Time Warner Inc. will set aside $3 billion in reserves for shareholder lawsuits over the AOL merger, and in a separate announcement, plaintiff lawyers said that accounting firm Ernst & Young, the company's auditor, has agreed to contribute another $100 million.

Shareholders have claimed they were cheated in the merger by inflated revenues and improper accounting at AOL, while company executives have argued that the burst of the Internet stock bubble led to the change in fortunes.

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