1,923		$	1,762			9	%	$	3,765		$	3,445			9	%

Operating Income before Depreciation and Amortization		$	752		$	675			11	%	$	1,443		$	1,327			9	%
Depreciation			(349	)		(295	)		18	%		(679	)		(569	)		19	%
Amortization			(2	)		(2	)		—			(4	)		(2	)		100	%

Operating Income		$	401		$	378			6	%	$	760		$	756			1	%


X		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 for the quarterly period ended June 30, 2003 or

		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 for the transition period from to .


Net debt at December 31, 2002	$	25,779
Debt assumed in the TWE Restructuring		2,100
Debt incurred to repurchase preferred securities of a subsidiary		813
Free Cash Flow		(2,465	)
Proceeds related to sale of Comedy Central		(1,225	)
Proceeds related to sale of Hughes		(783	)
All other		24

Net debt at June 30, 2003^(a)	$	24,243


(a)		Included in the net debt balance is approximately $380 million representing the net fair value adjustment recognized as a result of the America Online-Time Warner merger.


	June 30, 2003		December 31, 2002

	(in millions)
Net receivables	$	75	$	194
Inventory		63		61
Other current assets		21		12
Property, plant and equipment, net		373		374
Other assets		4		—

Total assets	$	536	$	641

Current liabilities	$	176	$	225
Non-current liabilities		9		10

Total liabilities	$	185	$	235


	Employee			Other
	Termination			Exit Costs			Total

Initial Accruals	$	880		$	460		$	1,340
Cash paid – 2001		(300	)		(165	)		(465	)

Restructuring liability as of December 31, 2001		580			295			875
Cash paid – 2002		(244	)		(122	)		(366	)
Non-cash reductions^(a) – 2002		(154	)		(44	)		(198	)

Restructuring liability as of December 31, 2002		182			129			311
Cash paid – 2003		(57	)		(21	)		(78	)

Restructuring liability as of June 30, 2003	$	125		$	108		$	233


	Employee			Other
	Terminations			Exit Costs			Total

Initial Accruals	$	153		$	97		$	250
Cash paid – 2001		(107	)		(38	)		(145	)

Remaining liability as of December 31, 2001		46			59			105
Cash paid – 2002		(25	)		(54	)		(79	)
Non-cash reductions – 2002		(12	)		—			(12	)

Remaining liability as of December 31, 2002		9			5			14
Cash paid – 2003		—			(5	)		(5	)

Remaining liability as of June 30, 2003	$	9		$	—		$	9


Fair value of tangible net assets acquired	$	2,337
Intangible assets subject to amortization		420
Intangible assets not subject to amortization		880
Goodwill		683
Investment		313
Fixed assets		20

(a)		Does not include $3.464 billion and $3.168 billion of acquired film library costs as of June 30, 2003 and December 31, 2002, respectively which are included in intangible assets subject to amortization on the accompanying consolidated balance sheet.

(b)		Current inventory as of June 30, 2003 and December 31, 2002 is comprised of programming inventory at the Networks segment ($1.424 billion and $1.452 billion, respectively), books from the Publishing segment ($234 million and $196 million, respectively), videocassettes, DVDs and compact discs from the Filmed Entertainment and Music segments ($297 million and $232 million, respectively), and general merchandise, primarily at the AOL segment ($9 million and $16 million, respectively).

(a)		Operating Income before depreciation and amortization includes asset gains and losses (including impairment of goodwill and intangible assets) of $43 million for the Filmed Entertainment segment, $(178) million for the Networks segment and $(99) million for the Publishing segment.

(b)		The business segment results have been recasted to include merger and restructuring costs as a component of each business segment’s results. Previously, these amounts were excluded from the business segment results and included as a separate line item.


					Broker
	Votes For		Votes Withheld		Non-Votes

James L. Barksdale		2,874,325,773		766,014,533		0
Stephen F. Bollenbach		3,493,663,401		146,676,905		0
Stephen M. Case		2,857,262,961		783,077,345		0
Frank J. Caufield		3,507,294,382		133,045,924		0
Miles R. Gilburne		2,376,167,368		1,264,172,938		0
Carla A. Hills		3,517,151,736		123,188,570		0
Reuben Mark		3,518,869,229		121,471,077		0
Michael A. Miles		3,503,218,321		137,121,985		0
Kenneth J. Novack		2,973,033,206		667,307,100		0
Richard D. Parsons		3,499,615,521		140,724,785		0
Franklin D. Raines		3,489,958,301		150,382,005		0
R.E. Turner		3,512,348,138		127,992,168		0
Francis T. Vincent, Jr.		3,494,759,938		145,580,368		0


					Broker
Votes For	Votes Against		Abstention		Non-Votes

2,549,904,943		1,059,491,279		29,232,226		0


	AOL TIME WARNER INC. (Registrant)

Date: August 13, 2003		/s/ Wayne H. Pace

		Wayne H. Pace Executive Vice President and Chief Financial Officer